-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DjykrYZ6EQu8UxkpydTr11w2iyLy7qqS11TQLfyGuaf3D2Z6Grgu7X6dWu+OxQoJ K7yz8ApQiB8fe0LxwJZ4xA== 0000912057-96-020208.txt : 19960916 0000912057-96-020208.hdr.sgml : 19960916 ACCESSION NUMBER: 0000912057-96-020208 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 69 FILED AS OF DATE: 19960913 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED AUTO GROUP INC CENTRAL INDEX KEY: 0001019849 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO DEALERS & GASOLINE STATIONS [5500] IRS NUMBER: 223086739 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-09429 FILM NUMBER: 96629509 BUSINESS ADDRESS: STREET 1: 375 PARK AVE STREET 2: 22ND FL CITY: NEW YORK STATE: NY ZIP: 10152 BUSINESS PHONE: 2122233300 MAIL ADDRESS: STREET 1: 375 PARK AVENUE STREET 2: 22ND FL CITY: NEW YORK STATE: NY ZIP: 10152 S-1/A 1 S-1/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 13, 1996 REGISTRATION NO. 333-09429 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ UNITED AUTO GROUP, INC. (Exact name of registrant as specified in its charter) DELAWARE 5511 22-3086739 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or Classification Code Number) Identification organization) No.)
------------------------ 375 PARK AVENUE NEW YORK, NEW YORK 10152 (212) 223-3300 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------------ CARL SPIELVOGEL CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER UNITED AUTO GROUP, INC. 375 PARK AVENUE NEW YORK, NEW YORK 10152 (212) 223-3300 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------ COPIES TO: Laurence D. Weltman, Esq. Gerald S. Tanenbaum, Esq. Willkie Farr & Gallagher Cahill Gordon & Reindel One Citicorp Center 80 Pine Street 153 East 53rd Street New York, New York 10005 New York, New York 10022 (212) 701-3000 (212) 821-8000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. ------------------------ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any State. Prospectus Subject to Completion Dated September 13, 1996 SHARES [UNITED AUTO GROUP LOGO] COMMON STOCK (PAR VALUE $0.0001 PER SHARE) All of the shares of Voting Common Stock, par value $0.0001 per share (the "Common Stock"), offered hereby is being offered by United Auto Group, Inc., a Delaware corporation (the "Company"). Prior to this offering (the "Offering"), there has been no public market for the Common Stock. It is currently anticipated that the initial public offering price will be between $ and $ per share. See "Underwriting" for information relating to the factors to be considered in determining the initial public offering price of the Common Stock. The Company has applied for listing of the Common Stock on the New York Stock Exchange ("NYSE") under the symbol "UAG." SEE "RISK FACTORS" COMMENCING ON PAGE 8 FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - --------------------------------------------------------------------------------
Price to Underwriting Proceeds to Public Discount (1) Company (2) - ------------------------------------------------------------------------------------------------------------ Per Share $ $ $ - ------------------------------------------------------------------------------------------- Total(3) $ $ $ - -------------------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting expenses of the Offering payable by the Company estimated at $ . (3) The Company has granted the Underwriters an option, exercisable within 30 days after the date of this Prospectus, to purchase up to an additional shares of Common Stock on the same terms as set forth above, solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." The shares of Common Stock being offered by this Prospectus are offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to approval of certain legal matters by Cahill Gordon & Reindel, counsel for the Underwriters. It is expected that delivery of the shares of Common Stock offered hereby will be made against payment therefor on or about , 1996 at the offices of J.P. Morgan Securities Inc., 60 Wall Street, New York, New York. J.P. Morgan & Co. Montgomery Securities Smith Barney Inc. , 1996 [Artwork] IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE- COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 No person has been authorized to give any information or to make any representations not contained in this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or any Underwriter. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, the Common Stock in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Company subsequent to the date hereof. Table of Contents
Page Prospectus Summary.............................. 4 Risk Factors.................................... 8 The Company..................................... 14 Use of Proceeds................................. 16 Dividend Policy................................. 16 Capitalization.................................. 17 Dilution........................................ 18 Pro Forma Condensed Consolidated Financial Data........................................ 19 Selected Consolidated Financial Data............ 26 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. 27 Page Business........................................ 35 Management...................................... 49 Certain Relationships and Related Transactions.. 56 Principal Stockholders.......................... 57 Description of Capital Stock.................... 58 Shares Eligible for Future Sale................. 61 Underwriting.................................... 63 Legal Matters................................... 64 Experts......................................... 64 Additional Information.......................... 65 Index to Financial Statements................... F-1
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. The Company intends to furnish stockholders with annual reports containing financial statements audited by its certified public accountants and with quarterly reports containing unaudited financial statements for each of the first three quarters of each fiscal year. This Prospectus includes statistical data regarding the automotive retailing industry. Unless otherwise indicated, such data is taken or derived from information published by the Industry Analysis Division of the National Automobile Dealers Association ("NADA") in its NADA DATA 1995, Crain Communications Inc. in its AUTOMOTIVE NEWS 100-YEAR ALMANAC AND 1996 MARKET DATA BOOK and ADT Automotive, Inc. in its 1996 USED CAR MARKET REPORT or provided to the Company by CNW Marketing Research. No Manufacturer (as defined in this Prospectus) has been involved, directly or indirectly, in the preparation of this Prospectus or in the Offering being made hereby. No Manufacturer has made any statements or representations in connection with the Offering or has provided any information or materials that were used in connection with the Offering, and no Manufacturer has any responsibility for the accuracy or completeness of this Prospectus. 3 Prospectus Summary THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES HEREIN TO THE "COMPANY" OR "UAG" INCLUDE UNITED AUTO GROUP, INC. AND ITS SUBSIDIARIES, AND REFERENCES HEREIN TO "COMMON STOCK" REFERS TO THE COMPANY'S VOTING COMMON STOCK, PAR VALUE $0.0001 PER SHARE. UNLESS OTHERWISE INDICATED, ALL INFORMATION PRESENTED IN THIS PROSPECTUS ASSUMES THAT (I) THE CONTEMPORANEOUS ACQUISITIONS (AS DEFINED HEREIN) HAVE BEEN CONSUMMATED, (II) THE EXCHANGE OF THE MINORITY INTERESTS IN CERTAIN OF THE COMPANY'S SUBSIDIARIES FOR AN AGGREGATE OF SHARES OF COMMON STOCK PLUS CERTAIN OTHER CONSIDERATION (THE "MINORITY EXCHANGE"), ASSUMING AN INITIAL PUBLIC OFFERING PRICE OF $ PER SHARE, HAS BEEN EFFECTED, (III) THE CONVERSION OF THE COMPANY'S CLASS A PREFERRED STOCK INTO COMMON STOCK AT THE RATE OF ONE SHARE OF COMMON STOCK FOR EACH SHARE OF CLASS A PREFERRED STOCK (THE "PREFERRED STOCK CONVERSION") HAS BEEN EFFECTED, (IV) AN AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION RELATING TO THE COMPANY'S CAPITALIZATION HAS BEEN EFFECTED AND (V) THE UNDERWRITERS' OVER-ALLOTMENT OPTION HAS NOT BEEN EXERCISED. THE CLOSINGS OF THE CONTEMPORANEOUS ACQUISITIONS WILL OCCUR CONTEMPORANEOUSLY WITH THE CLOSING OF THE OFFERING AND ARE A CONDITION TO THE CLOSING OF THE OFFERING. IN ADDITION, UNLESS OTHERWISE INDICATED, ALL PRO FORMA FINANCIAL INFORMATION ASSUMES THAT ALL ACQUISITIONS CONSUMMATED SUBSEQUENT TO JANUARY 1, 1995, INCLUDING THE CONTEMPORANEOUS ACQUISITIONS, WERE CONSUMMATED ON JANUARY 1, 1995. The Company UAG is a leading acquirer, consolidator and operator of franchised automobile and light truck dealerships and related businesses. The Company believes that, after giving effect to the Contemporaneous Acquisitions, it will be the fourth largest retailer of new motor vehicles in the United States, operating 37 franchises located in Arizona, Arkansas, Connecticut, Georgia, New Jersey, New York and Tennessee and representing 22 American, Asian and European brands. As an integral part of its dealership operations, UAG sells used vehicles. In addition, the Company has recently established four stand-alone used car retail centers. All of UAG's dealerships include integrated service and parts operations, which are an important source of recurring revenues. The Company also owns Atlantic Auto Finance Corporation ("Atlantic Finance"), an automobile finance company engaged in the purchase, sale and servicing of prime credit quality automobile loans originated by both UAG and third-party dealerships. For 1995, on a pro forma basis, UAG had revenues of approximately $1.35 billion and sold 37,358 new and 22,060 used vehicles. The Company was formed to capitalize on consolidation opportunities within the highly fragmented $660 billion automotive retailing industry. In 1995, approximately 22,000 dealerships representing more than 48,000 franchises sold 14.8 million new vehicles and 15.7 million used vehicles for sales of $290 billion and $180 billion, respectively. Yet, the Company estimates that the largest 100 dealership groups generated less than 10% of these total revenues and control less than 5% of all franchised dealerships. As capital requirements to operate dealerships continue to increase and many owners who were granted franchises in the 1950s and 1960s approach retirement age, many individual dealers are seeking exit opportunities. These conditions present attractive consolidation opportunities for larger automobile retailers such as UAG. Since its initial acquisition in 1992, the Company has completed 13 additional acquisitions, including the Contemporaneous Acquisitions. Management believes that UAG is well-positioned to continue capitalizing on the consolidation trend in the automotive retailing industry due to its proven acquisition history, diverse geographic presence, substantial size and financial resources. The Company believes that it enjoys significant competitive advantages. The Company's diverse product portfolio reduces the risks associated with changes in consumer preferences and dependence on any single brand or market segment. Geographic diversity mitigates the Company's exposure to regional economic and weather conditions. In addition, the Company's large size allows it to centralize certain administrative functions and negotiate favorable pricing on certain automotive parts, aftermarket products, supplies and advertising. Furthermore, the Company benefits from superior access to capital as compared to smaller dealerships. 4 Growth Strategy UAG seeks to lead the consolidation of the automotive retailing industry and increase stockholder value through a growth strategy focused on (i) acquiring profitable dealership operations, (ii) leveraging its new car franchises to grow higher-margin businesses and (iii) generating incremental revenue from its automobile finance business. ACQUIRE PROFITABLE DEALERSHIP OPERATIONS. UAG seeks to capitalize on continuing consolidation in the U.S. automotive retailing industry by selectively acquiring profitable dealerships. The Company targets dealerships or dealership groups with established records of profitability and customer satisfaction as well as experienced management willing to remain in place. The Company focuses on opportunities in geographic markets with above-average projected population and job growth. Of the approximately 22,000 dealerships in the United States, the Company believes that at least 2,000 dealerships, some of which are members of dealership groups, meet its acquisition criteria. GROW HIGHER-MARGIN BUSINESSES. UAG is leveraging its new car franchises and applying its financial resources to grow higher-margin businesses such as the retail sale of used vehicles, aftermarket products and service and parts. UAG receives a steady supply of used cars through trade-ins, vehicles coming off lease ("off-lease vehicles") and used car auctions open only to new car dealers. In addition, only new car dealers are able to sell used cars certified by Manufacturers. Through these programs, UAG is able to provide customers Manufacturer-backed extended warranties and attractive lease financing on their used car purchases. UAG also has the opportunity on each new or used vehicle sold to generate incremental revenue from the sale of aftermarket products, including accessories such as radios, cellular phones and alarms as well as agency services such as extended service contracts, credit insurance policies and financing and lease contracts. Finally, each UAG new car dealership offers an integrated service and parts department, which provides an important recurring revenue stream to the Company's dealerships. The Company has initiatives in place designed to grow each of these higher-margin businesses. GENERATE INCREMENTAL REVENUE FROM AUTOMOBILE FINANCE BUSINESS. To further increase the incremental profit achievable through its auto sales, the Company established Atlantic Finance, an automobile finance company engaged in the purchase, sale and servicing of prime credit quality automobile loans originated by both UAG and third-party dealerships. Atlantic Finance's strategy is to grow by (i) increasing its business with existing UAG dealerships, including those with which it has yet to commence financing activities, (ii) commencing financing activities with dealerships acquired by UAG in the future and (iii) using its presence in its local operating markets to cultivate relationships with additional unaffiliated dealerships. Operating Strategy The Company's operating strategy is designed to provide a high level of customer service and professional management. Central to UAG's overall philosophy is customer-oriented service designed to meet the needs of an increasingly sophisticated and demanding automotive consumer. The Company strives to cultivate lasting relationships with its customers, which it believes enhance its reputation in the community and create the opportunity for significant repeat and referral business. In addition, the Company employs professional management practices throughout its business organization primarily through implementing "best practices" as well as investing in sophisticated operational controls. Recent Acquisitions UAG has completed the following dealership acquisitions in 1996 to date (the "Recent Acquisitions"). See "The Company -- Acquisition History." Effective January 1, 1996, the Company acquired Atlanta Toyota, Inc. ("Atlanta Toyota"), located in Duluth, Georgia, for a purchase price consisting of $9.1 million in cash and $2.4 million in notes. In 1995, Atlanta Toyota had $112.2 million in sales. On May 1, 1996, the Company acquired United Nissan, Inc. ("United Nissan") (formerly Steve Rayman Nissan, Inc.), located in Morrow, Georgia, for a purchase price of $11.5 million in cash. In 1995, United Nissan had $60.3 million in sales. Effective July 1, 1996, the Company acquired Peachtree Nissan, Inc. ("Peachtree Nissan") (formerly Hickman Nissan, Inc.), located in Chamblee, Georgia, for a purchase price consisting of $11.0 million in cash and a $2.0 million note. In 1995, Peachtree Nissan had $85.3 million in sales. 5 Contemporaneous Acquisitions The following dealerships will be acquired contemporaneously with the consummation of the Offering with a portion of the proceeds of the Offering (the "Contemporaneous Acquisitions"). The Contemporaneous Acquisitions are a condition to the consummation of the Offering. Pursuant to a stock purchase agreement dated as of June 6, 1996, the Company will acquire substantially all of the Sun Automotive Group (the "Sun Group"), located in Phoenix and Scottsdale, Arizona, for a purchase price of $30.9 million in cash. The Sun Group holds franchises for Acura, Audi, BMW, Land Rover, Lexus and Porsche and, in 1995, had $154.5 million in sales (including $17.0 million in sales from one Jaguar franchise, which the Company will not acquire contemporaneously with the Offering). Pursuant to two stock purchase agreements dated August 5, 1996, the Company will acquire the Evans Automotive Group (the "Evans Group"), located in Duluth and Conyers, Georgia, for an aggregate purchase price of $12.0 million in cash. The Evans Group holds franchises for BMW and Nissan and, in 1995, had $81.7 million in sales. Pursuant to a stock purchase agreement dated September 5, 1996, the Company will acquire Standefer Motor Sales, Inc. ("Standefer Motor"), located in Chattanooga, Tennessee, for a purchase price of $18.2 million in cash. Standefer Motor holds one Nissan franchise and, in 1995, had $65.8 million in sales. Risk Factors An investment in the Common Stock also involves certain risks associated with the Company's business and the automotive retailing industry, including the following: (i) the Company is subject to the influence of the various Manufacturers whose franchises it holds; (ii) many of the Company's franchise agreements impose restrictions upon the transferability of the Common Stock; (iii) the Company's growth depends in large part on its ability to manage expansion, control costs in its operations and consolidate dealership acquisitions; (iv) the Company will require substantial additional capital to acquire automobile dealerships and purchase inventory; (v) unit sales of motor vehicles historically have been cyclical; (vi) the automotive retailing industry is a mature industry; (vii) the Company's success depends to a significant extent on key members of its personnel; (viii) the Company's business is seasonal; and (ix) the automotive retailing industry is highly competitive. For a fuller discussion of these and other risk factors, see "Risk Factors." The Offering Common Stock Offered........................ shares Common Stock Outstanding after the Offering shares (1)........................................ Use of Proceeds............................. The net proceeds from the Offering are estimated to be $ million, of which approximately $62.5 million will be used to pay the consideration and related transaction costs for the Contemporaneous Acquisitions, approximately $43.6 million to repay outstanding indebtedness and approximately $15.0 million to fund the expansion of its automobile finance business. The balance will be used for working capital and general corporate purposes, including other potential acquisitions. See "-- Contemporaneous Acquisitions" and "Use of Proceeds." Dividend Policy............................. The Company anticipates that it will not pay dividends on the Common Stock for the foreseeable future. See "Dividend Policy." Proposed NYSE Symbol........................ "UAG"
- ------------------------------ (1) Does not include 873,000 and, assuming an initial public offering price of $ per share, 260,000 shares of Common Stock issuable at an exercise price per share of $10.00 and the public offering price set forth on the cover page of this Prospectus, respectively, upon the exercise of outstanding stock options or 1,016,099 shares issuable at a nominal exercise price upon the exercise of outstanding warrants. See "Management -- Spielvogel Employment Agreement," "Management -- Stock Option Plan," "Description of Capital Stock -- Warrants" and "Shares Eligible for Future Sale." 6 Summary Historical and Pro Forma Financial Data The following table presents (i) summary historical consolidated financial and other data of the Company as of the dates and for the periods indicated, including the results of operations of Landers Auto (as defined herein), Atlanta Toyota and Steve Rayman Nissan from August 1, 1995, January 1, 1996 and May 1, 1996, respectively, the dates of their acquisition, and (ii) summary pro forma financial and other data of the Company as of the date and for the periods indicated giving effect to the events described in the Pro Forma Condensed Consolidated Financial Statements included elsewhere in this Prospectus as though they had occurred on the dates indicated therein. The summary pro forma data are not necessarily indicative of operating results or financial position that would have been achieved had these events been consummated on the date indicated and should not be construed as representative of future operating results or financial position. The summary historical and pro forma financial data should be read in conjunction with the financial statements and related notes thereto of UAG, Landers Auto, Atlanta Toyota, Steve Rayman Nissan, Hickman Nissan, Sun Automotive Group, Evans Automotive Group and Standefer Motor, with the Pro Forma Condensed Consolidated Financial Statements and with "Management's Discussion and Analysis of Financial Condition and Results of Operations."
------------------------------------------------------------------------------- Six Months Ended Years Ended December 31, June 30, -------------------------------------------- --------------------------------- Pro Forma Pro Forma DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA 1993 1994 1995 1995 1995 1996 1996 ---------- --------- --------- ---------- ---------- --------- ---------- Statements of Operations Data: Auto Dealerships Total revenues $ 606,091 $ 731,629 $ 805,621 $1,350,366 $ 352,739 $$597,939 $ 800,630 Gross profit 68,403 83,986 85,277 155,570 36,214 66,379 92,350 Operating income (loss) 1,493 3,571 (5,309) 18,405 (5,727) 9,404 16,723 Auto Finance Loss before income taxes (616) (1,382) (1,382) (701) (349) (349) Total Company Income (loss) before minority interests and provision for income taxes 260 (804) (5,921) 16,282 (5,819) 8,629 16,130 Net income (loss) 96 (1,691) (3,466) 9,220 (4,902) 3,898 9,205 Net income (loss) per common share $ .07 $ (.51) $ (.70) $ $ (1.19) $ .49 $
------------------------------------------------------------------------------- As of June 30, As of December 31, --------------------------------- -------------------------------- Pro Forma DOLLARS IN THOUSANDS 1993 1994 1995 1995 1996 1996 ---------- --------- --------- ---------- --------- ---------- Balance Sheet Data: Auto Dealerships Current assets $ 120,061 $ 118,534 $ 141,649 $ 119,909 $ 186,980 $ 256,714 Current liabilities 117,494 125,825 139,447 128,027 181,317 215,711 Property and equipment, net 8,845 12,072 12,146 11,814 14,609 21,344 Intangible assets, net 22,832 23,018 48,774 22,700 66,131 150,244 Long-term debt 4,122 6,735 24,073 6,556 38,694 15,062 Auto Finance Net assets 291 3,501 3,714 12,549 27,549 Total Company Total assets 154,218 170,342 236,027 176,945 311,104 469,704 Minority interests subject to repurchase 7,338 7,962 13,608 6,555 15,299 Stock purchase warrants 1,020 1,597 Total stockholders' equity 25,264 28,785 49,240 33,599 66,709 230,229
------------------------------------------------------------------------------- As of December 31, As of June 30, -------------------------------------------- --------------------------------- Pro Forma Pro Forma 1993 1994 1995 1995 1995 1996 1996 ---------- --------- --------- ---------- ---------- --------- ---------- Other Auto Dealerships Data: Gross profit margin 11.3% 11.5% 10.6% 11.5% 10.3% 11.1% 11.5% Operating margin 0.2% 0.5% (0.7)% 1.4% (1.6)% 1.6% 2.1% New cars sold at retail 18,608 22,464 25,138 37,358 11,088 17,509 21,180 Used cars sold at retail 7,891 8,340 8,953 22,060 3,674 8,542 11,192
7 Risk Factors Prospective investors should consider carefully the principal risk factors set forth below as well as the other information set forth in this Prospectus in evaluating the Company and its business before purchasing the shares of Common Stock offered hereby. Influence of Automobile Manufacturers Each of the Company's dealerships operates pursuant to a franchise agreement between the applicable automobile manufacturer (or authorized distributor thereof, referred to herein as the "Manufacturer") and the subsidiary of the Company that operates such dealership, and the Company is dependent to a significant extent on its relationship with such Manufacturers. Manufacturers exercise a great degree of control over dealerships, and the franchise agreement provides for termination or non-renewal for a variety of causes. The Company from time to time has been in non-compliance with certain provisions of certain of its franchise agreements, such as the obligation to obtain prior Manufacturer approval of changes in dealership management. Actions taken by Manufacturers to exploit their superior bargaining position could have a material adverse effect on the Company. For example, Saturn Corporation's refusal to grant its approval for the Offering and its assertion of an alleged right of first refusal with respect to one franchise necessitated the Company's transfer of the two Saturn franchises in its DiFeo Group to an affiliated holding company. See "-- Stock Ownership/Issuance Limits" and "Business -- Franchise Agreements." Furthermore, prior Manufacturer approval is required with respect to acquisitions of automobile dealerships, and a Manufacturer may deny the Company's application to make an acquisition or seek to impose further restrictions on the Company as a condition to granting approval of an acquisition. See "-- Risks Associated with Acquisitions." Many Manufacturers attempt to measure customers' satisfaction with their sales and warranty service experiences through systems, which vary from Manufacturer to Manufacturer, generally known as the consumer satisfaction index ("CSI"). These Manufacturers may use a dealership's CSI scores as a factor in evaluating applications for additional dealership acquisitions and other matters. Certain dealerships of the Company have had difficulty from time to time meeting their Manufacturers' CSI standards. The components of CSI have been modified from time to time in the past, and there is no assurance that such components will not be further modified or replaced by different systems in the future. Failure of the Company's dealerships to comply with the standards imposed by Manufacturers at any given time may have a material adverse effect on the Company. The success of each of the Company's franchises is, in large part, dependent upon the overall success of the applicable Manufacturer. Accordingly, the success of the Company is linked to the financial condition, management, marketing and production capabilities of the Manufacturers of which the Company is a franchisee. Accordingly, events, such as labor strikes, that may adversely affect a Manufacturer may also adversely affect the Company. For example, a strike of the independent truckers who distribute Chrysler Corporation ("Chrysler") motor vehicles adversely affected the Company in the second half of 1995. Moreover, any event that causes adverse publicity involving such Manufacturers may have an adverse effect on the Company regardless of whether such event involves any of the Company's dealerships. Stock Ownership/Issuance Limits Standard automobile franchise agreements prohibit transfers of any ownership interests of the dealership and its parent, such as UAG, and, therefore, often do not by their terms accommodate public trading of the capital stock of the dealership or its parent. While all of the relevant Manufacturers of which the Company will be a franchisee at the time of consummation of the Offering have agreed to permit the Offering and trading in the Common Stock, a number of Manufacturers continue to impose restrictions upon the transferability of the Common Stock. The most prohibitive restriction, which has been imposed by various Manufacturers, provides that, under certain circumstances, the Company may lose its franchise if a person or entity acquires a 20% ownership interest in the Company and does not obtain the approval of the applicable Manufacturer. Violations by stockholders or prospective stockholders of the Company of such restrictions are generally outside the control of the Company and may result in the termination or non-renewal of one or more franchises, which could have a material adverse effect on the Company. Such restrictions also may prevent or deter prospective acquirers from acquiring control of the Company and, therefore, may adversely impact the value of the Common Stock. 8 Similarly, a number of Manufacturers, including Chrysler, have consented to the Offering but continue to prohibit transactions which may affect management control of the Company. Chrysler has agreed that it will not consider the issuance of up to 40% of the Common Stock in the Offering to be a change of control. However, acquisitions or sales of substantial amounts of shares in the market may, after the Offering, affect management control and thereby require the Company to obtain Chrysler's consent. Upon consummation of the Offering, % of the Common Stock will be publicly owned (assuming full exercise of the Underwriters' over-allotment option). It may be necessary for the Company to seek additional Manufacturer approvals before selling additional Common Stock. This may impede the Company's ability to raise required capital. See "-- Capital Requirements." Risks Associated with Acquisitions The Company's growth will depend in large part on its ability to manage expansion, control costs in its operations and consolidate dealership acquisitions, including the Recent Acquisitions and the Contemporaneous Acquisitions, into existing operations. This strategy will entail reviewing and potentially reorganizing acquired dealership operations, corporate infrastructure and systems and financial controls. Unforeseen expenses, difficulties, complications and delays frequently encountered in connection with the rapid expansion of operations could inhibit the Company's growth. There can be no assurance that the Company will identify acquisition candidates that would result in the most successful combinations or that acquisitions will be able to be consummated on acceptable terms. The magnitude, timing and nature of future acquisitions will depend upon various factors, including the availability of suitable acquisition candidates, the negotiation of acceptable terms, the Company's financial capabilities, the availability of skilled employees to manage the acquired companies and general economic and business conditions. In addition, the Company's future growth via acquisition of automobile dealerships will depend on its ability to obtain the requisite Manufacturer approvals. There can be no assurance that Manufacturers will grant such approvals. Management believes that certain Manufacturers, such as Ford Motor Company ("Ford"), which represents approximately 25% of the U.S. automotive retailing industry, would not now approve acquisitions by the Company because they have expressed opposition to diffuse corporate ownership of their dealerships. For example, Ford's subsidiary Jaguar Cars Ltd. refused to grant its approval for the Company's acquisition of the Jaguar franchise in the Sun Group. It is also possible that one or more Manufacturers might object to ownership by one company of many of its franchises. For example, it is currently the policy of Toyota Motor Sales ("Toyota") to restrict any company from holding more than seven Toyota or more than three Lexus franchises and to impose restrictions based on the number of franchises held within certain geographic areas. After giving effect to the Contemporaneous Acquisitions, the Company will hold 37 franchises, including six Chrysler franchises, six Toyota franchises (of which two are Lexus), five General Motors Corporation ("GM") franchises and five Nissan franchises. The Company is among the largest Chrysler, Toyota and Nissan dealers in the United States. See "-- Influence of Automobile Manufacturers." Alternatively, in connection with acquisitions by the Company, one or more Manufacturers may seek to impose further restrictions on the Company in connection with their approval of an acquisition. For example, each of GM and Chrysler conditioned its approval of the acquisition of Landers Auto upon the Company's agreement to implement certain measures at its existing GM and Chrysler dealerships, respectively, to provide certain additional training to the employees at such dealerships and to achieve and maintain higher CSI scores. If such goals are not attained, the Company may be precluded from acquiring, whether directly from GM or Chrysler or through acquisitions, additional GM or Chrysler franchises and it may lead GM or Chrysler to conclude that it has a basis pursuant to which it may seek to terminate or refuse to renew the Company's existing GM or Chrysler franchises. Moreover, factors outside the Company's control may cause a Manufacturer to reject the Company's application to make acquisitions. See "-- Influence of Automobile Manufacturers." Capital Requirements The Company will require substantial additional capital in order to continue to acquire automobile dealerships. Such capital might be raised through additional public or private financings, as well as borrowings and other sources. The Company does not have any commitments with respect to any acquisition financing, and there can be no assurance that additional or sufficient financing will be available, or, if available, that it will be available on acceptable terms. Moreover, the Company may be impeded by certain Manufacturers from accessing the public equity markets. See 9 "-- Stock Ownership/Issuance Limits." If additional funds are raised by issuing equity securities of the Company, dilution to then existing stockholders may result. If adequate funds are not available, the Company may be required to significantly curtail its acquisition program. In addition, the Company is dependent to a significant extent on its ability to finance the purchase of inventory, which in the automotive retail industry involves significant sums of money in the form of floor plan financing. As of June 30, 1996, the Company had approximately $129.0 million of floor plan indebtedness. Substantially all the assets of the Company's dealerships are pledged to secure such indebtedness, which may impede the Company's ability to borrow from other sources. The Company currently has floor plan facilities with General Motors Acceptance Corporation, Chrysler Credit Corporation, World Omni Financial Corp. and Nissan Motor Acceptance Corporation. Each of these lenders is associated with a Manufacturer with whom the Company has franchise agreements. Consequently, deterioration of the Company's relationship with a Manufacturer could adversely affect its relationship with the affiliated floor plan lender and vice versa. See "-- Influence of Automobile Manufacturers." The operations of Atlantic Finance also require substantial borrowings. See "-- Risks Associated with Auto Finance Subsidiary -- Capital Requirements; Interest Rate Fluctuations." During the first half of 1996, the Company sought and obtained waivers of non-compliance with, and amendments to, certain covenants under its Securities Purchase Agreements and Credit Agreement (as such terms are defined under "Use of Proceeds"), including covenants regarding fixed charge coverage ratios and delivery of certain collateral to secure the indebtedness thereunder. Cyclicality Unit sales of motor vehicles, particularly new vehicles, historically have been cyclical, fluctuating with general economic cycles. During economic downturns, the automotive retailing industry tends to experience similar periods of decline and recession as the general economy. The Company believes that the industry is influenced by general economic conditions and particularly by consumer confidence, the level of personal discretionary spending, interest rates and credit availability. There can be no assurance that the industry will not experience sustained periods of decline in vehicle sales in the future, and that such decline would not have a material adverse effect on the Company. Mature Industry The automotive retailing industry is a mature industry in which minimal growth in unit sales of new vehicles is expected. Accordingly, growth in the Company's revenues and earnings will depend significantly on the Company's ability to acquire and consolidate profitable dealerships, to grow its higher-margin businesses and to expand its automobile finance business. See "Business -- Growth Strategy." Dependence on Key Personnel The Company believes that its success will depend to a significant extent upon the efforts and abilities of the executive management of the Company and its subsidiaries. The loss of the services of one or more of these key employees could have a material adverse effect on the Company. The Company's business will also be dependent upon its ability to continue to attract and retain qualified personnel, including key management in connection with future acquisitions. Seasonality The Company's business is seasonal, with a disproportionate amount of sales occurring in the second or third fiscal quarters. The DiFeo Group (as defined herein), which is located in the New York metropolitan area, is the division of the Company most affected by seasonality. Competition The automotive retailing industry is highly competitive with respect to price, service, location and selection. The Company competes with numerous automobile dealerships in each of its market segments, many of which are large and have significant financial and marketing resources. The Company also competes with private market buyers and sellers of used cars, used car dealers, other franchised dealers, service center chains and independent shops for service 10 and repair business. In recent years, automobile dealers have also faced increased competition in the sale of vehicles from automobile rental agencies, independent leasing companies and used-car "superstores," some of which employ sales techniques such as "haggle-free" pricing. Some of these recent market entrants are capable of operating on smaller gross margins than those on which the Company is capable of operating because they have lower overhead and sales costs. See "Business -- Competition." Imported Products Certain motor vehicles retailed by the Company, as well as certain major components of vehicles retailed by the Company, are of foreign origin. Accordingly, the Company is subject to the import and export restrictions of various jurisdictions and is dependent to some extent upon general economic conditions in and political relations with a number of foreign countries, including Japan, Germany, South Korea and the United Kingdom. Risks Associated with Automobile Finance Subsidiary CAPITAL REQUIREMENTS; INTEREST RATE FLUCTUATIONS Atlantic Finance, a wholly owned subsidiary of the Company, requires substantial borrowings to fund the purchase of retail installment contracts from automobile dealerships. Consequently, Atlantic Finance's profitability is affected by the difference, or "spread," between the rate of interest paid on the funds it borrows and the rate of interest charged on the installment contracts it purchases, which rate in most states is limited by law. In addition, since the interest rate at which Atlantic Finance borrows is variable and the interest rate at which Atlantic Finance purchases the retail installment contracts is fixed, Atlantic Finance assumes the risk of interest rate increases prior to the time contracts are sold. There can be no assurance that Atlantic Finance will be able to extend its present revolving credit facility or enter into new warehouse financing facilities on reasonable terms in the future or that interest rate increases will not adversely affect its ability to maintain profitability with respect to the retail installment contracts it holds. DEPENDENCE ON SECURITIZATION TRANSACTIONS Atlantic Finance relies on a strategy of periodically selling retail installment receivables on a securitized basis. The securitization proceeds are utilized to repay borrowings under its revolving credit facility, thereby making such facility available to acquire additional retail installment contract receivables. The terms of any securitization transaction are affected by a number of factors, some of which are beyond Atlantic Finance's control and any of which could cause substantial delays. These factors include, among other things, conditions in the securities markets in general, conditions in the asset-backed securitization market and approval by all parties to the terms of the transaction. Gains from the sale of receivables in securitized transactions generate a significant portion of Atlantic Finance's revenues. If Atlantic Finance were unable to securitize loans in a given financial reporting period, Atlantic Finance could incur a significant decline in total revenues and profitability for such period. CREDIT RISK Payments by consumers on a number of the retail installment contracts purchased by Atlantic Finance become delinquent from time to time and some end up in default. See "Business -- Atlantic Finance" for detailed information on Atlantic Finance's delinquency and default rates. There can be no assurance that the credit performance of Atlantic Finance's customers will be maintained or that general economic conditions will not worsen and lead to higher rates of delinquency and default. In addition, Atlantic Finance commenced operations in the first quarter of 1995, and there can be no assurance that the rates of future delinquency and defaults will be consistent with prior experience or at levels that will allow Atlantic Finance to maintain overall profitability. REGULATION Atlantic Finance is subject to regulation under various federal, state and local laws and in some jurisdictions is required to be licensed by the state banking authority. Most states in which Atlantic Finance operates limit the interest rate, fees and other charges that may be imposed by, or prescribe certain other terms of, the contracts that Atlantic Finance purchases and restrict its right to repossess and sell collateral. An adverse change in those laws or regulations could have a material adverse effect on Atlantic Finance's profitability by, among other things, limiting the states in which Atlantic Finance may operate or the interest rate that may be charged on retail installment contracts or restricting Atlantic Finance's ability to realize the value of the collateral securing the contracts. 11 Reliance by Company on Dividends and Other Payments From Operating Subsidiaries The Company is a holding company, the principal assets of which are the shares of the capital stock of its subsidiaries. As a holding company without independent means of generating operating revenues, the Company depends on dividends and other payments, including payments of management fees and pursuant to tax sharing arrangements, from its subsidiaries to fund its obligations and meet its cash needs. Certain subsidiaries of the Company are subject to restrictions on the payment of dividends, which are described in "Dividend Policy." Such restrictions limit the Company's ability to apply profits generated from one subsidiary for use in other subsidiaries. Expenses of the Company include salaries of its executive officers, insurance, professional fees and service of certain indebtedness that may be outstanding from time to time. See "Management -- Summary Compensation Table." Environmental Matters The Company is subject to federal, state and local laws, ordinances and regulations which establish various health and environmental quality standards, and liability related thereto, and provide penalties for violations of those standards. Under certain laws and regulations, a current or previous owner or operator of real property may be liable for the costs of removal and remediation of hazardous or toxic substances or wastes on, under, in or emanating from such property. Such laws typically impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances or wastes. Certain laws, ordinances and regulations may impose liability on an owner or operator of real property where onsite contamination discharges into waters of the state, including groundwater. Under certain other laws, generators of hazardous or toxic substances or wastes that send such substances or wastes to disposal, recycling or treatment facilities may be liable for remediation of contamination at such facilities. Other laws, ordinances and regulations govern the generation, handling, storage, transportation and disposal of hazardous and toxic substances or wastes, the operation and removal of underground storage tanks, the discharge of pollutants into surface waters and sewers, emissions of certain potentially harmful substances into the air and employee health and safety. Past and present business operations of the Company subject to such laws, ordinances and regulations include the use, handling and contracting for recycling or disposal of hazardous or toxic substances or wastes, including environmentally sensitive materials such as motor oil, waste motor oil and filters, transmission fluid, antifreeze, freon, waste paint and lacquer thinner, batteries, solvents, lubricants, degreasing agents, gasoline and diesel fuels. The Company is subject to other laws, ordinances and regulations as the result of the past or present existence of underground storage tanks at many of the Company's properties. In addition, soil and groundwater contamination has been known to exist at certain properties leased by the Company and there can be no assurance that other properties have not been contaminated by any leakage from such tanks or any spillage of hazardous or toxic substances or wastes. Certain laws and regulations, including those governing air emissions and underground storage tanks, have been amended so as to require compliance with new or more stringent standards as of future dates. The Company cannot predict what other environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted or what environmental conditions may be found to exist in the future. Compliance with new or more stringent laws or regulations, stricter interpretation of existing laws or the future discovery of environmental conditions may require additional expenditures by the Company, some of which may be material. See "Business -- Environmental Matters." Control by Principal Stockholders; Anti-takeover Provisions Upon completion of the Offering, Trace International Holdings, Inc. ("Trace"), Aeneas Venture Corporation ("Aeneas"), an affiliate of Harvard Private Capital Group, Inc. ("Harvard Private Capital"), and AIF II, L.P. ("AIF," an affiliate of Apollo Advisors, L.P. ("Apollo")), will own %, % and % of the outstanding Common Stock, respectively. As a result, such persons will have the ability to control the Company and direct its affairs and business. Such concentration of ownership, as well as certain provisions of the Company's franchise agreements, its Certificate of Incorporation and the Delaware General Corporation Law (the "DGCL"), could have the effect of delaying or preventing a change in control of the Company. These provisions include the stock ownership limits imposed by various Manufacturers, the classified structure of the Company's Board of Directors, the Company's ability to issue "blank check" preferred stock and the "interested stockholder" provisions of Section 203 of the DGCL. In addition, 12 such concentration of ownership may adversely affect the ability of stockholders to realize a premium on the sale of their shares of Common Stock in a takeover of the Company. See "-- Stock Ownership/Issuance Limits" and "Description of Capital Stock." Shares Eligible for Future Sale Upon consummation of the Offering, the Company will have outstanding shares of Common Stock. All of the shares of Common Stock to be sold in the Offering will be eligible for immediate sale in the public market without restriction unless held by affiliates of the Company. Of the remaining outstanding shares of Common Stock, including the shares to be issued in the Minority Exchange (the "Restricted Shares"), 4,254,208 shares will be available for resale beginning 180 days after the date of this Prospectus upon expiration of the applicable lock-up agreements described below and subject to compliance with Rule 144 under the Securities Act and shares, including the shares to be issued in the Minority Exchange, will become eligible for sale under Rule 144 at various dates thereafter as the holding provisions of Rule 144 are satisfied; provided, however, that all of the Restricted Shares are entitled to certain registration rights. Further, upon consummation of the Offering, 873,000 and 260,000 shares of Common Stock will be issuable at a price per share of $10.00 and the public offering price set forth on the cover page of this Prospectus, respectively, upon the exercise of outstanding stock options, 278,900 of which are immediately exercisable, and 1,016,099 shares of Common Stock will be issuable at a nominal exercise price upon the exercise of outstanding warrants, all of which are immediately exercisable and entitled to certain registration rights. The Company intends to file a registration statement on Form S-8 as soon as practicable after the consummation of the Offering with respect to the shares of Common Stock issuable upon exercise of all such options. See "Management -- Spielvogel Employment Agreement," "Management -- Stock Option Plan," "Description of Capital Stock -- Warrants" and "Shares Eligible for Future Sale." Sales of substantial amounts of Common Stock, or the perception that such sales could occur, could adversely affect prevailing market prices of the Common Stock. The Company has agreed not to sell any shares of its capital stock (or any rights, options or warrants to purchase, or any securities convertible or exchangeable into or exercisable for, capital stock), with certain limited exceptions, for a period of 180 days following the date of this Prospectus without the prior written consent of J.P. Morgan Securities Inc. In addition, the holders of all the Restricted Shares (representing approximately % of the Common Stock outstanding after giving effect to the Offering) have agreed not to sell, directly or indirectly, any of their shares, with certain limited exceptions, for a period of 180 days following the date of this Prospectus. Further, certain holders of options and the holders of the Warrants have agreed to similar restrictions with respect to the shares of Common Stock issuable upon exercise of such options and Warrants for a period of 180 days following the date of this Prospectus. See "Underwriting." No Prior Market for the Common Stock There is presently no established public market for securities of companies that own and operate automobile dealerships, and, prior to the Offering, there has been no public market for the Company's Common Stock. There can be no assurance that an active public market for the Common Stock will develop or be sustained after the Offering. The initial public offering price of the Common Stock will be determined by negotiation between the Company and the representatives of the Underwriters based on the factors described under "Underwriting." The price at which the Common Stock will trade in the public market after the Offering may be less than the initial public offering price. See "Underwriting." Dilution to New Investors Purchasers of Common Stock in the Offering will experience immediate and substantial dilution in the amount of $ per share in net tangible book value per share. See "Dilution." 13 The Company General UAG is a leading acquirer, consolidator and operator of franchised automobile and light truck dealerships and related businesses. The Company believes that, after giving effect to the Contemporaneous Acquisitions, it will be the fourth largest retailer of new motor vehicles in the United States, operating 37 franchises located in Arizona, Arkansas, Connecticut, Georgia, New Jersey, New York and Tennessee and representing 22 American, Asian and European brands. As an integral part of its dealership operations, UAG sells used vehicles. In addition, the Company has recently established four stand-alone used car retail centers. All of UAG's dealerships include integrated service and parts operations, which are an important source of recurring revenues. The Company also owns Atlantic Finance, an automobile finance company engaged in the purchase, sale and servicing of prime credit quality automobile loans originated by both UAG and third-party dealerships. For 1995, on a pro forma basis, UAG had revenues of approximately $1.35 billion and sold 37,358 new and 22,060 used vehicles. The Company was incorporated in the State of Delaware in December 1990 and commenced dealership operations in October 1992. The Company's executive offices are located at 375 Park Avenue, New York, New York 10152, and its telephone number is (212) 223-3300. Acquisition History Trace established the Company to acquire, consolidate and operate large automobile retailers and related businesses. A history of automotive experience enabled Trace to be among the first to recognize and capitalize on the opportunities created by the industry's rapid consolidation. This consolidation offered UAG a means to quickly establish significant market presence and realize economies of scale through professional operation of dealerships. The following table sets forth information with respect to each dealership that will be owned at the time of consummation of the Offering:
------------------------------------------------------------------------------- Date Acquiree Acquired Locations Franchises Presently Held - ---------------------- ----------- -------------- -------------------------------------------------- DiFeo Group DiFeo Automotive 10/92 Danbury, CT Chevrolet-Geo, Hyundai, Isuzu, Suzuki Group Bound Brook, Lexus NJ Jersey City, Hyundai, Jeep-Eagle, Oldsmobile, Toyota NJ Tenafly, NJ BMW Nyack, NY Mitsubishi, Toyota DiFeo Nissan 11/92 Jersey City, Nissan NJ DiFeo Chrysler- 12/92 Jersey City, Chrysler-Plymouth Plymouth NJ DiFeo Chevrolet-Geo 12/92 Jersey City, Chevrolet-Geo NJ Fair Honda 1/93 Danbury, CT Honda Fair Dodge 2/93 Danbury, CT Dodge Gateway 8/93 Toms River, NJ Mitsubishi, Toyota Landers Auto 8/95 Benton, AK Chrysler-Plymouth, Dodge, GMC Truck, Jeep-Eagle, Oldsmobile Atlanta Toyota 1/96 Duluth, GA Toyota United Nissan 5/96 Morrow, GA Nissan Peachtree Nissan 7/96 Chamblee, GA Nissan Sun Group (1) Phoenix, AZ BMW, Land Rover Scottsdale, AZ Acura, Audi, Land Rover, Lexus, Porsche Evans Group (1) Duluth, GA BMW Conyers, GA Nissan Standefer Motor (1) Chattanooga, Nissan TN
- ------------------------------ (1) To be acquired contemporaneously with the consummation of the Offering. 14 On October 1, 1992, the Company acquired a 70% interest in the DiFeo Automotive Group (the "DiFeo Group") for a purchase price of $16.0 million in cash. At the time, the DiFeo Group was comprised of 29 franchises. Since then, the Company has added nine franchises in the division's primary marketing area through acquisition or expansion and has eliminated a total of 17 unprofitable franchises by voluntarily terminating 12 franchises and effectively ceasing to be the controlling or majority owner of five additional franchises. In 1995, the DiFeo Group had sales of $689.2 million (including $52.3 million in sales from two Saturn franchises, which the Company will transfer to an affiliated holding company prior to the consummation of the Offering). Operating 19 franchises (which excludes the two Saturn franchises) from six locations in the New York metropolitan area, the DiFeo Group is one of the largest automobile dealership groups in the Northeast in terms of sales and number of franchises. Among its dealerships is the sixth largest Toyota franchise in the United States. Immediately prior to the consummation of the Offering, the Company will acquire the 30% minority interest in the DiFeo Group in the Minority Exchange. See "Certain Relationships and Related Transactions." Effective August 1, 1995, the Company acquired an 80% interest in Landers Auto Sales, Inc. ("Landers Auto"), located in Benton, Arkansas, for a purchase price consisting of $20.0 million in cash and $4.0 million in notes. The acquisition agreement provides for additional contingent purchase price payments to the sellers based on the future profitability of the acquired dealerships. In 1995, Landers Auto, the largest full-line Chrysler dealer in the United States, had $280.8 million in sales. Immediately prior to the consummation of the Offering, the Company will acquire the 20% minority interest in Landers Auto in the Minority Exchange. See "Certain Relationships and Related Transactions." Effective January 1, 1996, the Company acquired a 100% interest in Atlanta Toyota, located in Duluth, Georgia, for a purchase price consisting of $9.1 million in cash and $2.4 million in notes. In 1995, Atlanta Toyota had $112.2 million in sales, making it the largest Toyota dealer in the Atlanta metropolitan area and the seventh largest in the United States. Pursuant to an agreement, 5% of the capital stock of Atlanta Toyota was purchased by its general manager for a $300,000 note. Immediately prior to the consummation of the Offering, the Company will reacquire such capital stock in the Minority Exchange. See "Certain Relationships and Related Transactions." On May 1, 1996, the Company acquired a 100% interest in United Nissan, located in Morrow, Georgia, for a purchase price of $11.5 million in cash. In 1995, United Nissan had $60.3 million in sales. Effective July 1, 1996, the Company acquired a 100% interest in Peachtree Nissan, located in Chamblee, Georgia, for a purchase price consisting of $11.0 million in cash and a $2.0 million note. In 1995, Peachtree Nissan had $85.3 million in sales. Contemporaneously with the consummation of the Offering, pursuant to a stock purchase agreement dated as of June 6, 1996, the Company will acquire substantially all of the Sun Group, located in Phoenix and Scottsdale, Arizona, for $30.9 million in cash. The Sun Group holds franchises for Acura, Audi, BMW, Land Rover, Lexus and Porsche and, in 1995, had $154.5 million in sales (including $17.0 million in sales from one Jaguar franchise, which the Company will not acquire contemporaneously with the Offering). Contemporaneously with the Offering, pursuant to two stock purchase agreements dated August 5, 1996, the Company will acquire a 100% interest in the Evans Group, located in Duluth and Conyers, Georgia, for a purchase price of $12.0 million in cash. The Evans Group holds one BMW and one Nissan franchise and, in 1995, had $81.7 million in sales. Contemporaneously with the Offering, pursuant to a stock purchase agreement dated September 5, 1996, the Company will acquire a 100% interest in Standefer Motor, located in Chattanooga, Tennessee, for a purchase price of $18.2 million in cash. Standefer Motor holds one Nissan franchise and, in 1995, had $65.8 million in sales. 15 Use of Proceeds The net proceeds to the Company from the sale of the Common Stock offered hereby are estimated to be approximately $ million ($ million if the Underwriters' over-allotment option is exercised in full) after deducting underwriting discounts and estimated offering expenses. Of such net proceeds, (i) approximately $62.5 million will be used to pay the consideration for the Contemporaneous Acquisitions and related transaction costs, (ii) approximately $38.6 million will be used to repay all the Company's outstanding Senior Notes ($3.6 million of which represents a required prepayment premium, which will be reflected in the Company's financial statements as a charge against earnings in the quarter in which such prepayment occurs), (iii) approximately $5.0 million will be used to repay all the loans under the Company's revolving credit agreement, (iv) approximately $15.0 million will be used to fund the expansion of the Company's automobile finance business and (v) the balance of approximately $ million will be used for working capital and other general corporate purposes, including other potential acquisitions. Pending such uses, the net proceeds will be invested in short-term, investment grade securities or used to temporarily reduce floor plan indebtedness. The Senior Notes were issued in several series pursuant to Securities Purchase Agreements, dated as of September 22, 1995, between the Company and the investors named therein (the "Securities Purchase Agreements"). They bear interest at a weighted average interest rate of 11.94% and mature on September 15, 2003. The proceeds of the Senior Notes were used primarily to finance acquisitions and for investments in Atlantic Finance. The revolving loans were made under the Credit Agreement, dated February 28, 1996, between the Company and Morgan Guaranty Trust Company of New York ("Morgan Guaranty"), as amended (the "Credit Agreement"). They bear interest at the higher of the prime rate plus 2.0% or the federal funds rate plus 2.5% (an effective rate of 10.25% at July 15, 1996) and mature on September 30, 1996. The holder of a majority of the Senior Notes and Morgan Guaranty are affiliates of J.P. Morgan Securities Inc. Dividend Policy The Company has never declared or paid dividends on its Common Stock. The Company intends to retain future earnings, if any, to finance the development and expansion of its business and, therefore, does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. The decision whether to pay dividends will be made by the Board of Directors of the Company in light of conditions then existing, including the Company's results of operations, financial condition and requirements, business conditions and other factors. Pursuant to support agreements by the Company in favor of subsidiaries of Atlantic Finance entered into in connection with securitization transactions or sales of automobile loan receivables, the Company is prohibited from paying dividends in excess of 50% of its cumulative net income measured over specified periods. Pursuant to financing agreements with floor plan lenders, many of the Company's dealerships are required to maintain a certain minimum working capital and a certain aggregate net worth and/or are prohibited from making substantial disbursements outside the ordinary course of business. In addition, pursuant to the automobile franchise agreements to which the Company's dealerships are subject, all dealerships are required to maintain a certain minimum working capital, and some dealerships are also required to maintain a certain minimum net worth. These requirements may restrict the ability of the Company's operating subsidiaries to make dividend payments, which in turn may restrict the Company's ability to make dividend payments. 16 Capitalization The following table sets forth the short-term debt and consolidated capitalization of the Company as of June 30, 1996, and pro forma to give effect to the Preferred Stock Conversion, the Minority Exchange, the acquisition of Peachtree Nissan, the private placement of additional equity and repayment of $4.0 million of short-term debt on July 10, 1996, the Contemporaneous Acquisitions and the Offering. This table should be read in conjunction with the consolidated historical and pro forma financial statements of the Company and the notes thereto appearing elsewhere in this Prospectus.
---------------------- As of June 30, 1996 IN THOUSANDS, EXCEPT PER SHARE DATA Actual Pro Forma --------- ----------- Short-term debt, excluding floor plan (1) $ 17,585 $ 8,585 Current portion of long-term debt 2,463 2,825 --------- ----------- Total short-term debt $ 20,048 $ 11,410 --------- ----------- --------- ----------- Long-term debt (excluding current portion): Senior Notes (2) $ 27,988 $ Other 10,706 15,062 --------- ----------- Total long-term debt 38,694 15,062 --------- ----------- Minority interests subject to repurchase 15,299 --------- ----------- Stock purchase warrants 1,597 --------- ----------- Stockholders' equity: Class A convertible preferred stock, $0.0001 par value; 4,911 shares authorized, 4,491 shares issued and outstanding, actual; no shares authorized, issued or outstanding, as adjusted 1 Preferred stock, $0.0001 par value; no shares authorized, actual; 100 shares authorized, no shares issued and outstanding, as adjusted Voting common stock, $0.0001 par value; 15,100 shares authorized, 3,300 shares issued and outstanding, actual; 40,000 shares authorized, shares issued and outstanding, as adjusted (3) 1 1 Non-voting common stock, $0.0001 par value; 1,025 shares authorized, no shares issued and outstanding, actual; 1,125 shares authorized, no shares issued and outstanding, as adjusted Additional paid-in capital 68,319 243,009 Accumulated deficit (1,612) (12,781) --------- ----------- Total stockholders' equity 66,709 230,229 --------- ----------- Total capitalization $ 122,299 $ 245,291 --------- ----------- --------- -----------
- ------------------------ (1) As of June 30, 1996, an aggregate of $129.0 million was outstanding under the Company's floor plan facilities. (2) As of July 31, 1996, there were Senior Notes outstanding in the aggregate principal amount of $33.2 million, net of unamortized discount of $1.8 million. (3) Does not include 873,000 and 260,000 shares of Common Stock issuable at an exercise price per share of $10.00 and the public offering price set forth on the cover page of this Prospectus, respectively, upon the exercise of outstanding stock options or 1,016,099 shares issuable at a nominal exercise price upon the exercise of outstanding warrants. See "Management -- Spielvogel Employment Agreement," "Management -- Stock Option Plan," "Description of Capital Stock -- Warrants" and "Shares Eligible for Future Sale." 17 Dilution As of June 30, 1996, the pro forma net tangible book value of the Common Stock, after giving effect to the Preferred Stock Conversion, the Minority Exchange, the acquisition of Peachtree Nissan and the applicable anti-dilution adjustments of all outstanding warrants and the assumed exercise thereof, was approximately $ million, or approximately $ per share. Net tangible book value per share represents the amount of total tangible assets less total liabilities, divided by the number of shares of Common Stock outstanding. After giving effect to the Offering (assuming an initial public offering price of $ per share and after deducting estimated offering expenses) and the Contemporaneous Acquisitions, the pro forma net tangible book value of the Company at June 30, 1996 would have been approximately $ million, or approximately $ per share. This represents an immediate dilution of approximately $ per share to stockholders purchasing shares at the initial public offering price. The following table illustrates this per share dilution: Assumed initial public offering price per share $ --------- Pro forma net tangible book value per share at June 30, 1996 after giving effect to the Preferred Stock Conversion, the Minority Exchange, the acquisition of Peachtree Nissan and the applicable anti-dilution adjustments of all outstanding warrants and the assumed exercise thereof $ --------- Increase in pro forma net tangible book value per share attributable to new investors in the Offering --------- Pro forma net tangible book value per share as further adjusted for the Offering and the Contemporaneous Acquisitions --------- Dilution per share to new investors in the Offering $ --------- ---------
The following table sets forth on a pro forma basis at June 30, 1996 the difference between the existing holders of Common Stock (including the shares of Common Stock issued pursuant to the Minority Exchange and upon the assumed exercise of all outstanding warrants after giving effect to the applicable anti-dilution adjustments thereof) and the new investors in the Offering with respect to the number of shares of Common Stock purchased (assuming an initial public offering price of $ per share), the total consideration paid and the average price per share paid:
--------------------------------------------------------------- Shares Total Purchased Consideration (1) Average ------------------------- ----------------------- Price Number Percent Amount Percent Per Share ----------- ------------ --------- ------------ ----------- Existing stockholders % $ % $ New investors in the Offering -- -- ----------- --------- Total 100% $ 100% -- -- -- -- ----------- --------- ----------- ---------
- ------------------------------ (1) The shares of Common Stock issuable upon the exercise of the Warrants to purchase 1,016,099 shares and the Additional Warrants to purchase 93,747 shares (as such terms are defined herein) are deemed to have a purchase price, including a nominal exercise price, of $1.81 and $10.00 per share, respectively. See "Description of Capital Stock -- Warrants." 18 Pro Forma Condensed Consolidated Financial Statements The following unaudited pro forma condensed consolidated financial statements give effect to the following: (i) the acquisitions of 80% of Landers Auto (August 1, 1995), 100% of each of Atlanta Toyota (January 1, 1996), Steve Rayman Nissan (May 1, 1996), Hickman Nissan (July 1, 1996) and, in the Contemporaneous Acquisitions, substantially all of Sun Automotive Group and 100% of each of Evans Automotive Group and Standefer Motor; (ii) the DiFeo Restructuring (as defined herein); (iii) the purchase of a 5% equity interest in Atlanta Toyota by its current general manager in exchange for a note; (iv) the acquisition of the minority interest in each of the DiFeo Group, Landers Auto and Atlanta Toyota in exchange for Common Stock plus certain other consideration in the Minority Exchange; (v) the Offering; (vi) the repayment of $35.0 million aggregate principal amount of Senior Notes, plus a related $3.6 million prepayment premium, and $5.0 million of loans outstanding under the Credit Agreement; (vii) the Preferred Stock Conversion; (viii) the reclassification of the common stock warrants to stockholders' equity; (ix) the private placement of additional equity and repayment of $4.0 million of short-term debt on July 10, 1996; and (x) the increase in rental expense under amended leases relating to facilities in the DiFeo Group. The pro forma condensed consolidated statements of operations assume these events occurred on January 1, 1995, and the pro forma condensed consolidated balance sheet assumes these events, except for the Landers Auto, Atlanta Toyota and Steve Rayman Nissan acquisitions, which are included in the historical balance sheet, occurred on June 30, 1996. The pro forma condensed consolidated financial statements are not necessarily indicative of operating results or financial position that would have been achieved had these events been consummated on the dates indicated and should not be construed as representative of future operating results or financial position. These pro forma condensed consolidated financial statements should be read in conjunction with the historical financial statements and related notes thereto included in this Prospectus. 19 United Auto Group, Inc. Pro Forma Condensed Consolidated Statement of Operations For the Year Ended December 31, 1995 (In thousands except per share data)
Steve Sun Evans Landers Atlanta Rayman Hickman Automotive Automotive Standefer UAG Auto(1) Toyota(1) Nissan(1) Nissan(1) Group(1) Group(1) Motor(1) --------- ---------- --------- --------- --------- ---------- ---------- --------- Auto Dealerships Total revenues $805,621 $164,368 $112,162 $60,268 $85,822 $154,502 $81,669 $65,793 Cost of sales 720,344 147,566 98,969 50,166 77,256 133,980 72,459 58,284 --------- ---------- --------- --------- --------- ---------- ---------- --------- Gross profit 85,277 16,802 13,193 10,102 8,566 20,522 9,210 7,509 Selling, general and administrative expenses 90,586 10,132 11,182 8,989 7,619 18,469 7,842 5,192 --------- ---------- --------- --------- --------- ---------- ---------- --------- Operating income (loss) (5,309) 6,670 2,011 1,113 947 2,053 1,368 2,317 Related party interest income 3,039 Other income (expense), net (1,438) 242 17 1 21 (31) (34) 183 Equity in loss of uncombined investees (831) --------- ---------- --------- --------- --------- ---------- ---------- --------- Income (loss) before income taxes -- Auto Dealerships (4,539) 6,912 2,028 1,114 968 2,022 1,334 2,500 Auto Finance Loss before income taxes -- Auto Finance (1,382) --------- ---------- --------- --------- --------- ---------- ---------- --------- Total Company Income (loss) before minority interests and provision for income taxes (5,921) 6,912 2,028 1,114 968 2,022 1,334 2,500 Minority interests 366 Benefit (provision) for income taxes 2,089 (449) (457) (147) --------- ---------- --------- --------- --------- ---------- ---------- --------- Net income (loss) $(3,466) $6,463 $2,028 $1,114 $968 $2,022 $877 $2,353 --------- ---------- --------- --------- --------- ---------- ---------- --------- --------- ---------- --------- --------- --------- ---------- ---------- --------- Net income (loss) per common share $(.70) --------- --------- Weighted average number of common shares outstanding 4,905 --------- --------- Pro Forma Adjustments Pro Forma -------------- --------- Auto Dealerships Total revenues $(100,086) (2) $1,350,366 (79,753) (3) Cost of sales (95,893) (2) 1,194,796 --------- (68,335) (3) Gross profit 155,570 Selling, general and administrative expenses (11,286) (2) 137,165 --------- (9,877) (3) 785 (5) (82) (6) (1,863) (7) 2,023 (8) (3,121) (9) 575 (11) Operating income (loss) 18,405 Related party interest income (3,039) (5) Other income (expense), net (550)(4) (741) 848(10) Equity in loss of uncombined investees 831 (5) --------- Income (loss) before income taxes -- Auto Dealerships 17,664 Auto Finance Loss before income taxes -- Auto Finance (1,382) --------- Total Company Income (loss) before minority interests and provision for income taxes 16,282 Minority interests (366) (5) Benefit (provision) for income taxes (8,098) (12) (7,062) --------- Net income (loss) $ 9,220 --------- --------- Net income (loss) per common share --------- --------- Weighted average number of common shares outstanding
See footnotes on following pages 20 United Auto Group, Inc. Pro Forma Condensed Consolidated Statement of Operations For the Six Months Ended June 30, 1996 (In thousands except per share data)
Steve Hickman Sun Evans Rayman Nissan Nissan Automotive Automotive Standefer Auto Dealerships UAG (1) (1) Group (1) Group (1) Motor (1) --------- ------------- --------- ---------- ---------- --------- Total revenues $597,939 $19,892 $41,320 $93,823 $46,369 $34,994 Cost of sales 531,560 16,503 36,581 80,389 40,497 31,018 --------- ------------- --------- ---------- ---------- --------- Gross profit 66,379 3,389 4,739 13,434 5,872 3,976 Selling, general and administrative expenses 56,975 2,481 4,072 10,386 4,664 2,187 --------- ------------- --------- ---------- ---------- --------- Operating income 9,404 908 667 3,048 1,208 1,789 Related party interest income 1,548 Other income (expense), net (2,049) 19 8 13 30 Equity in loss of uncombined investees 75 --------- ------------- --------- ---------- ---------- --------- Income (loss) before income taxes -- Auto Dealerships 8,978 908 686 3,056 1,221 1,819 Auto Finance Loss before income taxes -- Auto Finance (349) --------- ------------- --------- ---------- ---------- --------- Total Company Income (loss) before minority interests and provision for income taxes 8,629 908 686 3,056 1,221 1,819 Minority interests (1,734) Benefit (provision) for income taxes (2,997) (365) (133) --------- ------------- --------- ---------- ---------- --------- Net income $3,898 $908 $686 $3,056 $856 $1,686 --------- ------------- --------- ---------- ---------- --------- --------- ------------- --------- ---------- ---------- --------- Net income per common share $.49 --------- --------- Weighted average number of common shares outstanding 7,923 --------- --------- Pro Forma Auto Dealerships Adjustments Total -------------- --------- Total revenues $(33,707) (3) $ 800,630 Cost of sales (28,268) (3) 708,280 --------- Gross profit 92,350 Selling, general and administrative expenses (450) (2) 75,627 (4,837) (3) 393 (5) (1,300) (7) 768 (8) 288 (11) -------------- --------- Operating income 16,723 Related party interest income (1,548) (5) Other income (expense), net 1,825 (10) (244) (90)(4) Equity in loss of uncombined investees (75)(5) -------------- --------- Income (loss) before income taxes -- Auto Dealerships 16,479 Auto Finance Loss before income taxes -- Auto Finance (349) -------------- --------- Total Company Income (loss) before minority interests and provision for income taxes 16,130 Minority interests 1,734 (5) Benefit (provision) for income taxes (3,430)(12) (6,925) --------- Net income $ 9,205 --------- --------- Net income per common share $ --------- --------- Weighted average number of common shares outstanding --------- ---------
See footnotes on following pages 21 Footnotes to Pro Forma Condensed Consolidated Statements of Operations (1) Represents the results of operations of such entities prior to their respective dates of acquisition by UAG. (2) Represents adjustments related to the DiFeo Restructuring (as defined herein). Of the $11,286 reduction in selling, general and administrative expenses for the year ended December 31, 1995, $8,122 was directly related to 17 unprofitable franchises which were eliminated and $3,164 was related to the elimination of a level of senior management and a reduction of personnel at the continuing franchises of the DiFeo Group. The DiFeo Restructuring increased pro forma net income by $4,256 for the year ended December 31, 1995 and $270 for the six months ended June 30, 1996. (3) Represents adjustments to eliminate the results of operations of dealerships not acquired (Buick, Saab and Jaguar) or dealerships transferred due to failure to obtain Manufacturer approval (Saturn). The adjustments are as follows:
Selling, General and Year ended Cost of Administrative December 31, 1995: Revenues Sales Expenses - -------------------------------------------------------------------------------------- --------- --------- ----------------- Atlanta Toyota -- Buick $ 8,211 $ 7,388 $ 580 Sun Group -- Saab, Jaguar 19,244 16,155 2,637 DiFeo Group -- Saturn 52,298 44,792 6,660 --------- --------- ------- Total $ 79,753 $ 68,335 $ 9,877 --------- --------- ------- --------- --------- ------- Six months ended June 30, 1996: - -------------------------------------------------------------------------------------- Sun Group -- Saab, Jaguar $ 9,911 $ 8,311 $ 1,600 DiFeo Group -- Saturn 23,796 19,957 3,237 --------- --------- ------- Total $ 33,707 $ 28,268 $ 4,837 --------- --------- ------- --------- --------- -------
(4) Represents additional interest expense from the issuance of notes payable to sellers as part of the acquisitions. (5) Represents adjustments that give effect to the proposed acquisition of the minority interest in each of the DiFeo Group, Landers Auto and Atlanta Toyota in exchange for Common Stock plus certain other consideration in the Minority Exchange. These adjustments include amortization expense for the excess of cost over net assets acquired, the elimination of related party interest income on assets to be exchanged, the elimination of equity in operations of assets to be exchanged and the elimination of minority interest in results of operations acquired. The proposed acquisition of the minority interests decreased pro forma net income by $1,530 for the year ended December 31, 1995 and $96 for the six months ended June 30, 1996. (6) Represents reduction in facility expenses at acquired dealerships due to revised lease agreements upon acquisition. (7) Represents reduction in compensation expense at acquired dealerships related to former owners and employees to contractual amounts. (8) Represents amortization of excess of cost over net assets acquired for the acquired dealerships. (9) Represents reduction for management fees paid to owners of acquired dealerships. (10)Represents reduction in historical interest expense due to the repayment of the Senior Notes and loans under the Credit Agreement with a portion of the net proceeds from the Offering. (11)Represents adjustment for increase in rental expense under amended leases relating to facilities in the DiFeo Group. (12)Represents tax impact of pro forma adjustments at the statutory rate adjusted for non-deductible items of $6,479 for the year ended December 31, 1995 and $3,340 for the six months ended June 30, 1996, the impact of the conversion of certain acquired entities from an S corporation to a C corporation for tax purposes of $2,364 for the year ended December 31, 1995 and $90 for the six months ended June 30, 1996 and the elimination of the decrease in the valuation allowance of $745 for the year ended December 31, 1995 since a deferred tax asset valuation allowance would not have existed at January 1, 1995 if the pro forma transactions detailed above occurred at that date. 22 United Auto Group, Inc. Pro Forma Condensed Consolidated Balance Sheet As of June 30, 1996 (Dollars in thousands)
Sun Evans Hickman Automotive Automotive Standefer Pro Forma UAG Nissan Group Group Motor Adjustments --------- --------- ---------- ---------- --------- ---------------------- ASSETS Auto Dealerships Cash and cash equivalents $9,301 $211 $121 $701 $232 $11,531 (1) (11,350) (1) 135,000 (2) (31,550) (3) (13,350) (4) (18,550) (5) (38,600) (6) (5,000) (7) (15,000) (8) 4,000 (13) (4,000) (13) (1,312) (14) (908) (15) Accounts receivable 48,209 4,442 6,907 5,812 1,431 (5,608) (15) Inventories 121,289 6,272 15,968 8,927 8,430 2,351 (1) 948 (3) 1,926 (4) 3,322 (5) (7,292) (15) Deferred income taxes 5,333 3,216 (6) 110 (9) 125 (14) Other current assets 2,848 264 53 81 100 (9) (227) (15) --------- --------- ---------- ---------- --------- Total current assets 186,980 11,189 23,049 15,521 10,093 Property and equipment, net 14,609 543 11,128 335 226 (4,845) (3) (652) (15) Intangible assets, net 66,131 1,137 9,832 (1) 19,070 (3) 7,482 (4) 14,625 (5) 31,434 (10) 600 (14) (67) (15) Due from related parties 15,727 699 (15,727) (10) Other assets 11,090 64 843 32 150 200 (9) (2,608) (6) 3,017 (3) (3,317) (10) (137) (15) (198) (13) --------- --------- ---------- ---------- --------- Total Auto Dealership assets 294,537 11,796 36,157 16,587 10,469 --------- --------- ---------- ---------- --------- Auto Finance Cash and cash equivalents 1,530 15,000 (8) Finance assets, net 775 Other assets 14,262 --------- --------- ---------- ---------- --------- Total Auto Finance assets 16,567 --------- --------- ---------- ---------- --------- Total assets $ 311,104 $11,796 $36,157 $16,587 $10,469 --------- --------- ---------- ---------- --------- --------- --------- ---------- ---------- --------- Pro Forma ---------- ASSETS Auto Dealerships Cash and cash equivalents $21,477 Accounts receivable 61,193 Inventories 162,141 Deferred income taxes 8,784 Other current assets 3,119 ---------- Total current assets 256,714 Property and equipment, net 21,344 Intangible assets, net 150,244 Due from related parties 699 Other assets 9,136 ---------- Total Auto Dealership assets 438,137 ---------- Auto Finance Cash and cash equivalents 16,530 Finance assets, net 775 Other assets 14,262 ---------- Total Auto Finance assets 31,567 ---------- Total assets $469,704 ---------- ----------
23 United Auto Group, Inc. Pro Forma Condensed Consolidated Balance Sheet As of June 30, 1996 (continued) (Dollars in thousands)
Sun Evans Hickman Automotive Automotive Standefer Pro Forma UAG Nissan Group Group Motor Adjustments --------- --------- ---------- ---------- --------- ---------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Auto Dealerships Floor plan notes payable $ 129,009 $8,978 $14,263 $9,808 $2,326 $(6,421) (15) 6,001 (5) Short-term debt 15,069 (5,000) (7) (4,000) (13) Accounts payable 20,626 916 1,357 1,977 741 (1,094) (15) Accrued expenses 14,150 646 2,946 766 798 (576) (15) (400) (14) Current portion of long-term debt 2,463 33 1,329 (1,000) (3) --------- --------- ---------- ---------- --------- Total current liabilities 181,317 10,573 19,895 12,551 3,865 Long-term debt 38,694 56 12,960 89 2,000 (1) 5,480 (1) (10,265) (3) (33,167) (6) (785) (15) Due to related party 1,191 Deferred income taxes 2,279 6 1,208 (3) --------- --------- ---------- ---------- --------- Total Auto Dealership liabilities 223,481 10,629 32,855 12,646 3,865 --------- --------- ---------- ---------- --------- Auto Finance Short-term debt 2,516 Accounts payable and other liabilities 1,502 --------- Total Auto Finance liabilities 4,018 --------- Minority interests subject to repurchase 15,299 15,299 (10) --------- Stock purchase warrants 1,597 (1,597) (11) --------- Commitments and contingent liabilities Stockholders' equity Convertible Preferred Stock 1 (1) (12) Common Stock 1 50 7,228 2 1 (50) (1) (7,228) (3) (1) (5) (2) (4) Non-voting Common Stock 9 (9) (5) Additional paid-in capital 68,319 1 897 (1) (1) 6,051 (1) 135,000 (2) (922) (4) 575 (9) 27,689 (10) 1,597 (11) 1 (12) 3,802 (13) Retained earnings (accumulated (1,116) (1) deficit) (1,612) 1,116 (3,926) 3,042 6,594 3,926 (3) (3,018) (4) (6,594) (5) (4,825) (6) (165) (9) (187) (14) (6,016) (15) --------- --------- ---------- ---------- --------- ---------------------- Total stockholders' equity 66,709 1,167 3,302 3,941 6,604 --------- --------- ---------- ---------- --------- Total liabilities, minority interests subject to repurchase, stock purchase warrants and stockholders' equity $ 311,104 $11,796 $36,157 $16,587 $10,469 --------- --------- ---------- ---------- --------- --------- --------- ---------- ---------- --------- Pro Forma ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Auto Dealerships Floor plan notes payable $163,964 Short-term debt 6,069 Accounts payable 24,523 Accrued expenses 18,330 Current portion of long-term debt 2,825 ---------- Total current liabilities 215,711 Long-term debt 15,062 Due to related party 1,191 Deferred income taxes 3,493 ---------- Total Auto Dealership liabilities 235,457 ---------- Auto Finance Short-term debt 2,516 Accounts payable and other liabilities 1,502 ---------- Total Auto Finance liabilities 4,018 ---------- Minority interests subject to repurchase Stock purchase warrants Commitments and contingent liabilities Stockholders' equity Convertible Preferred Stock Common Stock 1 Non-voting Common Stock Additional paid-in capital 243,009 Retained earnings (accumulated (12,781) deficit) ---------- Total stockholders' equity 230,229 ---------- Total liabilities, minority interests subject to repurchase, stock purchase warrants and stockholders' equity $469,704 ---------- ----------
24 United Auto Group, Inc. Pro Forma Condensed Consolidated Balance Sheet As of June 30, 1996 (continued) (Dollars in thousands) - --------------- (1) Represents the acquisition of Hickman Nissan for cash and debt, including expenses of $350, the related preliminary purchase price allocations to inventories and excess of cost over net assets acquired and the elimination of historical equity accounts. Also reflects the issuance of debt and equity to finance the acquisition and working capital. (2) Represents the net proceeds from the Offering. (3) Represents the acquisition of Sun Automotive Group for cash, including estimated expenses of $650, and the related preliminary purchase price allocations to inventories, property and equipment, other assets and excess of cost over net assets acquired, payments of long-term debt and the elimination of historical equity accounts. (4) Represents the acquisition of Evans Group for cash, including estimated expenses of $350, and the related preliminary purchase price allocations to inventories, property and equipment and excess of cost over net assets acquired, payments of long-term debt and the elimination of historical equity accounts. (5) Represents the acquisition of Standefer Motor for cash, including estimated expenses of $350, and the related preliminary price allocation to inventories, property and equipment and excess of costs over net assets acquired, payments of long-term debt and the elimination of historical equity accounts. (6) Represents the repayment for Senior Notes, the related prepayment penalty and writeoff of deferred costs charged to retained earnings and related deferred tax effect. (7) Represents the repayment of loans under the Credit Agreement. (8) Represents contribution of a portion of the net proceeds from the Offering to Atlantic Finance to finance expansion. (9) Represents the purchase of a 5% equity interest in Atlanta Toyota by its current general manager in exchange for a note. (10) Represents adjustments to give effect to the proposed acquisition of the minority interest in each of the DiFeo Group, Landers Auto and Atlanta Toyota in exchange for Common Stock plus certain other consideration in the Minority Exchange. (11) Represents a reclassification of the stock purchase warrants to stockholders' equity since, following the Offering, the stock purchase warrants will no longer be convertible into contingent value obligations. (12) Represents the Preferred Stock Conversion. (13) Represents the issuance of additional equity, the reclassification of deferred issuance costs and the repayment of short-term debt in July 1996. (14) Represents adjustment for retroactive increase in rental expense under amended leases relating to facilities in the DiFeo Group. (15) Represents adjustment to eliminate the impact of dealerships transferred or not acquired because Manufacturer approval was not received. 25 Selected Consolidated Financial Data The following table sets forth selected consolidated financial and other data of the Company for the three months ended December 31, 1992, each of the three years in the period ended December 31, 1995 and the six months ended June 30, 1995 and June 30, 1996 and the Predecessor Company financial data as of December 31, 1991 and for the year ended December 31, 1991 and the nine months ended September 30, 1992. The balance sheet data as of December 31, 1993, 1994 and 1995 and the statements of operations data for the years ended December 31, 1993, 1994 and 1995 have been derived from the financial statements of the Company which have been audited by Coopers & Lybrand L.L.P., the Company's independent accountants. The selected consolidated financial data set forth below for the Predecessor Company and the Company for the three months ended December 31, 1992, June 30, 1995 and June 30, 1996 are unaudited but have been prepared on the same basis as the audited consolidated financial statements and contain all adjustments, consisting of only normal recurring accruals, that the Company considers necessary for a fair presentation of the financial position and results of operations for the periods presented. Operating results for the six months ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. The selected financial data should be read in conjunction with the consolidated financial statements and related notes and Pro Forma Condensed Consolidated Financial Statements of the Company.
------------------------------------------------------------------------------------------------ Predecessor Company(1) The Company --------------------------- ------------------------------------------------------------------- Year Nine Months Three Months Ended Ended Ended Six Months Ended DOLLARS IN THOUSANDS, December 31, September 30, December 31, Years Ended December 31, June 30, EXCEPT PER SHARE DATA 1991 1992 1992 1993 1994 1995(2) 1995 1996(3) ------------ ------------- ------------ --------- --------- --------- --------- --------- Statements of Operations Data: Auto Dealerships Total revenues $404,319 $297,010 $98,040 $ 606,091 $ 731,629 $ 805,621 $ 352,739 $ 597,939 Cost of sales, including floor plan interest 361,961 257,845 85,712 537,688 647,643 720,344 316,525 531,560 Gross profit 42,358 39,165 12,328 68,403 83,986 85,277 36,214 66,379 Selling, general and administrative expenses 45,120 40,873 12,929 66,910 80,415 90,586 41,941 56,795 Operating income (loss) (2,762) (1,708) (601) 1,493 3,571 (5,309) (5,727) 9,404 Other interest expense 1,233 860 1,438 402 2,049 Auto Finance Loss before income taxes (616) (1,382) (701) (349) Total Company Minority interests 152 (117) (887) 366 917 (1,734) Benefit (provision) for income taxes (337) (197) (47) 2,089 (2,997) Net income (loss) (3,099) (1,905) (449) 96 (1,691) (3,466) (4,902) 3,898 Net income (loss) per common share $ .07 $ (.51) $ (.70) $ (1.19) $ .49
------------------------------------------------------------------------------------- The Company Predecessor Company ---------------------------------------------------------------- ------------------- As of As of December 31, As of June 30, DOLLARS IN THOUSANDS December 31, 1991 1992 1993 1994 1995 1995 1996 ------------------- --------- --------- --------- --------- --------- --------- Balance Sheet Data: Auto Dealerships Current assets $53,579 $ 72,045 $ 120,061 $ 118,534 $ 141,649 $ 119,909 $ 186,980 Current liabilities 60,568 75,127 117,494 125,825 139,447 128,027 181,317 Property and equipment, net 4,121 5,598 8,845 12,072 12,146 11,814 14,609 Intangible assets, net 667 20,665 22,832 23,018 48,774 22,700 66,131 Long-term debt 3,801 3,092 4,122 6,735 24,073 6,556 38,694 Auto Finance Net assets 291 3,501 3,714 12,549 Total Company Total assets 58,487 100,794 154,218 170,342 236,027 176,945 311,104 Minority interests subject to repurchase 7,024 7,338 7,962 13,608 6,555 15,299 Stock purchase warrants 1,020 1,597 Total stockholders' equity (6,316) 15,551 25,264 28,785 49,240 33,599 66,709
---------------------------------------------------------------------------------------------------- Predecessor Company The Company --------------------------- ----------------------------------------------------------------------- Year Nine Months Three Months Ended Ended Ended Six Months Ended December 31, September 30, December 31, Years Ended December 31, June 30, 1991 1992 1992 1993 1994 1995(2) 1995 1996(3) ------------ ------------- ------------ --------- --------- ----------- --------- ----------- Other Auto Dealerships Data: Gross profit margin 10.5% 13.2% 12.6% 11.3% 11.5% 10.6% 10.3% 11.1% Operating margin (0.7)% (0.6)% (0.6)% 0.2% 0.5% (0.7 )% (1.6)% 1.6% New cars sold at retail 14,597 11,677 4,150 18,608 22,464 25,138 11,088 17,509 Used cars sold at retail 5,195 3,335 1,535 7,891 8,340 8,953 3,674 8,542
- ------------------------------ (1) Predecessor Company represents the combined historical results of the DiFeo Group acquired by the Company on October 1, 1992. (2) Includes the results of Landers Auto from August 1, 1995. (3) Includes results of Atlanta Toyota from January 1, 1996 and of Steve Rayman Nissan from May 1, 1996. 26 Management's Discussion and Analysis of Financial Condition and Results of Operations General UAG is a leading acquirer, consolidator and operator of franchised automobile and light truck dealerships and related businesses. The Company believes that, after giving effect to the Contemporaneous Acquisitions, it will be the fourth largest retailer of new motor vehicles in the United States, operating 37 franchises located in Arizona, Arkansas, Connecticut, Georgia, New Jersey, New York and Tennessee and representing 22 American, Asian and European brands. As an integral part of its dealership operations, UAG sells used vehicles. In addition, the Company has recently established four stand-alone used car retail centers. All of UAG's dealerships include integrated service and parts operations, which are an important source of recurring revenues. The Company also owns Atlantic Finance, an automobile finance company that purchases prime credit quality automotive loans originated by both UAG and third-party dealerships. The Company's principal source of growth has come, and is expected to continue to come, from acquisitions of automobile dealerships. Therefore, the Company's period to period results of operations vary depending on the dates of such acquisitions. In addition, results of operations fluctuate due the cyclicality of unit sales of motor vehicles, particularly new vehicles. Such fluctuation is generally influenced by general economic conditions. See "-- Cyclicality." New vehicle revenues include sales to retail customers and to leasing companies providing consumer leasing. Used vehicle revenues include amounts received for used vehicles sold to retail customers, leasing companies providing consumer leasing, other dealers and wholesalers. Finance and insurance revenues come from sales of accessories such as radios, cellular phones, alarms, custom wheels, paint sealants and fabric protectors, as well as amounts received as fees for placing extended service contracts, credit insurance policies, financing and lease contracts. In the case of arranging financing, the Company receives a fee from the lender for originating the loan but is assessed a chargeback by the lender if the contract terminates, in certain cases before its scheduled maturity, and in other cases within 90 days of the making of the loan, which in either case can result from early repayment because of refinancing the loan, selling or trading in the vehicle or default on the loan. The Company establishes a reserve based on historical chargeback experience to anticipate future chargebacks. Revenues from finance and insurance products contribute a disproportionate share of operating profits. Service and parts revenues include fees paid by consumers for repair and maintenance service and the sale of replacement parts. In addition, through its automobile finance subsidiary, Atlantic Finance, the Company derives revenues from the purchase, sale and servicing of motor vehicle installment contracts originated by both UAG and third-party dealerships. Generally, finance receivables are accumulated by the Company until they attain a value in excess of $5.0 million, at which time they are sold into a commercial paper conduit (loan warehouse facility). An allowance for financing losses on receivables is provided for the period from the date of purchase to the date of sale. This allowance is shown as a reduction in receivables held for sale. Revenue is recognized upon sale to the conduit. Interest is received and credited to interest income based on the daily principal balance of the receivables outstanding. Loan servicing fees on receivables sold to the conduit are recognized as collected. The Company's selling expenses consist of compensation for sales department personnel, including commissions and related bonuses. General and administrative expenses include compensation for administration, finance and general management personnel, rent, insurance and utilities. Interest expense consists of interest charges on all of the Company's interest-bearing debt other than floor plan inventory financing. Interest expense on floor plan debt is included in cost of sales. The Company has accounted for each of its acquisitions by the purchase method of accounting and, as a result, the Company's financial statements include only the results of operations of the acquired dealerships from the effective date of acquisition. The financial information included in this Prospectus may not necessarily reflect the results of operations, financial position and cash flows of the Company in the future or what the results of operations, financial position and cash flows would have been had the acquisitions and Offering occurred during the period presented in the financial statements. 27 Results of Operations The following table sets forth, for the periods indicated, the percentage of applicable revenues represented by certain items contained in the Company's consolidated historical statements of operations:
----------------------------------------------------- Six Months Ended Year Ended December 31, June 30, 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- Auto Dealerships: Vehicle sales 87.2% 88.1% 88.9% 88.0% 89.5% Finance and insurance 4.1 3.8 3.7 4.1 3.7 Service and parts 8.7 8.1 7.4 7.9 6.8 --------- --------- --------- --------- --------- Total revenues 100.0 100.0 100.0 100.0 100.0 Cost of sales, including floor plan interest 88.7 88.5 89.4 89.7 88.9 --------- --------- --------- --------- --------- Gross profit 11.3 11.5 10.6 10.3 11.1 Selling, general and administrative expenses 11.0 11.0 11.2 11.9 9.5 --------- --------- --------- --------- --------- Operating income (loss) 0.2 0.5 (0.7) (1.6) 1.6 Related party interest income 0.0 0.0 0.4 0.4 0.3 Other interest expense (0.2) (0.1) (0.2) (0.1) (0.4) Equity in income (loss) of uncombined investees 0.0 (0.4) (0.1) (0.1) 0.0 --------- --------- --------- --------- --------- Income (loss) before income taxes 0.0 0.0 (0.6) (1.4) 1.5 Auto Finance: Revenues 100.0 100.0 100.0 100.0 Interest expense (32.8) * (17.1) Operating and other expenses * (327.9) * (116.8) --------- --------- --------- --------- --------- Loss before income taxes * (260.8) * (33.9) Total Company: Income (loss) before minority interests and provision for income taxes 0.0 (0.1) (0.7) (1.6) 1.4 Minority interests 0.0 (0.1) 0.0 0.3 (0.3) Benefit (provision) for income taxes 0.0 0.0 0.3 0.0 (0.5) --------- --------- --------- --------- --------- Net income (loss) 0.0% (0.2)% (0.4)% (1.3)% 0.6% --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
- ------------------------ * Not meaningful due to early stage of operations. The following discussion and analysis includes the Company's consolidated historical results of operations for 1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996. SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995 AUTO DEALERSHIPS DIFEO RESTRUCTURING. In an effort to increase profitability of the DiFeo Group, the Company commenced a broad restructuring program in the first quarter of 1995 ( the "DiFeo Restructuring"), which was substantially completed by the fourth quarter of 1995. First, the Company eliminated a total of 17 unprofitable franchises, or 45% of the DiFeo Group's total number of franchises, by voluntarily terminating 12 franchises and effectively ceasing to be the controlling or majority owner of five additional franchises. Second, the Company eliminated a level of senior management and shifted greater authority and responsibility to the general manager of each dealership. Third, the Company reduced personnel by approximately 250 employees (including senior management who were eliminated) and implemented pay plans linked to net profits and customer satisfaction. Fourth, the Company liquidated outdated inventory in order to lower inventory carrying costs and improve the utilization of space. Costs associated with the DiFeo Restructuring were approximately $0.7 million and $0.5 million for the year ended December 31, 1995 and the six months ended June 30, 1996, respectively, primarily related to severance. 28 REVENUES. Revenues increased by $245.2 million, or 69.5%, from $352.7 million to $597.9 million due primarily to the acquisitions of Landers Auto in August 1995, which contributed $160.4 million, Atlanta Toyota in January 1996, which contributed $85.7 million, and United Nissan in May 1996, which contributed $9.8 million. While revenues at the continuing franchises of the DiFeo Group increased by $47.9 million, or 16.3%, from $294.1 million to $342.0 million, such increase was more than offset by a decrease of $58.6 million in revenues due to the elimination of unprofitable franchises as part of the DiFeo Restructuring. Sales of new and used vehicles increased by $225.0 million, or 72.5%, from $310.2 million to $535.2 million. The acquisition of Landers Auto contributed $149.7 million, the acquisition of Atlanta Toyota contributed $79.0 million and the acquisition of United Nissan contributed $8.6 million. While sales at the continuing franchises of the DiFeo Group increased by $38.5 million, or 14.8%, from $259.4 million to $297.9 million, such increase was more than offset by a decrease of $50.8 million due to the elimination of unprofitable franchises as part of the DiFeo Restructuring. Unit sales of new and used vehicles increased by 57.9% and 132.5%, respectively, due to the acquisitions of Landers Auto, Atlanta Toyota and United Nissan and increased sales volume at the continuing franchises of the DiFeo Group, which increased by 8.3% and 24.6%, respectively. New vehicle selling prices increased approximately 3.3% due primarily to changes in Manufacturer pricing and the mix of new vehicles sold. Used vehicle selling prices increased approximately 23.8% due to changes in market demand which resulted in a change in the mix of used vehicles sold. Sales of finance and insurance products increased by $7.8 million, or 53.8%, from $14.5 million to $22.3 million, principally as a result of the acquisitions of Landers Auto, Atlanta Toyota and United Nissan. Sales of such products at the continuing franchises of the DiFeo Group increased by $4.0 million, or 31.0%, from $12.9 million to $16.9 million. Service and parts revenues increased by $12.4 million, or 44.3%, from $28.0 million to $40.4 million due principally to the acquisitions of Landers Auto, Atlanta Toyota and United Nissan. While revenues at the continuing franchises of the DiFeo Group increased by $5.5 million, or 25.3%, from $21.7 million to $27.2 million, such increase was more than offset by the elimination of unprofitable franchises as part of the DiFeo Restructuring. GROSS PROFIT. Gross profit increased by $30.2 million, or 83.4%, from $36.2 million to $66.4 million due principally to the acquisitions of Landers Auto, Atlanta Toyota and United Nissan. Gross profit at the continuing franchises of the DiFeo Group increased by $9.1 million, or 28.4%, from $32.0 million to $41.1 million. Gross profit as a percentage of revenues increased from 10.3% to 11.1% reflecting higher margins resulting from improved inventory controls, enhanced training of sales personnel and a change in marketing philosophy from a price strategy to a customer service strategy. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by $15.1 million, or 36.0%, from $41.9 million to $57.0 million due principally to the acquisitions of Landers Auto, Atlanta Toyota and United Nissan. Such expenses at the continuing franchises of the DiFeo Group increased by $3.9 million, or 11.2%, from $34.7 million to $38.6 million, and such expenses as a percentage of revenues decreased overall by 20.2% from 11.9% to 9.5% due principally to the DiFeo Restructuring. RELATED PARTY INTEREST INCOME. Related party interest income remained unchanged at $1.5 million. Such income is related to certain amounts owed the Company from minority partners and certain of their related entities on which the Company is contractually permitted to charge interest. The amounts owed arose from advances for certain business acquisitions and working capital advances for dealerships in which the Company has no interest. OTHER INTEREST EXPENSE. Interest expense other than floor plan increased by $1.6 million from $0.4 million to $2.0 million as a result of increased borrowings to finance the acquisitions of Landers Auto, Atlanta Toyota and United Nissan as well as the issuance of certain promissory notes as part of the consideration paid for Landers Auto and Atlanta Toyota. EQUITY IN INCOME (LOSS) OF UNCOMBINED INVESTEE. During the six months ended June 30, 1995, equity in loss of uncombined investee was $0.5 million, as compared to income of $0.1 million during the six months ended June 30, 1996. This item represents a minority interest in a group of dealerships located in Jersey City, New Jersey. 29 INCOME (LOSS) BEFORE INCOME TAXES. Pretax income from dealership operations increased by $14.1 million from a loss of $5.1 million to a profit of $9.0 million as a result of the factors described above, including the DiFeo Restructuring. AUTO FINANCE LOSS BEFORE INCOME TAXES. The pretax loss from operations at Atlantic Finance decreased by $0.4 million from $0.7 million to $0.3 million. Atlantic Finance was formed in the first quarter of 1994 and commenced loan operations in January 1995. TOTAL COMPANY MINORITY INTERESTS. Minority interests changed by $2.6 million from a charge of $0.9 million to a credit of $1.7 million as a result of the factors described above. INCOME TAXES. The Company has provided for federal and state income taxes on its period earnings at appropriate rates. The 1996 effective tax rate exceeds the statutory rate due to the non-deductibility of the amortization of the excess of cost over net assets acquired. No benefit was recorded for losses in 1995 since realization was deemed less likely than not at that time. NET INCOME (LOSS). Net income increased by $8.8 million from a loss of $4.9 million to a profit of $3.9 million due to the factors described above. 1995 COMPARED TO 1994 AUTO DEALERSHIPS REVENUES. Revenues increased by $74.0 million, or 10.1%, from $731.6 million to $805.6 million due to the acquisition of Landers Auto in August 1995. Revenues at Landers Auto contributed $116.3 million. Revenues at the continuing franchises of the DiFeo Group increased by $6.2 million, or 1.0%, from $592.5 million to $598.7 million. Such increase was more than offset by a decrease of $48.5 million in revenues due to the elimination of unprofitable franchises as part of the DiFeo Restructuring. Sales of new and used vehicles increased by $72.0 million, or 11.2%, from $644.4 million to $716.4 million. The acquisition of Landers Auto contributed $109.2 million of such increase. While revenues at the continuing franchises of the DiFeo Group increased by $5.0 million, or 0.9%, from $524.0 million to $529.0 million, such increase was more than offset by a decrease of $42.3 million in sales due to the elimination of unprofitable franchises as part of the DiFeo Restructuring. Unit sales of new and used vehicles increased by 11.9% and 7.4%, respectively, due principally to the acquisition of Landers Auto. Sales of new vehicles increased by 5.6% and sales of used vehicles decreased by 10.3% at the continuing franchises of the DiFeo Group, offset by the elimination of unprofitable franchises as part of the DiFeo Restructuring. New vehicle selling prices increased by 4.4% due primarily to changes in Manufacturer pricing. Used vehicle selling prices increased by 17.2% due to changes in market conditions which resulted in a change in the mix of used vehicles sold. Sales of finance and insurance products increased by $2.3 million, or 8.3%, from $27.5 million to $29.8 million due to the acquisition of Landers Auto. Sales of such products increased by $2.5 million, or 10.8%, from $23.2 million to $25.7 million at the continuing franchises of the DiFeo Group, offsetting in part the $2.3 million decrease in sales due to the elimination of unprofitable franchises as part of the DiFeo Restructuring. Service and parts revenues decreased by $0.3 million, or 0.5%, from $59.7 million to $59.4 million due to the DiFeo Restructuring, offset by increased service and parts revenues attributable to Landers Auto. GROSS PROFIT. Gross profit increased by $1.3 million, or 1.5%, from $84.0 million to $85.3 million. The acquisition of Landers Auto added $10.6 million during the five months the Company owned it. Gross profit at the continuing franchises of the DiFeo Group decreased by $3.3 million, or 4.7%, from $70.2 million to $66.9 million. Gross profit as a percentage of revenues decreased 7.8% from 11.5% to 10.6% as the Company implemented the DiFeo Restructuring. 30 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by $10.2 million, or 12.7%, from $80.4 million to $90.6 million due principally to the acquisition of Landers Auto. Such expenses as a percentage of revenues increased from 11.0% to 11.2% of revenues. Selling, general and administrative expenses at the continuing franchises of the DiFeo Group increased by $3.9 million from $66.1 million to $70.0 million. RELATED PARTY INTEREST INCOME. Related party interest income was $3.0 million in 1995. There was no such income in 1994. OTHER INTEREST EXPENSE. Interest expense other than floor plan increased by $0.5 million, or 55.6%, from $0.9 million to $1.4 million as a result of increased borrowings to finance the acquisitions of Landers Auto and Atlanta Toyota and the issuance of certain promissory notes as part of the consideration paid for Landers Auto, offset in part by a reduction in other interest-bearing debt. EQUITY IN LOSS OF UNCOMBINED INVESTEES. Equity in loss of uncombined investees decreased by $2.1 million, or 72.4%, from $2.9 million to $0.8 million due to improved performance of certain dealerships in which the Company retains a minority interest. LOSS BEFORE INCOME TAXES. The pretax loss from dealership operations increased from $0.2 million to $4.5 million, including the costs incurred in connection with the DiFeo Restructuring. The deterioration in the performance of the DiFeo Group during the first quarter of 1995 led management to undertake the DiFeo Restructuring. AUTO FINANCE LOSS BEFORE INCOME TAXES. The pretax loss from operations at Atlantic Finance increased by $0.8 million from $0.6 million to $1.4 million, reflecting the early stage of its operations. Atlantic Finance was formed in the first quarter of 1994. TOTAL COMPANY MINORITY INTERESTS. Minority interests changed by $1.3 million from a charge of $0.9 million to a credit of $0.4 million as a result of the factors described above. PROVISION FOR INCOME TAXES. An income tax credit of $2.1 million was recorded in 1995. The credit was taken as the Company determined in the fourth quarter that it was more likely than not that, due to the DiFeo Restructuring, future taxable income from operations would be sufficient to fully recognize a net deferred tax asset at December 31, 1995. Such net deferred tax asset was provided as a result of tax basis operating losses sustained in 1994 and 1995. NET INCOME (LOSS). Net income decreased by $1.8 million from a loss of $1.7 million to a loss of $3.5 million due to the factors described above. 1994 COMPARED TO 1993 AUTO DEALERSHIPS REVENUES. Revenues increased by $125.5 million, or 20.7%, from $606.1 million to $731.6 million. This increase was due to the full-year contributions of dealerships acquired during 1993 by the DiFeo Group that were located within its trading area and volume increases at the existing locations. Sales of new and used vehicles increased by $115.9 million, or 21.9%, from $528.5 million to $644.4 million. Unit sales of new and used vehicles increased by 20.7% and 5.7%, respectively, due to the factors listed above. New vehicle prices increased by 4.0% due primarily to changes in Manufacturer pricing. Used vehicle prices increased by 17.1% due to changes in market conditions which resulted in a change in the mix of used vehicles sold. Sales of finance and insurance products increased by $2.8 million, or 11.3%, from $24.7 million to $27.5 million due principally to the Company's successful effort to increase the sale of such products. Service and parts revenues increased by $6.8 million, or 12.8%, from $52.9 million to $59.7 million reflecting both the additional dealerships acquired by the DiFeo Group and an increase in service and parts activity at its existing franchises. 31 GROSS PROFIT. Gross profit increased by $15.6 million, or 22.8%, from $68.4 million to $84.0 million due to the full-year contributions of dealerships acquired during 1993 and a significant increase in gross profit from finance and insurance products and, to a lesser extent, service and parts operations. Gross profit as a percentage of revenues increased from 11.3% to 11.5% due to an increase in the sale of finance and insurance products offset by a decline in vehicle profitability. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by $13.5 million, or 20.2%, from $66.9 million to $80.4 million due to the full-year contributions of dealerships acquired during 1993 and additions to overhead, principally personnel. Such expenses as a percentage of revenues remained constant at 11.0%. OTHER INTEREST EXPENSE. Interest expense other than floor plan declined by $0.3 million, or 25.0%, from $1.2 million to $0.9 million due to a decrease in outstanding indebtedness resulting from the placement of shares of Class A Preferred Stock for an aggregate price of $15.7 million and of shares of Common Stock for an aggregate price of $0.5 million at the end of December 1993. EQUITY IN LOSS OF UNCOMBINED INVESTEES. Equity in loss of uncombined investees was $2.9 million in 1994. INCOME (LOSS) BEFORE INCOME TAXES. Pretax income from dealership operations declined from a profit of $0.3 million to a loss of $0.2 million due the factors described above. AUTO FINANCE LOSS BEFORE INCOME TAXES. During the first quarter of 1994, the Company formed a wholly owned automobile finance subsidiary, Atlantic Finance, located in Rochester, New York. Losses from its early stage operations totaled $0.6 million in 1994. TOTAL COMPANY MINORITY INTERESTS. Minority interests charge changed by $0.8 million from $0.1 million to $0.9 million due to the factors described above. INCOME TAXES. The provision for income taxes was reduced from $0.1 million to $0.0 in 1994. NET INCOME (LOSS). Net income decreased by $1.8 million from $0.1 million to a loss of $1.7 million due to the factors described above. Liquidity and Capital Resources The cash requirements of the Company are primarily for acquisition of new dealerships, working capital, including inventory, and expansion of existing facilities. Historically, these cash requirements have been met through issuances of equity under the Equity Facility (as defined herein) and issuances of Senior Notes (with Warrants) under the Securities Purchase Agreements, neither of which currently has any availability, borrowings under the Credit Agreement, which will have terminated prior to or upon consummation of the Offering, floor plan facilities and warehouse facilities at Atlantic Finance. At June 30, 1996, the Company had working capital of $5.7 million, including accounts receivable of $48.2 million and inventory of $121.3 million, offset by $34.8 million in accounts payable and accrued expenses and $129.0 million in revolving floor plan financing arrangements. The Company's floor plan lenders limit the aggregate amount of such borrowings by formulas based on the cost of vehicles in inventory. During the first half of 1996, operating activities resulted in net cash provided by operations of $8.1 million, principally from income generated by operations and an increase in trade credit. For the first half of 1996, the Company used $23.9 million in investing activities, principally for the acquisitions of Atlanta Toyota and United Nissan and capital expenditures. 32 Net cash provided by financing activities during the first half of 1996 totaled $21.5 million, principally from the issuance of capital stock under the Equity Facility for an aggregate price of $16.0 million and the issuance of additional Senior Notes (with Warrants) in the aggregate principal amount of $13.2 million, net of the repayment of certain short-term debt, principally floor plan. For 1995, operating activities for the automobile dealerships provided cash of $0.7 million. This was due principally to significantly lower inventories due to the implementation of certain controls and procedures designed to maximize inventory turnover, offset by a reduction in floor plan lending available for used car financing. Net cash used by Atlantic Finance operating activities was $8.0 million during 1995 due principally to the origination and warehousing of automobile loans. During 1995, the Company used $25.8 million in investing activities, principally in the acquisition of Landers Auto, the cash cost of which was $20.0 million, and capital expenditures of $1.7 million. Net cash provided by financing activities in 1995 totaled $37.6 million resulting principally from the issuance of capital stock under the Equity Facility for an aggregate price of $25.2 million, the issuance of Senior Notes (with Warrants) in the aggregate principal amount of $16.3 million and a borrowing in the amount of $8.0 million under a short-term credit facility with Morgan Guaranty, net of a reduction in floor plan borrowings of $11.9 million, net borrowings of $4.2 million on the warehouse credit line at Atlantic Finance and certain other costs associated with the issuance of debt and equity securities. In September 1995, the Company entered into the Securities Purchase Agreements providing for the issuance and sale of up to $35 million aggregate principal amount of Senior Notes due 2003 and Warrants to purchase Common Stock. See "Use of Proceeds" and "Description of Capital Stock -- Warrants." The permitted uses of proceeds from the sale of the Senior Notes are to finance acquisitions, to make capital contributions to Atlantic Finance, to make capital expenditures and to provide working capital. As of December 31, 1995 and March 31, 1996, $16.3 million and $23.4 million aggregate principal amount of Senior Notes, respectively, were outstanding. In December 1993, the Company entered into the Equity Facility providing for the issuance and sale of Class A Preferred Stock and Common Stock for an aggregate price of $77.8 million. The initial closing under the Equity Facility occurred in December 1993 and provided aggregate net proceeds of $15.2 million. In addition, in connection with the initial closing under the Equity Facility, shares of then outstanding common stock were converted into shares of Common Stock valued at $10.3 million. Proceeds from subsequent closings under the Equity Facility during 1994, 1995 and 1996 equaled $5.5 million, $25.2 million and $22.5 million, respectively. In addition, proceeds from additional offerings of equity and the Additional Warrants (as defined herein) during July 1996 equaled $4.1 million. The Company finances substantially all of its new and used vehicle inventory under revolving floor plan financing arrangements with General Motors Acceptance Corporation, Chrysler Credit Corporation, World Omni Financial Corp. and Nissan Motor Acceptance Corporation. The floor plan lenders pay the Manufacturer directly with respect to new vehicles. The Company makes monthly interest payments on the amount financed but is not required to make loan principal repayments prior to the sale of new and used vehicles. Substantially all of the assets of the Company's dealerships are subject to security interests granted to their floor plan lending sources. The Company believes that its existing capital resources, including the net proceeds of the Offering, will be sufficient to meet anticipated cash requirements, including those relating to the Contemporaneous Acquisitions, through at least the end of 1997. To the extent the Company pursues other significant acquisitions, it will need to raise additional capital either through the issuance of equity or debt securities or through borrowings. There can be no assurance that such required additional capital will be available on reasonable terms, if at all, at such times as required by the Company. 33 Cyclicality The Company's business, as well as the entire automotive retailing industry, is dependent on a number of factors relating to general economic conditions, including the price and availability of fuel, interest rate fluctuations, economic recessions and consumer business cycles. The Company believes its geographic diversity, expansion into automobile financial services and emphasis on service and repair operations help to reduce the overall impact of these general economic factors on the Company. The Company's business, however, may be materially adversely affected by severe adverse economic conditions. Seasonality The Company's combined business is modestly seasonal overall. The greatest seasonalities exist in the DiFeo Group, which operates in the New York metropolitan area. At the DiFeo Group, the second and third quarters are the strongest with the fourth and first quarters the weakest with respect to sales and profits relating to vehicle sales. The service and parts business at all dealerships experiences relatively modest seasonal fluctuations. At the Company's other dealerships, seasonality in all business sectors is modest. Effects of Inflation The Company believes that the relatively moderate rates of inflation over the last few years have not had a significant impact on revenue or profitability. The Company does not expect inflation to have any near-term material effects on the sale of its products and services. However, there can be no assurance that there will be no such effect in the future. The Company finances substantially all of its inventory through various revolving floor plan arrangements with interest rates which vary based on the prime rate or LIBOR. Such rates have historically increased during periods of increasing inflation. The Company does not believe that it would be at a competitive disadvantage should interest rates increase due to increased inflation since most other automobile dealers have similar floating rate borrowing arrangements. Recent Accounting Pronouncements In October 1995, The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation ("SFAS 123"). SFAS 123 establishes financial and reporting standards for stock based compensation plans. The Company anticipates adopting the disclosure only provisions of this standard during 1996. In June 1996, The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS 125"). SFAS 125 establishes financial and reporting standards for derecognition of certain liabilities. The Company is currently assessing the impact that this standard may have on its financial position and results of operations. 34 Business Overview UAG is a leading acquirer, consolidator and operator of franchised automobile and light truck dealerships and related businesses. The Company believes that, after giving effect to the Contemporaneous Acquisitions, it will be the fourth largest retailer of new motor vehicles in the United States, operating 37 franchises located in Arizona, Arkansas, Connecticut, Georgia, New Jersey, New York and Tennessee and representing 22 American, Asian and European brands. As an integral part of its dealership operations, UAG sells used vehicles. In addition, the Company has recently established four stand-alone used car retail centers. All of UAG's dealerships include integrated service and parts operations, which are an important source of recurring revenues. The Company also owns Atlantic Finance, an automobile finance company engaged in the purchase, sale and servicing of prime credit quality automobile loans originated by both UAG and third-party dealerships. For 1995, on a pro forma basis, UAG had revenues of approximately $1.35 billion and sold 37,358 new and 22,060 used vehicles. The Company was formed to capitalize on consolidation opportunities within the highly fragmented $660 billion automotive retailing industry. In 1995, approximately 22,000 dealerships representing more than 48,000 franchises sold 14.8 million new vehicles and 15.7 million used vehicles for sales of $290 billion and $180 billion, respectively. Yet, the Company estimates that the largest 100 dealership groups generated less than 10% of these total revenues and control less than 5% of all franchised dealerships. As capital requirements to operate dealerships continue to increase and many owners who were granted franchises in the 1950s and 1960s approach retirement age, many individual dealers are seeking exit opportunities. These conditions present attractive consolidation opportunities for larger automobile retailers such as UAG. Since its initial acquisition in 1992, the Company has completed 13 additional acquisitions, including the Contemporaneous Acquisitions. Management believes that UAG is well-positioned to continue capitalizing on the consolidation trend in the automotive retailing industry due to its proven acquisition history, diverse geographic presence, substantial size and financial resources. The Company believes that it enjoys significant competitive advantages. The Company's diverse product portfolio reduces the risks associated with changes in consumer preferences and dependence on any single brand or market segment. Geographic diversity mitigates the Company's exposure to regional economic and weather conditions. In addition, the Company's large size allows it to centralize certain administrative functions and negotiate favorable pricing on certain automotive parts, aftermarket products, supplies and advertising. Furthermore, the Company benefits from superior access to capital as compared to smaller dealerships. Growth Strategy UAG seeks to lead the consolidation of the automotive retailing industry and increase stockholder value through a growth strategy focused on (i) acquiring profitable dealership operations, (ii) leveraging its new car franchises to grow higher-margin businesses and (iii) generating incremental revenue from its automobile finance business. ACQUIRE PROFITABLE DEALERSHIP OPERATIONS UAG seeks to capitalize on continuing consolidation in the U.S. automotive retailing industry by selectively acquiring profitable dealerships. The Company targets dealerships or dealership groups with established records of profitability and customer satisfaction as well as experienced management willing to remain in place. The Company focuses on opportunities in geographic markets with above-average projected population and job growth. Of the approximately 22,000 dealerships in the United States, the Company believes that at least 2,000 dealerships, some of which are members of dealership groups, meet its acquisition criteria. The Company's acquisition program has been specifically tailored to address dealers' desire to retain a management role in their businesses while achieving personal liquidity. Owners of acquired dealerships typically continue in their role as dealership manager and some also participate in overall Company operations through their roles on UAG's Operating Committee. The Company believes it provides dealership managers additional management tools as its economies of scale, marketing expertise and corporate resources act as a catalyst for continual dealership growth. In addition, the owner may retain an equity interest in the business through the ownership of capital stock and/or stock options of UAG. 35 GROW HIGHER-MARGIN BUSINESSES UAG is leveraging its new car franchises and applying its financial resources to grow higher-margin businesses such as the retail sale of used vehicles, aftermarket products and service and parts. USED VEHICLES. Used vehicle sales by franchised dealers, with average prices approximately 58% of new vehicle prices, typically generate higher gross margins than new cars because of limited comparability among them and the somewhat subjective nature of their valuation. Consumer acceptance of used vehicle purchasing has grown due principally to the following factors: (i) the availability of late-model, low-mileage used automobiles has increased due to the large supply of cars coming off short-term leases and from rental company fleets; (ii) the quality of motor vehicles has generally improved; and (iii) the prices of new cars have risen. The Company has taken advantage of this trend by recently opening four stand-alone used vehicle operations. UAG believes that by virtue of its new vehicle franchises it enjoys significant advantages over both independent and chain used-car companies in sourcing used vehicles. Specifically, the Company has access to (i) a steady supply of used cars accepted as trade-ins for new vehicle purchases, (ii) off-lease vehicles that were originally leased through the new vehicle franchise and (iii) used car auctions open only to new car dealers. In addition, only new car franchises are able to sell used cars certified by the Manufacturer under newly introduced programs in which the Manufacturer supports specific high-quality used cars with extended warranties and attractive financing options. AFTERMARKET PRODUCTS. Each sale of a new or used vehicle provides the opportunity for the Company to sell aftermarket products. A substantial portion of the gross profit on the sale of a vehicle generally is earned from the sale of aftermarket products. Aftermarket products include accessories such as radios, cellular phones, alarms, custom wheels, paint sealants and fabric protectors, as well as agency services such as extended service contracts and credit insurance policies. In addition, the Company receives fees for placing financing and lease contracts. In order to meet customers' needs and help create a "one-stop" shopping experience, management continues to expand aftermarket product offerings. SERVICE AND PARTS. Each of UAG's dealerships offers a fully integrated service and parts department. The service and parts business provides an important recurring revenue stream to the Company's dealerships, which may help to mitigate the effects of downturns in the automobile sales cycle. Unlike independent service shops or used car dealerships with service operations, UAG is qualified to perform work covered by Manufacturer warranty. Since warranty service work is paid for by the Manufacturer, consumers are motivated to service their vehicles at a dealership for the warranty period. In recent years, Manufacturers have generally lengthened standard warranty coverage on new cars to three years/36,000 miles and introduced warranty coverage on used cars, further enhancing customer retention opportunities in the service area. To grow their service and parts businesses, UAG dealerships have implemented programs to track maintenance records of customers and contact them regarding dealer promotions and maintenance schedules. In addition, the Company is actively marketing warranty-covered services to potential customers such as municipalities and corporations with large fleets of automobiles located near certain of its dealerships. The Company is able to offer repair services to such customers on a more efficient and less costly basis than such customers generally can perform themselves. The Company believes that its market share will grow at the expense of independent mechanics' shops, which may be unable to address the increased mechanical and electronic sophistication of today's motor vehicles and the increased expenses of compliance with more stringent environmental regulations. GENERATE INCREMENTAL REVENUE FROM AUTOMOBILE FINANCE BUSINESS In 1995, industry wide, approximately 72% of new and 73% of used automobile purchases from franchised dealerships were financed. To capitalize on this market, the Company established Atlantic Finance, its own automobile finance subsidiary. Atlantic Finance purchases, sells and services prime credit quality automobile loans originated by both UAG and third-party dealerships. Based in Rochester, New York, Atlantic Finance commenced loan operations in January 1995 and currently serves approximately 127 dealerships in Connecticut, New Jersey and New York. Atlantic Finance provides the Company with another opportunity to earn incremental revenue on its vehicle sales. Atlantic Finance's strategy is to grow by (i) increasing its business with existing UAG dealerships, including those with which it has yet to commence financing activities, (ii) commencing financing activities with dealerships acquired by 36 UAG in the future and (iii) using its presence in its local operating markets to cultivate relationships with additional unaffiliated dealerships. Atlantic Finance's goal is to ultimately purchase up to 50% of its finance contracts from non-UAG dealers. Operating Strategy EMPHASIZE CUSTOMER SERVICE Central to UAG's overall philosophy is customer-oriented service designed to meet the needs of an increasingly sophisticated and demanding automotive consumer. The Company seeks to provide its customers with a satisfying, pleasant and informative retailing experience, which entails "one-stop" shopping convenience, competitive pricing and a sales staff that is knowledgeable about product offerings and responsive to a customer's particular needs. The Company's goal is to establish lasting relationships with its customers, which it believes enhance its reputation in the community and create the opportunity for significant repeat and referral business. The quality of customer service provided by dealerships' sales and service departments are measured by CSI scores, which are derived from data accumulated by Manufacturers through individual customer surveys. UAG relies on this data to improve dealership operations and uses it as a factor in determining the compensation of general managers and sales and service personnel in all its dealerships. CSI coordinators are responsible for ensuring top quality customer service at the Company's dealerships. Training of the sales force focuses on providing skills that improve its interaction with the customer. Additional training is provided by organizations with superior reputations for customer service, which the Company has engaged in its ongoing effort to refine the automobile purchasing experience. The Company's most recent CSI scores indicate that most of its dealerships ranked at or above the average CSI scores for their regions. EMPLOY PROFESSIONAL MANAGEMENT TO IMPROVE OPERATIONS The Company implements professional management practices throughout its business operations. To ensure "best practices" are promoted throughout the organization, the Company has established an Operating Committee comprised of the Company's Chairman and Chief Executive Officer and select dealership managers, which meets monthly to share business experiences and ideas. See "Management -- Operating Committee." The Company believes it applies financial controls which exceed those required by Manufacturers and those customarily found at the typical dealership. Currently, the Company's dealerships' management information systems collect operational data such as customer records, invoicing, payroll and inventory, as well as routine accounting information. The dealerships also maintain customer data bases that track information such as showroom traffic, aftermarket product purchases and service and parts usage, which are utilized in pursuing follow-on sales opportunities. Industry Overview With more than $660 billion in 1995 sales, automotive retailing is the third largest domestic industry group in the United States, representing nearly 5% of U.S. gross domestic product. The industry is highly fragmented and largely privately held with approximately 22,000 automobile dealerships representing more than 48,000 franchises. In 1995, U.S. franchised automobile dealers sold 14.8 million new vehicles and 15.7 million used vehicles for sales of approximately $290 billion and $180 billion, respectively. Manufacturers originally established franchised dealer networks for the distribution of their vehicles as single-dealership, single-owner operations. In return for exclusive distribution rights within specified territories, Manufacturers exerted significant influence over such matters as a dealer's location, inventory size and composition and merchandising programs, as well as the identity of owners and managers. This strict control contributed to the proliferation of small dealerships, which at their peak in the late 1940s numbered in excess of 49,000. Several Manufacturers went out of business in the 1950s, and the number of dealerships decreased to 36,000 by 1960. Significant industry changes took place in the 1970s when the oil embargo forced dramatic increases in gasoline prices and foreign Manufacturers increased their penetration of the U.S. market with fuel-efficient, low-cost vehicles. These competitive pressures offered dealers a platform for stronger negotiating positions with Manufacturers thereby fostering a change in the traditional distribution system. Dealers began to add foreign franchises and the phenomenon of the multi-franchise automobile dealer, or "megadealer," emerged, prompting both significant acquisition activity 37 and the consolidation activities of the 1980s. The easing of restrictions against megadealers combined with continual competitive pressures upon undercapitalized dealerships has led to further consolidation of the industry. Since 1960, the number of dealerships has declined 39% to the current 22,000 level. As the industry has evolved, so has the dealership profile. Over the past three decades, there has been a trend toward fewer, but larger, dealerships. In 1995, each of the largest 100 dealer groups had more than $140 million in revenues. Although significant consolidation has taken place since its inception, the industry today remains highly fragmented, with the largest 100 dealer groups generating less than 10% of total revenues and controlling less than 5% of all franchised dealerships. Dealership Operations The Company's management structure is designed to support and encourage entrepreneurial drive and individual responsibility. Each dealership is operated as a distinct profit center, where dealership managers are given a high degree of autonomy. The Company believes that its dealership managers, as long-time members of the local community, are best able to judge how to conduct day-to-day operations in a manner consistent with the established character and needs of the local community. A general manager oversees the operations, personnel and financial performance of the dealership, which is typically staffed by a sales manager, a parts manager, a service manager, sales representatives, technicians and parts employees. The sales staff of each UAG dealership is compensated primarily on a commission basis, while the general manager, service manager and parts manager receive a combination of salary and performance bonus. General managers prepare monthly forecasts based on historical information and projected trends, and a component of each general manager's compensation is determined by meeting or exceeding these operating plans. During the year, general managers regularly review their dealerships' progress with senior management and make appropriate adjustments as needed. To promote communication and efficiency in operating standards, general managers and members of senior management attend several Company-wide strategy sessions each year. In addition, management attends various industry-sponsored leadership and management seminars and receive continuing education in product, marketing strategies and management information systems. The Company's dealerships engage in a number of interrelated businesses: new vehicle sales; used vehicle sales; sales of aftermarket products; and service and parts operations. 38 NEW VEHICLES On a pro forma basis, in 1995, UAG sold at retail 37,358 new vehicles, generating $846.6 million in revenues, or 62.7% of total auto dealership revenues. The Company sells 22 American, Asian and European brands ranging from economy cars to luxury cars and sport utility vehicles. The following table sets forth, on a pro forma basis for 1995, certain information relating to new vehicles sold at retail by the Company:
------------------------------------ Number of New % of New Vehicles Sold at Vehicles Sold at Manufacturer Retail Retail (1) - ---------------------------------- ---------------- ------------------ Toyota 11,456 30.7% Nissan 7,777 20.8 Chrysler 7,661 20.5 General Motors 4,204 11.3 BMW 1,900 5.1 Honda 1,661 4.4 Mitsubishi 1,087 2.9 Hyundai 862 2.3 Land Rover 378 1.0 Isuzu 159 0.4 Audi 81 0.2 Porsche 75 0.2 Suzuki 57 0.2 ---------------- ------------------ Total 37,358 100.0% ---------------- ------------------ ---------------- ------------------
- ------------------------ (1) Amounts may not add due to rounding. UAG purchases substantially all of its new car inventory directly from Manufacturers. Manufacturers allocate inventory based on the size and location of dealerships, but actual shipments result from negotiations with individual dealers. From time to time, UAG will exchange new vehicles with other dealerships to accommodate customer demand and balance inventory. The Company believes that larger dealers such as UAG are better positioned to secure favorable inventory shipments and optimize Manufacturers' allocations through its retail network. UAG finances its inventory purchases through revolving credit arrangements known in the industry as floor plan facilities. As a result of its size, UAG is able to secure floor plan financing on terms more favorable than those generally available to smaller dealers. As required by law, UAG posts the Manufacturer's suggested retail price, or "MSRP," on every new vehicle. However, as is customary in the industry, the final sales price is generally a negotiated price. The Company continues to evaluate changing consumer preferences for vehicle purchasing. For example, certain dealerships have implemented "value pricing," where the dealer is given less flexibility to negotiate between the MSRP and wholesale price. New vehicle retail sales are made to individual customers and to leasing companies providing consumer leasing. Industry wide, the percentage of new vehicle retail sales that are leasing transactions has increased from 13.5% in 1990 to 31.5% in 1995. Manufacturers have encouraged this trend through their captive finance companies by supporting residual values in such a way so as to reduce consumers' monthly lease payments, particularly for shorter-term leases. This method has attracted consumers to shorter-term leases, which has the effect of bringing the consumer back to the market sooner than if the purchase were debt financed and providing new car dealerships with a steady source of late-model, off-lease vehicles for their used car inventory. In addition, because the vehicle usually remains under factory warranty for the term of the lease, the dealership has the opportunity to provide repair service to the lessee. 39 USED VEHICLES On a pro forma basis, in 1995, UAG sold at retail approximately 22,060 used vehicles, generating $281.2 million in revenues, or 20.8% of total auto dealership revenues. The used car department is becoming an increasingly significant profit center of a franchised dealership. Used vehicles typically generate higher gross margins than new vehicles because of their limited comparability and the somewhat subjective nature of their valuation. Profits from used cars sales are dependent primarily on the ability to source a low-cost, high-quality supply and effectively manage inventory. UAG's dealerships acquire their used cars through trade-ins, lease expirations and auctions. Off-lease vehicles are regarded as the highest quality in their age class due to their low mileage and good condition relative to fleet and rental vehicles. When a leasing customer declines to purchase the vehicle upon expiration of the lease, industry practice is to offer it to the dealer that originated the transaction before it is offered to other dealers or sold at auction. In addition, UAG purchases a significant portion of its used car inventory at "closed" auctions, which offer off-lease, rental and fleet vehicles. Such auctions can be attended only by new car dealers. The balance of its used car inventory is purchased at "open" auctions, which offer repossessed cars and cars sold by other dealers. The Company has specialized used car managers who attend auctions several times a week and can buy for an entire division. The Company sells used vehicles at its franchised dealerships as well as at four stand-alone used vehicle operations. At its multi-brand dealerships, trade-ins obtained at one location are generally transferred to the location that sells that particular brand of new vehicles, where customer interest for that brand is likely to be stronger and the salespersons' knowledge of that brand is typically greater. A well-stocked used vehicle inventory allows the Company's salespersons to offer high-quality used vehicles not only to customers shopping for a used vehicle, but also to customers who come to the dealership to buy a new vehicle and then realize that they cannot afford one. In order to capitalize further on the increased popularity of used cars, the Company has opened four "stand-alone" used car centers. Two operate in the DiFeo Group under the name "UAG AutoMart" and two operate as part of the Landers Auto division under the "Landers" name. As a result of these and other initiatives, the Company expects its used car sales to increase as a percentage of total vehicle sales in the future. The Company has developed a systematic approach to managing its used car inventory. Poor-quality trade-ins and used cars that have remained unsold for a specific period of time varying generally from 60 to 75 days are sold at auction. In the past, the volume of used cars that UAG has sold to certain auctions has afforded it seller's fee discounts and favorable display locations and times, which tend to maximize the vehicle's sale price. The Company has taken several initiatives to enhance customer confidence in used cars, including offering extended warranties, stocking higher-quality, late-model used cars and participating in Manufacturer certification programs. Under such certification programs, which are available exclusively to new car dealers, Manufacturers support used vehicles with extended factory warranties and attractive financing options. The Company performs the rigorous inspections and reconditioning required for certification. Management believes that its size is an advantage over smaller new car dealers, who may not receive a sufficient supply to justify dedicating resources to the certification process. The Company believes that its status as a franchised new car dealer provides it a distinct competitive advantage over independent used car sellers and superstores in terms of access to the highest-quality and lowest-cost supply of used vehicles. Vehicles traded in for used cars are generally older, of poorer quality and out-of-warranty compared to trade-ins received at a new car franchise. New car dealers generally have the first opportunity to purchase the desirable off-lease vehicles, while independents must bid for the remaining vehicles and subsequently may incur brokerage fees and costs of transporting them to their stores. Auctions of off-lease and fleet vehicles and rental cars with guaranteed Manufacturer buyback are open only to franchised new car dealers. In addition to advantages in sourcing used cars, management believes that its affiliation with Manufacturers and ability to offer certified used cars with factory warranties raises the consumer's level of trust and ultimately their inclination to buy used cars from franchised rather than independent sellers. 40 AFTERMARKET PRODUCTS On a pro forma basis, in 1995, UAG's sales of aftermarket products generated $114.4 million in revenues, or 8.5% of total auto dealership revenues. The reporting of sales of certain products in this category varies among UAG's dealerships with certain dealerships treating the sale of products such as radios and alarms as part of the sale of the vehicle itself. UAG earns a significant portion of the gross profit on the sale of new and used vehicles on the sale of aftermarket products. Aftermarket products include accessories such as radios, cellular phones, alarms, custom wheels, paint sealants and fabric protectors, as well as agency services such as extended service contracts and credit insurance policies. In addition, the Company receives fees for placing financing and lease contracts. The Company believes that working closely with its customers to identify suitable financing products enhances the Company's overall profitability by increasing the percentage of vehicle purchases financed through its dealerships and by reducing the subsequent default rate on such financing contracts. Approximately 80% of customers who purchase or lease new and used vehicles from or through the Company originate financing or lease contracts through the dealership. UAG earns a fee from the finance provider in its diverse network of finance companies and leasing companies that accepts and funds the transaction without recourse to the dealership on the contract principal amount. The Company is, however, typically assessed a chargeback against a portion of the finance fee if the contract is terminated prior to its scheduled maturity for any reason, such as early repayment or default. UAG has relationships with financing sources across the credit quality spectrum. As a result, the Company is able to service practically any customer who requires financing. At the time of a new vehicle sale, the Company offers extended service contracts to supplement warranties offered by Manufacturers. UAG also sells extended service contracts with respect to used vehicles. Currently, the Company sells third-party extended service contracts and recognizes the associated revenue at the time of the vehicle sale. On a pro forma basis, in 1995, the Company sold extended service contracts on 25% and 40% of its new and used vehicle sales, respectively. The Company also offers certain types of credit insurance to customers who finance their vehicle purchases through the Company. Such policies generally provide for repayment of the vehicle loan if the obligor dies before the loan is fully repaid. The Company also sells accident and health insurance policies which provide payment of the monthly loan obligations during any period in which the obligor is disabled. The Company receives a commission upon the sale of a policy and a bonus based on whether payments are made under the policy. SERVICE AND PARTS On a pro forma basis, in 1995, UAG's service and parts operations generated $108.2 million in revenues, or 8.0% of total auto dealership revenues. The Company considers its service and parts business integral to its objective of providing customers with a satisfying and informative dealership experience, thereby creating an opportunity to strengthen customer loyalty. The service and parts business is relatively stable and provides an important recurring revenue stream to the Company's dealerships, which may help to mitigate the effects of downturns in the automobile sales cycle. UAG measures the performance of each dealership's service and parts operations in terms of "absorption rate," which measures the percentage of the dealership's overall fixed costs covered by service and parts gross profit. For the six months ended June 30, 1996, the average absorption rate at the Company's dealerships (not on a pro forma basis) was approximately 49.0%. The Company currently targets an absorption rate of between 60% and 70%. The Company has a total of 552 service bays and 70 paint bays throughout its network. The Company's service and body shop facilities are equipped with technologically advanced tools and diagnostic equipment and staffed by Manufacturer-trained and certified service technicians. The Company's service technicians perform full-service repairs on all brands of vehicles UAG sells. UAG dealerships feature various combinations of fully equipped service and body shop facilities capable of handling almost any type of vehicle repair on virtually any type of vehicle, from rebuilding entire engines to routine maintenance functions, including tune-ups, oil changes, tire balancing, front-end alignments and inspections. UAG dealerships offer such services in a relaxed and accommodating atmosphere. Most UAG dealerships have lounges equipped with televisions, recliners, sofas, phones and food and beverage machines to allow customers to relax or conduct business while waiting for service to be performed. 41 The Company performs both warranty and non-warranty service work, with the cost of the warranty work being paid by the Manufacturer at retail consumer rates. Manufacturers permit warranty work to be performed only at franchised dealerships. Hence, unlike independent service shops or used car dealerships with service operations, UAG is qualified to perform work covered by Manufacturer warranties. UAG's factory-certified service employees regularly attend Manufacturer-sponsored training programs to remain abreast of current diagnostic and repair and maintenance techniques. The Company employs a compensation program for its service technicians designed to encourage the performance of expedited and high-quality repair and maintenance services and ensure a high degree of customer satisfaction. Rather than paying service technicians on an hourly basis, each technician receives a flat rate for each service or repair performed. If a service or repair is performed incorrectly, the technician making the initial repair or service must correct the situation without additional compensation. This compensation arrangement facilitates the retention of efficient service technicians who can increase their compensation by expeditiously and accurately completing service and repairs and also enhances customer satisfaction for repair jobs that are completed correctly the first time. The Company's body shops, which include multiple paint bays, are fully equipped to make virtually any type of body repair, from complete reconstruction of vehicle frames damaged in accidents to repairs and replacements of hoods, body panels and fenders. UAG dealerships' body shops are also used to refurbish vehicles in need of updating due to changes in industry standards or to satisfy regulatory guidelines. The parts departments support the Company's sales and service functions. The Company utilizes its parts department when performing its repair, maintenance and body shop services, including all parts required to recondition used vehicles for resale. In addition to supporting the Company's service and body shop functions, the Company markets its parts and accessories at its dealerships to those customers who prefer to perform maintenance and repair of vehicles on their own. An important goal of the Company is to retain or convert each purchaser of a vehicle into a customer of the service department. To that end, UAG has implemented a program which tracks maintenance records of customers and contacts them regarding dealer promotions and maintenance schedules. After a repair or service has been completed, the customer is called to determine whether he or she is completely satisfied. In addition, the Company is actively marketing its warranty-covered services business to potential higher-volume service customers such as municipalities and corporations with large motor vehicle fleets located near certain of its dealerships. The Company is able to offer repair services to such customers on a more efficient and less costly basis than such customers generally can perform themselves. Atlantic Finance Atlantic Finance is the Company's automotive finance subsidiary engaged in the purchase, sale and servicing of motor vehicle installment contracts originated by both UAG and third-party dealerships. Based in Rochester, New York, Atlantic Finance commenced loan operations in January 1995 and currently serves approximately 127 dealers in Connecticut, New Jersey and New York. Atlantic Finance derives its revenues from three primary areas: finance charges on its automobile contracts; gains in connection with the sale or securitization of pools of automobile contract receivables; and service fees, late charges and other related income. Atlantic Finance's strategy is to grow by (i) increasing its business with existing UAG dealerships, including those with which it has yet to commence financing activities, (ii) commencing financing activities with dealerships acquired by UAG in the future and (iii) using its presence in its local operating markets to cultivate relationships with additional unaffiliated dealerships. While as of June 30, 1996, 77% of its $50.5 million in finance contracts were originated by UAG dealers, Atlantic Finance is not intended to be a captive finance company. Rather, Atlantic Finance's goal is to ultimately purchase up to 50% of its finance contracts from non-UAG dealers. With over 70 years of collective experience in the consumer finance industry, the three members of Atlantic Finance's senior management expect to expand Atlantic Finance's business by demonstrating commitment to dealer service, achieving cost efficiencies through a centralized operations structure, pursuing cost-effective sources of capital for business growth and focusing on high-quality credit, as described below. DEALER SERVICE. Atlantic Finance's goal is to be a service-oriented and reliable source for financing. Atlantic Finance sales representatives solicit dealers who meet Atlantic Finance's standards and enter into a dealer agreement that 42 outlines contract purchase terms. After a loan application is delivered, usually by fax from the dealer, Atlantic Finance generally responds within two hours. If an application is not initially acceptable, Atlantic Finance's loan officers often suggest modifications to meet Atlantic Finance's standards, such as increasing the down payment or reducing the term of the loan. CENTRALIZED OPERATIONS. Atlantic Finance believes that it can effectively service its dealers from a central site without the cost of duplicating administrative and order processing functions in multiple locations. Atlantic Finance employs local sales representatives who are responsible for different geographic territories and constitute a flexible, cost efficient means for rapid growth. SOURCES OF CAPITAL. Atlantic Finance currently has available an aggregate of $85.0 million under its revolving credit facilities, known in the industry as warehousing programs, with Citibank, N.A. (and an affiliate thereof) and Morgan Guaranty. Atlantic Finance uses automobile loans as collateral to borrow from such banks. Once the warehoused amount reaches a specified level, Atlantic Finance issues securities to investors at a fixed rate, collateralized by the bundled loans, and continues to service the receivables for a fee. The net proceeds of these securitizations are used by Atlantic Finance to repay outstanding loans under its credit facilities, which enables Atlantic Finance to redeploy its capital for further loans. Atlantic Finance benefits from its affiliation with UAG by receiving favorable lending terms and access to capital markets as a source of financing. On July 19, 1996, Atlantic Finance, through a wholly owned, special-purpose subsidiary, completed a private placement of $45.8 million aggregate principal amount of 6.7% Asset Backed Certificates. Such certificates represent fractional undivided interests in a trust consisting primarily of a pool of automobile loan receivables. Atlantic Finance will service the receivables for an annual fee equal to 1.0% of the principal amount of receivables plus certain supplemental fees. Under certain conditions, Atlantic Finance is obligated to repurchase receivables in the event of breach of certain representations and warranties with respect to the receivables and in the event of breach of certain servicing obligations and covenants of Atlantic Finance. On the basis of a credit enhancement insurance policy issued by Financial Security Assurance Inc. for the benefit of the holders of certificates, the certificates were rated "AAA" by Standard & Poor's Rating Services and "Aaa" by Moody's Investors Service, Inc. HIGH-QUALITY CREDIT. Atlantic Finance finances only prime credit quality loans and believes its ability to effectively evaluate and monitor the creditworthiness of the dealers' customers is a critical component to this focus. To support its evaluation process, Atlantic Finance uses sophisticated processing systems and controls that include an evaluation of multiple credit bureau reports and a computerized scoring system. Every loan is ultimately reviewed by an experienced loan officer for final approval. In addition to the creditworthiness of the customer, pricing of a finance contract is based on several criteria such as the age of the vehicle, the term of the loan, prevailing interest rates and Atlantic Finance's cost of capital. Most states have maximum chargeable interest rates that vary greatly from state to state. Once the loan is approved, Atlantic Finance monitors customer accounts on a regular basis. If an account is delinquent, Atlantic Finance works with customers to resolve payment problems and bring accounts current at the earliest possible stage of delinquency. In the event of an unremedied default, the finance company will repossess the vehicle and sell it to a dealer, sometimes UAG, or at public auction. 43 Set forth below are tables indicating delinquency experience of Atlantic Finance (which commenced loan operations in January 1995) as of the end of each of the past four fiscal quarters and its loss experience for such periods: Historical Delinquency Experience (1)(2)
-------------------------------------------------------------------------------------- September 30, 1995 December 31, 1995 March 31, 1996 June 30, 1996 -------------------- -------------------- -------------------- -------------------- # of # of # of # of DOLLARS IN THOUSANDS Loans Amount Loans Amount Loans Amount Loans Amount --------- --------- --------- --------- --------- --------- --------- --------- Portfolio outstanding at period end 553 $ 6,623 1,240 $15,799 2,419 $32,079 3,820 $50,472 Percent delinquent 31-60 days(3) 0.36% 0.78% 1.13% 1.26% 1.08% 1.23% 1.81% 1.96% 61-90 days(3) 0.04% 0.07% 0.18% 0.26% over 90 days(3) 0.11% 0.22% Repossessions on hand(4) 0.24% 0.33% 0.50% 0.47% 0.39% 0.35% --------- --------- --------- --------- --------- --------- --------- --------- Total 0.36% 0.78% 1.37% 1.58% 1.61% 1.78% 2.49% 2.79% --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
- ------------------------ (1) The information in this table includes all loans outstanding and serviced by Atlantic Finance. (2) As all of the Atlantic Finance's loans are simple interest, the dollar amount includes only the principal balance. (3) The period of delinquency is based on the number of days payments are contractually past due. (4) Amounts represent the remaining balance of installment loans relating to reposessed vehicles as a percentage of the total principal amount all loans outstanding and serviced by Atlantic Finance. Historical Loan Loss Experience
-------------------------------------------------------- September 30, December 31, March 31, June 30, DOLLARS IN THOUSANDS 1995 1995 1996 1996 -------------- -------------- ------------ ---------- Average portfolio(1) $4,725 $11,211 $23,939 $41,276 Losses(2) 28.6 70.5 Recoveries(3) 0.5 2.3 Net losses 28.1 68.2 Net losses as a percentage of average portfolio (annualized) 0.47% 0.66%
- ------------------------ (1) Represents the average of the beginning and ending balance for the period. (2) Represents principal amounts charged off as uncollectible. (3) Represents principal amounts recovered on accounts previously charged off. Competition AUTOMOBILE DEALERSHIPS The automotive retailing industry is extremely competitive. In large metropolitan areas, consumers have a number of choices in deciding where to purchase a new or used vehicle and where to have such a vehicle serviced. In the new vehicle area, the Company competes with other franchised dealers in each of its marketing areas. The Company does not have any cost advantage in purchasing new vehicles from the Manufacturer, and typically relies on advertising and merchandising, sales expertise, service reputation and location of its dealerships to sell new vehicles. In recent years, automobile dealers have also faced increased competition in the sale of new vehicles from independent leasing companies, on-line purchasing services and warehouse clubs. Due to lower overhead and sales costs, these companies may be capable of operating on smaller gross margins and offering lower sales prices than can franchised dealers. In used cars, the Company competes with other franchised dealers, independent used car dealers, automobile rental agencies, private parties and used car "superstores" for supply and resale of used vehicles. The Company believes that it enjoys certain advantages over its competitors that sell only used cars. See "-- Growth Strategy -- Grow Higher-Margin Businesses -- Used Vehicles." The Company believes that the principal competitive factors in vehicle sales are the marketing campaigns conducted by Manufacturers, the ability of dealerships to offer a wide selection of the most popular vehicles, the location of 44 dealerships and the quality of customer service. Other competitive factors include customer preference for particular brands of automobiles, pricing (including Manufacturer rebates and other special offers) and warranties. The Company believes that its dealerships are competitive in all of these areas. The Company competes against franchised dealers to perform warranty repairs and against other automobile dealers, franchised and unfranchised service center chains and independent garages for non-warranty repair and routine maintenance business. The Company competes with other automobile dealers, service stores and auto parts retailers in its parts operations. The Company believes that the principal competitive factors in parts and service sales are price, the use of factory-approved replacement parts, the familiarity with a Manufacturer's brands and models and the quality of customer service. A number of regional or national chains offer selected parts and services at prices that may be lower than the Company's prices. ATLANTIC FINANCE Atlantic Finance faces competition from a variety of lenders in the fragmented auto finance market: captive finance companies, banking institutions and independent finance companies. Captive finance companies such as General Motors Acceptance Corporation, Ford Motor Credit Company and Chrysler Credit Corporation primarily focus on increasing dealer sales volume by offering low-yield rates when promoting certain products. In general, captive finance companies provide standardized products and fixed market rates and are not as flexible in the marketplace. Captive finance companies also provide automobile dealers with floor plan financing. Independent auto finance companies focus on unconventional segments of the market with some lending to lower credit borrowers in exchange for higher yields. The market shares of these companies are as follows: approximately 36% of the total auto loans outstanding are held by captive and independent finance companies, another 46% are controlled by commercial banks and the remaining 18% are held by savings and loan institutions, savings banks, credit unions and specialty finance companies. The Company believes that the principal competitive factors in offering financing are convenience, interest rates and contract terms. While market shares shift over time, the trend in the banking market share is toward fewer and larger super-regional competitors, reflecting the ongoing consolidations in that industry. As in the case of Atlantic Finance, some finance companies are organized by large dealership groups as part of a vertical integration strategy. Franchise Agreements Each of the Company's dealerships operates pursuant to a franchise agreement between the applicable Manufacturer and the subsidiary of the Company that operates such dealership. The typical automotive franchise agreement specifies the locations at which the dealer has the right and the obligation to sell motor vehicles and related parts and products and to perform certain approved services in order to serve a specified market area. The designation of such areas and the allocation of new vehicles among dealerships are subject to the discretion of the Manufacturer, which generally does not guarantee exclusivity within a specified territory. A franchise agreement may impose requirements on the dealer concerning such matters as the showrooms, the facilities and equipment for servicing vehicles, the maintenance of inventories of vehicles and parts, the maintenance of minimum net working capital and the training of personnel. Compliance with these requirements is closely monitored by the Manufacturer. In addition, Manufacturers require each dealership to submit a financial statement of operations on a monthly and annual basis. The franchise agreement also grants the dealer the non-exclusive right to use and display Manufacturer's trademarks, service marks and designs in the form and manner approved by the Manufacturer. Each franchise agreement sets forth the name of the person approved by the Manufacturer to exercise full managerial authority over the dealership's operations and the names and ownership percentages of the approved owners of the dealership and contains provisions requiring the Manufacturer's prior approval of changes in management or transfers of ownership of the dealership. Each of UAG's dealerships is owned, directly or indirectly, by the Company at the subsidiary level, and the Company has obtained the approval of each relevant Manufacturer to conduct the Offering and for the Common Stock to be publicly traded. A number of Manufacturers, however, continue to prohibit the acquisition of a substantial ownership interest in the Company or transactions that may affect management control of the Company, in each case without the approval of the Manufacturer. See "Risk Factors -- Stock Ownership/Issuance Limits." Most franchise agreements expire after a specified period of time, ranging from one to five years. The typical franchise agreement provides for early termination or non-renewal by the Manufacturer under certain circumstances 45 such as change of management or ownership without Manufacturer approval, insolvency or bankruptcy of the dealership, death or incapacity of the dealer manager, conviction of a dealer manager or owner of certain crimes, misrepresentation of certain information by the dealership or dealer manager or owner to the Manufacturer, failure to adequately operate the dealership, failure to maintain any license, permit or authorization required for the conduct of business, or material breach of other provisions of the franchise agreement. The dealership is typically entitled to terminate the franchise agreement at any time without cause. The automobile franchise relationship is also governed by various federal and state laws established to protect dealerships from the general unequal bargaining power between the parties. The state statutes generally provide that it is a violation for a Manufacturer to terminate or fail to renew a franchise without good cause. These statutes also provide that the Manufacturer is prohibited from unreasonably withholding approval for a proposed change in ownership of the dealership. Acceptable grounds for disapproval include material reasons relating to the character, financial ability or business experience of the proposed transferee. Accordingly, certain provisions of the franchise agreements, particularly as they relate to a Manufacturer's rights to terminate or fail to renew the franchise, have repeatedly been held invalid by state courts and administrative agencies. Facilities The Company presently leases or subleases all its facilities and seeks to structure its acquisitions in a way to avoid the ownership of real property. Set forth in the table below is certain information relating to the Company's leases and subleases.
--------------------------------------------------------------------- Occupant Location Use Expiration - --------------------- --------------------- ---------------------- ---------------------- DiFeo Group Fair Chevrolet-Geo 102 Federal Road New and used car October 1, 2010 Danbury, CT sales; general office; service Fair 100C Federal Road New and used car October 1, 2010 Hyundai/Isuzu/Suzuki Danbury, CT sales; service Fair Used Car 102A and 104 Federal Used car sales October 1, 2010 Corner Road Danbury, CT DiFeo Lexus 1550 Route 22 East New and used car October 1, 2010 Bound Brook, NJ sales; service DiFeo Chevrolet-Geo 599 Route 440W New and used car October 1, 2010 & J&F Oldsmobile Jersey City, NJ sales; service DiFeo Hudson Mall on Route New and used car October 1, 2010 Chrysler-Plymouth/ 440 sales; service Jeep-Eagle/Hyundai Jersey City, NJ Hudson Toyota 585 Route 440W New and used car October 1, 2010 Jersey City, NJ sales; service; general office DiFeo BMW (a) 301 County Road New and used car sales January 5, 2002, Tenafly, NJ renewable to 2012 (b) 64 North Summit Service July 1, 2016, Street renewable to 2036 Tenafly, NJ Rockland Mitsubishi 75 N. Highland Avenue New and used car October 1, 2010 Nyack, NY sales; service Rockland Toyota 115 Route 59 New and used car October 1, 2002, Nyack, NY sales; service renewable to 2012 DiFeo Nissan (a) 977 Communipaw New and used car sales October 1, 2010 Avenue Jersey City, NJ (b) 909-921 Service October 1, 2010 Communipaw Ave. Jersey City, NJ Fair Honda 102D Federal Road New and used car October 1, 2010 Danbury, CT sales; service Fair Dodge 100B Federal Road New and used car March 27, 2000, Danbury, CT sales; service renewable to 2008 Gateway Mitsubishi Route 37 & Batchelor New car sales; service October 1, 2010 St. Toms River, NJ Gateway Toyota Route 37 & Batchelor New and used car October 1, 2010 St. sales; service Toms River, NJ
46
--------------------------------------------------------------------- Occupant Location Use Expiration - --------------------- --------------------- ---------------------- ---------------------- Landers Auto Landers (a) 7800 Alcoa Road New car sales; service August 31, 2016, Jeep-Eagle/Chrysler- Benton, AR renewable to 2026 Plymouth/Dodge (b) 7800 Alcoa Road Used car sales Benton, AR Landers 17821 I-30 New and used car August 31, 2016, Oldsmobile-GMC Benton, AR sales; service renewable to 2026 Truck Landers West 1719 Merrell Drive Used car sales December 31, 1998, Little Rock, AR renewable to 2001 Landers North 6055 Landers Road Used car sales May 31, 1999 North Little Rock, AR Atlanta Toyota 2345 Pleasant Hill New and used car January 31, 2016 Road sales; service Duluth, GA United Nissan 6889 Jonesboro Road New and used car April 30, 2016, Morrow, GA sales; service renewable to 2026 Peachtree Nissan (a) 5211 and 5214 New and used car June 30, 2016, Peachtree sales; service renewable to 2026 Industrial Boulevard Chamblee, GA (b) 3393 Malone Drive Storage facility June 30, 2016, Chamblee, GA renewable to 2026 Sun Group Scottsdale 6725 E. McDowell New and used car October 31, 2016 Porsche/Scottsdale Scottsdale, AZ sales; service Audi Scottsdale Acura 6825 E. McDowell New and used car October 31, 2016 Scottdsale, AZ sales; service Scottsdale Lexus 6905 E. McDowell New and used car October 31, 2016 Scottsdale, AZ sales; service Land Rover 6925 E. McDowell New and used car August 10, 2000, Scottsdale Scottsdale, AZ sales; service renewable to 2020 Scottsdale Paint & 1111 N. Miller Auto painting; auto December 15, 1998, Body Shop Scottsdale, AZ repairs renewable to 2013 Camelback BMW 1144 E. Camelback New and used car February 27, 2005 Scottsdale, AZ sales; service Land Rover Phoenix 1127 E. Camelback New and used car August 31, 2005, Phoenix, AZ sales; service renewable to 2010 Evans Group Evans BMW 3624 Commerce Ave. New and used car March 31, 1998(1) Duluth, GA sales; service Evans Nissan 1420 Iris Drive New and used car March 31, 1998(2) Conyers, GA sales; service Standefer Motor 2121 Chapman Road New and used car October 31, 2016, Chattanooga, TN sales; service renewable to 2026 UAG 375 Park Avenue Headquarters June 29, 2000 New York, NY Atlantic Finance 800 Perinton Hills Offices August 31, 1999 Office Park Fairport, NY
- ------------------------------ (1) This lease requires the Company to purchase the property at any time prior to the expiration date for $2.9 million. The Company expects to designate an unaffiliated third party to purchase the property prior to such date and simultaneously enter into a 20-year lease with the Company. (2) This lease requires the Company to purchase the property prior to the expiration date for $7.5 million (with a discount if purchased earlier). The Company expects to designate an unaffiliated third party to purchase the property prior to such date and simultaneously enter into a 20-year lease with the Company. Employees and Labor Relations As of June 30, 1996, on a pro forma basis, UAG employed approximately 2,100 people, approximately 100 of whom are covered by collective bargaining agreements with labor unions. Relations with employees are considered by the Company to be satisfactory. The Company's policy is to motivate its key managers through, among other things, grants of stock options. See "Management -- Stock Option Plan." 47 Litigation The Company and its subsidiaries are involved in litigation that has arisen in the ordinary course of business. None of these matters, either individually or in the aggregate, are expected to have a material adverse effect on the Company's results of operations or financial condition. Environmental Matters As with automobile dealerships generally, and service parts and body shop operations in particular, the Company's business involves the use, handling and contracting for recycling or disposal of hazardous or toxic substances or wastes, including environmentally sensitive materials such as motor oil, waste motor oil and filters, transmission fluid, antifreeze, freon, waste paint and lacquer thinner, batteries, solvents, lubricants, degreasing agents, gasoline and diesel fuels. The Company's business also involves the past and current operation and/or removal of aboveground and underground storage tanks containing such substances or wastes. Accordingly, the Company is subject to regulation by federal, state and local authorities establishing health and environmental quality standards, and liability related thereto, and providing penalties for violations of those standards. The Company is also subject to laws, ordinances and regulations governing remediation of contamination at facilities it operates or to which it sends hazardous or toxic substances or wastes for treatment, recycling or disposal. The Company believes that it does not have any material environmental liabilities and that compliance with environmental laws, ordinances and regulations will not, individually or in the aggregate, have a material adverse effect on the Company's results of operations or financial condition. However, soil and groundwater contamination has been known to exist at certain properties leased by the Company. Furthermore, environmental laws and regulations are complex and subject to frequent change. There can be no assurance that compliance with amended, new or more stringent laws or regulations, stricter interpretations of existing laws or the future discovery of environmental conditions will not require additional expenditures by the Company, or that such expenditures would not be material. See "Risk Factors -- Environmental Matters." Insurance The Company maintains general liability and property insurance and an umbrella and excess liability policy in amounts it considers adequate and customary for businesses of its kind. However, there can be no assurance that future claims will not exceed insurance coverage. 48 Management Executive Officers and Directors The following information relates to the executive officers and directors of the Company as of August 31, 1996.
Name Age Position - ----------------------------------- ----- ----------------------------------- Carl Spielvogel 67 Chairman of the Board and Chief Executive Officer Marshall S. Cogan 59 Vice Chairman of the Board and Chairman of the Executive and Compensation Committees Arthur J. Rawl 54 Executive Vice President and Chief Financial Officer George G. Lowrance 52 Executive Vice President -- Development and Industry Relations Philip N. Smith, Jr. 53 Vice President, Secretary and General Counsel Robert W. Thompson 45 Vice President -- Finance Robert H. Nelson 51 Director; Vice Chairman of Atlantic Finance Michael R. Eisenson 40 Director John J. Hannan 43 Director Jules B. Kroll 55 Director John M. Sallay 40 Director Richard Sinkfield 54 Director
The present principal occupation and employment background of each of the executive officers and directors of the Company are set forth below. Carl Spielvogel has served as Chairman and Chief Executive Officer of the Company since October 1994. Mr. Spielvogel has had a 35-year career in management and marketing. Prior to joining the Company, Mr. Spielvogel was Chairman and Chief Executive Officer of Backer Spielvogel Bates Worldwide, Inc., one of the world's largest marketing, advertising and communications companies, with 178 offices in 55 countries, where he worked from 1979 to 1994. During his marketing career, he had extensive experience working with automobile manufacturers and oversaw the introduction of the Hyundai line of motor vehicles into the U.S. market. As part of this program, he worked with 450 automobile dealers. Earlier, Mr. Spielvogel was Vice Chairman of the Interpublic Group of Companies, which serves GM as one of its largest global clients; Interpublic was among the first global marketing communications companies to become publicly owned. He is also a director of Hasbro, Incorporated, Foamex International Inc. and Data Broadcasting Corporation as well a former director of the International Media Fund. Additionally, Mr. Spielvogel serves on the Board of Trustees of The Metropolitan Museum of Art, The Mount Sinai Hospital and Medical Center, Lincoln Center for the Performing Arts, Inc. and The Philharmonic-Symphony Society of New York, Inc. He was appointed in 1996 by President Clinton to serve as a member of the U.S. Broadcasting Board of Governors. Marshall S. Cogan has served as a director of the Company since December 1990. Since 1974, Mr. Cogan has been the principal stockholder, Chairman or Co-Chairman of the Board of Directors and Chief Executive Officer or Co-Chief Executive Officer of Trace. Trace has acquired many companies in various consolidating industries and conceived the concept for UAG, which it founded in December 1990. He has been the Chairman of the Board of Directors and Chairman of the Executive Committee of Foamex International Inc. and its predecessor company since September 1993 and Chief Executive Officer since January 1994. He has also been a director of Recticel s.a. since February 1993. Mr. Cogan served as Chairman and a director of other companies formerly owned by Trace, including General Felt Industries, Inc., Knoll International, Inc. and Sheller-Globe Corporation. Prior to forming Trace Holdings, he was a senior partner at Cogan, Berlind, Weill & Levitt and subsequently CBWL-Hayden Stone, Inc., both predecessor companies to Lehman Brothers Inc. Additionally, Mr. Cogan serves on the Board of Trustees of The Museum of Modern Art, the Boston Latin School and New York University Medical Center and the Board of Directors of the American Friends of the Israel Museum. He also serves on several committees of Harvard University. Arthur J. Rawl has served as Executive Vice President and Chief Financial Officer of the Company since 1994. Prior to joining the Company, Mr. Rawl was Executive Vice President and Chief Financial Officer of Hanlin Group, Inc., a chemical and PVC pipe products manufacturer. Mr. Rawl is a Certified Public Accountant and a retired partner in the firm of Deloitte & Touche, where, in his 23-year tenure with the firm, his practice concentrated on the retail and distribution industries. 49 George G. Lowrance served as Executive Vice President, Secretary and General Counsel of the Company from January 1993 to June 1996 and has served as Executive Vice President -- Development and Industry Relations since June 1996. Prior to joining the Company, Mr. Lowrance was the general manager of Ed Hicks Company, an automobile dealership group, which he joined in January 1991. Prior thereto, he was a dealer principal for 13 years, representing Pontiac, Chevrolet, Volvo, Nissan, Saab, Range Rover, Porsche, Audi, Volkswagen, Peugeot, Rolls Royce and Maserati. He also co-authored the current dealer agreements for Volkswagen and Porsche. Mr. Lowrance served as Chairman of the National Dealer Council for Audi from 1984 to 1987 and served in the same role for Porsche from 1987 to 1990. Philip N. Smith, Jr. has served as Vice President, Secretary and General Counsel of the Company since June 1996. Mr. Smith has also served as Vice President or Senior Vice President and as Secretary and General Counsel of Trace since January 1988 and as Vice President, Secretary and General Counsel of Foamex International Inc. since October 1993. Prior to joining such companies, he was the sole stockholder of a professional corporation that was a partner of the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. Robert W. Thompson has served as Vice President -- Finance of the Company since August 1994. Prior to joining the Company, Mr. Thompson was Vice President and Controller of Hanlin Group, Inc., where he worked for 11 years. Robert H. Nelson has served as a director of the Company since January 1996. He has served as Vice Chairman of Atlantic Finance since March 1996, Chief Financial Officer and Treasurer of Trace since 1987 and Senior Vice President, Chief Operating Officer and a director of Trace since 1994. Michael R. Eisenson has served as a director of the Company since December 1993. He is the President and Chief Executive Officer of Harvard Private Capital, which he joined in 1986. Harvard Private Capital manages the private equity and real estate portfolios of the Harvard University endowment fund. Mr. Eisenson is also a director of Harken Energy Corporation, ImmunoGen, Inc., NHP Incorporated and Somatix Therapy Corporation. John J. Hannan has served as a director of the Company since December 1993. Mr. Hannan is one of the founding principals of Apollo, which together with an affiliate has acted since 1991 as managing general partner of Apollo Investment Fund, L.P., AIF and Apollo Investment Fund III, L.P., private securities investment funds, and of Apollo Real Estate Advisors, L.P., which since 1993 has acted as managing general partner of the Apollo real estate investment funds, and of Lion Advisors, L.P., which since 1991 has acted as financial advisor to and representative for certain institutional investors with respect to securities investments. Mr. Hannan is also a director of Aris Industries, Inc., Converse, Inc., The Florsheim Shoe Company, Inc. and Furniture Brands International, Inc. Jules B. Kroll has served as a director of the Company since December 1993. He founded Kroll Associates, an international corporate investigation and consulting firm, in 1972 and is presently its Chairman. Mr. Kroll is also a director of Presidential Life Corporation. John M. Sallay has served as a director of the Company since December 1993. He is a Managing Director of Harvard Private Capital, which he joined in 1990. Mr. Sallay is also a director of E-Z Serve Corporation. Richard Sinkfield has served as a director of the Company since December 1993. He is a Senior Partner with the law firm of Rogers & Hardin in Atlanta, Georgia, which he joined in 1976. Mr. Sinkfield is also a director of Weyerhaeuser Company. Except for Mr. Spielvogel, who was elected pursuant to his employment agreement, the directors were elected pursuant to the provisions of the Stockholders Agreement, dated as of October 15, 1993 (the "Stockholders Agreement"), among the Company and the Initial Stockholders (as defined herein). Pursuant to such Stockholders Agreement, such provisions terminate upon consummation of the Offering. The Board of Directors is divided into three classes. The current terms of the Class I directors, Class II directors and Class III directors expire at the annual meetings of stockholders to be held in 1997, 1998 and 1999, respectively. Messrs. and are members of Class I, Messrs. , and are members of Class II and Messrs. , and are members of Class III. At each annual meeting of the stockholders, directors will be elected for a three-year term to succeed the directors whose terms then expire. 50 Committees of the Board of Directors The Board of Directors of the Company has established Executive, Compensation, Audit and Stock Option Committees, each of which reports to the Board. The Executive Committee consists of Messrs. Cogan, Spielvogel, Eisenson and Hannan and has the authority to oversee the general business and affairs of the Company. The Compensation Committee consists of Messrs. Cogan, Eisenson, Hannan and Nelson and has the authority to determine all matters relating to compensation of the Company's executive officers and management employees. The Audit Committee consists of Messrs. Hannan, Kroll and Sinkfield and is responsible for meeting with the Company's independent accountants regarding, among other issues, audits and adequacy of the Company's accounting and control systems. The Stock Option Committee consists of Messrs. Eisenson, Hannan and Sallay and is responsible for administering the Company's Stock Option Plan and granting options thereunder. Director Compensation The Company has adopted a compensation plan (the "Non-employee Director Compensation Plan") for directors of the Company who are not paid employees of the Company. Pursuant to the Non-employee Director Compensation Plan, each such director will receive an annual retainer of $15,000, payable at the option of the director in cash or in Common Stock at the current market price, $1,000 for each Board of Directors meeting attended, $500 for each telephonic Board of Directors meeting attended and $750 for each Board of Directors committee meeting attended. In addition, directors are reimbursed for their reasonable out-of-pocket expenses incurred in attending meetings of the Board of Directors and committees thereof. In accordance with the internal policies of their employers, certain directors will assign their director compensation to the organizations that employ them. Directors who are paid employees of the Company will not receive any fees for serving on the Company's Board of Directors or for committee service. Operating Committee The Chairman and Chief Executive Officer has established an Operating Committee made up of key managers of the Company's dealerships. The Operating Committee, which is chaired by Mr. Spielvogel, meets monthly to review and discuss the prior month's operating performance. It also examines important trends in the business and, where appropriate, recommends specific operating improvements. Certain ex officio and rotating members will attend certain meetings depending on the matters under discussion. It is anticipated that the Operating Committee's membership will expand in line with the Company's acquisition program. In addition to Mr. Spielvogel, the members of the Operating Committee are: SAMUEL X. DIFEO Mr. DiFeo serves as Executive Vice President of the operating partnerships of the DiFeo Group. Between 1970 and 1992, he co-managed the operations of the DiFeo Group with his father, Sam C. DiFeo, and his brother, Joseph C. DiFeo. BRUCE DUNKER Mr. Dunker serves as President of United Nissan, which he joined in 1992. He began his career in the automotive retailing industry in 1968. JAMES EVANS Mr. Evans serves as chief financial officer and co-managing director of the Danbury Autopark division of the DiFeo Group, which he joined in 1994. He began his career in the automotive retailing industry in 1985. HARRY GLANTZ Mr. Glantz serves as director of finance and insurance of the DiFeo Group and co-managing director of the Danbury Autopark division of the DiFeo Group, which he joined in 1992. He began his career in the automotive retailing industry in 1968. RICHARD J. HARRISON Mr. Harrison serves as the President of Atlantic Finance. He began his career as a credit analyst in 1969. In 1984, he joined the Rochester Community Savings Bank for the purpose of forming American Credit Services, Inc., a consumer finance company which grew into a business of over $325 million in annual loan purchases. STEVEN KNAPPENBERGER Mr. Knappenberger serves as President and Chief Operating Officer of the Sun Group, which he joined in 1980. He will become a member of the Operating Committee upon consummation of the Contemporaneous Acquisitions.
51 STEVE LANDERS Steve Landers serves as Chief Executive Officer and President of Landers Auto. He began his career in the automotive retailing industry in 1969. In 1972, Mr. Landers, with his father, Bob Landers, opened a used car operation, which was the predecessor to Landers Auto. JOHN SMITH Mr. Smith serves as President of Atlanta Toyota, which he joined in 1988. He began his career in the automotive retailing industry in 1983.
Summary Compensation Table The following Summary Compensation Table sets forth information concerning the compensation for services paid to the officers named below (the "Named Executive Officers") during fiscal years 1995, 1994 and 1993.
----------------------------------------------- Long Term Compensation ------------- Annual Compensation Securities Name and --------------------- Underlying Principal Position Year Salary($) Bonus($) Options(#) - ---------------------------------------- ------- --------- --------- ------------- Carl Spielvogel (1) 1995 750,000 250,000 Chairman of the Board 1994 155,946 70,017(2) and Chief Executive Officer Ezra P. Mager (3) 1995 600,000 Executive Vice Chairman 1994 601,969 1993 703,952 Arthur J. Rawl (4) 1995 255,300 70,000 Executive Vice President 1994 160,000 60,000 and Chief Financial Officer George G. Lowrance 1995 207,677 20,000 Executive Vice President -- 1994 172,244 5,000 Development and Industry Relations 1993 138,254 25,000 Robert W. Thompson (5) 1995 107,600 10,000 Vice President -- Finance 1994 42,619
- ------------------------------ (1) Mr. Spielvogel's employment commenced on October 18, 1994. (2) Represents the number of shares of Common Stock subject to options on October 18, 1994, the date of grant, which number was subject to increase from time to time to a total of 170,095 shares upon the issuance of shares under the Equity Facility. These options were canceled and replaced with new options on April 3, 1996. See "--Stock Option Grants." (3) Mr. Mager resigned from all his positions with the Company on January 18, 1996. In connection with such resignation, the Company agreed to make severance payments to Mr. Mager in the aggregate amount of $500,000 in installments through the end of 1997. In consideration therefor, Mr. Mager agreed to refrain from (i) discussing acquisition transactions with certain specified dealerships until March 1, 1998, (ii) soliciting the employment of UAG employees until March 1, 1998 and (iii) disclosing confidential information relating to the Company. (4) Mr. Rawl's employment commenced on May 1, 1994. (5) Mr. Thompson's employment commenced on August 1, 1994. Spielvogel Employment Agreement The Company has an Employment Agreement with Carl Spielvogel dated as of June 21, 1996 (the "Spielvogel Employment Agreement") which provides that Mr. Spielvogel will serve as Chief Executive Officer and Chariman of the Board of Directors of the Company until December 31, 2000, subject to automatic one-year renewals unless either party delivers notice not to renew. The Spielvogel Employment Agreement provides for a base salary of $750,000 for 1996 and, beginning January 1, 1997, of $1,000,000 per year. In addition, Mr. Spielvogel is entitled to receive an annual bonus in an amount determined by the Company's Compensation Committee. If the Company's established performance targets are met, such bonus must equal at least 50% of Mr. Spielvogel's base salary, but in no event may such bonus exceed his base salary. 52 Pursuant to an amendment to his initial employment agreement, Mr. Spielvogel received options to purchase up to 400,000 shares of Common Stock at an exercise price of $10.00 per share. Such options became exercisable with respect to one-fourth of the option shares on October 18, 1995. The remainder will vest and become exercisable in three equal installments on October 18th in each of 1996, 1997 and 1998. Pursuant to the Spielvogel Employment Agreement, effective upon the effective date of the Offering, Mr. Spielvogel will receive options under the Stock Option Plan to purchase up to an additional 100,000 shares of Common Stock at an exercise price equal to the public offering price set forth on the cover page of this Prospectus, and effective on the first anniversary thereof, Mr. Spielvogel will receive options under the Stock Option Plan to purchase up to 100,000 shares of Common Stock at an exercise price per share equal to the market price per share of Common Stock on the date preceding the date of grant. Such options will vest and become exercisable in four equal annual installments beginning on the first anniversary of the date of grant. All such options are collectively referred to herein as the "Spielvogel Options." The Spielvogel Employment Agreement provides that Mr. Spielvogel's employment may be terminated at any time by the Company or by Mr. Spielvogel. In the event of termination of Mr. Spielvogel's employment by reason of death, by the Company for "Cause" or by Mr. Spielvogel other than for "Good Reason," including a "Change in Control" of the Company (as such terms are defined in the Spielvogel Employment Agreement), or disability, the Spielvogel Options will be forfeited to the extent not yet vested and exercisable. That portion already vested and exercisable on the date of termination may be exercised as follows: (i) in the event of termination by the Company for Cause, for a period of 90 days from the date of termination and (ii) in the event of termination by reason of death, or by Mr. Spielvogel other than for Good Reason or disability, for a period of one year from the date of termination. In the event of termination of Mr. Spielvogel's employment by the Company other than for Cause or by Mr. Spielvogel for Good Reason, in addition to any base salary and bonus earned but not yet received, Mr. Spielvogel is entitled to be paid $83,333 per month for the remainder of the contract term. In the event of termination of Mr. Spielvogel's employment by the Company other than for Cause, by Mr. Spielvogel for Good Reason or by reason of disability, the Spielvogel Options, to the extent not granted or not vested and exercisable on the date of termination, will become immediately granted and vested and exercisable in full for a period equal to the shorter of four years after the date of termination and the remainder of the original term of the respective Spielvogel Options. The Spielvogel Employment Agreement contains customary provisions relating to exclusivity of services, non-competition and confidentiality. It also contains general provisions relating to indemnification of Mr. Spielvogel in accordance with the DGCL. Stock Option Plan The Company's Stock Option Plan (the "Stock Option Plan") has been adopted by the Board of Directors and the stockholders of the Company. The Stock Option Plan provides for the grant of non-qualified options ("NQOs") and incentive stock options ("ISOs") as defined in Section 422 of the Internal Revenue Code of 1986 (the "Code"). The Stock Option Plan is administered by the Stock Option Committee of the Board of Directors (the "Committee"). The Board believes that the Stock Option Plan is important to provide an inducement to obtain and retain the services of employees of the Company, its subsidiaries and affiliates, and to increase their proprietary interest in the Company's success. At present, all full-time employees of the Company and its subsidiaries, as well as employees of its affiliates who perform services for the Company and its subsidiaries, are eligible to participate in the Stock Option Plan. The aggregate number of shares of Common Stock as to which stock options ("Options") may be granted under the Stock Option Plan may not exceed 1,500,838, subject to adjustment as provided in the Stock Option Plan. The number of shares of Common Stock available for grant of Options at any time under the Stock Option Plan shall be decreased by the sum of the number of shares for which Options have been issued and have not yet lapsed or canceled and the number of shares already issued upon exercise of Options. Recipients of Options under the Stock Option Plan ("Optionees") are selected by the Committee, which has sole authority (1) to determine the number of Options to be granted to such recipient, (2) to prescribe the form or forms of the Option agreements, (3) to adopt, amend or rescind rules and regulations for the administration of the Stock Option Plan, (4) to construe and interpret the Stock Option Plan, rules and regulations, (5) to determine the exercise 53 price of shares subject to Options, (6) to determine the dates on which Options become exercisable, (7) to determine the expiration date of each Option (which shall be a ten-year term from the date of grant) and (8) to cancel any Option held with the express written consent of the Optionee to be affected. Options granted under the Stock Option Plan will be evidenced by a written Option agreement between each Optionee and the Company. The exercise price of the shares of Common Stock subject to Options will be fixed by the Committee, in its discretion, at the time Options are granted, provided that the per share exercise price of an ISO may not be less than the fair market value of a share of Common Stock on the date of grant. There are presently NQOs outstanding under the Stock Option Plan to purchase an aggregate of 473,000 shares, each of which is exercisable at a price of $10.00 per share and vests in five equal annual installments beginning on the first anniversary of the later of December 29, 1993 and the date of the Optionee's employment. In addition, as of the effectiveness of the Offering, NQOs to purchase an additional 100,000 shares of Common Stock will be granted to each of Mr. Spielvogel and Mr. Cogan. Such Options will be exercisable at the public offering price set forth on the cover page of this Prospectus and will vest in four equal annual installments beginning on the first anniversary of the date of grant. Optionees will have no voting, dividend or other rights as shareholders with respect to shares of Common Stock covered by Options prior to becoming the holders of record of such shares. All Option grants will permit the exercise price to be paid in cash or by certified check, bank draft or money order or by "cashless" exercise. The number of shares covered by Options will be appropriately adjusted in the event of any merger, recapitalization or similar corporate event (a "Merger Event"). If the Company is the surviving corporation of any Merger Event, the Optionee shall receive substitute Options to purchase shares of the surviving corporation so as to preserve the value, rights and benefits of any Option granted hereunder. If the Company is not the surviving or resulting corporation of any Merger Event, the Committee may elect to pay in cash the difference between the fair market value of the Common Stock on the date of the Merger Event and the exercise price of such Options. If the Committee does not elect to make a cash payment, the surviving corporation will be required, as a condition to the Merger Event, to grant substitute Options to purchase shares of the surviving or resulting corporation so as to preserve the value, rights and benefits of any Option granted hereunder. The Board of Directors may at any time terminate the Stock Option Plan or from time to time make such modifications or amendments to the Stock Option Plan as it may deem advisable, provided that the Board may not, without the consent of the Optionee, take action which would have a material adverse effect on outstanding Options or any unexercised rights under outstanding Options. The following is a brief discussion of the federal income tax consequences of transactions under the Stock Option Plan based on the Code. The Stock Option Plan is not qualified under Section 401(a) of the Code. No taxable income is realized by an Optionee upon the grant or exercise of an ISO. If Common Stock is issued to an Optionee pursuant to the exercise of an ISO, and if no disqualifying disposition of such shares is made by such Optionee within two years after the date of grant or within one year after the transfer of such shares to such Optionee, then (i) upon sale of such shares, any amount realized in excess of the Option price will be taxed to such Optionee as a long-term capital gain and any loss sustained will be a long-term capital loss and (ii) no deduction will be allowed to the Optionee's employer for federal income tax purposes. If the Common Stock acquired upon the exercise of an ISO is disposed of prior to the expiration of either holding period described above, generally (i) the Optionee will realize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of such shares at exercise (or, if less, the amount realized on the disposition of such shares) over the Option price paid for such shares and (ii) the Company will be entitled to deduct such amount for federal income tax purposes if the amount represents an ordinary and necessary business expense. Any further gain (or loss) realized by the Optionee will be taxed as short-term or long-term capital gain (or loss), as the case may be, and will not result in any deduction by the Company. With respect to NQOs, (i) no income is realized by an Optionee at the time the Option is granted, (ii) generally, at exercise, ordinary income is realized by the Optionee in an amount equal to the difference between the Option price paid for the shares and the fair market value of the shares, if unrestricted, on the date of exercise, and the Company is generally entitled to a tax deduction in the same amount subject to applicable tax withholding requirements and (iii) at sale, appreciation (or depreciation) after the date of exercise is treated as either short-term or long-term 54 capital gain (or loss) depending on how long the shares have been held. Deductions for compensation attributable to NQOs (or disqualified ISOs) granted to the Company's named executive officers may be subject to the deduction limits of Section 162(m) of the Code, unless such compensation qualifies as "performance-based" (as defined therein). Stock Option Grants The following table sets forth information concerning individual grants of options to purchase Common Stock made to the Named Executive Officers during 1996.
---------------------------------------------------------------------- Potential Realizable Value at Assumed Annual Rates of Number of Percent of Stock Price Securities Total Exercise Appreciation for Underlying Options or Option Term(1) Options Granted to Base Price Expiration ---------------------- Name Granted Employees ($/Share) Date 5%($) 10%($) - --------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Carl Spielvogel 400,000(2) 35.3% 10.00 10/18/04 100,000(3) 8.8 (3) (3) Ezra P. Mager Arthur J. Rawl 34,000(4) 3.0 10.00 4/23/06 George G. Lowrance 34,000(5) 3.0 10.00 4/23/06 Robert W. Thompson 3,500(5) 0.3 10.00 4/23/06
- ------------------------------ (1) Amounts reflect certain assumed rates of appreciation set forth in the Commission's executive compensation disclosure rules. Actual gains, if any, on stock option exercises will depend on future performance of the Common Stock. No assurance can be made that the amounts reflected in these columns will be achieved. (2) Options were granted on April 3, 1996 in replacement of options granted on October 18, 1994 and vest and become exercisable in four equal annual installments beginning on October 18, 1995. (3) Options were granted as of the date of this Prospectus at an exercise price per share equal to the public offering price set forth on the cover page of this Prospectus and vest and become exercisable in four equal annual installments beginning on the first anniversary of the date of this Prospectus. Such options terminate on the tenth anniversary of the date of grant. (4) Options were granted on April 23, 1996 and vest and become exercisable in five equal annual installments beginning on May 1, 1995. (5) Options were granted on April 23, 1996 and vest and become exercisable in five equal annual installments beginning on December 29, 1993. 55 Certain Relationships and Related Transactions Jules B. Kroll, a director of the Company, is Chairman of Kroll Associates, a corporate investigation and consulting firm which performs services for the Company from time to time. Richard Sinkfield, a director of the Company, is a member of the law firm of Rogers & Hardin, which represents the Company in connection with various business transactions. Pursuant to Stock Purchase Agreements, dated October 15, 1993 (as amended, the "Equity Facility"), among the Company and the investors named therein (the "Initial Stockholders"), the Initial Stockholders purchased an aggregate of 8,504,750 shares of Common Stock in multiple closings and were granted registration rights in respect of such shares. Such registration rights also apply to an additional 306,346 shares of Common Stock subsequently purchased by the Initial Stockholders and to 10,000 shares of Common Stock held by Richard Sinkfield, a director of the Company. See "Shares Eligible for Future Sale." Among the Initial Stockholders are Trace, Aeneas and AIF, each of which is a significant stockholder of the Company, Carl Spielvogel, Chairman of the Board and Chief Executive Officer of the Company, Ezra P. Mager, a former executive officer of the Company, and Jules Kroll, a director of the Company. See "Principal Stockholders." In addition, as of June 30, 1996, the Company owes Trace approximately $1.2 million, which was incurred for working capital purposes. Such indebtedness is subject to offset against a $2 million guaranty by Trace of a third party's indebtedness to the Company. The Company is the tenant under a number of lease agreements with employees of the Company. All such leases are on terms no less favorable to the Company than would be obtained in arm's-length negotiations with unaffiliated third parties. For information regarding the Company's lease agreements, see "Business -- Facilities." In addition, the Company intends to enter into a Broker's Agreement with an entity controlled by Steven Knappenberger, which provides for payment by the Company of brokerage fees for assistance in acquiring or opening automobile dealerships in Arizona, Colorado, New Mexico, Utah and certain counties in California. Pursuant to agreements with the holders of minority interests (the "Minority Interests") in certain of the Company's subsidiaries, immediately prior to the consummation of the Offering, such holders will exchange (the "Minority Exchange") their Minority Interests for shares of Common Stock. The consideration to be paid by the Company for the Minority Interest in the DiFeo Group will also include (i) an option to purchase up to 60,000 shares of Common Stock at the public offering price set forth on the cover page of this Prospectus, (ii) the settlement of certain advances made by the Company for the benefit of the holders of such Minority Interest for certain business acquisitions and for working capital for dealerships owned solely by such holders and (iii) the minority interests owned by the Company in a group of dealerships in Jersey City, New Jersey. Upon consummation of the Minority Exchange, all of the Company's dealerships will be wholly owned, directly or indirectly, by the Company. The following table sets forth certain information with respect to each division of the Company whose Minority Interest will be exchanged in the Minority Exchange:
-------------------------------- Shares of Common Stock Minority to be Issued in Division Interest Minority Exchange - --------------------------- ----------- ------------------- DiFeo Group 30% Landers Auto 20% Atlanta Toyota 5%
The Company has agreed in principle to grant to the three senior officers of Atlantic Finance options to purchase an aggregate of 5% of the outstanding common stock of Atlantic Finance (as constituted immediately prior to the Offering) at an aggregate exercise price of $400,000. Such options will be immediately exercisable in full and will terminate on the seventh anniversary of the date of grant. Upon the termination date (or upon the termination of an option holder's employment, with respect to such holder's options), the option holders will have the right to sell to the Company, and the Company will have the right to purchase from the option holders, the options (or any shares of common stock issued upon exercise thereof) at the then fair market value thereof, payable in cash or Common Stock of the Company at the option of the Company. The Company has also agreed that up to an additional 5% of the common stock of Atlantic Finance will be issuable to employees of Atlantic Finance under a stock option plan, subject to the discretion of the Board of Directors of Atlantic Finance. 56 Principal Stockholders The table below sets forth the beneficial ownership of Common Stock as of August 31, 1996 after giving effect to the Preferred Stock Conversion, the Minority Exchange and the Offering by (i) all persons who beneficially own 5% or more of the Common Stock, (ii) each of the Named Executive Officers, (iii) each director of the Company and (iv) all directors and Named Executive Officers as a group.
Shares Beneficially Owned ---------------- Beneficial Owner Number(1) Percent - -------------------------------------------------- ------- ------- Trace International Holdings, Inc. ............... 3,531,156 375 Park Avenue New York, New York 10152 Aeneas Venture Corporation........................ 2,843,656 (an affiliate of Harvard Private Capital) 600 Atlantic Avenue Boston, Massachusetts 02210 AIF II, L.P....................................... 1,843,656 c/o Apollo Advisors, L.P. Two Manhattanville Road Purchase, New York 10577 Carl Spielvogel (2)............................... 226,118 Ezra P. Mager..................................... 163,240 Arthur J. Rawl (3)................................ 13,600 * George G. Lowrance (3)............................ 13,600 * Robert W. Thompson (3)............................ 1,400 * Marshall S. Cogan (4)............................. 3,531,156 Michael R. Eisenson (5)........................... 2,843,656 John J. Hannan (6)................................ 1,843,656 Jules Kroll....................................... 104,474 * Robert H. Nelson (7).............................. 3,544,756 John M. Sallay (8)................................ 2,843,656 Richard Sinkfield................................. 10,000 * All directors and Named Executive Officers, 8,764,500 without duplication (12 persons).................
- ------------------------ * Less than 1%. (1) Pursuant to the regulations of the Commission, shares are deemed to be "beneficially owned" by a person if such person directly or indirectly has or shares the power to vote or dispose of such shares, whether or not such person has any pecuniary interest in such shares, or the right to acquire the power to vote or dispose of such shares within 60 days, including any right to acquire through the exercise of any option, warrant or right. (2) Includes 200,000 shares issuable upon exercise of options granted under the Spielvogel Employment Agreement that are vested and exercisable within 60 days. (3) Represents the shares issuable upon exercise of options granted under the Stock Option Plan that are vested and exercisable within 60 days. (4) Represents the shares held by Trace, of which Mr. Cogan is the principal stockholder, Chairman of the Board and Chief Executive Officer. Mr. Cogan disclaims beneficial ownership of all shares held by Trace. (5) Represents the shares held by Aeneas. Mr. Eisenson is the Managing Director, President and Chief Executive Officer of Harvard Private Capital, the investment advisor of Aeneas. Mr. Eisenson disclaims beneficial ownership of all shares held by Aeneas. (6) Represents the shares held by AIF. Mr. Hannan is a director of Apollo Capital Management, Inc., which is the general partner of Apollo, which is the managing general partner of AIF. Mr. Hannan disclaims beneficial ownership of all shares held by AIF. (7) Includes 3,531,156 shares held by Trace, of which Mr. Nelson is Senior Vice President, Chief Operating Officer, Chief Financial Officer, Treasurer and a director. Mr. Nelson disclaims beneficial ownership of all shares held by Trace. Also includes 13,600 shares issuable upon exercise of options granted under the Stock Option Plan that are vested and exercisable within 60 days. (8) Represents the shares held by Aeneas. Mr. Sallay is a Managing Director of Harvard Private Capital, the investment advisor of Aeneas. Mr. Sallay disclaims beneficial ownership of all shares held by Aeneas. 57 Description of Capital Stock General Upon the consummation of the Offering, the authorized capital stock of the Company will consist of 40,000,000 shares of Voting Common Stock, par value $0.0001 per share, 1,125,000 shares of Non-voting Common Stock, par value $0.0001 per share, and 100,000 shares of Preferred Stock, par value $0.0001 per share. References herein to "Common Stock" refers to the Company's Voting Common Stock. Common Stock As of July 31, 1996, as adjusted to reflect the Preferred Stock Conversion, there were 8,821,096 shares of Common Stock outstanding, owned of record by 16 stockholders. Holders of Common Stock have no pre-emptive, redemption, conversion or sinking fund rights. Holders of Common Stock are entitled to one vote per share on all matters submitted to a vote of stockholders and do not have any cumulative voting rights. In the event of a liquidation, dissolution, or winding-up of the Company, the holders of Common Stock are entitled to share equally and ratably in the assets of the Company, if any, remaining after provision for the payment of creditors and after payment of any liquidation preference to holders of Preferred Stock. Upon completion of the Offering, all outstanding shares of Common Stock will be validly issued, fully paid and nonassessable. Holders of Common Stock will receive such dividends, if any, as may be declared by the Board out of funds legally available for such purposes. See "Dividend Policy." Non-voting Common Stock No shares of Non-voting Common Stock have been issued. The Company created the class of Non-voting Common Stock in connection with the Securities Purchase Agreements. The investors party to the Securities Purchase Agreements are subject to various regulations that restrict their ability to own in excess of a given percentage of the voting power of any company or that impose burdensome requirements in respect of investments above a given threshold. Accordingly, the Company granted such investors the right to convert, at any time and from time to time, any number of shares of Voting Common Stock into an equal number of shares of Non-voting Common Stock. Each holder of shares of Non-voting Common Stock is entitled to convert, at any time and from time to time, any number of such shares into an equal number of shares of Voting Common Stock, provided that such holder, as a result of such conversion, would not own shares of the Company's voting securities in excess of the applicable threshold. Holders of Non-voting Common Stock are not entitled to vote on matters submitted to a vote of stockholders, except that they are entitled to vote as a separate class on any modification of the Certificate of Incorporation that adversely affects their rights. Except with respect to such voting rights, the Voting Common Stock and the Non-voting Common Stock are equivalent in every respect. Preferred Stock Pursuant to the Preferred Stock Conversion, upon the date of this Prospectus, all 5,227,346 shares of the Company's Class A Preferred Stock, par value $0.0001 per share, outstanding prior to the Offering will convert into an equal number of shares of Common Stock, and such class of Preferred Stock will be retired. Upon consummation of the Offering, the Company will be authorized to issue up to 100,000 shares of Preferred Stock. The Board of Directors will have the authority to issue this Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without further vote or action by the stockholders. The issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change in control of the Company without further action by the stockholders and may adversely affect the voting and other rights of the holders of Common Stock, including the loss of voting control to others. Warrants In connection with the issuance and sale of Senior Notes from time to time pursuant to the Securities Purchase Agreements, the Company issued warrants (the "Warrants") to purchase up to 1,016,099 shares of Common Stock, as adjusted through the date of this Prospectus and subject to further adjustment upon certain events. The Warrants will become exercisable on the date of this Prospectus at a nominal exercise price and expire on September 22, 2003. 58 In addition, the Company issued to the holders of the Warrants additional warrants (the "Additional Warrants") to purchase up to 93,747 shares of Common Stock, subject to adjustment upon certain events. Pursuant to their terms, the Additional Warrants will be exercised on the date of this Prospectus at an exercise price of $0.01 per share. The initial holders of the Warrants and Additional Warrants, under certain conditions, are entitled to participate on the same terms in the sale of Common Stock by the Initial Stockholders if such sale would result in a Change in Control (as defined in the Securities Purchase Agreements) of the Company. The Warrants and Additional Warrants contain registration rights in respect of the shares of Common Stock issuable upon exercise thereof. See "Shares Eligible for Future Sale." Restrictions under Franchise Agreements A number of franchise agreements to which the Company is party impose restrictions on the transfer of the Common Stock. The most prohibitive restriction, which has been imposed by various Manufacturers, provides that, under certain circumstances, the Company may lose its franchise if a person or entity acquires a 20% ownership interest in the Company and does not obtain the approval of the applicable Manufacturer. Similarly, a number of Manufacturers, including Chrysler, prohibit transactions which may affect management control of the Company. Such restrictions may prevent or deter prospective acquirers from obtaining control of the Company. See "Risk Factors -- Stock Ownership/Issuance Limits." Certain Provisions of Certificate of Incorporation and Bylaws The Certificate of Incorporation and Bylaws of the Company provide that the Board of Directors will be divided into three classes of directors, each class to be as nearly equal in number as possible. The term of office of one class of directors expires each year in rotation so that one class is elected at each annual meeting of stockholders for a three-year term. The Certificate of Incorporation provides that the size of the Board of Directors shall be determined as set forth in the Bylaws, which provide for between five and eleven directors, with the precise number to be fixed from time to time by resolution of the Board of Directors. The Board of Directors is currently comprised of eight members. The affirmative vote of the holders of at least two-thirds of the outstanding shares of capital stock entitled to vote thereon is required to amend or repeal these provisions of the Certificate of Incorporation and Bylaws. Accordingly, it would take at least two elections of directors for any outside individual or group to gain control of the Board of Directors. In addition, stockholder action must be taken at duly convened meetings, not by written consent. These provisions could render more difficult or discourage an attempt to obtain control of the Company. Certain Effects of Authorized but Unissued Stock After the completion of the Offering, there will be shares of Common Stock and 100,000 shares of Preferred Stock available for future issuance without stockholder approval. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital or to facilitate corporate acquisitions. The Company currently does not have any plans to issue additional shares of Common Stock or Preferred Stock. One of the effects of the existence of unissued and unreserved Common Stock and Preferred Stock of the Company may be to enable the Board of Directors to issue shares to persons supportive of current management, which could render more difficult or discourage an attempt to obtain control of the Company by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of the Company's management and possibly deprive the stockholders of opportunities to sell their shares of Common Stock at prices higher than prevailing market prices. Such additional shares also could be used to dilute the stock ownership of persons seeking to obtain control of the Company pursuant to the operation of a shareholders' rights plan or otherwise. Delaware General Corporation Law Pursuant to Section 203 of the DGCL, with certain exceptions, a Delaware corporation may not engage in any of a broad range of business combinations, such as mergers, consolidations and sales of assets, with an "interested stockholder" for a period of three years from the date that such person became an interested stockholder unless (i) the transaction that results in the person's becoming an interested stockholder, or the business combination, is approved by the board of directors of the corporation before the person becomes an interested stockholder, (ii) the interested stockholder acquires 85% or more of the outstanding voting stock of the corporation in the same transaction that makes it an interested stockholder or (iii) on or after the date the person becomes an interested 59 stockholder, the business combination is approved by the corporation's board of directors and by holders of at least two-thirds of the corporation's outstanding voting stock, excluding shares owned by the interested stockholder, at a meeting of the stockholders. Under Section 203, an "interested stockholder" is defined as any person that is (i) the owner of 15% or more of the outstanding voting stock of the corporation or (ii) an affiliate or associate of the corporation and the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder or (iii) an affiliate or associate of such person. Pursuant to an exception within Section 203, no stockholders of the Company existing prior to the Offering are subject to the restrictions of Section 203. Under certain circumstances, Section 203 makes it more difficult for a person who would be an "interested stockholder" to effect various business combinations with a corporation for a three-year period, although the stockholders may elect to exclude a corporation from the restrictions imposed thereunder. The Company's Certificate of Incorporation does not exclude the Company from the restrictions imposed under Section 203. The provisions of Section 203 may encourage companies interested in acquiring the Company to negotiate in advance with the Company's Board, since the stockholder approval requirement would be avoided if a majority of the directors then in office approve either the business combination or the transaction which results in the shareholder becoming an interested shareholder. Such provisions also may have the effect of preventing changes in the management of the Company. It is possible that such provisions could make it more difficult to accomplish transactions which stockholders may otherwise deem to be in their best interests. Limitation of Liability of Directors The Certificate of Incorporation provides that a director of the Company will not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, which concerns unlawful payments of dividends, stock purchases or redemption, or (iv) for any transaction from which the director derived an improper personal benefit. While the Certificate of Incorporation provides directors with protection from awards for monetary damages for breaches of their duty of care, it does not eliminate such duty. Accordingly, the Certificate of Incorporation will have no effect on the availability of equitable remedies such as an injunction or rescission based on a director's breach of his duty of care. The provisions of the Certificate of Incorporation described above apply to an officer of the Company only if he is a director of the Company and is acting in his capacity as director, and do not apply to officers of the Company who are not directors. Registration Rights Certain holders of shares of Common Stock are entitled to certain registration rights. See "Shares Eligible for Future Sale." Transfer Agent The transfer agent and registrar of the Common Stock is The Bank of Nova Scotia Trust Company of New York. 60 Shares Eligible for Future Sale Of the shares of Common Stock outstanding immediately after the consummation of the Offering, the shares of Common Stock sold in the Offering will be freely transferable without restriction under the Securities Act unless held by "affiliates" of the Company as that term is used under the Securities Act and the regulations promulgated thereunder. The remaining shares of Common Stock outstanding, including the shares to be issued in the Minority Exchange, were sold by the Company in reliance on exemptions from the registration requirements of the Securities Act and are deemed "restricted" securities within the meaning of Rule 144 under the Securities Act and may not be resold without registration under the Securities Act or pursuant to an exemption from registration, including exemptions provided by Rule 144 under the Securities Act. All of the Restricted Shares are subject to lock-up agreements (as described under "Underwriting"). Of the Restricted Shares, 4,254,208 will become eligible for sale beginning 180 days after the date of this Prospectus upon expiration of such lock-up agreements and subject to compliance with Rule 144. The remaining Restricted Shares, including the shares to be issued in the Minority Exchange, will have been held for less than two years upon the expiration of such lock-up agreements and will become eligible for sale under Rule 144 at various dates thereafter as the holding period provisions of Rule 144 are satisfied. In general, under Rule 144 as currently in effect, any person (or persons whose shares are aggregated), including an affiliate of the Company, who has beneficially owned shares for at least a two-year period (as computed under Rule 144) is entitled to sell within any three-month period commencing 90 days after the Offering such number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of Common Stock (approximately shares upon completion the Offering) and (ii) the average weekly trading volume in the Common Stock during the four calendar weeks immediately preceding such sale. Sales under Rule 144 are also subject to certain manner-of-sale provisions, notice requirements and the availability of current public information about the Company. A person who is not deemed to have been an affiliate of the Company at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least three years, is entitled to sell such shares under Rule 144(k) without regard to the volume limitations or other requirements described above. The foregoing summary of Rule 144 is not intended to be a complete description of that rule. The Company has authorized 1,500,838 shares of Common Stock for issuance under the Stock Option Plan. As of the date of this Prospectus, options to purchase up to 673,000 shares of Common Stock have been granted under the Stock Option Plan. In addition, options to purchase up to 400,000 shares of Common Stock have been granted under the Spielvogel Employment Agreement and options to purchase up to 60,000 shares of Common Stock have been granted as part of the consideration for the DiFeo Group Minority Interest. The Company intends to file a registration statement on Form S-8 as soon as practicable after the consummation of the Offering with respect to the shares of Common Stock issuable upon exercise of all such options. Prior to the Offering, there has been no public market for securities of the Company. No predictions can be made of the effect, if any, that the sale or availability for sale of shares of additional Common Stock will have on the market price of the Common Stock. Nevertheless, sales of a substantial number of such shares by existing stockholders or by stockholders purchasing in the Offering could have a negative effect on the market price of the Common Stock. The Company, its directors, executive officers, stockholders and certain other persons have agreed not to offer, sell, contract to sell or otherwise dispose of any shares of Common Stock or any securities convertible into or exchangable for shares of Common Stock, for a period of 180 days after the date of this Prospectus, without the prior written consent of J.P. Morgan Securities Inc., with certain limited exceptions. In connection with the Equity Facility, pursuant to a registration rights agreement dated October 15, 1993, the Company granted the Initial Stockholders registration rights in respect of up to 8,504,750 shares of Common Stock to be issued pursuant to the Equity Facility. Each of three specified classes of Initial Stockholders has the right to request one registration, provided that such registration relates to a least 20% of the registrable securities held by the person requesting registration or is expected to have an offering price of $10 million or more. The Initial Stockholders also have the right to request unlimited registrations on Form S-3, provided that the anticipated net aggregate offering price exceeds $500,000. In addition, the Initial Stockholders are entitled to have their registrable securities included in an unlimited number of registrations initiated by the Company, subject to certain customary conditions. 61 The registration rights are presently exercisable, although the Company would not be required to file a registration statement prior to 180 days after the date of this Prospectus, and are subject to customary conditions. In addition to the 8,504,750 shares of Common Stock that have been issued pursuant to the Equity Facility, such registration rights also apply to an additional 316,346 shares of Common Stock issued by the Company. In connection with the acquisition of certain automobile dealerships and the related agreements to exchange shares of Common Stock for the remaining minority interests in such dealerships in the Minority Exchange, the Company granted registration rights in respect of shares of Common Stock pursuant to a registration rights agreement dated as of August 1, 1995. Effective one year after the completion of the Offering, subject to customary conditions, the holders of such shares will be entitled to request one registration and to have their shares included in an unlimited number of Company registrations. The Warrants and Additional Warrants contain registration rights in respect of the shares of Common Stock issuable upon exercise thereof. Such rights entitle the holders thereof to request one registration, plus two registrations on Form S-3, and have their shares included in an unlimited number of Company registrations, subject to customary conditions. Upon the date of this Prospectus, the Warrants will become immediately exercisable for an aggregate of 1,016,099 shares of Common Stock at a nominal exercise price and the Additional Warrants will be exercised for an aggregate of 93,747 shares of Common Stock at an exercise price of $0.01 per share. 62 Underwriting Under the terms and subject to the conditions set forth in an Underwriting Agreement dated the date hereof (the "Underwriting Agreement"), the Underwriters named below, for whom J.P. Morgan Securities Inc., Montgomery Securities and Smith Barney Inc. are acting as representatives (the "Representatives"), have severally agreed to purchase, and the Company has agreed to sell to them, the respective number of shares of Common Stock set forth opposite their names below:
--------------- Number of Underwriters Shares --------------- J.P. Morgan Securities Inc. Montgomery Securities Smith Barney Inc. --------------- Total............................................... --------------- ---------------
The Underwriting Agreement provides that the obligations of the several Underwriters to purchase shares of Common Stock are subject to the approval of certain legal matters by counsel and certain other conditions. The Underwriters are obligated to take and pay for all such shares of Common Stock, if any are taken. The Underwriters propose initially to offer such shares of Common Stock directly to the public at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the shares of Common Stock are released for sale to the public, the offering price and such concessions may be changed. The Company has granted to the Underwriters an option, expiring at the close of business on the 30th day after the date of this Prospectus, to purchase up to additional shares of Common Stock at the public offering price, less the underwriting discount. The Underwriters may exercise such option solely for the purpose of covering over-allotments, if any. To the extent that the Underwriters exercise such option, each Underwriter will have a firm commitment, subject to certain conditions, to purchase approximately the same percentage of such additional shares as the number set forth next to such Underwriter's name in the preceding table bears to the total number of shares of Common Stock offered hereby. The Company has applied for listing of the Common Stock on the NYSE under the symbol "UAG." The Underwriters have undertaken to comply with the NYSE distribution standards. The Company, its directors, executive officers, stockholders and certain other persons have agreed not to offer, sell, contract to sell or otherwise dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for shares of Common Stock, for a period of 180 days after the date of this Prospectus, without the prior written consent of J.P. Morgan Securities Inc., with certain limited exceptions. At the request of the Company, the Underwriters have reserved up to of the shares of Common Stock offered hereby for sale at the public offering price set forth on the cover page of this Prospectus to employees, officers and directors of the Company. Prior to the Offering, there has been no public market for the Common Stock. The initial public offering price for the Common Stock offered hereby has been determined by agreement between the Company and the Representatives. 63 Among the factors considered in making such determination were the history of and the prospects of the industry in which the Company competes, an assessment of the Company's management, the past and present operations of the Company, the historical results of operations of the Company and the trend of its revenues and earnings, the prospects for future earnings of the Company and the general condition of the securities markets at the time of the Offering. There can be no assurance that an active trading market will develop for the Common Stock or that the Common Stock will trade in the public market subsequent to the offering at or above the initial public offering price. The Representatives have informed the Company that the Underwriters do not intend to sell shares of Common Stock offered hereby to any accounts over which the Underwriters exercise discretionary authority. J.P. Morgan Capital Corporation (or an affiliate thereof), an affiliate of J.P. Morgan Securities Inc., holds $20,000,000 aggregate principal amount of the Senior Notes, Warrants to purchase 580,628 shares of Common Stock at a nominal exercise price and Additional Warrants that will be exercised on the date of this Prospectus for 53,570 shares of Common Stock at an exercise price of $0.01 per share. Morgan Guaranty, an affiliate of J.P. Morgan Securities Inc., provides loans to the Company under the Credit Agreement. J.P. Morgan Securities Inc. has provided financial advisory services to the Company in the past, for which it has received customary fees. Under Rule 2710(c)(8) of the Conduct Rules of the National Association of Securities Dealers, Inc. (the "NASD"), when more than 10% of the net proceeds of a public offering of equity securities is to be paid to members of the NASD or affiliates thereof, the price at which the equity securities are distributed to the public must be no higher than that recommended by a "qualified independent underwriter" meeting certain standards. J.P. Morgan Securities Inc. is an NASD member and its affiliate, J.P. Morgan Capital Corporation, will receive more than 10% of the net proceeds from the Offering as a result of the use of such proceeds to repay the Senior Notes. Therefore, in compliance with such rule, Smith Barney Inc. is assuming the responsibilities of acting as a qualified independent underwriter in pricing the Offering and conducting due diligence. Derek Lemke-von Ammon, Frank Dunlevy and Jerome Markowitz are affiliated with Montgomery Securities and own 2,786, 2,786 and 5,572 shares of Common Stock, respectively, which shares are entitled to registration rights granted to the Initial Stockholders in connection with the Equity Facility. See "Shares Eligible for Future Sale." The aggregate ownership interest in the Company represented by such shares is less than 1%. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments which the Underwriters may be required to make in respect thereof. Legal Matters The validity of the Common Stock offered hereby will be passed upon for the Company by Willkie Farr & Gallagher, New York, New York. Certain legal matters in connection with the Offering will be passed upon for the Underwriters by Cahill Gordon & Reindel (a partnership including a professional corporation), New York, New York. Experts The (i) consolidated financial statements of UAG and its subsidiaries as of December 31, 1994 and 1995 and for each of the three years in the period ended December 31, 1995, (ii) financial statements of Landers Auto as of December 31, 1994 and July 31, 1995 and for each of the two years in the period ended December 31, 1994 and the seven-month period ended July 31, 1995, (iii) financial statements of Atlanta Toyota as of December 31, 1994 and 1995 and for each of the three years in the period ended December 31, 1995, (iv) financial statements of United Nissan as of December 31, 1994 and 1995 and for the period from inception (April 5, 1993) to December 31, 1993 and each of the two years in the period ended December 31, 1995, (v) financial statements of Hickman Nissan as of December 31, 1995 and for the year ended December 31, 1995, (vi) combined financial statements of the Sun Group as of December 31, 1994 and 1995 and for each of the three years in the period ended December 31, 1995, (vii) financial statements of Standefer Motor as of December 31, 1994 and 1995 and for each of the three years in the period ended December 31, 1995 and (viii) combined financial statements of the Evans Group as of December 31, 1995 and for the year ended December 31, 1995 included in this Registration Statement have been included in reliance upon the reports of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that Firm as experts in accounting and auditing. 64 Additional Information The Company has filed with the Commission a Registration Statement on Form S-1 (herein, together with all amendments thereto, called the "Registration Statement") under the Securities Act with respect to the Common Stock offered by the Company hereby. This Prospectus, which is part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits and financial schedules thereto, to which reference is hereby made. Statements contained in this Prospectus as to the contents of any contract or other document are summaries which are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement herein being qualified in all respects by such reference. The Registration Statement, including the exhibits thereto, may be inspected without charge at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Avenue, N.W., Washington, D.C. 20549, and at the Commission's regional offices at Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such materials can be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a Website (http://www.sec.gov.) that contains reports, proxy and information statements and other information that is filed electronically with the Commission. 65 Index to Financial Statements United Auto Group, Inc. Report of Independent Accountants................................................... F-3 Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996...... F-4 Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996........................... F-5 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1996......................... F-6 Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996........................... F-7 Notes to Consolidated Financial Statements.......................................... F-9 Landers Auto Sales, Inc. Report of Independent Accountants................................................... F-22 Balance Sheets as of December 31, 1994 and July 31, 1995............................ F-23 Statements of Operations for the years ended December 31, 1993 and 1994 and the seven months ended July 31, 1995................................................... F-24 Statements of Retained Earnings for the years ended December 31, 1993 and 1994 and the seven months ended July 31, 1995............................................... F-25 Statements of Cash Flows for the years ended December 31, 1993 and 1994 and the seven months ended July 31, 1995................................................... F-26 Notes to Financial Statements....................................................... F-28 Atlanta Toyota, Inc. Report of Independent Accountants................................................... F-33 Balance Sheets as of December 31, 1994 and 1995..................................... F-34 Statements of Operations for the years ended December 31, 1993, 1994 and 1995....... F-35 Statements of Retained Earnings for the years ended December 31, 1993, 1994 and 1995............................................................................... F-36 Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995....... F-37 Notes to Financial Statements....................................................... F-38 Steve Rayman Nissan, Inc. (presently United Nissan, Inc.) Report of Independent Accountants................................................... F-41 Balance Sheets as of December 31, 1994 and 1995..................................... F-42 Statements of Operations for the period from inception (April 5, 1993) to December 31, 1993 and the years ended December 31, 1994 and 1995 and the three months ended March 31, 1995 and the four months ended April 30, 1996............................ F-43 Statements of Retained Earnings for the period from inception (April 5, 1993) to December 31, 1993 and the years ended December 31, 1994 and 1995................... F-44 Statements of Cash Flows for the period from inception (April 5, 1993) to December 31, 1993 and the years ended December 31, 1994 and 1995 and the three months ended March 31, 1995 and the four months ended April 30, 1996............................ F-45 Notes to Financial Statements....................................................... F-46 Hickman Nissan, Inc. (presently Peachtree Nissan, Inc.) Report of Independent Accountants................................................... F-51 Balance Sheets as of December 31, 1995, and June 30, 1996........................... F-52 Statements of Income and Retained Earnings for the year ended December 31, 1995 and the six months ended June 30, 1995 and 1996........................................ F-53 Statements of Cash Flows for the year ended December 31, 1995 and the six months ended June 30, 1995 and 1996....................................................... F-54 Notes to Financial Statements....................................................... F-55
F-1 Sun Automotive Group Report of Independent Accountants................................................... F-58 Combined Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996.......... F-59 Combined Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996............................... F-60 Combined Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1996............................... F-61 Combined Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996............................... F-62 Notes to Combined Financial Statements.............................................. F-64 Evans Automotive Group Report of Independent Accountants................................................... F-71 Combined Balance Sheets as of December 31, 1995 and June 30, 1996................... F-72 Combined Statements of Operations and retained earnings for the year ended December 31, 1995 and the six months ended June 30, 1995 and 1996........................... F-73 Combined Statements of Cash Flows for the year ended December 31, 1995 and the six months ended June 30, 1995 and 1996................................................ F-74 Notes to Combined Financial Statements.............................................. F-75 Standefer Motor Sales, Inc. Report of Independent Accountants................................................... F-80 Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996................... F-81 Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996........................................ F-82 Statements of Retained Earnings for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1996............................................. F-83 Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996........................................ F-84 Notes to Financial Statements....................................................... F-85
F-2 Report of Independent Accountants To the Stockholders of United Auto Group, Inc.: We have audited the accompanying consolidated balance sheets of United Auto Group, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Auto Group, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Princeton, New Jersey June 17, 1996 F-3 UNITED AUTO GROUP, INC. Consolidated Balance Sheets (In thousands except per share data)
------------------------------- (Unaudited) December 31, June 30, -------------------- --------- 1994 1995 1996 --------- --------- --------- ASSETS Auto Dealerships Cash and cash equivalents $ 751 $ 4,697 $ 9,301 Accounts receivable 19,588 27,349 48,209 Inventories 96,065 101,556 121,289 Deferred income taxes 5,153 5,333 Other current assets 2,130 2,894 2,848 --------- --------- --------- Total current assets 118,534 141,649 186,980 Property and equipment, net 12,072 12,146 14,609 Intangible assets, net 23,018 48,774 66,131 Due from related parties 10,388 14,578 15,727 Other assets 5,754 10,128 11,090 --------- --------- --------- Total Auto Dealership assets 169,766 227,275 294,537 --------- --------- --------- Auto Finance Cash and cash equivalents 32 531 1,530 Finance assets, net 7,555 775 Other assets 544 666 14,262 --------- --------- --------- Total Auto Finance assets 576 8,752 16,567 --------- --------- --------- Total assets $ 170,342 $ 236,027 $ 311,104 --------- --------- --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Auto Dealerships Floor plan notes payable $ 92,310 $ 97,823 $ 129,009 Short-term debt 20,050 16,187 15,069 Accounts payable 7,638 12,393 20,626 Accrued expenses 3,922 9,875 14,150 Current portion of long-term debt 1,905 3,169 2,463 --------- --------- --------- Total current liabilities 125,825 139,447 181,317 Long-term debt 6,735 24,073 38,694 Due to related party 750 1,109 1,191 Deferred income taxes 2,279 2,279 --------- --------- --------- Total Auto Dealership liabilities 133,310 166,908 223,481 --------- --------- --------- Auto Finance Short-term debt 4,661 2,516 Accounts payable and other liabilities 285 590 1,502 --------- --------- --------- Total Auto Finance liabilities 285 5,251 4,018 --------- --------- --------- Minority interests subject to repurchase 7,962 13,608 15,299 --------- --------- --------- Stock purchase warrants 1,020 1,597 --------- --------- --------- Commitments and contingent liabilities Stockholders' Equity Class A Convertible Preferred Stock, $0.0001 par value, shares authorized 4,911; shares issued and outstanding 1,972 and 3,651 at December 31, 1994 and 1995, respectively 1 1 1 Voting Common Stock, $0.0001 par value, shares authorized 15,100; shares issued and outstanding 1,529 and 2,583 at December 31, 1994 and 1995, respectively 1 1 1 Non-voting Common Stock, $0.0001 par value, authorized 1,025; none issued and outstanding Additional paid-in-capital 30,827 54,748 68,319 Accumulated deficit (2,044) (5,510) (1,612) --------- --------- --------- Total stockholders' equity 28,785 49,240 66,709 --------- --------- --------- Total liabilities, minority interests subject to repurchase, stock purchase warrants and stockholders' equity $ 170,342 $ 236,027 $ 311,104 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. F-4 UNITED AUTO GROUP, INC. Consolidated Statements of Operations (In thousands except per share data)
----------------------------------------------------- (Unaudited) Years ended Six months ended December 31, June 30, ------------------------------- -------------------- 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- Auto Dealerships Vehicle sales $ 528,484 $ 644,380 $ 716,394 $ 310,217 $ 535,173 Finance and insurance 24,666 27,518 29,806 14,499 22,339 Service and parts 52,941 59,731 59,421 28,023 40,427 --------- --------- --------- --------- --------- Total revenues 606,091 731,629 805,621 352,739 597,939 Cost of sales, including floor plan interest for the years ended December 31, 1993, 1994 and 1995 of $3,754, $4,557 and $5,784, respectively 537,688 647,643 720,344 316,525 531,560 --------- --------- --------- --------- --------- Gross profit 68,403 83,986 85,277 36,214 66,379 Selling, general and administrative expenses 66,910 80,415 90,586 41,941 56,975 --------- --------- --------- --------- --------- Operating income (loss) 1,493 3,571 (5,309) (5,727) 9,404 Related party interest income 3,039 1,519 1,548 Other interest expense (1,233) (860) (1,438) (402) (2,049) Equity in income (loss) of uncombined investees (2,899) (831) (508) 75 --------- --------- --------- --------- --------- Income (loss) before income taxes -- Auto Dealerships 260 (188) (4,539) (5,118) 8,978 --------- --------- --------- --------- --------- Auto Finance Revenues 2 530 101 1,029 Interest expense (174) (13) (176) Operating and other expenses (618) (1,738) (789) (1,202) --------- --------- --------- --------- --------- Loss before income taxes -- Auto Finance (616) (1,382) (701) (349) --------- --------- --------- --------- --------- Total Company Income (loss) before minority interests and provision for income taxes 260 (804) (5,921) (5,819) 8,629 Minority interests (117) (887) 366 917 (1,734) Benefit (provision) for income taxes (47) 2,089 (2,997) --------- --------- --------- --------- --------- Net income (loss) $ 96 $ (1,691) $ (3,466) $ (4,902) $ 3,898 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss) per common share $ .07 $ (.51) $ (.70) $ (1.19) $ .49 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Weighted average number of common shares outstanding 1,317 3,296 4,905 4,105 7,923 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. F-5 UNITED AUTO GROUP, INC. Consolidated Statements of Stockholders' Equity (Dollars in thousands)
------------------------------------------------------------------------------------ Class A Convertible Preferred Stock Common Stock ---------------------- ---------------------- Additional Total Issued Issued Paid-in Accumulated Stockholders' Shares Amount Shares Amount Capital Deficit Equity --------- ----------- --------- ----------- ----------- ----------- ---------- Balances, December 31, 1992 0 1,281,250 $ 1 $ 15,999 $ (449) $ 15,551 Issuance of stock for cash 1,570,000 $ 1 62,500 14,616 14,617 Distribution to stockholder (5,000) (5,000) Net income for 1993 96 96 --------- --- --------- --- ----------- ----------- ---------- Balances, December 31, 1993 1,570,000 1 1,343,750 1 25,615 (353) 25,264 Issuance of stock for cash 401,611 185,486 5,212 5,212 Net loss for 1994 (1,691) (1,691) --------- --- --------- --- ----------- ----------- ---------- Balances, December 31, 1994 1,971,611 1 1,529,236 1 30,827 (2,044) 28,785 Issuance of stock for cash 1,679,118 1,053,549 23,921 23,921 Net loss for 1995 (3,466) (3,466) --------- --- --------- --- ----------- ----------- ---------- Balances, December 31, 1995 3,650,729 1 2,582,785 1 $ 54,748 (5,510) 49,240 Issuance of stock for cash (Unaudited) 840,325 717,017 13,571 13,571 Net income for the six months ended June 30, 1996 (Unaudited) 3,898 3,898 --------- --- --------- --- ----------- ----------- ---------- Balances, June 30, 1996 (Unaudited) 4,491,054 $ 1 3,299,802 $ 1 $ 68,319 $ (1,612) $ 66,709 --------- --- --------- --- ----------- ----------- ---------- --------- --- --------- --- ----------- ----------- ----------
The accompanying notes are an integral part of these consolidated financial statements. F-6 UNITED AUTO GROUP, INC. Consolidated Statements of Cash Flows (Dollars in thousands)
------------------------------------------------------------------------------------------------- (Unaudited) Years ended December 31, Six months ended June 30, ----------------------------------------------------- ------------------------------------------ 1993 1994 1995 1995 1996 --------- -------------------- -------------------- -------------------- -------------------- Auto Auto Auto Auto Auto Auto Auto Auto Auto Dealerships Dealerships Finance Dealerships Finance Dealerships Finance Dealerships Finance --------- --------- --------- --------- --------- --------- --------- --------- --------- Operating activities: Net income (loss) $ 96 $ (1,075) $ (616) $ (2,084) $ (1,382) $ (4,201) $ (701) $ 4,247 $ (349) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 924 2,225 20 2,536 284 1,109 62 1,619 90 Deferred income tax benefit (2,374) Related party interest income (3,039) Accrued interest related parties...... (1,519) (1,548) Loss on sale of interest in uncombined investee 117 348 253 Equity in income (loss) of uncombined investee 2,782 483 255 (75) Gain on sales of loans (129) (510) Loans originated (18,769) (3,219) (44,075) Loans repaid or sold 11,236 339 37,456 Minority interests 117 887 (366) (917) 1,734 Changes in operating assets and liabilities: Accounts receivable (8,315) (7,042) (1,524) (2,343) (16,091) Inventories (23,982) (12,417) 16,319 (2,054) (2,494) Floor plan notes payable 22,458 14,874 (14,753) 3,020 16,651 Accounts payable and accrued expenses (4,431) (1,239) 288 5,240 302 4,223 (79) 8,430 910 Other 460 (879) (5) (90) 411 (499) 38 (598) 2,670 --------- --------- --------- --------- --------- --------- --------- --------- --------- Net cash provided by (used in) operating activities (12,673) (1,767) (313) 696 (8,047) (2,673) (3,560) 11,875 (3,808) --------- --------- --------- --------- --------- --------- --------- --------- --------- Investing activities: Purchase of equipment and improvements (1,624) (4,675) (562) (1,496) (243) (1,158) (117) (1,916) (153) Dealership acquisitions (1,975) (755) (19,921) (92) (20,803) Investment in auto finance subsidiary (907) 907 (4,592) 4,592 (4,125) 4,125 (9,400) 9,400 Funding for subsequent acquisition (1,840) Advances to related parties (1,775) (5,923) (1,496) (64) 400 Investment and advances to uncombined investee (4,087) (799) 102 (1,438) --------- --------- --------- --------- --------- --------- --------- --------- --------- Net cash provided by (used in) investing activities (5,374) (16,347) 345 (30,144) 4,349 (5,337) 4,008 (33,157) 9,247 --------- --------- --------- --------- --------- --------- --------- --------- ---------
F-7 UNITED AUTO GROUP, INC. Consolidated Statements of Cash Flows (Continued) (Dollars in thousands) ------------------------------------------------------------------------------------------------- (Unaudited) Six months ended June Years ended December 31, 30, -------------------------------------------------------- ---------- 1993 1994 1995 1995 ---------- --------------------- --------------------- ---------- Auto Auto Auto Auto Auto Auto Dealerships Dealerships Finance Dealerships Finance Dealerships ---------- ---------- --------- ---------- --------- ---------- Financing activities: Proceeds from issuance of stock 15,209 5,450 25,220 10,079 Proceeds from borrowings of long-term debt 2,320 4,299 16,300 410 Deferred financing costs (2,549) Net borrowings (repayments) of short-term debt 11,023 9,027 (3,863) (3,129) Payments of long-term debt and capitalized lease obligations (2,680) (1,139) (2,073) (1,063) Distribution to stockholders and minority interest (5,328) (42) Advances from affiliates 6,162 359 1,187 Advances to affiliates (7,389) Borrowings of warehouse credit line 14,202 Payments of warehouse credit line (10,005) ---------- ---------- --------- ---------- --------- ---------- Net cash provided by financing activities 26,706 10,206 0 33,394 4,197 7,484 ---------- ---------- --------- ---------- --------- ---------- Net increase (decrease) in cash and cash equivalents 8,659 (7,908) 32 3,946 499 (526) Cash and cash equivalents, beginning of year 0 8,659 0 751 32 751 ---------- ---------- --------- ---------- --------- ---------- Cash and cash equivalents, end of year $ 8,659 $ 751 $ 32 $ 4,697 $ 531 $ 225 ---------- ---------- --------- ---------- --------- ---------- ---------- ---------- --------- ---------- --------- ----------
1996 --------------------- Auto Auto Auto Finance Dealerships Finance --------- ---------- --------- Financing activities: Proceeds from issuance of stock 15,986 Proceeds from borrowings of long-term debt 13,220 Deferred financing costs (908) Net borrowings (repayments) of short-term debt (1,118) Payments of long-term debt and capitalized lease obligations (1,376) Distribution to stockholders and minority interest Advances from affiliates 82 Advances to affiliates Borrowings of warehouse credit line 45 30,880 Payments of warehouse credit line (35,320) --------- ---------- --------- Net cash provided by financing activities 45 25,886 (4,440) --------- ---------- --------- Net increase (decrease) in cash and cash equivalents 493 4,604 999 Cash and cash equivalents, beginning of year 32 4,697 531 --------- ---------- --------- Cash and cash equivalents, end of year $ 525 $ 9,301 $ 1,530 --------- ---------- --------- --------- ---------- ---------
The accompanying notes are an integral part of these consolidated financial statements. F-8 UNITED AUTO GROUP, INC. (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes to Consolidated Financial Statements (Dollars in thousands) 1. Organization: United Auto Group, Inc. ("UAG" or the "Company") is engaged in the sale of new and used motor vehicles, finance and insurance products, vehicle service and parts and aftermarket products. Through its wholly-owned consumer finance subsidiary, Atlantic Auto Finance Corporation ("AAFC"), UAG also purchases, sells and services financing contracts on new and used vehicles originated by both UAG and third party dealerships. The Company has through its wholly owned subsidiaries, DiFeo Partnership, Inc. and United Landers, Inc., a 70% interest in the partnerships within the United DiFeo Automotive Group (the "DiFeo Group") and an 80% interest in the corporations of Landers Auto Sales, Inc. ("Landers"), respectively. The DiFeo Group is comprised of twenty-seven automobile dealerships, organized as partnerships, and a management partnership. These partnerships operate in Connecticut, New Jersey and New York and are under common ownership, management and control. Landers is comprised of two automobile dealerships organized as corporations, operating in Arkansas. The Company operates dealerships which hold franchise agreements with a number of automotive manufacturers. In accordance with the individual franchise agreement, each dealership is subject to certain rights and restrictions typical of the industry. The ability of the manufacturers to influence the operations of the dealerships or the loss of a franchise agreement could have a negative impact on operating results of the Company. 2. Summary of Significant Accounting Policies: ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accounts which require the use of significant estimates are receivables, inventory, taxes, intangibles and accrued expenses. INTERIM FINANCIAL STATEMENTS (UNAUDITED): The interim unaudited financial statements reflect adjustments, consisting only of normal recurring accruals, which are, in the opinion of the Company's management, necessary for a fair presentation of the financial position and results of operations for the periods presented. Operating results for any interim period are not necessarily indicative of the results for a full year. PRINCIPLES OF CONSOLIDATION: These consolidated financial statements include all significant majority-owned subsidiaries and reflect the operating results, assets, liabilities and cash flows for two business segments: auto dealerships and financial services. The assets and liabilities of the auto dealerships segment are classified as current or noncurrent and those of the financial services segment are unclassified. All material accounts and transactions among the consolidated affiliates have been eliminated. Affiliated companies that are 20% to 50% owned are accounted for under the equity method of accounting. RECLASSIFICATIONS: Certain reclassifications have been made to 1993 and 1994 amounts to conform them to the 1995 presentation. CASH AND CASH EQUIVALENTS: Cash and cash equivalents include all highly-liquid investments that have an original maturity of three months or less at the date of purchase. F-9 UNITED AUTO GROUP, INC. (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes to Consolidated Financial Statements (Continued) (Dollars in thousands) 2. Summary of Significant Accounting Policies: (Continued) REVENUE RECOGNITION -- AUTO DEALERSHIPS: Revenue is recognized by the Company when vehicles are delivered to consumers or motor vehicle service work is performed and parts are delivered. Finance and insurance revenues are recognized upon the sale of the finance or insurance contract. An allowance for chargebacks against revenue recognized from Company originated and sold customer finance contracts is established during the period in which the related revenue is recognized. REVENUE RECOGNITION --AUTO FINANCE: Revenue from finance receivables is recognized over the term of the receivable using the interest method. Certain loan origination costs are deferred and amortized over the term of the related receivable as a reduction in financing revenue. Generally, finance receivables are accumulated by the Company until they attain a value in excess of $5,000, at which time they are sold into a commercial paper conduit (loan warehouse facility). An allowance for financing losses on receivables is provided for the period from the date of purchase to the date of sale. This allowance is shown as a reduction in receivables held for sale. Revenue is recognized upon sale to the conduit. Interest is received and credited to interest income based on the daily principal balance of the receivables outstanding. Loan servicing fees on receivables sold to the conduit are recognized as collected. INVENTORY VALUATION: Inventories are stated at the lower of cost or market with cost determined by the following methods:
------------------------ Inventory Component Valuation Method - --------------------------- ------------------------ New vehicles Last in, first out (LIFO) Used vehicles Specific identification Parts, accessories and Factory list price other
New vehicle and parts inventories are purchased primarily from the related vehicle manufacturer. PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost and depreciated over their estimated useful lives, primarily using the straight-line method. Useful lives for purposes of computing depreciation are: Leasehold improvements and -- Economic life or life of equipment under capital the lease, whichever is lease shorter. Equipment, furniture and -- 5 to 7 years fixtures
Expenditures for repairs and maintenance which increase the useful life or substantially increase serviceability of the asset are capitalized. When equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from their respective accounts, and any resulting gain or loss is included in the statement of operations. INCOME TAXES: The Company provides for income taxes in accordance with Statement of Financial Accounting Standard No. 109 "Accounting for Income Taxes" ("SFAS 109") which requires the asset and liability method of accounting for income taxes. Deferred tax assets or liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using enacted tax rates. The Company provides a valuation allowance for net deferred tax assets when it will be more likely than not that taxable income will not be sufficient to realize such assets. F-10 UNITED AUTO GROUP, INC. (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes to Consolidated Financial Statements (Continued) (Dollars in thousands) 2. Summary of Significant Accounting Policies: (Continued) INTANGIBLE ASSETS: Intangible assets consists of excess of cost over net assets acquired which is being amortized on a straight-line basis over the estimated benefit period of 40 years. The Company periodically reviews these costs to assess recoverability. Losses in value, if any, are charged to operations in the period such losses are determined to be permanent. Amortization expense was $549, $570 and $904 for the years ended December 31, 1993, 1994 and 1995. The Company's policy with respect to assessing whether there has been a permanent impairment in the value of excess cost over net assets acquired is to compare the carrying value of a business' excess cost over net assets acquired with the anticipated undiscounted future cash flows from operating activities of the business. Factors considered by the Company in performing this assessment include current operating income, trends and other economic factors. FAIR VALUE OF FINANCIAL INSTRUMENTS: The Company's financial instruments consist of cash and cash equivalents and debt. The carrying amount of these financial instruments approximates fair value due either to length of maturity or existence of variable interest rates that approximates prevailing market rates. LONG-LIVED ASSETS: Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" ("SFAS 121") requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset in question may not be recoverable. SFAS 121 was adopted in 1996 and did not have a material effect on the Company's results of operations, cash flows or financial position. AUTO FINANCE -- FINANCE ASSETS: All finance receivables are sold principally into a commercial paper conduit through the issuance of a certificate indicating ownership of the contracts by CXC Incorporated ("CXC"), a Citibank, N. A. related entity. These contracts are carried at the lower of their principal balance outstanding or market value. Market value is estimated based on the characteristics of the finance receivables held for sale and the terms of recent sales of similar finance receivables computed by the Company. While finance receivables are being accumulated for sale into the conduit, they are pledged against a liquidity credit line with Citibank, N.A. As of December 31, 1995, none of the finance receivables qualified as impaired, subject to the terms set forth in Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan." The Company is required to hedge each pool of finance receivables sold to CXC. Swaps against the commercial paper rate have been used to provide protection for the net yield in each pool as required by CXC. The differential to be paid or received as interest rates change is included in the calculation of excess servicing and amortized over the life of the pool. The notional amounts of outstanding hedges were $0 and $10,987 at December 31, 1994 and 1995, respectively. There were no swap agreements outstanding as of December 31, 1994. The fair value of interest rate swap agreements represented an unrecorded liability of $170 as of December 31, 1995. The Company has credit and interest rate risk on finance receivables held for sale. The Company has a program of credit review prior to final approval of specific loans and maintains reserves as appropriate. Interest rate risk is mitigated by the short period of time that receivables are held. NET INCOME (LOSS) PER COMMON SHARE: The computations of net income (loss) per share are based on the weighted average number of common shares, the weighted average number of preferred shares and warrants outstanding to the extent dilutive. F-11 UNITED AUTO GROUP, INC. (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes to Consolidated Financial Statements (Continued) (Dollars in thousands) 3. Acquisition of Landers Auto Sales, Inc.: Effective August 1, 1995, the Company acquired an 80% interest in Landers for $20,000 in cash and $4,014 in notes payable through August 2000. The acquisition was accounted for under the purchase method and the accompanying financial statements reflect the results of operations from the date of acquisition. The excess of purchase price over the underlying estimated fair value of net assets acquired was $25,777. In addition, if Landers achieves certain levels of annual pre-tax earnings, the Company will be obligated to make additional payments during each of the next three years. Any additional purchase price incurred under the terms of this agreement will be recorded as additional cost in excess of net assets acquired. The following unaudited pro forma summary presents the consolidated results of operations of the Company for 1994 and 1995 with pro forma adjustments as if the acquisition had been consummated as of January 1, 1994.
---------------------- December 31, ---------------------- 1994 1995 ---------- ---------- Revenues $ 960,541 $ 969,989 Income before minority interests and provision for income taxes 4,921 502
The foregoing pro forma results are not necessarily indicative of results of operations that would have been reported had the acquisition been completed at January 1, 1994. 4. Inventories: Inventories consist of the following:
----------------------------------- June 30, December 31, 1996 ---------------------- ----------- 1994 1995 (Unaudited) ---------- ---------- ----------- New vehicles $ 83,393 $ 74,789 $ 86,588 Used vehicles 12,098 24,917 33,332 Parts, accessories and other 5,154 6,220 6,492 ---------- ---------- ----------- 100,645 105,926 126,412 Cumulative LIFO reserve (4,580) (4,370) (5,123) ---------- ---------- ----------- $ 96,065 $ 101,556 $ 121,289 ---------- ---------- ----------- ---------- ---------- -----------
For the years ended December 31, 1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996, the effect of using the LIFO method as compared to the First In, First Out (FIFO) method was to decrease net income by $1,146 in 1993, increase net loss by $1,446 in 1994 and decrease net loss by $290 in 1995, increase net loss by $350 in June 1995 and decrease net income by $753 in June 1996. F-12 UNITED AUTO GROUP, INC. (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes to Consolidated Financial Statements (Continued) (Dollars in thousands) 5. Property and Equipment: Property and equipment consists of the following:
-------------------- December 31, -------------------- 1994 1995 --------- --------- Equipment $ 4,516 $ 4,602 Furniture and fixtures 957 1,237 Equipment under capital lease 2,380 2,380 Leasehold improvements 6,696 7,705 --------- --------- Total 14,549 15,924 Less: Accumulated depreciation and amortization 2,477 3,778 --------- --------- Total property and equipment, net $ 12,072 $ 12,146 --------- --------- --------- ---------
Depreciation and amortization expense for the years ended December 31, 1993, 1994 and 1995 was $1,052, $1,497 and $1,632, respectively. Accumulated amortization, included in accumulated depreciation and amortization above, on equipment under capital lease was approximately $747 and $1,072 at December 31, 1994 and 1995, respectively. 6. Other Assets: Auto dealerships other assets consist of the following:
-------------------- December 31, -------------------- 1994 1995 --------- --------- Restricted cash $ $ 1,840 Investment and advances in uncombined subsidiary 2,134 3,228 Security deposits 679 956 Deferred financing costs 1,685 2,934 Other 1,256 1,170 --------- --------- $ 5,754 $ 10,128 --------- --------- --------- ---------
Restricted cash represents the proceeds from capital stock issued for the purpose of financing an acquisition completed in January 1996. Equity in uncombined subsidiary represents net investment, services provided, cash advances and used vehicle transactions with dealerships where the Company does not own a majority interest. 7. Floor Plan Notes Payable: The DiFeo Group vehicle floor plan agreement is with General Motors Acceptance Corporation ("GMAC"). The Landers new vehicle floor plan agreement is with Chrysler Credit Corporation ("Chrysler"). The Landers used vehicle floor plan agreements are with Chrysler and Benton State Bank. F-13 UNITED AUTO GROUP, INC. (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes to Consolidated Financial Statements (Continued) (Dollars in thousands) 7. Floor Plan Notes Payable: (Continued) Floor plan notes payable reflects amounts for the purchase of specific vehicle inventory and consists of the following:
-------------------- December 31, -------------------- 1994 1995 --------- --------- GMAC, bearing interest at prime commercial lending rate plus 1%. The borrowing rate was 9.75% at December 31, 1995 $ 92,310 $ 63,728 Chrysler, bearing interest at LIBOR plus 2.75% or prime plus 0.5%, whichever is less. The borrowing rate was 8.75% at December 31, 1995 31,354 Benton State Bank, bearing interest at the prime commercial lending rate. The borrowing rate was 8.75% at December 31, 1995 2,741 --------- --------- $ 92,310 $ 97,823 --------- --------- --------- ---------
The floor plan agreements grant a collateral interest in substantially all of the Company's inventory and generally require the repayment of debt within two weeks of inventory sales. In addition, the GMAC floorplan agreement provides the DiFeo Group with additional borrowing facilities beyond the floor plan agreement (see Notes 8 and 9). Included in the Chrysler vehicle floor plan at December 31, 1995 is $6,928 payable to a related party participating in the floor plan agreements. This was repaid in May 1996. The weighted average interest rate on floor plan borrowings was 7.1% and 8.9% for the years ended December 31, 1994 and 1995, respectively. 8. Short-Term Debt: The DiFeo Group and GMAC have entered into additional short-term and long-term debt agreements which share in the collateral interest granted under the floor plan arrangement. One such agreement permitted maximum borrowings of $15,000 at December 31, 1994 and $10,000 at December 31, 1995, subject to a formula based on parts and used vehicle collateral limitations, and includes covenants that require the maintenance of tangible net worth and other financial ratios. At December 31, 1994 and 1995, $15,000 and $8,187, respectively, were outstanding under this agreement. These borrowings are made at the prime rate plus 1.25%. The borrowing rate at December 31, 1995 was 10.0%. The Company has a $9,000 revolving line of credit with Morgan Guaranty Trust Company of New York that expires on September 30, 1996. At December 31, 1995, $8,000 was outstanding under this agreement. The line of credit bears interest at a variable rate, the prime rate plus two or the Federal Funds rate plus two and one half percent, whichever is greater. The borrowing rate at December 31, 1995 was 10.5%. The weighted average interest rate on short term borrowings was 7.1% and 10.25% for the years ended December 31, 1994 and 1995, respectively. In addition, AAFC maintains a $5,000 loan arrangement with Citibank, N.A. for the purpose of purchasing finance receivables. The amount borrowed by AAFC may not exceed 93% of the outstanding principal balance of eligible receivables pledged to secure the loan. The total amount outstanding under this arrangement at December 31, 1994 and 1995 was $0 and $4,197, respectively. F-14 UNITED AUTO GROUP, INC. (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes to Consolidated Financial Statements (Continued) (Dollars in thousands) 9. Long-Term Debt: Long-term debt consists of the following:
--------------------------------- June 30, December 31, 1996 -------------------- ----------- 1994 1995 (Unaudited) --------- --------- ----------- Series A and B Senior Notes due 2003, net of unamortized discount of $1,007 $ $ 15,293 $ 27,988 Landers term notes, payable in monthly installments through August 2000, bearing interest at 8.0% 3,697 3,302 Term note, payable July 1998 bearing interest at 8 1/2% 2,100 GMAC term loan, payable in equal monthly installments of $17 through March 1998 with a final payment of $1,000 in April 1998; interest at the prime rate plus 1.0% 1,650 1,450 1,350 GMAC term loan, payable in equal monthly installments of $25 through June 1999 with a final payment of $1,500 in July 1999; interest at the prime rate plus 1.0% 2,850 2,550 2,400 Capitalized lease obligations 2,243 1,686 1,444 Other installment loans 1,897 2,566 2,573 --------- --------- ----------- 8,640 27,242 41,157 Less: Current portion 1,905 3,169 2,463 --------- --------- ----------- $ 6,735 $ 24,073 $ 38,694 --------- --------- ----------- --------- --------- -----------
The GMAC term loans share in the security interest granted to the lender under the floor plan arrangement. Maturities of long-term debt for the next five years and thereafter are as follows:
--------- Amount --------- 1996 $ 3,169 1997 2,166 1998 2,009 1999 2,484 2000 2,121 2001 and thereafter 16,300 --------- $ 28,249 --------- ---------
On September 22, 1995, the Company finalized a placement on $35,000 of Series A and B Senior Notes (collectively referred to as the "Notes") due in 2003 under which Notes are available to be issued through March 1997. The Company initially issued $16,300 of the Notes at 12.0% with an original issue discount of $1,020, which is being amortized to interest expense over the term of the Notes, increasing the effective interest rate on such Notes to 12.8%. Such interest rate will increase by 2.0% if certain franchisor approvals are not obtained by March 1997 and would be effective as of the date of original issuance of the Notes. The Notes are callable by the Company at a premium as determined pursuant to the placement agreement of up to 10% of the principal balance. The Notes also contain covenants that require the maintenance of certain financial ratios and restrict additional indebtedness. The Notes contain detachable warrants, whereby each warrant grants the holder the option to purchase UAG Common Stock at $.01 per share. The warrants become exercisable after certain franchisor approvals are received and were recorded at their fair value at the date of issuance. At December 31, 1995, there were 526,039 warrants outstanding. The warrants expire in 2003. If certain franchisor approvals are not received by March 1997, the F-15 UNITED AUTO GROUP, INC. (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes to Consolidated Financial Statements (Continued) (Dollars in thousands) 9. Long-Term Debt: (Continued) warrants will convert to contingent value obligations ("CVO's"). The CVO's are intended to provide the holder with economic benefits substantially similar to those that would have been realized upon exercise of the warrants and sale of the underlying Common Stock. The warrants have been recorded as temporary equity at their fair value at their dates of issuance due to the CVO feature. No accretion to the carrying amount has been made as franchisors' approvals are probable. 10. Operating Lease Obligations: The Company leases its dealership facilities and corporate office under operating lease agreements primarily with related parties. These leases are noncancelable and expire on various dates through 2012. The lease agreements are subject to renewal under essentially the same terms and conditions as the original lease. The following is a schedule by year of future minimum rental payments required under the operating leases as of December 31, 1995.
--------- Amount --------- 1996 $ 5,859 1997 6,002 1998 6,391 1999 6,470 2000 5,286 2001 and thereafter 17,093 --------- $ 47,101 --------- ---------
Total rent expense for the years ended December 31, 1993, 1994 and 1995 approximated $6,367, $6,302 and $7,113, respectively. Rental payments to related parties were $4,272 and $4,502 for the years ended December 31, 1994 and 1995, respectively. 11. Minority Interests Subject to Repurchase: As result of the minority ownership of the DiFeo Group and Landers, the Company has recorded minority interests. The minority owners have the right to require repurchase of their interest by UAG at fair value if they are not converted into UAG common stock in connection with an initial public offering or equity offering. The minority interests were recorded at fair value at the dates of acquisition and such amounts are adjusted for their share of the applicable earnings and losses. If repurchased, the difference between the recorded value and the repurchase amount will adjust the recorded amount of assets and liabilities including the cost in excess of net assets acquired in accordance with purchase accounting. 12. Other Related Party Transactions: The Company was owed $10,388, $14,578 and $15,727 from the minority shareholders and certain of their related entities as of December 31, 1994 and 1995 and June 30, 1996, respectively, arising out of advances for certain business acquisitions and working capital advances for dealerships in which the Company has no ownership. Related party interest income represents interest on the above mentioned advances and advances to the uncombined investee. The Company owes a stockholder $750, $1,109 and $1,191 as of December 31, 1994 and 1995 and June 30, 1996, respectively, for working capital advances. Such indebtedness is subject to offset against a guarantee of $2,000 third party indebtedness to the Company. F-16 UNITED AUTO GROUP, INC. (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes to Consolidated Financial Statements (Continued) (Dollars in thousands) 13. Stock Options: Options have been granted to purchase 127,200 shares of the Company's Common Stock under an employment agreement at an exercise price of twelve dollars and fifty cents per share. These options vest over four years. At December 31, 1995, 31,800 options were exercisable. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation" ("SFAS 123"). SFAS 123 establishes financial and reporting standards for stock based compensation plans. The Company anticipates adopting the disclosure only provisions of this standards during 1996. 14. Stockholders' Equity: On December 29, 1993, UAG and certain investors entered into a private placement agreement (the "Agreement") whereby the investors committed to purchase over a period of time an aggregate 4,911,000 shares of Class A Convertible Preferred Stock (the "Preferred Stock") at ten dollars per share. The Preferred Stock can be issued as UAG calls upon the funds committed by the investors pursuant to the Agreement. If by December 29, 1999 the Company has not (i) redeemed at least 50% of the Preferred Stock, (ii) consummated a Qualified Public Offering (as defined in the Company's Certificate of Incorporation) or (iii) sold all or substantially all of the Company's assets or merged with or into another entity in a transaction in which 50% or more of the voting control of the Company is transferred (collectively a "Triggering Event"), certain rights of the holders of the Company's Preferred Stock (the "Preferred Investors") under the Agreement will be triggered. Specifically, the Preferred Investors will receive warrants to purchase, at a nominal price, 50% of the fully diluted equity of the Company (after exercise of such warrants) in the form of Common Stock. If a Triggering Event does not occur by December 29, 2000, the Preferred Investors will receive warrants to purchase, at a nominal price, an additional 25% of the fully diluted equity of the Company (after exercise of such warrants) in the form of Common Stock. In lieu of such warrants, after December 29, 1999, the Preferred Investors may elect to receive promissory notes evidencing indebtedness of the Company in an amount equal to 50% of the fair market value of the fully diluted equity of the Company. If a Triggering Event does not occur by December 29, 2000, in lieu of warrants, the Preferred Investors may elect to receive promissory notes in an amount equal to an additional 25% of the fair market value of the fully diluted equity of the Company. Upon the occurrence of any of these events, the holders of the warrants, the warrant shares or the CVOs could experience significant diminution of value, although the warrants contain certain anti-dilution protection in the event the above-described warrants are issued. The Preferred Stock has been included as a component of equity as these rights are incremental and the Preferred Shares will remain outstanding. The Agreement also provides a commitment by existing common stockholders to purchase an aggregate 2,250,000 shares of Common Stock at eight dollars per share. Such shares must be purchased in proportion to Preferred Stock. Common Stock dividends are payable only with the approval of the Preferred Investors. F-17 UNITED AUTO GROUP, INC. (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes to Consolidated Financial Statements (Continued) (Dollars in thousands) 15. Income Taxes: The provision (benefit) for income taxes consists of the following components:
----------------------------------- Years ended December 31, ----------------------------------- 1993 1994 1995 ----- ----- --------- Currently payable: Federal State and local $ 47 $ 285 -- - --------- Total currently payable 0 0 285 -- - --------- Deferred tax liability (asset): Federal (2,374) State and local 47 -- - --------- Total deferred 47 0 (2,374) -- - --------- Total (benefit) provision $ 47 $ 0 $ (2,089) -- - -- - --------- ---------
The reasons for the differences between the provision for income taxes using the Federal statutory income tax rate and the tax provisions reported by the Company are as follows:
------------------------------- Years ended December 31, ------------------------------- 1993 1994 1995 --------- --------- --------- Tax provisions computed at the Federal statutory income tax rate $ (33) $ 592 $ 1,944 State and local income taxes, net of Federal benefit (186) Valuation allowance (745) 745 Other (14) 153 (414) --- --------- --------- Benefit (provision) for income taxes $ (47) $ 0 $ 2,089 --- --------- --------- --- --------- ---------
F-18 UNITED AUTO GROUP, INC. (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes to Consolidated Financial Statements (Continued) (Dollars in thousands) 15. Income Taxes: (Continued) The Company accounts for income taxes in accordance with SFAS 109. Under SFAS 109, deferred income taxes reflect the estimated tax effect of temporary differences between assets and liabilities for financial accounting purposes and those amounts as measured by tax laws and regulations. The components of deferred income tax assets and liabilities were as follows:
-------------------- Years ended December 31, -------------------- 1994 1995 --------- --------- Deferred Tax Assets Net operating loss carryforward $ 2,214 $ 4,467 Capital loss carryforwards 201 Organization costs 259 241 All other 244 --------- --------- Total deferred tax assets 2,473 5,153 Valuation allowance (745) --------- --------- Net deferred tax assets 1,728 5,153 Deferred Tax Liabilities Partnership investments (1,728) (2,179) Sale of finance receivables (47) All other (53) --------- --------- Total deferred tax liabilities (1,728) (2,279) --------- --------- Net deferred tax assets (liabilities) $ 0 $ 2,874 --------- --------- --------- ---------
The Company had determined, based upon prior taxable losses, that taxable income would probably not be sufficient to recognize a net deferred tax asset at December 31, 1993 and 1994. Accordingly, a valuation allowance was provided for the net deferred tax assets. Based upon the restructuring of dealerships and other operational measures implemented in 1995 (see Note 16), the Company determined that it was more likely than not that future taxable income would be sufficient to fully recognize the net deferred tax asset at December 31, 1995. At December 31, 1995, the Company has $10,600 of regular tax, net operating loss carryforwards for Federal income tax purposes expiring from 2008 to 2010, of which $3,300 is subject to an annual limitation of approximately $1,300 per year as imposed by Section 382 of the Internal Revenue Code. 16. Terminated Franchises: During the first quarter of 1995, the Company commenced a restructuring of its then unprofitable DiFeo Group. Such restructuring included the termination of certain unprofitable dealerships, a reduction in personnel of approximately 250 employees, the implementation of pay plans linked to net profit and the liquidation of outdated inventory. Costs associated with this restructuring were approximately $680 and $450 for the year ended December 31, 1995 and the six months ended June 30, 1996, respectively, and were primarily related to severance, and the program was substantially completed by the fourth quarter of 1995. F-19 UNITED AUTO GROUP, INC. (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes to Consolidated Financial Statements (Continued) (Dollars in thousands) 17. Supplemental Cash Flow Information: The following table presents certain supplementary information to the Consolidated Statements of Cash Flows:
----------------------------------------------------- 1993 1994 1995 --------- -------------------- -------------------- Auto Auto Auto Auto Auto Dealerships Dealerships Finance Dealerships Finance --------- --------- --------- --------- --------- Supplemental information: Cash paid for interest $4,901 $6,385 $8,437 $109 Cash paid for income taxes 3 Non-cash financing activities: Stock issuance costs amortized against proceeds from issuance of stock 883 543 910 Dealership acquisition cost financed by long-term debt 4,014 Capitalized lease obligations 1,777 433 Warrants issued 1,020
18. Summary of Quarterly Financial Data (Unaudited)
------------------------------------------------- Three Months Ended ------------------------------------------------- March 31, 1995 June 30, 1995 September 30, 1995 -------------- ------------- ------------------ Statements of Operational Data: Auto Dealerships Total revenues $162,598 $190,142 $239,601 Gross profit 16,544 19,671 26,228 Operating income (loss) (4,285) (1,442) 2,271 Auto Finance Loss before income taxes (354) (347) (356) Total Company Income (loss) before minority interests and provision for income taxes (4,104) (1,715) 2,074 Net income (loss) (3,231) (1,671) 1,082 Net income (loss) per common share $(.82) $(.38) $.19 December 31, 1995 ----------------- Statements of Operational Data: Auto Dealerships Total revenues $213,280 Gross profit 22,834 Operating income (loss) (1,853) Auto Finance Loss before income taxes (325) Total Company Income (loss) before minority interests and provision for income taxes (2,176) Net income (loss) 354 Net income (loss) per common share $.05
In the fourth quarter of 1995 the Company determined that it was more likely than not that future taxable income would be sufficient to fully recognize a net deferred tax asset of $2,874 (See Note 16). The net income (loss) per common share amounts are calculated independently for each of the quarters presented and are not presented in thousands. The sum of the quarters may not equal the full year net income (loss) per common share amount. F-20 UNITED AUTO GROUP, INC. (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes to Consolidated Financial Statements (Continued) (Dollars in thousands) 19. Subsequent Events: Effective January 1, 1996, the Company acquired a 100% interest in Atlanta Toyota, Inc. for a purchase price consisting of $9,100 in cash plus $2,400 in notes. This acquisition was accounted for under the purchase method and the accompanying financial statements reflect the results of operations from the date of acquisition. In order to finance the acquisition, the Company issued additional Preferred Stock and Common Stock in the amount of $6,100 and issued Notes in the amount of $4,400 at an interest rate of 11.60%. On May 1, 1996, the Company acquired a 100% interest in Steve Rayman Nissan, Inc. for a purchase price of $11,500 in cash. This acquisition will be accounted for under the purchase method and the financial statements will reflect the results of operations from the date of acquisition. The dealership has been renamed United Nissan. In order to finance the acquisition, the Company issued additional Preferred Stock and Common Stock in the amount of $7,380 and issued Notes in the amount of $4,620 at an interest rate of 11.95%. The following unaudited pro forma summary presents the consolidated results of operations of the Company, Landers and the aforementioned acquisitions for 1994 and 1995 with pro forma adjustments as if these transactions had been consummated as of January 1, 1994.
-------------------- December 31, -------------------- 1994 1995 --------- --------- Revenues $1,122,463 $1,144,823 Income before minority interests and provision for income taxes 6,678 4,187
The foregoing pro forma results are not necessarily indicative of results of operations that would have been reported had the acquisitions been completed at January 1, 1994. F-21 Report of Independent Accountants To the Stockholders of Landers Auto Sales, Inc. We have audited the accompanying balance sheets of Landers Auto Sales, Inc. as of July 31, 1995 and December 31, 1994 and the related statements of operations, retained earnings and cash flows for the period ended July 31, 1995 and the years ended December 31, 1994 and 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Landers Auto Sales, Inc. as of July 31, 1995 and December 31, 1994 and the results of its operations and its cash flows for the period ended July 31, 1995 and the years ended December 31, 1994 and 1993 in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Memphis, Tennessee May 31, 1996 F-22 LANDERS AUTO SALES, INC. Balance Sheets (Dollars in thousands)
------------------------ December 31, July 31, 1994 1995 ------------- --------- Assets: Current Assets Cash $ 3,229 $ 2,278 Accounts receivable 6,948 6,593 Inventories 26,871 22,433 Other current assets 29 ------------- --------- Total current assets 37,048 31,333 ------------- --------- Property and equipment, net 871 927 Intangible assets 55 49 ------------- --------- Total assets $ 37,974 $ 32,309 ------------- --------- ------------- --------- Liabilities and stockholders' equity: Current Liabilities Floor plan notes payable $ 26,328 $ 21,384 Current portion of long-term debt 88 115 Due to stockholders 2,669 2,046 Accounts payable 1,374 1,337 Accrued expenses 959 1,313 Income taxes payable 1,623 336 Accrued dividends 1,545 ------------- --------- Total current liabilities 33,041 28,076 ------------- --------- Long-term debt -- net of current portion 187 239 ------------- --------- Total liabilities 33,228 28,315 ------------- --------- Commitments and contingent liabilities Stockholders' equity: Common stock, no par value; authorized 100 shares, issued and outstanding 10 shares 805 805 Retained earnings 3,941 3,189 ------------- --------- Total stockholders' equity 4,746 3,994 ------------- --------- Total liabilities and stockholders' equity $ 37,974 $ 32,309 ------------- --------- ------------- ---------
The accompanying notes are an integral part of the financial statements. F-23 LANDERS AUTO SALES, INC. Statements of Operations (Dollars in thousands)
---------------------------------- Period Years ended ended July December 31, 31, ---------------------- ---------- 1993 1994 1995 ---------- ---------- ---------- Sales $ 163,343 $ 228,912 $ 164,368 Cost of sales, including floor plan interest for the years ended December 31, 1993 and 1994 and for the period ended July 31, 1995 of $274, $1,922 and $1,503, respectively 153,631 208,932 147,566 ---------- ---------- ---------- Gross profit 9,712 19,980 16,802 Selling, general and administrative expenses 9,530 15,445 10,132 ---------- ---------- ---------- Income from operations 182 4,535 6,670 Other income (expense), net 214 209 242 ---------- ---------- ---------- Income before income taxes 396 4,744 6,912 Provision for income taxes 181 1,810 449 ---------- ---------- ---------- Net income $ 215 $ 2,934 $ 6,463 ---------- ---------- ---------- ---------- ---------- ----------
The accompanying notes are an integral part of the financial statements. F-24 LANDERS AUTO SALES, INC. Statements of Retained Earnings (Dollars in thousands)
------------- Retained earnings, December 31, 1992 $ 850 Net income for the year 215 ------ Retained earnings, December 31, 1993 1,065 Dividends (58) Net income for the year 2,934 ------ Retained earnings, December 31, 1994 3,941 Dividends (7,215) Net income for the period 6,463 ------ Retained earnings, July 31, 1995 $ 3,189 ------ ------
The accompanying notes are an integral part of the financial statements. F-25 LANDERS AUTO SALES, INC. Statements of Cash Flows (Dollars in thousands)
------------------------------- Period Years ended ended December 31, July 31, -------------------- --------- 1993 1994 1995 --------- --------- --------- Operating activities: Net income $ 215 $ 2,934 $ 6,463 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 177 290 159 Amortization 38 27 7 Net loss (gain) on sale of assets 19 (5) Changes in operating assets and liabilities: Accounts receivable (2,236) (2,390) 353 Inventories (858) (7,534) 4,439 Other current assets (534) 654 (29) Floor plan notes payable 1,862 5,954 (4,944) Accounts payable 523 89 (37) Accrued expenses 583 292 354 Income taxes payable (319) 1,623 (1,287) --------- --------- --------- Net cash provided by (used in) operating activities (549) 1,958 5,473 Investing activities: Acquisition of property and equipment (365) (414) (76) Proceeds from sale of assets 13 21 --------- --------- --------- Net cash used in investing activities (365) (401) (55) Financing activities: Payment on debt (30) (96) (76) Net increase (decrease) in cash overdrafts 1,015 (1,015) Net increase (decrease) in due to stockholders (67) 2,201 (623) Dividends paid (5,670) --------- --------- --------- Net cash provided by (used in) financing activities 918 1,090 (6,369) --------- --------- --------- Net increase (decrease) in cash 4 2,647 (951) Cash, beginning of period 578 582 3,229 --------- --------- --------- Cash, end of period $ 582 $ 3,229 $ 2,278 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of the financial statements. F-26 LANDERS AUTO SALES, INC. Statements of Cash Flows -- Supplemental Information (Dollars in thousands)
--------------------------------------- Period Years ended December 31, ended July -------------------------- 31, 1993 1994 1995 ------------ ------------ ----------- Supplemental cash flow information: Cash paid during the period: Interest $ 183 $ 1,966 $ 1,525 Income taxes 993 88 1,804
Supplemental Disclosures of Non-Cash Activities: During the years ended December 31, 1993 and 1994 and the period ended July 31, 1995, the Company purchased equipment and vehicles totaling $88, $70 and $125, respectively, through direct financing. During the period ended July 31, 1995, the Company acquired computer equipment totaling $31 through a capital lease. During the year ended December 31, 1993, the Company entered into the capital lease of a computer for $230. During the year ended December 31, 1994, a Company vehicle was destroyed. The note relating to the vehicle in the amount of $20 was subsequently paid off by the insurance company in full. During the year ended December 31, 1994, the Company paid dividends to stockholders in the form of Company owned land with a cost and a fair value of $58. During the period ended July 31, 1995, the Company accrued dividends to stockholders in the amount of $1,545. The accompanying notes are an integral part of the financial statements. F-27 LANDERS AUTO SALES, INC. Notes to Financial Statements (Dollars in thousands) 1. Organization: The December 31, 1993 financial statements of Landers Auto Sales, Inc. (the "Company") were prepared on a consolidated basis and included the accounts of its wholly owned subsidiaries, Landers Oldsmobile-GMC, Inc. and Landers Jeep-Eagle, Inc. As of December 22, 1994, Landers Oldsmobile-GMC, Inc. and Landers Jeep-Eagle, Inc. were merged into Landers Auto Sales, Inc. and operate as divisions of Landers Auto Sales, Inc. under the trade names of Landers Oldsmobile-GMC Trust and Landers Jeep-Eagle/Chrysler-Plymouth-Dodge, respectively. All material divisional accounts and transactions have been eliminated. The Company, operating in Benton, Arkansas, sells and services new Oldsmobile, GMC Trucks, Jeep, Eagle, Chrysler, Plymouth, Dodge cars and trucks and used automobiles, and finance insurance and service contracts thereon. The Company operates dealerships which hold franchise agreements with a number of automotive manufacturers. In accordance with the individual franchise agreement, each dealership is subject to certain rights and restrictions typical of the industry. The ability of the manufacturers to influence the operations of the dealerships or the loss of a franchise agreement could have a negative impact on operating results of the Company. 2. Summary of Significant Accounting Policies: The following is a summary of significant accounting policies followed in the preparation of the financial statements. ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION: Revenue is recognized by the Company when vehicles and parts are delivered to consumers and when service work is performed. INVENTORIES: Inventories are stated at the lower of cost or market with cost determined by the following methods: new vehicles are valued at the Last-in, first-out (LIFO) method; used vehicles at the specific identification method; and parts, accessories and other at factory list price. PROPERTY AND EQUIPMENT: Equipment and improvements are recorded at cost and depreciated over their estimated useful lives, using the straight-line and accelerated methods. Useful lives of equipment and improvements for purposes of computing depreciation are: Leasehold improvements -- Economic life or life of the lease, whichever is shorter. Equipment, furniture and -- 5 to 7 years fixtures
Expenditures for repairs and maintenance which increase the useful life or substantially increase serviceability of the asset are capitalized. All others are charged to expense as incurred. When equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from their respective accounts and any resulting gain or loss is included in the statement of operations. AMORTIZATION: Amortization of intangibles is computed on the straight-line method. The period of amortization is based upon the estimated time of benefit assigned to intangible assets when acquired. F-28 LANDERS AUTO SALES, INC. Notes to Financial Statements (Continued) (Dollars in thousands) 3. Concentration of Credit Risk: The Company's significant concentration of credit risk is with its cash. The Company maintains cash balances at several financial institutions located in Arkansas which are at times in excess of federally-insured amounts. 4. Inventories: Inventories consist of the following items as of:
----------------------- December 31, July 31, 1994 1995 ------------ --------- New vehicles $ 18,945 $ 13,001 Used vehicles 7,903 9,517 Parts, accessories and other 1,503 1,435 ------------ --------- 28,351 23,953 Cumulative LIFO reserve 1,480 1,520 ------------ --------- $ 26,871 $ 22,433 ------------ --------- ------------ ---------
If the FIFO method had been used instead of the LIFO method, inventories would have been higher by $1,480 and $1,520 at December 31, 1994 and July 31, 1995, respectively. 5. Property and Equipment: Property and equipment consists of the following as of:
------------------------- December 31, July 31, 1994 1995 ------------ ----------- Buildings and leasehold improvements $ 249 $ 289 Machinery and shop equipment 707 791 Furniture and fixtures 487 542 Company vehicles 147 148 ------------ ----------- Total 1,590 1,770 Less: Accumulated depreciation and amortization 719 843 ------------ ----------- Total property and equipment, net $ 871 $ 927 ------------ ----------- ------------ -----------
The Company has entered into several leases of computer equipment. The leases meet the criteria of a capital lease and, accordingly, have been recorded as such. The leases are noncancelable and expire in September 1998. The following is a schedule of the computer equipment under capital leases at December 31, 1994 and July 31, 1995:
------------------------- December 31, July 31, 1994 1995 ------------ ----------- Computer equipment $ 230 $ 260 Accumulated depreciation (120) (147) ------------ ----- $ 110 $ 113 ------------ ----- ------------ -----
F-29 LANDERS AUTO SALES, INC. Notes to Financial Statements (Continued) (Dollars in thousands) 6. Floor Plan Notes Payable: The amounts payable to financial institutions under trust receipt transactions are collateralized by liens on inventories of specific new and used vehicles. Floor plan notes payable for new and used vehicles are as follows as of:
---------------------------- December 31, July 31, 1994 1995 ------------- ------------- Chrysler Credit Corporation: Interest rate on new and used vehicles is prime plus 1/2%; collateralized by specific motor vehicles and the personal guarantees of the stockholders $ 19,027 $ 15,091 Interest is at prime plus 1%; collateralized by specific motor vehicles and the personal guarantees of the stockholders 5,416 3,762 Benton Savings Bank: Interest is at prime; collateralized by specific motor vehicles and the personal guarantees of the stockholders 1,885 2,531 ------------- ------------- Total floor plan notes payable -- new and used vehicles $ 26,328 $ 21,384 ------------- ------------- ------------- -------------
The prime rate at December 31, 1994 and July 31, 1995 was 8.5% and 8.75%, respectively. Included in the Chrysler vehicle floor plan at December 31, 1994 and July 31, 1995 is $126 and $0, respectively, payable to a related party participating in the floor plan agreements. 7. Long-Term Debt: Long-term debt consists of the following as of:
------------------------- December 31, July 31, 1994 1995 ------------ ----------- Benton State Bank: Various notes payable; interest is 7%. Monthly payment of $4 includes principal and interest; collateralized by specific vehicles and various Company assets expiring through June 1998 $ 102 $ 113 Chrysler Credit Corporation: Interest is 7.5%. Monthly principal payment of $2, plus interest; collateralized by specific equipment expiring June 2000 12 76 Capital lease obligations: Interest is 8.4%. Monthly payments are $5. 161 166 ------------ --- Total 275 355 Less -- current portion 88 116 ------------ --- Long-term debt $ 187 $ 239 ------------ --- ------------ ---
F-30 LANDERS AUTO SALES, INC. Notes to Financial Statements (Continued) (Dollars in thousands) 7. Long-Term Debt: (Continued) Principal maturities of long-term debt in each of the next five years are as follows:
----------- Twelve month period ending July 31, Amount - ------------------------------------------------------------------------------------- ----------- 1996 $ 116 1997 115 1998 99 1999 15 2000 10 --- Total $ 355 --- ---
Interest expense on all indebtedness amounted to $279, $1,989 and $1,504 for the years ended December 31, 1993 and 1994 and for the period ended July 31, 1995, respectively. 8. Related Party Transactions: The Company leases its buildings and lots from Steve Landers, John Landers and Bob Landers, stockholders of the Company. Rent expense for the year ended December 31, 1994 and the period ended July 31, 1995 amounted to $429 and $378, respectively. Effective August 1, 1995, the Company entered into a new twenty year lease agreement with such stockholders. Future minimum lease payments are as follows:
--------- Twelve month period ending July 31, Amount - ------------------------------------------------------------------------------------ --------- 1996 $ 540 1997 540 1998 540 1999 540 2000 540 Thereafter 8,100 --------- Total $ 10,800 --------- ---------
The balance due to stockholders at December 31, 1994 and July 31, 1995 totaled $2,669 and $2,046, respectively. The stockholders are paid interest at a rate of 2% above the current certificate of deposit interest which are adjusted monthly and payable on demand. The balance was repaid on August 15, 1995. 9. Provisions for Income Taxes: Prior to January 1, 1995, the Company was treated as a C corporation for federal income tax purposes. As of January 1, 1995, the Company elected to be treated as an S corporation. Under this election, the Company's stockholders were responsible for reporting the Company's federal taxable income on their personal income tax returns. F-31 LANDERS AUTO SALES, INC. Notes to Financial Statements (Continued) (Dollars in thousands) 9. Provisions for Income Taxes: (Continued) The provision for income taxes consists of the following:
---------------------------------- Years Ended December Period Ended 31, July 31, 1993 1994 1995 --------- --------- ------------ Federal $ 166 $ 1,506 $ 449 State 15 304 0 --------- --------- ------------ $ 181 $ 1,810 $ 449 --------- --------- ------------ --------- --------- ------------
Prior to January 1, 1995, deferred income taxes were recognized for tax consequences of temporary difference by applying enacted statutory tax rates, applicable to future years, to differences between the financial reporting and the tax basis of existing assets and liabilities. These differences relate primarily to depreciation and amortization of intangibles which were minimal in 1994 and 1993. Prior to January 1, 1995, the Company's effective income tax rate differed from the Federal statutory tax rate principally due to state income taxes and certain expenses which are not deductible for tax purposes. Such non-deductible expenses were minimal during 1994 and 1993. The provision for income tax in 1995 relates to the recapture of the LIFO reserve upon the Company's S Corporation election. 10. Profit Sharing Plan: The Company maintains a profit sharing plan for all employees over the age of 21 who have completed one year of service. Contributions to the plan are at management's discretion. Contributions for the year ended December 31, 1993 and 1994 and the period ended July 31, 1995 amounted to $190, $300 and $117, respectively. 11. Reclassifications: Certain amounts in the 1994 and 1993 financial statements have been reclassified to conform to the presentation adopted in 1995. 12. Subsequent Event: On August 15, 1995, the stockholders of the Company sold 80% of the stock to United Auto Group, Inc. Upon completion of the sale, two of the original stockholders each had a 10% interest in the Company. The remaining original stockholder held no interest in the Company. F-32 Report of Independent Accountants To the Stockholder Atlanta Toyota, Inc. We have audited the accompanying balance sheets of Atlanta Toyota, Inc. as of December 31, 1995 and 1994 and the related statements of operations, retained earnings, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Atlanta Toyota, Inc. as of December 31, 1995 and 1994 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Atlanta, Georgia June 30, 1996 F-33 ATLANTA TOYOTA, INC. Balance Sheets (Dollars in thousands)
-------------------- December 31, -------------------- 1994 1995 --------- --------- Assets Current Assets: Cash $ 1,677 $ 555 Accounts receivable, net of allowance for doubtful accounts ($4 and $7 for 1994 and 1995, respectively) 1,069 1,714 Current portion of notes receivable from related parties, net of allowance for doubtful accounts of $219 and $378 in 1994 and 1995, respectively) 622 842 Inventories 8,282 8,123 Other current assets 11 1 --------- --------- Total current assets 11,661 11,235 Property and equipment, net 336 1,150 Notes receivable from related parties, net of allowance for doubtful accounts ($128 and $379 in 1994 and 1995, respectively), non-current portion 357 857 Intangible assets 32 30 Other assets 2 1 --------- --------- Total assets $ 12,388 $ 13,273 --------- --------- Liabilities and Stockholders' Equity Current Liabilities: Floor plan notes payable $ 8,627 $ 8,847 Accounts payable 1,277 1,639 Accrued expenses 510 720 Deferred revenue 2,701 2,762 Reserve for chargebacks of finance and insurance income 243 471 --------- --------- Total Current Liabilities 13,358 14,439 --------- --------- Commitments and contingent liabilities Stockholder's equity: Common stock -- authorized, 10,000 shares of $.10 par value; issued and outstanding 1,000 shares 0 0 Distributions in excess of earnings (970) (1,166) --------- --------- Total stockholder's equity (970) (1,166) --------- --------- Total liabilities and stockholder's equity $ 12,388 $ 13,273 --------- --------- --------- ---------
The accompanying notes are an integral part of the financial statements. F-34 ATLANTA TOYOTA, INC. Statements of Operations (Dollars in thousands)
------------------------------- Years ended December 31, ------------------------------- 1993 1994 1995 --------- --------- --------- Sales $ 104,080 $ 114,394 $ 112,162 Cost of sales, including floor plan interest for the years ended December 31, 1993, 1994 and 1995 of $440, $540 and $752, respectively 90,556 100,350 98,969 --------- --------- --------- Gross profit 13,524 14,044 13,193 Selling, general and administrative 11,067 11,938 11,182 --------- --------- --------- Income from operations 2,457 2,106 2,011 Other income (expense), net (148) (105) 17 --------- --------- --------- Net income $ 2,309 $ 2,001 $ 2,028 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of the financial statements. F-35 ATLANTA TOYOTA, INC. Statements of Retained Earnings (Dollars in thousands)
------------- Distribution in excess of earnings at December 31, 1992 $ (552) Net income for the year 2,309 Distributions to stockholder (2,114) ------ Distribution in excess of earnings at December 31, 1993 (357) Net income for the year 2,001 Distributions to stockholder (2,614) ------ Distribution in excess of earnings at December 31, 1994 (970) Net income for the year 2,028 Distributions to stockholder (2,224) ------ Distribution in excess of earnings at December 31, 1995 $ (1,166) ------ ------
The accompanying notes are an integral part of the financial statements. F-36 ATLANTA TOYOTA, INC. Statements of Cash Flows (Dollars in thousands)
------------------------------- Years ended December 31, ------------------------------- 1993 1994 1995 --------- --------- --------- Operating activities: Net income $ 2,309 $ 2,001 $ 2,028 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 287 240 215 Net loss (gain) on sales of assets (15) 4 Provision for losses on accounts and notes receivable 323 143 413 Provision for chargebacks on finance and insurance income and warranty claims 393 311 228 Changes in operating assets and liabilities: Accounts and notes receivable (619) (482) (1,776) Inventories (922) 1,043 243 Prepaid expenses (20) 55 10 Other assets (3) 1 1 Floorplan notes payable 2,514 (790) 223 Accounts payable and accrued liabilities (888) 751 635 --------- --------- --------- Net cash provided by operating activities 3,359 3,277 2,220 --------- --------- --------- Investing activities: Refund of deposit 110 Purchases of equipment and leasehold improvements (351) (107) (1,115) Proceeds from sale of assets 53 12 --------- --------- --------- Net cash provided by (used for) investing activities (298) 15 (1,115) --------- --------- --------- Financing activities: Payments on long-term debt (250) Net payments on notes payable on rental vehicles (65) (88) (3) Principal payments on capital lease obligations (121) Distributions to stockholders (2,114) (2,614) (2,224) --------- --------- --------- Net cash used in financing activities (2,550) (2,702) (2,227) --------- --------- --------- Net increase (decrease) in cash 511 590 (1,122) Cash, beginning of year 576 1,087 1,677 --------- --------- --------- Cash, end of year $ 1,087 $ 1,677 $ 555 --------- --------- --------- --------- --------- --------- Supplemental cash flow information: Cash paid during the period for interest $ 432 $ 540 $ 753
The accompanying notes are an integral part of the financial statements. F-37 ATLANTA TOYOTA, INC. Notes to Financial Statements (Dollars in thousands) 1. Organization: Atlanta Toyota, Inc. (the "Company"), a Texas Corporation, operating in Duluth, Georgia, sells and services new Toyota and Buick vehicles and used automobiles, as well as finance, insurance and service contracts thereon. The Company operates two franchise agreements with automotive manufacturers. In accordance with the individual franchise agreement, each dealership is subject to certain rights and restrictions typical of the industry. The ability of the manufacturers to influence the operations of the dealerships or the loss of a franchise agreement could have a negative impact on the operating results of the Company. 2. Summary of Accounting Policies: The following is a summary of significant accounting policies followed in the preparation of the financial statements. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION Revenue is recognized by the Company when vehicles and parts are delivered to consumers and when service work is performed. NOTES RECEIVABLE In the ordinary course of business, the Company sells used vehicles on an installment payment basis through a related acceptance corporation installment receivables that generally range from twelve to fifteen months. The related acceptance corporation collects the installment payments and transmits to the Company its portion periodically. The installment receivables are collateralized by the related vehicle sold. Management provides an allowance for estimated uncollectible amounts based on historical experience and an evaluation of specific past-due notes. INVENTORIES Inventories are stated at the lower of cost or market with cost determined by the following methods: new vehicles are valued at the last-in, first-out (LIFO) method; used vehicles at the specific identification method; and parts, accessories and other at factory list price. PROPERTY AND EQUIPMENT Equipment and improvements are recorded at cost and depreciated over their estimated useful lives, principally on a straight-line basis. Leasehold improvements are amortized over the lives of the respective leases or the service lives of the improvements, whichever is shorter. Expenditures for repairs and maintenance which increase the useful life or substantially increase serviceability of the asset are capitalized. All others are charged to expense as incurred. When equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from their respective accounts and any resulting gain or loss is included in the statement of operations. AMORTIZATION Amortization of intangibles is computed on the straight-line method. The period of amortization is based upon the estimated time of benefit assigned to intangible assets when acquired. F-38 ATLANTA TOYOTA, INC. Notes to Financial Statements (Continued) (Dollars in thousands) 2. Summary of Accounting Policies: (Continued) RESERVE FOR CHARGEBACKS OF FINANCE AND INSURANCE INCOME Provisions for chargebacks of finance and insurance income resulting from customer prepayments and repossessions are recorded based on management's estimates and historical experience. LIABILITY FOR SERVICE CONTRACT WARRANTY CLAIMS The Company sells extended service contracts on vehicles. A liability for future repair costs covered by these service contracts and amounts for future contract cancellations is established based on management's estimates and historical experience. INCOME TAXES The income taxes on the net earnings of the Company are payable personally by the stockholder pursuant to an S corporation election under the Internal Revenue Code. Accordingly, no provision for income taxes has been made in these financial statements. 3. Concentration of Credit Risk: The Company's significant concentration of credit risk is with its cash and notes receivable from a related party. The Company maintains cash balances at several financial institutions located in Georgia which are at times in excess of federally insured amounts. The notes receivable are from a related acceptance corporation and are supported by installment receivables that generally range from twelve to fifteen months. 4. Inventories: Inventories consist of the following:
-------------------- December 31, 1994 1995 --------- --------- New vehicles $ 8,867 $ 7,517 Used vehicles 872 2,283 Parts, accessories and other 645 625 --------- --------- 10,384 10,425 Cumulative LIFO reserve (2,102) (2,302) --------- --------- $ 8,282 $ 8,123 --------- --------- --------- ---------
If the FIFO method had been used instead of the LIFO method, inventories would have been higher by $2,102 and $2,302 at December 31, 1994 and 1995, respectively. 5. Property and Equipment: Property and equipment consists of the following:
-------------------- December 31, 1994 1995 --------- --------- Furniture, fixtures and equipment $ 995 $ 944 Service vehicles 309 332 Leasehold improvements 29 241 Construction in progress 786 --------- --------- Total 1,333 2,303 Less: Accumulated depreciation and amortization 997 1,153 --------- --------- Total property and equipment, net $ 336 $1,150 --------- --------- --------- ---------
F-39 ATLANTA TOYOTA, INC. Notes to Financial Statements (Continued) (Dollars in thousands) 6. Floor Plan Notes Payable: The amounts payable to financial institutions under trust receipt transactions are collateralized by liens on inventories of specific new and used vehicles. Notes payable for new and used vehicles at December 31 are as follows:
-------------------------- December 31, 1994 1995 ------------ ------------ General Electric Capital Corporation: Interest rate on new and used vehicles is 8.5% and 8.75%, respectively; collateralized by specific motor vehicles $8,547 $8,770 South East Toyota Distributors: Interest is at prime; collateralized by specific motor vehicles and the personal guarantee of the stockholder 80 77 ------------ ------------ Total notes payable -- new and used vehicles $8,627 $8,847 ------------ ------------ ------------ ------------
The prime rate at December 31, 1994 and 1995 was 8.5%. 7. Operating Lease Commitments: The Company conducts its operations in leased facilities under a long-term operating lease agreement with a related party requiring monthly payments of approximately $90 through March 1997. Total rent expense paid was $1,072, $1,089 and $1,085 for 1993, 1994 and 1995, respectively. 8. Related Party Transactions: The Company utilizes an advertising agency which is owned by the Company's stockholder. The agency charges the Company an agency fee of fifteen percent of total advertising costs plus a monthly consulting fee. Such advertising costs were $1,638, $1,673 and $1,624 and total agency and consulting fees were $271, $281 and $274 in 1993, 1994 and 1995, respectively. The Company contracts with a related party which is majority owned by the Company's stockholder to administer extended service contracts sold to customers. A fee of forty-two dollars per contract is charged for administration. Total administration fees were approximately $81, $70 and $62 in 1993, 1994 and 1995, respectively. The Company sells used car notes receivable to an acceptance corporation which is majority owned by the Company's stockholder. The related notes receivable totaled $1,200 and $2,585 at December 31, 1994 and 1995, respectively. 9. Reclassifications: Certain amounts in the 1993 and 1994 financial statements have been reclassified to conform to the presentation adopted in 1995. 10. Subsequent Event: On January 16, 1996, the stockholder of Atlanta Toyota, Inc. sold 100% of the stock to United Auto Group, Inc. F-40 Report of Independent Accountants To the Stockholders of Steve Rayman Nissan, Inc.: We have audited the accompanying balance sheets of Steve Rayman Nissan, Inc. as of December 31, 1995 and 1994, and the related statements of operations, retained earnings and cash flows for each of the two years in the period ended December 31, 1995 and from the date of inception (April 5, 1993) to December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Steve Rayman Nissan, Inc. as of December 31, 1995 and 1994 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1995 and from the date of inception (April 5, 1993) to December 31, 1993, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Atlanta, Georgia June 14, 1996 F-41 STEVE RAYMAN NISSAN, INC. Balance Sheets (Dollars in thousands except per share amounts)
-------------------- December 31, -------------------- 1994 1995 --------- --------- ASSETS Current assets: Cash $ 187 $ 6 Accounts receivable 942 2,522 Inventories 4,172 4,514 Prepaid expenses and other assets 12 33 --------- --------- Total current assets 5,313 7,075 Leasehold improvements, furniture and equipment, net 281 205 Intangibles, net 619 543 --------- --------- Total assets $ 6,213 $ 7,823 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Floor plan notes payable $ 2,954 $ 4,100 Current portion of long-term debt 100 100 Current portion of payable for noncompete agreements 75 75 Current portion of obligation under capital lease 71 70 Accounts payable 392 734 Accrued expenses 352 471 --------- --------- Total current liabilities 3,944 5,550 Long-term debt, net of current portion 225 125 Payable for noncompete agreements, non-current 550 475 Obligation under capital lease, non-current 133 63 --------- --------- Total liabilities 4,852 6,213 Commitments and contingent liabilities Stockholders' equity: Common stock, par value $100 per share, authorized issued and outstanding 5,000 shares 500 500 Additional paid-in capital 100 100 Retained earnings 761 1,010 --------- --------- Total stockholders' equity 1,361 1,610 --------- --------- Total liabilities and stockholders' equity $ 6,213 $ 7,823 --------- --------- --------- ---------
The accompanying notes are an integral part of the financial statements. F-42 STEVE RAYMAN NISSAN, INC. Statements of Operations (Dollars in thousands)
------------------------------------------------------------- Unaudited Unaudited Nine months Three months Four months ended Years ended ended ended December 31, December 31, March 31, April 30, ------------ -------------------- ------------ ----------- 1993 1994 1995 1995 1996 ------------ --------- --------- ------------ ----------- Sales $ 27,225 $ 46,036 $ 60,268 $ 13,072 $ 19,892 Cost of sales, including floor plan interest of $164, $262 and $434 for 1993, 1994 and 1995, respectively 22,890 39,435 50,166 11,150 16,503 ------------ --------- --------- ------------ ----------- Gross profit 4,335 6,601 10,102 1,922 3,389 Selling, general and administrative expenses 3,981 6,045 8,989 1,889 2,481 ------------ --------- --------- ------------ ----------- Operating income 354 556 1,113 33 908 Other income (expense), net (22) (27) 1 ------------ --------- --------- ------------ ----------- Net income $ 332 $ 529 $ 1,114 $ 33 $ 908 ------------ --------- --------- ------------ ----------- ------------ --------- --------- ------------ -----------
The accompanying notes are an integral part of the financial statements. F-43 STEVE RAYMAN NISSAN, INC. Statements of Retained Earnings (Dollars in thousands)
--------- Retained earnings, April 5, 1993 $ 0 Net income for the year 332 Dividends (100) --------- Retained earnings, December 31, 1993 232 Net income for the year 529 --------- Retained earnings, December 31, 1994 761 Net income for the year 1,114 Dividends (865) --------- Retained earnings, December 31, 1995 1,010 --------- ---------
The accompanying notes are an integral part of the financial statements. F-44 STEVE RAYMAN NISSAN, INC. Statements of Cash Flows (Dollars in thousands)
----------------------------------------------------------- Unaudited Unaudited Four Nine months Three Months months ended Years ended ended ended December 31, December 31, March 31, April 30, ------------ -------------------- ------------ --------- 1993 1994 1995 1995 1996 ------------ --------- --------- ------------ --------- Operating activities: Net income $ 332 $ 529 $ 1,114 $ 33 $ 908 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 28 37 38 14 8 Amortization 126 145 145 19 Changes in operating assets and liabilities: Accounts receivables (702) (241) (1,580) (666) 452 Inventories (696) (234) (343) (1,226) (2,120) Prepaid expenses and other assets (3) 7 (21) (54) (254) Floor plan notes payable 500 (287) 1,146 934 1,570 Accounts payable and accrued expenses 543 204 461 1,026 211 ------------ --------- --------- ------------ --------- Net cash provided by operating activities 128 160 960 80 775 ------------ --------- --------- ------------ --------- Investing activities: Purchase of property and equipment (146) (16) (32) (9) (6) Other (16) 0 2 ------------ --------- --------- ------------ --------- Net cash used in investing activities (162) (16) (30) (9) (6) ------------ --------- --------- ------------ --------- Financing activities: Cash overdraft 398 Cash paid for noncompete agreement (50) (75) (75) (19) Proceeds from the sale of common stock 600 0 0 Principal payments under capital lease (59) (64) (71) (70) Principal payments on long-term borrowings (75) (100) (100) (25) (775) Cash dividends paid (100) 0 (865) (398) ------------ --------- --------- ------------ --------- Net cash provided by (used in) financing activities 316 (239) (1,111) (114) (775) ------------ --------- --------- ------------ --------- Net increase (decrease) in cash 282 (95) (181) (43) (6) Cash at beginning of the period 0 282 187 187 6 ------------ --------- --------- ------------ --------- Cash at end of period $ 282 $ 187 $ 6 $ 144 $ 0 ------------ --------- --------- ------------ --------- ------------ --------- --------- ------------ --------- Supplemental schedule of non-cash investing and financing activities: Capitalization of noncompete agreement and related debt $ 750
The accompanying notes are an integral part of the financial statements. F-45 STEVE RAYMAN NISSAN, INC. (Information related to the three months ended March 31, 1995 and four months ended 1996 is unaudited) Notes to Financial Statements (Dollars in thousands) 1. Organization: Steve Rayman Nissan, Inc. (the "Company"), operating in Morrow, Georgia, sells and services new Nissan cars and trucks and used vehicles, as well as finance, insurance and service contracts thereon. The Company operates a dealership which holds a franchise agreement with an automotive manufacturer. In accordance with the franchise agreement, the dealership is subject to certain rights and restrictions typical of the industry. The ability of the manufacturer to influence the operations of the dealership or the loss of the franchise agreement would have a negative impact on operating results of the Company. 2. Summary of Significant Accounting Policies: The following is a summary of significant accounting policies followed in the preparation of the financial statements. ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION: Revenue is recognized by the Company when vehicles or parts are delivered to consumers and when service work is performed. INVENTORIES: New and used vehicles and parts and accessories inventories are valued at the lower of cost or market. Cost is determined on the Last-in, first-out (LIFO) method. LEASEHOLD IMPROVEMENTS, FURNITURE AND EQUIPMENT: Leasehold improvements, furniture and equipment are stated at cost and depreciated over their estimated useful lives, principally by the straight-line method. Computer equipment under a capital lease used in operating the dealership is amortized over the life of the lease (five years). Expenditures for repairs and maintenance which increase the useful life or substantially increase serviceability of the asset are capitalized. All others are charged to expense as incurred. When equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from their respective accounts and any resulting gain or loss included in the statement of operations. INTANGIBLES: Intangibles are being amortized using the straight-line method over ten years. Accumulated amortization of intangibles as of December 31, 1994 and 1995 was $131 and $205, respectively. INCOME TAXES: The income taxes on the net earnings of the Company are payable personally by the stockholder pursuant to an S corporation election under the Internal Revenue Code. Accordingly, no provision for income taxes has been made in these financial statements. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying values of cash, contracts in transit, accounts receivable, factory receivables, warranty receivables, notes payable, long-term debt and accounts payable approximate their fair values due to the short-term maturities of those instruments. F-46 STEVE RAYMAN NISSAN, INC. (Information related to the three months ended March 31, 1995 and four months ended 1996 is unaudited) Notes to Financial Statements (Continued) (Dollars in thousands) 3. Concentration of Credit Risk: The Company's significant concentration of credit risk is with its cash. The Company maintains cash balances at several financial institutions located in Georgia which are at times in excess of federally-insured amounts. 4. Inventories: Inventories consist of the following:
-------------------- December 31, -------------------- 1994 1995 --------- --------- New vehicles and demonstrators $ 3,063 $ 3,737 Used vehicles 686 391 Parts and accessories 423 386 --------- --------- $ 4,172 $ 4,514 --------- --------- --------- ---------
The use of the LIFO method of determining the cost of new and used vehicle inventories and parts had the effect of decreasing inventories at December 31, 1994 and 1995 by $273 and $446, respectively, and decreasing net income for the periods ended December 31, 1993, 1994 and 1995 by $121, $152 and $173, respectively, as compared to what they would have been under the specific-identification cost method. 5. Leasehold Improvements, Furniture and Equipment: Leasehold improvements, furniture and equipment consists of:
-------------------- 1994 1995 --------- --------- Computer equipment under capital lease $ 347 $ 347 Machinery and shop equipment 33 44 Furniture and fixtures 73 79 Leasehold improvements 44 53 Service vehicles 10 12 --- --- 507 535 Less: accumulated depreciation and amortization 226 330 --- --- $ 281 $ 205 --- --- --- ---
6. Floor Plan Payable: Floor plan notes payable are collateralized by chattel mortgages on new and used vehicles. Amounts are payable when the collateral is sold. The obligation is guaranteed by the stockholders. Interest was payable at the LIBOR rate on the first day of the month plus 2.5%, and at the prime commercial rate at prime plus 1/2% for the years ended December 31, 1994 and 1995, respectively. The effective rate at December 31, 1995 was 8.4%, and the prime rate was 8.5% for the year ended December 31, 1994. F-47 STEVE RAYMAN NISSAN, INC. (Information related to the three months ended March 31, 1995 and four months ended 1996 is unaudited) Notes to Financial Statements (Continued) (Dollars in thousands) 7. Long-Term Debt: Long-term debt consists of a note payable to a bank, due in monthly installments of $8 plus interest to April 1998. Interest is payable at the bank's prime commercial rate. The bank's prime rate at December 31, 1994 and 1995 was 8.5%. The note is collateralized by all inventories, not otherwise provided as collateral, tools, equipment and receivables and is guaranteed by the stockholders.
-------------------- December 31, -------------------- 1994 1995 --------- --------- Total debt $ 325 $ 225 Less: current maturity of long-term debt 100 100 --- --- Long-term debt $ 225 $ 125 --- --- --- ---
Maturities of long-term debt are as follows:
----------- Year Ending December 31, Amount - ----------------------------------- ----------- 1996 $ 100 1997 100 1998 25 --- $ 225 --- ---
Interest expense on all long-term debt amounted to $23, $27 and $25, for the years ended December 31, 1993, 1994 and 1995. 8. Acquisition of Nissan Dealership and Noncompete Agreements: On April 5, 1993, the Company acquired the inventory and equipment of Stovall Nissan, Inc. for approximately $2,284. The debt for new vehicles acquired was assumed by the Company as an addition to the floor plan note payable. On April 5, 1993, in connection with the acquisition, the Company entered into noncompete agreements with the former owners of the Company in which the former owners are precluded from participating in direct or indirect competition related to the sale of new Nissan vehicles for a period of ten years in exchange for $750. During the periods ended December 31, 1993, 1994 and 1995, the Company paid $50, $75 and $75, respectively, in accordance with the noncompete agreements. The maturity of the remaining obligations is as follows:
---------- December 31, 1995 ---------- Total amount due $ 550 Less: current portion of amount due 75 ---------- Long-term payable for noncompete agreements $ 475 ---------- ----------
F-48 STEVE RAYMAN NISSAN, INC. (Information related to the three months ended March 31, 1995 and four months ended 1996 is unaudited) Notes to Financial Statements (Continued) (Dollars in thousands) 9. Lease Transactions: The Company leases its building and land under an operating lease from a stockholder. The lease expires in May 2004 and requires annual rentals plus the payment of property taxes and insurance on the property. The rent expense was $162 for the period ended December 31, 1993 and $226 for each of the years ended December 31, 1994 and 1995. The following is a schedule by year of future minimum rental payments required unde the operating leases as of December 31, 1995.
--------- Year Ending December 31, Amount - -------------------------------------------------------------------- --------- 1996 $ 228 1997 228 1998 236 1999 248 2000 260 Thereafter 1,132 --------- $ 2,332 --------- ---------
The Company leases certain computer equipment and software used in the operation of the dealership. The leases have been accounted for as capital leases. The assets under capital leases of $347 are being amortized over the lives of the leases on a straight-line basis. Accumulated amortization amounted to $162 and $231 as of December 31, 1994 and 1995 respectively. As of December 31, 1995, minimum future lease payments due under the capital leases are as follows:
--------- Year Ending December 31, Amount - -------------------------------------------------------------------- --------- 1996 $ 80 1997 66 --------- Total minimum lease payments 146 Less amount representing interest 13 --------- Present value of net minimum lease payments 133 Less current principal maturities of obligations under capital lease 70 --------- Long-term obligation under capital lease $ 63 --------- ---------
F-49 STEVE RAYMAN NISSAN, INC. (Information related to the three months ended March 31, 1995 and four months ended 1996 is unaudited) Notes to Financial Statements (Continued) (Dollars in thousands) 10. Transactions With Affiliates: Transactions with related parties are as follows:
------------------------------- Period Ended December 31, ------------------------------- 1993 1994 1995 --------- --------- --------- Management fees (paid to company under common control) $ 452 $ 683 $ 1,230 Rent (paid to majority stockholder) 162 226 226 Receivables (from companies under common control) 49 113 Payables (to companies under common control) 3 Sales (to companies under common control, primarily body shops and other auto dealerships) 165 363 474 Purchases (from companies under common control, primarily body shops and other auto dealerships) 315 318
11. President-Stockholder Bonus Arrangement: The Company has agreed to pay a year-end bonus equal to 25% of its net income before the bonus and the LIFO effect on income to its president, who is also a 49% stockholder. The bonus was $609, $913 and $1,650 for the years ended December 31, 1993, 1994 and 1995, respectively. 12. Employee Benefit Plan: The Company provides a savings plan under Section 401(k) of the Internal Revenue Code. The savings plan covers all employees who elect to be participants and who have been credited with 1,000 hours of service in the preceding twelve months of the plan year. Employees may contribute to the savings plan up to 20% of their salary. The amount the Company contributes is discretionary. Company contributions vest in varying percentages over six years and Company contributions to those employees with over six years of service vest immediately. Company contributions are charged to expense. Amounts recorded for Company contributions were $0, $10 and $11 for the periods ended December 31, 1993, 1994 and 1995, respectively. 13. Reclassifications: Certain amounts in the 1993 and 1994 financial statements have been reclassified to conform to the presentation adopted in 1995. 14. Subsequent Event: On May 1, 1996, the stockholders of the Company consummated a transaction to sell the outstanding stock of the Company to a third party. The acquisition agreement provides for the Company to lease the land and building on which the dealership is located for a period of 20 years, with an option to extend up to 30 years. F-50 Report of Independent Accountants To the Stockholder of Hickman Nissan, Inc.: We have audited the accompanying balance sheet of Hickman Nissan, Inc. as of December 31, 1995 and the related statements of income and retained earnings and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hickman Nissan, Inc. as of December 31, 1995 and the results of its operations and cash flows for the year then ended in conformity with generally accepting accounting principles. /s/ Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P. Atlanta, Georgia August 16, 1996 F-51 HICKMAN NISSAN, INC. Balance Sheets (Dollars in thousands except per share data)
-------------------- (Unaudited) December June 30, 31, 1995 1996 --------- --------- ASSETS Current Cash and cash equivalents $ $ 211 Accounts receivable 5,789 4,442 Inventories (note 3) 4,766 6,272 Prepaid expenses 49 264 --------- --------- Total current assets 10,604 11,189 Property and equipment, at cost Furniture and Office equipment 1,077 1,134 Leasehold improvements 746 746 Parts and service equipment 338 352 Company vehicles 150 138 Signs 39 43 --------- --------- Total property and equipment 2,350 2,413 Less: accumulated depreciation 1,869 1,870 --------- --------- Property and equity, net 481 543 Other assets Deposits 61 64 --------- --------- Total assets $ 11,146 $ 11,796 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDER'S EQUITY Current Notes payable (note 4) Bank South floor plan 6,975 8,978 Reyna Financial, current portion 31 33 --------- --------- Total notes payable 7,006 9,011 Accounts payable 1,574 916 Accrued liabilities 910 646 --------- --------- Total current liabilities 9,490 10,573 Long-term portion of notes payable (note 4) 75 56 --------- --------- Total liabilities 9,565 10,629 Stockholder's Equity Common stock, $100 par value, 10,000 shares authorized, 500 shares issued and outstanding 50 50 Paid-in capital 1 1 Retained earnings 1,530 1,116 --------- --------- 1,581 1,167 --------- --------- Total liabilities and stockholder's equity $ 11,146 $ 11,796 --------- --------- --------- ---------
The accompanying notes are an integral part of the financial statements. F-52 HICKMAN NISSAN, INC. Statements of Income and Retained Earnings (Dollars in thousands)
----------------------------------- Year Ended (Unaudited) December Six Months Ended 31, June 30, 1995 1995 1996 ---------- ---------- ----------- Net sales New vehicles $ 59,966 $ 27,028 $ 28,556 Used vehicles 15,568 7,368 7,564 Finance, insurance and other revenue 2,668 3,795 4,198 Parts and service 7,620 794 1,002 ---------- ---------- ----------- Total net sales 85,822 38,985 41,320 Cost of sales, including floor plan interest of $668 at December 31, 1995 77,256 35,005 36,581 ---------- ---------- ----------- Gross profit 8,566 3,980 4,739 Operating expenses 7,619 3,597 4,072 ---------- ---------- ----------- Operating income 947 383 667 Other income net of other (expense) 21 (7) 19 ---------- ---------- ----------- Net income 968 376 686 Retained earnings, beginning of period 562 562 1,530 Distributions (1,100) ---------- ---------- ----------- Retained earnings, end of period $ 1,530 $ 938 $ 1,116 ---------- ---------- -----------
The accompanying notes are an integral part of the financial statements. F-53 HICKMAN NISSAN, INC. Statements of Cash Flows (Dollars in thousands)
--------------------------------------- Year Ended (Unaudited) December Six Months Ended 31, June 30, ----------- -------------------------- 1995 1995 1996 ----------- ------------ ------------ Cash flows from operating activities: Net income $ 968 $ 376 $ 686 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 212 106 51 Changes in assets and liabilities: (Increase) decrease in accounts receivable (3,153) (859) 1,347 (Increase) in inventory (418) (3,286) (1,506) (Increase) in prepaid (11) (6) (215) (Increase) decrease in other assets (267) 18 (3) Proceeds of notes payable -- floor plan 1,600 3,540 2,003 Increase (decrease) in accounts payable 142 72 (110) Increase (decrease) in accrued liabilities 444 127 (264) ----------- ------------ ------------ Net cash provided by (used in) operating activities (483) 88 1,989 ----------- ------------ ------------ Cash flows from investing activities: Purchase of fixed assets (280) (248) (113) ----------- ------------ ------------ Net cash used in investing activities (280) (248) (113) ----------- ------------ ------------ Cash flows from financing activities: Cash overdraft 548 (548) Distributions to Owner (1,100) Repayment of note payable (37) (19) (17) ----------- ------------ ------------ Net cash provided by financing activities 511 (19) (1,665) ----------- ------------ ------------ Net increase (decrease) in cash and cash equivalents (252) (179) 211 Cash and cash equivalents, beginning of period 252 252 0 ----------- ------------ ------------ Cash and cash equivalents, end of period $ 0 $ 73 $ 211 ----------- ------------ ------------ ----------- ------------ ------------ Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 668 ----------- -----------
The accompanying notes are an integral part of the financial statements. F-54 HICKMAN NISSAN, INC. Notes to Financial Statements (Information related to the six months ended June 30, 1995 and 1996 is unaudited) (Dollars in thousands) 1. Organization: The Company was organized in the State of Georgia on October 14, 1976 to operate a Nissan automobile dealership in DeKalb County, Georgia. The Company is engaged in the sale of new and used motor vehicles, finance and insurance products, and vehicle service and parts. 2. Accounting Principles Followed: The following summarizes the accounting principles applied to designated items: REVENUE RECOGNITION Revenue is recognized by the Company when vehicles are delivered to consumers, when finance and insurance income is earned, and when motor vehicles service work is performed and parts are delivered. INVENTORY VALUATION All inventories are stated at the lower of cost or market, with cost determined by the Last-in, first-out (LIFO) method. See note 3 for inventories summary. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. The Company depreciates its assets using the straight-line method and predominately accelerated methods over lives ranging from three to fifteen years. Depreciation expense for the year ended December 31, 1995 is $212. INCOME TAXES Due to the Company's status as an S corporation, net income and investment tax credits flow through to the stockholder and are reported by the stockholder in such stockholder's return. CASH & CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. CREDIT RISK There are funds in excess of federally insured amounts for the Company of approximately $150. However, due to the rating and stability of the financial institution at which these funds are held, the Company considers that credit risk to be minimal. ESTIMATES The preparation of these financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results are not expected to, but could, differ from those estimates. The accounts which require the use of estimates are receivables, inventory, and accrued expenses. UNAUDITED FINANCIAL STATEMENTS The financial statements as of June 30, 1995 and 1996 and for the six month periods then ended are unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements for the interim periods have been included. F-55 HICKMAN NISSAN, INC. Notes to Financial Statements (Information related to the six months ended June 30, 1995 and 1996 is unaudited) (Dollars in thousands) (Continued) FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash and cash equivalents, trade accounts receivable and payable, and debt. The carrying amount of these financial instruments approximates fair value due either to length of maturity or existence of variable interest rates that approximate prevailing market rates. 3. Inventories Summary:
-------------------------- (unaudited) December 31, June 30, 1995 1996 ------------- ----------- New Kia cars and trucks $ 1,278 New Nissan cars and trucks 3,857 $ 6,907 Used cars and trucks 1,010 739 Parts, accessories and other 961 977 Cumulative LIFO reserve (2,340) (2,351) ------ ----------- $ 4,766 $ 6,272 ------ ----------- ------ -----------
4. Notes Payable: The Company is obligated on notes payable as follows:
----------- December 31, 1995 ----------- Floor plan notes payable to Bank South, due upon demand, secured by inventory and personal guarantee of Lynda Hickman, interest is LIBOR plus 225 basis points and is adjusted monthly. Interest at December 31 was 8.12% $ 6,975 ----------- ----------- Note payable, $3 monthly including interest at approximately 9%, through March 1999 secured by computer equipment. 103 Note payable $1 monthly including interest at approximately 11%, through March 1996 secured by computer system. 3 ----------- 106 Less current maturities 31 ----------- Long term $ 75 ----------- ----------- Maturities of long-term debt for the year ending December 31, ----------- Amount ----------- 1996 $ 31 1997 31 1998 34 1999 10 2000 -- ----------- $ 106 ----------- -----------
F-56 HICKMAN NISSAN, INC. Notes to Financial Statements (Information related to the six months ended June 30, 1995 and 1996 is unaudited) (Dollars in thousands) (Continued) 5. Related Party Transactions: The Company leases the dealership lot and buildings from a stockholder. Rent is $34 per month. Subsequent to December 31, 1995, these related party leases were terminated upon sale of the Company (note 7) and new leases were executed with payments of $35 due monthly, with CPI adjustments beginning January 1, 1998 through June 30, 2016. The Company sells finance contracts which it originates on used automobiles to an entity owned by Lynda Hickman. These finance contracts are sold on an approximate 35% discount to face amount basis. Sales proceeds and the face amount of finance contracts sold during 1995 were $707 and $1,087, respectively. At December 31, 1995, the Company had contract receivables from Peachtree Acceptance Corporation of $95. 6. Operating Leases: The Company leases property and equipment under operating leases expiring in various years through 2016. Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of one year as of December 31, 1995 for each of the next 5 years and in the aggregate are:
----------- Year Ending Amount - ----------------------------------------------------------- ----------- 1996 $ 459 1997 458 1998 458 1999 458 2000 447 Thereafter 6,433 ----------- $ 8,713 ----------- -----------
The above table includes the related party leases as described in note 5. 7. Subsequent Events: In 1996, the Company terminated its Kia automobile dealership agreement. The Company did not incur any losses as a result of terminating this dealership agreement. On July 12, 1996 and effective June 30, 1996, the sole stockholder of the Company sold 100% of the common stock of the Company to an affiliate of United Auto Group, Inc. 8. Restatement: Subsequent to the issuance of the Company's financial statements, management determined that estimated liabilities for finance chargebacks had not been included in those financial statements. The effect of including these estimated liabilities in the Company's financial statements is to reduce retained earnings at January 1, 1995 and December 31, 1995 and reduce net income for the year ended December 31, 1995 as disclosed in the following table.
As Previously As Reported Restated ------------ ---------- Retained Earnings, January 1, 1995 $ 705 $ 562 Net Income for the year 1995 1,019 968 Retained Earnings, December 31, 1995 1,724 1,530
In addition, certain amounts have been reclassified to conform to current presentation. F-57 Report of Independent Accountants To Stockholders of Sun Automotive Group: We have audited the accompanying combined balance sheets of Sun Automotive Group as of December 31, 1995 and 1994, and the related combined statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Sun Automotive Group as of December 31, 1994 and 1995, and the results of its combined operations and its combined cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Phoenix, Arizona June 12, 1996 F-58 SUN AUTOMOTIVE GROUP Combined Balance Sheets (Dollars in thousands)
------------------------------- (Unaudited) December 31, June 30, 1994 1995 1996 --------- --------- --------- ASSETS: Current assets: Cash $ 121 Accounts receivable $ 5,160 $ 6,562 6,907 Current portion of notes receivable 475 Inventories 11,747 20,366 15,968 Other current assets 35 30 53 --------- --------- --------- Total current assets 17,417 26,958 23,049 --------- --------- --------- Notes receivable, net of current portion 380 Property and equipment, net 10,329 11,358 11,128 Intangible assets 1,157 1,137 Other assets 206 690 843 --------- --------- --------- Total assets $ 28,332 $ 40,163 $ 36,157 --------- --------- --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY: Accounts payable $ 1,624 $ 2,015 $ 1,357 Accrued liabilities 2,636 3,497 2,946 Floor plan note payable 9,732 17,104 14,263 Current portion of long-term debt 647 1,260 1,329 --------- --------- --------- Total current liabilities 14,639 23,876 19,895 --------- --------- --------- Long-Term Liabilities: Long-term debt, net of current portion 11,994 13,708 12,960 --------- --------- --------- Total liabilities 26,633 37,584 32,855 --------- --------- --------- Commitments and contingent liabilities Stockholders' Equity: Common stock, no par value, authorized 50,000 and 70,000 shares, issued and outstanding 3,595 and 5,229 shares, as of December 31, 1994 and 1995, respectively 4,935 6,978 7,228 Retained earnings (deficit) (3,236) (4,399) (3,926) --------- --------- --------- Total stockholders' equity 1,699 2,579 3,302 --------- --------- --------- Total liabilities and stockholders' equity $ 28,332 $ 40,163 $ 36,157 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of the financial statements. F-59 SUN AUTOMOTIVE GROUP Combined Statements of Operations (Dollars in thousands)
----------------------------------------------------- (Unaudited) For the For the Years Ended December Six Months Ended 31, June 30, ------------------------------- -------------------- 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- Sales $ 98,130 $ 116,252 $ 154,502 $ 74,822 $ 93,823 Cost of sales, including floor plan interest for the years ended December 31, 1993, 1994 and 1995 of $499, $670 and $1,237, respectively. 83,758 100,125 133,980 64,728 80,389 --------- --------- --------- --------- --------- Gross profit 14,372 16,127 20,522 10,094 13,434 Selling, general and administrative expenses 13,956 14,965 18,469 8,530 10,386 --------- --------- --------- --------- --------- Income from operations 416 1,162 2,053 1,564 3,048 Other income (expense), net 14 128 (31) 8 --------- --------- --------- --------- --------- Net income $ 430 $ 1,290 $ 2,022 $ 1,564 $ 3,056 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of the financial statements. F-60 SUN AUTOMOTIVE GROUP Combined Statements of Stockholders' Equity (Dollars in thousands)
-------------------------------------------- Common Stock Retained -------------------- Earnings Shares Amount (Deficit) Total --------- --------- ----------- --------- Balance, December 31, 1992 2,526 $ 3,148 $ (1,426) $ 1,722 Issuance of common stock 670 1,342 1,342 Dividends (2,010) (2,010) Net income 430 430 --------- --------- ----------- --------- Balance, December 31, 1993 3,196 4,490 (3,006) 1,484 Issuance of common stock 399 445 445 Dividends (1,520) (1,520) Net income 1,290 1,290 --------- --------- ----------- --------- Balance, December 31, 1994 3,595 4,935 (3,236) 1,699 Issuance of common stock 1,634 2,043 2,043 Dividends (3,185) (3,185) Net income 2,022 2,022 --------- --------- ----------- --------- Balance, December 31, 1995 5,229 6,978 (4,399) 2,579 Issuance of common stock (Unaudited) 250 250 Dividends (Unaudited) (2,583) (2,583) Net income (Unaudited) 3,056 3,056 --------- --------- ----------- --------- Balance, June 30, 1996 (Unaudited) 5,229 $ 7,228 $ (3,926) $ 3,302 --------- --------- ----------- --------- --------- --------- ----------- ---------
The accompanying notes are an integral part of the financial statements. F-61 SUN AUTOMOTIVE GROUP Combined Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 (Dollars in thousands)
----------------------------------------------------- (Unaudited) Six Months Years Ended Ended December 31, June 30, ------------------------------- -------------------- 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- Operating activities: Net income $ 430 $ 1,290 $ 2,022 $ 1,564 $ 3,056 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 462 545 726 296 364 Net gain on sale of assets (244) (287) Changes in operating assets and liabilities: Accounts receivable 156 (712) (1,402) (3,909) (345) Inventories 279 (250) (7,220) (4,294) 4,398 Notes receivable (855) 127 Prepaid and other assets 414 502 (479) (573) (176) Floor plan notes payable (789) 741 7,372 7,222 (2,841) Accounts payable and accrued liabilities 1,040 (176) 1,383 55 (837) --------- --------- --------- --------- --------- Net cash provided by operating activities 1,992 1,085 2,285 361 3,332 --------- --------- --------- --------- --------- Investing activities: Purchases of property and equipment (390) (846) (1,308) (669) (115) Proceeds from sale of assets 971 287 Acquisition of dealership (1,936) (1,936) --------- --------- --------- --------- --------- Net cash used in investing activities (390) (846) (2,273) (2,605) 172 --------- --------- --------- --------- --------- Financing activities: Cash overdraft, net (408) 374 (131) 923 (371) Payment on debt (816) (553) (2,070) (478) (679) Proceeds from issuance of long-term debt 290 1,015 3,293 2,100 Dividends paid to shareholders (2,010) (1,520) (3,147) (1,537) (2,583) Proceeds from issuance of common stock 1,342 445 2,043 1,236 250 --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities (1,602) (239) (12) 2,244 (3,383) --------- --------- --------- --------- --------- Net increase (decrease) in cash 0 0 0 0 121 Cash, beginning of year 0 0 0 0 0 --------- --------- --------- --------- --------- Cash, end of year $ 0 $ 0 $ 0 $ 0 $ 121 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of the financial statements. F-62 SUN AUTOMOTIVE GROUP Statements of Cash Flows -- Supplemental Information (Dollars in thousands)
------------------------------- Years Ended December 31, ------------------------------- 1993 1994 1995 --------- --------- --------- Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 2,503 $ 2,042 $ 1,805 Property acquired under capital leases: Assets 87 Liabilities 87 Property acquired with debt: Assets 191 Liabilities 191
The accompanying notes are an integral part of the financial statements. F-63 SUN AUTOMOTIVE GROUP (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes To Combined Financial Statements (Dollars in thousands) 1. Organization: The Sun Automotive Group (the "Combined Group" or the "Company"), operating in the State of Arizona, is engaged in the sale of new and used vehicles, as well as finance, insurance and service contracts thereon. The Company operates dealerships which hold franchise agreements with a number of automotive manufacturers. In accordance with the individual franchise agreement, each dealership is subject to certain rights and restrictions typical of the industry. The ability of the manufacturers to influence the operations of the dealerships or the loss of a franchise agreement could have a negative impact on the operating results of the Company. 2. Summary of Significant Accounting Policies: The following is a summary of significant accounting policies followed in the preparation of the financial statements. COMBINATION POLICY - COMMON CONTROL The accompanying combined financial statements include the following automotive affiliated companies that are all under common control: Scottsdale Management Group, Ltd. SA Automotive, Ltd. (Scottsdale Acura) Scottsdale Jaguar, Ltd. (Scottsdale Jaguar) SL Automotive, Ltd. (Scottsdale Lexus) SPA Automotive, Ltd. (Land Rover Scottsdale) Sun BMW, Ltd. (Camelback BMW) LRP, Ltd. (Land Rover Phoenix) 6725 Dealership, Ltd. 6725 Agent Arizona Cars & Credit Arizona Cars & Credit provided used vehicles and financing in Scottsdale, Arizona. This affiliate was sold in July 1995, resulting in a $244 gain on the sale. All significant intercompany transactions and balances have been eliminated in the combination. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INTERIM FINANCIAL STATEMENTS (UNAUDITED): The interim unaudited financial statements reflect adjustments, consisting only of normal recurring accruals, which are, in the opinion of the Company's management, necessary for a fair presentation of the financial position and results of operations for the periods presented. Operating results for any interim period are not necessarily indicative of the results for a full year. CASH AND CASH EQUIVALENTS Cash and cash equivalents include all highly liquid investments that have an original maturity of three months or less at the date of purchase. The Company also reflects outstanding checks in excess of the ledger cash balance as a component of accounts payable. Such amounts as of December 31, 1994 and 1995 were $502 and $371, respectively. REVENUE RECOGNITION Revenue is recognized by the Company when vehicles and parts are delivered to consumers, or when service is performed. INVENTORIES Inventories are stated at the lower of cost or market. In 1993, cost was determined by using the specific identification method for vehicles and the First-in, first-out (FIFO) method for parts. The Company changed its method of F-64 SUN AUTOMOTIVE GROUP (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes To Combined Financial Statements (Continued) (Dollars in thousands) 2. Summary of Significant Accounting Policies: (Continued) inventory valuation to the Last-in, first-out (LIFO) method for both vehicles and parts in 1994. Under the current economic environment of rising vehicle prices, the Company believes that the LIFO method will result in a better measurement of operating results. The effect of the change in 1994 was to decrease net income by approximately $489. The cumulative effect of the change has not been calculated nor have proforma results of prior periods been prepared as it would require assumptions that may furnish results different from what they would have been had the LIFO method actually been used in prior periods. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and depreciated over their estimated useful lives, using the straight-line and accelerated methods. Useful lives for purposes of computing depreciation and amortization are: Buildings -- 31.5 years Leasehold improvements -- Economic life or life of the lease, whichever is shorter. Equipment, furniture and -- 5 to 7 years fixtures, and company vehicles
Expenditures for repairs and maintenance which increase the useful life or substantially increase serviceability of the asset are capitalized. All others are charged to expense as incurred. When equipment is sold or otherwise disposed, the cost and related accumulated depreciation are removed from their respective accounts and any resulting gain or loss is included in the statement of operations. INTANGIBLE ASSETS Intangible assets consist of excess of cost over net assets acquired which is being amortized on a straight-line basis over the estimated benefit period of 40 years. The Company periodically reviews these costs to assess recoverability. Losses in value, if any, are charged to operations in the period such losses are determined to be permanent. The Company's policy with respect to assessing whether there has been a permanent impairment in the value of excess of cost over net assets is to compare the carrying value of a business' excess of cost over net assets with the anticipated undiscounted future cash flows from operating activities of the business. Factors considered by the Company in performing this assessment include current operating income, trends and other economic factors. Accumulated amortization at December 31, 1994 and 1995 was $0 and $43, respectively. RESERVE FOR CHARGEBACK OF FINANCE AND INSURANCE INCOME Provisions for chargebacks of finance and insurance income resulting from customer prepayments and repossessions are recorded based on management's estimates and historical experience. LONG-LIVED ASSETS Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of" ("SFAS 121") requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset in question may not be recoverable. SFAS 121 was adopted 1996, and did not have an effect on the Group's results of operations, cash flows or financial position. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash, accounts receivable, accounts payable, debt, and an interest rate swap agreement. The carrying amount of these financial instruments approximates fair value due either to length of maturity or existence of variable interest rates that approximate prevailing market rates. The fair value of the interest rate swap is the amount the Company would receive or pay to terminate the swap agreement. At F-65 SUN AUTOMOTIVE GROUP (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes To Combined Financial Statements (Continued) (Dollars in thousands) 2. Summary of Significant Accounting Policies: (Continued) December 31, 1994 and 1995, the Company would have been required to pay $39 and $149, respectively, to settle this agreement, representing an excess of carrying value over fair value, based on estimates received from financial institutions. INTEREST RATE SWAP AGREEMENT The Company entered into an interest rate swap agreement to exchange fixed and variable rate interest payment obligations without the exchange of the underlying principal amounts in order to manage interest rate exposures on its variable rate long-term mortgage obligations. The differential to be paid or received is accrued as interest rates change and is recognized as an adjustment to interest expense over the life of the agreement. The Company does not hold or issue interest rate swap agreements for trading purposes. CAPITAL STOCK Each affiliate of the Company is an individual entity that issues stock for that entity only and at different and unrelated prices. The Company as a single entity does not issue stock. For purposes of these financial statements, the capital stock activity of the individual affiliates have been summed to present combined totals. INCOME TAXES Scottsdale Management Group, Ltd. is a C corporation under the provisions of the Internal Revenue Code and, accordingly, is subject to federal and state income taxes. The other affiliates of Sun Automotive Group have elected S corporation status under the provisions of the Internal Revenue Code, except for 6725 Agent which is a general partnership. Accordingly, they are generally not subject to federal and state income taxes. For income tax reporting purposes, all profits and losses, and certain other items, pass through to the stockholders/partners of the other affiliates of Sun Automotive Group, who report these items on their individual income tax returns. Scottsdale Management Group Ltd. recognizes no profit or loss and as such a tax provision has not been made. 3. Concentration of Credit Risk: The Company's significant concentration of credit risk is with its cash. The Company maintains cash balances at a financial institution located in Arizona which are at times in excess of federally-insured levels. 4. Inventories: Inventories consist of the following:
--------------------------------- June 30, December 31, 1996 1994 1995 (Unaudited) --------- --------- ----------- New vehicles $ 8,314 $ 15,790 $ 11,583 Used vehicles 2,565 3,682 3,687 Parts, accessories and other 1,357 1,768 1,646 --------- --------- ----------- 12,236 21,240 16,916 Cumulative LIFO reserve 489 874 948 --------- --------- ----------- $ 11,747 $ 20,366 $ 15,968 --------- --------- ----------- --------- --------- -----------
If the FIFO method had been used instead of the LIFO methods, inventories would have been higher by $489 and $874 at December 31, 1994 and December 31, 1995, respectively. F-66 SUN AUTOMOTIVE GROUP (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes To Combined Financial Statements (Continued) (Dollars in thousands) 5. Property and Equipment: Property and equipment consists of the following as of:
-------------------- December 31, -------------------- 1994 1995 --------- --------- Land $ 3,473 $ 3,473 Buildings and leasehold improvements 6,528 6,556 Machinery and shop equipment 1,159 1,412 Furniture, fixtures, vehicles and other 2,694 3,912 --------- --------- Total 13,854 15,353 Less: Accumulated depreciation and amortization 3,525 3,995 --------- --------- Total property and equipment, net $ 10,329 $ 11,358 --------- --------- --------- ---------
The Company has entered into a lease of computer equipment. The lease meets the criteria of a capital lease and, accordingly, has been recorded as such. The lease is noncancelable and expires November 1997. As of December 31, 1994 and 1995, there are approximately $87 of assets under capital leases. 6. Acquisitions: On February 27, 1995, the Company acquired substantially all the assets of two dealer franchises for $1,936 in cash and $1,231 of notes payable. The acquisition was accounted for under the purchase method and the accompanying financial statements reflect the results of operations from the date of acquisition. The excess of purchase price over the underlying estimate fair value of assets acquired was $1,200. Included in other assets long-term and as part of the purchase, the Company entered into certain lease arrangements with the seller to lease certain land and buildings. As part of this lease, the Company made a $500 payment to the seller as an advance on rent; the balance of which is being amortized over the life of the lease. 7. Floor Plan Notes Payable: The amounts payable to financial institutions under trust receipt transactions are collateralized by liens on inventories of specific new and used vehicles. Floor plan notes payable are as follows:
-------------------- December 31, -------------------- 1994 1995 --------- --------- Bank of America, interest at variable reference rate as determined by Bank of America National Trust and Savings Association $ 7,852 $ 13,558 Jaguar Cars, Inc. and other, interest at prime minus 2%, increasing to prime plus 1% after 180 days 1,880 3,546 --------- --------- Total $ 9,732 $ 17,104 --------- --------- --------- ---------
The Bank of America note contains, among other provisions, requirements for maintaining certain working capital and other financial ratios and restrictions on incurring additional indebtedness. The prime rate at December 31, 1994 and 1995 was 8.5%. F-67 SUN AUTOMOTIVE GROUP (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes To Combined Financial Statements (Continued) (Dollars in thousands) 8. Long-Term Debt: Long-term debt consists of the following as of:
-------------------- December 31, -------------------- 1994 1995 --------- --------- Bank of America: Mortgage note payable, interest negotiated periodically based on the bank's First Rate, interest was 7.75% at December 31, 1994 and 1995, due in 2004, collateralized by land and buildings $ 8,783 $ 8,618 Bank of America: Notes payable, interest negotiated periodically based on the bank's First Rate, interest ranged from 7.75% to 8.5% at December 31, 1994 and 1995, maturing between March 1997 and December 2004, collateralized by all the Company's personal property including inventories, receivables, and furniture and fixtures 1,484 5,609 Camelback Automotive: Note payable, interest at 6%, due in three annual installments of $150, $150, and $200 plus interest in February 1996, 1997, and 1998, respectively, collateralized by all BMW personal property and inventory 500 H.M. Knappenberger Revocable Trusts: Notes payable, interest at prime, due 367 days from demand 2,028 ADP Credit Corporation: Capital lease obligation, terminated in September 1995 244 ADP Credit Corporation: Note payable, interest at 9.4%, due September 2000, collateralized by certain computer equipment 186 Toyota Motor Distributors: Capital lease obligation, monthly payments of $2 including interest at 7.5% through December 1997, collateralized by computer equipment 66 45 Various notes payable 36 10 --------- --------- 12,641 14,968 Less - current portion 647 1,260 --------- --------- $ 11,994 $ 13,708 --------- --------- --------- ---------
F-68 SUN AUTOMOTIVE GROUP (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes To Combined Financial Statements (Continued) (Dollars in thousands) 8. Long-Term Debt: (Continued) Principal maturities of long-term debt in each of the next five years are as follows:
--------- Period Ending December 31, Amount - -------------- --------- 1996 $ 1,260 1997 1,328 1998 1,308 1999 1,133 2000 6,584 Thereafter 3,355 --------- Total $ 14,968 --------- ---------
The terms of certain financing agreements contain, among other provisions, requirements for maintaining certain cash flows, current ratios and tangible net worth ratios and restrictions on incurring additional indebtedness. Interest expense for the years ending December 31, 1993, 1994 and 1995 was $762, $664, and $819, respectively. 9. Commitments: The Company is leasing land and buildings in Arizona under several noncancelable operating leases with terms expiring at various dates from December 15, 1998 through December 31, 2005. Annual payments range from $89 to $324. Certain leases provide for periodic increases in payments throughout the lease term in proportion to increases in the consumer price index and other factors. Certain leases also contain options to purchase the related property. Rental expense for the years ended December 31, 1993, 1994 and 1995 was $508, $668 and $1,183, respectively. Future minimum lease commitments are summarized as follows:
--------- Amount --------- 1996 $ 1,253 1997 1,248 1998 1,231 1999 1,127 2000 1,054 Thereafter 4,245 --------- Total $ 10,158 --------- ---------
10. Interest Rate Swap Agreement: At December 31, 1995, the Company had one outstanding interest rate swap agreement with Bank of America, under which the Company receives a variable rate based on three month LIBOR rates on a notional amount of $5,750 and pays a fixed rate of 7.45% as determined in three month intervals. The transaction effectively changes a portion of the Company's interest rate exposure from a variable rate to a fixed rate. The interest rate swap agreement expires at January 31, 1997. The Company is exposed to credit loss in the event of nonperformance by the other party to the interest rate swap agreements. However, the Company does not anticipate nonperformance by the counterparties. F-69 SUN AUTOMOTIVE GROUP (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes To Combined Financial Statements (Continued) (Dollars in thousands) 11. Terminated Franchises: In the first quarter of 1993, the Company terminated two franchises. As a result of the termination, the Company recognized a charge to earnings from operations of $1,161 which represented the remainder of rental payments for which the Company was obligated under a non-cancelable lease obligation net of future sublet rental income. 12. Defined Contribution Plan: The Company has a 401(k) and profit sharing plan (the "Plan") for all employees meeting certain service requirements. This Plan qualifies under Section 401(k) of the Internal Revenue Code. The Plan allows employees to contribute up to 20% of their annual compensation subject to Internal Revenue Code limitations. The Company may make matching contributions at its discretion. During the years ended December 31, 1993, 1994, and 1995, the Company contributed $30, $50 and $75 to the Plan, respectively. 13. Reclassification: Certain amounts in the 1993 and 1994 financial statements have been reclassified to conform with the presentation adopted in 1995. 14. Subsequent Event: In January 1996, the Company sold its Saab franchise and realized net profit of $287 as a result of the sale of the franchise. On June 6, 1996, the Company entered into an acquisition agreement and plan of merger with United Auto Group, Inc. F-70 Report of Independent Accountants To Stockholders of Evans Automotive Group: We have audited the accompanying combined balance sheet of Evans Automotive Group as of December 31, 1995, and the related combined statements of operations, stockholders' equity and cash flows for the year ended December 31, 1995. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Evans Automotive Group as of December 31, 1995, and the results of its combined operations and its combined cash flows for the year ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Atlanta, Georgia September 1, 1996 F-71 EVANS AUTOMOTIVE GROUP Combined Balance Sheets (Dollars in thousands, except per share data)
-------------------- December (Unaudited) 31, June 30, 1995 1996 --------- --------- ASSETS: Current assets: Cash $ 667 $ 701 Accounts receivable 4,491 5,812 Inventories 9,024 8,927 Prepaid expenses and other assets 84 81 --------- --------- Total current assets 14,266 15,521 --------- --------- Property and equipment, net 365 335 Due from stockholder 550 699 Other assets 29 32 --------- --------- Total assets $ 15,210 $ 16,587 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable $ 757 $ 1,977 Accrued liabilities 682 729 Floor plan note payable 9,502 9,286 Due to stockholder 1,040 522 Other current liabilities 34 37 --------- --------- Total current liabilities 12,015 12,551 --------- --------- Deferred tax liability 6 6 Long-term lease obligations 104 89 --------- --------- Total liabilities 12,125 12,646 --------- --------- Commitments and contingent liabilities Stockholders' equity: Common stock, par value $1 per share, shares authorized 1,500,000, shares issued and outstanding 1,501 2 2 Additional paid-in capital 922 922 Retained earnings 2,186 3,042 Less: Treasury stock, 500 shares at cost (25) (25) --------- --------- Total stockholders' equity 3,085 3,941 --------- --------- Total liabilities and stockholders' equity $ 15,210 $ 16,587 --------- --------- --------- ---------
The accompanying notes are an integral part of the financial statements. F-72 EVANS AUTOMOTIVE GROUP Combined Statements of Operations and Retained Earnings (Dollars in thousands)
-------------------------------- For the Year Ended (Unaudited) For the December Six Months Ended 31, June 30, ---------- -------------------- 1995 1995 1996 ---------- --------- --------- Sales $ 81,669 $ 38,593 $ 46,369 Cost of sales, including floor plan interest for the year ended December 31, 1995 of $709 72,459 34,264 40,497 ---------- --------- --------- Gross profit 9,210 4,329 5,872 Selling, general and administrative expenses 7,842 3,666 4,664 ---------- --------- --------- Income from operations 1,368 663 1,208 Other income (expense), net (34) (11) 13 ---------- --------- --------- Income before provision for income taxes 1,334 652 1,221 Provision for income taxes 457 161 365 ---------- --------- --------- Net income 877 491 856 Retained earnings, beginning of period 1,309 1,308 2,186 ---------- --------- --------- Retained earnings, end of period $ 2,186 $ 1,779 $ 3,042 ---------- --------- --------- ---------- --------- ---------
The accompanying notes are an integral part of the financial statements. F-73 EVANS AUTOMOTIVE GROUP Combined Statements of Cash Flows for the year ended December 31, 1995 (Dollars in thousands)
---------------------------------- (Unaudited) Six Months Year Ended Ended December 31, June 30, ------------ -------------------- 1995 1995 1996 ------------ --------- --------- Operating activities: Net income $ 877 $ 491 $ 856 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 90 45 48 Changes in operating assets and liabilities: Accounts receivable 377 1,601 (1,321) Inventories (1,522) (1,993) 97 Prepaid expenses and other current assets 1 (20) 3 Other assets 5 (3) Floor plan notes payable 864 484 (216) Floor plan notes payable--stockholder 143 116 (518) Accounts payable and accrued liabilities (82) (110) 1,267 Deferred tax liability 6 ------------ --------- --------- Net cash provided by operating activities 759 614 213 ------------ --------- --------- Investing activities: Purchases of property and equipment (91) (146) (30) ------------ --------- --------- Net cash used in investing activities (91) (146) (30) ------------ --------- --------- Financing activities: Repayment of note payable to stockholder (67) Due from stockholder (184) 19 (149) Increase in note payable to stockholder 44 ------------ --------- --------- Net cash provided by (used in) financing activities (251) 63 (149) ------------ --------- --------- Net increase (decrease) in cash 417 531 34 Cash, beginning of year 250 250 667 ------------ --------- --------- Cash, end of year $ 667 $ 781 $ 701 ------------ --------- --------- ------------ --------- --------- Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 746 Property acquired under capital leases: Assets $ 130 Liabilities $ (130)
The accompanying notes are an integral part of the financial statements. F-74 EVANS AUTOMOTIVE GROUP Notes To Combined Financial Statements (Information related to the six months ended June 30, 1995 and 1996 is unaudited) (Dollars in thousands) 1. Organization: The Evans Automotive Group (the "Group" or the "Company"), operating in the State of Georgia, is engaged in the sale of new and used vehicles, as well as finance, insurance and service contracts thereon. The Company operates dealerships which hold franchise agreements with two automotive manufacturers. In accordance with the individual franchise agreement, each dealership is subject to certain rights and restrictions typical of the industry. The ability of the manufacturers to influence the operations of the dealerships or the loss of a franchise agreement could have a negative impact on the operating results of the Company. 2. Summary of Significant Accounting Policies: The following is a summary of significant accounting policies followed in the preparation of the financial statements. COMBINATION POLICY - COMMON CONTROL The accompanying combined financial statements include Charles Evans BMW, Inc., and Charles Evans Nissan, Inc.. All significant intercompany transactions and balances have been eliminated in the combination. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INTERIM FINANCIAL STATEMENTS (UNAUDITED): The interim unaudited financial statements reflect adjustments, consisting only of normal recurring accruals, which are, in the opinion of the Company's management, necessary for a fair presentation of the financial position and results of operations for the periods presented. Operating results for any interim period are not necessarily indicative of the results for a full year. CASH AND CASH EQUIVALENTS Cash and cash equivalents include all highly liquid investments that have an original maturity of three months or less at the date of purchase. REVENUE RECOGNITION Revenue is recognized by the Company when vehicles and parts are delivered to consumers, and when services are performed. Finance and insurance revenues are recognized upon the sale of the finance or insurance contract. INVENTORIES Inventories are stated at cost. The cost of new vehicles and parts is determined using the Last-in, first-out (LIFO) method, and the cost of used vehicles is determined on a specific identification basis. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and depreciated over their estimated useful lives, using the straight-line and accelerated methods. Expenditures for repairs and maintenance which increase the useful life or substantially increase serviceability of the asset are capitalized. All others are charged to expense as incurred. When equipment is sold or otherwise disposed, the cost and related accumulated depreciation are removed from their respective accounts and any resulting gain or loss is included in the statement of operations. F-75 EVANS AUTOMOTIVE GROUP Notes To Combined Financial Statements (Continued) (Information related to the six months ended June 30, 1995 and 1996 is unaudited) (Dollars in thousands) 2. Summary of Significant Accounting Policies: (Continued) RESERVE FOR CHARGEBACK OF FINANCE AND INSURANCE INCOME Provisions for chargebacks of finance and insurance income resulting from customer prepayments and repossessions are recorded based on management's estimates and historical experience. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash, accounts receivable, accounts payable and debt. The carrying amount of these financial instruments approximates fair value due either to length of maturity or existence of variable interest rates that approximate prevailing market rates. CAPITAL STOCK Each affiliate of the Company is an individual entity that issues stock for that entity only and at different and unrelated prices. The Company as a single entity does not issue stock. For purposes of these financial statements, the capital stock activity of the individual affiliates have been summed to present combined totals. INCOME TAXES Charles Evans BMW, Inc. is a C corporation under the provisions of the Internal Revenue Code and, accordingly, is subject to federal and state income taxes for which a provision has been made. The other affiliate of Evans Automotive Group has elected S corporation status under the provisions of the Internal Revenue Code. Accordingly, Charles Evans Nissan, Inc. is generally not subject to federal and state income taxes. For income tax reporting purposes, all profits and losses, and certain other items, pass through to the stockholder of Charles Evans Nissan, Inc., who reports those items on the stockholder's individual income tax return. 3. Concentration of Credit Risk: The Company's significant concentration of credit risk is with its cash. The Company maintains cash balances at a financial institution located in Georgia which are at times in excess of federally-insured levels. F-76 EVANS AUTOMOTIVE GROUP Notes To Combined Financial Statements (Continued) (Information related to the six months ended June 30, 1995 and 1996 is unaudited) (Dollars in thousands) 4. Inventories: Inventories consist of the following:
------------------------- June 30, December 31, 1996 1995 (Unaudited) ------------ ----------- New vehicles $ 7,778 $ 8,107 Used vehicles 2,403 2,047 Parts, accessories and other 769 755 ------------ ----------- 10,950 10,909 Cumulative LIFO reserve 1,926 1,982 ------------ ----------- $ 9,024 $ 8,927 ------------ ----------- ------------ -----------
5. Property and Equipment: Property and equipment consists of the following as of:
----------------- December 31, 1995 ----------------- Leasehold improvements $ 335 Machinery and shop equipment 640 Furniture, fixtures, vehicles and other 633 ----------------- Total 1,608 Less: Accumulated depreciation and amortization 1,243 ----------------- Total property and equipment, net $ 365 ----------------- -----------------
6. Floor Plan Notes Payable: The amounts payable to financial institutions under trust receipt transactions are collateralized by the inventories and fixed assets. Floor plan notes payable are to NationsBank and bear interest at 8.5% at December 31, 1995. Related parties also provide floor plan financing (see Note 9). F-77 EVANS AUTOMOTIVE GROUP Notes To Combined Financial Statements (Continued) (Information related to the six months ended June 30, 1995 and 1996 is unaudited) (Dollars in thousands) 7. Income Taxes: The provision (benefit) for income taxes consists of the following components:
------------ Year ended December 31, ------------ 1995 ------------ Currently payable: Federal $ 406 State and local 45 ------------ Total currently payable 451 ------------ Deferred tax liability: Federal 5 State and local 1 ------------ Total deferred 6 ------------ Total provision $ 457 ------------ ------------
The reasons for the differences between the provision for income taxes using the Federal statutory income tax rate and the tax provisions reported by the Group are as follows:
------------ Year ended December 31, ------------ 1995 ------------ Tax provision computed at the Federal statutory income tax rate $ 454 State and local income taxes, net of Federal benefit 48 Entity not subject to tax (49) Other 4 ------------ Provision for income taxes $ 457 ------------ ------------
The Group is comprised of two dealerships, one of which is structured as an S corporation under the Internal Revenue Code. No tax provisions have been made for the S corporation as amounts pass through to shareholder. F-78 EVANS AUTOMOTIVE GROUP Notes To Combined Financial Statements (Continued) (Information related to the six months ended June 30, 1995 and 1996 is unaudited) (Dollars in thousands) 7. Income Taxes: (Continued) The Group accounts for income taxes in accordance with SFAS 109. Under SFAS 109, deferred income taxes reflect the estimated tax effect of temporary differences between assets and liabilities for financial accounting purposes and those amounts as measured by tax laws and regulations. The components of deferred income tax liabilities of $11 at December 31, 1995 were the result of depreciation and inventory accounting differences. The components of deferred income tax assets of $60 at December 31, 1995 is the result of reserves and accruals for inventory and chargebacks. 8. Commitments: The Company leases certain computer and telephone equipment used in the operation of the dealerships. The leases have been accounted for as capital leases. The assets under capital leases of $163 are being amortized over the lives of the leases on a straight-line basis. Accumulated amortization amounted to $28 as of December 31, 1995. Future minimum lease commitments are summarized as follows:
----------- Amount ----------- 1996 $ 42 1997 41 1998 40 1999 40 2000 2 ----- Total minimum lease payments $ 165 Less amount representing interest (31) ----- Present value of net minimum lease payments 134 Less current principal maturities of obligations under capital leases 30 ----- Long-term obligation under capital lease $104 ----- -----
9. Related Party Transactions: During 1994, the sole stockholder and other family members began floor planning cars for the dealership. Interest is paid to the stockholder and family members at prime. Total interest paid to the sole stockholder and family was $89 in 1995. The Company rents both dealership facilities from the sole stockholder under a month-to-month agreement currently requiring monthly payments of $42. Total rent expense for 1995 was $504. 10. Defined Contribution Plan: The Company has a 401(k) plan (the "Plan") for all employees meeting certain service requirements. This Plan qualifies under Section 401(k) of the Internal Revenue Code. The Company may make matching contributions at its discretion. During the year ended December 31, 1995, the Company contributed $26 to the Plan. 11. Subsequent Event: In August 1996 the Company entered into an acquisition agreement and plan of merger with United Auto Group, Inc. F-79 Report of Independent Accountants To the Stockholders of Standefer Motor Sales, Inc.: We have audited the accompanying balance sheets of Standefer Motor Sales, Inc. as of December 31, 1995 and 1994, and the related statements of operations, retained earnings and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Standefer Motor Sales, Inc. as of December 31, 1995 and 1994 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Memphis, Tennessee August 29, 1996 F-80 STANDEFER MOTOR SALES, INC. Balance Sheets (Dollars in thousands)
--------------------------------- December 31, (Unaudited) -------------------- June 30, 1994 1995 1996 --------- --------- ----------- ASSETS Current assets: Cash $ 742 $ 1,043 $ 232 Accounts receivable 1,240 1,682 1,431 Inventories 5,792 6,980 8,430 --------- --------- ----------- Total current assets 7,774 9,705 10,093 Plant and equipment, net 42 178 226 Other assets 150 150 150 --------- --------- ----------- Total assets $ 7,966 $ 10,033 $ 10,469 --------- --------- ----------- --------- --------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Note payable-line of credit $ 466 $ 553 480 Accounts payable 724 1,090 741 Accrued expenses 264 384 678 Notes payable-related parties 1,472 1,879 1,846 State income taxes payable 69 96 120 --------- --------- ----------- Total current liabilities 2,995 4,002 3,865 Commitments and contingent liabilities Stockholders' equity: Common stock, Class A, no par value 10,000 shares authorized, 1,000 shares issued and outstanding 1 1 1 Common stock Class B, no par value, non-voting shares, 90,000 shares authorized, 9,000 shares issued and outstanding 9 9 9 Retained earnings 4,961 6,021 6,594 --------- --------- ----------- Total stockholders' equity 4,971 6,031 6,604 --------- --------- ----------- Total liabilities and stockholders' equity $ 7,966 $ 10,033 $ 10,469 --------- --------- ----------- --------- --------- -----------
The accompanying notes are an integral part of the financial statements. F-81 STANDEFER MOTOR SALES, INC. Statements of Operations (Dollars in thousands)
----------------------------------------------------- (Unaudited) Years ended Six months ended December 31, June 30, ------------------------------- -------------------- 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- Sales $ 41,546 $ 50,203 $ 65,793 $ 29,897 $ 34,994 Cost of sales 37,055 44,874 58,284 26,703 31,018 --------- --------- --------- --------- --------- Gross profit 4,491 5,329 7,509 3,194 3,976 Selling, general and administrative expenses 3,489 3,835 5,192 1,982 2,187 --------- --------- --------- --------- --------- Operating income 1,002 1,494 2,317 1,212 1,789 Other income, net 217 166 183 21 30 --------- --------- --------- --------- --------- Income before income taxes 1,219 1,660 2,500 1,233 1,819 Provision for income taxes 64 98 147 107 133 --------- --------- --------- --------- --------- Net income $ 1,155 $ 1,562 $ 2,353 $ 1,126 $ 1,686 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of the financial statements. F-82 STANDEFER MOTOR SALES, INC. Statements of Retained Earnings (Dollars in thousands)
--------- Retained earnings, January 1, 1993 $ 3,878 Net income for the year 1,155 Dividends (771) --------- Retained earnings, December 31, 1993 4,262 Net income for the year 1,562 Dividends (863) --------- Retained earnings, December 31, 1994 4,961 Net income for the year 2,353 Dividends (1,293) --------- Retained earnings, December 31, 1995 6,021 Net income for the period (unaudited) 1,686 Dividends (1,113) --------- Retained earnings, June 30, 1996 (unaudited) $ 6,594 --------- ---------
The accompanying notes are an integral part of the financial statements. F-83 STANDEFER MOTOR SALES, INC. Statements of Cash Flows (Dollars in thousands)
-------------------------------------------------------- (Unaudited) Six months ended Years ended December 31, June 30, ---------------------------------- -------------------- ------------ -------------------- -------------------- 1993 1994 1995 1995 1996 ------------ --------- --------- --------- --------- Operating activities: Net income $ 1,155 $ 1,562 $ 2,353 $ 1,126 $ 1,686 Adjustments to reconcile net income to net cash provided by operating activities: Gain on disposition of assets (108) Depreciation 36 18 43 18 21 Changes in operating assets and liabilities: Accounts receivables (377) (128) (442) 270 251 Inventories (341) (984) (1,188) (1,954) (1,450) Note payable -- line of credit 119 466 87 993 (73) Accounts payable and accrued expenses (595) 195 513 119 (31) Notes payable -- related parties (79) (2) 407 235 (33) ------------ --------- --------- --------- --------- Net cash provided by (used in) operating activities (190) 1,127 1,773 807 371 ------------ --------- --------- --------- --------- Investing activities: Purchase of plant and equipment (23) (6) (179) (96) (69) Proceeds from sale of assets 164 ------------ --------- --------- --------- --------- Net cash provided by (used in) investing activities 141 (6) (179) (96) (69) ------------ --------- --------- --------- --------- Financing activities: Cash dividends paid (771) (863) (1,293) (1,058) (1,113) ------------ --------- --------- --------- --------- Net cash used in financing activities (771) (863) (1,293) (1,058) (1,113) ------------ --------- --------- --------- --------- Net increase (decrease) in cash (820) 258 301 (347) (811) Cash at beginning of the period 1,304 484 742 742 1,043 ------------ --------- --------- --------- --------- Cash at end of period $ 484 $ 742 $ 1,043 $ 395 $ 232 ------------ --------- --------- --------- --------- ------------ --------- --------- --------- --------- Supplemental schedule of cash flows Cash paid during the year for: Interest $ 178 $ 156 $ 259 ------------ --------- --------- ------------ --------- --------- Income taxes $ 25 $ 92 $ 123 ------------ --------- --------- ------------ --------- ---------
The accompanying notes are an integral part of the financial statements. F-84 STANDEFER MOTOR SALES, INC. (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes to Financial Statements (Dollars in thousands) 1. Organization: Standefer Motor Sales, Inc. (the "Company"), operating in Chattanooga, Tennessee, sells and services new Nissan cars and trucks and used vehicles, as well as finance, insurance and service contracts thereon. The Company operates a dealership which holds a franchise agreement with an automotive manufacturer. In accordance with the franchise agreement, the dealership is subject to certain rights and restrictions typical of the industry. The ability of the manufacturer to influence the operations of the dealership or the loss of the franchise agreement would have a negative impact on operating results of the Company. 2. Summary of Significant Accounting Policies: The following is a summary of significant accounting policies followed in the preparation of the financial statements. ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INTERIM FINANCIAL STATEMENTS (UNAUDITED): The interim unaudited financial statements reflect adjustments, consisting only of normal recurring accruals, which are, in the opinion of the Company's management, necessary for a fair presentation of the financial position and results of operations for the periods presented. Operating results for any interim period are not necessarily indicative of the results for a full year. REVENUE RECOGNITION: Revenue is recognized by the Company when vehicles or parts are delivered to consumers and when service work is performed. Finance and insurance revenues are recognized upon the sale of the finance or insurance product to a third party. INVENTORIES: New and used vehicles and parts and accessories inventories are valued at the lower of cost or market. Cost is determined on the Last-in, first-out (LIFO) method. PLANT AND EQUIPMENT: Plant and equipment are stated at cost and depreciated over their estimated useful lives, principally by the straight-line method. Expenditures for repairs and maintenance which increase the useful life or substantially increase serviceability of the asset are capitalized. All others are charged to expense as incurred. When equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from their respective accounts and any resulting gain or loss included in the statement of operations. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying values of cash, accounts receivable, notes payable, and accounts payable approximate their fair values due to the short-term maturities of those instruments. The carrying value of long-term debt approximates fair value due to the market rate of interest charged. 3. Concentrations of Credit Risk: The Company's significant concentration of credit risk is with its cash. The Company maintains cash balances at several financial institutions located in Tennessee which are at times in excess of federally-insured amounts. F-85 STANDEFER MOTOR SALES, INC. (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes to Financial Statements (Continued) (Dollars in thousands) 4. Inventories: Inventories consist of the following:
------------------------------- June 30, December 31, --------- -------------------- 1996 1994 1995 (Unaudited) --------- --------- --------- New vehicles and demonstrators $ 4,546 $ 4,017 $ 4,742 Used vehicles 3,809 5,870 6,516 Parts and accessories 413 414 494 --------- --------- --------- 8,768 10,301 11,752 Cumulative LIFO Reserve (2,976) (3,321) (3,322) --------- --------- --------- $ 5,792 $ 6,980 $ 8,430 --------- --------- --------- --------- --------- ---------
The use of the LIFO method of determining the cost of new and used vehicle inventories and parts had the effect of decreasing inventories at December 31, 1994 and 1995 by $2,976 and $3,321, respectively, and decreasing net income for the periods ended December 31, 1993, 1994 and 1995 by approximately $433, $563 and $345, respectively, as compared to what they would have been under the FIFO cost method. 5. Plant and Equipment: Property, plant and equipment consists of:
-------------------- 1994 1995 --------- --------- Building $ 35 $ 131 Machinery and equipment 69 93 Furniture and fixtures 54 113 Leasehold improvements 9 9 Service vehicles 22 22 --- --- 189 368 Less: accumulated depreciation and amortization 147 190 --- --- $ 42 $ 178 --- --- --- ---
At June 30, 1996, the Company had purchase commitments of approximately $120 for computer equipment. 6. Line of Credit The Company has a $2,000 line of credit with Suntrust Bank. Outstanding amounts are due on demand. Interest is payable at the bank's prime rate (8.5% at December 31, 1995). This line of credit is collateralized by substantially all of the Company's assets. 7. Notes Payable-Related Parties: Notes payable-related parties consists of various notes payable to the stockholders and related parties at an interest rates of 10%. These amounts are payable on demand. 8. Taxes on Income: The Company has elected to be treated as an S corporation for Federal income tax reporting purposes. Under this election, the Company's Stockholders are responsible for reporting the Company's Federal taxable income on their personal tax returns. F-86 STANDEFER MOTOR SALES, INC. (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes to Financial Statements (Continued) (Dollars in thousands) 8. Taxes on Income: (Continued) For state tax purposes, the Company accounts for its taxes under the provisions of Financial Accounting Standard 109, "Accounting for Income Taxes." 9. Other Related Party Transactions: The Company rents its operating facilities and certain equipment from Standefer Investment Co., a related partnership. A shareholder of the Company is also a partner in the related partnership. Total rents paid to the partnership were $282 for each of the years ended December 31, 1995, 1994 and 1993. The stockholders of the Company are also stockholders in a related company engaged in the sale of insurance contracts. Standefer Motor Sales received commissions from this entity of $101, $82 and $47 for the years ended December 31, 1995, 1994 and 1993, respectively. The Company has an investment in an insurance company which is engaged in the sale of insurance contracts. Dividends received from such entity amounted to $121, $98, and $41 for the years ended December 31, 1995, 1994, and 1993. Such dividends are recorded as other income. 10. Reclassifications: Certain amounts in the 1993 and 1994 financial statements have been reclassified to conform to the presentation adopted in 1995. 11. Subsequent Event (Unaudited): In September, 1996 the stockholders of the Company entered into an agreement to sell the outstanding stock of the Company to United Auto Group, Inc. F-87 [Artwork] [UAG LOGO] PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the various expenses in connection with the sale and distribution of the securities being registered which will be paid solely by the Company. All the amounts shown are estimates, except the Commission registration fee and the NASD filing fee: SEC Registration Fee.................................................... $ 59,483 NASD Fees............................................................... 17,750 NYSE Listing Fee........................................................ * Transfer Agent and Registrar Fees and Expenses.......................... * Printing and Engraving Expenses......................................... * Legal Fees and Expenses................................................. * Accounting Fees and Expenses............................................ * Blue Sky Fees and Expenses.............................................. * Miscellaneous Expenses.................................................. * --------- Total........................................................... $ * --------- ---------
- ------------------------ * To be completed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the DGCL empowers a Delaware corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation) by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. A corporation may indemnify such person against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if he acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, has no reasonable cause to believe his conduct was unlawful. A corporation may, in advance of the final disposition of any civil, criminal, administrative or investigative action, suit or proceeding, pay the expenses (including attorneys' fees) incurred by any officer or director in defending such action, provided that the director or officer undertake to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation. A Delaware corporation may indemnify officers and directors in an action by or in the right of the corporation to procure a judgment in its favor under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses (including attorneys' fees) which he actually or reasonably incurred in connection therewith. The indemnification provided is not deemed to be exclusive of any other rights to which an officer or director may be entitled under any corporation's bylaw, agreement, vote or otherwise. The Company has adopted provisions in its Certificate of Incorporation and Bylaws that provide that the Company shall indemnify its officers and directors to the maximum extent permitted under the DGCL. The Spielvogel Employment Agreement provides for indemnification of Mr. Spielvogel to the maximum extent legally permitted or authorized by the Company's Certificate of Incorporation or Bylaws or resolutions of the Board of Directors. The Stockholders Agreement provides that in the II-1 event that a director elected pursuant thereto is made or threatened to be made a party to any action, suit or proceeding with respect to which such director may be entitled to indemnification by the Company, such director will be entitled to be represented by counsel of his choice and the reasonable expenses of such representation will be reimbursed by the Company to the extent provided in or authorized by its Certificate of Incorporation or Bylaws. Certain directors are also entitled to indemnification from the organizations that employ them. In addition, the Underwriting Agreement filed as Exhibit 1.1 to the Registration Statement provides for indemnification of the Company, its officers and its directors by the Underwriters under certain circumstances. The Company has purchased insurance on behalf of its officers and directors for liabilities arising out of their capacities as such. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES In the three years preceding the filing of this Registration Statement, the Company has issued the following securities that were not registered under the Securities Act. In connection with the Equity Facility, the Company issued shares of its capital stock in multiple transactions between December 28, 1993 and July 10, 1996. Montgomery Securities acted as the placement agent for the Equity Facility and received fees in the amount of $1.4 million in connection therewith. In addition, on July 10, 1996, the Company issued additional shares of its capital stock to its existing stockholders on terms substantially similar to those of the Equity Facility. After giving effect to the Preferred Stock Conversion, the number of shares of Common Stock purchased and the aggregate offering price paid by each investor are set forth in the following table:
AGGREGATE SHARES OF OFFERING INVESTOR COMMON STOCK PRICE - ------------------------------------------------------------------------- -------------- ------------- Trace International Holdings, Inc........................................ 3,531,156 $ 28,436,560 Aeneas Venture Corporation............................................... 2,843,656 28,436,560 AIF II, L.P.............................................................. 1,843,656 18,436,560 Ezra P. Mager............................................................ 163,240 1,319,900 Jeremy Grantham.......................................................... 104,474 1,044,740 Jules Kroll.............................................................. 104,474 1,044,740 Andrea Farace............................................................ 52,237 522,370 Natio Vie Developpment................................................... 52,237 522,370 Assu Venture............................................................. 36,566 365,660 Natio Fonds Venture 2.................................................... 36,566 365,660 Carl Spielvogel.......................................................... 26,118 261,180 Jerome Markowitz......................................................... 5,572 55,720 Philip Halperin.......................................................... 5,572 55,720 Derek Lemke-von Ammon.................................................... 2,786 27,860 Frank Dunlevy............................................................ 2,786 27,860
Pursuant to the Securities Purchase Agreements, the Company issued its Senior Notes and Warrants in multiple transactions between September 22, 1995 and July 11, 1996. J.P. Morgan Securities Inc. acted as the placement agent for sales to non-affiliated investors and received fees in the amount of $0.9 million in connection therewith. In addition, on July 10, 1996, the Company issued Additional Warrants to such investors. The amount of securities purchased and the aggregate offering price paid by each investor are set forth in the following table:
SHARES OF COMMON STOCK AGGREGATE PRINCIPAL AMOUNT SUBJECT TO OFFERING INVESTOR OF SENIOR NOTES WARRANTS PRICE - -------------------------------------------------- ---------------- ------------------ ------------- J.P. Morgan Capital Corporation (and its affiliates)...................................... $ 20,000,000 634,198 $ 20,535,164 The Equitable Life Assurance Society of the United States............................. 15,000,000 475,648 15,401,368
II-2 On April 3, 1996, the Company granted Carl Spielvogel an option to purchase up to 400,000 shares of Common Stock at an exercise price of $10.00 per share. The stock option vests in four equal installments beginning on the first anniversary of October 18, 1994, the date of Mr. Spielvogel's employment with the Company. Under the Stock Option Plan, adopted April 23, 1996, the Company granted options to purchase 473,000 shares of Common Stock at an exercise price of $10.00 per share to employees of the Company and its affiliates. Such options vest in five equal installments on each of the first five anniversaries of the later of December 29, 1993 and the optionee's date of employment. See "Management -- Stock Option Plan." The grants of options under the Stock Option Plan were effected in reliance on Rule 701 promulgated under the Securities Act for offers and sales pursuant to certain compensatory benefit plans. On July 31, 1996, the Company issued 10,000 shares of Class A Preferred Stock to Richard Sinkfield for an aggregate offering price of $100,000. In addition to any exemptions specified above, each of the foregoing offerings was effected in reliance on Section 4(2) of the Securities Act as a transaction not involving any public offering. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits
NO. DESCRIPTION - ------------ ------------------------------------------------------------------------------------------ **1.1 Form of Underwriting Agreement. **3.1 Form of Restated Certificate of Incorporation. **3.2 Form of Restated Bylaws. **4.1 Specimen Common Stock certificate. **5.1 Opinion of Willkie Farr & Gallagher. 10.1.1.1 Registration Rights Agreement, dated as of October 15, 1993, among the Company and the investors listed therein. 10.1.1.2 Amendment to Registration Rights Agreement, dated as of July 31, 1996, among the Company and the investors listed therein. 10.1.2 Waiver, Consent and Modification Agreement, dated as of September 22, 1995, among the Company and its stockholders. 10.1.3 Letter Agreement, dated September 22, 1996, between the Company and J.P. Morgan Capital Corporation. 10.1.4 Form of Warrant. 10.1.5 Form of Additional Warrant. 10.1.6 Employment Agreement, dated as of June 21, 1996, between the Company and Carl Spielvogel. 10.1.7 Severance Agreement, dated April 5, 1996, among the Company, Trace and Ezra P. Mager. **10.1.8 Stock Option Plan of the Company. **10.1.9 Registration Rights Agreement, dated as of August 1, 1995, among the Company and the parties listed on Schedule I thereto. 10.1.10 Sublease, dated August 1994, between Overseas Partners, Inc. and the Company. 10.1.11 Letter, dated July 24, 1996, from Chrysler Corporation to the Company. 10.1.12 Agreement, dated July 24, 1996, between the Company and Toyota Motor Sales U.S.A., Inc. **10.1.13 Non-employee Director Compensation Plan of the Company. **10.2.1.1 Honda Automobile Dealer Sales and Service Agreement, dated October 5, 1995, between American Honda Motor Co. Inc. and Danbury Auto Partnership (standard provisions are in Exhibit 10.2.1.2 hereto). **10.2.1.2 American Honda Motor Co. Standard Provisions.
II-3
NO. DESCRIPTION - ------------ ------------------------------------------------------------------------------------------ 10.2.2.1 Lexus Dealer Agreement, dated October 5, 1992, between Lexus, a division of Toyota Motor Sales, U.S.A., Inc. and Somerset Motors Partnership (standard provisions are in Exhibit 10.2.2.2 hereto). 10.2.2.2 Lexus Dealer Agreement Standard Provisions. 10.2.3.1 Mitsubishi Motor Sales of America, Inc. Dealer Sales and Service Agreement, dated August 29, 1994, between Mitsubishi Motor Sales of America, Inc. and Rockland Motors Partnership, as amended August 20, 1996 (standard provisions are in Exhibit 10.2.3.2 hereto). 10.2.3.2 Mitsubishi Motor Sales of America, Inc. Dealer Sales and Service Agreement Standard Provisions. **10.2.4.1 BMW of North America, Inc. Dealer Agreement, dated January 1, 1994, between BMW of North America, Inc. and DiFeo BMW Partnership, as amended July 25, 1996 (standard provisions are in Exhibit 10.2.4.2 hereto). **10.2.4.2 BMW of North America, Inc. Dealer Standard Provisions Applicable to Dealer Agreement. **10.2.5.1 Term Dealer Sales and Service Agreement, dated July 3, 1996, between American Suzuki Motor Corporation and Fair Hyundai Partnership (standard provisions are in Exhibit 10.2.5.2) **10.2.5.2 Suzuki Dealer Sales and Service Agreement Standard Provisions. **10.2.6.1 Toyota Dealer Agreement, dated May 5, 1995, between Toyota Motor Distributors, Inc. and Hudson Motors Partnership (standard provisions are in Exhibit 10.2.6.2 hereto). **10.2.6.2 Toyota Dealer Agreement Standard Provisions. 10.2.7.1 Oldsmobile Division Dealer Sales and Service Agreement, dated October 2, 1992, between General Motors Corporation, Oldsmobile Division and J & F Oldsmobile-Isuzu Partnership, as amended December 20, 1993 and July 23, 1996 (standard provision are in Exhibit 10.2.7.2 hereto). 10.2.7.2 General Motors Dealer Sales and Service Agreement Standard Provisions. 10.2.8.1 Chevrolet-Geo Dealer Sales and Service Agreement, dated November 1, 1995, between General Motors Corporation, Chevrolet Motor Division and Fair Chevrolet-Geo Partnership (substantially similar to Exhibit 10.2.7.1). **10.2.9.1 Nissan Dealer Term Sales and Service Agreement, between the Nissan Division of Nissan Motor Corporation in U.S.A. and DiFeo Nissan Partnership (standard provisions are in Exhibit 10.2.9.2 hereto). **10.2.9.2 Nissan Dealer Sales and Service Agreement Standard Provisions. **10.2.10.1 Chrysler Corporation Term Sales and Service Agreement, between Fair Chrysler Plymouth Partnership and Chrysler Corporation, as amended December 15, 1993 (standard provisions are in Exhibit 10.2.10.2). 10.2.10.2 Chrysler Corporation Sales and Service Agreement Additional Terms and Provisions. **10.2.11 Chrysler Corporation Eagle Sales and Service Agreement, dated October 8, 1992, between DiFeo Jeep-Eagle Partnership and Chrysler Corporation (substantially similar to Exhibit 10.2.10.1). **10.2.12 Chrysler Corporation Chrysler Sales and Service Agreement, dated August 16, 1995, between DiFeo Chrysler Plymouth Jeep Eagle Partnership and Chrysler Corporation (substantially similar to Exhibit 10.2.10.1). **10.2.13 Chrysler Corporation Plymouth Sales and Service Agreement, dated November 13, 1992, between DiFeo Chrysler Plymouth Jeep Eagle Partnership and Chrysler Corporation (substantially similar to Exhibit 10.2.10.1). **10.2.14 Toyota Dealer Agreement, dated May 5, 1995, between Toyota Motor Distributors, Inc. and County Auto Group Partnership (substantially similar to Exhibit 10.2.6.1).
II-4
NO. DESCRIPTION - ------------ ------------------------------------------------------------------------------------------ **10.2.15.1 Hyundai Motor America Dealer Sales and Service Agreement, dated October 12, 1992, between Hyundai Motor America and Fair Hyundai Partnership as amended November 22, 1993, October 12, 1995, March 14, 1996, and , 1996 (standard provisions are in Exhibit 10.2.15.2 hereto). **10.2.15.2 Hyundai Motor America Dealer Sales and Service Agreement Standard Provisions. **10.2.16 Hyundai Motor America Dealer Sales and Service Agreement, dated November 22, 1993, as amended April 1, 1994, and November 3, 1995, between Hyundai Motor America and DiFeo Hyundai Partnership (substantially similar to Exhibit 10.2.15.1). **10.2.17 Toyota Dealer Agreement, dated August 23, 1995, between Toyota Motor Distributors, Inc. and OCT Partnership (substantially similar to Exhibit 10.2.6.1). 10.2.18 Mitsubishi Motor Sales of America, Inc. Sales and Service Agreement, dated June 30, 1994, between Mitsubishi Motor Sales of America, Inc. and OCM Partnership (substantially similar to Exhibit 10.2.3.1). **10.2.19 Chrysler Corporation Jeep Sales and Service Agreement, dated October 8, 1992, between DiFeo Jeep-Eagle Partnership and Chrysler Corporation (substantially similar to Exhibit 10.2.10.1). 10.2.20 Chevrolet-Geo Dealer Sales and Service Agreement, dated November 1, 1995 between General Motors Corporation, Chevrolet Motor Division and DiFeo Chevrolet-Geo Partnership (substantially similar to Exhibit 10.2.7.1). **10.2.21 Employment Agreement, dated July 1, 1996, between James D. Evans and Danbury-Mt. Kisco Saturn Partnership. 10.3.1 Receivables Purchase Agreement, dated as of June 28, 1995, between Atlantic Auto Funding Corporation and Atlantic Auto Finance Corporation. 10.3.2 Loan and Security Agreement, dated as of June 28, 1995, among Atlantic Auto Funding Corporation, Atlantic Auto Finance Corporation and Citibank, N.A. 10.3.3 Support Agreement of the Company, dated as of June 28, 1995, in favor of Atlantic Auto Funding Corporation. 10.3.4 Purchase Agreement, dated as of June 14, 1996, between Atlantic Auto Finance Corporation and Atlantic Auto Second Funding Corporation. 10.3.5 Transfer and Administration Agreement, dated as of June 14, 1996, among Atlantic Auto Second Funding Corporation, Atlantic Auto Finance Corporation and Morgan Guaranty Trust Company of New York. **10.3.6 Support Agreement of the Company, dated as of June 14, 1996, in favor of Atlantic Auto Second Funding Corporation. 10.3.7 Pooling and Servicing Agreement relating to Atlantic Auto Grantor Trust 1996-A, dated as of June 20, 1996, among Atlantic Auto Third Funding Corporation, Atlantic Auto Finance Corporation and The Chase Manhattan Bank. 10.3.8 Insurance and Indemnity Agreement, dated as of June 20, 1996, among Financial Security Assurance Inc., Atlantic Auto Third Funding Corporation and Atlantic Auto Finance Corporation. 10.3.9 Master Spread Account Agreement, dated as of June 20, 1996, among Atlantic Auto Third Funding Corporation, Financial Security Assurance Inc. and The Chase Manhattan Bank. 10.3.10 Lease Agreement, dated as of March 18, 1994, between Perinton Hills and the Company, including guaranty of lease of Atlantic Auto Finance Corporation. 10.4.1 Amended and Restated Stock Purchase Agreement, dated as of July 1, 1995, among the Company, Landers Auto Sales, Inc., Steve Landers, John Landers and Bob Landers. 10.4.2 Promissory Note of the Company, dated August 1, 1995, in favor of Steve Landers and John Landers. 10.4.3 Promissory Note of the Company, dated August 1, 1995, in favor of Steve Landers and John Landers.
II-5
NO. DESCRIPTION - ------------ ------------------------------------------------------------------------------------------ 10.4.4 Guarantee of the Company, dated as of August 1, 1995, in favor of Steve Landers and John Landers. 10.4.5 Employment Agreement, dated as of August 1, 1995, between Landers Auto Sales, Inc. and Steve Landers. 10.4.6 Lease, dated as of August 1, 1995, among Steve Landers, John Landers, Bob Landers and Landers Auto Sales, Inc., regarding Jeep-Eagle premises. 10.4.7 Lease, dated as of August 1, 1995, among Steve Landers, John Landers, Bob Landers and Landers Auto Sales, Inc., regarding Oldsmobile-GMC premises. 10.4.8 Shareholders' Agreement, dated as of August 1, 1995, among the Company, United Landers, Inc., Landers Auto Sales, Inc., Steve Landers and John Landers. 10.4.9 Chrysler Corporation Eagle Sales and Service Agreement, dated August 16, 1995, between United Landers Auto Sales, Inc. and Chrysler Corporation (standard provisions are in Exhibit 10.2.10.2). 10.4.10 Chrysler Corporation Jeep Sales and Service Agreement, dated August 16, 1995, between United Landers Auto Sales, Inc. and Chrysler Corporation (substantially similar to Exhibit 10.4.9). 10.4.11 Chrysler Corporation Dodge Sales and Service Agreement, dated August 16, 1995, between United Landers Auto Sales, Inc. and Chrysler Corporation (substantially similar to Exhibit 10.4.9). 10.4.12 Chrysler Corporation Plymouth Sales and Service Agreement, dated August 16, 1995, between United Landers Auto Sales, Inc. and Chrysler Corporation (substantially similar to Exhibit 10.4.9). 10.4.13 Chrysler Corporation Chrysler Sales and Service Agreement, dated August 16, 1995, between United Landers Auto Sales, Inc. and Chrysler Corporation (substantially similar to Exhibit 10.4.9). 10.4.14 Oldsmobile Division Dealer Sales and Service Agreement, dated November 1, 1995, between General Motors Corporation, Oldsmobile Division and United Landers Auto Sales, Inc. (substantially similar to Exhibit 10.2.7.1). 10.4.15 GMC Truck Division Dealer Sales and Service Agreement, dated November 1, 1995, between General Motors Corporation, GMC Truck Division and United Landers Auto Sales, Inc. (substantially similar to Exhibit 10.2.7.1). 10.4.16 Security Agreement and Master Credit Agreement, dated October 25, 1993, between Landers Oldsmobile-GMC Inc. and Chrysler Credit Corporation. 10.4.17 Security Agreement and Master Credit Agreement, dated May 17, 1989, between Landers Jeep-Eagle, Inc. and Chrysler Credit Corporation. 10.4.18 Continuing Guaranty of United Landers, Inc., dated August 15, 1994, in favor of Chrysler Credit Corporation. **10.4.19 Commercial Loan Agreement, dated December 5, 1994, between Landers Oldsmobile-GMC, Inc. and The Benton State Bank. **10.4.20 Commercial Security Agreement, dated December 5, 1994, between Landers Oldsmobile-GMC, Inc. and The Benton State Bank. 10.5.1 Stock Purchase Agreement, dated as of November 17, 1995, among the Company, UAG Atlanta, Inc., Atlanta Toyota, Inc. and Carl H. Westcott. 10.5.2 Promissory Note of UAG Atlanta, Inc., dated January 16, 1996, in favor of Carl H. Westcott. 10.5.3 Guaranty of the Company, dated as of January 16, 1996, in favor of Carl Westcott. **10.5.4 Promissory Note of Atlanta Toyota, Inc., dated January 16, 1996, in favor of First Extended Service Corporation. **10.5.5 Guaranty of the Company, dated as of January 16, 1996, in favor of Carl Westcott. 10.5.6 Lease Agreement, dated as of January 3, 1996, between Carl Westcott and Atlanta Toyota, Inc.
II-6
NO. DESCRIPTION - ------------ ------------------------------------------------------------------------------------------ 10.5.7 Lease Guaranty of the Company, dated as of January 16, 1996, in favor of Carl Westcott. **10.5.8 Toyota Dealer Agreement, dated January 16, 1996, between Southeast Toyota Motor Distributors, Inc. and Atlanta Toyota, Inc. (substantially similar to Exhibit 10.2.6.1). 10.5.9 Wholesale Floor Plan Security Agreement, dated May 24, 1996, between World Omni Financial Corp. and Atlanta Toyota, Inc. **10.5.10 Continuing Guaranty of the Company in favor of World Omni Financial Corp. and certain affiliates. 10.5.11 Inventory Financing Payment Agreement, dated May 24, 1996, among Atlanta Toyota, Inc., Fidelity Warranty Services, Inc. and World Omni Financial Corp. **10.5.12 Shareholders' Agreement, dated as of July 31, 1996, among the Company, UAG Atlanta, Inc., Atlanta Toyota and John Smith. 10.5.13 Employment Agreement, dated as of January 16, 1996, among the Company, UAG Atlanta, Inc. and John Smith. 10.6.1 Stock Purchase Agreement, dated as of March 1, 1996, among the Company, UAG Atlanta II, Inc., Steve Rayman Nissan, Inc., Steven L. Rayman and Richard W. Keffer, Jr. 10.6.2 Employment Agreement, dated as of May 1, 1996, among the Company, UAG Atlanta II, Inc., Steve Rayman Nissan, Inc. and Bruce G. Dunker. 10.6.3 Lease Agreement, dated as of May 1, 1996, among Steven L. Rayman, Richard W. Keffer, Jr. and Steve Rayman Nissan, Inc. **10.6.4 Nissan Dealer Term Sales and Service Agreement, between the Nissan Division of Nissan Motor Corporation in U.S.A. and United Nissan, Inc. (substantially similar to Exhibit 10.2.9.1). 10.6.5 Wholesale Floor Plan Security Agreement, dated April 29, 1996, between World Omni Financial Corp. and United Nissan, Inc. (substantially similar to Exhibit 10.5.9). **10.6.6 Continuing Guaranty of the Company, dated April 29, 1996, in favor of World Omni Financial Corp. and certain affiliates (substantially similar to Exhibit 10.5.10). 10.7.1 Stock Purchase Agreement, dated as of June 7, 1996, among the Company, UAG Atlanta III, Inc., Hickman Nissan, Inc., Lynda Jane Hickman and Lynda Jane Hickman as Executrix under the will of James Franklin Hickman, Jr., deceased. **10.7.2 Nissan Dealer Term Sales and Service Agreement, between the Nissan Division of Nissan Motor Corporation in U.S.A. and Peachtree Nissan, Inc. (substantially similar to Exhibit 10.6.4). 10.7.3 Automotive Wholesale Financing and Security Agreement, dated July 12, 1996, between Nissan Motor Acceptance Corporation and Peachtree Nissan, Inc. 10.7.4 Guaranty of the Company and UAG Atlanta III, Inc., dated July 12, 1996, in favor of Nissan Motor Acceptance Corporation. 10.7.5 Promissory Note of UAG Atlanta III, Inc., dated July 12, 1996, in favor of Lynda Jane Hickman, as Executrix under the will of James Franklin Hickman, Jr. 10.7.6 Guaranty of Note of Hickman Nissan, Inc., dated July 12, 1996, in favor of Lynda Jane Hickman, as Executrix under the will of James Franklin Hickman, Jr. 10.7.7 Guaranty of Note of the Company, dated July 12, 1996, in favor of Lynda Jane Hickman, as Executrix under the will of James Franklin Hickman, Jr. 10.7.8 Lease Agreement, dated July 12, 1996, between Lynda Jane Hickman, as Executrix under the will of James Franklin Hickman, Jr., and Hickman Nissan, Inc. 10.7.9 Lease Agreement, dated July 12, 1996, between Argonne Enterprises, Inc. and Hickman Nissan, Inc.
II-7
NO. DESCRIPTION - ------------ ------------------------------------------------------------------------------------------ **10.7.10 Guaranty of Lease of the Company, dated July 12, 1996, in favor of Lynda Jane Hickman, as Executrix under the will of James Franklin Hickman, Jr. 10.7.11 Guaranty of Lease of the Company, dated July 12, 1996, in favor of Argonne Enterprises, Inc. **10.8.1 Stock Purchase Agreement, dated as of June 6, 1996, among the Company, UAG West, Inc., Scottsdale Jaguar, LTD., SA Automotive, LTD., SL Automotive, LTD., SPA Automotive, LTD., LRP, LTD., Sun BMW, LTD., Scottsdale Management Group, LTD., 6725 Dealership, LTD., Steven Knappenberger Revocable Trust Dated April 15, 1983, as amended, Brochick 6725 Trust dated December 29, 1992, Beskind 6725 Trust dated December 29, 1992, Steven Knappenberger, Jay P. Beskind December 29, 1992, Knappenberger 6725 Trust dated and George W. Brochick. **10.8.2 Purchase and Sale Agreement, 6950 E. McDowell Road, dated June 6, 1996, among Steven Knappenberger, as Trustee of the Steven Knappenberger Revocable Trust II, Bruce Knappenberger, as Trustee of the Bruce Knappenberger Trust and UAG West, Inc. **10.8.3 Form of Employment Agreement between the Company, UAG West, Inc. and Steven Knappenberger. **10.8.4 Form of Broker's Agreement between UAG West, Inc. and KBB, Inc. **10.8.5.2 Land Rover North America, Inc. Dealer Agreement Standard Terms and Conditions. **10.9.1 Stock Purchase Agreement, dated August 5, 1996, among the Company, UAG Atlanta IV, Inc., Charles Evans BMW, Inc. and Charles F. Evans. **10.9.2 Stock Purchase Agreement, dated August 5, 1996, among the Company, UAG Atlanta IV, Inc., Charles Evans Nissan, Inc. and Charles F. Evans. **10.10.1 Stock Purchase Agreement, dated September 5, 1996, among the Company, UAG Tennessee, Inc., Standefer Motor Sales, Inc., Charles A. Standefer and Charles A. Standefer and Karen S. Nicely, trustees under the Irrevocable Trust Agreement of Charles B. Stendefer for the primary benefit of children, dated December 31, 1992. **21.1 List of subsidiaries of the Company. 23.1.1 Consent of Coopers & Lybrand L.L.P. 23.1.2 Consent of Coopers & Lybrand L.L.P. 23.1.3 Consent of Coopers & Lybrand L.L.P. 23.1.4 Consent of Coopers & Lybrand L.L.P. 23.1.5 Consent of Coopers & Lybrand L.L.P. 23.1.6 Consent of Coopers & Lybrand L.L.P. 23.1.7 Consent of Coopers & Lybrand L.L.P. 23.1.8 Consent of Coopers & Lybrand L.L.P. **23.2 Consent of Willkie Farr & Gallagher (included in Exhibit 5.1). *24.1 Powers of Attorney. 27.1 Financial Data Schedules.
- ------------------------ *Previously filed. **To be filed by amendment. (b) Financial Statement Schedule Schedule II--Valuation and Qualifying Accounts II-8 ITEM 17. UNDERTAKINGS (1) The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreements certificates for the Common Stock in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. (2) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to its Bylaws, the Underwriting Agreements or otherwise, the Registrant has been advised that, in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (3) The Registrant hereby undertakes that: (a)For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the Registration Statement as of the time it was declared effective. (b)For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-9 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in New York, New York on September 13, 1996. UNITED AUTO GROUP, INC. By: /s/ CARL SPIELVOGEL ----------------------------------- Carl Spielvogel CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------------ --------------------------------------------- ---------------------- /s/ CARL SPIELVOGEL --------------------------------- Chairman of the Board and Chief Executive September 13, 1996 Carl Spielvogel Officer (Principal Executive Officer) /s/ ARTHUR J. RAWL --------------------------------- Executive Vice President and Chief Financial September 13, 1996 Arthur J. Rawl Officer (Principal Financial Officer) /s/ ROBERT W. THOMPSON --------------------------------- Vice President-Finance (Chief Accounting September 13, 1996 Robert W. Thompson Officer) /s/ MARSHALL S. COGAN --------------------------------- Director September 13, 1996 Marshall S. Cogan * --------------------------------- Director September 13, 1996 Michael R. Eisenson * --------------------------------- Director September 13, 1996 John J. Hannan * --------------------------------- Director September 13, 1996 Jules B. Kroll /s/ ROBERT H. NELSON --------------------------------- Director September 13, 1996 Robert H. Nelson
SIGNATURE TITLE DATE - ------------------------------------------ --------------------------------------------- ---------------------- * --------------------------------- Director September 13, 1996 John M. Sallay * --------------------------------- Director September 13, 1996 Richard Sinkfield *By: /s/ CARL SPIELVOGEL ---------------------------- Attorney-in-fact
Report of Independent Accountants on Financial Statement Schedule In connection with our audits of the consolidated financial statements of United Auto Group, Inc. and Subsidiaries as of December 31, 1995 and 1994, and for each of the three years in the period ended December 31, 1995, which financial statements are included in this Registration Statement, we have also audited the financial statement schedule listed in Item 16 herein. In our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P. Princeton, New Jersey June 17, 1996 S-1 SCHEDULE II UNITED AUTO GROUP, INC. Valuation and Qualifying Accounts For the years ended December 31, 1995, 1994 and 1993
------------------------------------------------------------------------- Additions ---------------------------------- Balance Charged to Balance beginning costs and Charged to end of of period expenses other accounts Deductions period ----------- ----------------- --------------- ----------- ----------- 1995 - -------------------------------------------- Allowance for uncollectibles................ $ 678 $ 500 $ (678) $ 500 Allowance for finance income chargebacks.... 2,123 3,634 (3,451) 2,306 1994 - -------------------------------------------- Allowance for uncollectibles................ 393 285 678 Allowance for finance income chargebacks.... 2,564 1,176 (1,617) 2,123 1993 - -------------------------------------------- Allowance for uncollectibles................ 0 393 393 Allowance for finance income chargebacks.... 0 3,136 (572) 2,564
S-2 EXHIBIT INDEX
No. Description - ------------ ------------------------------------------------------------------------------------------ **1.1 Form of Underwriting Agreement. **3.1 Form of Restated Certificate of Incorporation. **3.2 Form of Restated Bylaws. **4.1 Specimen Common Stock certificate. **5.1 Opinion of Willkie Farr & Gallagher. 10.1.1.1 Registration Rights Agreement, dated as of October 15, 1993, among the Company and the investors listed therein. 10.1.1.2 Amendment to Registration Rights Agreement, dated as of July 31, 1996, among the Company and the investors listed therein. 10.1.2 Waiver, Consent and Modification Agreement, dated as of September 22, 1995, among the Company and its stockholders. 10.1.3 Letter Agreement, dated September 22, 1996, between the Company and J.P. Morgan Capital Corporation. 10.1.4 Form of Warrant. 10.1.5 Form of Additional Warrant. 10.1.6 Employment Agreement, dated as of June 21, 1996, between the Company and Carl Spielvogel. 10.1.7 Severance Agreement, dated April 5, 1996, among the Company, Trace and Ezra P. Mager. **10.1.8 Stock Option Plan of the Company. **10.1.9 Registration Rights Agreement, dated as of August 1, 1995, among the Company and the parties listed on Schedule I thereto. 10.1.10 Sublease, dated August 1994, between Overseas Partners, Inc. and the Company. 10.1.11 Letter, dated July 24, 1996, from Chrysler Corporation to the Company. 10.1.12 Agreement, dated July 24, 1996, between the Company and Toyota Motor Sales U.S.A., Inc. **10.1.13 Non-employee Director Compensation Plan of the Company. **10.2.1.1 Honda Automobile Dealer Sales and Service Agreement, dated October 5, 1995, between American Honda Motor Co. Inc. and Danbury Auto Partnership (standard provisions are in Exhibit 10.2.1.2 hereto). **10.2.1.2 American Honda Motor Co. Standard Provisions. 10.2.2.1 Lexus Dealer Agreement, dated October 5, 1992, between Lexus, a division of Toyota Motor Sales, U.S.A., Inc. and Somerset Motors Partnership (standard provisions are in Exhibit 10.2.2.2 hereto). 10.2.2.2 Lexus Dealer Agreement Standard Provisions. 10.2.3.1 Mitsubishi Motor Sales of America, Inc. Dealer Sales and Service Agreement, dated August 29, 1994, between Mitsubishi Motor Sales of America, Inc. and Rockland Motors Partnership, as amended August 20, 1996 (standard provisions are in Exhibit 10.2.3.2 hereto). 10.2.3.2 Mitsubishi Motor Sales of America, Inc. Dealer Sales and Service Agreement Standard Provisions. **10.2.4.1 BMW of North America, Inc. Dealer Agreement, dated January 1, 1994, between BMW of North America, Inc. and DiFeo BMW Partnership, as amended July 25, 1996 (standard provisions are in Exhibit 10.2.4.2 hereto). **10.2.4.2 BMW of North America, Inc. Dealer Standard Provisions Applicable to Dealer Agreement. **10.2.5.1 Term Dealer Sales and Service Agreement, dated July 3, 1996, between American Suzuki Motor Corporation and Fair Hyundai Partnership (standard provisions are in Exhibit 10.2.5.2) **10.2.5.2 Suzuki Dealer Sales and Service Agreement Standard Provisions. **10.2.6.1 Toyota Dealer Agreement, dated May 5, 1995, between Toyota Motor Distributors, Inc. and Hudson Motors Partnership (standard provisions are in Exhibit 10.2.6.2 hereto). **10.2.6.2 Toyota Dealer Agreement Standard Provisions. 10.2.7.1 Oldsmobile Division Dealer Sales and Service Agreement, dated October 2, 1992, between General Motors Corporation, Oldsmobile Division and J & F Oldsmobile-Isuzu Partnership, as amended December 20, 1993 and July 23, 1996 (standard provision are in Exhibit 10.2.7.2 hereto). 10.2.7.2 General Motors Dealer Sales and Service Agreement Standard Provisions. 10.2.8.1 Chevrolet-Geo Dealer Sales and Service Agreement, dated November 1, 1995, between General Motors Corporation, Chevrolet Motor Division and Fair Chevrolet-Geo Partnership (substantially similar to Exhibit 10.2.7.1).
No. Description - ------------ ------------------------------------------------------------------------------------------ **10.2.9.1 Nissan Dealer Term Sales and Service Agreement, between the Nissan Division of Nissan Motor Corporation in U.S.A. and DiFeo Nissan Partnership (standard provisions are in Exhibit 10.2.9.2 hereto). **10.2.9.2 Nissan Dealer Sales and Service Agreement Standard Provisions. **10.2.10.1 Chrysler Corporation Term Sales and Service Agreement, between Fair Chrysler Plymouth Partnership and Chrysler Corporation, as amended December 15, 1993 (standard provisions are in Exhibit 10.2.10.2). 10.2.10.2 Chrysler Corporation Sales and Service Agreement Additional Terms and Provisions. **10.2.11 Chrysler Corporation Eagle Sales and Service Agreement, dated October 8, 1992, between DiFeo Jeep-Eagle Partnership and Chrysler Corporation (substantially similar to Exhibit 10.2.10.1). **10.2.12 Chrysler Corporation Chrysler Sales and Service Agreement, dated August 16, 1995, between DiFeo Chrysler Plymouth Jeep Eagle Partnership and Chrysler Corporation (substantially similar to Exhibit 10.2.10.1). **10.2.13 Chrysler Corporation Plymouth Sales and Service Agreement, dated November 13, 1992, between DiFeo Chrysler Plymouth Jeep Eagle Partnership and Chrysler Corporation (substantially similar to Exhibit 10.2.10.1). **10.2.14 Toyota Dealer Agreement, dated May 5, 1995, between Toyota Motor Distributors, Inc. and County Auto Group Partnership (substantially similar to Exhibit 10.2.6.1). **10.2.15.1 Hyundai Motor America Dealer Sales and Service Agreement, dated October 12, 1992, between Hyundai Motor America and Fair Hyundai Partnership as amended November 22, 1993, October 12, 1995, March 14, 1996, and , 1996 (standard provisions are in Exhibit 10.2.15.2 hereto). **10.2.15.2 Hyundai Motor America Dealer Sales and Service Agreement Standard Provisions. **10.2.16 Hyundai Motor America Dealer Sales and Service Agreement, dated November 22, 1993, as amended April 1, 1994, and November 3, 1995, between Hyundai Motor America and DiFeo Hyundai Partnership (substantially similar to Exhibit 10.2.15.1). **10.2.17 Toyota Dealer Agreement, dated August 23, 1995, between Toyota Motor Distributors, Inc. and OCT Partnership (substantially similar to Exhibit 10.2.6.1). 10.2.18 Mitsubishi Motor Sales of America, Inc. Sales and Service Agreement, dated June 30, 1994, between Mitsubishi Motor Sales of America, Inc. and OCM Partnership (substantially similar to Exhibit 10.2.3.1). **10.2.19 Chrysler Corporation Jeep Sales and Service Agreement, dated October 8, 1992, between DiFeo Jeep-Eagle Partnership and Chrysler Corporation (substantially similar to Exhibit 10.2.10.1). 10.2.20 Chevrolet-Geo Dealer Sales and Service Agreement, dated November 1, 1995 between General Motors Corporation, Chevrolet Motor Division and DiFeo Chevrolet-Geo Partnership (substantially similar to Exhibit 10.2.7.1). **10.2.21 Employment Agreement, dated July 1, 1996, between James D. Evans and Danbury-Mt. Kisco Saturn Partnership. 10.3.1 Receivables Purchase Agreement, dated as of June 28, 1995, between Atlantic Auto Funding Corporation and Atlantic Auto Finance Corporation. 10.3.2 Loan and Security Agreement, dated as of June 28, 1995, among Atlantic Auto Funding Corporation, Atlantic Auto Finance Corporation and Citibank, N.A. 10.3.3 Support Agreement of the Company, dated as of June 28, 1995, in favor of Atlantic Auto Funding Corporation. 10.3.4 Purchase Agreement, dated as of June 14, 1996, between Atlantic Auto Finance Corporation and Atlantic Auto Second Funding Corporation. 10.3.5 Transfer and Administration Agreement, dated as of June 14, 1996, among Atlantic Auto Second Funding Corporation, Atlantic Auto Finance Corporation and Morgan Guaranty Trust Company of New York. **10.3.6 Support Agreement of the Company, dated as of June 14, 1996, in favor of Atlantic Auto Second Funding Corporation. 10.3.7 Pooling and Servicing Agreement relating to Atlantic Auto Grantor Trust 1996-A, dated as of June 20, 1996, among Atlantic Auto Third Funding Corporation, Atlantic Auto Finance Corporation and The Chase Manhattan Bank. 10.3.8 Insurance and Indemnity Agreement, dated as of June 20, 1996, among Financial Security Assurance Inc., Atlantic Auto Third Funding Corporation and Atlantic Auto Finance Corporation. 10.3.9 Master Spread Account Agreement, dated as of June 20, 1996, among Atlantic Auto Third Funding Corporation, Financial Security Assurance Inc. and The Chase Manhattan Bank.
No. Description - ------------ ------------------------------------------------------------------------------------------ 10.3.10 Lease Agreement, dated as of March 18, 1994, between Perinton Hills and the Company, including guaranty of lease of Atlantic Auto Finance Corporation. 10.4.1 Amended and Restated Stock Purchase Agreement, dated as of July 1, 1995, among the Company, Landers Auto Sales, Inc., Steve Landers, John Landers and Bob Landers. 10.4.2 Promissory Note of the Company, dated August 1, 1995, in favor of Steve Landers and John Landers. 10.4.3 Promissory Note of the Company, dated August 1, 1995, in favor of Steve Landers and John Landers. 10.4.4 Guarantee of the Company, dated as of August 1, 1995, in favor of Steve Landers and John Landers. 10.4.5 Employment Agreement, dated as of August 1, 1995, between Landers Auto Sales, Inc. and Steve Landers. 10.4.6 Lease, dated as of August 1, 1995, among Steve Landers, John Landers, Bob Landers and Landers Auto Sales, Inc., regarding Jeep-Eagle premises. 10.4.7 Lease, dated as of August 1, 1995, among Steve Landers, John Landers, Bob Landers and Landers Auto Sales, Inc., regarding Oldsmobile-GMC premises. 10.4.8 Shareholders' Agreement, dated as of August 1, 1995, among the Company, United Landers, Inc., Landers Auto Sales, Inc., Steve Landers and John Landers. 10.4.9 Chrysler Corporation Eagle Sales and Service Agreement, dated August 16, 1995, between United Landers Auto Sales, Inc. and Chrysler Corporation (standard provisions are in Exhibit 10.2.10.2). 10.4.10 Chrysler Corporation Jeep Sales and Service Agreement, dated August 16, 1995, between United Landers Auto Sales, Inc. and Chrysler Corporation (substantially similar to Exhibit 10.4.9). 10.4.11 Chrysler Corporation Dodge Sales and Service Agreement, dated August 16, 1995, between United Landers Auto Sales, Inc. and Chrysler Corporation (substantially similar to Exhibit 10.4.9). 10.4.12 Chrysler Corporation Plymouth Sales and Service Agreement, dated August 16, 1995, between United Landers Auto Sales, Inc. and Chrysler Corporation (substantially similar to Exhibit 10.4.9). 10.4.13 Chrysler Corporation Chrysler Sales and Service Agreement, dated August 16, 1995, between United Landers Auto Sales, Inc. and Chrysler Corporation (substantially similar to Exhibit 10.4.9). 10.4.14 Oldsmobile Division Dealer Sales and Service Agreement, dated November 1, 1995, between General Motors Corporation, Oldsmobile Division and United Landers Auto Sales, Inc. (substantially similar to Exhibit 10.2.7.1). 10.4.15 GMC Truck Division Dealer Sales and Service Agreement, dated November 1, 1995, between General Motors Corporation, GMC Truck Division and United Landers Auto Sales, Inc. (substantially similar to Exhibit 10.2.7.1). 10.4.16 Security Agreement and Master Credit Agreement, dated October 25, 1993, between Landers Oldsmobile-GMC Inc. and Chrysler Credit Corporation. 10.4.17 Security Agreement and Master Credit Agreement, dated May 17, 1989, between Landers Jeep- Eagle, Inc. and Chrysler Credit Corporation. 10.4.18 Continuing Guaranty of United Landers, Inc., dated August 15, 1994, in favor of Chrysler Credit Corporation. **10.4.19 Commercial Loan Agreement, dated December 5, 1994, between Landers Oldsmobile-GMC, Inc. and The Benton State Bank. **10.4.20 Commercial Security Agreement, dated December 5, 1994, between Landers Oldsmobile-GMC, Inc. and The Benton State Bank. 10.5.1 Stock Purchase Agreement, dated as of November 17, 1995, among the Company, UAG Atlanta, Inc., Atlanta Toyota, Inc. and Carl H. Westcott. 10.5.2 Promissory Note of UAG Atlanta, Inc., dated January 16, 1996, in favor of Carl H. Westcott. 10.5.3 Guaranty of the Company, dated as of January 16, 1996, in favor of Carl Westcott. **10.5.4 Promissory Note of Atlanta Toyota, Inc., dated January 16, 1996, in favor of First Extended Service Corporation. **10.5.5 Guaranty of the Company, dated as of January 16, 1996, in favor of Carl Westcott. 10.5.6 Lease Agreement, dated as of January 3, 1996, between Carl Westcott and Atlanta Toyota, Inc. 10.5.7 Lease Guaranty of the Company, dated as of January 16, 1996, in favor of Carl Westcott.
No. Description - ------------ ------------------------------------------------------------------------------------------ **10.5.8 Toyota Dealer Agreement, dated January 16, 1996, between Southeast Toyota Motor Distributors, Inc. and Atlanta Toyota, Inc. (substantially similar to Exhibit 10.2.6.1). 10.5.9 Wholesale Floor Plan Security Agreement, dated May 24, 1996, between World Omni Financial Corp. and Atlanta Toyota, Inc. **10.5.10 Continuing Guaranty of the Company in favor of World Omni Financial Corp. and certain affiliates. 10.5.11 Inventory Financing Payment Agreement, dated May 24, 1996, among Atlanta Toyota, Inc., Fidelity Warranty Services, Inc. and World Omni Financial Corp. **10.5.12 Shareholders' Agreement, dated as of July 31, 1996, among the Company, UAG Atlanta, Inc., Atlanta Toyota and John Smith. 10.5.13 Employment Agreement, dated as of January 16, 1996, among the Company, UAG Atlanta, Inc. and John Smith. 10.6.1 Stock Purchase Agreement, dated as of March 1, 1996, among the Company, UAG Atlanta II, Inc., Steve Rayman Nissan, Inc., Steven L. Rayman and Richard W. Keffer, Jr. 10.6.2 Employment Agreement, dated as of May 1, 1996, among the Company, UAG Atlanta II, Inc., Steve Rayman Nissan, Inc. and Bruce G. Dunker. 10.6.3 Lease Agreement, dated as of May 1, 1996, among Steven L. Rayman, Richard W. Keffer, Jr. and Steve Rayman Nissan, Inc. **10.6.4 Nissan Dealer Term Sales and Service Agreement, between the Nissan Division of Nissan Motor Corporation in U.S.A. and United Nissan, Inc. (substantially similar to Exhibit 10.2.9.1). 10.6.5 Wholesale Floor Plan Security Agreement, dated April 29, 1996, between World Omni Financial Corp. and United Nissan, Inc. (substantially similar to Exhibit 10.5.9). **10.6.6 Continuing Guaranty of the Company, dated April 29, 1996, in favor of World Omni Financial Corp. and certain affiliates (substantially similar to Exhibit 10.5.10). 10.7.1 Stock Purchase Agreement, dated as of June 7, 1996, among the Company, UAG Atlanta III, Inc., Hickman Nissan, Inc., Lynda Jane Hickman and Lynda Jane Hickman as Executrix under the will of James Franklin Hickman, Jr., deceased. **10.7.2 Nissan Dealer Term Sales and Service Agreement, between the Nissan Division of Nissan Motor Corporation in U.S.A. and Peachtree Nissan, Inc. (substantially similar to Exhibit 10.6.4). 10.7.3 Automotive Wholesale Financing and Security Agreement, dated July 12, 1996, between Nissan Motor Acceptance Corporation and Peachtree Nissan, Inc. 10.7.4 Guaranty of the Company and UAG Atlanta III, Inc., dated July 12, 1996, in favor of Nissan Motor Acceptance Corporation. 10.7.5 Promissory Note of UAG Atlanta III, Inc., dated July 12, 1996, in favor of Lynda Jane Hickman, as Executrix under the will of James Franklin Hickman, Jr. 10.7.6 Guaranty of Note of Hickman Nissan, Inc., dated July 12, 1996, in favor of Lynda Jane Hickman, as Executrix under the will of James Franklin Hickman, Jr. 10.7.7 Guaranty of Note of the Company, dated July 12, 1996, in favor of Lynda Jane Hickman, as Executrix under the will of James Franklin Hickman, Jr. 10.7.8 Lease Agreement, dated July 12, 1996, between Lynda Jane Hickman, as Executrix under the will of James Franklin Hickman, Jr., and Hickman Nissan, Inc. 10.7.9 Lease Agreement, dated July 12, 1996, between Argonne Enterprises, Inc. and Hickman Nissan, Inc. **10.7.10 Guaranty of Lease of the Company, dated July 12, 1996, in favor of Lynda Jane Hickman, as Executrix under the will of James Franklin Hickman, Jr. 10.7.11 Guaranty of Lease of the Company, dated July 12, 1996, in favor of Argonne Enterprises, Inc. **10.8.1 Stock Purchase Agreement, dated as of June 6, 1996, among the Company, UAG West, Inc., Scottsdale Jaguar, LTD., SA Automotive, LTD., SL Automotive, LTD., SPA Automotive, LTD., LRP, LTD., Sun BMW, LTD., Scottsdale Management Group, LTD., 6725 Dealership, LTD., Steven Knappenberger Revocable Trust Dated April 15, 1983, as amended, Brochick 6725 Trust dated December 29, 1992, Beskind 6725 Trust dated December 29, 1992, Steven Knappenberger, Jay P. Beskind December 29, 1992, Knappenberger 6725 Trust dated and George W. Brochick. **10.8.2 Purchase and Sale Agreement, 6950 E. McDowell Road, dated June 6, 1996, among Steven Knappenberger, as Trustee of the Steven Knappenberger Revocable Trust II, Bruce Knappenberger, as Trustee of the Bruce Knappenberger Trust and UAG West, Inc. **10.8.3 Form of Employment Agreement between the Company, UAG West, Inc. and Steven Knappenberger.
No. Description - ------------ ------------------------------------------------------------------------------------------ **10.8.4 Form of Broker's Agreement between UAG West, Inc. and KBB, Inc. **10.8.5.2 Land Rover North America, Inc. Dealer Agreement Standard Terms and Conditions. **10.9.1 Stock Purchase Agreement, dated August 5, 1996, among the Company, UAG Atlanta IV, Inc., Charles Evans BMW, Inc. and Charles F. Evans. **10.9.2 Stock Purchase Agreement, dated August 5, 1996, among the Company, UAG Atlanta IV, Inc., Charles Evans Nissan, Inc. and Charles F. Evans. **10.10.1 Stock Purchase Agreement, dated September 5, 1996, among the Company, UAG Tennessee, Inc., Standefer Motor Sales, Inc., Charles A. Standefer and Charles A. Standefer and Karen S. Nicely, trustees under the Irrevocable Trust Agreement of Charles B. Stendefer for the primary benefit of children, dated December 31, 1992. **21.1 List of subsidiaries of the Company. 23.1.1 Consent of Coopers & Lybrand L.L.P. 23.1.2 Consent of Coopers & Lybrand L.L.P. 23.1.3 Consent of Coopers & Lybrand L.L.P. 23.1.4 Consent of Coopers & Lybrand L.L.P. 23.1.5 Consent of Coopers & Lybrand L.L.P. 23.1.6 Consent of Coopers & Lybrand L.L.P. 23.1.7 Consent of Coopers & Lybrand L.L.P. 23.1.8 Consent of Coopers & Lybrand L.L.P. **23.2 Consent of Willkie Farr & Gallagher (included in Exhibit 5.1). *24.1 Powers of Attorney. 27.1 Financial Data Schedules.
- ------------------------ *Previously filed. **To be filed by amendment. EX-10.1-1-1 2 EXHIBIT 10.1.1.1 EXECUTED ORIGINAL EMCO MOTOR HOLDINGS, INC. REGISTRATION RIGHTS AGREEMENT This AGREEMENT (the "Agreement") is made as of October 15, 1993 by and among EMCO MOTOR HOLDINGS, INC., a Delaware corporation (the "Company"), and the investors listed on Exhibit A hereto (the "Investors"). WHEREAS, contemporaneously with the execution and delivery of this Agreement, the Company, the Investors and Ezra P. Mager have entered into a Class A Preferred Stock Purchase Agreement dated as of October 15, 1993 (as in effect from time to time, the "Purchase Agreement"), in connection with the issuance and sale of certain shares of the Company's Class A Preferred Stock, no par value (the "Shares"); WHEREAS, each Share issued in accordance with the Purchase Agreement is convertible into the number of shares of the Company's Common Stock, no par value (the "Common Stock"), as set forth in the Restated Certificate of Incorporation of the Company (the "Conversion Shares"); and WHEREAS, it is a condition to the purchase of the Shares pursuant to the Purchase Agreement that the Company and the Investors enter into this Agreement; NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and agreements herein contained, the parties hereto agree as follows: 1. REGISTRATION RIGHTS. 1.1. DEFINITIONS. (a) The terms "Form S-1", "Form S-3", "Form S-4" and "Form S-8" mean such respective forms under the 1933 Act as in effect on the date hereof or any successor registration forms to Form S-1, Form S-3, Form S-4 and Form S-8, respectively, under the 1933 Act subsequently adopted by the Securities and Exchange Commission (the "SEC"). (b) the term "Aeneas Registrable Securities" means all Registrable Securities now held or hereafter acquired by Aeneas Venture Corporation or any of its affiliates. (c) the term "Apollo Registrable Securities" means all Registrable Securities now held or hereafter acquired by AIF II, L.P. or any of its affiliates. (d) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.13 hereof. (e) The term "Investment Agreements" means each of (i) the Purchase Agreement, (ii) the Stockholders Agreement dated as of October 15, 1993 among the Company, the Investors and Ezra P. Mager, (iii) the letter agreement dated as of October 15, 1993 among the Company, certain of its subsidiaries, the Investors, Ezra P. Mager and Joseph C. Herman, (iv) the letter agreement dated as of October 15, 1993 among the Company, certain of its subsidiaries, the Investors (other than TIHI), Samuel X. DiFeo, Joseph DiFeo and certain other corporations party thereto and (v) the letter agreement dated as of October 15, 1993 among the Company, the Investors and Ezra P. Mager, in each case as from time to time in effect. (f) The terms "register", "registered", and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act of 1933, as amended (the "1933 Act"), and the automatic effectiveness or the declaration or ordering of effectiveness of such registration statement or document. (g) The term "Registrable Securities" means (i) the Common Stock issuable or issued upon conversion of the Shares, (ii) the Common Stock purchased by each of TIHI and Ezra P. Mager (1) prior to the date hereof or (2) pursuant to the Common Stock Purchase Agreement dated as of October 15, 1993 and (iii) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares described in the foregoing clauses (i) and (ii); PROVIDED, HOWEVER, that any shares previously sold to the public pursuant to a registered public offering or pursuant to an exemption from the registration requirements of the 1933 Act shall cease to be Registrable Securities. For purposes of this Agreement, the number of shares of Registrable Securities outstanding at any time shall be determined by adding the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which upon issuance would be, Registrable Securities. (h) The term "TIHI" means '21' International Holdings, Inc., a Delaware corporation. -2- 1.2. REQUEST FOR REGISTRATION. (a) If the Company shall receive at any time after the earlier of (i) June 30, 1995 or (ii) the date six months after the effective date of the first registration statement for a public offering of securities of the Company, a written request from the Holders of at least 50% of the Registrable Securities then outstanding and entitled to registration rights under this Section 1 (the "Initiating Holders") that the Company effect the registration under the 1933 Act of the lesser of (1) 20% of the Registrable Securities then outstanding or (2) the number of Registrable Securities whose aggregate offering price is expected to be at least $10,000,000, then the Company shall, within five days of the receipt thereof, give written notice of such request to all Holders and shall, subject to the limitations of this Section 1.2, use its best efforts to effect such a registration as soon as practicable and in any event to file within 75 days of the receipt of such request a registration statement under the 1933 Act covering all the Registrable Securities which the Holders shall in writing request (within 20 days of receipt of the notice given by the Company pursuant to this Section 1.2(a)) to be included in such registration and to use its best efforts to have such registration statement become effective. (b) If the Company shall receive at any time after the earlier of (i) June 30, 1995 or (ii) the date six months after the effective date of the first registration statement for a public offering of securities of the Company, a written request from the Holders of at least 50% of the Aeneas Registrable Securities then outstanding and entitled to registration rights under this Section 1 (the "Aeneas Initiating Holders") that the Company effect the registration under the 1933 Act of the lesser of (1) 20% of the Aeneas Registrable Securities then outstanding or (2) the number of Registrable Securities whose aggregate offering price is expected to be at least $10,000,000, then the Company shall, within five days of the receipt thereof, give written notice of such request to all Holders and shall, subject to the limitations of this Section 1.2, use its best efforts to effect such a registration as soon as practicable and in any event to file within 75 days of the receipt of such request a registration statement under the 1933 Act covering all the Registrable Securities which the Holders shall in writing request (within 20 days of receipt of the notice given by the Company pursuant to this Section 1.2(b)) to be included in such registration and to use its best efforts to have such registration statement become effective. (c) If the Company shall receive at any time after the earlier of (i) June 30, 1995 or (ii) the date six months after the effective date of the first registration statement -3- for a public offering of securities of the Company, a written request from the Holders of at least 50% of the Apollo Registrable Securities then outstanding and entitled to registration rights under this Section 1 (the "Apollo Initiating Holders") that the Company effect the registration under the 1933 Act of the lesser of (1) 20% of the Apollo Registrable Securities then outstanding or (2) the number of Registrable Securities whose aggregate offering price is expected to be at least $10,000,000, then the Company shall, within five days of the receipt thereof, give written notice of such request to all Holders and shall, subject to the limitations of this Section 1.2, use its best efforts to effect such a registration as soon as practicable and in any event to file within 75 days of the receipt of such request a registration statement under the 1933 Act covering all the Registrable Securities which the Holders shall in writing request (within 20 days of receipt of the notice given by the Company pursuant to this Section 1.2(c)) to be included in such registration and to use its best efforts to have such registration statement become effective. (d) If the Initiating Holders, the Aeneas Initiating Holders or the Apollo Initiating Holders, as the case may be, intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as part of their request made pursuant to this Section 1.2 and the Company shall include such information in the written notice referred to in Sections 1.2(a), (b) and (c). In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders, the Aeneas Initiating Holders or the Apollo Initiating Holders, as the case may be, and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 1.4(d)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders, the Aeneas Initiating Holders or the Apollo Initiating Holders, as the case may be. The Initiating Holders, the Aeneas Initiating Holders or the Apollo Initiating Holders, as the case may be, must obtain the approval of the Company's Board of Directors regarding the selection of an underwriter or underwriters, which approval shall not be unreasonably withheld; PROVIDED, HOWEVER, that the Board of Directors shall be deemed to approve any under-writer selected by the Initiating Holders, the Aeneas Initiating Holders or the Apollo Initiating Holders, as the case may be, unless such approval is denied within 15 days -4- of such selection. Notwithstanding any other provision of this Section 1.2, if, in the case of a registration requested pursuant to Section 1.2(a), 1.2(b) or 1.2(c), the underwriter advises the Initiating Holders, the Aeneas Initiating Holders or the Apollo Initiating Holders, as the case may be, in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders, the Aeneas Initiating Holders or the Apollo Initiating Holders, as the case may be, shall so advise the Company and all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and all the securities other than Registrable Securities sought to be included in the underwriting shall first be excluded. To the extent that further limitation is required, the number of Registrable Securities that may be included in the underwriting shall be allocated pro rata among all Holders thereof desiring to participate in such underwriting (according to the number of Registrable Securities then held by each such Holder). No Registrable Securities requested by any Holder to be included in a registration pursuant to Section 1.2(a), 1.2(b) or 1.2(c) shall be excluded from the underwriting unless all securities other than Registrable Securities are first excluded. (e) The Company is obligated to effect only one registration pursuant to Section 1.2(a), one registration pursuant to Section 1.2(b), and one registration pursuant to Section 1.2(c); PROVIDED, HOWEVER that no registration pursuant to Section 1.2(a), (b) or (c) shall be deemed to be a registration for any purpose of this sentence unless the number of Registrable Securities included in the underwriting equals or exceeds 35% of the number of Registrable Securities proposed by the Holders to be distributed through such underwriting; and PROVIDED, FURTHER, that no registration of Registrable Securities which shall not have become and remained effective in accordance with Section 1.4 shall be deemed to be a registration for any purpose of this sentence. (f) Notwithstanding the foregoing provisions of this Section 1.2, in the event that the Company is requested to file any registration statement pursuant to this Section 1.2, (i) the Company shall not be obligated to effect the filing of such registration statement during the 180 days following the effective date of any other registration statement pertaining to an underwritten public offering of securities for the account of the Company, or (ii) if the Company shall furnish to Holders requesting such registration statement a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would not be in the best interests of the Company and its stockholders generally for such registration statement to be filed, the Company shall have the right to defer such filing for a -5- period of not more than 90 days after receipt of the request of the relevant Initiating Holders; PROVIDED, HOWEVER, that the Company may not utilize the right set forth in this Section 1.2(f)(ii) more than once in any twelve-month period. (g) Each registration requested pursuant to Section 1.2(a), (b) or (c) shall be effected by the filing of a registration statement on Form S-1 (or if such form is not available, any other form which includes substantially the same information (other than information which is incorporated by reference) as would be required to be included in a registration statement on such form as currently constituted), unless the use of a different form is consented to by Initiating Holders, Aeneas Initiating Holders or Apollo Initiating Holders, as the case may be, holding a majority of the Registrable Securities, Aeneas Registrable Securities or Apollo Registrable Securities, as the case may be, held by all Initiating Holders, Aeneas Initiating Holders as Apollo Initiating Holders, as the case may be, or unless another form would be equally effective, as determined by the Initiating Holders, the Aeneas Initiating Holders or the Apollo Initiating Holders, as the case may be, at their sole discretion. 1.3. COMPANY REGISTRATION. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its capital stock or other securities under the 1933 Act in connection with the public offering of such securities solely for cash (other than a registration on Form S-8 relating solely to the sale of securities to participants in a Company stock plan or a registration on Form S-4 or any successor form), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of any Holder given within 20 days after mailing of such notice by the Company, the Company shall, subject to the provisions of Section 1.8, use its best efforts to cause a registration statement covering all of the Registrable Securities that each such Holder has requested to be registered to become effective under the 1933 Act. The Company shall be under no obligation to complete any offering of its securities it proposes to make and shall incur no liability to any Holder for its failure to do so. 1.4. OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1 to use its best efforts to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible, prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to -6- 180 days or until such Holders have informed the Company in writing that the distribution of their securities has been completed. In addition, the Company shall: (a) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement, and use its best efforts to cause each such amendment and supplement to become effective, as may be necessary to comply with the provisions of the 1933 Act with respect to the disposition of all securities covered by such registration statement. (b) Furnish to the Holders such reasonable number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the 1933 Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (c) Use its best efforts to register or qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such states and jurisdictions as shall be reasonably requested by the Holders, except that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (d) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an underwriting agreement, including furnishing any opinion of counsel or entering into a lock-up agreement reasonably requested by the managing underwriter. (e) Notify each Holder of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto covered by such registration statement is required to be delivered under the 1933 Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing and promptly file such amendments and supplements which may be required pursuant to Section 1.4(b) on account of such event and use its best efforts to cause each such amendment and supplement to become effective. -7- (f) Furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion or opinions, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given by company counsel to the underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent certified public accountant of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. (g) Apply for listing and use its best efforts to list the Registrable Securities being registered on any national securities exchange on which a class of the Company's equity securities is listed or, if the Company does not have a class of equity securities listed on a national securities exchange, apply for qualification and use its best efforts to qualify the Registrable Securities being registered for inclusion on the automated quotation system of the National Association of Securities Dealers, Inc. (h) Without in any way limiting the types of registrations to which this Section 1 shall apply, in the event that the Company shall effect a "shelf registration" under Rule 415 promulgated under the 1933 Act, the Company shall take all necessary action, including, without limitation, the filing of post-effective amendments, to permit the Investors to include their Registrable Securities in such registration in accordance with the terms of this Section 1. 1.5. FURNISH INFORMATION. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 in respect of the Registrable Securities of any selling Holder that such selling Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of its Registrable Securities. 1.6. EXPENSES OF DEMAND REGISTRATION. All expenses other than underwriting discounts and commissions relating to Registrable Securities incurred in connection with each -8- registration, filing or qualification pursuant to Section 1.2 and each registration, filing or qualification pursuant to Section 1.11, including (without limitation) all registration, filing and qualification fees, printing and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holders, shall be borne by the Company; PROVIDED, HOWEVER, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2(a) if the registration request is subsequently withdrawn at any time at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.2(a); and PROVIDED, FURTHER, that if at the time of such withdrawal the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders of a majority of the Registrable Securities, then outstanding at the time of their request that makes the proposed offering unreasonable in the good faith judgment of a majority in interest of the Holders of the Registrable Securities then the Holders shall not be required to pay any of such expenses and the right to one demand registration pursuant to Section 1.2(a) shall not be forfeited. The Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2(b) if the registration request is subsequently withdrawn at any time at the request of the Holders of a majority of the Aeneas Registrable Securities to be registered (in which case all participating Holders of Aeneas Registrable Securities shall bear such expenses), unless the Holders of a majority of the Aeneas Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.2(b); PROVIDED FURTHER, HOWEVER, that if at the time of such withdrawal, such Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders of a majority of the Aeneas Registrable Securities then outstanding at the time of their request that makes the proposed offering unreasonable in the good faith judgment of a majority in interest of the Holders of the Aeneas Registrable Securities then the Holders shall not be required to pay any of such expenses and the right to one demand registration pursuant to Section 1.2(b) shall not be forfeited. The Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2(c) if the registration request is subsequently withdrawn at any time at the request of the Holders of a majority of the Apollo Registrable Securities to be registered (in which case all participating Holders of Apollo Registrable Securities shall bear such expenses), unless the Holders of a majority of the Apollo Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.2(c); PROVIDED FURTHER, HOWEVER, that if at the time of such withdrawal, such Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known -9- to the Holders of a majority of the Apollo Registrable Securities then outstanding at the time of their request that makes the proposed offering unreasonable in the good faith judgment of a majority in interest of the Holders of the Apollo Registrable Securities then the Holders shall not be required to pay any of such expenses and the right to one demand registration pursuant to Section 1.2(c), shall not be forfeited. Underwriting discounts and commissions relating to Registrable Securities included in any registration effected pursuant to Section 1.6 will be borne and paid ratably by the Holders of such Registrable Securities, and, if it participates, the Company. 1.7. EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to any registration pursuant to Section 1.3 for each Holder, including, without limitation, all registration, filing and qualification fees, printing and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one counsel for the selling Holders. Underwriting discounts and commissions relating to Registrable Securities will be borne and paid ratably by the Holders of such Registrable Securities and the Company. 1.8. UNDERWRITING REQUIREMENTS. In connection with any offering involving an underwriting of securities being issued by the Company, the Company shall not be required under Section 1.3 to include any of the Holders' securities in such underwriting unless such Holders accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it, and then only in such quantity, if any, as will not, in the opinion of the underwriters, jeopardize the success of the offering by the Company. If the managing underwriter for the offering shall advise the Company in writing that the total amount of securities, including Registrable Securities, requested by shareholders to be included in such offering exceeds the amount of securities to be sold other than by the Company that can be successfully offered, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the managing underwriter believes will not jeopardize the success of the offering (the securities so included to be reduced as follows: all securities which stockholders other than the Company and the Holders seek to include in the offering shall be excluded from the offering to the extent limitation on the number of shares included in the underwriting is required (unless such securities are being registered pursuant to Section 7.03 of the Master Agreement (as defined in Section 14.1) in which case such securities shall be pari passu with the Registrable Securities), and, if further limitation on the number of shares to be included in the underwriting is required, then the number of shares held by Holders that may be included in the underwriting shall be reduced pro rata among the selling Holders in accordance with the number of shares of Registrable Securities held by such Holder) but in -10- no event shall the amount of securities of the selling Holders included in the offering be reduced below 35% of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company's securities in which case the selling Holders may be excluded if the managing underwriter makes the determination described above and no securities other than those of the Company are included. For purposes of the preceding parenthetical concerning apportionment, for any selling shareholder which is a Holder of Registrable Securities and which is a partnership or a corporation, the partners, retired partners and shareholders of such Holder, or the estates and family members of such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall collectively be deemed to be a "selling Holder", and any pro rata reduction with respect to such "selling Holder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling Holder", as defined in this sentence. 1.9. INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under this Section 1: (a) The Company will indemnify and hold harmless each Holder, the officers, directors, partners, agents and employees of each Holder, any underwriter (as defined in the 1933 Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the 1933 Act, the 1934 Act or any other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (each a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the 1933 Act, the 1934 Act or any state securities law in connection with any matter relating to such registration statement. The Company will reimburse each such Holder, officer, director, partner, agent, employee, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; PROVIDED, HOWEVER, that -11- the Company will pay for only one firm of counsel for all such Holders. The indemnity agreement contained in this Section 1.9(a) shall not apply to amounts paid in settlement of any loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable to a Holder in any such case for any such loss, claim, damage, liability, or action (1) to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by or on behalf of such Holder, underwriter or controlling person or (2) in the case of a sale directly by a Holder of Registrable Securities (including a sale of such Registrable Securities through any underwriter retained by such Holder engaging in a distribution solely on behalf of such Holder), such untrue statement or alleged untrue statement or omission or alleged omission was contained in a preliminary prospectus and corrected in a final or amended prospectus, and such Holder failed to deliver a copy of the final or amended prospectus at or prior to the confirmation of the sale of the Registrable Securities to the person asserting any such loss, claim, damage or liability in any case where such delivery is required by the Securities Act. (b) The Company may require, as a condition to including any Registrable Securities in any registration statement, that the Company shall have received an undertaking from any prospective selling Holder that such selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls the Company within the meaning of the 1933 Act, each agent and any underwriter for the Company, and any other Holder selling securities in such registration statement or any of its directors, officers, partners, agents or employees or any person who controls such Holder or underwriter, against any losses, claims, damages, or liabilities (joint or several) to which the Company or any such director, officer, controlling person, agent, or underwriter or controlling person, or other such Holder or director, officer or controlling person may become subject, under the 1933 Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by or on behalf of such Holder expressly for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, agent or underwriter or controlling person, other Holder, officer, -12- director, partner, agent, employee, or controlling person in connection with investigating or defending any such loss, claim, damage, liability, or action; PROVIDED, HOWEVER, that the liability of any Holder hereunder shall be limited to the amount of net proceeds (after deduction of all underwriters' discounts and commissions paid by such Holder in connection with the registration in question) received by such Holder, in the offering giving rise to the Violation; and PROVIDED, FURTHER, that the indemnity agreement contained in this Section 1.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld nor, in the case of a sale directly by the Company of its securities (including a sale of such securities through any underwriter retained by the Company to engage in a distribution solely on behalf of the Company), shall the Holder be liable to the Company in any case in which such untrue statement or alleged untrue statement or omission or alleged omission was contained in a preliminary prospectus and corrected in a final or amended prospectus, and the Company failed to deliver a copy of the final or amended prospectus at or prior to the confirmation of the sale of the securities to the person asserting any such loss, claim, damage or liability in any case where such delivery is required by the 1933 Act. (c) Promptly after receipt by an indemnified party under this Section 1.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume and control the defense thereof with counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests, as reasonably determined by either party, between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.9 to the extent of such prejudice, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that -13- it may have to any indemnified party otherwise than under this Section 1.9. (d) The obligations of the Company and the Holders under this Section 1.9 shall survive the conversion, if any, of the Shares and the completion of any offering of Registrable Securities in a registration statement whether under this Section 1 or otherwise. (e) If the indemnification provided for in this section 1.9 is unavailable to a party that would have been an indemnified party under this Section 1.9 in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each party that would have been an indemnifying party thereunder shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative fault of such indemnifying party on the one hand and such indemnified party on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions or proceedings in reference to, among other things, whether the Violation relates to information supplied by such indemnifying party or such indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such Violation. The parties agree that it would not be just and equitable if contribution pursuant to this Section 1.9(e) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the preceding sentence. The amount paid or payable by a contributing party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 1.9(e) shall include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The liability of any Holder of Registrable Securities in respect of any contribution obligation of such Holder (after deduction of all underwriters' discounts and commissions paid by such Holder in connection with the registration in question) arising under this Section 1.9(e) shall not in any event exceed an amount equal to the net proceeds to such Holder from the disposition of the Registrable Securities disposed of by such Holder pursuant to such registration. -14- 1.10. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. (a) RESALES UNDER RULE 144; FORM S-3 REGISTRATION. With a view to making available to the Holders the benefits of Rule 144 promulgated under the 1933 Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration, and with a view to making it possible for Holders to register the Registrable Securities pursuant to a registration on Form S-3, the Company agrees to: (i) use its best efforts to make and keep public information available, as those terms are understood and defined in Rule 144, at all times after 90 days after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public; (ii) take such action, including the voluntary registration of its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable (but not later than 90 days) after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective; (iii) use its best efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act; and (iv) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (1) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time after 90 days after the effective date of the first registration statement filed by the Company for the offering of the securities to the general public), the 1933 Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or as to its qualification as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (2) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (3) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. -15- (b) RESALE UNDER RULE 144A. The Company agrees that, at all times during which the Company is neither subject to the reporting requirement of Sections 13 or 15(d) of the 1934 Act, nor exempt from reporting pursuant to Rule 12g32(b) under the 1934 Act, it will provide in written form, upon the written request of a Holder, or a prospective purchaser of securities of the Company from such Holder all information required by Rule 144A(d)(4)(i) of the General Regulations promulgated by the SEC under the 1933 Act ("Rule 144A Information"). The Company further agrees, upon written request, to cooperate with and assist any Holder or any member of the National Association of Securities Dealers, Inc. system for Private Offerings Resales and Trading through Automated Linkages ("PORTAL") in applying to designate and thereafter maintaining the eligibility of the Company's securities for trading through PORTAL. With respect to each Holder, the Company's obligations under this Section 1.10(b) shall at all times be contingent upon such Holder's obtaining from a prospective purchaser an agreement to take all reasonable precautions to safeguard the Rule 144A Information from disclosure to anyone other than employees of the prospective purchaser who require access to the Rule 144A Information for the sole purpose of evaluating its purchase of the Company's securities. 1.11. FORM S-3 REGISTRATION. In case the Company shall receive from any Holder or Holders a written request or requests that the Company effect a registration on Form S-3 (or on any successor form to Form S-3 regardless of its designation) and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and (b) use its best efforts to effect, as soon as practicable, such registration, qualification or compliance as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within 20 days after receipt of such written notice from the Company; PROVIDED, HOWEVER, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.11 if: (i) Form S-3 (or any successor form to Form S-3 regardless of its designation) is not available for such offering by the Holders; (ii) the aggregate net offering price (after deduction of underwriting discounts and commissions) of the Registrable Securities specified in such -16- request is not at least $500,000; (iii) the Company has already effected one registration on Form S-3 or pursuant to Section 1.2 hereof within the previous six-month period; or (iv) the Company shall furnish to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would not be in the best interests of the Company and its stockholders for such Form S-3 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration for a period of not more than 90 days after receipt of the request of the Holder or Holders under this Section 1.11; PROVIDED, HOWEVER, that the Company shall not utilize this right more than once in any twelve-month period. 1.12. LOCK-UP AGREEMENTS. If reasonably requested by the Company and the managing underwriter, the Holders agree to enter into lock-up agreements pursuant to which they will not, for a period of 120 days following the effective date of a registration statement for any public offering of the Company's securities, offer, sell or otherwise dispose of the Registrable Securities, except the Registrable Securities sold pursuant to such registration statement, without the prior consent of the Company and the underwriter, provided that the officers, directors and all holders of more than 1% of the shares of Common Stock (calculated for the purpose as if all securities convertible into or exercisable for Common Stock, directly or indirectly, are so converted or exercised) of the Company enter such lock-up agreements for the same period and on the same terms. 1.13. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned by any Holder to a permitted transferee, and by such transferee to a subsequent permitted transferee, but only if such rights are transferred (a) to an affiliate, partner or stockholder of such Holder or transferee or an account managed or advised by the manager or adviser of such Holder or transferee or (b) in connection with the sale or other transfer of not less than an aggregate of 50,000 Registrable Securities or some lesser number, if such lesser number represents all the Registrable Securities then held by such Holder. Any transferee to whom rights under this Agreement are transferred shall (i) as a condition to such transfer, deliver to the Company a written instrument by which such transferee agrees to be bound by the obligations imposed upon Holders under this Agreement to the same extent as if she, he or it were a Holder under this Agreement and (ii) be deemed to be a Holder hereunder. 1.14. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. Except as contemplated by Section 7.03 of the Master Agreement dated as of March 11, 1993, as amended and in effect on the date hereof (the "Master Agreement"), among the Company and certain other persons party thereto, from and after the date of this -17- Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company relating to registration rights unless such agreement includes (a) to the extent such agreement would allow such holder or prospective holder to include such securities in any registration filed under Section 1.2, 1.3 or 1.11 hereof, a provision that such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of its securities will not reduce the amount of the Registrable Securities of the Holders which would otherwise be included and (b) no provision which would allow such holder or prospective holder to make a demand registration which could result in such registration statement being declared effective prior to the earlier of the dates set forth in Section 1.2(a). 2. MISCELLANEOUS. 2.1. LEGEND. Each certificate representing Registrable Securities shall state therein: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF OCTOBER 15, 1993 BY AND AMONG THE CORPORATION AND THE INVESTORS NAMED THEREIN, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE CORPORATION. 2.2. NOTICES. All notices, requests, consents and demands shall be in writing and shall be personally delivered, mailed, postage prepaid, telecopied or telegraphed or delivered by any nationally recognized overnight delivery service to the Company at: EMCO DiFeo Automotive Group 585 Route 440 Jersey City, New Jersey 07304 Attn: Ezra P. Mager Fax number: (201) 433-9743 with a copy to: George G. Lowrance EMCO DiFeo Automotive Group 585 Route 440 Jersey City, New Jersey 07304 to each Investor at its address set out on Exhibit A hereto with a copy to: Larry Jordan Rowe, Esq. Ropes & Gray One International Place Boston, Massachusetts 02110 Fax number: (617) 951-7050 -18- or such other address as may be furnished in writing to the other parties hereto. All such notices, requests, demands and other communication shall, when mailed (registered or certified mail, return receipt requested, postage prepaid), personally delivered, or telegraphed, be effective four days after deposit in the mails, when personally delivered, or when delivered to the telegraph company, respectively, addressed as aforesaid, unless otherwise provided herein and, when telecopied or delivered by any nationally recognized overnight delivery service, shall be effective upon actual receipt. 2.3. ENTIRE AGREEMENT. This Agreement and the Investment Agreements constitute the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede any and all prior understandings and agreements, whether written or oral, with respect to such subject matter. 2.4. AMENDMENTS, WAIVERS AND CONSENTS. Any provision in this Agreement to the contrary notwithstanding, modifications or amendments to this Agreement may be made, and compliance with any covenant or provision herein set forth may be omitted or waived, if the Company (a) shall obtain consent thereto in writing from persons holding or having the right to acquire in the aggregate a majority of the aggregate of the Registrable Securities then outstanding and (b) shall, in each such case, deliver copies of such consent in writing to any Holders who did not execute the same; PROVIDED, HOWEVER, that no Holder shall, without its consent, be adversely affected by any such modification, amendment or waiver in any manner in which the other Holders are not likewise adversely affected. 2.5. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the personal representatives, successors and permitted assigns of the respective parties hereto. The Company shall not have the right to assign its obligations hereunder or any interest herein without obtaining the prior written consent of the Holders holding a majority of the Registrable Securities then outstanding, provided in accordance with Section 2.4. 2.6. GENERAL. The headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. In this Agreement the singular includes the plural, the plural includes the singular, and the masculine gender includes the neuter, masculine and feminine genders. This Agreement shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. 2.7. SEVERABILITY. If any provision of this Agreement shall be found by any court of competent jurisdiction to be invalid or unenforceable, the parties hereby waive such provision to the extent that it is found to be invalid or unenforceable. Such provision shall, to the maximum extent allowable by law, be -19- modified by such court so that it becomes enforceable, and, as modified, shall be enforced as any other provision hereof, all the other provisions hereof continuing in full force and effect. 2.8. COUNTERPARTS. This Agreement may be executed in counterparts, all of which together shall constitute one and the same instrument. 2.9. SPECIFIC PERFORMANCE. The Company recognizes that the rights of the Holders under this Agreement are unique, and, accordingly, the Holders shall, in addition to such other remedies as may be available to them at law or in equity, have the right to enforce their rights hereunder by actions for injunctive relief and specific performance to the extent permitted by law. This Agreement is not intended to limit or abridge any rights of the Holders which may exist apart from this Agreement. [The rest of this page has been intentionally left blank.] -20- IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as of the date first above written. EMCO MOTOR HOLDINGS, INC. By /s/ Ezra P. Mager -------------------------------------- Title: INVESTORS AENEAS VENTURE CORPORATION By /s/Illegible -------------------------------------- By /s/ John M. Sallay -------------------------------------- AIF II, L.P. By Apollo Advisors, L.P., Managing General Partner By Apollo Capital Management, Inc., General Partner By /s/ Michael D. Weiner ---------------------------- Title: Vice President NATIO VIE DEVELOPPMENT By /s/Illegible -------------------------------------- Title: Portfolio Manager ASSU VENTURE By /s/Illegible -------------------------------------- Title: Portfolio Manager -21- NATIO FONDS VENTURE 2 By /s/Illegible -------------------------------------- Title: Portfolio Manager /s/Jeremy Grantham -------------------------------------- Jeremy Grantham /s/Jules Kroll -------------------------------------- Jules Kroll /s/Adreal Farace -------------------------------------- Andrea Farace /s/Carl Spielvogel -------------------------------------- Carl Spielvogel /s/Jerome Markowitz -------------------------------------- Jerome Markowitz /s/Philip Halperin -------------------------------------- Philip Halperin /s/Derek Lemke-von Ammon -------------------------------------- Derek Lemke-von Ammon /s/Frank Dunlevy -------------------------------------- Frank Dunlevy /s/Thomas Sullivan -------------------------------------- Thomas Sullivan '21' INTERNATIONAL HOLDINGS, INC. By /s/Philip Smith Jr. -------------------------------------- Title: Vice President -25- EX-10.1-1-2 3 EXHIBIT 10.1.1.2 AMENDMENT TO REGISTRATION RIGHTS AGREEMENT AMENDMENT, dated as of July 31, 1996 (this "Amendment"), to the Registration Rights Agreement, dated as of October 15, 1993 (as amended or modified from time to time, the "Agreement"), by and among United Auto Group, Inc. (formerly EMCO Motor Holdings, Inc.), a Delaware corporation (the "Company"), the investors listed on Exhibit A thereto and Ezra P. Mager (the "Investors"). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Agreement. WHEREAS, on July 10, 1996, the Company issued and sold to the Investors an aggregate of 306,346 shares of Class A Preferred Stock, par value $0.0001 per share ("Preferred Stock"); WHEREAS, as a condition to the purchase of their portion of such shares of Preferred Stock by the Investors party hereto, the Company and such Investors agreed that such shares will be entitled to the benefits of the Agreement; WHEREAS, on July 10, 1996, the Company issued and sold warrants (the "Additional Warrants") to purchase up to an aggregate of 93,747 shares of Preferred Stock to the initial holders of the warrants (the "Mezzanine Warrants") issued pursuant to the Securities Purchase Agreements dated as of September 22, 1995; WHEREAS, as a condition to the purchase of the Additional Warrants, the Company and the purchasers thereof agreed that the Additional Warrants will contain substantially the same registration rights as the Mezzanine Warrants; WHEREAS, on July 31, 1996, the Company issued and sold 10,000 shares of Preferred Stock to Richard Sinkfield; WHEREAS, as a condition to the purchase of such shares of Preferred Stock by Mr. Sinkfield, the Company agreed that such shares will be entitled to the benefits of the Agreement; and WHEREAS, the parties hereto collectively hold or have the right to acquire a majority of the outstanding Registrable Securities; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration the receipt of which is hereby acknowledged, the parties hereto agree as follows: Section 1. The Agreement is hereby amended by adding the following to the end of clause (i) of Section 1.1(g) thereof: "and upon conversion of the shares of Class A Preferred Stock, par value $0.0001 per share, issued and sold to the Investors on July 10, 1996 and to Richard Sinkfield on July 31, 1996." Section 2. For purposes of Section 1.8 of the Agreement, any reference to "Warrants" shall be deemed to refer to both the Mezzanine Warrants and the Additional Warrants. Section 3. Richard Sinkfield shall be a party to the Agreement for all purposes thereunder. Section 4. Except for the amendments expressly provided herein, the Agreement shall continue to be, and shall remain, in full force and effect in accordance with its terms. The amendments provided herein shall be limited precisely as drafted and shall not be construed to an amendment, modification or waiver of any other provision of the Agreement other than as specifically provided herein. Section 5. This Amendment may be executed in any number of counterparts by the parties hereto, and all of said counterparts when taken together shall be deemed to constitute one and the same instrument. -2- IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed as of the date first above written. UNITED AUTO GROUP, INC. By: /s/ Philip N. Smith, Jr. ------------------------------ Philip N. Smith, Jr. Vice President TRACE INTERNATIONAL HOLDINGS, INC. By: /s/ Philip N. Smith, Jr. ------------------------------- Philip N. Smith, Jr. Senior Vice President TRACE AUTO HOLDINGS, INC. By: /s/ Philip N. Smith, Jr. -------------------------------- Philip N. Smith, Jr. Vice President AENEAS VENTURE CORPORATION By: /s/ John M. Sallay -------------------------------- John M. Sallay Authorized Signatory By: /s/ Michael R. Eisenson -------------------------------- Michael R. Eisenson Authorized Signatory AIF II, L.P. By Apollo Advisors, L.P. Managing General Partner By Apollo Capital Management, Inc. General Partner By: /s/ Michael D. Weiner -------------------------------- Michael D. Weiner Accepted and agreed to as of the date first above written: /s/ Richard Sinkfield - ------------------------------ Richard Sinkfield -3- EX-10.1-2 4 EXHIBIT 10.1.2 WAIVER, CONSENT AND MODIFICATION AGREEMENT This WAIVER, CONSENT AND MODIFICATION AGREEMENT (this "Agreement"), dated as of September 22, 1995, among United Auto Group, Inc. (formerly EMCO Motor Holdings, Inc.), a Delaware corporation (the "Company"), the Common Holders (as defined below) and the Preferred Holders (as defined below). W I T N E S S E T H: WHEREAS, the Company has entered into (i) the Class A Preferred Stock Purchase Agreement (the "Preferred Purchase Agreement"), dated October 15, 1993, with the investors listed on Exhibit A thereto (collectively, the "Preferred Holders"), and '21' International Holdings, Inc., a Delaware corporation ("TIHI"), and Ezra P. Mager ("Mager" and, together with TIHI, the "Common Holders"), and (ii) the Common Stock Purchase Agreement, dated October 15, 1993, with the Common Holders (the "Common Purchase Agreement" and, collectively with the Preferred Purchase Agreement, the "Stock Purchase Agreements"); WHEREAS, the Restated Certificate of Incorporation of the Company (the "Certificate of Incorporation") provides the Common Holders and the Preferred Holders with certain rights with respect to the Company's common stock, par value $0.0001 (the "Common Stock") and the Company's Class A Preferred Stock, par value $0.0001 (the "Preferred Stock"); WHEREAS, the Company has entered into the Registration Rights Agreement (the "Registration Rights Agreement"), dated as of October 15, 1993, with the Preferred Holders and TIHI; WHEREAS, on August 15, 1995, TIHI contributed all of its shares of Common Stock to '21' Auto Holdings, Inc., a Delaware corporation and wholly owned subsidiary of TIHI ("'21' Auto"), and '21' Auto agreed to be bound by the Common Stock Purchase Agreement and Registration Rights Agreement and, as such, is deemed a "Common Holder" hereunder; WHEREAS, immediately upon entering into this Agreement, the Company will enter into several Securities Purchase Agreements (as in effect on the date hereof, the "Securities Purchase Agreements") with the institutional investors listed in Schedule A thereto (the "Investors") pursuant to which the Company will issue and sell to the Investors up to $35,000,000 in aggregate principal amount of its senior notes in several tranches (the "Senior Notes") and, in connection therewith, warrants to purchase shares of Common Stock (as in effect on the date hereof, the "Senior Warrants") which, in the event that certain approvals relating to the exercise of the Warrants are not obtained, will convert into contingent value obligations (the "CVOs"); WHEREAS, pursuant to the Certificate of Incorporation and except as otherwise set forth therein, the Company is prohibited from authorizing or issuing, or obligating itself to authorize or issue, any additional shares of securities without the consent of the holders of a majority of the Preferred Stock then outstanding; WHEREAS, pursuant to the Certificate of Incorporation, the issuance and sale of the Warrants may result in an adjustment in the Applicable Conversion Value (as defined in the Certificate of Incorporation) relating to the Preferred Stock and in the right of each holder of Preferred Stock or Common Stock to purchase its PRO RATA portion of any securities newly issued by the Company, unless otherwise waived by the holders of the majority of the shares of Preferred Stock then outstanding; WHEREAS, the Company desires to amend the Certificate of Incorporation to provide for, among other things, a class of non-voting common stock to be issued upon exercise of certain of the Warrants; WHEREAS, pursuant to the Senior Warrants, the holders of Senior Warrants or shares of Common Stock (or shares of non-voting common stock of the Company, as the case may be) issued upon exercise of the Senior Warrants (the "Warrant Shares") will be entitled to certain registration rights relating to the Warrant Shares; WHEREAS, pursuant to each Stock Purchase Agreement and except as otherwise set forth therein, the Company is prohibited from issuing additional shares of capital stock or warrants to purchase such shares without the prior written consent of the holders of at least a majority of the outstanding shares of Preferred Stock or Common Stock, as the case may be; WHEREAS, pursuant to Section 8 of the Preferred Purchase Agreement, after December 29, 1999, the Company will be required under certain circumstances to issue to the Preferred Holders, at their option, either warrants (the "Preferred Warrants") to purchase Common Stock or promissory notes (the "Preferred Notes") secured by the assets of the Company to the extent such assets are not otherwise encumbered; and WHEREAS, it is a condition precedent to the Securities Purchase Agreements that certain rights of the Common Holders and Preferred Holders with respect to the Company be waived and that certain existing agreements be amended, all as set forth herein; NOW, THEREFORE, in consideration of the premises and of the terms and provisions set forth herein, the parties hereby agree as follows: SECTION 1. WAIVERS AND CONSENTS RELATING TO THE CERTIFICATE OF INCORPORATION. (a) CONSENT TO SENIOR WARRANTS AND WARRANT SHARES. Pursuant to Section 8(b) of Article IV of the Certificate of Incorporation, the authorization and issuance of the Senior Warrants, the Warrant Shares and, if applicable, the CVOs in accordance with the Securities Purchase Agreements and the Senior Warrants are hereby approved. (b) ANTI-DILUTION. Pursuant to Section 5.4(a)(iv)(G) of Article IV of the Certificate of Incorporation, application of Section 5.4(a) of Article IV of the Certificate of Incorporation is hereby waived with respect to the issuance or sale of, or any obligation, agreement or undertaking to issue or sell, the Senior Warrants, the Warrant Shares or the CVOs in accordance with the Securities Purchase Agreements and the Senior Warrants. (c) PRE-EMPTIVE RIGHTS. Pursuant to Article VI of the Certificate of Incorporation, neither the Senior Warrants nor the Warrant Shares nor, if applicable, the CVOs shall constitute "New Securities" for purposes of Article VI of the Certificate of Incorporation. (d) AMENDMENT TO CERTIFICATE OF INCORPORATION. Pursuant to Sections 228 and 242 of the Delaware General Corporation Law and Section 8(b)(vii) of Article IV of the Certificate of Incorporation, the amendment to the Certificate of Incorporation, in the form set forth in EXHIBIT 1(D) hereto, is hereby approved. SECTION 2. AMENDMENTS TO THE REGISTRATION RIGHTS AGREEMENT. Pursuant to Section 2.4 of the Registration Rights Agreement, the Registration Rights Agreement is hereby amended as follows: (a) UNDERWRITING REQUIREMENTS. The second sentence of Section 1.8 shall be amended in its entirety to read: "If the managing underwriter for the offering shall advise the Company in writing that the total amount of securities, including Registrable Securities, requested by shareholders to be included in such offering exceeds the amount of securities to be sold other than by the Company that can be successfully offered, then the Company shall be required to include in the offering -3- only that number of such securities, including Registrable Securities, which the managing underwriter believes will not jeopardize the success of the offering (the securities so included to be reduced as follows: all securities which stockholders other than the Company and the Holders seek to include in the offering shall be excluded from the offering to the extent limitation on the number of shares included in the underwriting is required (unless (i) such securities are being registered pursuant to Section 11.2 of the Warrants (the "Warrants") issued pursuant to the several Securities Purchase Agreements, dated as of September 22, 1995, among the Company and the institutional investors listed in Schedule A thereto, or Section 1.2 of the Registration Rights Agreement (the "Venture Registration Rights Agreement"), dated as of August 1, 1995, among the Company, Steve Landers, John Landers and certain other persons party thereto from time to time, in which case such securities shall be included in the offering prior to including any Registrable Securities or (ii) such securities are being registered pursuant to Section 11.3 of the Warrants or Section 1.3 of the Venture Registration Rights Agreement, in which case such securities shall be included in the offering on a PRO RATA basis with the Registrable Securities), and, if further limitation on the number of shares to be included in the underwriting is required, then the number of shares held by Holders that may be included in the underwriting shall be reduced PRO RATA among the selling Holders in accordance with the number of shares of Registrable Securities held by such Holders but in no event shall the amount of securities of the selling Holders included in the offering be reduced below 35% of the total amount of securities such selling Holders have requested to be included in such offering, unless such offering is the initial public offering of the Company's securities in which case the selling Holders may be excluded if the managing underwriter makes the determination described above and no securities other than those of the Company are included.)" (b) LOCK-UP. Section 1.12 shall be amended in its entirety to read: "1.12 LOCK-UP AGREEMENTS. If reasonably requested by the Company and any managing underwriter, the Holders agree to enter into lock-up agreements pursuant to which they will not, for a period of 120 days following the effective date of a registration statement for any -4- primary or secondary public offering of the Company's securities (or a period of 180 days following the initial public offering of the Company's securities) and for such reasonable period of time prior to the effective date of such registration statement as the Company and such underwriter may specify, offer, sell or otherwise dispose of any Registrable Securities, except any Registrable Securities sold pursuant to such registration statement, without the prior consent of the Company and such underwriter." (c) INCLUSION OF MAGER. The parties hereto acknowledge that Mager was inadvertently not made a party to the Registration Rights Agreement and, accordingly, shall be deemed a party thereto for all purposes thereunder. SECTION 3. AMENDMENTS TO AND WAIVERS, CONSENTS AND AGREEMENTS RELATING TO THE STOCK PURCHASE AGREEMENTS. (a) CONSENT TO SENIOR WARRANTS AND WARRANT SHARES. Pursuant to Section 7.11 of the Preferred Purchase Agreement and Section 7.9 of the Common Purchase Agreement, the issuance and sale of the Senior Warrants, the Warrant Shares and, if applicable, the CVOs in accordance with the Securities Purchase Agreements and the Senior Warrants are hereby approved. (b) MODIFICATIONS RELATING TO PREFERRED NOTES. (i) Notwithstanding anything in the Preferred Purchase Agreement to the contrary, pursuant to Section 9.5 of the Preferred Purchase Agreement, in the event that the Preferred Holders shall be entitled to receive the Preferred Notes pursuant to Section 8.2 of the Preferred Purchase Agreement and have notified the Company in writing of their election to so receive the Preferred Notes, a copy of which notice shall be promptly sent to each holder of the Senior Notes, as soon as practicable but in no event later than 20 days following such notice and as a condition precedent to the issuance of the Preferred Notes: (A) the Company at its sole expense shall duly organize a wholly owned subsidiary incorporated in the State of Delaware (such corporation to be referred to herein as "Newco") and transfer to Newco (1) all of the assets of the Company, including, without limitation, all of the capital stock or other ownership interests in all of the subsidiaries of the Company other than, at the option of the Company, the capital stock of Atlantic Auto Finance Corporation ("Atlantic Auto"), such that the sole remaining assets of the Company shall be all of the issued and outstanding capital stock of Newco and, if the Company so elects, Atlantic Auto and (2) -5- the liabilities evidenced by the Senior Notes, after which all references in the Securities Purchase Agreements to "the Company" shall also be deemed to refer to Newco; (B) upon the formation of Newco and the transfers contemplated in clause (A) above, the Company shall execute and deliver (1) to the holders of the Senior Notes a guaranty (the "Senior Note Guaranty") of payment of the Senior Notes, substantially in the form of Exhibit 9.6-2 to the Securities Purchase Agreements, and (2) to the collateral agent for the holders of the Senior Notes a pledge agreement (the "Senior Note Pledge Agreement"), substantially in the form of Exhibit 9.6-1 to the Securities Purchase Agreements, securing the Senior Note Guaranty by a first priority lien on all of the issued and outstanding capital stock of Newco and Atlantic Auto (if such capital stock of Atlantic Auto is directly held by the Company); (C) upon the formation of Newco and the transfers contemplated in clause (A) above, the date of maturity of the Preferred Notes shall be modified to coincide with the date of maturity of the Senior Notes by amending the form of promissory note in Exhibit J to the Preferred Purchase Agreement as follows: (1) the first sentence of the first paragraph following the legend shall be amended to read: "FOR VALUE RECEIVED, the undersigned, United Auto Group, Inc., a Delaware corporation (the "Company"), hereby promises to pay to _____________ (the "Payee") or order, on [the date of maturity of the Company's Senior Notes due 2003], the principal sum of __________ DOLLARS ($__________), which amount equals the Payee's pro rata portion of 50% of the Fair Market Value of the Company determined in accordance with Section 8.3 of the Stock Purchase Agreement (as defined below)."; and (2) Section 1 shall be amended to read in its entirety: "1. NOTES. This Note is one of the Notes issued by the Company pursuant to Section 8.2 of the Stock Purchase Agreement with a maturity date of [the date of maturity of the Company's Senior Notes due 2003] and evidences a return of the Payee's investment in the Company's Class A Preferred Stock."; (D) the holders of the Preferred Notes shall enter into a subordination agreement (the "Subordination Agreement"), substantially in the form set forth in EXHIBIT 3(B)(I)(D) hereto (together with an intercreditor agreement -6- substantially in the form of Exhibit A to the Subordination Agreement), with the holders of the Senior Notes providing for, among other things, the subordination of the Preferred Notes to the Senior Notes and the waiver of certain rights of the holders of the Preferred Notes; (E) the Company shall either (1) deliver to the holders of the Senior Notes a certificate executed by the chief financial officer of the Company stating that, after giving effect to the transactions contemplated by clause (A) of this Section 3(b), the fair value of the assets of the Company will exceed the total amount of its liabilities and the Company will be able to pay its debts as they mature, or (2) simultaneously with the transfer of assets contemplated by clause (A) of this Section 3(b), transfer all of the liabilities of the Company (other than the Preferred Notes) to Newco to the extent permitted, such that the sole remaining liabilities of the Company shall be the Preferred Notes and those liabilities, if any, relating to the Company's ownership of the capital stock of Atlantic Auto; and (F) the holders of the Senior Notes shall have received an opinion of the Company's outside legal counsel (who shall be reasonably satisfactory to the holders of a majority of the outstanding principal amount of Senior Notes), substantially in the form set forth in EXHIBIT 3(b)(i)(F) hereto, which opinion shall contain such assumptions, qualifications and exceptions as are customary and as such counsel deems appropriate; and (ii) Notwithstanding that pursuant to Section 2.1.15 of the Security Agreement (the "Preferred Security Agreement") to be entered into between the Company and the collateral agent for the Preferred Holders substantially in the form of Exhibit K to the Preferred Purchase Agreement, the capital stock of Newco and, if applicable, Atlantic Auto, as the sole assets of the Company, will be excluded from the Collateral (as defined in the Preferred Security Agreement) securing the Credit Obligations (as defined in the Preferred Security Agreement), for purposes of the Preferred Security Agreement, the Collateral shall be deemed to consist of, and only of, the capital stock of Newco, and, if applicable, Atlantic Auto, thereby creating a subordinated pledge in such capital stock, which subordinated pledge will be subject to the terms of the Subordination Agreement and the Senior Note Pledge Agreement; and -7- (c) FURTHER AGREEMENTS RELATING TO PREFERRED NOTES. In the event that the Preferred Notes are issued as contemplated in Section 3(b) hereof: (i) '21' Auto hereby agrees to vote, and TIHI hereby agrees to cause '21' Auto to vote, all shares of Common Stock held by '21' Auto in accordance with the written instructions of the holders of a majority of the Preferred Stock then outstanding in connection with any required shareholder approval of any proposed merger, consolidation, sale of all of the capital stock or sale of all or substantially all of the assets of the Company ; and (ii) the holders of a majority of the shares of Preferred Stock then outstanding shall have the right to purchase all, but not less than all, of the Senior Notes from the holders thereof by paying to each holder of Senior Notes in immediately available funds the principal amount thereof and the accrued interest and applicable premium thereon pursuant to the terms and conditions contained in Sections 8.1 through 8.3 of the Securities Purchase Agreements; PROVIDED, HOWEVER, that notwithstanding the last sentence of Section 8.3 of the Securities Purchase Agreements, any Senior Notes so purchased shall not be surrendered to the Company or cancelled solely on account of such purchase but shall be transferred to and held by such holders of Preferred Stock on a PRO RATA basis based upon the amount of Senior Notes purchased by each holder until such Senior Notes are repaid upon maturity or otherwise cancelled pursuant to their terms. Any Senior Notes so transferred to the Preferred Holders shall remain subject to the rights of the Company pursuant to Sections 8.1 through 8.3 of the Securities Purchase Agreements. (d) FURTHER ASSURANCES. The Company hereby agrees that, without the prior written consent of (A) the holders of a majority of the shares of Preferred Stock then outstanding and (B) the holders of a majority of the aggregate principal amount of Senior Notes then outstanding, it will not enter into any agreements that would restrict its ability to implement the matters set forth in clauses (A) through (D) of Section 3(b)(i) hereof. (e) ADJUSTMENT TO PREFERRED WARRANTS. In the event that the Preferred Warrants are issued pursuant to Section 8.1 of the Preferred Purchase Agreement, the determination of the number of shares of Voting Common Stock purchasable upon exercise of such Preferred Warrants shall take into account the adjustment of the number of Warrant Shares purchasable upon exercise of the Senior Warrants pursuant to Section 8.1(e) of the Senior Warrants such that '21' Auto and its transferees will bear the dilution caused by the issuance of all of the Preferred Warrants and by the related adjustments to the Senior Warrants. -8- SECTION 4. TAG-ALONG RIGHT. Pursuant to Section 20 of the Senior Warrants, each Common Holder and each Preferred Holder hereby agrees to comply with the terms and provisions of Section 12.1 of the Senior Warrants relating to the right of the holders of the Senior Warrants, under certain conditions, to participate in a sale by such Common Holder or Preferred Holder, as applicable, of capital stock of the Company to a third party, as more fully described in such Section 12.1. SECTION 5. MISCELLANEOUS. (a) AUTHORITY TO AMEND AND WAIVE. (i) The Preferred Holders party hereto hold in the aggregate a sufficient number of shares of Preferred Stock to amend or waive as contemplated in this Agreement the provisions of the Certificate of Incorporation, the Registration Rights Agreement, the Preferred Purchase Agreement, the form of Preferred Note and the form of Preferred Security Agreement pursuant to their respective terms. (ii) The Common Holders party hereto hold in the aggregate a sufficient number of shares of Common Stock to waive as contemplated in this Agreement the provisions of the Common Purchase Agreement pursuant to its terms. (b) NO IMPLIED MODIFICATIONS. Except for the modifications and agreements set forth herein, (i) the Certificate of Incorporation, the Registration Rights Agreement, the Preferred Purchase Agreement and the Common Purchase Agreement shall remain in full force and effect in accordance with their respective terms and (ii) the forms of Preferred Security Agreement and promissory note set forth in the various exhibits referenced herein shall continue to read as set forth therein. (c) EFFECT OF HEADINGS. The section and paragraph headings herein are for convenience only and shall not affect the construction hereof. (d) COUNTERPARTS. This Agreement may be executed in any number of counterparts by the parties hereto, and all of said counterparts taken together shall be deemed to constitute one and the same document. (e) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. -9- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written. UNITED AUTO GROUP, INC. By: /s/ Carl Spielvogel ---------------------------- Name: Carl Spielvogel Title: Chairman of the Board and Chief Financial Officer COMMON HOLDERS '21' INTERNATIONAL HOLDINGS, INC. By: /s/ Robert H. Nelson ---------------------------- Name: Robert H. Nelson Title: Senior V.P. '21' AUTO HOLDINGS, INC. By: /s/ Robert H. Nelson ---------------------------- Name: Robert H. Nelson Title: Vice President /s/ Ezra P. Mager --------------------------------- Ezra P. Mager PREFERRED HOLDERS AENEAS VENTURE CORPORATION By: /s/ Mark A. Rosen ---------------------------- Name: Mark A. Rosen Authorized Signatory By: /s/ Michael R. Eisenson ---------------------------- Name: Michael R. Eisenson Authorized Signatory -10- AIF II, L.P. By: Apollo Advisors, L.P. Managing General Partner By: Apollo Capital Management, Inc. General Partner By: /s/ Michael D. Weiner ---------------------------- Name: Michael D. Weiner Title: Vice President NATIO VIE DEVELOPPMENT By: /s/ D. Bellanger ---------------------------- Name: D. Bellanger Title: Portfolio Manager ASSUE VENTURE By: /s/ D. Bellanger ---------------------------- Name: D. Bellanger Title: Portfolio Manager NATIO FONDS VENTURE 2 By: /s/ D. Bellanger ---------------------------- Name: D. Bellanger Title: Portfolio Manager /s/ Jeremy Grantham ------------------------------------ Jeremy Grantham /s/ Jules Kroll ------------------------------------ Jules Kroll -11- /s/ Andrea Farare ------------------------------------ Andrea Farace /s/ Carl Spielvogel ------------------------------------ Carl Spielvogel /s/ Jerome Markowitz ------------------------------------ Jerome Markowitz /s/ Philip Halperin ------------------------------------ Philip Halperin /s/ Derek Lemke-von Ammon ------------------------------------ Derek Lemke-von Ammon /s/ Frank Dunlevy ------------------------------------ Frank Dunlevy -12- The foregoing Agreement is hereby acknowledged, accepted and agreed to as of the date first above written: SENIOR NOTE HOLDERS J.P. MORGAN CAPITAL CORPORATION By: /s/ Charles Ewald -------------------------------- Name: Charles Ewald Title: THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES By: /s/ U. Peter C. Gummeson -------------------------------- Name: U. Peter C. Gummeson Title: Investment Officer -13- EX-10.1-3 5 EXHIBIT 10.1.3 EXHIBIT 10.1.3 -2- September 22, 1995 United Auto Group, Inc. 375 Park Avenue, Suite 2201 New York, New York 10152 Re: PROPOSED SALE AND PURCHASE OF SECURITIES OF UNITED AUTO GROUP, INC. Gentlemen: Reference is made to the Securities Purchase Agreement dated September 22, 1995 (together with all exhibits and schedules thereto, the "Securities Purchase Agreement"), entered into by United Auto Group, Inc. (the "Company") and J.P. Morgan Capital Corporation ("Morgan Capital"). This letter will confirm our agreement to supplement the Securities Purchase Agreement as set forth herein. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Securities Purchase Agreement. 1. MANUFACTURER APPROVALS (a) For purposes of Section 1.1 of the Warrants issued to Morgan Capital, the term "Manufacturer Approvals" shall not include any manufacturer's approval that contains any condition that could limit or adversely affect (i) the ability of Morgan Capital (or its Affiliated transferees) to exercise the Warrants or (ii) the ability of Morgan Capital to transfer Warrants and Warrant Shares to its Affiliates as contemplated by Section 2.3 hereof (a "Limited Approval"), PROVIDED that, notwithstanding any such adverse condition contained in a manufacturer's approval, Morgan Capital, in its sole discretion, may, by written notice to the Company, elect to treat any Limited Approval as a Manufacturer Approval. (b) The Company will use its reasonable best efforts to obtain all applicable manufacturers' approvals relating to all the transactions contemplated by the Securities Purchase Agreement. 2. TRANSFERABILITY. 2.1 RESTRICTIONS ON TRANSFER. Notwithstanding the termination of any provision of this Agreement or the Securities Purchase Agreements or anything to the contrary in this Agreement or the Securities Purchase United Auto Group, Inc. September 22, 1995 Page 2 Agreements, no Regulation Y Stockholder (as defined below) may transfer Warrants or Warrant Shares may sell, assign, pledge, encumber or transfer any shares of Non-voting Common Stock or Warrants to purchase Non-voting Common Stock, except: (a) to the Company or any member or members of the Initial Shareholder Group who own or control a majority of the voting shares of the Company; (b) to the ultimate parent (a "Parent") of such Regulation Y Stockholder or any wholly-owned direct or indirect subsidiary of such Parent or any partnership of which any such subsidiary is the general partner (a "Controlled Subsidiary"); (c) pursuant to Section 12 of the Warrants; (d) to any member of the Initial Shareholder Group pursuant to Section 13.1 of the Warrants; (e) in connection with any merger, consolidation or reorganization of the Company (a "reorganization"); (f) in a registered public offering or an open market sale pursuant to Rule 144 under the Securities Act (or any successor rule or regulation); (g) in a private sale (otherwise than to the Company, any member referred to above of Initial Shareholder Group, a Parent, a Controlled Subsidiary, in a reorganization or pursuant to Section 12 of the Warrants), provided that the Regulation Y Stockholder (i) shall have first offered to the Company the right to purchase all of such shares of Non-voting Common Stock being sold pursuant to a written offer which shall have been open to acceptance for a period of at least ten days, for cash at a price which did not exceed the price obtained in the private sale, and (ii) shall not knowingly sell or otherwise transfer to any single person or group of persons acting in concert a number of shares of Non-voting Common Stock which, if converted into shares of Voting Common Stock would represent more than two percent of the shares of Voting Common Stock then outstanding; or (h) upon the advice of counsel to such Regulation Y Stockholder that such sale or other transfer is permitted under the laws and regulations applicable to such Regulation Y Stockholder; United Auto Group, Inc. September 22, 1995 Page 3 PROVIDED, HOWEVER, that nothing in this Section 2.1 shall be deemed to modify the terms and provisions contained in the Warrants regarding the sale, assignment, pledge, encumbrance or transfer of Warrants or Warrant Shares. "Regulation Y Stockholder" means (i) any stockholder that is subject to the provisions of Regulation Y of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 225) or any successor to such regulation ("Regulation Y") so long as such stockholder shall hold, and only with respect to, the Warrants, the Warrant Shares or shares issued upon conversion(s) of the Warrant Shares, (ii) any Affiliate of a Regulation Y Stockholder that is a transferees of Warrants, Warrant Shares or shares issued upon conversion(s) of the Warrant Shares, so long as such Affiliate shall hold, and only with respect to such Warrants, Warrant Shares or shares issued upon conversion(s) of the Warrant Shares and (iii) any Person to which such Regulation Y Stockholder or any of its Affiliates has transferred such Warrants, Warrant Shares or shares issued upon conversion(s) of the Warrant Shares, so long as such transferee shall hold and only with respect to, any Warrants, Warrant Shares or shares issued upon conversion(s) of the Warrant Shares transferred by such stockholder or Affiliates but only if such Person is (or an Affiliate of such person is) subject to the Provisions of Regulation Y. 2.2 ASSISTANCE IN SALES. Anything in this Agreement or in the Securities Purchase Agreements to the contrary notwithstanding, in the event that it becomes unlawful for any Regulated Stockholder to continue to hold some or all of the Warrants or shares of Common Stock held by it, or restrictions are imposed on any such stockholder by any statute, regulation or governmental authority which, in the reasonable judgment of such stockholder, make it unduly burdensome to continue to hold such Warrants or shares of Common Stock, such stockholder, subject to the provisions of the Warrants, may sell or otherwise dispose of its Warrants and shares in the Company, and the Company shall (i) provide (and authorize such stockholder to provide) to any prospective purchaser of the Warrants and shares of Common Stock owned by such stockholder financial and other information concerning the Company reasonably requested by such stockholder or prospective purchaser and (ii) endeavor to obtain such automobile manufacturers' approvals as are necessary to effect such disposition. United Auto Group, Inc. September 22, 1995 Page 4 2.3 PERMITTED TRANSFERS. Notwithstanding anything to the contrary contained in the Securities Purchase Agreement, the Warrants or herein, Morgan Capital shall be permitted to transfer to Sixty Wall Street Fund 1995, L.P. ("Sixty Wall"), or any similar partnership in which a Controlled Subsidiary is the sole General Partner, any Notes, Warrants or Value Notes held by it or any of its rights under the Securities Purchase Agreement, under any Transaction Document or the Agreement for Purchase of Notes dated September ___, 1995 between Morgan Capital and The Equitable Life Assurance Society of the United States. Notwithstanding anything to the contrary contained in the Securities Purchase Agreement, Morgan Capital shall be permitted to transfer Notes in denominations of less than $100,000 to Sixty Wall Street 1995 Fund, L.P. or any similar partnership in which a Controlled Subsidiary is the sole General Partner. As used in the Transaction Documents, "JPMCC" shall mean Morgan Capital together with Sixty Wall Street Fund 1995, L.P. 3. CONTINGENT VALUE OBLIGATIONS. For purposes of Section 1.2 of the Warrants, Sixty Wall shall be deemed an initial holder of Warrants distributed to Morgan Capital pursuant to the Warrant Escrow Agreement. 4. COVENANTS. With respect to Sections 4.1 and 4.2 below, until the first date on which Morgan Capital (and its Affiliated transferees) has transferred in the aggregate more than 50 percent of the Warrant Shares that Morgan Capital would be entitled to purchase upon exercise of four-sevenths (4/7ths) of all the Warrants issued by the Company (after taking into account all adjustments to the number of Warrant Shares underlying the Warrants): 4.1 OBSERVER RIGHTS. The Company shall allow a representative designated by Morgan Capital to attend as an observer any meeting of the Company's board of directors (the "Board"), including telephonic meetings (except such meetings, or portions thereof, in which Morgan Capital (or any of its Affiliates) is discussed and in relation to which the Board makes a good faith determination that the presence of a representative of Morgan Capital would be inappropriate), in a non-voting capacity. The Company shall give United Auto Group, Inc. September 22, 1995 Page 5 such representative notice of each such meeting in the form and manner such notice is given to the Board. The Company will provide such representative with copies of all written materials and other information given to the Board in connection with such meetings (except such information relating to Morgan Capital that the Company determines not to provide) at the same time such materials and information are given to the Board. Morgan Capital and such representative shall keep all such materials and information, as well as the matters discussed at such Board meetings (whether written or oral), confidential. If the Company proposes to take any action by written consent in lieu of a meeting of the Board, the Company will give written notice thereof to such representative simultaneously with and in the same manner as it sends such consent documents to the Board. For purposes of this Section 4.1, the initial designee of Morgan Capital shall be Charles Ewald. In the event that Morgan Capital desires to change its designee, Morgan Capital shall select a new designee subject to the Company's approval, which approval shall not be unreasonably withheld. It is agreed that breach of the Company's obligations under this Section 4.1 (which, to the extent remediable, is not remedied within five (5) days) shall constitute an additional Event of Default under the Securities Purchase Agreement pursuant to which Morgan Capital (or any Affiliate transferee of the Notes) can, upon 15 days' notice to the Company, declare the Notes to be immediately due and payable, anything to the contrary herein or in the Securities Purchase Agreement notwithstanding. This provision is not intended to, and shall not, afford to noteholders other than Morgan Capital (or any Affiliate transferee of the Notes) any independent basis for declaring a default and exercising remedies. 4.2 FINANCIAL AND OTHER INFORMATION. The Company will deliver to Morgan Capital: (a) Monthly Statements -- within a reasonable time after the end of each calendar month, a copy of the consolidated balance sheet and consolidated statement of income of the Company and a copy of the balance sheet and statement of income for each operating division of the Company, together with a brief discussion by the Chairman of the Company, for such calendar month, PROVIDED, HOWEVER, that such financials shall be subject to year-end adjustments and may not contain all footnotes required under GAAP; United Auto Group, Inc. September 22, 1995 Page 6 (c) Quarterly Statements -- within 45 days after the end of the first three quarters of each fiscal year, a copy of the consolidated balance sheet of the Company as of the end of such quarter and consolidated statements of income, changes in shareholders' equity and cash flows and a management's discussion and analysis of financial condition and results of operation of the Company for the fiscal quarter and for the portion of the fiscal year ending on the last day of such quarter, each of the foregoing balance sheets and statements to set forth in comparative form the corresponding figures for the same period of the prior fiscal year and actual versus budgeted amounts, to be in reasonable detail; PROVIDED, HOWEVER, such financials are subject to year-end adjustments and may not contain all footnotes required under GAAP and to be certified, subject to normal year-end audit adjustments, by the principal financial officer of the Company that they are true and accurate in all material respects as of their dates and PROVIDED FURTHER, that statements of changes in shareholders' equity, cash flows and actual versus budgeted amounts need not be provided with respect to any fiscal quarter prior to the quarter ending June 30, 1996, and PROVIDED FURTHER, that the financial statements delivered pursuant hereto need not cover any newly acquired Subsidiary until the fiscal quarter ending one year after the end of the fiscal quarter in which such Subsidiary was acquired; (b) Annual Statements -- within 150 days after the end of the fiscal year ending December 31, 1995 and within 120 days after the end of each subsequent fiscal year, PROVIDED, HOWEVER, that for the fiscal year in which the Company becomes subject to the reporting requirements of the Exchange Act and for each subsequent fiscal year, within 90 days after the end of such fiscal year a copy of the balance sheet of the Company as of the end of such year, together with consolidated and consolidating statements of income and of cash flows and a management's discussion and analysis of financial condition and results of operation of the Company for such year, in all reasonable detail, prepared in accordance with GAAP, consistently applied, and certified in an audit report by independent public accountants of national standing selected by the Board; (d) SEC and Other Reports -- promptly upon their becoming available, copies of all financial statements and reports that the Company shall send to its stockholders or file with the Securities and Exchange Commission or any stock exchange on which any securities of the Company may be listed; and (e) Requested Information -- with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries as from time to time may be reasonably requested by Morgan Capital. United Auto Group, Inc. September 22, 1995 Page 7 4.3 CERTAIN TRANSACTION EXPENSES. Notwithstanding anything to the contrary contained in the Securities Purchase Agreement, the Company hereby acknowledges its obligation to pay all reasonable legal fees and disbursements of Proskauer Rose Goetz & Mendelsohn LLP ("Proskauer"), counsel for Morgan Capital, together with legal fees and disbursements of Davis Polk & Wardwell, incurred in connection with the transactions contemplated by the Securities Purchase Agreement. Payment by the Company pursuant to this Section 4.3 of the fees and disbursements of Proskauer shall satisfy the obligations of the Company to Morgan Capital under Section 14.2 of the Securities Purchase Agreements except insofar as Section 14.2 relates to the fees of Davis Polk and Wardwell, which fees have been paid. If the foregoing accurately sets forth our agreement, please so indicate by executing this letter in the space provided and delivering one executed copy to us. Sincerely yours, J.P. MORGAN CAPITAL CORPORATION By: /s/ Charles Ewald ---------------------------- Accepted and Agreed: UNITED AUTO GROUP, INC. By: /s/ Carl Spielvogel ------------------- EX-10.1-4 6 EXHIBIT 10.1.4 [FORM OF WARRANT] THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE BLUE SKY LAWS OF ANY STATE AND MAY NOT BE SOLD, EXCHANGED, HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT IN COMPLIANCE WITH SAID ACT AND WITH SUCH BLUE SKY LAWS. IN ADDITION, THE SECURITIES REPRESENTED BY THIS WARRANT ARE SUBJECT TO RESTRICTIONS ON TRANSFER CONTAINED IN THIS WARRANT. NUMBER OF SHARES: ___________ WARRANT No. ___ PPN: 90944# 12 2 WARRANT TO PURCHASE CLASS A PREFERRED STOCK OF UNITED AUTO GROUP, INC. UNITED AUTO GROUP, INC., a Delaware corporation (the "COMPANY"), HEREBY CERTIFIES THAT, for value received ______________________ _________________, or registered assign, is entitled to purchase _________ shares (adjusted as below provided) of Class A Preferred Stock at any time from the Manufacturer Approval Date (as defined below) until 5:00 p.m., New York City time, on the Termination Date (as defined below) or the next succeeding Business Day (as defined below) if such Termination Date is not a Business Day. As used herein, the term "CLASS A PREFERRED STOCK" means the Company's Class A Preferred Stock, par value $0.0001 per share, as constituted on the date of original issue of this Warrant, and (unless the context otherwise requires) irrespective of the classes into which such shares of Class A Preferred Stock may be divided, and any shares of capital stock into which such shares of Class A Preferred Stock may thereafter be changed or that may be issued in respect of, or in exchange or in substitution for, such shares of Class A Preferred Stock by reason of any transaction described in Section 8; PROVIDED, HOWEVER, that in the event that the Class A Preferred Stock is automatically converted into Voting Common Stock, par value $0.0001 per share, (the "VOTING COMMON STOCK") of the Company pursuant to the Company's Restated Certificate of Incorporation, as amended, then all references in this Warrant to Class A Preferred Stock (other than in Section 11.7 and unless the context otherwise requires) shall be deemed to be a reference to Voting Common Stock. This Warrant is one of an issue of warrants (the "WARRANTS") to purchase Class A Preferred Stock of the Company issued pursuant to the Warrant Purchase Agreement dated as of July 10, 1996 (the "AGREEMENT"), entered into by the Company with J.P. Morgan Capital Corporation ("JPMCC") and The Equitable Life Assurance Society of the United States ("EQUITABLE" and, together with JPMCC, the "PURCHASERS"). The holder of this Warrant is entitled to certain benefits of the Agreement. SECTION 1. TERM AND EXERCISE; CONTINGENT VALUE OBLIGATIONS. SECTION 1.1 TERM OF WARRANTS; EXERCISE OF WARRANTS. Subject to the terms hereof, including, but not limited to, Section 1.2 hereof, the holder of this Warrant shall have the right, at any time during the period commencing on the Manufacturer Approval Date (as defined below) and ending at 5:00 p.m., New York time, on the earlier of the date of effectiveness of the Company's initial Public Offering (as defined below) and September 22, 2005 (the "TERMINATION DATE"), to purchase from the Company up to the number of shares of Class A Preferred Stock which such holder may at the time be entitled to purchase pursuant to this Warrant, upon written notice to the Company of such holder's election to exercise this Warrant and upon surrender of this Warrant to the Company, at its office located at 375 Park Avenue, New York, New York, together with the purchase form at the end hereof duly completed and signed, accompanied by payment to the Company of the Warrant Price (as defined in and determined in accordance with the provisions of Sections 7 and 8) for the number of shares with respect to which this Warrant is then exercised, PROVIDED, HOWEVER, that the holder of this Warrant shall be deemed to have given notice to exercise this Warrant on the date of effectiveness of the Company's initial Public Offering unless the Company receives from such holder written notice to the contrary prior to such date. The term "MANUFACTURER APPROVAL DATE" means the date that all applicable approvals that are required to, and in effect, permit the exercise of this Warrant and the issuance of all shares of Class A Preferred Stock that are issuable upon the exercise of this Warrant are received from all automobile franchisors with whom the Company has entered into franchise or similar agreements, which approvals shall not by their terms be revocable and shall not limit or adversely affect the ability of a stockholder to convert Class A Preferred Stock into Voting Common Stock or of a Regulated Stockholder to convert Non-voting Common Stock into Voting Common Stock or to convert Voting Common Stock into Non-voting Common Stock pursuant to the Company's Restated Certificate of Incorporation, as amended (collectively, the "MANUFACTURER APPROVALS"). The Company will use its reasonable best efforts to obtain the Manufacturer Approvals, PROVIDED that approvals by the Company's franchisors required to effect a Public Offering that are broad enough, in the legal opinion of outside counsel (reasonably satisfactory to the holders of the Warrants) to the Company addressed to the holders of the Warrants and in form and substance reasonably satisfactory to them, to allow the exercise of the Warrants and issuance of the Warrant Shares will be deemed to be Manufacturer Approvals. The Company will use its reasonable best efforts to ensure that the provisions in the Company's franchise agreements with automobile franchisors in respect of the transfer of shares of 2 the Company do not prevent the holders of the Warrants from exercising the Warrants and selling in the open market, or through exercise of their registration rights, shares acquired upon exercise of the Warrants. Payment of the aggregate Warrant Price shall be made, at the election of the holder of this Warrant, either (i) by certified or cashier's check or wire transfer or (ii) in lieu of paying the Warrant Price in cash, by electing to receive such number of shares of Class A Preferred Stock equal to (A) the excess of (x) the fair market value per share of Voting Common Stock on the date of such exercise multiplied by the number of shares being purchased pursuant to such exercise over (y) the aggregate Warrant Price of the shares being purchased pursuant to such exercise, divided by (B) the fair market value per share of Voting Common Stock on the date of such exercise. For purposes hereof, "FAIR MARKET VALUE" shall mean (i) at any time prior to the Company's initial Public Offering, the then current fair market value per share of such class of capital stock immediately prior to such sale or issuance, determined in good faith by the Board of Directors of the Company, and (ii) on the effective date of the registration statement filed in connection with the Company's initial Public Offering, the price per share to the public set forth on the cover page of the prospectus included in such registration statement. As used herein, the term "BUSINESS DAY" means any day other than a Saturday or Sunday or a day on which commercial banks are required or authorized by law to be closed in New York, New York. As used herein, the term "PUBLIC OFFERING" means the sale or issuance of shares of Voting Common Stock or Derivative Securities pursuant to a registration statement (other than forms S-4, S-8 or similar forms) which has become effective under the Securities Act. As used herein, the term "DERIVATIVE SECURITIES" means rights, options, warrants, convertible securities or options or other rights to purchase convertible securities or any similar instrument containing the right to subscribe for, purchase or otherwise acquire shares of capital stock of the Company. Upon such surrender of this Warrant, together with any other Warrants so surrendered, and payment of such Warrant Price as aforesaid, the Company shall issue and cause to be delivered with all reasonable dispatch, and in any event within five Business Days thereafter, to or upon the written order of the holder of this Warrant and in such name or names as such holder may designate, a certificate or certificates for the number of full shares and any fraction of a share of Class A Preferred Stock (or, if the Class A Preferred Stock has been converted into Voting Common Stock pursuant to the Company's Restated Certificate of Incorporation, as amended, Voting Common Stock) so purchased, or, at the Company's option, together with cash, as provided in Section 9, with respect to any fraction of a share of capital stock, otherwise issuable upon such surrender. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of such shares of capital stock, as of 3 the close of business on the date of the surrender of this Warrant and payment of the Warrant Price as aforesaid, notwithstanding that the certificates representing such shares shall not actually have been delivered or that the stock transfer books of the Company shall then be closed. This Warrant shall be exercisable, at the election of the holder of this Warrant, either in full or from time to time in part. In the event that this Warrant is exercised with respect to less than the aggregate number of shares of Class A Preferred Stock this Warrant then entitles such holder to purchase, the Company shall deliver to or upon the order of such holder hereof a new Warrant evidencing the rights of such holder to purchase the unpurchased shares of Class A Preferred Stock then called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. In the alternative, at the request of the holder upon any partial exercise of this Warrant, appropriate notation may be made on this Warrant and the same shall be returned to such holder. The term "REGULATED STOCKHOLDER" means (i) any stockholder that is subject to the provisions of Regulation Y of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 225) or any successor to such regulation ("REGULATION Y"), so long as such stockholder shall hold, and only with respect to, the Warrants, Warrant Shares or shares issued upon conversion(s) of the Warrant Shares, (ii) any stockholder that is subject to regulation under the New York Insurance Law, so long as such stockholder shall hold, and only with respect to, the Warrants, Warrant Shares or shares issued upon conversion(s) of the Warrant Shares, (iii) any Affiliate of a Regulated Stockholder that is a transferee of any Warrants, Warrant Shares or shares issued upon conversion(s) of the Warrant Shares, so long as such Affiliate shall hold, and only with respect to, such Warrants, Warrant Shares or shares issued upon conversion(s) of the Warrant Shares and (iv) any Person to which such Regulated Stockholder or any of its Affiliates has transferred such Warrants, Warrant Shares or shares issued upon conversion(s) of the Warrant Shares, so long as such transferee shall hold, and only with respect to, any Warrants, Warrant Shares or shares issued upon conversion(s) of the Warrant Shares transferred by such stockholder or Affiliates but only if such Person is (or any Affiliate of such Person is) (A) subject to the provisions of Regulation Y or (B) subject to regulation under the insurance laws of any jurisdiction. SECTION 1.2 CONTINGENT VALUE OBLIGATIONS. In the event that the Manufacturer Approvals are not received by March 22, 1997, then this Warrant shall be converted into a number of Contingent Value Obligations ("CVOS") determined pursuant to the Contingent Value Obligations Agreement substantially in the form of EXHIBIT A hereto to be entered into at such time between the holder of this Warrant and the Company. If the Manufacturer Approvals are received with respect to the initial holder hereof, then this Section 1.2 shall terminate and cease to be of any force or effect and this Warrant shall no longer be convertible into CVOs under any circumstance. SECTION 2. PAYMENT OF TAXES. The Company shall pay all documentary stamp taxes, if any, attributable to the initial issuance of the shares of Class A Preferred Stock upon exercise of this Warrant, PROVIDED that the Company shall not be required to pay any tax or taxes which may be payable with respect to any secondary transfer of a Warrant or the shares of Class A Preferred Stock issued upon exercise of any Warrant, and in such case the Company shall not be required to issue or deliver any certificates for shares of Class A Preferred Stock until the person requesting the same has paid to the Company the amount of such tax or has established to the Company's reasonable satisfaction that such tax has been paid or that no such tax is due. SECTION 3. TRANSFERABILITY. SECTION 3.1 REGISTRATION. The Warrants shall be numbered and shall be registered on the books of the Company maintained for such purpose (the "SECURITY REGISTER"). SECTION 3.2 TRANSFER. Subject to compliance with Sections 3.3, 12 and 13, this Warrant, the Warrant Shares (as defined below) and all rights hereunder are transferable upon delivery hereof together with the assignment form at the end hereof duly completed and signed by the holder hereof or such holder's duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment or authority to transfer, PROVIDED that any transferee of this Warrant or such Warrant Shares shall expressly agree to be bound by the terms and conditions hereof, and PROVIDED FURTHER that the rights set forth in Sections 12.1 and 13.2 hereof shall not be transferable or otherwise assigned by the holder of this Warrant to any person or entity other than an Affiliate (as defined below) of such holder without the consent of the Company. Upon any registration of transfer of this Warrant, or part thereof, the Company shall execute and deliver a new Warrant or Warrants as may be requested by such holder for the same aggregate number of shares of Class A Preferred Stock as this Warrant. As used herein, the term "WARRANT SHARES" shall mean, collectively, the shares of Class A Preferred Stock acquired pursuant to the exercise of this Warrant, or upon conversion of the shares acquired pursuant to the exercise of this Warrant, and any securities issued or issuable with respect to such Class A Preferred Stock by way of stock dividend or other distribution or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As used herein, the term "TRANSFER" shall mean and include (i) when used as a verb, the act of selling, pledging, mortgaging, hypothecating, giving, transferring, creating a security interest, lien or trust (voting or otherwise), assigning or otherwise encumbering or disposing of, and (ii) when used as a noun, any sale, pledge, mortgage, hypothecation, gift, transfer, creation of security interest, lien or trust, any assignment or other encumbrance or disposition. As used herein, the term "AFFILIATE" of a specified person means a person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified, and in the case of a specified person who is a natural person, his spouse, his issue, his parents, his estate and any trust entirely for the benefit of his spouse and/or issue. The term "CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person or entity, whether through the ownership of voting securities, by contract or otherwise. SECTION 3.3 LIMITATIONS ON TRANSFER OF THE WARRANTS AND THE WARRANT SHARES. (a) If, at the time of any transfer of this Warrant or any Warrant Shares, this Warrant or such Warrant Shares, as the case may be, are not registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), the Company may require as a condition of allowing such transfer or exchange that the holder or transferee of this Warrant or such Warrant Shares furnish to the Company such information as, in the reasonable opinion of counsel to the Company, is necessary in order to establish that such transfer or exchange may be made without registration under the Securities Act, including a written statement that such holder or transferee will not sell or otherwise dispose of this Warrant or such Warrant Shares purchased or acquired by him in any transaction which would violate the Securities Act or any other securities laws, PROVIDED that the disposition thereof shall at all times be within the control of such holder or transferee. (b) Notwithstanding anything to the contrary contained herein, without the prior written consent of the Company, neither this Warrant nor any Warrant Shares may be transferred to a person or entity (or an Affiliate of such person or entity (other than an entity engaged principally in the management of investments for third parties exclusively in a fiduciary capacity)) who owns, operates, controls, or participates or engages in the ownership, management, operation or control of, or is connected with as an officer, employee, partner, director, shareholder, representative, consultant, independent contractor, guarantor, advisor or in any other manner or otherwise has a financial interest in the equity of, a proprietorship, partnership, joint venture, association, firm, corporation or other business organization or enterprise that competes with the Company or any of its subsidiaries in the business of operating dealerships for the retail sale of new and/or used automobiles and trucks or businesses ancillary to the operation of such type of dealerships (including service and parts operations, body shops, the sale of finance and insurance products (including after-market items), and the purchase, sale and servicing of finance contracts for new and/or used vehicles); provided, however, that for purposes of this paragraph the ownership of 6 equity securities representing less than 5% of the outstanding shares of capital stock (or equivalent ownership) of any business organization or entity shall not be deemed to constitute the ownership or participation in the ownership of, or a financial interest in the equity of, such business organization or entity. SECTION 3.4 LEGEND ON WARRANT SHARES. Each certificate for shares of Class A Preferred Stock initially issued upon exercise of this Warrant shall bear the following legend, unless at the time of exercise such shares are registered under the Securities Act, in which case, such certificate shall bear only the second sentence of the following legend: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, or the Blue Sky laws of any State and may not be sold, exchanged, hypothecated or transferred in any manner except in compliance with said Act and with such Blue Sky laws. In addition, the securities represented by this certificate are subject to restrictions on transfer and certain other provisions of the Warrant issued by United Auto Group, Inc. (the "Company"), dated as of ___________, as the same may be amended from time to time, a copy of which may be obtained at the offices of the Company." Any certificate issued at any time in exchange or substitution for any certificate bearing such legend shall also bear the above legend unless counsel for the Company or such other counsel as may be reasonably satisfactory to the Company renders a written legal opinion to the Company that the securities represented thereby need no longer be subject to such restriction. SECTION 4. EXCHANGE OF WARRANT CERTIFICATE. Any Warrant certificate may be exchanged for another certificate or certificates entitling the holder thereof to purchase the aggregate number of shares of Class A Preferred Stock that this certificate then entitles such holder to purchase. Any holder of a Warrant desiring to exchange such Warrant certificate shall make such request in writing delivered to the Company, and shall surrender, properly endorsed, the certificate evidencing the Warrant to be so exchanged. Thereupon, the Company shall execute and deliver one or more new Warrant certificates as so requested. SECTION 5. MUTILATED OR MISSING WARRANT. In case any Warrant certificate shall be mutilated, lost, stolen or destroyed, the Company shall, at the request of the holder thereof, issue and deliver in exchange and substitution for and upon cancellation of the mutilated certificate or certificates, or in lieu of and substitution for the certificate or certificates lost, stolen or destroyed, a new Warrant certificate or certificates of like tenor and representing an equivalent right or interest, but only upon receipt of evidence satisfactory to the Company of such loss, theft or destruction of such Warrant 7 and indemnity, if requested, satisfactory to the Company. In the case of any Purchaser or any other institutional investor holder of a Warrant, such holder's unsecured agreement of indemnity shall be deemed satisfactory to the Company. SECTION 6. REQUIREMENT OF AVAILABILITY OF SHARES OF CLASS A PREFERRED STOCK AND VOTING COMMON STOCK. There are authorized and available for issuance, and so long as any Warrant remains outstanding the Company shall at all times keep authorized and available for issuance, such number of shares of the Company's authorized but unissued Class A Preferred Stock and Voting Common Stock as will be sufficient to permit the exercise in full of all outstanding Warrants (and the conversion of all shares of Class A Preferred Stock into Voting Common Stock). Every transfer agent for the Class A Preferred Stock and other securities of the Company issuable upon the exercise of the Warrants shall be irrevocably authorized and directed at all times to keep available such number of authorized shares and other securities as will be sufficient for such purpose. The Company shall keep a copy of the Warrants on file with every such transfer agent for the Class A Preferred Stock and other securities of the Company issuable upon the exercise of the Warrants. The Company shall supply any such transfer agent with duly executed stock and other certificates for such purpose and shall provide or otherwise make available any cash which may be payable as provided in Section 9. SECTION 7. WARRANT PRICE. The price per share of Class A Preferred Stock (the "WARRANT PRICE") at which shares of Class A Preferred Stock shall be purchasable upon the exercise of the Warrants shall be $0.01, subject to adjustment pursuant to Section 8. SECTION 8.1 ADJUSTMENTS AND DISTRIBUTIONS WITH RESPECT TO CLASS A PREFERRED STOCK. Subject to the terms hereof, the number of shares purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment as follows: (a) Except in respect of transactions described in subsection (b) below, in case the Company shall (i) subdivide its outstanding Class A Preferred Stock, (ii) combine its outstanding Class A Preferred Stock into a smaller number of shares of Class A Preferred Stock, or (iii) issue by reclassification of its Class A Preferred Stock, spin-off, split-up, recapitalization, merger, consolidation or any similar corporate event or arrangement other securities of the Company, the kind and number of shares of capital stock purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the holder of this Warrant shall be entitled to receive the kind and number of shares or other securities of the Company which it would have owned or would have been entitled to receive after the happening of any of the events described above had this Warrant been exercised immediately prior to the happening of such event or any record date with respect thereto. Any adjustment made 8 pursuant to this subsection (a) shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (b) In case the Company shall distribute in any calendar year to all or substantially all holders of its Class A Preferred Stock evidences of its indebtedness (including Derivative Securities) or assets (including cash or other dividends or distributions out of earnings), or securities or rights to acquire securities of the Company, then, and in each case, the Company shall pay or distribute to the holder of this Warrant an amount equal to such holder's PRO RATA share (assuming for such purpose the exercise of this Warrant in full) of such distributions; and for such purpose any assets (other than cash) or evidences of indebtedness so distributed shall be valued at the fair market value thereof determined in good faith by the Board of Directors of the Company. (c) Whenever the number of shares of Class A Preferred Stock purchasable upon the exercise of this Warrant is increased or decreased as provided in this Section 8, the Warrant Price payable upon exercise of this Warrant shall be adjusted by multiplying the Warrant Price in effect immediately prior to such adjustment by a fraction, the numerator of which shall be the number of shares of Class A Preferred Stock purchasable upon exercise of this Warrant immediately prior to such adjustment, and the denominator of which shall be the number of shares of Class A Preferred Stock so purchasable immediately after such adjustment. (d) Whenever the number of shares of Class A Preferred Stock purchasable upon the exercise of this Warrant or the Warrant Price is adjusted as herein provided and whenever any event or transaction shall result in an adjustment to the Applicable Conversion Value (as defined in the Company's Restated Certificate of Incorporation, as amended) relating to the Class A Preferred Stock, the Company shall cause to be promptly mailed to the holder by first-class mail, postage prepaid, notice of such adjustment or adjustments and, if requested by such holder, a certificate, prepared by independent public accountants of nationally recognized standing, showing such adjustment, and stating in detail the facts upon which such adjustment is based. (e) It is the intention of the Company that the holder of this Warrant be protected against dilution to the same extent that holders of Class A Preferred Stock outstanding on the date of original issuance of this Warrant are so protected. In case the Company shall take any action affecting its capital stock, other than an action (i) described in this Section 8 or (ii) which results in an adjustment to the Applicable Conversion Value relating to the Class A Preferred Stock, or would result in an adjustment to such Applicable Conversion Value were any shares of Class A Preferred Stock then outstanding, and the failure to make any adjustment would not fairly protect the purchase rights 9 represented by this Warrant in accordance with the essential intent and principle of this Section 8 or the conversion rights of the Class A Preferred Stock issuable upon exercise of this Warrant, then the number of shares of Class A Preferred Stock or Voting Common Stock, as the case may be, issuable upon exercise of this Warrant and the Warrant Price shall be adjusted in such manner and at such time as the Board of Directors of the Company may in good faith determine to be equitable in the circumstances. SECTION 8.2 PRESERVATION OF PURCHASE RIGHTS UPON REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case of any reorganization, consolidation or merger of the Company with or into another entity as a result of which the holders of Class A Preferred Stock become holders of other shares or securities of the Company or of another entity or person, or such holders receive cash or other assets, or in case of any sale or conveyance to another person of the property, assets or business of the Company as an entirety or substantially as an entirety, the Company or such successor or purchasing entity or person, as the case may be, shall execute, concurrently with the consummation of such transaction, with the holder of this Warrant an agreement (in form and substance reasonably satisfactory to such holder) that such holder shall have the right thereafter upon payment of the aggregate Warrant Price in effect immediately prior to such action to purchase upon exercise of this Warrant the kind and amount of shares and other securities and property which such holder would have owned or have been entitled to receive after the happening of such reorganization, consolidation, merger, sale or conveyance had this Warrant been exercised immediately prior to such action. The agreements referred to in this Section 8.2 shall provide for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 8. The provisions of this Section 8.2 shall similarly apply to successive reorganizations, consolidations, mergers, sales or conveyances. SECTION 8.3 STATEMENT ON WARRANTS. This Warrant shall entitle the holder hereof to purchase such number of shares of Class A Preferred Stock at such Warrant Price as may be determined in accordance with the terms hereof after giving effect to any adjustments in the number or kind of shares purchasable upon the exercise hereof or the Warrant Price, as the case may be, notwithstanding that this Warrant certificate may continue to express the same price and number and kind of shares as are initially stated herein. SECTION 9. FRACTIONAL INTERESTS. The Company shall not be required to issue a fraction of a share of Class A Preferred Stock on the exercise of any one or more Warrants. If any fraction of a share would, except for the provisions of this Section 9, be issuable on the exercise of such Warrant or Warrants (or specified portions thereof), the Company may, at its 10 option, pay an amount in cash equal to the then current market price of a share of Class A Preferred Stock (as determined in good faith by the Board of Directors of the Company) multiplied by such fraction. SECTION 10. NO RIGHTS AS SHAREHOLDER; NOTICES. Except for a holder's of this Warrant right to receive dividends and distributions as provided in Section 8.1(b) hereof, nothing contained in this Warrant shall be construed as conferring upon the holder or its transferees any rights as a shareholder of the Company, including the right to vote, consent or receive notices as a shareholder with respect to any meeting of shareholders for the election of directors of the Company or any other matter. If, however, at any time prior to the Termination Date and prior to the exercise of this Warrant, any of the following events shall occur: (a) any action which would require an adjustment pursuant to Section 8.2; or (b) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation, merger or sale of its property, assets and business as an entirety) shall be proposed; then in any one or more of said events, the Company shall give notice in writing of such event to each holder of Warrants as provided in Section 14 at least 20 days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the shareholders entitled to any rights or for the determination of shareholders entitled to vote on such proposed dissolution, liquidation or winding up. Such notice shall also set forth such facts as shall indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the current Warrant Price and the kind and amount of Warrant Shares and other securities and property deliverable upon the exercise of the Warrant. Such notice shall also specify the date as of which the holders of the Company's capital stock of record shall be entitled to exchange their capital stock of the Company for securities or other property deliverable upon such reorganization, consolidation, merger, dissolution, liquidation or winding-up, as the case may be. Notwithstanding the foregoing, failure to mail or receive such notice or any defect therein or in the mailing thereof shall not affect the validity of any such action taken. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. SECTION 11. REGISTRATION RIGHTS. SECTION 11.1 DEFINITIONS. As used in this Section 11: (a) the terms "REGISTER," "REGISTERED" AND "REGISTRATION" refer to a registration effected by preparing and 11 filing a registration statement in compliance with the Securities Act (and any post-effective amendments filed or required to be filed) and the declaration or ordering of effectiveness of such registration statement; (b) the term "REGISTRABLE SECURITIES" means the Warrant Shares, the Warrant Shares that are subject to issuance upon exercise of the other Warrants and the Mezzanine Warrant Shares, subject to Section 11.7 hereof. As used herein, the term "MEZZANINE WARRANTS" shall mean, collectively, the warrants issued pursuant to the Securities Purchase Agreements, dated as of September 22, 1995 (the "SECURITIES PURCHASE AGREEMENTS"), entered into by the Company with certain institutional investors named in Schedule A thereto, and the term "MEZZANINE WARRANT SHARES" shall mean, collectively, the shares of capital stock acquired pursuant to the exercise of the Mezzanine Warrants, or upon conversion of the shares acquired pursuant to the exercise of the Mezzanine Warrants, and any securities issued or issuable with respect to such shares by way of stock dividend or other distribution or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. Registrable Securities will cease to be such when (i) a registration statement covering such Registrable Securities has become or been declared or ordered effective and they have been disposed of pursuant to such effective registration statement, (ii) they are sold, transferred or distributed pursuant to and in compliance with Rule 144 (or any similar provision then in force, but not including Rule 144A) under the Securities Act, or (iii) they have been otherwise transferred and the Company has delivered new certificates or other evidences of ownership for them not subject to any stop transfer order or other restriction on transfer (other than those set forth in Sections 3.2, 12.2 and 13 hereof) and not bearing a legend restricting transfer in the absence of an effective registration or an exemption from the registration requirements of the Securities Act; (c) the term "HOLDER" means any person owning or having the right to acquire Registrable Securities; (d) the term "PRIOR HOLDER" means any person or entity who has been (or, in the case of clause (ii) below, will be) granted rights pursuant to (i) the Registration Rights Agreement, dated as of October 15, 1993, as amended, among the Company and certain parties named therein (the "PRIOR REGISTRATION RIGHTS AGREEMENT"), or (ii) the Registration Rights Agreement, dated as of August 1, 1995, among the Company and certain parties named therein (the "VENTURER REGISTRATION RIGHTS AGREEMENT"), to have shares of Voting Common Stock registered under the Securities Act, either in respect of issued shares of Voting Common Stock or shares of Voting Common Stock to be issued upon conversion of outstanding securities of the Company; and 12 (e) the number of shares of "REGISTRABLE SECURITIES THEN OUTSTANDING" shall be determined by adding the number of shares of Voting Common Stock outstanding which are, and the number of shares of Voting Common Stock issuable pursuant to then exercisable or convertible securities (without regard to any restrictions on the ability of the holders thereof to convert such securities) which upon issuance would be, Registrable Securities. SECTION 11.2 REQUESTED REGISTRATION. (a) REQUEST FOR REGISTRATION. If, at any time after the earlier to occur of September 22, 1998 and six (6) months after the Company's initial Public Offering, the Company shall receive a written request from the Holder or Holders of in excess of 50% of the Registrable Securities then outstanding and entitled to registration rights under this Section 11.2 (the "INITIATING HOLDERS") that the Company effect the registration under the Securities Act with respect to all or a part of the Registrable Securities, the Company will, within five days of the receipt thereof, give written notice of such request to all Holders and shall within sixty (60) days of its receipt of such written request, file a registration statement on a form deemed appropriate by the Company's counsel with the Securities and Exchange Commission (the "SEC") covering all the Registrable Securities which the Holders shall in writing request (given within twenty (20) days of receipt of the notice given by the Company pursuant to this Section 11.2(a)) to be included in such registration and the Company shall use its reasonable best efforts to cause such registration statement to become effective. The Company shall not be obligated to effect such registration pursuant to this Section 11.2(a) (A) after the Company already has effected one (1) such registration pursuant to this Section 11.2(a), such registration has been declared or ordered effective and no stop order suspending the effectiveness of such registration statement has been issued within 60 days of such effectiveness (PROVIDED that the Company shall be deemed to have effected such registration if it files a registration statement pursuant to this Section 11.2(a) and such registration statement is subsequently withdrawn because the Holders request that such registration statement be withdrawn, unless (i) such request is as a result of the occurrence of an event (other than general economic or market conditions) that has had a material adverse effect on the Company's business or (ii) the Company is immediately reimbursed in full for all costs and expenses incurred by it in connection with such registration), (B) if a registration statement filed by the Company has been declared or ordered effective within six (6) months prior to the receipt of a written request from a Holder or Holders under this Section 11.2(a), (C) if in the good faith judgment of the Board of Directors of the Company, it would not be in the best interests of the Company and its stockholders generally for such registration statement to be filed (in which case the Company 13 shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders), PROVIDED that such deferral will not occur more than once in any 12-month period, or (D) if the Company is negotiating the material acquisition of a business and the Company's board of directors has determined in good faith that such negotiations could reasonably be expected to result in an agreement in principle to acquire such business (in which case the Company will have the right to defer such filing until the Company determines that it is no longer necessary to maintain the confidentiality of such negotiations, but in no event for longer than 90 days, provided that any such deferral will not occur more than once in any 12 month period). The registration statement filed pursuant to the request of the Initiating Holders may, subject to the provisions of Section 11.2(b) below, include other securities of the Company for its own account or which are held by officers or directors of the Company or persons or entities who, by virtue of agreements with the Company, are entitled to include their securities in any such registration, including Prior Holders (the "OTHER SHAREHOLDERS", PROVIDED, HOWEVER, that holders of Registrable Securities shall not be deemed Other Shareholders with respect to such Registrable Securities). (b) UNDERWRITING. If the Initiating Holders desire to distribute the Registrable Securities covered by such request by means of an underwriting, they shall so advise the Company as a part of such request made pursuant to Section 11.2(a) and the Company shall include such information in the written notice referred to Section 11.2(a). The underwriter or underwriters of such registration shall be mutually selected by the Company and a majority in interest of the Initiating Holders. If the Company and a majority in interest of the Initiating Holders are in good faith unable to agree on the selection of such underwriter or underwriters, then such underwriter or underwriters shall be selected by a majority in interest of the Initiating Holders, subject to the approval of the Company, which approval shall not be unreasonably withheld. The right of any Holder to registration pursuant to this Section 11.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. If officers or directors of the Company holding other securities of the Company shall request inclusion in any registration pursuant to this Section 11.2, or if Other Shareholders request such inclusion, the Holders shall offer to include the securities of such officers, directors and Other Shareholders in the underwriting and may condition such offer upon their participation in the underwriting and on their acceptance of the further applicable provisions of this Section 11. 14 The Holders shall (together with the Company, officers, directors and Other Shareholders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting as provided above, but the Company shall not be required to pay any commission to the underwriter in respect of the sale of Registrable Securities. Notwithstanding any other provision of this Section 11.2, if the representative of the underwriters determines that marketing factors require a limitation on the number of shares to be underwritten, the securities of the Company held by officers or directors of the Company and the securities held by Other Shareholders shall be excluded from the underwriting by reason of the underwriters' marketing limitation to the extent so required by such limitation. If a further limitation is required, the Company shall so advise all Holders requesting inclusion in such offering, and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among all Holders requesting inclusion in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held (or entitled to be held upon conversion) by each such Holder at the time of filing the registration statement. No Registrable Securities or any other securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. If any Holder, officer, director or Other Shareholder who has requested inclusion in such registration as provided above disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the underwriter and the Initiating Holders. The securities so withdrawn shall also be withdrawn from registration; PROVIDED, HOWEVER, that, if by the withdrawal of such Registrable Securities a greater number of Registrable Securities held by other Holders may be included in such registration (up to a maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders who have included Registrable Securities in the registration the right to include additional Registrable Securities in the same proportion used in determining the underwriter limitation in this Section 11.2(b). If the representative of the underwriters has not limited the number of Registrable Securities, the Company may include its securities for its own account in such registration if the underwriter so agrees and if the number of Registrable Securities which would otherwise have been included in such registration and underwriting will not thereby be limited. 15 SECTION 11.3 COMPANY REGISTRATION. (a) INCLUSION IN REGISTRATION. If, at any time after the initial Public Offering, the Company shall determine to register any of its shares of Voting Common Stock on a form (other than for the registration of securities to be offered and sold by the Company on any registration form which does not permit secondary sales or pursuant to (i) an employee benefit plan, (ii) a dividend or interest reinvestment plan, (iii) other similar plans or (iv) reclassifications of securities, mergers, consolidations and acquisitions of assets) which would permit the registration of any Registrable Securities, or the Company shall be requested to register any of its shares of Voting Common Stock by any holder of any securities entitled to registration upon such request (other than the Holders or their nominees), the Company will: (i) promptly give to the Holders written notice thereof (which shall include a list of the jurisdictions, if any, in which the Company intends to qualify such shares of Voting Common Stock under the applicable blue sky or other state securities laws); and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests made by each of the Holders, within fifteen (15) days after receipt of the written notice from the Company described in clause (i) above; PROVIDED, HOWEVER, that if the offering is underwritten and relates only to shares of Voting Common Stock to be sold by the Company and the Holders are advised in writing by the managing underwriter that the sale of Registrable Securities by the Holders will, due to market conditions, adversely affect such underwriting, the Holders shall not sell any of their Registrable Securities included therein until such time as the managing underwriter may permit, provided that such period of time will not exceed 120 days from the effective date of such registration. The Company shall be under no obligation to complete any offering of the shares of Voting Common Stock it proposes to make and shall incur no liability to any Holder for its failure to do so. (b) UNDERWRITING. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 11.3(a). In such event the right of the Holders to registration pursuant to this Section 11.3 shall be conditioned upon the Holders' participation in such underwriting and the inclusion of 16 the Holders' Registrable Securities in the underwriting to the extent provided herein. The Holders shall (together with the Company, officers, directors and the Other Shareholders distributing their shares of Voting Common Stock through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for underwriting by the Company and shall deliver all documents and opinions required to be delivered thereunder in respect of their participation as selling shareholders. Notwithstanding any other provision of this Section 11.3, if the representative of the underwriters determines that marketing factors require a limitation on the number of shares of Voting Common Stock to be underwritten, then the Company shall include in the underwriting only that number of shares, including Registrable Securities, which the representative believes will not jeopardize the success of the offering (the shares so included to be apportioned as follows: first, all shares which stockholders other than the Holders and the Prior Holders seek to include in the offering shall be excluded from the offering to the extent limitation on the number of shares included in the underwriting is required, then the number of shares held by Holders and the Prior Holders that may be included in the underwriting shall be apportioned PRO RATA among the selling Holders and the Prior Holders according to the total number of Registrable Securities and shares entitled to be included therein owned by each selling Holder and Prior Holder, respectively, or in such other proportions as shall be mutually agreed to by such selling Holders and Prior Holders, PROVIDED that all of the securities to be issued by the Company and sold by the Prior Holders who have requested the registration to which such offering relates pursuant to Section 1.2 of the Prior Registration Rights Agreement or Section 1.2 of the Venturer Registration Rights Agreement, as applicable, are included in such offering). If any of the Holders or any officer, director or Other Shareholder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the representative of the underwriters. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. (c) NUMBER. The Holders shall be entitled to have their shares included in an unlimited number of registrations pursuant to this Section 11.3. SECTION 11.4 FORM S-3. After the Company has qualified for the use of Form S-3 under the Securities Act for secondary sales, Holders of in excess of 50% of Registrable Securities shall have the right to request that the Company effect the registration on Form S-3 with respect to all or part of the Registrable Securities (such requests shall be in writing and shall state the number of shares of Registrable Securities to be disposed of and the intended method of disposition of shares by such holders), subject to the limitations set forth in the second paragraph of Section 11.2(a) hereof, as applicable, 17 PROVIDED, HOWEVER, that the Company shall not be obligated to effect such registration pursuant to this Section 11.4 after the Company already has effected two (2) such registrations pursuant to this Section 11.4 (and PROVIDED that the Company shall be deemed to have effected such a registration if it files a registration statement pursuant to this Section 11.4 and such registration statement is subsequently withdrawn because the Holders request that such registration statement be withdrawn, unless (i) such request is as a result of the occurrence of an event (other than general economic or market conditions) that has had a material adverse effect on the Company's business or (ii) the Company is immediately reimbursed in full for all costs and expenses incurred by it in connection with such registration), and PROVIDED, FURTHER, that the Company shall not be required to effect a registration pursuant to this Section 11.4 unless the Holder or Holders requesting registration propose to dispose of shares of Registrable Securities having an aggregate price to the public (after deduction of underwriting discounts and expenses of sale) of more than $1,000,000. The Company shall give written notice to all Holders of the receipt of a request for registration pursuant to this Section 11.4 and shall provide a reasonable opportunity for other Holders to participate in the registration, PROVIDED that if the registration is for an underwritten offering, the terms of Section 11.2(b) shall apply to all participants in such offering. SECTION 11.5 EXPENSES OF REGISTRATION. Except as otherwise provided herein, in connection with a registration pursuant to this Section 11, the Company shall pay all registration, filing and qualification fees, accounting fees and printing expenses of the Company, reasonable fees and disbursements of counsel for the Company and the reasonable fees and expenses of one counsel for the selling Holders. All (i) underwriting discounts and commissions, (ii) stock transfer taxes incurred in respect of the Registrable Securities being sold, and (iii) legal and accounting fees, expenses and disbursements of the Holders (except as set forth above), shall be borne and paid ratably by the Holders of the Registrable Securities included in any such registration based on the number of Registrable Securities so registered. SECTION 11.6 REGISTRATION PROCEDURES. In the case of each registration effected by the Company pursuant to this Section 11, the Company shall: (i) furnish to each Holder, prior to the filing thereof with the SEC, a copy of the registration statement; (ii) keep such registration effective for a period of one hundred twenty (120) days or until each Holder has completed the distribution described in the registration statement relating thereto, whichever first occurs; 18 (iii) furnish each Holder copies of any registration statement and each preliminary or final prospectus, or supplement or amendment required to be prepared pursuant hereto, as any Holder may from time to time reasonably request; (iv) prepare and promptly file with the SEC and promptly notify each Holder of the filing of any amendments or supplements to such registration statement or prospectus as may be necessary to correct any statements or omissions if, at any time when a prospectus relating to the Registrable Securities is required to be delivered under the Securities Act, any event with respect to the Company shall have occurred as a result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and use its reasonable best efforts to cause each such amendment or supplement to become effective, as may be necessary to comply with the provisions of the Securities Act with respect to disposition of all securities covered by such registration statement; (v) use its best efforts to qualify as soon as reasonably practicable the Registrable Securities included in the registration statement for sale under the securities or blue-sky laws of such states and jurisdictions within the United States as shall be reasonably requested by any Holder, PROVIDED that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business, to become subject to taxation or to file a consent to service of process generally in any of the aforesaid states or jurisdictions; (vi) furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 11 on the date that the registration statement becomes effective, (i) an opinion or opinions, dated such date, of counsel representing the Company for purposes of such registration, in form and substance as is customarily given by company counsel to the underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities, (ii) if the registration is underwritten, a letter, dated such date, from the independent certified public accountant of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters, addressed to the underwriters and (iii) a letter, dated such date, from such accountant in form and substance as is customarily given by independent certified accountants to the selling stockholders in a secondary public offering, 19 addressed to the Holders registering Registrable Securities; and (vii) apply for listing and use its reasonable best efforts to list the Registrable Securities being registered on any national securities exchange on which a class of the Company's equity securities is listed, or if the Company does not have a class of equity securities listed on a national exchange, apply for qualification and use its reasonable best efforts to qualify the Registrable Securities being registered for inclusion on the automated quotation system of the National Association of Securities Dealers, Inc. SECTION 11.7 LIMITATIONS ON REGISTRATION RIGHTS. Anything in this Warrant or in the Agreement to the contrary notwithstanding, the Company shall not be required to effect a registration under the Securities Act with respect to any shares of Class A Preferred Stock or Non-voting Common Stock, but shall be required, pursuant to Section 11 of this Warrant, to register shares of Voting Common Stock issuable upon the conversion thereof, PROVIDED that any Holder of Class A Preferred Stock or Non-voting Common Stock shall not be required to convert any Class A Preferred Stock or Non-voting Common Stock into Voting Common Stock until the closing of the sale of Voting Common Stock pursuant to any requested registration. Except that the Warrant Shares are to be deemed Registrable Securities, nothing in this Warrant shall be construed to grant to the holder of this Warrant registration rights that are in addition to the registration rights granted under the Mezzanine Warrants. SECTION 11.8 INDEMNIFICATION. (a) The Company shall indemnify each Holder offering Registrable Securities for sale pursuant to each registration that has been effected pursuant to this Section 11, the officers, directors, partners, agents, employees and shareholders of each such Holder, and any underwriter (as defined in the Securities Act) for each such Holder and each person, if any, who controls such person or underwriter within the meaning of the Securities Act or Exchange Act, and, with respect to any indemnity for the benefit of Equitable, Alliance Corporate Finance Group Incorporated, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement of a material fact contained in any registration statement under which such Registrable Securities were registered under the Securities Act, or based on any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each such Holder, officer, director, partner, agent, employee, underwriter and controlling person for any legal or other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action; PROVIDED, HOWEVER, that the Company shall pay for only one firm of counsel for all such Holders and the Company shall not be 20 liable to a Holder in any such case (i) to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission made in reliance upon and in conformity with information furnished to the Company by any Holder or the underwriter of any Holder and stated to be specifically for use therein or (ii) in the case of a sale directly by a Holder of Registrable Securities (including a sale of such Registrable Securities through any underwriter retained by such Holder engaging in a distribution on behalf of such Holder), such untrue statement or omission was contained in a preliminary prospectus and corrected in a final or amended prospectus, and such Holder failed to deliver a copy of the final or amended prospectus at or prior to the confirmation of the sale of the Registrable Securities to the person or entity asserting any such loss, claim, damage or liability. (b) Each of the Holders shall, if Registrable Securities held by them are included in the securities as to which such registration is being effected, severally indemnify the Company, each of its directors and officers who sign such registration statement, each Affiliate of the Company, each underwriter, if any, of the Company's securities covered by such registration statement, each other Holder and each other security holder whose securities are included in such registration, and each Affiliate thereof against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement of a material fact contained in any such registration statement under which such Registrable Securities were registered under the Securities Act, or based on any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such directors, officers, employees, Affiliates, other Holders or security holders or underwriters for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement or omission is made in such registration statement in reliance upon and in conformity with information furnished to the Company by such Holder and stated to be specifically for use therein; PROVIDED, HOWEVER, that the liability of any Holder hereunder shall be limited to the amount of net proceeds (after deduction of all underwriters' discounts and commissions paid by such holder in connection with the applicable registration) received by such Holder; and PROVIDED, FURTHER, that the indemnity agreement contained in this Section 11.8(b) shall not apply (i) to amounts paid in settlement of any such claim, loss, damage or liability (or actions in respect thereof) if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld, or (ii) in the case of a sale directly by the Company (including a sale of such securities through any underwriter retained by the Company to engage in a distribution on behalf of the Company) in which such untrue statement or omission was contained in a preliminary prospectus 21 and corrected in a final or amended prospectus, and the Company failed to deliver a copy of the final or amended prospectus at or prior to the confirmation of the sale of the securities to the Person asserting any such loss, claim, damage or liability. (c) Each party entitled to indemnification under this Section 11 (the "INDEMNIFIED PARTY") shall give notice to the party required to provide indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and any claim or any litigation resulting therefrom. In case any action is brought against an Indemnified Party, and it notifies the Indemnifying Parties of the commencement thereof, the Indemnifying Party will be entitled to participate in and, to the extent it so determines, assume the defense thereof; PROVIDED that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense. After notice from the Indemnifying Party of its election to so assume the defense thereof, the Indemnifying Party will not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof; PROVIDED, HOWEVER, that the Indemnified Party shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnifying Party, if representation of the Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests, as reasonably determined by either party, between the Indemnified Party and any other party represented by such counsel in such proceeding. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. SECTION 11.9 LOCKUP AGREEMENT. In consideration for the Company agreeing to its obligations under this Section 11, each Holder agrees in connection with any registration (other than for the registration of securities pursuant to (i) an employee benefit plan, (ii) a dividend or interest reinvestment plan, (iii) other similar plans or (iv) reclassifications of securities, mergers, consolidations and acquisitions of assets) of the Company's securities, upon the request of the Company and any underwriter managing any underwritten primary or secondary offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Warrants or Registrable Securities without the prior written consent of the Company and such underwriter, as the case may be, for such reasonable period of time prior to and after the effective date of such registration as the Company and such underwriter may specify, PROVIDED that such period of time will not exceed 180 days, in the case of registration relating to 22 the initial Public Offering, and 120 days, in the case of any registration relating to a Public Offering after the initial Public Offering. SECTION 11.10 INFORMATION ABOUT THE PURCHASERS. Each Holder shall promptly furnish to the Company such information regarding itself, its Affiliates or subsidiaries and the distribution proposed by it as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration referred to in this Section 11. SECTION 11.11 CONDITIONS TO REGISTRATION. As a condition to the Company's obligation hereunder to cause a registration statement to be filed or Registrable Securities to be included in a registration statement, each Holder shall provide such information and execute such documents as may reasonably be required in connection with such registration. In addition, the Company shall not be obligated to file a registration statement or to include Registrable Securities in a registration statement hereunder as to any Holder to the extent such Registrable Securities can then be sold during a single three-month period pursuant to Rule 144 (not including Rule 144(k)) under the Securities Act. SECTION 11.12 RULE 144. With a view to making available the benefits of certain rules and regulations of the SEC which may permit the sale of the restricted securities to the public without registration, the Company agrees to (i) make and keep public information available as those terms are understood and defined in Rule 144 under the Securities Act at all times from and after ninety (90) days following the closing date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public, and (ii) use its best efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Exchange Act of 1934, as amended, at any time after it has become subject to such reporting requirements. SECTION 11.13 TRANSFERABILITY. The registration rights granted in this Section 11 shall not be assignable in any manner to any transferee of any of the Warrants or Registrable Securities except in connection with the sale by the holder of their Warrant or part thereof or the Registrable Securities issued upon exercise of this Warrant or such securities, as the case may be, in a transaction not involving a Public Offering. SECTION 12. TAG-ALONG AND TAKE-ALONG RIGHTS. SECTION 12.1 TAG-ALONG RIGHT. (a) TAG-ALONG SALE NOTICE. Subject to Section 20, if the Initial Shareholder Group (as defined below) at any time receives a bona fide offer (a "TAG-ALONG OFFER") from a third party to purchase from the Initial Shareholder Group shares of 23 capital stock of the Company or the Initial Shareholder Group otherwise proposes to sell shares of capital stock of the Company for value, in each case pursuant to a sale that would constitute a Change in Control (as defined in the Securities Purchase Agreements) (a "TAG-ALONG SALE"), but other than in connection with a Public Offering, the Initial Shareholder Group shall be required to notify (i) prior to the Qualified Public Offering, the original holder of this Warrant or its Affiliated transferees (provided it or its Affiliated transferees owns at such time all or a portion of this Warrant or Warrant Shares), and (ii) after the Qualified Public Offering, the Qualified Warrantholders (as defined below), not less than fifteen (15) days prior to such proposed Tag-Along Sale, of such Tag-Along Offer or proposed Tag-Along Sale and such holder or Qualified Warrantholders, as the case may be, shall have the option to participate in such Tag-Along Sale as set forth in paragraph (b) of this Section 12.1. The notice from the Initial Shareholder Group (the "TAG- ALONG SALE NOTICE") shall include a copy of the Tag-Along Offer, if in writing, and shall set forth: (A) the number of shares of each class proposed to be transferred, (B) the name and address of the proposed purchaser, (C) the proposed amount of consideration and terms and conditions of payment offered by or to such proposed purchaser, and (D) that the proposed purchaser has been informed of the "tag-along" rights provided for in this Section 12.1 and has agreed to purchase shares in accordance with the terms hereof. For purposes hereof, the term "INITIAL SHAREHOLDER GROUP" means all of the holders of shares of Voting Common Stock and Class A Preferred Stock on September 22, 1995 who purchased such shares pursuant to the Common Stock Purchase Agreement dated October 15, 1993 and the Class A Preferred Stock Purchase Agreement dated October 15, 1993, respectively, and the term "QUALIFIED WARRANTHOLDER" means any original holder of a Warrant (or its Affiliated transferees) who has purchased (and not otherwise transferred) Warrant Shares or has the right to purchase Warrant Shares and Mezzanine Warrant Shares, which together constitute more than 50% of all of the Warrant Shares such holder was entitled to purchase upon exercise of all of the Warrants issued to such holder pursuant to the Agreement PLUS all of the Mezzanine Warrant Shares such holder was entitled to purchase upon exercise of all of the Mezzanine Warrants issued to such holder pursuant to the Securities Purchase Agreements (in each case, after taking into account all adjustments to the number of shares underlying such warrants). (b) TAG-ALONG RIGHT. Each initial holder of Warrants (or its Affiliated Transferees) prior to the Qualified Public Offering who owns at such time all or a portion of this Warrant or Warrant Shares and each Qualified Warrantholder after the Qualified Public Offering shall have the right to require the proposed purchaser to purchase from it a number of whole shares of Warrant Shares up to the number of shares equal to the total number of shares to be sold to the proposed purchaser (including the shares of Voting Common Stock issuable upon conversion of the Class A Preferred Stock to be sold to the proposed purchaser), 24 multiplied by a fraction, the numerator of which is the number of Warrant Shares held by it or purchasable upon exercise of Warrants held by it and the denominator of which is the total number of shares of common stock held (or entitled to be acquired upon conversion or exercise of convertible securities) by all of the holders of the Warrants, Warrant Shares, Mezzanine Warrants and Mezzanine Warrants and the Initial Shareholder Group. Any Warrant Shares purchased from a Warrantholder pursuant to this Section 12.1 shall be paid for upon the same terms and conditions (including as to price and type of consideration) received by the Initial Shareholder Group. (c) TAG-ALONG NOTICE. If an original Warrantholder (or its Affiliated transferees) prior to the Qualified Public Offering and a Qualified Warrantholder after a Qualified Public Offering elects to exercise the tag-along right provided for in this Section 12.1, it must deliver written notice to the Initial Shareholder Group (the "TAG-ALONG PARTICIPATION NOTICE") within ten (10) days following receipt by it of the Tag-Along Sale Notice. If such holder does not deliver a Tag-Along Participation Notice within such ten-day period it shall be deemed to have waived its tag-along right with respect to the proposed Tag- Along Sale. Each Tag-Along Participation Notice shall state the number of Warrant Shares that such holder proposes to include in such transfer to the proposed purchaser up to the number of shares determined in accordance with Section 12.1(b) hereof. SECTION 12.2 TAKE-ALONG RIGHT. (a) TAKE-ALONG NOTICE. If the Initial Shareholder Group at any time prior to a Qualified Public Offering receives a bona fide offer from a third party (other than an affiliate of the Company, Harvard Private Capital, Inc., Apollo Advisors, Inc. or Trace International Holdings, Inc. (provided they are stockholders of the Company at the time of such sale)) to purchase shares of capital stock of the Company from the Initial Shareholder Group or the Initial Shareholder Group otherwise proposes to sell shares of capital stock of the Company for value (a "TAKE-ALONG SALE"), the Initial Shareholder Group, subject to paragraph (c) of this Section 12.2, can require the holders of the Warrants and Warrant Shares to participate in such Take-Along Sale as set forth in paragraph (b) of this Section 12.2. If the Initial Shareholder Group elects to exercise the take-along right provided for in this Section 12.2, it must provide, at least twenty (20) days before the date of consummation of the proposed Take-Along Sale, notice to the holders of the Warrants and Warrant Shares setting forth: (i) the number of shares proposed to be transferred, (ii) the number of Warrant Shares that such holder must include in such transfer to the proposed purchaser as determined in accordance with paragraph (b) of this Section 12.2, (iii) the name and address of the proposed purchaser, (iv) the proposed amount of consideration and terms and conditions of payment offered by or to such proposed purchaser, and (v) that 25 the proposed purchaser has been informed of the "take-along" rights provided for in this Section 12.2 and has agreed to purchase shares in accordance with the terms hereof. (b) TAKE-ALONG RIGHT. The Initial Shareholder Group shall at any time have the right to require each holder of a Warrant and Warrant Shares to sell to the proposed purchaser, as applicable, all or a portion of such Warrant or Warrant Shares up to the sum of the number of shares issuable upon exercise of such Warrant and such Warrant Shares equal to the total number of shares to be sold to the proposed purchaser (including the shares of Voting Common Stock issuable upon conversion of the Class A Preferred Stock to be sold to the proposed purchaser) multiplied by a fraction, the numerator of which is the number of Warrant Shares held by such holder after the full exercise of such holder's Warrants and the denominator of which is the total number of shares of common stock held (or entitled to be acquired upon conversion or exercise of convertible securities) by all of the holders of the Warrants, Warrant Shares, Mezzanine Warrants and Mezzanine Warrant Shares and the Initial Shareholder Group. Any shares purchased from holders of Warrants and Warrant Shares pursuant to this Section 12.2 shall be paid for (i) upon the same terms and conditions (including as to price and type of consideration) received by the Initial Shareholder Group and (ii) in either all cash or a combination of cash and securities; PROVIDED, HOWEVER, that if such securities are not or, at the option of such holders, will no longer be restricted securities (as such term is defined in Rule 144 of the Securities Act) within 180 days of the date such sale is consummated or if such securities are otherwise subject to restrictions pursuant to any shareholders' agreement entered into in connection with such Take-Along Sale that precludes the transfer of such securities within 180 days of the date such sale is consummated, or if a reasonably liquid trading market does not exist for such securities, then, unless the holders of at least 66 2/3% of the sum of (A) the Warrant Shares outstanding or subject to issuance upon exercise of the Warrants and (B) the Mezzanine Warrant Shares outstanding or subject to issuance upon exercise of the Mezzanine Warrants elect to receive such securities, the Initial Shareholder Group may require each holder of a Warrant or Warrant Shares to sell Warrant Shares to the proposed purchaser pursuant to this Section 12 only if the Company or the Initial Shareholder Group pays such holder an amount in cash equal to the then current fair market value of such securities as determined in good faith by the Company's Board of Directors. In the event that such holders of 66 2/3% of such Warrant Shares and Mezzanine Warrant Shares do not agree with such determination, then the then current fair market value of such securities shall be determined as follows, which determination shall be final and binding: (i) The Company shall select a qualified investment banking firm or appraisal firm (the "INVESTMENT BANKER") and any such holders may select their own qualified 26 investment banking firm or appraisal firm (the "ADDITIONAL APPRAISER"), each to appraise the then current fair market value of such securities. (ii) If the difference between the appraisals of the Investment Banker and the Additional Appraiser is not greater than 10% of the higher appraisal, then the average of the two appraisals shall be deemed to be the then current fair market value of such securities. (iii) If the difference between the appraisals of the Investment Banker and the Additional Appraiser is greater than 10% of the higher appraisal, then the Investment Banker and the Additional Appraiser shall select a third appraiser (the "THIRD APPRAISER"), and the then current fair market value shall be determined by (1) averaging the appraisal of each of the Investment Banker, the Additional Appraiser and the Third Appraiser, (2) disregarding the appraisal which deviates most from such average and (3) averaging the remaining two appraisals. The fees and expenses of the Investment Banker, the Additional Appraiser and the Third Appraiser shall be borne equally by the Company and such holders, PROVIDED that such holders may pay their share of such fees and expenses from the proceeds they receive in connection with the Take-Along Sale. (c) FAIRNESS OPINION. As a condition precedent to the consummation of the Take-Along Sale, the Initial Shareholder Group shall furnish to the holders of the Warrants and Warrant Shares an opinion (in form and substance reasonably satisfactory to such holders) of an unaffiliated, nationally recognized investment banking firm as to the fairness of the Take-Along Sale to such holders from a financial point of view. SECTION 12.3. IMPROPER TRANSFER. Any attempt to transfer any shares not in compliance with this Section 12 shall be null and void and neither the Company nor any transfer agent shall give any effect in the Company's stock records to such attempted transfer. SECTION 13. RIGHT OF FIRST REFUSAL AND PRE-EMPTIVE RIGHTS. SECTION 13.1 RIGHT OF FIRST REFUSAL. (a) FIRST OFFER NOTICE. Prior to the Qualified Public Offering, no holder of a Warrant or Warrant Shares shall transfer all or any portion of a Warrant or any Warrant Shares (collectively, the "OFFERED SHARES") to any person or entity (other than an Affiliate) unless (x) such holder (the "SELLING WARRANTHOLDER") has received a bona fide written offer (the "PURCHASE OFFER") from the proposed transferee of the Offered Shares (the "PURCHASER") to purchase the Offered Shares, which offer shall be in writing signed by the Purchaser, and (y) the Selling Warrantholder first offers to sell to the Company and 27 each member of the Initial Shareholder Group such number of Offered Shares as is determined in accordance with paragraph (c) of this Section 13.1. Prior to making any transfer that is subject to this Section 13.1, the Selling Warrantholder shall give the Company and each member of the Initial Shareholder Group written notice (the "OFFER NOTICE") which shall include (x) the identity of the Purchaser, (y) a copy of the Purchase Offer, and (z) an offer (the "FIRST OFFER") to sell to the Company and each such member of the Initial Shareholder Group its Pro Rata Amount (as defined in paragraph (c) below) of the Offered Shares upon the same terms and conditions as those provided for in the Purchase Offer. The First Offer shall be irrevocable with respect to the Initial Shareholder Group for a period of fifteen (15) days following receipt by each member of the Initial Shareholder Group of the Offer Notice (the "FIRST OFFER PERIOD") and, with respect to the Company, for a period of twenty (20) days following receipt by the Company of the Offer Notice. (b) ACCEPTANCE OF FIRST OFFER. At any time during the First Offer Period, each member of the Initial Shareholder Group may accept the First Offer as to its respective Pro Rata Amount of the Offered Shares by giving written notice to the Selling Warrantholder of such acceptance (each such member of the Initial Shareholder Group who accepts the First Offer in the manner provided herein is referred to herein as a "PURCHASING STOCKHOLDER"). In the event that the Purchasing Stockholders, individually or collectively, do not accept the First Offer as to all of the Offered Shares, then within five days of the end of the First Offer Period, the Company may, by giving written notice to the Selling Warrantholder, accept the First Offer as to all, but not less than all, of the Offered Shares as to which the Purchasing Stockholders have not accepted the First Offer. In the event that the Initial Shareholder Group and the Company accept the First Offer as to all of the Offered Shares, the closing of the sale of the Offered Shares shall take place within thirty-five (35) days after the First Offer is accepted by all Purchasing Stockholders, or the Company, as the case may be, or, if later, the date of closing set forth in the Purchase Offer. At such closing, the Selling Warrantholder will deliver certificates for such Offered Shares against payment of the purchase price therefor, and the Purchasing Stockholders, or the Company, as the case may be, will acquire their respective Pro Rata Amount of the Offered Shares, or the remaining Offered Shares, as the case may be, free and clear of all liens, pledges, encumbrances, restrictions and security interests of any kind. If the Initial Shareholder Group and the Company do not purchase all of the Offered Shares, the Selling Warrantholder may sell the Offered Shares to the Purchaser at any time within sixty (60) (or such later date as is necessary to receive all approvals required in connection with such sale, not to exceed 120 days (or 150 days if Manufacturer Approvals are required)), days after the last day of the First Offer Period, PROVIDED that such sale shall be made on terms no less favorable to the Selling Warrantholder than the terms contained in the Purchase Offer and PROVIDED FURTHER that 28 such sale complies with the terms, conditions and restrictions of the Warrants. The Company will cooperate with the Selling Warrantholder in seeking any required manufacturer approvals and will permit third parties to conduct reasonable due diligence in connection with the Selling Warrantholder's attempt to sell the Offered Shares, PROVIDED such due diligence does not materially interfere with the Company's operations. In the event that the Offered Shares are not sold in accordance with the terms of the preceding sentence, the Offered Shares shall again be subject to all of the conditions and restrictions of this Section 13.1. (c) DETERMINATION OF PRO RATA AMOUNT. Each Purchasing Stockholder shall be obligated to purchase pursuant to this Section 13.1 a number of Offered Shares as shall equal the product obtained by multiplying (x) the number of Offered Shares not being purchased by the Company by (y) a fraction, the numerator of which shall be equal to the number of shares of Voting Common Stock owned by such Purchasing Stockholder (including the shares of Voting Common Stock issuable upon conversion of the shares of Class A Preferred Stock owned by such Purchasing Stockholder) and the denominator of which shall be equal to the total number of shares of Voting Common Stock owned by all of the Purchasing Stockholders (including the shares of Voting Common Stock issuable upon conversion of the shares of Class A Preferred Stock owned by such Purchasing Stockholders) (the "PRO RATA AMOUNT"). SECTION 13.2 PRE-EMPTIVE RIGHTS. Prior to the Qualified Public Offering, a Qualified Warrantholder shall have the right, in accordance with procedures comparable to those set forth in Article VI of the Company's Restated Certificate of Incorporation applicable to "Qualified Warrantholders" (as such term is used therein), to purchase a PRO RATA portion of any additional shares of capital stock issued by the Company deemed to be "New Securities" in accordance with the Company's Restated Certificate of Incorporation. SECTION 13.3 IMPROPER TRANSFER. Any attempt to transfer any shares not in compliance with this Section 13 shall be null and void and neither the Company nor any transfer agent shall give any effect in the Company's stock records to such attempted transfer. SECTION 14. NOTICES. Any notice by the Company, the holder of this Warrant or the holders of Warrant Shares or Registrable Securities shall be in writing and shall be deemed to have been duly given if delivered or mailed by certified mail five days after mailing, return receipt requested (a) if to the Company, 375 Park Avenue, 22nd Floor, New York, New York 10022, or at such other address as the Company may designate by notice to each holder of Warrants, Warrant Shares or Registrable Securities at the time outstanding, (b) if to any Purchaser that holds Warrants, Warrant Shares or Registrable Securities, at such Purchaser's address set forth on the signature page to the 29 Agreement or at such other address as such Purchaser may designate by notice to the Company, and (c) if to any other holder of Warrants, Warrant Shares or Registrable Securities, at the address of such holder as it appears on the Security Register. SECTION 15. SUCCESSORS. Except as expressly provided in Sections 3.2, 3.3 and 11.13, this Warrant shall bind and inure to the benefit of the Company and its permitted successors and assigns hereunder, the Purchasers and their respective successors and assigns hereunder and, in addition, shall inure to the benefit of and be enforceable by all holders from time to time of the Warrants, the Warrant Shares and the Registrable Securities. Without limiting the generality of the foregoing, the rights and obligations of the Purchasers and their respective successors and assigns as holders of Warrants and Registrable Securities (including without limitation rights and obligations as to registrations and other matters covered by Sections 11, 12 and 13) shall survive any reorganization, consolidation or merger of the Company with or into another entity or the sale or conveyance to another person of the property, assets or business of the Company as an entirety or substantially as an entirety and such successor or purchasing entity or person, as the case may be, shall execute such agreements or other instruments as may be reasonably requested by the holder of this Warrant to give effect to the foregoing. SECTION 16. APPLICABLE LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of New York. SECTION 17. BENEFITS OF THIS AGREEMENT. Nothing in this Warrant shall be construed to give to any person or corporation other than the Company, the holder of this Warrant and the holders of the Warrant Shares or Registrable Securities any legal or equitable right, remedy or claim under this Warrant and this Warrant shall be for the sole and exclusive benefit of the Company, the holder hereof and the holders of the Warrant Shares and the Registrable Securities. SECTION 18. SURVIVAL; INTERPRETATION. All covenants and agreements of the Company that relate to the Warrant Shares or the Registrable Securities and all rights and duties of the holders from time to time of the Warrant Shares or the Registrable Securities in this Warrant (including without limitation all rights and duties contained in Sections 11, 12 and 13) shall be deemed to survive any surrender hereof to the Company upon exercise hereof as contemplated by Section 1. References herein to the Agreement and terms defined therein shall be deemed to survive the termination of the Agreement. Prior drafts of this Warrant shall not be used as a basis for interpreting this Warrant. 30 SECTION 19. AMENDMENT AND WAIVER. This Warrant may be amended, and the observance of any term hereof may be waived, only in accordance with Section 9.7 of the Agreement. SECTION 20. CERTAIN ADDITIONAL AGREEMENTS. Trace International Holdings, Inc., Aeneas Venture Corporation and AIF II, L.P., who on the date hereof collectively own more than 92% of shares of the Company's capital stock owned by the Initial Shareholder Group, have entered into an agreement assuming and agreeing to perform the terms and conditions of Section 12.1. SECTION 21. SPECIFIC PERFORMANCE. The rights of the Company, the holder hereof and the holders of the Warrant Shares and the Registrable Securities are unique, and, accordingly, each shall, in addition to such other remedies as may be available to any of them at law or in equity, have the right to enforce their rights under this Warrant by actions for injunction or specific performance to the extent permitted by law. SECTION 22. PRIVATE PLACEMENT NUMBER. If the Warrant Shares to be issued upon exercise of this Warrant do not already have a CUSIP number assigned to them by Standard & Poor's CUSIP Service Bureau, the Company shall use its reasonable efforts to obtain a Private Placement Number issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) for the Warrant Shares prior to the issuance of any such Warrant Shares. 31 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its duly authorized officer. Dated: _________________ UNITED AUTO GROUP, INC. By:_________________________ Carl Spielvogel Chairman of the Board and Chief Executive Officer 32 ELECTION TO PURCHASE Attn: __________________ The undersigned hereby irrevocably elects to exercise the right of purchase represented by the Warrant to which this Election to Purchase is attached for, and to purchase thereunder, ____________ shares of Class A Preferred Stock (or other securities into which such shares are convertible, as specified below) of the Company provided for therein, and requests that certificates for said shares (or other securities) be issued in the name of: (Please Print Name and Address) and, if said number of shares shall not be all the shares purchasable hereunder, that a new Warrant certificate for the balance of said shares purchasable under the said Warrant be registered in the name of the undersigned holder or its nominee as below indicated and delivered to the address stated below. Dated: ________________, ______ Class of capital stock requested:___________________ Name of holder or Nominee (Please Print): ______________________________________________ Address: _____________________________________________________________ Signature: _____________________________________ Signature Guaranteed: (To be signed only upon assignment of Warrant) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto (Name and Address of Assignee must be Printed or Typewritten) the within Warrant with respect to ____ shares, hereby irrevocably constituting and appointing ______________________ Attorney to transfer said Warrant on the books of United Auto Group, Inc. with full power of substitution in the premises. All notices to be given by the Company to the Warrant holder pursuant to Section 10 of the within Warrant shall be sent to the assignee at the above listed address, and, if the number of shares being hereby assigned is less than all of the shares covered by the within Warrant, then also to the undersigned. The undersigned requests that the Company execute and deliver, if necessary to comply with the provisions of Section 3 of the within Warrant, a new Warrant or, if the number of shares being hereby assigned is less than all of the shares covered by said Warrant, new Warrants in the name of the undersigned, the assignee and/or the assignees, as is appropriate. Dated: __________________, ______ Signature of Registered Holder EXHIBIT A TO WARRANT [Name of Warrant Holder] [Address] Re: CONTINGENT VALUE OBLIGATIONS AGREEMENT Ladies and Gentlemen: The Contingent Value Obligations Agreement (this "Agreement") hereby evidences contingent value obligations ("CVOs") of United Auto Group, Inc. (the "Company") to you, received by you upon conversion of the Warrants (as defined below) held by you prior to the date hereof. 1. PURPOSE. The purpose of this Agreement is to provide the holders of the Warrants (as defined below) with economic benefits substantially similar to those that would have been realized by the holders of the Warrants in the event that the Manufacturer Approvals (as defined in the Warrants) had been obtained and such Warrants had been exercised and the shares of Class A Preferred Stock (as defined in the Warrants) issued upon such exercise had been sold. 2. DEFINITIONS. "BASE VALUE" of each CVO granted under this Agreement shall be equal to $0.01, subject to adjustment as provided in Section 3(b) hereof. "BOARD" shall mean the Board of Directors of the Company, as constituted from time to time. "FAIR MARKET VALUE" shall mean the fair market value of the Company on the Redemption Date, as mutually determined in good faith by the Board and the holders of a majority of the CVOs, provided that if the Board and such holders cannot agree on such Fair Market Value, then such Fair Market Value shall be determined by an independent, nationally recognized investment banking firm mutually selected by the Company and the holders of a majority of the CVOs. The cost of such investment banking firm shall be borne equally by the Company and the holders of the CVOs. In the event that the Company and the holders of a majority of the CVOs do not agree on such investment banking firm, then the Fair Market Value shall be determined as follows, which determination shall be final and binding: (i) The Company shall select a qualified investment banking firm or appraisal firm (the "Investment Banker") and the holders of a majority of the CVOs shall select a qualified investment banking firm or appraisal firm (the "Additional Appraiser"), each to appraise the Fair Market Value. (ii) If the difference between the appraisals of the Investment Banker and the Additional Appraiser is not greater than 10% of the higher appraisal, then the average of the two appraisals shall be deemed to be the Fair Market Value. (iii) If the difference between the appraisals of the Investment Banker and the Additional Appraiser is greater than 10% of the higher appraisal, then the Investment Banker and the Additional Appraiser shall select a third appraiser (the "Third Appraiser"), and the Fair Market Value shall be determined by (1) averaging the appraisal of each of the Investment Banker, the Additional Appraiser and the Third Appraiser, (2) disregarding the appraisal which deviates most from such average and (3) averaging the remaining two appraisals. The fees and expenses of the Investment Banker, the Additional Appraiser and the Third Appraiser shall be borne equally by the Company and such holders. "FAIR MARKET VALUE PER SHARE" shall mean, on the Redemption Date, the Fair Market Value, divided by the sum of (i) the total number of shares of capital stock of the Company (including the number of shares of capital stock of the Company issuable upon the exercise or conversion of Derivative Securities (as defined in the Warrants)) outstanding immediately prior to the Redemption Date and (ii) the total number of CVOs outstanding immediately prior to the Redemption Date. The Fair Market Value Per Share shall be determined based on the proportionate share of one share of Class A Preferred Stock of the overall Fair Market Value of the Company (taking into account all adjustments to the Applicable Conversion Value (as defined in the Company's Restated Certificate of Incorporation, as amended) relating to the Class A Preferred Stock from the date of original issuance of the Warrants). "MEZZANINE CVOS" shall mean the Contingent Value Obligations issued upon conversion of the Mezzanine Warrants (as defined in the Warrants). "REDEMPTION DATE" shall mean the date on which the Company receives notice of the Redemption Request (as defined below). "REDEMPTION PRICE" shall mean, with respect to each CVO being redeemed by the Company upon the exercise of the redemption right set forth in Section 4 hereof, the amount by which (i) the Fair Market Value Per Share on the Redemption Date exceeds (ii) the Base Value of such CVO. -2- "REQUIRED CVO HOLDERS" shall mean the holders of at least 66-2/3% of the sum of the outstanding CVOs and the outstanding Mezzanine CVOs. "VALUE NOTES" shall mean promissory notes issued by the Company pursuant to Section 4 hereof containing such terms as shall be agreed to by the Company and the holders of a majority of the CVOs. If the Company and such holders cannot agree on the terms of the Value Notes, such terms shall be determined by an investment banking firm selected by the Company (the cost of whom shall be borne equally by the Company and such holders). "WARRANTS" shall mean all warrants originally issued pursuant to the Warrant Purchase Agreement, dated as of July 10, 1996, among the Company, J.P. Morgan Capital Corporation and The Equitable Life Assurance Society of the United States, and all warrants delivered in substitution or exchange for such warrants. The term "Warrant" means one of the Warrants. "WARRANT SHARES" shall mean, collectively, the shares of Class A Preferred Stock acquired pursuant to the exercise of the Warrants and any securities issued or issuable with respect to such Class A Preferred Stock by way of stock dividend or other distribution or stock split or in connection with a combination of shares, conversion, recapitalization, merger, consolidation or other reorganization or otherwise. 3. ISSUANCE OF CVOS. (a) CONVERSION OF WARRANTS INTO CVOS. Each Warrant shall be converted into a number of CVOs equal to the number of Warrant Shares issuable upon exercise of such Warrant. (a) ADJUSTMENT OF CVOS. The number and Base Value of CVOs granted hereunder shall be adjusted in substantially the same manner as the number and price of Warrant Shares is subject to adjustment as set forth in Section 8 of the Warrants. (c) NATURE OF CVOS. The CVOs granted hereunder shall be used solely as a device for the measurement and determination of the aggregate principal amount of the Value Notes to be issued to each holder of a CVO as provided in this Agreement. CVOs shall not constitute or be treated as a trust fund of any kind or as stock, stock options or other form of equity or security. A holder of a CVO shall have only those rights set forth in this Agreement with respect to CVOs granted to it and shall have no rights as a shareholder of the Company by virtue of having been granted CVOs. 4. REDEMPTION OF CVOS. Upon the written request of the holders of the Required CVO Holders (the "Redemption Request"), at any time prior to the Termination Date (as defined -3- in the Warrants), the Company shall be required to redeem, and all of the holders of outstanding CVOs shall be required to submit for redemption, all, but not less than all, of the outstanding CVOs for an amount equal to the Redemption Price, which the Company shall pay by issuing Value Notes to all of the holders of CVOs in an aggregate principal amount equal to the aggregate Redemption Price for all outstanding CVOs pursuant to the applicable Contingent Value Obligations Agreements. The CVOs shall be submitted for redemption contemporaneously with the Mezzanine CVOs. 5. PURCHASE OF VALUE NOTES. On or prior to the expiration of seven months after the Redemption Date, either (i) the investment banking firm determining the terms of the Value Notes pursuant to Section 4 hereof or another third party identified by the Company shall purchase all of the Value Notes at par or (ii) the Company, at its option, shall repurchase all or a portion of the Value Notes at par, provided that if the Company repurchases less than all of the Value Notes, it will assure that the remaining outstanding Value Notes are concurrently purchased by a third party at par. On the date such Value Notes are purchased, the Company shall pay each holder of the CVOs an amount equal to its proportionate share of the interest accrued on the aggregate principal amount of the Value Notes from the Redemption Date through the date of such purchase, which interest shall accrue at a per annum rate equal to the interest rate per annum payable on six-month U.S. Government Treasury bills on the Redemption Date, as reported by The Wall Street Journal. 6. CONVERSION INTO WARRANTS. In the event the Manufacturer Approvals (as defined in the Warrants) are received after the issuance but prior to the redemption of the CVOs, each holder of such unredeemed CVOs, upon written notice from the Company, shall be required to convert such CVOs into the Warrants which were previously converted into such CVOs, and this Agreement shall terminate and cease to be of any further force or effect. 7. SUCCESSORS. The obligations of the Company under this Agreement shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company. The Company agrees that it will make appropriate provision for the preservation of the rights of the holders of the CVOs under this Agreement in any agreement or plan which it may enter into or adopt to effect any such merger, consolidation or reorganization. 8. NOTICE. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, delivery by facsimile or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed, if to the Company, to its principal executive offices located at 375 Park Avenue, -4- 22nd Floor, New York, NY 10022, facsimile no. (212) 223-5148, attention: Chief Executive Officer, and if to any holder of a CVO, to such holder's address or facsimile number as shown on the records of the Company, as applicable, or at such other address or facsimile number as such party may designate by written notice to the Company or such holder, as applicable, given in the manner herein provided. 9. TRANSFERABILITY. Neither the CVOs nor any rights arising under this Agreement shall be transferable without the prior written consent of the Company, other than to an Affiliate (as defined in the Warrants) of the holder of the CVOs being transferred. 10. AMENDMENT. This Agreement may be amended with the written consent of the Company and the holders of a majority of the CVOs. 11. GOVERNING LAW. This Agreement is to be governed by and construed in accordance with the laws of the State of New York, without reference to the principles of conflicts of laws thereof. If you are in agreement with the foregoing, please sign in the space provided below and return an executed copy of this Agreement to us. Sincerely, UNITED AUTO GROUP, INC. By:____________________ Name: Title: Accepted and agreed to as of _____________-, 199__: [Name of CVO Holder] By: ___________________ Name: Title: -5- EX-10.1-5 7 EXHIBIT 10.1.5 [FORM OF ADDITIONAL WARRANT] THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE BLUE SKY LAWS OF ANY STATE AND MAY NOT BE SOLD, EXCHANGED, HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT IN COMPLIANCE WITH SAID ACT AND WITH SUCH BLUE SKY LAWS. IN ADDITION, THE SECURITIES REPRESENTED BY THIS WARRANT ARE SUBJECT TO RESTRICTIONS ON TRANSFER CONTAINED IN THIS WARRANT. NUMBER OF SHARES: ___________ WARRANT No. ___ PPN: 90944# 12 2 WARRANT TO PURCHASE CLASS A PREFERRED STOCK OF UNITED AUTO GROUP, INC. UNITED AUTO GROUP, INC., a Delaware corporation (the "COMPANY"), HEREBY CERTIFIES THAT, for value received ______________________ _________________, or registered assign, is entitled to purchase _________ shares (adjusted as below provided) of Class A Preferred Stock at any time from the Manufacturer Approval Date (as defined below) until 5:00 p.m., New York City time, on the Termination Date (as defined below) or the next succeeding Business Day (as defined below) if such Termination Date is not a Business Day. As used herein, the term "CLASS A PREFERRED STOCK" means the Company's Class A Preferred Stock, par value $0.0001 per share, as constituted on the date of original issue of this Warrant, and (unless the context otherwise requires) irrespective of the classes into which such shares of Class A Preferred Stock may be divided, and any shares of capital stock into which such shares of Class A Preferred Stock may thereafter be changed or that may be issued in respect of, or in exchange or in substitution for, such shares of Class A Preferred Stock by reason of any transaction described in Section 8; PROVIDED, HOWEVER, that in the event that the Class A Preferred Stock is automatically converted into Voting Common Stock, par value $0.0001 per share, (the "VOTING COMMON STOCK") of the Company pursuant to the Company's Restated Certificate of Incorporation, as amended, then all references in this Warrant to Class A Preferred Stock (other than in Section 11.7 and unless the context otherwise requires) shall be deemed to be a reference to Voting Common Stock. This Warrant is one of an issue of warrants (the "WARRANTS") to purchase Class A Preferred Stock of the Company issued pursuant to the Warrant Purchase Agreement dated as of July 10, 1996 (the "AGREEMENT"), entered into by the Company with J.P. Morgan Capital Corporation ("JPMCC") and The Equitable Life Assurance Society of the United States ("EQUITABLE" and, together 1 with JPMCC, the "PURCHASERS"). The holder of this Warrant is entitled to certain benefits of the Agreement. SECTION 1. TERM AND EXERCISE; CONTINGENT VALUE OBLIGATIONS. SECTION 1.1 TERM OF WARRANTS; EXERCISE OF WARRANTS. Subject to the terms hereof, including, but not limited to, Section 1.2 hereof, the holder of this Warrant shall have the right, at any time during the period commencing on the Manufacturer Approval Date (as defined below) and ending at 5:00 p.m., New York time, on the earlier of the date of effectiveness of the Company's initial Public Offering (as defined below) and September 22, 2005 (the "TERMINATION DATE"), to purchase from the Company up to the number of shares of Class A Preferred Stock which such holder may at the time be entitled to purchase pursuant to this Warrant, upon written notice to the Company of such holder's election to exercise this Warrant and upon surrender of this Warrant to the Company, at its office located at 375 Park Avenue, New York, New York, together with the purchase form at the end hereof duly completed and signed, accompanied by payment to the Company of the Warrant Price (as defined in and determined in accordance with the provisions of Sections 7 and 8) for the number of shares with respect to which this Warrant is then exercised, PROVIDED, HOWEVER, that the holder of this Warrant shall be deemed to have given notice to exercise this Warrant on the date of effectiveness of the Company's initial Public Offering unless the Company receives from such holder written notice to the contrary prior to such date. The term "MANUFACTURER APPROVAL DATE" means the date that all applicable approvals that are required to, and in effect, permit the exercise of this Warrant and the issuance of all shares of Class A Preferred Stock that are issuable upon the exercise of this Warrant are received from all automobile franchisors with whom the Company has entered into franchise or similar agreements, which approvals shall not by their terms be revocable and shall not limit or adversely affect the ability of a stockholder to convert Class A Preferred Stock into Voting Common Stock or of a Regulated Stockholder to convert Non-voting Common Stock into Voting Common Stock or to convert Voting Common Stock into Non-voting Common Stock pursuant to the Company's Restated Certificate of Incorporation, as amended (collectively, the "MANUFACTURER APPROVALS"). The Company will use its reasonable best efforts to obtain the Manufacturer Approvals, PROVIDED that approvals by the Company's franchisors required to effect a Public Offering that are broad enough, in the legal opinion of outside counsel (reasonably satisfactory to the holders of the Warrants) to the Company addressed to the holders of the Warrants and in form and substance reasonably satisfactory to them, to allow the exercise of the Warrants and issuance of the Warrant Shares will be deemed to be Manufacturer Approvals. The Company will use its reasonable best efforts to ensure that the provisions in the Company's franchise agreements with automobile franchisors in respect of the transfer of shares of 2 the Company do not prevent the holders of the Warrants from exercising the Warrants and selling in the open market, or through exercise of their registration rights, shares acquired upon exercise of the Warrants. Payment of the aggregate Warrant Price shall be made, at the election of the holder of this Warrant, either (i) by certified or cashier's check or wire transfer or (ii) in lieu of paying the Warrant Price in cash, by electing to receive such number of shares of Class A Preferred Stock equal to (A) the excess of (x) the fair market value per share of Voting Common Stock on the date of such exercise multiplied by the number of shares being purchased pursuant to such exercise over (y) the aggregate Warrant Price of the shares being purchased pursuant to such exercise, divided by (B) the fair market value per share of Voting Common Stock on the date of such exercise. For purposes hereof, "FAIR MARKET VALUE" shall mean (i) at any time prior to the Company's initial Public Offering, the then current fair market value per share of such class of capital stock immediately prior to such sale or issuance, determined in good faith by the Board of Directors of the Company, and (ii) on the effective date of the registration statement filed in connection with the Company's initial Public Offering, the price per share to the public set forth on the cover page of the prospectus included in such registration statement. As used herein, the term "BUSINESS DAY" means any day other than a Saturday or Sunday or a day on which commercial banks are required or authorized by law to be closed in New York, New York. As used herein, the term "PUBLIC OFFERING" means the sale or issuance of shares of Voting Common Stock or Derivative Securities pursuant to a registration statement (other than forms S-4, S-8 or similar forms) which has become effective under the Securities Act. As used herein, the term "DERIVATIVE SECURITIES" means rights, options, warrants, convertible securities or options or other rights to purchase convertible securities or any similar instrument containing the right to subscribe for, purchase or otherwise acquire shares of capital stock of the Company. Upon such surrender of this Warrant, together with any other Warrants so surrendered, and payment of such Warrant Price as aforesaid, the Company shall issue and cause to be delivered with all reasonable dispatch, and in any event within five Business Days thereafter, to or upon the written order of the holder of this Warrant and in such name or names as such holder may designate, a certificate or certificates for the number of full shares and any fraction of a share of Class A Preferred Stock (or, if the Class A Preferred Stock has been converted into Voting Common Stock pursuant to the Company's Restated Certificate of Incorporation, as amended, Voting Common Stock) so purchased, or, at the Company's option, together with cash, as provided in Section 9, with respect to any fraction of a share of capital stock, otherwise issuable upon such surrender. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of such shares of capital stock, as of 3 the close of business on the date of the surrender of this Warrant and payment of the Warrant Price as aforesaid, notwithstanding that the certificates representing such shares shall not actually have been delivered or that the stock transfer books of the Company shall then be closed. This Warrant shall be exercisable, at the election of the holder of this Warrant, either in full or from time to time in part. In the event that this Warrant is exercised with respect to less than the aggregate number of shares of Class A Preferred Stock this Warrant then entitles such holder to purchase, the Company shall deliver to or upon the order of such holder hereof a new Warrant evidencing the rights of such holder to purchase the unpurchased shares of Class A Preferred Stock then called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. In the alternative, at the request of the holder upon any partial exercise of this Warrant, appropriate notation may be made on this Warrant and the same shall be returned to such holder. The term "REGULATED STOCKHOLDER" means (i) any stockholder that is subject to the provisions of Regulation Y of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 225) or any successor to such regulation ("REGULATION Y"), so long as such stockholder shall hold, and only with respect to, the Warrants, Warrant Shares or shares issued upon conversion(s) of the Warrant Shares, (ii) any stockholder that is subject to regulation under the New York Insurance Law, so long as such stockholder shall hold, and only with respect to, the Warrants, Warrant Shares or shares issued upon conversion(s) of the Warrant Shares, (iii) any Affiliate of a Regulated Stockholder that is a transferee of any Warrants, Warrant Shares or shares issued upon conversion(s) of the Warrant Shares, so long as such Affiliate shall hold, and only with respect to, such Warrants, Warrant Shares or shares issued upon conversion(s) of the Warrant Shares and (iv) any Person to which such Regulated Stockholder or any of its Affiliates has transferred such Warrants, Warrant Shares or shares issued upon conversion(s) of the Warrant Shares, so long as such transferee shall hold, and only with respect to, any Warrants, Warrant Shares or shares issued upon conversion(s) of the Warrant Shares transferred by such stockholder or Affiliates but only if such Person is (or any Affiliate of such Person is) (A) subject to the provisions of Regulation Y or (B) subject to regulation under the insurance laws of any jurisdiction. SECTION 1.2 CONTINGENT VALUE OBLIGATIONS. In the event that the Manufacturer Approvals are not received by March 22, 1997, then this Warrant shall be converted into a number of Contingent Value Obligations ("CVOS") determined pursuant to the Contingent Value Obligations Agreement substantially in the form of EXHIBIT A hereto to be entered into at such time between the holder of this Warrant and the Company. If the Manufacturer Approvals are received with respect to the initial holder hereof, then this Section 1.2 shall terminate and cease to be of any 4 force or effect and this Warrant shall no longer be convertible into CVOs under any circumstance. SECTION 2. PAYMENT OF TAXES. The Company shall pay all documentary stamp taxes, if any, attributable to the initial issuance of the shares of Class A Preferred Stock upon exercise of this Warrant, PROVIDED that the Company shall not be required to pay any tax or taxes which may be payable with respect to any secondary transfer of a Warrant or the shares of Class A Preferred Stock issued upon exercise of any Warrant, and in such case the Company shall not be required to issue or deliver any certificates for shares of Class A Preferred Stock until the person requesting the same has paid to the Company the amount of such tax or has established to the Company's reasonable satisfaction that such tax has been paid or that no such tax is due. SECTION 3. TRANSFERABILITY. SECTION 3.1 REGISTRATION. The Warrants shall be numbered and shall be registered on the books of the Company maintained for such purpose (the "SECURITY REGISTER"). SECTION 3.2 TRANSFER. Subject to compliance with Sections 3.3, 12 and 13, this Warrant, the Warrant Shares (as defined below) and all rights hereunder are transferable upon delivery hereof together with the assignment form at the end hereof duly completed and signed by the holder hereof or such holder's duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment or authority to transfer, PROVIDED that any transferee of this Warrant or such Warrant Shares shall expressly agree to be bound by the terms and conditions hereof, and PROVIDED FURTHER that the rights set forth in Sections 12.1 and 13.2 hereof shall not be transferable or otherwise assigned by the holder of this Warrant to any person or entity other than an Affiliate (as defined below) of such holder without the consent of the Company. Upon any registration of transfer of this Warrant, or part thereof, the Company shall execute and deliver a new Warrant or Warrants as may be requested by such holder for the same aggregate number of shares of Class A Preferred Stock as this Warrant. As used herein, the term "WARRANT SHARES" shall mean, collectively, the shares of Class A Preferred Stock acquired pursuant to the exercise of this Warrant, or upon conversion of the shares acquired pursuant to the exercise of this Warrant, and any securities issued or issuable with respect to such Class A Preferred Stock by way of stock dividend or other distribution or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As used herein, the term "TRANSFER" shall mean and include (i) when used as a verb, the act of selling, pledging, mortgaging, hypothecating, giving, transferring, creating a security interest, lien or trust (voting or otherwise), assigning or otherwise encumbering or disposing of, and (ii) when used as a 5 noun, any sale, pledge, mortgage, hypothecation, gift, transfer, creation of security interest, lien or trust, any assignment or other encumbrance or disposition. As used herein, the term "AFFILIATE" of a specified person means a person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified, and in the case of a specified person who is a natural person, his spouse, his issue, his parents, his estate and any trust entirely for the benefit of his spouse and/or issue. The term "CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person or entity, whether through the ownership of voting securities, by contract or otherwise. SECTION 3.3 LIMITATIONS ON TRANSFER OF THE WARRANTS AND THE WARRANT SHARES. (a) If, at the time of any transfer of this Warrant or any Warrant Shares, this Warrant or such Warrant Shares, as the case may be, are not registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), the Company may require as a condition of allowing such transfer or exchange that the holder or transferee of this Warrant or such Warrant Shares furnish to the Company such information as, in the reasonable opinion of counsel to the Company, is necessary in order to establish that such transfer or exchange may be made without registration under the Securities Act, including a written statement that such holder or transferee will not sell or otherwise dispose of this Warrant or such Warrant Shares purchased or acquired by him in any transaction which would violate the Securities Act or any other securities laws, PROVIDED that the disposition thereof shall at all times be within the control of such holder or transferee. (b) Notwithstanding anything to the contrary contained herein, without the prior written consent of the Company, neither this Warrant nor any Warrant Shares may be transferred to a person or entity (or an Affiliate of such person or entity (other than an entity engaged principally in the management of investments for third parties exclusively in a fiduciary capacity)) who owns, operates, controls, or participates or engages in the ownership, management, operation or control of, or is connected with as an officer, employee, partner, director, shareholder, representative, consultant, independent contractor, guarantor, advisor or in any other manner or otherwise has a financial interest in the equity of, a proprietorship, partnership, joint venture, association, firm, corporation or other business organization or enterprise that competes with the Company or any of its subsidiaries in the business of operating dealerships for the retail sale of new and/or used automobiles and trucks or businesses ancillary to the operation of such type of dealerships (including service and parts operations, body shops, the sale of finance and insurance products (including after-market items), and the purchase, sale and servicing of finance contracts for new and/or used vehicles); provided, however, that for purposes of this paragraph the ownership of 6 equity securities representing less than 5% of the outstanding shares of capital stock (or equivalent ownership) of any business organization or entity shall not be deemed to constitute the ownership or participation in the ownership of, or a financial interest in the equity of, such business organization or entity. SECTION 3.4 LEGEND ON WARRANT SHARES. Each certificate for shares of Class A Preferred Stock initially issued upon exercise of this Warrant shall bear the following legend, unless at the time of exercise such shares are registered under the Securities Act, in which case, such certificate shall bear only the second sentence of the following legend: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, or the Blue Sky laws of any State and may not be sold, exchanged, hypothecated or transferred in any manner except in compliance with said Act and with such Blue Sky laws. In addition, the securities represented by this certificate are subject to restrictions on transfer and certain other provisions of the Warrant issued by United Auto Group, Inc. (the "Company"), dated as of ___________, as the same may be amended from time to time, a copy of which may be obtained at the offices of the Company." Any certificate issued at any time in exchange or substitution for any certificate bearing such legend shall also bear the above legend unless counsel for the Company or such other counsel as may be reasonably satisfactory to the Company renders a written legal opinion to the Company that the securities represented thereby need no longer be subject to such restriction. SECTION 4. EXCHANGE OF WARRANT CERTIFICATE. Any Warrant certificate may be exchanged for another certificate or certificates entitling the holder thereof to purchase the aggregate number of shares of Class A Preferred Stock that this certificate then entitles such holder to purchase. Any holder of a Warrant desiring to exchange such Warrant certificate shall make such request in writing delivered to the Company, and shall surrender, properly endorsed, the certificate evidencing the Warrant to be so exchanged. Thereupon, the Company shall execute and deliver one or more new Warrant certificates as so requested. SECTION 5. MUTILATED OR MISSING WARRANT. In case any Warrant certificate shall be mutilated, lost, stolen or destroyed, the Company shall, at the request of the holder thereof, issue and deliver in exchange and substitution for and upon cancellation of the mutilated certificate or certificates, or in lieu of and substitution for the certificate or certificates lost, stolen or destroyed, a new Warrant certificate or certificates of like tenor and representing an equivalent right or interest, but only upon receipt of evidence satisfactory to the Company of such loss, theft or destruction of such Warrant 7 and indemnity, if requested, satisfactory to the Company. In the case of any Purchaser or any other institutional investor holder of a Warrant, such holder's unsecured agreement of indemnity shall be deemed satisfactory to the Company. SECTION 6. REQUIREMENT OF AVAILABILITY OF SHARES OF CLASS A PREFERRED STOCK AND VOTING COMMON STOCK. There are authorized and available for issuance, and so long as any Warrant remains outstanding the Company shall at all times keep authorized and available for issuance, such number of shares of the Company's authorized but unissued Class A Preferred Stock and Voting Common Stock as will be sufficient to permit the exercise in full of all outstanding Warrants (and the conversion of all shares of Class A Preferred Stock into Voting Common Stock). Every transfer agent for the Class A Preferred Stock and other securities of the Company issuable upon the exercise of the Warrants shall be irrevocably authorized and directed at all times to keep available such number of authorized shares and other securities as will be sufficient for such purpose. The Company shall keep a copy of the Warrants on file with every such transfer agent for the Class A Preferred Stock and other securities of the Company issuable upon the exercise of the Warrants. The Company shall supply any such transfer agent with duly executed stock and other certificates for such purpose and shall provide or otherwise make available any cash which may be payable as provided in Section 9. SECTION 7. WARRANT PRICE. The price per share of Class A Preferred Stock (the "WARRANT PRICE") at which shares of Class A Preferred Stock shall be purchasable upon the exercise of the Warrants shall be $0.01, subject to adjustment pursuant to Section 8. SECTION 8.1 ADJUSTMENTS AND DISTRIBUTIONS WITH RESPECT TO CLASS A PREFERRED STOCK. Subject to the terms hereof, the number of shares purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment as follows: (a) Except in respect of transactions described in subsection (b) below, in case the Company shall (i) subdivide its outstanding Class A Preferred Stock, (ii) combine its outstanding Class A Preferred Stock into a smaller number of shares of Class A Preferred Stock, or (iii) issue by reclassification of its Class A Preferred Stock, spin-off, split-up, recapitalization, merger, consolidation or any similar corporate event or arrangement other securities of the Company, the kind and number of shares of capital stock purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the holder of this Warrant shall be entitled to receive the kind and number of shares or other securities of the Company which it would have owned or would have been entitled to receive after the happening of any of the events described above had this Warrant been exercised immediately prior to the happening of such event or any record date with respect thereto. Any adjustment made 8 pursuant to this subsection (a) shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (b) In case the Company shall distribute in any calendar year to all or substantially all holders of its Class A Preferred Stock evidences of its indebtedness (including Derivative Securities) or assets (including cash or other dividends or distributions out of earnings), or securities or rights to acquire securities of the Company, then, and in each case, the Company shall pay or distribute to the holder of this Warrant an amount equal to such holder's PRO RATA share (assuming for such purpose the exercise of this Warrant in full) of such distributions; and for such purpose any assets (other than cash) or evidences of indebtedness so distributed shall be valued at the fair market value thereof determined in good faith by the Board of Directors of the Company. (c) Whenever the number of shares of Class A Preferred Stock purchasable upon the exercise of this Warrant is increased or decreased as provided in this Section 8, the Warrant Price payable upon exercise of this Warrant shall be adjusted by multiplying the Warrant Price in effect immediately prior to such adjustment by a fraction, the numerator of which shall be the number of shares of Class A Preferred Stock purchasable upon exercise of this Warrant immediately prior to such adjustment, and the denominator of which shall be the number of shares of Class A Preferred Stock so purchasable immediately after such adjustment. (d) Whenever the number of shares of Class A Preferred Stock purchasable upon the exercise of this Warrant or the Warrant Price is adjusted as herein provided and whenever any event or transaction shall result in an adjustment to the Applicable Conversion Value (as defined in the Company's Restated Certificate of Incorporation, as amended) relating to the Class A Preferred Stock, the Company shall cause to be promptly mailed to the holder by first-class mail, postage prepaid, notice of such adjustment or adjustments and, if requested by such holder, a certificate, prepared by independent public accountants of nationally recognized standing, showing such adjustment, and stating in detail the facts upon which such adjustment is based. (e) It is the intention of the Company that the holder of this Warrant be protected against dilution to the same extent that holders of Class A Preferred Stock outstanding on the date of original issuance of this Warrant are so protected. In case the Company shall take any action affecting its capital stock, other than an action (i) described in this Section 8 or (ii) which results in an adjustment to the Applicable Conversion Value relating to the Class A Preferred Stock, or would result in an adjustment to such Applicable Conversion Value were any shares of Class A Preferred Stock then outstanding, and the failure to make any adjustment would not fairly protect the purchase rights 9 represented by this Warrant in accordance with the essential intent and principle of this Section 8 or the conversion rights of the Class A Preferred Stock issuable upon exercise of this Warrant, then the number of shares of Class A Preferred Stock or Voting Common Stock, as the case may be, issuable upon exercise of this Warrant and the Warrant Price shall be adjusted in such manner and at such time as the Board of Directors of the Company may in good faith determine to be equitable in the circumstances. SECTION 8.2 PRESERVATION OF PURCHASE RIGHTS UPON REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case of any reorganization, consolidation or merger of the Company with or into another entity as a result of which the holders of Class A Preferred Stock become holders of other shares or securities of the Company or of another entity or person, or such holders receive cash or other assets, or in case of any sale or conveyance to another person of the property, assets or business of the Company as an entirety or substantially as an entirety, the Company or such successor or purchasing entity or person, as the case may be, shall execute, concurrently with the consummation of such transaction, with the holder of this Warrant an agreement (in form and substance reasonably satisfactory to such holder) that such holder shall have the right thereafter upon payment of the aggregate Warrant Price in effect immediately prior to such action to purchase upon exercise of this Warrant the kind and amount of shares and other securities and property which such holder would have owned or have been entitled to receive after the happening of such reorganization, consolidation, merger, sale or conveyance had this Warrant been exercised immediately prior to such action. The agreements referred to in this Section 8.2 shall provide for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 8. The provisions of this Section 8.2 shall similarly apply to successive reorganizations, consolidations, mergers, sales or conveyances. SECTION 8.3 STATEMENT ON WARRANTS. This Warrant shall entitle the holder hereof to purchase such number of shares of Class A Preferred Stock at such Warrant Price as may be determined in accordance with the terms hereof after giving effect to any adjustments in the number or kind of shares purchasable upon the exercise hereof or the Warrant Price, as the case may be, notwithstanding that this Warrant certificate may continue to express the same price and number and kind of shares as are initially stated herein. SECTION 9. FRACTIONAL INTERESTS. The Company shall not be required to issue a fraction of a share of Class A Preferred Stock on the exercise of any one or more Warrants. If any fraction of a share would, except for the provisions of this Section 9, be issuable on the exercise of such Warrant or Warrants (or specified portions thereof), the Company may, at its 10 option, pay an amount in cash equal to the then current market price of a share of Class A Preferred Stock (as determined in good faith by the Board of Directors of the Company) multiplied by such fraction. SECTION 10. NO RIGHTS AS SHAREHOLDER; NOTICES. Except for a holder's of this Warrant right to receive dividends and distributions as provided in Section 8.1(b) hereof, nothing contained in this Warrant shall be construed as conferring upon the holder or its transferees any rights as a shareholder of the Company, including the right to vote, consent or receive notices as a shareholder with respect to any meeting of shareholders for the election of directors of the Company or any other matter. If, however, at any time prior to the Termination Date and prior to the exercise of this Warrant, any of the following events shall occur: (a) any action which would require an adjustment pursuant to Section 8.2; or (b) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation, merger or sale of its property, assets and business as an entirety) shall be proposed; then in any one or more of said events, the Company shall give notice in writing of such event to each holder of Warrants as provided in Section 14 at least 20 days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the shareholders entitled to any rights or for the determination of shareholders entitled to vote on such proposed dissolution, liquidation or winding up. Such notice shall also set forth such facts as shall indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the current Warrant Price and the kind and amount of Warrant Shares and other securities and property deliverable upon the exercise of the Warrant. Such notice shall also specify the date as of which the holders of the Company's capital stock of record shall be entitled to exchange their capital stock of the Company for securities or other property deliverable upon such reorganization, consolidation, merger, dissolution, liquidation or winding-up, as the case may be. Notwithstanding the foregoing, failure to mail or receive such notice or any defect therein or in the mailing thereof shall not affect the validity of any such action taken. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. SECTION 11. REGISTRATION RIGHTS. SECTION 11.1 DEFINITIONS. As used in this Section 11: (a) the terms "REGISTER," "REGISTERED" AND "REGISTRATION" refer to a registration effected by preparing and 11 filing a registration statement in compliance with the Securities Act (and any post-effective amendments filed or required to be filed) and the declaration or ordering of effectiveness of such registration statement; (b) the term "REGISTRABLE SECURITIES" means the Warrant Shares, the Warrant Shares that are subject to issuance upon exercise of the other Warrants and the Mezzanine Warrant Shares, subject to Section 11.7 hereof. As used herein, the term "MEZZANINE WARRANTS" shall mean, collectively, the warrants issued pursuant to the Securities Purchase Agreements, dated as of September 22, 1995 (the "SECURITIES PURCHASE AGREEMENTS"), entered into by the Company with certain institutional investors named in Schedule A thereto, and the term "MEZZANINE WARRANT SHARES" shall mean, collectively, the shares of capital stock acquired pursuant to the exercise of the Mezzanine Warrants, or upon conversion of the shares acquired pursuant to the exercise of the Mezzanine Warrants, and any securities issued or issuable with respect to such shares by way of stock dividend or other distribution or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. Registrable Securities will cease to be such when (i) a registration statement covering such Registrable Securities has become or been declared or ordered effective and they have been disposed of pursuant to such effective registration statement, (ii) they are sold, transferred or distributed pursuant to and in compliance with Rule 144 (or any similar provision then in force, but not including Rule 144A) under the Securities Act, or (iii) they have been otherwise transferred and the Company has delivered new certificates or other evidences of ownership for them not subject to any stop transfer order or other restriction on transfer (other than those set forth in Sections 3.2, 12.2 and 13 hereof) and not bearing a legend restricting transfer in the absence of an effective registration or an exemption from the registration requirements of the Securities Act; (c) the term "HOLDER" means any person owning or having the right to acquire Registrable Securities; (d) the term "PRIOR HOLDER" means any person or entity who has been (or, in the case of clause (ii) below, will be) granted rights pursuant to (i) the Registration Rights Agreement, dated as of October 15, 1993, as amended, among the Company and certain parties named therein (the "PRIOR REGISTRATION RIGHTS AGREEMENT"), or (ii) the Registration Rights Agreement, dated as of August 1, 1995, among the Company and certain parties named therein (the "VENTURER REGISTRATION RIGHTS AGREEMENT"), to have shares of Voting Common Stock registered under the Securities Act, either in respect of issued shares of Voting Common Stock or shares of Voting Common Stock to be issued upon conversion of outstanding securities of the Company; and 12 (e) the number of shares of "REGISTRABLE SECURITIES THEN OUTSTANDING" shall be determined by adding the number of shares of Voting Common Stock outstanding which are, and the number of shares of Voting Common Stock issuable pursuant to then exercisable or convertible securities (without regard to any restrictions on the ability of the holders thereof to convert such securities) which upon issuance would be, Registrable Securities. SECTION 11.2 REQUESTED REGISTRATION. (a) REQUEST FOR REGISTRATION. If, at any time after the earlier to occur of September 22, 1998 and six (6) months after the Company's initial Public Offering, the Company shall receive a written request from the Holder or Holders of in excess of 50% of the Registrable Securities then outstanding and entitled to registration rights under this Section 11.2 (the "INITIATING HOLDERS") that the Company effect the registration under the Securities Act with respect to all or a part of the Registrable Securities, the Company will, within five days of the receipt thereof, give written notice of such request to all Holders and shall within sixty (60) days of its receipt of such written request, file a registration statement on a form deemed appropriate by the Company's counsel with the Securities and Exchange Commission (the "SEC") covering all the Registrable Securities which the Holders shall in writing request (given within twenty (20) days of receipt of the notice given by the Company pursuant to this Section 11.2(a)) to be included in such registration and the Company shall use its reasonable best efforts to cause such registration statement to become effective. The Company shall not be obligated to effect such registration pursuant to this Section 11.2(a) (A) after the Company already has effected one (1) such registration pursuant to this Section 11.2(a), such registration has been declared or ordered effective and no stop order suspending the effectiveness of such registration statement has been issued within 60 days of such effectiveness (PROVIDED that the Company shall be deemed to have effected such registration if it files a registration statement pursuant to this Section 11.2(a) and such registration statement is subsequently withdrawn because the Holders request that such registration statement be withdrawn, unless (i) such request is as a result of the occurrence of an event (other than general economic or market conditions) that has had a material adverse effect on the Company's business or (ii) the Company is immediately reimbursed in full for all costs and expenses incurred by it in connection with such registration), (B) if a registration statement filed by the Company has been declared or ordered effective within six (6) months prior to the receipt of a written request from a Holder or Holders under this Section 11.2(a), (C) if in the good faith judgment of the Board of Directors of the Company, it would not be in the best interests of the Company and its stockholders generally for such registration statement to be filed (in which case the Company 13 shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders), PROVIDED that such deferral will not occur more than once in any 12-month period, or (D) if the Company is negotiating the material acquisition of a business and the Company's board of directors has determined in good faith that such negotiations could reasonably be expected to result in an agreement in principle to acquire such business (in which case the Company will have the right to defer such filing until the Company determines that it is no longer necessary to maintain the confidentiality of such negotiations, but in no event for longer than 90 days, provided that any such deferral will not occur more than once in any 12 month period). The registration statement filed pursuant to the request of the Initiating Holders may, subject to the provisions of Section 11.2(b) below, include other securities of the Company for its own account or which are held by officers or directors of the Company or persons or entities who, by virtue of agreements with the Company, are entitled to include their securities in any such registration, including Prior Holders (the "OTHER SHAREHOLDERS", PROVIDED, HOWEVER, that holders of Registrable Securities shall not be deemed Other Shareholders with respect to such Registrable Securities). (b) UNDERWRITING. If the Initiating Holders desire to distribute the Registrable Securities covered by such request by means of an underwriting, they shall so advise the Company as a part of such request made pursuant to Section 11.2(a) and the Company shall include such information in the written notice referred to Section 11.2(a). The underwriter or underwriters of such registration shall be mutually selected by the Company and a majority in interest of the Initiating Holders. If the Company and a majority in interest of the Initiating Holders are in good faith unable to agree on the selection of such underwriter or underwriters, then such underwriter or underwriters shall be selected by a majority in interest of the Initiating Holders, subject to the approval of the Company, which approval shall not be unreasonably withheld. The right of any Holder to registration pursuant to this Section 11.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. If officers or directors of the Company holding other securities of the Company shall request inclusion in any registration pursuant to this Section 11.2, or if Other Shareholders request such inclusion, the Holders shall offer to include the securities of such officers, directors and Other Shareholders in the underwriting and may condition such offer upon their participation in the underwriting and on their acceptance of the further applicable provisions of this Section 11. 14 The Holders shall (together with the Company, officers, directors and Other Shareholders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting as provided above, but the Company shall not be required to pay any commission to the underwriter in respect of the sale of Registrable Securities. Notwithstanding any other provision of this Section 11.2, if the representative of the underwriters determines that marketing factors require a limitation on the number of shares to be underwritten, the securities of the Company held by officers or directors of the Company and the securities held by Other Shareholders shall be excluded from the underwriting by reason of the underwriters' marketing limitation to the extent so required by such limitation. If a further limitation is required, the Company shall so advise all Holders requesting inclusion in such offering, and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among all Holders requesting inclusion in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held (or entitled to be held upon conversion) by each such Holder at the time of filing the registration statement. No Registrable Securities or any other securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. If any Holder, officer, director or Other Shareholder who has requested inclusion in such registration as provided above disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the underwriter and the Initiating Holders. The securities so withdrawn shall also be withdrawn from registration; PROVIDED, HOWEVER, that, if by the withdrawal of such Registrable Securities a greater number of Registrable Securities held by other Holders may be included in such registration (up to a maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders who have included Registrable Securities in the registration the right to include additional Registrable Securities in the same proportion used in determining the underwriter limitation in this Section 11.2(b). If the representative of the underwriters has not limited the number of Registrable Securities, the Company may include its securities for its own account in such registration if the underwriter so agrees and if the number of Registrable Securities which would otherwise have been included in such registration and underwriting will not thereby be limited. 15 SECTION 11.3 COMPANY REGISTRATION. (a) INCLUSION IN REGISTRATION. If, at any time after the initial Public Offering, the Company shall determine to register any of its shares of Voting Common Stock on a form (other than for the registration of securities to be offered and sold by the Company on any registration form which does not permit secondary sales or pursuant to (i) an employee benefit plan, (ii) a dividend or interest reinvestment plan, (iii) other similar plans or (iv) reclassifications of securities, mergers, consolidations and acquisitions of assets) which would permit the registration of any Registrable Securities, or the Company shall be requested to register any of its shares of Voting Common Stock by any holder of any securities entitled to registration upon such request (other than the Holders or their nominees), the Company will: (i) promptly give to the Holders written notice thereof (which shall include a list of the jurisdictions, if any, in which the Company intends to qualify such shares of Voting Common Stock under the applicable blue sky or other state securities laws); and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests made by each of the Holders, within fifteen (15) days after receipt of the written notice from the Company described in clause (i) above; PROVIDED, HOWEVER, that if the offering is underwritten and relates only to shares of Voting Common Stock to be sold by the Company and the Holders are advised in writing by the managing underwriter that the sale of Registrable Securities by the Holders will, due to market conditions, adversely affect such underwriting, the Holders shall not sell any of their Registrable Securities included therein until such time as the managing underwriter may permit, provided that such period of time will not exceed 120 days from the effective date of such registration. The Company shall be under no obligation to complete any offering of the shares of Voting Common Stock it proposes to make and shall incur no liability to any Holder for its failure to do so. (b) UNDERWRITING. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 11.3(a). In such event the right of the Holders to registration pursuant to this Section 11.3 shall be conditioned upon the Holders' participation in such underwriting and the inclusion of 16 the Holders' Registrable Securities in the underwriting to the extent provided herein. The Holders shall (together with the Company, officers, directors and the Other Shareholders distributing their shares of Voting Common Stock through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for underwriting by the Company and shall deliver all documents and opinions required to be delivered thereunder in respect of their participation as selling shareholders. Notwithstanding any other provision of this Section 11.3, if the representative of the underwriters determines that marketing factors require a limitation on the number of shares of Voting Common Stock to be underwritten, then the Company shall include in the underwriting only that number of shares, including Registrable Securities, which the representative believes will not jeopardize the success of the offering (the shares so included to be apportioned as follows: first, all shares which stockholders other than the Holders and the Prior Holders seek to include in the offering shall be excluded from the offering to the extent limitation on the number of shares included in the underwriting is required, then the number of shares held by Holders and the Prior Holders that may be included in the underwriting shall be apportioned PRO RATA among the selling Holders and the Prior Holders according to the total number of Registrable Securities and shares entitled to be included therein owned by each selling Holder and Prior Holder, respectively, or in such other proportions as shall be mutually agreed to by such selling Holders and Prior Holders, PROVIDED that all of the securities to be issued by the Company and sold by the Prior Holders who have requested the registration to which such offering relates pursuant to Section 1.2 of the Prior Registration Rights Agreement or Section 1.2 of the Venturer Registration Rights Agreement, as applicable, are included in such offering). If any of the Holders or any officer, director or Other Shareholder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the representative of the underwriters. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. (c) NUMBER. The Holders shall be entitled to have their shares included in an unlimited number of registrations pursuant to this Section 11.3. SECTION 11.4 FORM S-3. After the Company has qualified for the use of Form S-3 under the Securities Act for secondary sales, Holders of in excess of 50% of Registrable Securities shall have the right to request that the Company effect the registration on Form S-3 with respect to all or part of the Registrable Securities (such requests shall be in writing and shall state the number of shares of Registrable Securities to be disposed of and the intended method of disposition of shares by such holders), subject to the limitations set forth in the second paragraph of Section 11.2(a) hereof, as applicable, 17 PROVIDED, HOWEVER, that the Company shall not be obligated to effect such registration pursuant to this Section 11.4 after the Company already has effected two (2) such registrations pursuant to this Section 11.4 (and PROVIDED that the Company shall be deemed to have effected such a registration if it files a registration statement pursuant to this Section 11.4 and such registration statement is subsequently withdrawn because the Holders request that such registration statement be withdrawn, unless (i) such request is as a result of the occurrence of an event (other than general economic or market conditions) that has had a material adverse effect on the Company's business or (ii) the Company is immediately reimbursed in full for all costs and expenses incurred by it in connection with such registration), and PROVIDED, FURTHER, that the Company shall not be required to effect a registration pursuant to this Section 11.4 unless the Holder or Holders requesting registration propose to dispose of shares of Registrable Securities having an aggregate price to the public (after deduction of underwriting discounts and expenses of sale) of more than $1,000,000. The Company shall give written notice to all Holders of the receipt of a request for registration pursuant to this Section 11.4 and shall provide a reasonable opportunity for other Holders to participate in the registration, PROVIDED that if the registration is for an underwritten offering, the terms of Section 11.2(b) shall apply to all participants in such offering. SECTION 11.5 EXPENSES OF REGISTRATION. Except as otherwise provided herein, in connection with a registration pursuant to this Section 11, the Company shall pay all registration, filing and qualification fees, accounting fees and printing expenses of the Company, reasonable fees and disbursements of counsel for the Company and the reasonable fees and expenses of one counsel for the selling Holders. All (i) underwriting discounts and commissions, (ii) stock transfer taxes incurred in respect of the Registrable Securities being sold, and (iii) legal and accounting fees, expenses and disbursements of the Holders (except as set forth above), shall be borne and paid ratably by the Holders of the Registrable Securities included in any such registration based on the number of Registrable Securities so registered. SECTION 11.6 REGISTRATION PROCEDURES. In the case of each registration effected by the Company pursuant to this Section 11, the Company shall: (i) furnish to each Holder, prior to the filing thereof with the SEC, a copy of the registration statement; (ii) keep such registration effective for a period of one hundred twenty (120) days or until each Holder has completed the distribution described in the registration statement relating thereto, whichever first occurs; 18 (iii) furnish each Holder copies of any registration statement and each preliminary or final prospectus, or supplement or amendment required to be prepared pursuant hereto, as any Holder may from time to time reasonably request; (iv) prepare and promptly file with the SEC and promptly notify each Holder of the filing of any amendments or supplements to such registration statement or prospectus as may be necessary to correct any statements or omissions if, at any time when a prospectus relating to the Registrable Securities is required to be delivered under the Securities Act, any event with respect to the Company shall have occurred as a result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and use its reasonable best efforts to cause each such amendment or supplement to become effective, as may be necessary to comply with the provisions of the Securities Act with respect to disposition of all securities covered by such registration statement; (v) use its best efforts to qualify as soon as reasonably practicable the Registrable Securities included in the registration statement for sale under the securities or blue-sky laws of such states and jurisdictions within the United States as shall be reasonably requested by any Holder, PROVIDED that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business, to become subject to taxation or to file a consent to service of process generally in any of the aforesaid states or jurisdictions; (vi) furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 11 on the date that the registration statement becomes effective, (i) an opinion or opinions, dated such date, of counsel representing the Company for purposes of such registration, in form and substance as is customarily given by company counsel to the underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities, (ii) if the registration is underwritten, a letter, dated such date, from the independent certified public accountant of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters, addressed to the underwriters and (iii) a letter, dated such date, from such accountant in form and substance as is customarily given by independent certified accountants to the selling stockholders in a secondary public offering, 19 addressed to the Holders registering Registrable Securities; and (vii) apply for listing and use its reasonable best efforts to list the Registrable Securities being registered on any national securities exchange on which a class of the Company's equity securities is listed, or if the Company does not have a class of equity securities listed on a national exchange, apply for qualification and use its reasonable best efforts to qualify the Registrable Securities being registered for inclusion on the automated quotation system of the National Association of Securities Dealers, Inc. SECTION 11.7 LIMITATIONS ON REGISTRATION RIGHTS. Anything in this Warrant or in the Agreement to the contrary notwithstanding, the Company shall not be required to effect a registration under the Securities Act with respect to any shares of Class A Preferred Stock or Non-voting Common Stock, but shall be required, pursuant to Section 11 of this Warrant, to register shares of Voting Common Stock issuable upon the conversion thereof, PROVIDED that any Holder of Class A Preferred Stock or Non-voting Common Stock shall not be required to convert any Class A Preferred Stock or Non-voting Common Stock into Voting Common Stock until the closing of the sale of Voting Common Stock pursuant to any requested registration. Except that the Warrant Shares are to be deemed Registrable Securities, nothing in this Warrant shall be construed to grant to the holder of this Warrant registration rights that are in addition to the registration rights granted under the Mezzanine Warrants. SECTION 11.8 INDEMNIFICATION. (a) The Company shall indemnify each Holder offering Registrable Securities for sale pursuant to each registration that has been effected pursuant to this Section 11, the officers, directors, partners, agents, employees and shareholders of each such Holder, and any underwriter (as defined in the Securities Act) for each such Holder and each person, if any, who controls such person or underwriter within the meaning of the Securities Act or Exchange Act, and, with respect to any indemnity for the benefit of Equitable, Alliance Corporate Finance Group Incorporated, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement of a material fact contained in any registration statement under which such Registrable Securities were registered under the Securities Act, or based on any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each such Holder, officer, director, partner, agent, employee, underwriter and controlling person for any legal or other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action; PROVIDED, HOWEVER, that the Company shall pay for only one firm of counsel for all such Holders and the Company shall not be 20 liable to a Holder in any such case (i) to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission made in reliance upon and in conformity with information furnished to the Company by any Holder or the underwriter of any Holder and stated to be specifically for use therein or (ii) in the case of a sale directly by a Holder of Registrable Securities (including a sale of such Registrable Securities through any underwriter retained by such Holder engaging in a distribution on behalf of such Holder), such untrue statement or omission was contained in a preliminary prospectus and corrected in a final or amended prospectus, and such Holder failed to deliver a copy of the final or amended prospectus at or prior to the confirmation of the sale of the Registrable Securities to the person or entity asserting any such loss, claim, damage or liability. (b) Each of the Holders shall, if Registrable Securities held by them are included in the securities as to which such registration is being effected, severally indemnify the Company, each of its directors and officers who sign such registration statement, each Affiliate of the Company, each underwriter, if any, of the Company's securities covered by such registration statement, each other Holder and each other security holder whose securities are included in such registration, and each Affiliate thereof against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement of a material fact contained in any such registration statement under which such Registrable Securities were registered under the Securities Act, or based on any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such directors, officers, employees, Affiliates, other Holders or security holders or underwriters for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement or omission is made in such registration statement in reliance upon and in conformity with information furnished to the Company by such Holder and stated to be specifically for use therein; PROVIDED, HOWEVER, that the liability of any Holder hereunder shall be limited to the amount of net proceeds (after deduction of all underwriters' discounts and commissions paid by such holder in connection with the applicable registration) received by such Holder; and PROVIDED, FURTHER, that the indemnity agreement contained in this Section 11.8(b) shall not apply (i) to amounts paid in settlement of any such claim, loss, damage or liability (or actions in respect thereof) if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld, or (ii) in the case of a sale directly by the Company (including a sale of such securities through any underwriter retained by the Company to engage in a distribution on behalf of the Company) in which such untrue statement or omission was contained in a preliminary prospectus 21 and corrected in a final or amended prospectus, and the Company failed to deliver a copy of the final or amended prospectus at or prior to the confirmation of the sale of the securities to the Person asserting any such loss, claim, damage or liability. (c) Each party entitled to indemnification under this Section 11 (the "INDEMNIFIED PARTY") shall give notice to the party required to provide indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and any claim or any litigation resulting therefrom. In case any action is brought against an Indemnified Party, and it notifies the Indemnifying Parties of the commencement thereof, the Indemnifying Party will be entitled to participate in and, to the extent it so determines, assume the defense thereof; PROVIDED that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense. After notice from the Indemnifying Party of its election to so assume the defense thereof, the Indemnifying Party will not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof; PROVIDED, HOWEVER, that the Indemnified Party shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnifying Party, if representation of the Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests, as reasonably determined by either party, between the Indemnified Party and any other party represented by such counsel in such proceeding. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. SECTION 11.9 LOCKUP AGREEMENT. In consideration for the Company agreeing to its obligations under this Section 11, each Holder agrees in connection with any registration (other than for the registration of securities pursuant to (i) an employee benefit plan, (ii) a dividend or interest reinvestment plan, (iii) other similar plans or (iv) reclassifications of securities, mergers, consolidations and acquisitions of assets) of the Company's securities, upon the request of the Company and any underwriter managing any underwritten primary or secondary offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Warrants or Registrable Securities without the prior written consent of the Company and such underwriter, as the case may be, for such reasonable period of time prior to and after the effective date of such registration as the Company and such underwriter may specify, PROVIDED that such period of time will not exceed 180 days, in the case of registration relating to 22 the initial Public Offering, and 120 days, in the case of any registration relating to a Public Offering after the initial Public Offering. SECTION 11.10 INFORMATION ABOUT THE PURCHASERS. Each Holder shall promptly furnish to the Company such information regarding itself, its Affiliates or subsidiaries and the distribution proposed by it as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration referred to in this Section 11. SECTION 11.11 CONDITIONS TO REGISTRATION. As a condition to the Company's obligation hereunder to cause a registration statement to be filed or Registrable Securities to be included in a registration statement, each Holder shall provide such information and execute such documents as may reasonably be required in connection with such registration. In addition, the Company shall not be obligated to file a registration statement or to include Registrable Securities in a registration statement hereunder as to any Holder to the extent such Registrable Securities can then be sold during a single three-month period pursuant to Rule 144 (not including Rule 144(k)) under the Securities Act. SECTION 11.12 RULE 144. With a view to making available the benefits of certain rules and regulations of the SEC which may permit the sale of the restricted securities to the public without registration, the Company agrees to (i) make and keep public information available as those terms are understood and defined in Rule 144 under the Securities Act at all times from and after ninety (90) days following the closing date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public, and (ii) use its best efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Exchange Act of 1934, as amended, at any time after it has become subject to such reporting requirements. SECTION 11.13 TRANSFERABILITY. The registration rights granted in this Section 11 shall not be assignable in any manner to any transferee of any of the Warrants or Registrable Securities except in connection with the sale by the holder of their Warrant or part thereof or the Registrable Securities issued upon exercise of this Warrant or such securities, as the case may be, in a transaction not involving a Public Offering. SECTION 12. TAG-ALONG AND TAKE-ALONG RIGHTS. SECTION 12.1 TAG-ALONG RIGHT. (a) TAG-ALONG SALE NOTICE. Subject to Section 20, if the Initial Shareholder Group (as defined below) at any time receives a bona fide offer (a "TAG-ALONG OFFER") from a third party to purchase from the Initial Shareholder Group shares of 23 capital stock of the Company or the Initial Shareholder Group otherwise proposes to sell shares of capital stock of the Company for value, in each case pursuant to a sale that would constitute a Change in Control (as defined in the Securities Purchase Agreements) (a "TAG-ALONG SALE"), but other than in connection with a Public Offering, the Initial Shareholder Group shall be required to notify (i) prior to the Qualified Public Offering, the original holder of this Warrant or its Affiliated transferees (provided it or its Affiliated transferees owns at such time all or a portion of this Warrant or Warrant Shares), and (ii) after the Qualified Public Offering, the Qualified Warrantholders (as defined below), not less than fifteen (15) days prior to such proposed Tag-Along Sale, of such Tag-Along Offer or proposed Tag-Along Sale and such holder or Qualified Warrantholders, as the case may be, shall have the option to participate in such Tag-Along Sale as set forth in paragraph (b) of this Section 12.1. The notice from the Initial Shareholder Group (the "TAG-ALONG SALE NOTICE") shall include a copy of the Tag-Along Offer, if in writing, and shall set forth: (A) the number of shares of each class proposed to be transferred, (B) the name and address of the proposed purchaser, (C) the proposed amount of consideration and terms and conditions of payment offered by or to such proposed purchaser, and (D) that the proposed purchaser has been informed of the "tag-along" rights provided for in this Section 12.1 and has agreed to purchase shares in accordance with the terms hereof. For purposes hereof, the term "INITIAL SHAREHOLDER GROUP" means all of the holders of shares of Voting Common Stock and Class A Preferred Stock on September 22, 1995 who purchased such shares pursuant to the Common Stock Purchase Agreement dated October 15, 1993 and the Class A Preferred Stock Purchase Agreement dated October 15, 1993, respectively, and the term "QUALIFIED WARRANTHOLDER" means any original holder of a Warrant (or its Affiliated transferees) who has purchased (and not otherwise transferred) Warrant Shares or has the right to purchase Warrant Shares and Mezzanine Warrant Shares, which together constitute more than 50% of all of the Warrant Shares such holder was entitled to purchase upon exercise of all of the Warrants issued to such holder pursuant to the Agreement PLUS all of the Mezzanine Warrant Shares such holder was entitled to purchase upon exercise of all of the Mezzanine Warrants issued to such holder pursuant to the Securities Purchase Agreements (in each case, after taking into account all adjustments to the number of shares underlying such warrants). (b) TAG-ALONG RIGHT. Each initial holder of Warrants (or its Affiliated Transferees) prior to the Qualified Public Offering who owns at such time all or a portion of this Warrant or Warrant Shares and each Qualified Warrantholder after the Qualified Public Offering shall have the right to require the proposed purchaser to purchase from it a number of whole shares of Warrant Shares up to the number of shares equal to the total number of shares to be sold to the proposed purchaser (including the shares of Voting Common Stock issuable upon conversion of the Class A Preferred Stock to be sold to the proposed purchaser), 24 multiplied by a fraction, the numerator of which is the number of Warrant Shares held by it or purchasable upon exercise of Warrants held by it and the denominator of which is the total number of shares of common stock held (or entitled to be acquired upon conversion or exercise of convertible securities) by all of the holders of the Warrants, Warrant Shares, Mezzanine Warrants and Mezzanine Warrants and the Initial Shareholder Group. Any Warrant Shares purchased from a Warrantholder pursuant to this Section 12.1 shall be paid for upon the same terms and conditions (including as to price and type of consideration) received by the Initial Shareholder Group. (c) TAG-ALONG NOTICE. If an original Warrantholder (or its Affiliated transferees) prior to the Qualified Public Offering and a Qualified Warrantholder after a Qualified Public Offering elects to exercise the tag-along right provided for in this Section 12.1, it must deliver written notice to the Initial Shareholder Group (the "TAG-ALONG PARTICIPATION NOTICE") within ten (10) days following receipt by it of the Tag-Along Sale Notice. If such holder does not deliver a Tag-Along Participation Notice within such ten-day period it shall be deemed to have waived its tag-along right with respect to the proposed Tag- Along Sale. Each Tag-Along Participation Notice shall state the number of Warrant Shares that such holder proposes to include in such transfer to the proposed purchaser up to the number of shares determined in accordance with Section 12.1(b) hereof. SECTION 12.2 TAKE-ALONG RIGHT. (a) TAKE-ALONG NOTICE. If the Initial Shareholder Group at any time prior to a Qualified Public Offering receives a bona fide offer from a third party (other than an affiliate of the Company, Harvard Private Capital, Inc., Apollo Advisors, Inc. or Trace International Holdings, Inc. (provided they are stockholders of the Company at the time of such sale)) to purchase shares of capital stock of the Company from the Initial Shareholder Group or the Initial Shareholder Group otherwise proposes to sell shares of capital stock of the Company for value (a "TAKE-ALONG SALE"), the Initial Shareholder Group, subject to paragraph (c) of this Section 12.2, can require the holders of the Warrants and Warrant Shares to participate in such Take-Along Sale as set forth in paragraph (b) of this Section 12.2. If the Initial Shareholder Group elects to exercise the take-along right provided for in this Section 12.2, it must provide, at least twenty (20) days before the date of consummation of the proposed Take-Along Sale, notice to the holders of the Warrants and Warrant Shares setting forth: (i) the number of shares proposed to be transferred, (ii) the number of Warrant Shares that such holder must include in such transfer to the proposed purchaser as determined in accordance with paragraph (b) of this Section 12.2, (iii) the name and address of the proposed purchaser, (iv) the proposed amount of consideration and terms and conditions of payment offered by or to such proposed purchaser, and (v) that 25 the proposed purchaser has been informed of the "take-along" rights provided for in this Section 12.2 and has agreed to purchase shares in accordance with the terms hereof. (b) TAKE-ALONG RIGHT. The Initial Shareholder Group shall at any time have the right to require each holder of a Warrant and Warrant Shares to sell to the proposed purchaser, as applicable, all or a portion of such Warrant or Warrant Shares up to the sum of the number of shares issuable upon exercise of such Warrant and such Warrant Shares equal to the total number of shares to be sold to the proposed purchaser (including the shares of Voting Common Stock issuable upon conversion of the Class A Preferred Stock to be sold to the proposed purchaser) multiplied by a fraction, the numerator of which is the number of Warrant Shares held by such holder after the full exercise of such holder's Warrants and the denominator of which is the total number of shares of common stock held (or entitled to be acquired upon conversion or exercise of convertible securities) by all of the holders of the Warrants, Warrant Shares, Mezzanine Warrants and Mezzanine Warrant Shares and the Initial Shareholder Group. Any shares purchased from holders of Warrants and Warrant Shares pursuant to this Section 12.2 shall be paid for (i) upon the same terms and conditions (including as to price and type of consideration) received by the Initial Shareholder Group and (ii) in either all cash or a combination of cash and securities; PROVIDED, HOWEVER, that if such securities are not or, at the option of such holders, will no longer be restricted securities (as such term is defined in Rule 144 of the Securities Act) within 180 days of the date such sale is consummated or if such securities are otherwise subject to restrictions pursuant to any shareholders' agreement entered into in connection with such Take-Along Sale that precludes the transfer of such securities within 180 days of the date such sale is consummated, or if a reasonably liquid trading market does not exist for such securities, then, unless the holders of at least 66 2/3% of the sum of (A) the Warrant Shares outstanding or subject to issuance upon exercise of the Warrants and (B) the Mezzanine Warrant Shares outstanding or subject to issuance upon exercise of the Mezzanine Warrants elect to receive such securities, the Initial Shareholder Group may require each holder of a Warrant or Warrant Shares to sell Warrant Shares to the proposed purchaser pursuant to this Section 12 only if the Company or the Initial Shareholder Group pays such holder an amount in cash equal to the then current fair market value of such securities as determined in good faith by the Company's Board of Directors. In the event that such holders of 66 2/3% of such Warrant Shares and Mezzanine Warrant Shares do not agree with such determination, then the then current fair market value of such securities shall be determined as follows, which determination shall be final and binding: (i) The Company shall select a qualified investment banking firm or appraisal firm (the "INVESTMENT BANKER") and any such holders may select their own qualified 26 investment banking firm or appraisal firm (the "ADDITIONAL APPRAISER"), each to appraise the then current fair market value of such securities. (ii) If the difference between the appraisals of the Investment Banker and the Additional Appraiser is not greater than 10% of the higher appraisal, then the average of the two appraisals shall be deemed to be the then current fair market value of such securities. (iii) If the difference between the appraisals of the Investment Banker and the Additional Appraiser is greater than 10% of the higher appraisal, then the Investment Banker and the Additional Appraiser shall select a third appraiser (the "THIRD APPRAISER"), and the then current fair market value shall be determined by (1) averaging the appraisal of each of the Investment Banker, the Additional Appraiser and the Third Appraiser, (2) disregarding the appraisal which deviates most from such average and (3) averaging the remaining two appraisals. The fees and expenses of the Investment Banker, the Additional Appraiser and the Third Appraiser shall be borne equally by the Company and such holders, PROVIDED that such holders may pay their share of such fees and expenses from the proceeds they receive in connection with the Take-Along Sale. (c) FAIRNESS OPINION. As a condition precedent to the consummation of the Take-Along Sale, the Initial Shareholder Group shall furnish to the holders of the Warrants and Warrant Shares an opinion (in form and substance reasonably satisfactory to such holders) of an unaffiliated, nationally recognized investment banking firm as to the fairness of the Take-Along Sale to such holders from a financial point of view. SECTION 12.3. IMPROPER TRANSFER. Any attempt to transfer any shares not in compliance with this Section 12 shall be null and void and neither the Company nor any transfer agent shall give any effect in the Company's stock records to such attempted transfer. SECTION 13. RIGHT OF FIRST REFUSAL AND PRE-EMPTIVE RIGHTS. SECTION 13.1 RIGHT OF FIRST REFUSAL. (a) FIRST OFFER NOTICE. Prior to the Qualified Public Offering, no holder of a Warrant or Warrant Shares shall transfer all or any portion of a Warrant or any Warrant Shares (collectively, the "OFFERED SHARES") to any person or entity (other than an Affiliate) unless (x) such holder (the "SELLING WARRANTHOLDER") has received a bona fide written offer (the "PURCHASE OFFER") from the proposed transferee of the Offered Shares (the "PURCHASER") to purchase the Offered Shares, which offer shall be in writing signed by the Purchaser, and (y) the Selling Warrantholder first offers to sell to the Company and 27 each member of the Initial Shareholder Group such number of Offered Shares as is determined in accordance with paragraph (c) of this Section 13.1. Prior to making any transfer that is subject to this Section 13.1, the Selling Warrantholder shall give the Company and each member of the Initial Shareholder Group written notice (the "OFFER NOTICE") which shall include (x) the identity of the Purchaser, (y) a copy of the Purchase Offer, and (z) an offer (the "FIRST OFFER") to sell to the Company and each such member of the Initial Shareholder Group its Pro Rata Amount (as defined in paragraph (c) below) of the Offered Shares upon the same terms and conditions as those provided for in the Purchase Offer. The First Offer shall be irrevocable with respect to the Initial Shareholder Group for a period of fifteen (15) days following receipt by each member of the Initial Shareholder Group of the Offer Notice (the "FIRST OFFER PERIOD") and, with respect to the Company, for a period of twenty (20) days following receipt by the Company of the Offer Notice. (b) ACCEPTANCE OF FIRST OFFER. At any time during the First Offer Period, each member of the Initial Shareholder Group may accept the First Offer as to its respective Pro Rata Amount of the Offered Shares by giving written notice to the Selling Warrantholder of such acceptance (each such member of the Initial Shareholder Group who accepts the First Offer in the manner provided herein is referred to herein as a "PURCHASING STOCKHOLDER"). In the event that the Purchasing Stockholders, individually or collectively, do not accept the First Offer as to all of the Offered Shares, then within five days of the end of the First Offer Period, the Company may, by giving written notice to the Selling Warrantholder, accept the First Offer as to all, but not less than all, of the Offered Shares as to which the Purchasing Stockholders have not accepted the First Offer. In the event that the Initial Shareholder Group and the Company accept the First Offer as to all of the Offered Shares, the closing of the sale of the Offered Shares shall take place within thirty-five (35) days after the First Offer is accepted by all Purchasing Stockholders, or the Company, as the case may be, or, if later, the date of closing set forth in the Purchase Offer. At such closing, the Selling Warrantholder will deliver certificates for such Offered Shares against payment of the purchase price therefor, and the Purchasing Stockholders, or the Company, as the case may be, will acquire their respective Pro Rata Amount of the Offered Shares, or the remaining Offered Shares, as the case may be, free and clear of all liens, pledges, encumbrances, restrictions and security interests of any kind. If the Initial Shareholder Group and the Company do not purchase all of the Offered Shares, the Selling Warrantholder may sell the Offered Shares to the Purchaser at any time within sixty (60) (or such later date as is necessary to receive all approvals required in connection with such sale, not to exceed 120 days (or 150 days if Manufacturer Approvals are required)), days after the last day of the First Offer Period, PROVIDED that such sale shall be made on terms no less favorable to the Selling Warrantholder than the terms contained in the Purchase Offer and PROVIDED FURTHER that 28 such sale complies with the terms, conditions and restrictions of the Warrants. The Company will cooperate with the Selling Warrantholder in seeking any required manufacturer approvals and will permit third parties to conduct reasonable due diligence in connection with the Selling Warrantholder's attempt to sell the Offered Shares, PROVIDED such due diligence does not materially interfere with the Company's operations. In the event that the Offered Shares are not sold in accordance with the terms of the preceding sentence, the Offered Shares shall again be subject to all of the conditions and restrictions of this Section 13.1. (c) DETERMINATION OF PRO RATA AMOUNT. Each Purchasing Stockholder shall be obligated to purchase pursuant to this Section 13.1 a number of Offered Shares as shall equal the product obtained by multiplying (x) the number of Offered Shares not being purchased by the Company by (y) a fraction, the numerator of which shall be equal to the number of shares of Voting Common Stock owned by such Purchasing Stockholder (including the shares of Voting Common Stock issuable upon conversion of the shares of Class A Preferred Stock owned by such Purchasing Stockholder) and the denominator of which shall be equal to the total number of shares of Voting Common Stock owned by all of the Purchasing Stockholders (including the shares of Voting Common Stock issuable upon conversion of the shares of Class A Preferred Stock owned by such Purchasing Stockholders) (the "PRO RATA AMOUNT"). SECTION 13.2 PRE-EMPTIVE RIGHTS. Prior to the Qualified Public Offering, a Qualified Warrantholder shall have the right, in accordance with procedures comparable to those set forth in Article VI of the Company's Restated Certificate of Incorporation applicable to "Qualified Warrantholders" (as such term is used therein), to purchase a PRO RATA portion of any additional shares of capital stock issued by the Company deemed to be "New Securities" in accordance with the Company's Restated Certificate of Incorporation. SECTION 13.3 IMPROPER TRANSFER. Any attempt to transfer any shares not in compliance with this Section 13 shall be null and void and neither the Company nor any transfer agent shall give any effect in the Company's stock records to such attempted transfer. SECTION 14. NOTICES. Any notice by the Company, the holder of this Warrant or the holders of Warrant Shares or Registrable Securities shall be in writing and shall be deemed to have been duly given if delivered or mailed by certified mail five days after mailing, return receipt requested (a) if to the Company, 375 Park Avenue, 22nd Floor, New York, New York 10022, or at such other address as the Company may designate by notice to each holder of Warrants, Warrant Shares or Registrable Securities at the time outstanding, (b) if to any Purchaser that holds Warrants, Warrant Shares or Registrable Securities, at such Purchaser's address set forth on the signature page to the 29 Agreement or at such other address as such Purchaser may designate by notice to the Company, and (c) if to any other holder of Warrants, Warrant Shares or Registrable Securities, at the address of such holder as it appears on the Security Register. SECTION 15. SUCCESSORS. Except as expressly provided in Sections 3.2, 3.3 and 11.13, this Warrant shall bind and inure to the benefit of the Company and its permitted successors and assigns hereunder, the Purchasers and their respective successors and assigns hereunder and, in addition, shall inure to the benefit of and be enforceable by all holders from time to time of the Warrants, the Warrant Shares and the Registrable Securities. Without limiting the generality of the foregoing, the rights and obligations of the Purchasers and their respective successors and assigns as holders of Warrants and Registrable Securities (including without limitation rights and obligations as to registrations and other matters covered by Sections 11, 12 and 13) shall survive any reorganization, consolidation or merger of the Company with or into another entity or the sale or conveyance to another person of the property, assets or business of the Company as an entirety or substantially as an entirety and such successor or purchasing entity or person, as the case may be, shall execute such agreements or other instruments as may be reasonably requested by the holder of this Warrant to give effect to the foregoing. SECTION 16. APPLICABLE LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of New York. SECTION 17. BENEFITS OF THIS AGREEMENT. Nothing in this Warrant shall be construed to give to any person or corporation other than the Company, the holder of this Warrant and the holders of the Warrant Shares or Registrable Securities any legal or equitable right, remedy or claim under this Warrant and this Warrant shall be for the sole and exclusive benefit of the Company, the holder hereof and the holders of the Warrant Shares and the Registrable Securities. SECTION 18. SURVIVAL; INTERPRETATION. All covenants and agreements of the Company that relate to the Warrant Shares or the Registrable Securities and all rights and duties of the holders from time to time of the Warrant Shares or the Registrable Securities in this Warrant (including without limitation all rights and duties contained in Sections 11, 12 and 13) shall be deemed to survive any surrender hereof to the Company upon exercise hereof as contemplated by Section 1. References herein to the Agreement and terms defined therein shall be deemed to survive the termination of the Agreement. Prior drafts of this Warrant shall not be used as a basis for interpreting this Warrant. 30 SECTION 19. AMENDMENT AND WAIVER. This Warrant may be amended, and the observance of any term hereof may be waived, only in accordance with Section 9.7 of the Agreement. SECTION 20. CERTAIN ADDITIONAL AGREEMENTS. Trace International Holdings, Inc., Aeneas Venture Corporation and AIF II, L.P., who on the date hereof collectively own more than 92% of shares of the Company's capital stock owned by the Initial Shareholder Group, have entered into an agreement assuming and agreeing to perform the terms and conditions of Section 12.1. SECTION 21. SPECIFIC PERFORMANCE. The rights of the Company, the holder hereof and the holders of the Warrant Shares and the Registrable Securities are unique, and, accordingly, each shall, in addition to such other remedies as may be available to any of them at law or in equity, have the right to enforce their rights under this Warrant by actions for injunction or specific performance to the extent permitted by law. SECTION 22. PRIVATE PLACEMENT NUMBER. If the Warrant Shares to be issued upon exercise of this Warrant do not already have a CUSIP number assigned to them by Standard & Poor's CUSIP Service Bureau, the Company shall use its reasonable efforts to obtain a Private Placement Number issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) for the Warrant Shares prior to the issuance of any such Warrant Shares. 31 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its duly authorized officer. Dated: _________________ UNITED AUTO GROUP, INC. By:_________________________ Carl Spielvogel Chairman of the Board and Chief Executive Officer 32 ELECTION TO PURCHASE Attn: __________________________ The undersigned hereby irrevocably elects to exercise the right of purchase represented by the Warrant to which this Election to Purchase is attached for, and to purchase thereunder, ____________ shares of Class A Preferred Stock (or other securities into which such shares are convertible, as specified below) of the Company provided for therein, and requests that certificates for said shares (or other securities) be issued in the name of: (Please Print Name and Address) and, if said number of shares shall not be all the shares purchasable hereunder, that a new Warrant certificate for the balance of said shares purchasable under the said Warrant be registered in the name of the undersigned holder or its nominee as below indicated and delivered to the address stated below. Dated: _________________, _____ Class of capital stock requested:___________________ Name of holder or Nominee (Please Print): ____________________________ Address: ___________________________________________ Signature: _____________________________ Signature Guaranteed: (To be signed only upon assignment of Warrant) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto (Name and Address of Assignee must be Printed or Typewritten) the within Warrant with respect to ____ shares, hereby irrevocably constituting and appointing _________________________ Attorney to transfer said Warrant on the books of United Auto Group, Inc. with full power of substitution in the premises. All notices to be given by the Company to the Warrant holder pursuant to Section 10 of the within Warrant shall be sent to the assignee at the above listed address, and, if the number of shares being hereby assigned is less than all of the shares covered by the within Warrant, then also to the undersigned. The undersigned requests that the Company execute and deliver, if necessary to comply with the provisions of Section 3 of the within Warrant, a new Warrant or, if the number of shares being hereby assigned is less than all of the shares covered by said Warrant, new Warrants in the name of the undersigned, the assignee and/or the assignees, as is appropriate. Dated: __________________, ____ Signature of Registered Holder EXHIBIT A TO WARRANT [Name of Warrant Holder] [Address] Re: CONTINGENT VALUE OBLIGATIONS AGREEMENT Ladies and Gentlemen: The Contingent Value Obligations Agreement (this "Agreement") hereby evidences ____________________ contingent value obligations ("CVOs") of United Auto Group, Inc. (the "Company") to you, received by you upon conversion of the Warrants (as defined below) held by you prior to the date hereof. 1. PURPOSE. The purpose of this Agreement is to provide the holders of the Warrants (as defined below) with economic benefits substantially similar to those that would have been realized by the holders of the Warrants in the event that the Manufacturer Approvals (as defined in the Warrants) had been obtained and such Warrants had been exercised and the shares of Class A Preferred Stock (as defined in the Warrants) issued upon such exercise had been sold. 2. DEFINITIONS. "BASE VALUE" of each CVO granted under this Agreement shall be equal to $0.01, subject to adjustment as provided in Section 3(b) hereof. "BOARD" shall mean the Board of Directors of the Company, as constituted from time to time. "FAIR MARKET VALUE" shall mean the fair market value of the Company on the Redemption Date, as mutually determined in good faith by the Board and the holders of a majority of the CVOs, provided that if the Board and such holders cannot agree on such Fair Market Value, then such Fair Market Value shall be determined by an independent, nationally recognized investment banking firm mutually selected by the Company and the holders of a majority of the CVOs. The cost of such investment banking firm shall be borne equally by the Company and the holders of the CVOs. In the event that the Company and the holders of a majority of the CVOs do not agree on such investment banking firm, then the Fair Market Value shall be determined as follows, which determination shall be final and binding: (i) The Company shall select a qualified investment banking firm or appraisal firm (the "Investment Banker") and the holders of a majority of the CVOs shall select a qualified investment banking firm or appraisal firm (the "Additional Appraiser"), each to appraise the Fair Market Value. (ii) If the difference between the appraisals of the Investment Banker and the Additional Appraiser is not greater than 10% of the higher appraisal, then the average of the two appraisals shall be deemed to be the Fair Market Value. (iii) If the difference between the appraisals of the Investment Banker and the Additional Appraiser is greater than 10% of the higher appraisal, then the Investment Banker and the Additional Appraiser shall select a third appraiser (the "Third Appraiser"), and the Fair Market Value shall be determined by (1) averaging the appraisal of each of the Investment Banker, the Additional Appraiser and the Third Appraiser, (2) disregarding the appraisal which deviates most from such average and (3) averaging the remaining two appraisals. The fees and expenses of the Investment Banker, the Additional Appraiser and the Third Appraiser shall be borne equally by the Company and such holders. "FAIR MARKET VALUE PER SHARE" shall mean, on the Redemption Date, the Fair Market Value, divided by the sum of (i) the total number of shares of capital stock of the Company (including the number of shares of capital stock of the Company issuable upon the exercise or conversion of Derivative Securities (as defined in the Warrants)) outstanding immediately prior to the Redemption Date and (ii) the total number of CVOs outstanding immediately prior to the Redemption Date. The Fair Market Value Per Share shall be determined based on the proportionate share of one share of Class A Preferred Stock of the overall Fair Market Value of the Company (taking into account all adjustments to the Applicable Conversion Value (as defined in the Company's Restated Certificate of Incorporation, as amended) relating to the Class A Preferred Stock from the date of original issuance of the Warrants). "MEZZANINE CVOS" shall mean the Contingent Value Obligations issued upon conversion of the Mezzanine Warrants (as defined in the Warrants). "REDEMPTION DATE" shall mean the date on which the Company receives notice of the Redemption Request (as defined below). "REDEMPTION PRICE" shall mean, with respect to each CVO being redeemed by the Company upon the exercise of the redemption right set forth in Section 4 hereof, the amount by which (i) the Fair Market Value Per Share on the Redemption Date exceeds (ii) the Base Value of such CVO. -2- "REQUIRED CVO HOLDERS" shall mean the holders of at least 66-2/3% of the sum of the outstanding CVOs and the outstanding Mezzanine CVOs. "VALUE NOTES" shall mean promissory notes issued by the Company pursuant to Section 4 hereof containing such terms as shall be agreed to by the Company and the holders of a majority of the CVOs. If the Company and such holders cannot agree on the terms of the Value Notes, such terms shall be determined by an investment banking firm selected by the Company (the cost of whom shall be borne equally by the Company and such holders). "WARRANTS" shall mean all warrants originally issued pursuant to the Warrant Purchase Agreement, dated as of July 10, 1996, among the Company, J.P. Morgan Capital Corporation and The Equitable Life Assurance Society of the United States, and all warrants delivered in substitution or exchange for such warrants. The term "Warrant" means one of the Warrants. "WARRANT SHARES" shall mean, collectively, the shares of Class A Preferred Stock acquired pursuant to the exercise of the Warrants and any securities issued or issuable with respect to such Class A Preferred Stock by way of stock dividend or other distribution or stock split or in connection with a combination of shares, conversion, recapitalization, merger, consolidation or other reorganization or otherwise. 3. ISSUANCE OF CVOS. (a) CONVERSION OF WARRANTS INTO CVOS. Each Warrant shall be converted into a number of CVOs equal to the number of Warrant Shares issuable upon exercise of such Warrant. (a) ADJUSTMENT OF CVOS. The number and Base Value of CVOs granted hereunder shall be adjusted in substantially the same manner as the number and price of Warrant Shares is subject to adjustment as set forth in Section 8 of the Warrants. (c) NATURE OF CVOS. The CVOs granted hereunder shall be used solely as a device for the measurement and determination of the aggregate principal amount of the Value Notes to be issued to each holder of a CVO as provided in this Agreement. CVOs shall not constitute or be treated as a trust fund of any kind or as stock, stock options or other form of equity or security. A holder of a CVO shall have only those rights set forth in this Agreement with respect to CVOs granted to it and shall have no rights as a shareholder of the Company by virtue of having been granted CVOs. 4. REDEMPTION OF CVOS. Upon the written request of the holders of the Required CVO Holders (the "Redemption Request"), at any time prior to the Termination Date (as defined in the Warrants), the Company shall be required to redeem, and all of the holders of outstanding CVOs shall be required to submit for redemption, all, but not less than all, of the outstanding CVOs for an amount equal to the Redemption Price, which the Company shall pay by issuing Value Notes to all of the holders of CVOs in an aggregate principal amount equal to the aggregate Redemption Price for all outstanding CVOs pursuant to the applicable Contingent Value Obligations Agreements. The CVOs shall be submitted for redemption contemporaneously with the Mezzanine CVOs. 5. PURCHASE OF VALUE NOTES. On or prior to the expiration of seven months after the Redemption Date, either (i) the investment banking firm determining the terms of the Value Notes pursuant to Section 4 hereof or another third party identified by the Company shall purchase all of the Value Notes at par or (ii) the Company, at its option, shall repurchase all or a portion of the Value Notes at par, provided that if the Company repurchases less than all of the Value Notes, it will assure that the remaining outstanding Value Notes are concurrently purchased by a third party at par. On the date such Value Notes are purchased, the Company shall pay each holder of the CVOs an amount equal to its proportionate share of the interest accrued on the aggregate principal amount of the Value Notes from the Redemption Date through the date of such purchase, which interest shall accrue at a per annum rate equal to the interest rate per annum payable on six-month U.S. Government Treasury bills on the Redemption Date, as reported by The Wall Street Journal. 6. CONVERSION INTO WARRANTS. In the event the Manufacturer Approvals (as defined in the Warrants) are received after the issuance but prior to the redemption of the CVOs, each holder of such unredeemed CVOs, upon written notice from the Company, shall be required to convert such CVOs into the Warrants which were previously converted into such CVOs, and this Agreement shall terminate and cease to be of any further force or effect. 7. SUCCESSORS. The obligations of the Company under this Agreement shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company. The Company agrees that it will make appropriate provision for the preservation of the rights of the holders of the CVOs under this Agreement in any agreement or plan which it may enter into or adopt to effect any such merger, consolidation or reorganization. 8. NOTICE. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, delivery by facsimile or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed, if to the Company, to its principal executive offices located at 375 Park Avenue, 22nd Floor, New York, NY 10022, facsimile no. (212) 223-5148, attention: Chief Executive Officer, and if to any holder of a CVO, to such holder's address or facsimile number as shown on the records of the Company, as applicable, or at such other address or facsimile number as such party may designate by written notice to the Company or such holder, as applicable, given in the manner herein provided. 9. TRANSFERABILITY. Neither the CVOs nor any rights arising under this Agreement shall be transferable without the prior written consent of the Company, other than to an Affiliate (as defined in the Warrants) of the holder of the CVOs being transferred. 10. AMENDMENT. This Agreement may be amended with the written consent of the Company and the holders of a majority of the CVOs. 11. GOVERNING LAW. This Agreement is to be governed by and construed in accordance with the laws of the State of New York, without reference to the principles of conflicts of laws thereof. If you are in agreement with the foregoing, please sign in the space provided below and return an executed copy of this Agreement to us. Sincerely, UNITED AUTO GROUP, INC. By:____________________ Name: Title: Accepted and agreed to as of ________________ , 199__ : [Name of CVO Holder] By: ___________________ Name: Title: APPENDIX [THIS APPENDIX IS FILED FOR CONVENIENCE ONLY AND DOES NOT CONSTITUTE A PART OF THE ADDITIONAL WARRANT] TERMS DEFINED IN THE SECURITIES PURCHASE AGREEMENTS "ATLANTIC AUTO" means Atlantic Auto Finance Corporation, a Delaware corporation and a Subsidiary of the Company. "CHANGE IN CONTROL" shall be deemed to have occurred if (a) the Company shall convey, transfer or lease all or substantially all of its assets in a single transaction or series of transactions to any Person (other than a wholly owned Subsidiary) or (b) (i) prior to the consummation of a Qualified Public Offering, the Initial Shareholders shall cease to own in the aggregate at least a majority of the issued and outstanding Voting Stock, on a fully diluted basis, of the Company or (ii) after the consummation of a Qualified Public Offering a Person (other than an Initial Shareholder) or a "group" of Persons (other than Initial Shareholders) shall own in the aggregate more of the issued and outstanding Voting Stock, on a fully diluted basis, of the Company than the Initial Shareholders; for purposes of this definition, the term "GROUP" shall have the meaning ascribed thereto in sections 13(d) and 14(d) of the Exchange Act. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time. "INITIAL SHAREHOLDERS" means the shareholders of the Company as of September 22, 1995 and, if natural persons, members of their immediate families, or lineal descendants of any thereof, or any combination of any of the foregoing. "PERSON" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. "QUALIFIED PUBLIC OFFERING" means, as at any date, the sale in an underwritten public offering registered under the Securities Act of shares of the Company's capital stock resulting in aggregate gross proceeds (before deducting underwriting commissions and discounts and together with the gross proceeds of any such underwritten public offering previously consummated) of an amount at least equal to $30,000,000 pursuant to which the Company has a market capitalization of at least $100,000,000. "SUBSIDIARY" means, as to any Person, any corporation or other business entity a majority of the combined voting power of all Voting Stock of which is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries, PROVIDED, that Atlantic Auto shall not constitute a "Subsidiary" of the Company for any purpose under the Agreements other than Section 5, Section 10.4 therein and the restrictions (and exceptions thereto) in Section 10.6(a) therein prohibiting the Company or a Subsidiary from redeeming, purchasing or otherwise acquiring capital stock of the Company. Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. "VOTING STOCK" means, with respect to any Person, any shares of stock or other equity interests of any class or classes of such Person whose holders are entitled under ordinary circumstances (irrespective of whether at the time stock or other equity interests of any other class or classes shall have or might have voting power by reason of the happening of any contingency) to vote for the election of a majority of the directors, managers, trustees or other governing body of such Person. 2 EX-10.1-6 8 EXHIBIT 10.1.6 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement is dated as of June 21, 1996, and is entered into between United Auto Group, Inc. (formerly EMCO Motor Holdings, Inc.), a Delaware corporation (the "Company"), and Carl Spielvogel ("Executive"). WHEREAS, Executive and the Company entered into an Employment Agreement dated as of October 18, 1994 (the "Original Agreement"); WHEREAS, on April 3, 1996, Executive and the Company amended the stock option portion of the Original Agreement; and WHEREAS, Executive and the Company desire to amend certain other terms of the Original Agreement and to embody in this Agreement all the terms and conditions of Executive's employment by the Company as so amended. NOW, THEREFORE, the parties hereby agree that this Agreement supersedes and supplants the Original Agreement in all respects and further agree as follows: ARTICLE I. EMPLOYMENT, DUTIES AND RESPONSIBILITIES 1.1 EMPLOYMENT. The Company shall employ Executive as Chief Executive Officer and Chairman of the Board of Directors (the "Board") of the Company. Executive hereby accepts such employment. Executive agrees to devote substantially all of his business time and efforts to the business of the Company. Anything herein to the contrary notwithstanding, nothing shall preclude Executive from (i) serving on the boards of directors of a reasonable number of other corporations or trade associations and/or charitable organizations, (ii) engaging in charitable activities and community affairs, (iii) rendering consulting services to clients on an occasional basis, and (iv) managing his personal investments and affairs, provided that such activities do not materially interfere with the proper performance of his duties and responsibilities as the Company's Chief Executive Officer and Chairman. 1.2 DUTIES AND RESPONSIBILITIES. Executive shall be responsible for the general management of the affairs of the Company (subject to the day-to- day operating control of certain of the Company's subsidiaries which the Board or the Executive Committee thereof (the "Executive Committee") may specifically allocate to other senior officers of the Company to the extent required by agreements to which the Company or any of its subsidiaries are subject (other than agreements with such senior officers), including franchise agreements with automobile manufacturers or authorized distributors thereof) and shall be required to perform such duties and responsibilities as are consistent with his position and as the Board or the Executive Committee may from time to time prescribe. 1.3 BOARD AND EXECUTIVE COMMITTEE MEMBERSHIP. During the Term (as defined in Section 2.1), the Company will nominate Executive for election to the Board and will use its best efforts to secure Executive's election to the Board and his appointment as a member of the Executive Committee. 1.4. REPORTING. Executive shall report, in the performance of his duties, directly to the Board. During the Term, Executive shall be the only officer of the Company or any subsidiary of the Company required to report directly to the Board or the Executive Committee, and all other officers of the Company and its subsidiaries shall report directly, or indirectly through their superiors, to Executive. ARTICLE II. TERM 2.1 TERM. The term of Executive's employment under this Agreement (the "Term") shall commence on October 18, 1994 and shall continue until December 31, 2000; provided that (i) the Term shall be renewed for an additional one-year period as of January 1 of each calendar year commencing with calendar year 2001 (each, a "Renewal Date"), unless either the Company or Executive gives written notice, at least ninety (90) days prior to a Renewal Date, of its or his intention not to so renew the Term, and (ii) the Term may be terminated earlier as provided in Article V hereof. ARTICLE III. COMPENSATION AND EXPENSES 3.1 SALARY, BONUSES AND BENEFITS. As compensation and consideration for the performance by Executive of his obligations under this Agreement, Executive shall be entitled to the following (subject, in each case, to the provisions of Article V hereof): (a) BASE SALARY. The Company shall pay Executive an annualized base salary during the Term, payable in accordance with the normal payment procedures of the Company and subject to such withholdings and other normal employee deductions as may be required by law, of $750,000 through December 31, 1996 and of $1,000,000 beginning January 1, 1997. The base salary shall be -2- reviewed no less frequently than annually for increase. Determination as to any increase shall be in the sole discretion of the Board or the Compensation Committee thereof (the "Compensation Committee"). (b) BONUS. The Company shall pay Executive an annual, fiscal year bonus during the Term commencing with the year beginning January 1, 1995 in an amount determined by the Compensation Committee (or in the absence of such a committee, by the Executive Committee or the Board), provided that (i) if the Company meets the plan established by the Company prior to each year providing for certain financial and other performance targets to be agreed upon by the Compensation Committee (or in the absence of such a committee, by the Executive Committee or the Board) and Executive, such bonus will be at least equal to 50% of Executive's base salary, and (ii) in no event shall such bonus exceed an amount equal to Executive's base salary. The bonus shall be paid within 90 days after the end of each full fiscal year of the Company during the Term. (c) STOCK OPTIONS. (i) On April 3, 1996, the Company amended the option granted to Executive under the Original Agreement. As so amended, such option (the "First Option") in the form of Exhibit A hereto entitles Executive to purchase up to 400,000 shares of the Company's Voting Common Stock, par value $0.0001 per share ("Common Stock") at an exercise price of $10.00 per share. Subject to Article V hereof, the First Option will vest and become exercisable ratably in four installments as follows: one-fourth of the number of shares covered under the First Option on each of the first, second, third and fourth anniversaries of October 18, 1994. The First Option shall terminate on October 18, 2004, subject to earlier termination as provided in Article V hereof. (ii) Effective as of the effective date of the registration statement filed in connection with the IPO (as defined in Section 5.3) (the "IPO Date"), the Company shall grant to Executive, under the Company's Stock Option Plan, an option (the "Second Option") in the form of Exhibit B hereto to purchase up to 100,000 shares of Common Stock at an exercise price equal to the price per share to the public set forth on the cover of the prospectus relating to the IPO. Subject to Article V hereof, the Second Option will vest and become exercisable ratably in four installments as follows: one-fourth of the number of shares covered under the Second Option on each of the first, second, third and fourth anniversaries of the IPO Date. The Second Option shall terminate on the tenth anniversary of the IPO Date, subject to earlier termination as provided in Article V hereof. (iii) Effective as of the first anniversary of the IPO Date (the "Third Grant Date"), the Company shall grant to Executive, under the Company's Stock Option Plan, an option (the -3- "Third Option" and, collectively with the First Option and the Second Option, the "Options") in the form of Exhibit B hereto to purchase up to 100,000 shares of Common Stock at an exercise price per share equal to the Market Price (as defined below) of one share of Common Stock on the day immediately preceding the Third Grant Date. Subject to Article V hereof, the Third Option will vest and become exercisable ratably in four installments as follows: one-fourth of the number of shares covered under the Third Option on each of the first, second, third and fourth anniversaries of the Third Grant Date. The Third Option shall terminate on the tenth anniversary of the Third Grant Date, subject to earlier termination as provided in Article V hereof. For purposes of this Section 3.1(c), the term "Market Price" means (1) the reported last sales price regular way or, if no such reported sale occurs on such day, the average of the closing bid and asked prices regular way on such day, in each case on the principal national securities exchange in which the Common Stock is listed or admitted to trading or on the National Market System of the Nasdaq Stock Market if the Common Stock is listed thereon, or (2) if the Common Stock is not listed or admitted to trading on any national securities exchange or on the National Market System of the Nasdaq Stock Market, the average of the closing bid and asked prices in the over-the-counter market on such day as reported by the Nasdaq Stock Market or National Quotation System, Inc.; in any case where the price cannot be determined as aforesaid on the relevant day, it shall be determined on the next preceding day on which such determination can be made as aforesaid. (iv) The Company and certain of its stockholders are parties to a stockholders agreement (the "Stockholders Agreement") delivered pursuant to Sections 4.7 and 5.3 of each of the Preferred Stock Purchase Agreement (the "Preferred Stock Purchase Agreement"), dated as of October 15, 1993, among the Company, certain investors named therein, Trace International Holdings, Inc. ("TIHI"), and Ezra P. Mager ("Mager") and the Common Stock Purchase Agreement (the "Common Stock Purchase Agreement"), dated as of October 15, 1993, among the Company, TIHI and Mager. For so long as the Stockholders Agreement shall be in effect, it shall be a condition precedent to the exercise of the Options by Executive that Executive execute and deliver a counterpart of the Stockholders Agreement, as a result of which he shall be deemed to be a "Stockholder" thereunder and bound by all of the applicable provisions of the Stockholders Agreement. (v) Upon the request of the Company's underwriters managing any underwritten public offering of the Common Stock, Executive shall not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any shares of Common Stock acquired upon exercise of the Options for such period of time from the effective date of such offering as the Company or the underwriters may specify, provided -4- that any such restriction on such disposition by Executive shall not exceed 180 days. (vi) The Options shall not be transferable, except by will or the laws of descent and distribution, provided that Executive may at any time transfer all or a portion of the Options to his spouse, any of his descendants or trusts for the benefit of Executive, his spouse or his descendants, subject to all of the terms and conditions of the Options. (vii) Executive shall enter into a stock option agreement with the Company with respect to the First Option in the form of Exhibit A hereto and with respect to each of the Second Option and the Third Option in the form of Exhibit B hereto. (viii) From the date hereof until the IPO Date, with respect to the Second Option, and until the Third Grant Date, with respect to the Third Option, upon any change in the outstanding shares of Common Stock by reason of any recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other corporate change, or any distributions to common shareholders other than ordinary cash dividends, the Company shall make such substitutions or adjustments as are appropriate and equitable, as to the number or kind of shares of Common Stock or other securities covered by such Option and the exercise price thereof. (d) BENEFIT PLANS. Executive shall participate during the Term in all employee pension and welfare benefit plans and programs made available to the Company's senior-level executives generally, as such plans or programs may be in effect from time to time, including, without limitation, pension, savings and other retirement plans and programs, in each case to the extent and in the manner available to all other senior level executives of the Company and subject to the terms and provisions of such plans or programs. To the extent there is a period of employment required as a condition for full benefit coverage under any employee benefit program, to the extent permissible under such program, Executive shall be deemed to have met such requirement. Notwithstanding the foregoing, while Executive and his family are covered by the medical and dental plans of his prior employer, he will not participate in the medical and dental plans of the Company. Executive and his family are entitled to such coverage under the medical and dental plans of his prior employer at his prior employer's expense until December 31, 1996 and thereafter may continue such coverage at his expense. The Company agrees that whenever Executive is required to pay for such coverage the Company shall reimburse him for the amount of such payments on a "tax grossed-up basis" so that Executive will not be "out-of-pocket" on an after-tax basis with respect to such reimbursement. If for any reason Executive and his family are no longer covered under his prior employer's medical and dental plans, he and his family shall thereafter participate in the -5- Company's medical and dental plans as provided in the first two sentences of this Section 3.1(d). (e) VACATION. Executive shall be entitled to a paid vacation in accordance with Company policy during the Term, but not less than four weeks per year. 3.2 EXPENSES; PERQUISITES. (a) The Company will reimburse Executive for reasonable business-related expenses incurred by him in connection with the performance of his duties hereunder during the Term, including the reasonable legal expenses incurred by Executive in connection with the negotiation of his employment arrangements with the Company prior to the date hereof, subject, however, to the Company's policies relating to business-related expenses as in effect from time to time during the Term. (b) During the Term, Executive shall be entitled to participate in any of the Company's executive fringe benefit arrangements in accordance with the terms and conditions of such arrangements as are in effect from time to time for the Company's senior-level executives generally. ARTICLE IV. EXCLUSIVITY, ETC. 4.1 EXCLUSIVITY. Executive agrees to perform his duties, responsibilities and obligations hereunder to the best of his ability. Executive agrees that he will devote substantially all of his business time, care and attention and best efforts to such duties, responsibilities and obligations throughout the Term, except as otherwise provided in Section 1.1 hereof. Executive also agrees that during the Term he will not engage in any other business activities, pursued for gain, profit or other pecuniary advantage, that are competitive with the activities of the Company or any of its subsidiaries, except as permitted in Section 4.2 below. Executive agrees that all of his activities as an employee of the Company shall be in conformity in all material respects with all policies, rules and regulations and directions of the Company not inconsistent with this Agreement and which have been expressly communicated to him, whether orally or in writing. 4.2 OTHER BUSINESS VENTURES. Executive agrees that, so long as he is employed by the Company, he will not have any financial or other beneficial interest in any business enterprise which is competitive with any business engaged in by the Company or any of its subsidiaries. Notwithstanding the foregoing or anything contained in Section 4.1 hereof, Executive may own, directly or indirectly, up to one percent (1%) of the outstanding capital stock of any such business having a class of capital -6- stock which is traded on any U.S. or foreign stock exchange or in the over-the-counter market. 4.3 CONFIDENTIALITY; NON-COMPETITION. (a) Executive agrees that he will not, at any time during or after the Term, make use of or divulge to any other person, firm or corporation any trade or business secret, process, method or means, or any other confidential information concerning the business or policies of the Company or any of its subsidiaries or Affiliates (as defined in Section 5.3 hereof), except (i) as such disclosure or use may be required or appropriate in connection with his work as an employee of the Company or (ii) when required to do so by a court of law, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order him to divulge, disclose or make accessible such information. For purposes of this Agreement, a "trade or business secret, process, method or means, or any other confidential information" shall mean and include information treated as confidential or as a trade secret by the Company or any of its subsidiaries or Affiliates, including but not limited to information regarding contemplated products, models, compilations, business and financial methods or practices, marketing, merchandising and selling techniques, customers, vendors, suppliers, trade secrets, training programs, manuals or materials, technical information, contracts, systems, procedures, mailing lists, know-how, trade names, improvements, pricing, price lists, financial or other data (including the revenues, costs or profits associated with any of the Company's products or services), business plans, strategy, code books, invoices and other financial statements, computer programs, software systems, databases, discs and printouts, other plans (technical or otherwise), customer and industry lists, supplier lists, correspondence, internal reports, personnel files, sales and advertising material, telephone numbers, names, addresses or any other compilation of information, written or unwritten, which is or was used in the business of the Company or any of its subsidiaries or Affiliates. Executive's obligation under this Section 4.3(a) shall not apply to any information which is generally known to the public or hereafter becomes generally known to the public without the fault of Executive. Executive agrees not to remove from the premises of the Company, except as an employee of the Company in pursuit of the business of the Company or except as specifically permitted in writing by the Company, any document or other object containing or reflecting any such information. Executive agrees and acknowledges that all of such information, in any form, and copies and extracts thereof, are and shall remain the sole and exclusive property of the Company, and upon termination of his employment with the Company, Executive shall return to the Company the originals and all copies of any such information provided to or acquired by Executive in connection with the performance of his duties for the Company, and shall return to the Company all files, correspondence and/or other communications received, maintained -7- and/or originated by Executive during the course of his employment, and no copy of any such shall be retained by him, except that he may retain his personal notes, diaries, Rolodexes and correspondence. (b)(i) Executive acknowledges that the agreements and covenants contained in this Section 4.3(b) are essential to protect the value of the Company's business and assets and by virtue of his employment with the Company, Executive has obtained and will obtain knowledge, contacts, know-how, training, experience and other information relating to the Company's business operations, and there is a substantial probability that such knowledge, know-how, contacts, training, experience and information could be used to the substantial advantage of a competitor of the Company and to the Company's substantial detriment. Accordingly, for a period commencing on the date of termination of Executive's employment with the Company and ending two (2) years from and after such date (the "Non-Compete Period"), Executive shall not, directly or indirectly, for himself or on behalf of or in conjunction with any person, partnership, corporation or other entity, compete, own, operate, control, or participate or engage in the ownership, management, operation or control of, or be connected with as an officer, employee, partner, director, shareholder, representative, consultant, independent contractor, guarantor, advisor or in any other manner or otherwise have a financial interest in, a proprietorship, partnership, joint venture, association, firm, corporation or other business organization or enterprise that competes with the Company (which for this purpose shall mean any business or enterprise that operates dealerships for the retail sales of new and used automobiles or trucks and businesses ancillary thereto), provided that such business or enterprise (A) is or becomes located or otherwise engaged within a 100 mile radius of any automobile or truck dealership or ancillary business in which the Company, directly or indirectly, has a 50% or greater economic or voting or otherwise controlling ownership interest at any time during the Non-Compete Period or (B) is an automobile or truck dealership or group of affiliated automobile or truck dealerships (and all businesses ancillary thereto) whose aggregate gross sales during the 12 month period immediately preceding the date of Executive's termination exceeded $500,000,000, and provided further that it shall not be a violation of this Section 4.3(b) if (x) Executive owns up to one percent (1%) of the outstanding capital stock of any such business having a class of capital stock which is traded on any U.S. or foreign stock exchange or in the over-the-counter market, (y) Executive owns, operates, is employed by or is otherwise connected with an advertising agency that serves automobile dealerships, provided Executive does not personally perform any work for, or otherwise provide any advice with respect to, any account that is engaged in competitive activity with the Company, or (z) Executive is employed by or is a consultant or independent contractor for an entity that competes with the Company but Executive is employed by or is a consultant or independent -8- contractor for a division or subsidiary of such entity that does not engage in such competitive activity. During the Non-Compete Period, Executive shall not interfere with or disrupt, or attempt to interfere with or disrupt, the relationship, contractual or otherwise, between the Company and any customer, client, supplier, manufacturer, distributor, consultant, independent contractor or employee of the Company. (ii) It is the desire and intent of the parties that the provisions of this Section 4.3(b) shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular portion of this Section 4.3(b) shall be adjudicated to be invalid or unenforceable, this Section 4.3(b) shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of this Section 4.3(b) in the particular jurisdiction in which such adjudication is made. (c) Executive agrees that, at any time and from time to time during and after the Term, he will execute any and all documents which the Company may reasonably request to effectuate the provisions of this Section 4.3. ARTICLE V. TERMINATION 5.1 TERMINATION BY THE COMPANY. Subject to Section 5.6, the Company shall have the right to terminate Executive's employment at any time, with or without "Cause." For purposes of this Agreement, "Cause" shall mean: (a) Executive is convicted of or enters a plea of guilty to any felony (or equivalent offense not categorized as a "felony") under federal or state law; (b) Executive engages in conduct that constitutes gross neglect (including, without limitation, such neglect which may result from Executive's compliance with the terms and conditions of any agreements between Executive and his prior employer) or willful misconduct in carrying out his duties under this Agreement, resulting, in either case, in material harm to the Company; (c) Executive refuses to follow the instructions, orders or directives of the Board or the Executive Committee (including the Chairman thereof) with respect to his duties and responsibilities hereunder, provided that such refusal shall constitute Cause only if the instruction, order or directive in question has been furnished to Executive in writing and provided further that such refusal shall not constitute Cause if Executive -9- has a good faith and reasonable belief, based on advice of counsel, that to follow such instruction, order or directive would be unlawful; or (d) Executive commits any other material breach of this Agreement (other than Section 1.1 hereof and the first and second sentences of Section 4.1 hereof, without limiting the effect of the foregoing clauses (a), (b) and (c) of this Section 5.1) that causes material harm to the Company. Prior to his termination for Cause, Executive shall be given written notice ("Notice of Cause") by the Board of the intention to terminate him for Cause, such Notice of Cause (A) to state in detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed termination for Cause is based and (B) to be given within six (6) months of the Board learning of such act or acts or failure or failures to act. Executive shall have ten (10) days after the date that Notice of Cause has been given to Executive in which to cure such conduct, to the extent such cure is possible. Executive may also, within such 10-day period, request a hearing before the Board. If so requested, such hearing shall be held on a date set by the Board at any time within forty-five (45) days after the date such hearing was requested. If, at any time within thirty (30) days following such hearing, the Executive is furnished written notice by the Board confirming that, in its judgment, grounds for Cause on the basis set forth in the Notice of Cause exist, he shall thereupon be terminated for Cause. If no hearing is requested and the conduct described above has not been cured within the 10-day period following the date the Notice of Cause was given by the Company, Executive shall be deemed terminated for Cause, such termination to be effective as of the day the Notice of Cause was given by the Company. 5.2 TERMINATION FOR GOOD REASON. "Termination for Good Reason" shall mean a termination of Executive's employment at his initiative following the occurrence, without Executive's written consent, of one or more of the following events: (a) a reduction in Executive's then current base salary or target annual bonus opportunity; (b) the failure to elect or re-elect Executive, or his removal, as Chairman or Chief Executive Officer of the Company other than as permitted hereunder; (c) a material diminution in Executive's duties or the assignment to Executive of duties which are materially inconsistent with his position as Chief Executive Officer of the Company; (d) as a result of a material breach by the Company or the Chairman of the Executive Committee of Section 1.4 hereof, Executive reasonably determines in good faith that he -10- cannot carry out his duties and responsibilities in the manner originally contemplated hereunder; (e) the occurrence of a Change in Control (as defined in Section 5.3 hereof); (f) the relocation of the Company's principal office, or Executive's own office location as assigned to him by the Company, to a location more than 50 miles from the Borough of Manhattan; or (g) the failure of the Company to obtain the assumption in writing of its obligation to perform this Agreement by any successor to all or substantially all of the assets of the Company within 15 days after a merger, consolidation, sale or similar transaction. Prior to his termination for Good Reason, Executive shall give written notice ("Notice of Good Reason") to the Board of his intention to terminate for Good Reason, such Notice of Good Reason (A) to state in detail the particular event, act or acts or failure or failures to act that constitute the grounds on which the proposed termination for Good Reason is based and (B) to be given within six (6) months of his learning of such event, act or acts or failure or failures to act. The Company shall have thirty (30) days after the date that the Notice of Good Reason has been given to the Board in which to cure such conduct, to the extent such cure is possible. If the Company fails to cure such conduct, Executive shall then be entitled to terminate his employment for Good Reason. 5.3 CHANGE IN CONTROL. A "Change in Control" shall mean the occurrence of any one of the following events: (a) Prior to an IPO, TIHI or its Affiliates sells or otherwise disposes to persons or entities who are not Affiliates of TIHI, in one transaction or a series of related transactions, 85% or more of the Voting Stock (as defined below) of the Company held by TIHI on the date of this Agreement and issuable to TIHI pursuant to the Common Stock Purchase Agreement; (b) any "person," as such term is used in Sections 3(a)(9) and 13(d) of the Securities Exchange Act of 1934, becomes a "beneficial owner," as such term is used in Rule 13d-3 promulgated under that act (other than an Affiliate of the Company or any "person" who was a "beneficial owner" of 10% or more of the Voting Stock of the Company on the date hereof or who has received Voting Stock from Executive), of 50% or more of the Voting Stock of the Company prior to an IPO and 40% or more of the Voting Stock after an IPO; (c) the majority of the Board consists of individuals other than Incumbent Directors, which term means the members of the Board on the date of this Agreement or otherwise -11- designated pursuant to various agreements among the Company's stockholders in effect on the date hereof; provided that any person becoming a director subsequent to such date whose election or nomination for election was supported by a majority of the directors who then comprised the Incumbent Directors shall be considered to be an Incumbent Director; (d) all or substantially all of the assets or business of the Company is disposed of pursuant to a merger, consolidation or other transaction other than to an Affiliate of the Company (unless the shareholders of the Company immediately prior to such merger, consolidation or other transaction beneficially own, directly or indirectly, 50% or more of the Voting Stock or other ownership interests of the entity or entities, if any, that succeed to the business of the Company); or (e) the Company combines with another company (other than an Affiliate of the Company) and is the surviving corporation but, immediately after the combination, the shareholders of the Company immediately prior to the combination hold, directly or indirectly, less than 50% of the Voting Stock of the combined company. For the purposes of this Agreement, (i) "Affiliate" of a specified person or other entity shall mean a person or other entity that directly or indirectly controls, is controlled by, or is under common control with the person or other entity specified, and in the case of a specified person who is a natural person, his spouse, his issue, his parents, his estate and any trust entirely for the benefit of his spouse and/or issue; (ii) "Voting Stock" shall mean capital stock of any class or classes having voting power under ordinary circumstances, in the absence of contingencies, to elect the directors of a corporation; and (iii) "IPO" shall mean the completion of an underwritten sale of Common Stock or securities convertible into Common Stock of the Company (or an entity formed by the Company for the purpose of issuing Common Stock (or securities convertible into Common Stock) in connection with the IPO) pursuant to a registration statement which has become effective under the Securities Act of 1933, as amended. 5.4 DEATH. In the event Executive dies during the Term, the Term shall automatically terminate, such termination to be effective on the date of Executive's death. 5.5 DISABILITY. In the event that Executive shall suffer a disability which shall have prevented him from performing his obligations hereunder for a period of at least 120 consecutive days, the Company shall have the right to terminate the Term, such termination to be effective upon the giving of notice thereof to Executive in accordance with Section 6.2 hereof. -12- 5.6 VOLUNTARY TERMINATION. Executive shall have the right to terminate his employment at any time. A voluntary termination that is not a Termination for Good Reason or disability shall be effective upon 60 days prior written notice to the Company and shall not constitute a breach of this Agreement. 5.7 EFFECT OF TERMINATION. (a) In the event of termination of Executive's employment (i) by the Company for Cause, (ii) by Executive other than for Good Reason, (iii) by reason of Executive's death or disability, or (iv) by reason of either party's election not to extend the Term as provided in Section 2.1 hereof, the Company shall pay to Executive (or his beneficiary in the event of his death) any base salary or bonus earned but not paid to Executive prior to the effective date of such termination and Executive shall be entitled to other or additional benefits in accordance with the applicable plans and programs of the Company. (b) In the event of termination of Executive's employment (i) by the Company other than for Cause, or (ii) by Executive for Good Reason, then in addition to the amounts and other benefits described in Section 5.7(a) hereof, the Company shall pay Executive $83,333 per month for the remainder of the Term. For this purpose, the Term shall include an additional one year renewal described in Section 2.1 hereof only if the termination of employment occurred after the date by which notice of non-renewal must be given and no such notice was given. In addition, Executive shall be entitled to continued participation in all medical, dental and hospitalization coverage and in other employee benefit plans or programs in which he was participating on the date of the termination of his employment until the earlier of (A) the end of the period during which he is receiving salary continuation payments, and (B) the date, or dates, he receives similar coverage and benefits under the plans and programs of a subsequent employer (such coverages and benefits to be determined on a coverage-by-coverage, or benefit-by-benefit, basis). (c) In the event of termination of Executive's employment for disability as described in Section 5.5 hereof, then, in addition to the amounts and other benefits described in Section 5.7(a) hereof, Executive shall be entitled to continued participation in medical, dental and hospitalization coverage and in all other employee plans and programs in which he was participating on the date of termination of his employment due to disability for a period of two years following such termination. (d) In the event of termination of Executive's employment due to death, then, in addition to the amounts and other benefits described in Section 5.7(a) hereof, his estate or beneficiaries shall be entitled to base salary for a period of 90 days following the date of death. -13- (e)(i) In the event of termination of Executive's employment due to death or by the Company for Cause or by Executive other than for Good Reason or disability, the Options, to the extent not vested and exercisable on the date of such termination, shall be immediately forfeited. To the extent the Options are vested and exercisable on the date of such termination, they may be exercised (A) in the event of termination by the Company for Cause, for a period of ninety (90) days after the date of such termination, or (B) in the event of termination due to death or by Executive (or his beneficiary, estate or other legal representative) other than for Good Reason or disability, for a period of one year after the date of such termination. (ii) In the event of termination of Executive's employment (A) by the Company other than for Cause, (B) by Executive for Good Reason, or (C) by reason of Executive's disability, each Option, to the extent not granted or not vested and exercisable on the date of termination, shall be immediately granted and vested and exercisable in full, and may be exercised for a period equal to the shorter of four years after the date of such termination and the remainder of the original term of such Option. (iii) If (A) Executive's employment with the Company has not terminated prior to December 31, 1998, (B) an IPO has not occurred prior to such date, (C) the Company's measurement on the consumer satisfaction index recorded by five of the six Manufacturers (as defined below) has exceeded the average measurement for all automobile dealerships nationwide and in the applicable region/zone in at least nine of the twelve months (or three of the four quarters in the event any of the Manufacturers do not provide consumer satisfaction reports to the Company on a monthly basis) during each year of the Term commencing January 1, 1996, provided that, for purposes of this Section 5.7, any dealership acquired by the Company subsequent to the date hereof shall not be included in the measurement of consumer satisfaction until one year after the date such dealership is acquired (for purposes of this Section 5.7, the term "Manufacturers" shall mean General Motors Corp., Chrysler Corporation, Ford Motor Co., Toyota Motor Sales Corp., Honda Motors Sales Corp. (USA) and Nissan Motor Sales Corp. (USA)), and (D) the Company's aggregate annual pre-tax earnings have during the Term commencing January 1, 1995 exceeded 1 1/2% of the Company's aggregate gross sales achieved during the Term, provided that, for purposes of this Section 5.7, the annual pre-tax earnings of any dealership acquired by the Company subsequent to the date hereof shall not be included in the calculation of the Company's annual pre-tax earnings until one year after the date such dealership is acquired, then Executive shall have the right for as long as an IPO has not occurred, for a period of thirty (30) days immediately after the date that the Warrants (as defined in the Preferred Stock Purchase Agreement) would become issuable pursuant to Section 8 of the Preferred Stock Purchase Agreement, -14- to surrender the First Option to the Company (the "Put") for a payment equal to the product of (I) the number of shares of Common Stock subject to the First Option and for which the First Option has not been exercised (the "Put Shares"), and (II) the amount by which the Company's "Book Value per Share" exceeds $10.00 (the "Put Price"). The closing (the "Put Closing") for the purchase by the Company of the Put Shares upon exercise of the Put shall occur at the Company's principal office, or at such other place as shall be mutually agreeable to Executive and the Company, within forty-five (45) days after the Executive has provided the Company with written notice of his intention to exercise the Put (such date of closing hereinafter referred to as the "Put Closing Date"). On the Put Closing Date, the Company shall pay to Executive by wire transfer or certified or official bank check an amount equal to one-third of the Put Price with respect to the Put Shares, with the remainder of the Put Price to be evidenced by a promissory note (the "Put Note") in the form of Exhibit B hereto issued to Executive for all additional amounts then owing to Executive as a result of the exercise of the Put. The Put Note shall (i) be repaid in two equal installments of principal, together with all accrued interest thereon, the first installment of which shall be made eighteen (18) months after the Put Closing Date, and the second installment of which shall be made three (3) years after the Put Closing Date, and (ii) bear interest at a rate equal to the short-term Applicable Federal Rate in effect on the Put Closing Date. For purposes of this Section 5.7(e), "Book Value per Share" with respect to one share of Common Stock shall mean, on the date the Company receives written notice of Executive's election to surrender the First Option (the "Book Value Determination Date"), the quotient obtained by dividing (A) the Total Net Asset Value on the Book Value Determination Date by (B) the number of shares of Common Stock outstanding on a fully-diluted basis on the Book Value Determination Date and assuming that all outstanding shares of Preferred Stock have been converted into Common Stock at the conversion rate in effect on the Book Value Determination Date. For this purpose, "Total Net Asset Value" shall mean the value, as reflected on the Company's most recent consolidated balance sheet, of (x) the total assets of the Company, LESS (y) the current liabilities of the Company, LESS (z) any long-term liabilities and outstanding equity securities that are senior to the Common Stock. 5.8 NO MITIGATION; NO OFFSET. In the event of any termination of employment under this Article V, Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due Executive under this Agreement on account of any remuneration attributable to any subsequent employment that he may obtain except as specifically provided in this Article V. 5.9 NATURE OF PAYMENTS. Any amounts due under this Article V are in the nature of severance payments considered to be reasonable by the Company and are not in the nature of a -15- penalty, provided that such payments shall be Executive's exclusive remedy relating to the termination of his employment hereunder. ARTICLE VI. MISCELLANEOUS 6.1 INDEMNIFICATION. (a) The Company agrees that if Executive is made a party, or is threatened to be made a party, to any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that he is or was a director, officer or employee of the Company or is or was serving at the written request of the Company as a director, officer, member, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether or not the basis of such Proceeding is Executive's alleged action in an official capacity while serving as a director, officer, member, employee or agent, Executive shall be indemnified and held harmless by the Company to the fullest extent legally permitted or authorized by the Company's restated certificate of incorporation or bylaws or resolutions of the Company's Board of Directors against all cost, expense, liability and loss (including, without limitation, reasonable attorney's fees, judgments, fines or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by Executive in connection therewith, and such indemnification shall continue as to Executive even if he has ceased to be a director, officer, member, employee or agent of the Company or other entity and shall inure to the benefit of Executive's heirs, executors and administrators. The Company shall advance to Executive all reasonable costs and expenses incurred by him in connection with a Proceeding within twenty (20) days after receipt by the Company of a written request for such advance. Such request shall include an undertaking by Executive to repay the amount of such advance if it shall ultimately be determined that he is not entitled to be indemnified against such costs and expenses. (b) Neither the failure of the Company (including the Board, independent legal counsel or stockholders) to have made a determination prior to the commencement of any Proceeding concerning payments of amounts claimed by Executive under Section 6.1(a) above that indemnification of Executive is proper because he has met the applicable standard of conduct, nor a determination by the Company (including the Board, independent legal counsel or stockholders) that Executive has not met such applicable standard of conduct, shall create a presumption that Executive has not met the applicable standard of conduct. -16- (c) The Company agrees to maintain a directors' and officers' liability insurance policy covering Executive to the extent the Company provides such coverage for its other executive officers. 6.2 BENEFIT OF AGREEMENT; ASSIGNMENT; BENEFICIARY. (a) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation in which the Company is not the continuing entity, or sale of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. This Agreement shall also inure to the benefit of, and be enforceable by, Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amount would still be payable to the Executive hereunder if he had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to Executive's beneficiary, devisee, legatee or other designee, or if there is no such designee, to Executive's estate. Without limiting the foregoing, Executive shall be entitled, to the extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following Executive's death by giving the Company written notice thereof. In the event of Executive's death or a judicial determination of his incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal representative. 6.3 NOTICES. Any notice required or permitted hereunder shall be in writing and shall be sufficiently given if personally delivered or if sent by telegram or telex or by registered or certified mail, postage prepaid, with return receipt requested, addressed: (a) in the case of the Company to 375 Park Avenue, New York, New York 10022, Attention: GENERAL COUNSEL, or to such other address and/or to the attention of such other person as the Company shall designate by written notice to Executive; and (b) in the case of Executive, to 720 Park Avenue, New York, New York 10022, or to such other address as Executive shall designate by written notice to the Company. Any notice given hereunder shall be deemed to have been given at the time of receipt thereof by the person to whom such notice is given. 6.4 AMENDMENT. This Agreement may not be changed or modified except by an instrument in writing signed by both of the parties hereto. -17- 6.5 WAIVER. The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a continuing waiver or as a consent to or waiver of any subsequent breach hereof. Any waiver must be in writing and signed by Executive or an authorized officer of the Company, as the case may be. 6.6 HEADINGS. The Article and Section headings herein are for convenience of reference only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 6.7 GOVERNING LAW. This Agreement shall be governed by, and construed and interpreted in accordance with, the internal laws of the State of New Jersey without reference to the principles of conflict of laws. 6.8 AGREEMENT TO TAKE ACTIONS. Each party hereto shall execute and deliver such documents, certificates, agreements and other instruments, and shall take such other actions, as may be reasonably necessary or desirable in order to perform his or its obligations under this Agreement or to effectuate the purposes hereof. 6.9 SURVIVORSHIP. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 6.10 VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision or provisions of this Agreement, which shall remain in full force and effect. 6.11 RESOLUTION OF DISPUTES. Any disputes arising under or in connection with this Agreement shall, at the election of either Executive or the Company, be resolved by binding arbitration, to be held in New York City in accordance with the rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. Each party shall bear his or its own costs of the arbitration or litigation. Pending the resolution of any arbitration or court proceeding, the Company shall continue payment of all amounts due Executive under this Agreement and all benefits to which Executive is entitled at the time the dispute arises. 6.12 ENTIRE AGREEMENT. This Agreement contains the entire understanding and agreement between the parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the parties with respect thereto. -18- 6.13 REPRESENTATIONS. The Company represents that it is fully authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement to which it is a party or by which it is bound. Executive represents that there is no agreement to which he is a party or by which he is bound that would be violated by the performance of his obligations under this Agreement. 6.13.1 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. -19- IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement effective as of the date first above written. UNITED AUTO GROUP, INC. By: /s/ Philip N. Smith, Jr. ------------------------------- Philip N. Smith, Jr. Vice President, Secretary and General Counsel /s/ Carl Spielvogel ------------------------------------ Carl Spielvogel -20- EXHIBIT A [FORM OF] STOCK OPTION AGREEMENT This Stock Option Agreement ("Agreement") is dated as of April 3, 1996, and is entered into between United Auto Group, Inc. (formerly EMCO Motor Holdings, Inc.), a Delaware corporation (the "Company"), and Carl Spielvogel ("Executive"). W I T N E S S E T H: WHEREAS, Executive and the Company entered into a Stock Option Agreement dated as of October 18, 1994 (the "Original Agreement"); WHEREAS, on April 3, 1996, Executive and the Company entered into an amendment to the Original Agreement; and WHEREAS, the Company is entitled to the services of Executive as set forth in that certain employment agreement between Executive and the Company, dated as of June 21, 1996 (as amended, supplemented or otherwise modified from time to time, the "Employment Agreement"); and WHEREAS, pursuant to the Employment Agreement, the Company and Executive agreed to enter into this Agreement in order to embody herein all the terms and conditions of the First Stock Option (as defined in the Employment Agreement) as so amended. NOW, THEREFORE, the parties hereby agree that this Agreement supersedes and supplants the Original Agreement in all respects and further agree as follows: 1. GRANT OF OPTIONS. The Company hereby grants to the Executive an option (the "Option") to purchase, at the exercise price of $10.00 per share, up to 400,000 shares of the Company's Voting Common Stock, par value $0.0001 per share ("Common Stock"), such number to be adjusted as provided in Section 7(b). 2. EXERCISABILITY OF OPTIONS. Subject to earlier vesting, exercisability and forfeiture as provided in Article V of the Employment Agreement, the Option will vest and become exercisable ratably in four installments as follows: one-fourth of the number of shares covered thereby on each of the first, second, third and fourth anniversaries of October 18, 1994. 3. METHOD OF EXERCISING OPTIONS. (a) The Executive may exercise the Option by delivering to the Company a written notice stating the number of shares that the Executive has elected to purchase at that time from the Company and full payment of the purchase price of the shares then to be purchased. Payment of the purchase price of the shares may be made (i) by certified or bank cashier's check payable to the order of the Company, or (ii) in the discretion of the Board of Directors of the Company or duly authorized committee thereof, by such other method as may be approved by such board or committee from time to time. (b) At the time of exercise, the Executive shall pay to the Company such amount as is necessary to satisfy the Company's obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise or the transfer of shares thereupon. 4. ISSUANCE OF SHARES. As promptly as practicable after receipt of notification of exercise, full payment of purchase price and satisfaction of tax withholding as provided in Section 3, the Company shall issue or transfer to the Executive the number of shares as to which the Options have been so exercised and shall deliver to the Executive a certificate or certificates therefor, registered in his name. 5. TERMS AND CONDITIONS OF EXERCISE. (i) The Option shall have a term expiring on October 18, 2004, subject to earlier termination as provided in Article V of the Employment Agreement. (ii) The Company and certain of its stockholders are parties to a stockholders agreement (the "Stockholders Agreement") delivered pursuant to Sections 4.7 and 5.3 of each of the Class A Preferred Stock Purchase Agreement and the Common Stock Purchase Agreement, each dated as of October 15, 1993. For so long as the Stockholders Agreement shall be in effect, it shall be a condition precedent to the exercise of the Option by Executive that Executive execute and deliver a counterpart of the Stockholders Agreement as a result of which he shall be deemed to be a "Stockholder" thereunder and bound by all of the applicable provisions of the Stockholders Agreement. (iii) Upon the request of the Company's underwriters managing any underwritten public offering of the Common Stock, Executive shall not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any shares of Common Stock acquired upon exercise of the Option for such period of time from the effective date of such offering as the Company or the underwriters may specify, but not to exceed 180 days. (iv) The Option shall not be transferable, except by will or the laws of descent and distribution, provided that Executive may at any time transfer all or a portion of the Option to his spouse, any of his descendants or trusts for the benefit of Executive, his spouse or his descendants, subject to all of the terms and conditions of the Option. (v) Executive's rights with respect to the Option shall be subject to the terms and provisions of Article V of the Employment Agreement. -2- (vi) Whenever the word "Executive" is used in any provision of this Agreement under circumstances where the provision should logically be construed to apply to the executors, the administrators, personal representatives, or the person or persons to whom the Option may be transferred pursuant to clause (iv) of this Section 5, the word "Executive" shall be deemed to include such person or persons. 6. RIGHTS AS STOCKHOLDER. The Executive or a transferee of the Option shall have no rights as a stockholder with respect to any shares of Common Stock covered by the Option until he shall have become the holder of record of such shares. 7. RECAPITALIZATIONS, REORGANIZATIONS, ETC. (a) The existence of the Option shall not affect the power of the Company or its stockholders to accomplish adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of stock or of options, warrants or rights to purchase stock or securities ahead of or affecting any of the shares of Common Stock or the rights thereof or convertible into or exchangeable for shares of Common Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act. (b) Upon any change in the outstanding shares of Common Stock by reason of any recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other corporate change, or any distributions to common shareholders other than ordinary cash dividends, the Company shall make such substitutions or adjustments as are appropriate and equitable, as to the number or kind of shares of Common Stock or other securities covered by the Option and the exercise price thereof. 8. NOTICE. Any notice required or permitted hereunder shall be in writing and shall be sufficiently given if personally delivered or if sent by telegram, telex, facsimile transmission or by registered or certified mail, postage prepaid, with return receipt requested, as follows: (a) If to the Company: United Auto Group, Inc. 375 Park Avenue New York, New York 10022 Facsimile: (212) 223-5148 Attn: General Counsel or to such other address or to the attention of such other person as the Company shall designate by written notice to the Executive; and -3- (b) If to the Executive: Mr. Carl Spielvogel 720 Park Avenue New York, NY 10021 or to such other address as the Executive shall designate by written notice to the Company. Any notice given hereunder shall be deemed to have been given at the time of receipt thereof by the party to whom such notice is given. 9. DISPUTES. Any disputes arising under or in connection with this Agreement shall be resolved as provided in Section 6.11 of the Employment Agreement. 10. NON-QUALIFIED OPTION. The Option is not an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. -4- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. UNITED AUTO GROUP, INC. By: Philip N. Smith, Jr. Vice President, Secretary and General Counsel Carl Spielvogel -5- EXHIBIT B [FORM OF] STOCK OPTION AGREEMENT This Stock Option Agreement ("Agreement") is dated as of ________, and is entered into between United Auto Group, Inc. (formerly EMCO Motor Holdings, Inc.), a Delaware corporation (the "Company"), and Carl Spielvogel ("Executive"). W I T N E S S E T H: WHEREAS, the Company is entitled to the services of Executive as set forth in that certain employment agreement between Executive and the Company, dated as of June 21, 1996 (as amended, supplemented or otherwise modified from time to time, the "Employment Agreement"); and WHEREAS, pursuant to the Employment Agreement, the Company is granting the Executive options to purchase shares of voting common stock, par value $0.0001 per share (the "Common Stock"), of the Company, on the terms and conditions set forth herein and in the Employment Agreement. NOW, THEREFORE, the parties hereby agree: 1. GRANT OF OPTIONS. The Company hereby grants to the Executive an option (the "Option") to purchase, at the exercise price of $_____ per share, up to 100,000 shares of Common Stock, such number to be adjusted as provided in Section 3.1(c)(viii) of the Employment Agreement and Section 7(b) hereof. 2. EXERCISABILITY OF OPTIONS. Subject to earlier vesting, exercisability and forfeiture as provided in Article V of the Employment Agreement, the Option will vest and become exercisable ratably in four installments as follows: one-fourth of the number of shares covered thereby on each of the first, second, third and fourth anniversaries of the date hereof. 3. METHOD OF EXERCISING OPTIONS. (a) The Executive may exercise the Option by delivering to the Company a written notice stating the number of shares that the Executive has elected to purchase at that time from the Company and full payment of the purchase price of the shares then to be purchased. Payment of the purchase price of the shares may be made (i) by certified or bank cashier's check payable to the order of the Company, or (ii) in the discretion of the Board of Directors of the Company or duly authorized committee thereof, by such other method as may be approved by such board or committee from time to time. (b) At the time of exercise, the Executive shall pay to the Company such amount as is necessary to satisfy the Company's obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise or the transfer of shares thereupon. 4. ISSUANCE OF SHARES. As promptly as practicable after receipt of notification of exercise, full payment of purchase price and satisfaction of tax withholding as provided in Section 3, the Company shall issue or transfer to the Executive the number of shares as to which the Options have been so exercised and shall deliver to the Executive a certificate or certificates therefor, registered in his name. 5. TERMS AND CONDITIONS OF EXERCISE. (i) The Option shall have a term of ten years from the date hereof, subject to earlier termination as provided in Article V of the Employment Agreement. (ii) The Company and certain of its stockholders are parties to a stockholders agreement (the "Stockholders Agreement") delivered pursuant to Sections 4.7 and 5.3 of each of the Class A Preferred Stock Purchase Agreement and the Common Stock Purchase Agreement, each dated as of October 15, 1993. For so long as the Stockholders Agreement shall be in effect, it shall be a condition precedent to the exercise of the Option by Executive that Executive execute and deliver a counterpart of the Stockholders Agreement as a result of which he shall be deemed to be a "Stockholder" thereunder and bound by all of the applicable provisions of the Stockholders Agreement. (iii) Upon the request of the Company's underwriters managing any underwritten public offering of the Common Stock, Executive shall not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any shares of Common Stock acquired upon exercise of the Option for such period of time from the effective date of such offering as the Company or the underwriters may specify, but not to exceed 180 days. (iv) The Option shall not be transferable, except by will or the laws of descent and distribution, provided that Executive may at any time transfer all or a portion of the Option to his spouse, any of his descendants or trusts for the benefit of Executive, his spouse or his descendants, subject to all of the terms and conditions of the Option. (v) Executive's rights with respect to the Option shall be subject to the terms and provisions of Article V of the Employment Agreement. -2- (vi) Whenever the word "Executive" is used in any provision of this Agreement under circumstances where the provision should logically be construed to apply to the executors, the administrators, personal representatives, or the person or persons to whom the Option may be transferred pursuant to clause (iv) of this Section 5, the word "Executive" shall be deemed to include such person or persons. 6. RIGHTS AS STOCKHOLDER. The Executive or a transferee of the Option shall have no rights as a stockholder with respect to any shares of Common Stock covered by the Option until he shall have become the holder of record of such shares. 7. RECAPITALIZATIONS, REORGANIZATIONS, ETC. (a) The existence of the Option shall not affect the power of the Company or its stockholders to accomplish adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of stock or of options, warrants or rights to purchase stock or securities ahead of or affecting any of the shares of Common Stock or the rights thereof or convertible into or exchangeable for shares of Common Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act. (b) Upon any change in the outstanding shares of Common Stock by reason of any recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other corporate change, or any distributions to common shareholders other than ordinary cash dividends, the Company shall make such substitutions or adjustments as are appropriate and equitable, as to the number or kind of shares of Common Stock or other securities covered by the Option and the exercise price thereof. 8. NOTICE. Any notice required or permitted hereunder shall be in writing and shall be sufficiently given if personally delivered or if sent by telegram, telex, facsimile transmission or by registered or certified mail, postage prepaid, with return receipt requested, as follows: (a) If to the Company: United Auto Group, Inc. 375 Park Avenue New York, New York 10022 Facsimile: (212) 223-5148 Attn: General Counsel or to such other address or to the attention of such other person as the Company shall designate by written notice to the Executive; and -3- (b) If to the Executive: Mr. Carl Spielvogel 720 Park Avenue New York, NY 10021 or to such other address as the Executive shall designate by written notice to the Company. Any notice given hereunder shall be deemed to have been given at the time of receipt thereof by the party to whom such notice is given. 9. DISPUTES. Any disputes arising under or in connection with this Agreement shall be resolved as provided in Section 6.11 of the Employment Agreement. 10. NON-QUALIFIED OPTION. The Option is not an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. -4- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. UNITED AUTO GROUP, INC. By: Philip N. Smith, Jr. Vice President, Secretary and General Counsel Carl Spielvogel -5- EX-10.1-7 9 EXHIBIT 10.1.7 April 5, 1996 Mr. Ezra P. Mager 141 East 72nd Street New York, New York Dear Ezra: In connection with your resignation last January as an officer and director of United Auto Group, Inc. and as an officer of Trace International Holdings, Inc., UAG and Trace agree to certain payments and conditions as follows: 1. CASH PAYMENTS. UAG agrees to pay you a total of $342,107.82 (subject to withholding of all income and employment taxes required by law to be withheld), in 22 equal monthly installments, with the first payment due April 9, 1996, each payment due on the last business day of each calendar month, and the last payment due December 31, 1997. On April 8, 1996 UAG shall also pay to you $139,622.95 in cash (net of withholding of the type described above). After January 1, 1996 but, prior to the date hereof, UAG and Trace have paid you an aggregate of $18,269.23 in cash (net of withholding of the type described above). 2. BENEFITS. Trace will pay your COBRA premiums until December 31, 1996 for a health insurance plan providing benefits equivalent to the plan provided to you prior to January 1, 1996. You will continue to be able to use the car currently used by you and leased by a UAG subsidiary until December 31, 1996. UAG will fund auto insurance coverage for such car during this period at the same levels as prior to January 1, 1996. 3. REPURCHASE OF TRACE STOCK; M&E PARTNERSHIP. Trace will repurchase your stock in Trace at your cost, or $250,000, by May 1, 1996. By May 1, 1996, Trace will purchase your partnership interest in M&E Partnership in accordance with Section 16 of the M&E Partnership Agreement for $500. 4. UAG STOCK. The Registration Rights Agreement will be amended by May 1, 1996 so that, with respect to the first demand registration, you will have priority over the other sellers. 5. ACQUISITION CANDIDATES. Until March 1, 1998 (unless an earlier date is otherwise specified on Exhibit A hereto), you shall not, directly or indirectly, discuss with any Acquisition Candidate (as defined below) any acquisition, disposal, financing or joint venture, in respect of (i) an Acquisition Candidate or its subsidiaries, (ii) any direct or indirect interests in an Acquisition Candidate or its subsidiaries or (iii) the material assets of an Acquisition Candidate or its subsidiaries. Acquisition Candidate means any person or entity specified in Exhibit A hereto. This rule will also prevent such discussions with the affiliates of an Acquisition Candidate or officers, directors, consultants or employees of any Acquisition Candidate or its affiliates in respect of the foregoing. 6. SOLICITATION. Until March 1, 1998, you shall not (nor shall you permit your affiliates to) (i)(x) control, or own, directly or indirectly, an equity interest in (including any convertible securities or rights to acquire such equity), or (y) be an officer, director or employee of, or independent contractor for, or provide services to, any person or entity (or its affiliates) that employs, at any time any employee of UAG or its subsidiaries earning more than $50,000 or (ii) solicit the employment of any employee of UAG or its subsidiaries either for yourself or on behalf of any other person or entity. 7. CONFIDENTIALITY. You shall keep all financial statements of UAG and its affiliates and financial information in the books and records of UAG and its affiliates used in creating such financial statements (other than information already in the public domain (through no fault of yours) or that is required to be disclosed by law) confidential and shall not use the same for any purpose (other than in evaluating your investment in UAG's stock). 8. RELEASES. UAG, Trace, you and Marshall S. Cogan have exchanged general releases in the forms attached hereto. 9. REGISTRATION RIGHTS AGREEMENT AMENDMENT. You shall sign the amendment to the Registration Rights Agreement substantially in the form attached. Yours sincerely, TRACE INTERNATIONAL HOLDINGS, INC. By: /s/ Marshall S. Cogan ------------------------------ Marshall S. Cogan Chief Executive Officer UNITED AUTO GROUP, INC. By: /s/ Carl Spielvogel ------------------------------ Carl Spielvogel Chief Executive Officer Accepted and agreed to: /s/ Ezra P. Mager - ----------------------- Ezra P. Mager (Attachments) EX-10.1-10 10 EXHIBIT 1.1.10 Exhibit 10.1.10 - -------------------------------------------------------------------------------- SUBLEASE BETWEEN OVERSEAS PARTNERS, INC., SUBLANDLORD AND EMCO MOTOR HOLDINGS, INC., SUBTENANT - -------------------------------------------------------------------------------- August __, 1994 - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- 1. PREMISES AND TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3. POSSESSION; FURNITURE . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4. RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5. ADDITIONAL RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 6. CERTAIN OBLIGATIONS RELATED TO PREMISES . . . . . . . . . . . . . . . . . 5 7. INCORPORATION BY REFERENCE. . . . . . . . . . . . . . . . . . . . . . . . 6 8. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9. ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 10. NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 11. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 12. ATTORNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 13. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . . .10 14. BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 15. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 16. CONFLICT OR INCONSISTENCY . . . . . . . . . . . . . . . . . . . . . . . .12 17. LANDLORD'S CONSENT. . . . . . . . . . . . . . . . . . . . . . . . . . . .12 18. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . .13 19. SECURITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 20. QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 21. WAIVERS; CONSENT TO JURISDICTION. . . . . . . . . . . . . . . . . . . . .15 22. TERMINATION OF SUBLEASE . . . . . . . . . . . . . . . . . . . . . . . . .16 23. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 (i) EXHIBITS Exhibit A - Lease Exhibit B - Premises Exhibit C - Office Items Exhibit D - Financial Statements Exhibit E - Escrow Agreement (ii) SUBLEASE SUBLEASE made as of the _____ day of August, 1994, between OVERSEAS PARTNERS, INC., a New York corporation with offices at 375 Park Avenue, New York, New York 10152 (the "Sublandlord") and EMCO MOTOR HOLDINGS, INC., a Delaware corporation with offices at 585 Route 440, Jersey City, New Jersey 07304 (the "Subtenant"). W I T N E S S E T H: Sublandlord, as tenant, and Teachers Insurance and Annuity Association of America ("Landlord"), as landlord, entered into a Lease, originally dated January 5, 1990 (a true and complete copy of the Lease, including all Riders thereto and the Extension and Modification Agreement dated July 13, 1993 (the "Modification Agreement"), between Landlord and Sublandlord, and all Riders thereto (in all cases except for the deletion of certain financial provisions and those provisions not incorporated herein by reference) being attached hereto as Exhibit A and being sometimes collectively referred to herein as the "Lease"), whereby Landlord demised to Sublandlord premises situated on the 22nd floor of the building (the "Building") commonly known as 375 Park Avenue, in the Borough of Manhattan, City and State of New York, as commonly known as Suite 2201 and shown cross-hatched on the plan attached to the Lease (the "Premises"). Attached hereto as Exhibit A is a true, correct and complete copy of the Lease (except for the deletion of certain financial provisions not incorporated herein by reference), and there are no other agreements between Landlord and Sublandlord relating to the Premises. Sublandlord desires to sublease to Subtenant and Subtenant desires to sublease from Sublandlord the Premises. ACCORDINGLY, in consideration of the mutual covenants hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, the parties hereto hereby agree as follows: 1. PREMISES AND TERM. Subject to the terms and conditions set forth herein, and the prior consent of Landlord (as provided in Section 17 hereof), Sublandlord hereby subleases to Subtenant and Subtenant hereby hires and takes from Sublandlord the Premises. The term (the "Term") of this Sublease will commence (the "Commencement Date") on September 1, 1994; PROVIDED, HOWEVER, that if Sublandlord is able to deliver possession of the Premises to Subtenant prior to September 1, 1994, the Commencement Date shall be the later of (a) the date which is five (5) business days after the date Sublandlord notifies Subtenant that it is prepared to so deliver possession of the Premises and (b) the date Sublandlord so delivers possession of the Premises to Subtenant. The Term shall end on June 29, 2000, or on such earlier date upon which the Term expires pursuant to any of the conditions of limitation or other provisions of this Sublease, or pursuant to law (the "Expiration Date"). 2. USE. The Premises shall be used solely by Subtenant for executive, administrative and general offices, subject to the provisions of the Lease. 3. POSSESSION; FURNITURE. (a) Subtenant's obligation to perform each and every one of the covenants, terms, conditions and agreements contained in the Lease and incorporated herein pursuant to the terms hereof shall commence on the Commencement Date. In the event that Sublandlord is delayed or prevented from delivering possession of the Premises to Subtenant by reasons of acts of God or any cause whatsoever beyond Sublandlord's reasonable control, neither party hereto shall be liable to the other party for consequential damages. If for any reason Sublandlord has not delivered possession of the Premises to Subtenant on or before October 15, 1994, Subtenant may cancel this Sublease by notice to Sublandlord and, except as otherwise specified herein, neither party shall have any further liability to the other party hereunder and any advance rentals or security deposited by Subtenant with Sublandlord or the Escrow Agent (as hereinafter defined) shall be returned to Subtenant. (b) Subtenant acknowledges that it has inspected the Premises and agrees to take the Premises on an "as-is" basis on the date hereof and further agrees that Sublandlord shall not be obligated to make any repairs or alterations whatsoever in or to the Premises. Notwithstanding the foregoing, prior to the Commencement Date, Sublandlord shall have the Premises cleaned thoroughly at its sole expense. (c) The Sublease of the Premises shall include the use of all furniture (the "Furniture") located in the premises on the date hereof, which items are listed on Exhibit C attached hereto. In connection therewith, Subtenant shall be responsible, at its sole cost and expense, for the maintenance and repair of the Furniture and Subtenant agrees not to remove any of the Furniture from the Premises without the prior written consent of Sublandlord. In the event that Subtenant desires to no longer use a piece of Furniture, it shall so notify Sublandlord in writing. If Sublandlord elects not to take back such piece of Furniture within ten (10) days after receipt of such notice, Subtenant shall have the right to sell such piece of Furniture, and the proceeds of such sale shall be paid to Sublandlord. - 2 - 4. RENT. During the Term, Subtenant shall pay to Sublandlord, exclusive of any amounts for electricity, taxes and any other amounts which Subtenant is obligated to pay hereunder, Basic Rent, without any notice or demand and without any reduction, abatement, counterclaim, set off or deduction of any amount whatsoever, in the aggregate amount of $198,932 per annum for the period commencing on the Commencement Date to and including the Expiration Date, payable in equal monthly installments in advance on the 1st day of each month during the Term to Sublandlord at its offices in lawful money of the United States which shall be legal tender for payment of all debts, public and private, at the time of payment. Basic Rent of $16,577.67 for the first month of the Term shall be paid on the Commencement Date. In the event that the Commencement Date is any date other than the first day of a month, the Basic Rent for the second month of the Term shall be appropriately prorated. 5. ADDITIONAL RENT. (a) Subtenant shall also pay to Sublandlord, as additional rent, all Additional Rent (as defined in the Modification Agreement) payable from and after the Commencement Date by Sublandlord under the Lease or otherwise payable in respect of the Premises, including, without limitation, the amounts due under Article 12 of the Lease (as amended by Rider 4 and Paragraph 3 of the Modification Agreement) and Articles 6 and 17 of the Modification Agreement, PROVIDED THAT Sublandlord shall pay under the Lease that amount of additional rent which is imposed prior to the Commencement Date, and Subtenant shall not be obligated to pay as additional rent those amounts charged to Sublandlord under the Lease prior to the Commencement Date, and PROVIDED FURTHER THAT, for purposes solely of calculating the amount owed by Subtenant as additional rent under this Section 5, Article 17 of the Prime Lease shall be deemed to be amended to read as follows: (i) The definition of "Base Tax Factor" shall be deemed amended to mean the Taxes payable for the Tax Year beginning July 1, 1994; and (ii) The definition of "Base Operating Factor" shall be deemed amended to mean the average of the Operating Expenses incurred with respect to the two operating years beginning January 1, 1994 and concluding December 31, 1995. (b) Subtenant and Sublandlord agree that commencing January 1, 1995, and thereafter until such time as Sublandlord has determined the average of the Operating Expenses incurred for the operating years commencing January 1, 1994 and concluding December 31, 1995, Subtenant shall, subject to the following sentence, make the payments required under this Section 5 on the basis of the average of the Operating Expenses for the operating year commencing January 1, 1994 and concluding December 31, 1994 and the estimated Operating Expenses for calendar 1995 as shown in Landlord's Operating Statement pursuant to the following sentence. The parties agree that in connection therewith, - 3 - Subtenant will not be required to make payments hereunder until Landlord has delivered to Sublandlord (and Sublandlord has sent copies to Subtenant) Landlord's Operating Statement (as defined in the Lease) setting forth its statement of Tenant's Projected Operating Share (as defined in the Lease) for 1995. Thereafter, once the Sublandlord has determined the average of the Operating Expenses Incurred for the two operating years commencing January 1, 1994 and expiring December 31, 1995, it will so notify Subtenant. In the event that such average amount is greater than the amount Subtenant theretofore paid based upon the Base Operating Factor being the Operating Expenses Incurred in the operating year beginning January 1, 1994, Subtenant shall, within five (5) days of receipt of Sublandlord's notice, remit to Sublandlord an amount equal to the amount so owing by Subtenant. In the event that such average amount is less than the amount Subtenant theretofore paid based upon the Base Operating Factor being the Operating Expenses Incurred in the operating year beginning January 1, 1994, Sublandlord shall, concurrently with the delivery of its notice to Subtenant, remit to Subtenant an amount equal to the amount theretofore overpaid by Subtenant. (c) The amounts payable by Tenant under this Section 5 as additional rent shall be prorated from the Commencement Date of the Term if such amounts are payable in respect both to periods prior to the Commencement Date and to periods thereafter. (d) The additional rent shall be payable by Subtenant within ten (10) days after the delivery to Subtenant of a copy of any statement under the Lease from Landlord to Sublandlord (including any statement delivered after the expiration of the Term or other termination of this Sublease). Sublandlord shall have the same remedies for a default in the payment of additional rent as are provided under this Sublease for default in the payment of Basic Rent. (e) In the event this Sublease shall expire or terminate on a date other than the last day of a calendar year, any payment of additional rent to which Sublandlord is entitled, with respect to the calendar year in which this Sublease expires or terminates, shall be apportioned and prorated. (f) If Sublandlord receives any refund or credit pursuant to the terms of the Lease which relates to the Premises during the Term, Sublandlord shall credit to Subtenant against the next installment of Basic Rent or any other charge due hereunder that portion of such refund or credit which relates to overpayments by Subtenant under this Section 5. (g) Subtenant shall pay Sublandlord all other amounts payable by Sublandlord to Landlord during the Term with respect to the Premises and Subtenant's use thereof, including, without limitation, all amounts payable for (i) lamps, starters and ballasts (including replacements thereof) used in lighting fixtures in the Premises pursuant to the Lease, (ii) steam and - 4 - water other than that used for normal drinking, lavatory, cleaning, dishwashing and toilet facilities as specified in the Lease, (iii) additional cleaning, elevator, rubbish removal or HVAC pursuant to the Lease and (iv) any fee, charge or amount incurred in connection with obtaining the consent or approval of Landlord to any matter. (h) All costs, charges, fees, amounts and sums payable by Subtenant to Sublandlord or incurred by Sublandlord and due and payable by Subtenant to Sublandlord hereunder or under the Lease as incorporated herein by reference shall be due and payable as additional rent under this Sublease. (i) Unless and until Subtenant shall default beyond any applicable grace period provided for herein in the payment of the Basic Rent or additional rent provided for in this Sublease, Subtenant may pay the Basic Rent and additional rent by unendorsed checks payable to Sublandlord, subject to collection. From and after any such monetary default until the same shall be cured, Sublandlord may, at any time thereafter, require Subtenant to pay the Basic Rent and additional rent by unendorsed certified or official bank check drawn on a bank or trust company which is a member of the New York Clearinghouse Association. (j) In addition to all other amounts payable hereunder, Subtenant shall pay to Sublandlord the aggregate amount of $14,556 per year for electricity (the "Electric Charge"). The Electric Charge shall be payable, without any notice or demand and without any reduction, abatement, counterclaim, set-off or deduction of any amount, in equal monthly installments of $1,213 in advance on the first day of each month during the Term, together with the Basic Rent for such month. Sublandlord represents to Subtenant that the current Electrical Inclusion Amount (as defined in the Lease) is $14,556, and Sublandlord has not received any written notice indicating a change in such amount. However, the parties hereto acknowledge that the Electric Charge shall be subject to increase or decrease in accordance with the terms and provisions of the Lease, but that it is the intent of the parties that the Electric Charge shall equal the Electrical Inclusion Amount. 6. CERTAIN OBLIGATIONS RELATED TO PREMISES. It is the intent of Sublandlord and Subtenant that during the Term of this Sublease, that between Sublandlord and Subtenant, Subtenant shall bear all of the costs and expenses relating to the Premises which are attributable to facts and circumstances first occurring during the Term and Sublandlord shall bear all the costs and expenses relating to the Premises which are attributable to any period before or after the Term, whether such costs and expenses arise under the Lease or otherwise, so that Sublandlord is reimbursed or held harmless by Subtenant from and against all such costs and expenses. - 5 - 7. INCORPORATION BY REFERENCE. To the extent not otherwise inconsistent with the terms, covenants, conditions and provisions specified in this Sublease, the terms, covenants, conditions and provisions of the Lease are incorporated herein by reference as though fully set forth herein in full on the following understandings: (a) The term "Landlord", as used therein, shall refer to Sublandlord hereunder, its successors and assigns, and the term "Tenant", as used therein, shall refer to Subtenant hereunder, and provided appropriate consents are obtained from Landlord pursuant to the Lease, its successors and assigns. (b) In any case where Landlord reserves the right or remedy to enter the Premises, such right or remedy shall inure to the benefit of Landlord as well as to Sublandlord. (c) Subtenant acknowledges that Sublandlord is not in a position, nor shall it be required, to furnish to Subtenant during the Term any water, heat, electricity, air conditioning, light, power or any other work, facilities, utilities, materials or services of any kind or nature whatsoever. The performance by Landlord of its obligations under the Lease shall, for all purposes of this Sublease, be deemed to be the performance of such obligations by Sublandlord, and Sublandlord's obligations herein shall be limited to the extent to which such obligations are performed by Landlord under the Lease. As set forth in Subparagraph (k) below, Sublandlord shall use reasonable efforts to request Landlord to perform its obligations under the Lease. (d) Except as set forth in subparagraph (k) below, Sublandlord's sole obligation to provide work, services, repairs and restoration or the performance of other obligations required of Landlord under the Lease, shall be (i) limited to the extent to which such obligations are performed by Landlord under the Lease and (ii) to request the same, on the basis of a prior request in writing by Subtenant, and to use its reasonable efforts, without expending any funds, to obtain the same from Landlord. The performance by Landlord of its obligations under the Lease shall, for all purposes hereunder, be deemed to be the performance of such obligations by Sublandlord under the Lease as incorporated herein by reference. Sublandlord shall not be liable for any default by Landlord under any of the provisions of the Lease or for any damages arising out of any such default. (e) Subtenant shall perform and comply with all of the terms, provisions, covenants and conditions of the Lease with respect to the Premises. Subtenant covenants and agrees that it will not do or suffer or permit anything to be done or omit to do anything which Subtenant is obligated to do under the terms of this Sublease which would result in a default under or cause the Lease to be terminated. Subtenant will indemnify Sublandlord and hold Sublandlord harmless from any loss or liability and for all costs and expenses, including reasonable attorneys fees, arising - 6 - out of, by reason of, or resulting from, Subtenant's failure to so perform or observe any of the covenants, terms, conditions and agreements of the Lease. (f) Whenever any provision of the Lease which has been incorporated herein by reference requires Sublandlord, as tenant under the Lease, to take any action within a certain period of time after notice from Landlord, then, upon notice from Sublandlord to Subtenant, Subtenant shall take such action within five (5) days prior to the ending of such period of time or, if such time period is less than ten (10) days, one-half the number of days in such time period (it being understood that if the number of days is odd, the extra day shall be allocated to Subtenant). (g) In all provisions of the Lease requiring the approval or consent of Landlord, Subtenant shall be required to obtain the approval or consent of both Landlord and Sublandlord. In each instance where the approval or consent of Landlord has been obtained by Subtenant, Sublandlord shall not unreasonably withhold or delay its approval or consent. Sublandlord's withholding of its approval or consent shall be deemed to be reasonable if the matter to which consent or approval is requested (i) increases Sublandlord's costs under the Lease in any manner and Subtenant does not agree to bear the cost thereof, or (ii) is likely, in Sublandlord's reasonable judgment, to create a default under the Lease. (h) Whenever any provision of the Lease requires Landlord to give notice to Sublandlord thereunder and such provision has been incorporated herein by reference (thus requiring Sublandlord to give such notice to Subtenant), such notice by Sublandlord to Subtenant shall for all purposes hereunder be deemed timely given if given to Subtenant within five (5) days after receipt by Sublandlord of such notice from Landlord; provided, that if the matter to which such notice relates requires action within less than ten (10) days, Sublandlord shall promptly give a copy of such notice to Subtenant by facsimile transmission. (i) To the extent that the provisions of the Lease may conflict or be inconsistent with the provisions of this Sublease, whether or not such inconsistency is expressly noted herein, the provisions of this Sublease shall prevail. Subtenant expressly acknowledges and agrees that in no event whatsoever shall Sublandlord have any obligations of any nature under this Sublease or otherwise with respect to work, repairs or services or otherwise relating to the Premises or this Sublease to be performed by Landlord under the Lease and all such work, repairs and services to be made and furnished pursuant to any provision of this Sublease, will in fact be furnished by the Landlord and not by Sublandlord. Sublandlord shall in no event be liable to Subtenant nor shall Subtenant's obligations hereunder be impaired or the performance thereof excused because of any failure or - 7 - delay on Sublandlord's part or on Landlord's part in furnishing any such work or services or in making any of such repairs. If Landlord shall default in the performance of any of its covenants, agreements or obligations under the Lease or if Landlord shall breach any of its representations or warranties under the Lease, Sublandlord shall have no liability in connection therewith and Subtenant shall only have the right, at Subtenant's sole cost and expense, but in the name of Sublandlord, to make demand or institute any appropriate action or proceeding against Landlord in connection therewith. Subtenant will pay and will indemnify and hold Sublandlord harmless against any and all loss or liability arising out of, and for all costs and expenses, including attorneys' fees, incurred in the prosecution of any proceedings or actions so taken by Subtenant. (j) Sublandlord shall have under this Sublease as to Subtenant all rights possessed by Landlord against Sublandlord as tenant under the Lease. (k) In addition to the foregoing, Sublandlord shall (i) cooperate with Subtenant in seeking to exercise Sublandlord's rights under the Lease and to obtain the performance by Landlord of its obligations under the Lease and (ii) use reasonable efforts to cause Landlord to perform under the Lease. Subtenant shall have the right to take any action against Landlord in its own name and for that purpose and only to such extent all the rights of Sublandlord under the Lease are hereby assigned to Subtenant, and Subtenant shall be subrogated to such rights. If any action against Landlord in Subtenant's name shall be barred by reason of lack of privity, nonassignability or otherwise, Sublandlord shall permit Subtenant to take such action in Sublandlord's name; provided that Subtenant shall indemnify and hold Sublandlord harmless against all liability, loss or damage which Sublandlord may incur by reason of such action and that copies of all papers and notices of all proceedings shall be given to Sublandlord. If Subtenant receives an abatement or diminution of rent or any other amount payable in respect to the Premises, Subtenant shall be entitled, after deducting from such amount all expenses incurred by Subtenant in connection therewith, to apply the same to the Basic Rent. (l) Notwithstanding the foregoing, the following Articles of the Lease and Modification Agreement shall be omitted from this Sublease and shall not be deemed a part hereof: (i) Articles 11, 23, 25, 27, 33 and Riders 1, 3 and 9 and Paragraph 15 of Rider 6 of the original Lease, (ii) Paragraphs 2, 3, 6 and 9 of the Modification and (iii) Sections 7.01 and 18.05 and Articles 8, 11 and 15 of the Rider to the Modification. 8. INSURANCE. On or before the Commencement Date and so long as this Sublease remains in effect, Subtenant, at its sole expense, will maintain with insurers approved by Sublandlord, all insurance required under the Lease. All such - 8 - insurance policies shall name Landlord and Sublandlord as additional named insureds. Policies or certificates evidencing the issuance of insurance required to be maintained pursuant to this Paragraph 8 shall be delivered by Subtenant to Sublandlord simultaneously herewith and shall provide that no cancellation thereof shall be effective until at least twenty (20) days after receipt by Landlord and Sublandlord of written notice thereof. 9. ALTERATIONS. Subtenant shall not make any alterations, improvements or installations in and to the Premises without the prior written consent of each of Sublandlord and Landlord; PROVIDED, that where the consent of Landlord has been obtained by Subtenant, Sublandlord shall not unreasonably withhold its consent. All alterations and improvements in and to the Premises made either prior to or during the Term shall be and remain the property of Sublandlord or Landlord, as the case may be, and shall remain upon and be surrendered with the Premises as part thereof at the end of the Term. 10 NOTICE. All notices or other communications which are required hereunder or otherwise delivered in connection herewith shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally-recognized overnight courier, by telecopy, or by registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to Sublandlord, to: c/o O'Sullivan Graev & Karabell 30 Rockefeller Plaza New York, New York 10112 Attention: Jeffrey S. Held, Esq. Facsimile: (212) 408-2420 Telephone: (212) 408-2400; if to Subtenant, to: (a) prior to Commencement Date: 585 Route 440 Jersey City, New Jersey 07304 Attention: Arthur Rawl Facsimile: (201) 434-2772 Telephone: (201) 433-9297 (b) after Commencement Date: 375 Park Avenue Suite 2201 New York, NY 10152 - 9 - with a copy to: Morrison & Foerster 1290 Avenue of the Americas 41st Floor New York, New York 10104 Attention: Andrew Weiner, Esq. Facsimile: (212) 468-7900 Telephone: (212) 468-8122. 11. SUBORDINATION. This Sublease and all of Subtenant's rights hereunder are and shall remain in all respects subject and subordinate to all of the terms and provisions of the Lease. The foregoing provision shall be self- operative and no further instrument of subordination shall be necessary to effectuate such provision unless required by Landlord or Sublandlord, in which event Subtenant shall, upon demand by Landlord or Sublandlord at any time and from time to time, execute, acknowledge and deliver to Sublandlord and Landlord any and all instruments that Sublandlord or Landlord may reasonably require to confirm such subordination of this Sublease and the rights of Subtenant hereunder. 12. ATTORNMENT. If (a) the Lease should be terminated prior to the Expiration Date or (b) Landlord should succeed to Sublandlord's estate in the Premises, then, at Landlord's election, or, at the joint election of Sublandlord and Landlord, Subtenant shall attorn to and recognize Landlord as Sublandlord under this Sublease and Subtenant shall promptly execute and deliver any instrument to Landlord which Landlord may require to reasonably evidence such attornment, whereupon Sublandlord shall be released from any and all obligations and liability hereunder, except if such termination or succession in interest is due to Sublandlord's default. If the term of the Lease is terminated for any reason prior to the Expiration Date and Landlord shall not elect to have Subtenant so attorn, this Sublease shall thereupon be terminated ipso facto without any liability of Sublandlord to Subtenant by reason of such early termination, except if such termination is due to Sublandlord's default. References in this Sublease to the "termination" of this Sublease shall include the Expiration Date and any earlier termination thereof pursuant to the provisions of this Sublease, the Lease or by law. Any liability of Subtenant to make any payment under this Sublease which shall have accrued prior to the termination of this Sublease, shall survive the termination of this Sublease. 13. ASSIGNMENT AND SUBLETTING. (a) Subtenant shall not assign, mortgage, pledge or otherwise encumber this Sublease (whether by operation of law or otherwise), nor sublet the Premises or any part thereof, except in accordance with this Section 13. - 10 - (b) Subject in each instance to the provisions and requirements of the Lease and the consent of Landlord (if required under the Lease), Subtenant shall have the right to sublease the Premises or assign this Sublease to the sole stockholder or a wholly owned subsidiary of Subtenant or to an Affiliate (as hereinafter defined) of Subtenant; PROVIDED, HOWEVER, that no such assignment or sublease shall in any respect release Subtenant from its obligations under this Sublease. As used herein, "Affiliate" shall mean any person or entity, directly or indirectly, through one or more intermediaries, controlling, controlled by or under common control with Subtenant. (c) Subject in each instance to the provisions and requirements of the Lease, and the consent of both Landlord (if required under the Lease) and Sublandlord (which shall not be unreasonably withheld), Subtenant shall have the right to assign this Sublease or sublease the Premises to a third party that is not an Affiliate of Subtenant, PROVIDED that any profits to be received from Subtenant in connection with such an assignment or sublease (after deducting the reasonable expenses incurred by Subtenant for brokerage fees and preparing the Premises for such assignment or sublease) shall be split equally between Sublandlord and Subtenant and shall be paid to Sublandlord immediately upon receipt by Subtenant, PROVIDED, HOWEVER, that a public offering of equity securities by Subtenant shall not be deemed to be an assignment of the Sublease if, after such public offering, the party in control (as such term is defined in rule 405 promulgated under the Securities Act of 1933, as amended) of the Subtenant immediately prior to such public offering, either (a) continues to control the Subtenant, or (b) holds a greater percentage of the outstanding voting power of the Subtenant than any other shareholder of such Subtenant. No such assignment or sublease shall in any respect release Subtenant from its obligations under this Sublease. In the event Subtenant notifies Sublandlord in writing (the "Section 13 Notice") of its desire to assign this Sublease or sublease the Premises in accordance with this Section 13(c), Sublandlord shall notify Subtenant of its decision to grant or withhold consent thereto within ten (10) Business Days after receipt of (i) the Section 13 Notice and (ii) all information reasonably requested by Sublandlord in connection with such proposed assignment or subletting. In the event Sublandlord fails to respond to Subtenant during such ten (10) Business Day period, such proposed assignment or subletting shall be deemed approved. Sublandlord's failure to grant its consent to a proposed assignment or subleasing based solely on the financial condition of the proposed assignee or sublessee shall be deemed unreasonable if, and only if, (x) Subtenant remains liable to Sublandlord for all of its obligations under this Sublease and (y) Subtenant has a net worth at the time of such proposed assignment equal to or greater than its net worth as of the date hereof. - 11 - 14. BROKERS. Each of Subtenant and Sublandlord represents and warrants that it has dealt with no broker in connection with this Sublease or the Premises other than Walker, Malloy & Company, Inc., the brokerage affiliate of Quinlan & Field (the "Broker") and Cushman & Wakefield, Inc. Subtenant shall indemnify and hold Sublandlord harmless against brokerage fees and any claims, costs and expenses, including attorneys' fees, incurred by Sublandlord if the foregoing representation and warranty of Subtenant is not true and Sublandlord shall indemnify and hold Subtenant harmless against brokerage fees and any claims, costs and expenses, including attorneys' fees, incurred by Subtenant if the foregoing representation and warranty of Sublandlord is not true. Sublandlord shall pay the commission owing to the Broker pursuant to a separate agreement between Sublandlord and the Broker. 15. INDEMNIFICATION. (a) Subtenant shall indemnify and hold Sublandlord harmless from and against any and all liability (statutory or otherwise), claim, suit, demand, damage, judgment, cost, interest and expense, including, but not limited to, attorneys' fees and charges, which Sublandlord may incur or pay out, by reason of, or resulting from any breach by Subtenant of any provision of or representation or warranty contained in, this Sublease or of the Lease as incorporated herein by reference, or default on the part of Subtenant hereunder or under the Lease as incorporated herein by reference, or by reason of any injuries to person or property occurring in, on or about the Premises, regardless of the cause thereof. (b) Sublandlord shall indemnify and hold Subtenant harmless fromand against any and all liability (statutory or otherwise), claim, suit, demand, damage, judgment, cost, interest and expense, including, but not limited to, attorneys' fees and charges, which Subtenant may incur or pay out, by reason of, or resulting from any breach by Sublandlord of any provision of or representation or warranty contained in, this Sublease or of the Lease as incorporated herein by reference, or default on the part of Sublandlord hereunder or under the Lease or resulting from any facts or circumstances first occurring prior to the Commencement Date. 16. CONFLICT OR INCONSISTENCY. In case of any conflict or inconsistency between the provisions of the Lease and those of the Sublease, the provisions of this Sublease shall, as between Sublandlord and Subtenant, control. 17. LANDLORD'S CONSENT. This Sublease is expressly conditioned upon Landlord's consent in writing to the same. Sublandlord shall promptly request Landlord's approval in writing of this Sublease. If Landlord has not signed and delivered the Consent within thirty (30) days from the date of this Sublease, either Subtenant or Sublandlord may within thirty (30) days thereafter and prior to Landlord's signing and delivering the Consent, give written notice to the other party hereto canceling - 12 - and terminating this Sublease on a date designated in such notice not less than seven (7) nor more than fourteen (14) days from the date it is given. If, during the period from the date of the notice to the date designated therein for cancellation of this Sublease, Sublandlord shall obtain the Consent and shall deliver a fully executed (except for the signature of Subtenant) duplicate original of the Consent to Subtenant, then the notice shall be null and void and the Sublease shall remain in effect. If this Sublease is canceled pursuant to the provisions of this Section, Subtenant shall have no right or interest in the Premises and, except as otherwise specified herein, neither party shall have any further liability to the other hereunder and any advance rentals or security deposited by Subtenant with Sublandlord shall be returned to Subtenant. Sublandlord shall submit a request for consent to this Sublease to Landlord with all required documentation within ten (10) business days after the date hereof. In connection therewith, Subtenant shall provide Landlord with all information requested by Landlord in connection with such consent. 18. FINANCIAL STATEMENTS. (a) Subtenant acknowledges that attached hereto as Exhibit D are true, correct and complete copies of each of the following financial statements: (i) the audited balance sheet of Subtenant as at December 31, 1993 and the related audited statements of results of operations, retained earnings and cash flow for the fiscal year then ended, together with all notes thereto, accompanied by the unqualified report thereon of Coopers & Lybrand, Subtenant's independent public accountants (the "Accountants"); and (ii) the unaudited balance sheet of the Subtenant as at March 31, 1994 and the related statements of results of operations, retained earnings and cash flow for the three (3) month period then ended, prepared and certified by the chief financial officer of Subtenant. Subtenant represents and warrants that all such financial statements are true, correct and complete in all respects, were prepared in accordance with the books and records of Subtenant, fairly present the financial position of Subtenant at and as of the dates indicated and fairly present the results of operations, retained earnings and cash flow of Subtenant for the periods indicated and were prepared in accordance with generally accepted accounting principles ("GAAP") consistently applied throughout the periods covered hereby and in accordance with historical practice. (b) During the Term, Subtenant shall provide Sublandlord with the following financial statements (collectively, the "Financial Statements"): - 13 - (i) within 120 days after the end of each of its fiscal years, a balance sheet of Subtenant as at the end of such fiscal year and statements of results of operations, retained earnings and cash flow for such year, all in reasonable detail and certified by the Accountants or another firm of certified public accountants reasonably acceptable to Sublandlord; and (ii) within 45 days after the end of each quarter, a condensed balance sheet of Subtenant as at the last day of such quarterly period, together with condensed statements of results of operations, retained earnings and cash flow for such quarter, together with corresponding cumulative condensed statements from the first day of the current year to the last day of such quarter, all certified by the chief financial officer of Subtenant. All of the Financial Statements will be prepared in accordance with GAAP on a basis consistent with historical practice. 19. SECURITY. Simultaneously with the execution of this Sublease, Subtenant is depositing with O'Sullivan Graev & Karabell ("Escrow Agent") a security deposit in the sum of FIFTY THOUSAND AND 00/100 DOLLARS ($50,000.00) (the "Security Deposit"). The Security Deposit will be held by Escrow Agent pursuant to the terms of an Escrow Agreement among Sublandlord, Subtenant and Escrow Agent, in the form of Exhibit E attached hereto, with the intent being that the Security Deposit will be released to Sublandlord upon execution and delivery by Landlord of its consent to this Sublease. If at any time during the Term Subtenant's net worth (as determined in a manner consistent with Subtenant's principal financial statements), as reflected on any Financial Statement, is less than Twenty Million Dollars ($20,000,000), Subtenant shall within five (5) business days after notice from Sublandlord deposit additional funds with Sublandlord (or, if applicable, Escrow Agent) sufficient to increase the Security Deposit to One Hundred Thousand and 00/100 Dollars ($100,000.00). The Security Deposit is security for the faithful performance and observance by Subtenant of all of the terms, covenants and conditions of this Sublease on Subtenant's part to be performed and observed and payment of any and all other damages for which Subtenant shall be liable by reason of any act or omission contrary to any of said terms, covenants and conditions. Sublandlord may use, apply or retain the whole or any part of the Security Deposit for any Basic Rent, additional rent and any other sums as to which Subtenant may be in default hereunder beyond any applicable grace period and for any sum which Sublandlord may expend or may be required to expend by reason of Subtenant's default in respect of any of the terms, covenants and conditions of this Sublease, including, without limiting the generality of the foregoing, any and all damages and deficiencies in the reletting of the Premises, whether such - 14 - damages or deficiencies shall accrue before or after summary proceedings or other re-entry by Sublandlord, whereupon Subtenant, after notice from Sublandlord, shall cause an additional cash deposit to be deposited with Sublandlord so that the Security Deposit at all times during the Term hereof shall always remain in the amount specified in this Section 19. The parties acknowledge that Sublandlord's use or retainage of all or any portion of the Security Deposit shall in no way be an exclusive remedy and Sublandlord shall have in all instances the right to seek all other remedies available at law or equity. In the event that Subtenant shall fully and faithfully comply with all of the terms, provisions, covenants and conditions of this Sublease, the Security Deposit, or so much thereof as shall not have been applied by Sublandlord as aforesaid, shall be returned to Subtenant within five (5) business days after the Expiration Date. The Security Deposit shall be maintained in an interest bearing account and Subtenant shall be entitled to all interest earned thereon less the deduction for administrative expenses permitted pursuant to Section 7-103 of the General Obligations Law. In the event of an assignment by Sublandlord of its interest under the Lease and an assumption by the assignee of all of the obligations of Sublandlord under the Lease, Sublandlord shall have the right to transfer the Security Deposit to the assignee, and Sublandlord shall thereupon be released by Subtenant from all liability for the return of such Security Deposit. In such event, Subtenant shall look solely to such assignee for the return of the Security Deposit. The foregoing provisions shall apply to every transfer or assignment made of the Security Deposit. Subtenant covenants that it will not assign or encumber, or attempt to assign or encumber, the Security Deposit, and that neither Sublandlord, nor its successors and assigns, shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. 20. QUIET ENJOYMENT. If, and so long as, Subtenant pays all of the rent and additional rent due under this Sublease, and keeps, observes and performs each and every covenant, agreement, term, provision and condition herein contained or contained in the Lease as incorporated herein, on the part of Subtenant to be kept, observed and performed, Sublandlord covenants that Subtenant shall quietly enjoy the Premises without hindrance or molestation by Sublandlord, subject, however, to the covenants, agreements, terms, provisions and conditions of this Sublease and the Lease. 21. WAIVERS; CONSENT TO JURISDICTION. Each of Subtenant and Sublandlord (a) waives any right to a trial by jury in any action to enforce or defend any matter arising from or related to this Sublease; (b) irrevocably submits to the jurisdiction of any State or Federal Court located in New York County, New York, over any action or proceeding to enforce or defend any matter arising from or relating to this Sublease; (c) irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of - 15 - any such action or proceeding; (d) agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment or in any other manner provided by law; and (e) agrees not to institute any legal action or proceeding against the other party hereto or any of such other party's stockholders, partners, officers, directors, employees, agents, representatives or property, concerning any matter arising out of or relating to this Sublease in any court other than one located in New York County, New York. Each of Subtenant and Sublandlord waives personal service of the summons and complaint, or other process or papers issued in any action or proceeding to enforce or defend any matter arising from or related to this Sublease, and agrees that service of such summons and complaint, or other process or papers may be made by registered or certified mail addressed to such party at the address of such party set forth above. 22. TERMINATION OF SUBLEASE. (a) Subtenant shall quit and surrender the Premises and the Furniture on or before the end of the Term, broom clean, in good order and condition, ordinary wear and tear, damage and casualty (other than a casualty caused by the negligence or misconduct of Subtenant or its employees; agents or representatives) excepted and shall repair any damage caused by the removal of any of Subtenant's property. (b) Subtenant acknowledges that possession of the Premises and the Furniture must be surrendered to Sublandlord at the expiration or sooner termination of the Term of this Sublease by operation of law or otherwise. Subtenant agrees to indemnify and save Sublandlord harmless against all costs, claims, loss or liability of any nature whatsoever (including, without limitation, reasonable fees and disbursements of attorneys) resulting from, or arising out of, delay by Subtenant in so surrendering the Premises and Furniture. Nothing herein contained shall be deemed to permit Subtenant to retain possession of the Premises or the Furniture after the expiration or sooner termination of the Term. 23. MISCELLANEOUS. (a) Sublandlord and Subtenant each represent and warrant to the other that each person executing this Sublease on its behalf is duly authorized to so execute this Sublease. (b) This Sublease cannot be waived, modified, terminated or canceled except by an agreement in writing signed by the party to be charged. (c) The exercise, validity, construction, operation and effect of the terms and provisions of this Sublease shall be determined and enforced in accordance with the laws of the State of New York. - 16 - (d) The captions in this Sublease and the table of contents are inserted only as a matter of convenience and shall not define, limit, extend or describe the scope of this Sublease or affect the construction hereof. (e) If any of the provisions of this Sublease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Sublease, or the application of such provision or provisions to persons or circumstances other than those as to whom or which it is held invalid or unenforceable, shall not be affected thereby, and every provision of this Sublease shall be valid and enforceable to the fullest extent permitted by law. (f) This Sublease shall be binding upon and inure to the benefit of Sublandlord, its successors and assigns. It shall also be binding upon, and inure to the benefit of Subtenant. It is not assignable by Subtenant, except in accordance with the provisions of the Lease and this Sublease, and, if appropriate consents to any assignment are obtained under the Lease and this Sublease, it shall be binding upon the assignee as to whom such consents are obtained. Sublandlord shall not assign this Sublease (it being understood that any event which would constitute an assignment by the tenant under the Lease shall constitute an assignment by Sublandlord hereunder) unless the assignee assumes all of the obligations of Sublandlord under this Sublease and in no event shall Sublandlord be deemed to be released from its obligations hereunder in connection with any assignment. No partner, shareholder, director or officer of Sublandlord, or of any partner or shareholder of Sublandlord (collectively, the "Parties") shall be liable for the performance of Sublandlord's obligations under this Sublease. Subtenant shall look solely to Sublandlord to enforce Sublandlord's obligations hereunder and shall not seek any damages against any of the Parties. (g) Each right and remedy of Sublandlord under this Sublease is cumulative and in addition to every other right and remedy of Sublandlord under this Sublease now or hereafter existing at law or in equity, by statute or otherwise. (h) No surrender of possession of the Premises or of any part thereof or of any remainder of the Term of this Sublease shall release Subtenant from any of its obligations hereunder unless accepted by Sublandlord in writing. (i) The receipt and retention by Sublandlord of Basic Rent or additional rent from anyone other than Subtenant shall not be deemed a waiver of the breach by Subtenant of any covenant, term, condition or agreement herein contained, or the acceptance of such other person as a tenant, or a release of Subtenant from the further keeping, observance or performance by Subtenant of the covenants, terms, conditions and agreements herein contained. The receipt and retention by Sublandlord of - 17 - Basic Rent or additional rent with knowledge of the breach of any covenant, term, condition or agreement herein contained shall not be deemed a waiver of such breach. (j) In addition to all other remedies provided for herein and in equity or by law, if Subtenant shall default (beyond any applicable grace period) in the observance or performance of any term, covenant, condition or agreement on Subtenant's part to be observed or performed under or by virtue of any of the terms or provisions of this Sublease, including any provisions of the Lease incorporated herein by reference, Sublandlord shall have the right, but not the obligation, to perform the same for the account of Subtenant, and if Sublandlord makes any expenditures or incurs any obligations for the payment of money in connection therewith, including, without limitation, reasonable attorneys' fees, such sums paid or obligations incurred, with interest at 10% per annum, shall be paid by Subtenant to Sublandlord within five (5) days of rendition of a bill or statement to Subtenant therefor. (k) This Sublease contains all of the covenants, agreements, terms, conditions and understandings relating to the leasing of the Premises to Subtenant and Sublandlord's obligations in connection therewith and neither Sublandlord nor any agent or representative of Sublandlord has made or is making, and Subtenant in executing and delivering this Sublease is not relying upon, any warranties, representations, promises or statements whatsoever. All understandings and agreements, if any, heretofore had between the parties are merged in this Sublease, which alone fully and completely expresses the agreement of the parties. * * * - 18 - IN WITNESS WHEREOF, this Sublease has been duly executed as of the day and year first hereinabove written. SUBLANDLORD OVERSEAS PARTNERS, INC. By: /s/ Illegible ---------------------- SUBTENANT EMCO MOTOR HOLDINGS, INC. By: /s/ E.P. Mager ---------------------- - 19 - Overseas Partners, Inc. 375 Park Avenue New York, New York 10152 August ___, 1994 Emco Motor Holdings, Inc. 585 Route 440 Jersey City, New Jersey 07304 Ladies and Gentlemen: Reference is made to that certain Sublease dated as of August _, 1994 (the "Sublease") between Overseas Partners, Inc. ("Sublandlord") and Emco Holdings, Inc. ("Subtenant"). Sublandlord and Subtenant hereby agree that the Sublease is hereby amended as follows: (a) The phrase "September 1, 1994" in the second sentence of Section 1 of the Sublease is hereby deleted and the following is hereby substituted therefor: "the later of (a) September 1, 1994, (b) the date on which Landlord's consent is obtained pursuant to Section 17 hereof and (c) the date Sublandlord delivers possession of the Premises to Subtenant". As amended hereby, the Sublease is ratified and confirmed in all respects. Very truly yours, OVERSEAS PARTNERS, INC. By: ------------------------ Name President ------------------------ Title Agreed & Accepted: EMCO MOTOR HOLDINGS, INC. By: __________________________ Name __________________________ Title EX-10.1-11 11 EXHIBIT 10.1.11 EXHIBIT 10.1.11 [LETTERHEAD OF CHRYSLER CORPORATION] Office of the General Counsel Chrysler Corporation July 24, 1996 Carl Spielvogel Chairman Chief Executive Officer United Auto Group, Inc. 375 Park Avenue, 22nd Floor New York, NY 10152 Dear Mr. Spielvogel: This letter will confirm my telephone conversation with your counsel concerning United Auto Group's (UAG) desire to make a public offering of approximately 40% of its stock. I've been asked whether such an offering would be a breach of the Sales and Service Agreements, which several UAG subsidiaries have with Chrysler Corporation. Paragraph 3 of each Sales and Service Agreement requires Chrysler Corporation's prior written approval of any change affecting more than 50% of the ownership interest of the dealer or any change in the ownership interest of the dealer which may affect its managerial control. The public offering of approximately 40% of the stock, even if fully diluted, should not affect voting control; thus, neither of the conditions in Paragraph 3 should be triggered. Of course, any subsequent transfer of stock among shareholders that could affect the voting control may trigger the requirement for Chrysler's approval of the transfer. Please let me know if you require any additional information. Very truly yours, /s/ Judith B. Shumaker-Holland Judith B. Shumaker-Holland Senior Staff Counsel 1000 Chrysler Drive Auburn Mills MI 18326-2766 EX-10.1-12 12 EXHIBIT 10.1.12 AGREEMENT BETWEEN TOYOTA MOTOR SALES, U.S.A., INC. AND UNITED AUTO GROUP, INC. Agreement, dated July 24, 1996, entered between United Auto Group, Inc. ("UAG"), a Delaware corporation, with its principal place of business at 375 Park Avenue, 22nd Floor, New York, New York 10152, and Toyota Motor Sales, U.S.A., Inc. ("TMS"), a California corporation, with its principal place of business at 19001 South Western Avenue, Torrance, CA, 90509. WHEREAS, UAG is currently the owner, directly or through its Affiliates (as defined in Paragraph 1 below) of four Toyota and one Lexus automobile dealerships; and WHEREAS, UAG may wish to acquire, directly or through an Affiliate, additional Toyota and Lexus dealerships; and WHEREAS, UAG wants to issue stock in a public offering of securities anticipated to be traded on the New York Exchange; and WHEREAS, UAG and TMS have agreed that UAG will not use a public ownership structure for its Toyota and Lexus dealerships without TMS' prior consent, which shall be given or withheld in TMS' sole discretion; and WHEREAS, TMS has advised UAG of TMS' policy limiting the number of commonly owned or controlled, directly or through an Affiliate (as defined below), dealerships by a single entity, which is currently as follows: A. TOYOTA A single entity shall not hold an ownership interest, directly or through an Affiliate, in more than: (a) the greater of one (1) or 20% of the Toyota dealer count in a "Metro" market ("Metro markets are multiple Toyota dealership markets as defined by TMS; (b) 4% of the Toyota dealerships in any Toyota Region ("Toyota Region" currently includes nine TMS Regions, Central Atlantic Toyota, Southeast Toyota, and Gulf States Toyota); and c) seven (7) Toyota dealerships nationally. LEXUS A single entity shall not hold an ownership interest, directly or through an Affiliate, in more than: (a) two (2) Lexus dealerships in any Area ("Area" currently includes Eastern, Southern, Central and Western); and (b) three (3) Lexus dealerships nationally. "Affiliate" of, or a person or entity "affiliated" with, a specified person or entity, means a person or entity that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the person or entity specified. For the purpose of this definition, the term "control" (including the terms "controlling," "controlled by" and "under common control with" means the possession, directly or indirectly, or the power to direct or cause the direction of the management and policies of a person or entity, whether through the ownership of securities, by contract or otherwise. B. In order for any entity to acquire additional Toyota or Lexus dealerships, within the limits of this Agreement, each Toyota or Lexus dealership which it owns, directly or through an Affiliate, must: a) be in full compliance with all of the terms of its Dealer Agreement; and b) meet all of the applicable Toyota or Lexus Market Representation and performance policies. C. If the purchase of any Toyota or Lexus dealership would result in exceeding the limits set forth in Paragraph 1 above, TMS will reject a dealer's application for approval of the ownership transfer until such time as the dealer shall divest itself of the appropriate number of dealerships to bring it into compliance with the requirements of this Agreement. WHEREAS, UAG and TMS are willing to resolve these issues in accordance with the terms set forth herein, NOW THEREFORE, UAG and TMS agree as follows: CHANGE IN OWNERSHIP OF UAG 1. TMS shall have the right to approve any new acquisition in ownership or voting rights of UAG of twenty percent (20%) or greater by any individual or entity; PROVIDED HOWEVER, that if TMS reasonably determines that such individual or entity is unqualified to own a Toyota or Lexus dealership, or has interests incompatible with TMS, and such transfer is effected, UAG must, within ninety (90) days from the date of notification by TMS of its determination, either: a) transfer the assets of its Toyota and Lexus dealerships to a third party acceptable to TMS; b) voluntarily terminate its Toyota and Lexus Dealership Agreements; or c) demonstrate that such individual or entity in fact owns less than 20% of the outstanding shares of UAG, or does not have 20% of the voting rights in UAG. -2- OWNERSHIP OF CONTIGUOUS DEALERSHIPS 2. UAG shall not own contiguous dealerships (as that term is defined in the applicable Toyota or Lexus Dealer Agreement or policy) with common boundaries. SEPARATE LEGAL ENTITIES FOR EACH TOYOTA AND LEXUS DEALERSHIP 3. UAG shall create separate legal entities for each Toyota and Lexus dealership which it owns, directly or through an Affiliate, shall obtain a separate motor vehicle license for each dealership, and shall maintain separate financial statements for each such dealership. Consistent with TMS policy, the name "Toyota" or "Lexus," as applicable shall appear in the d/b/a of each dealership. FACILITY STANDARDS 4. In no instance shall a Toyota or Lexus dealership or any department(s) thereof be dualled with any other brand without TMS' prior written approval. GENERAL MANAGERS 5. Each Toyota and Lexus dealership owned or controlled by UAG shall have a qualified, approved (subject to the exception noted in Paragraph 6 below) General Manager. Each General Manager shall work at the Toyota or Lexus dealership premises, shall devote all of his/her efforts to the management of the dealership and shall have no other business interests or management responsibilities. APPROVAL OF THE GENERAL MANAGER 6. Whenever UAG nominates a new General Manager candidate for a Toyota or Lexus dealership, TMS shall have the right to withhold a decision concerning approval or rejection of the candidate for a period of up to one year, at its sole discretion; PROVIDED, HOWEVER, that the candidate may operate in the capacity of General Manager until TMS has approved or rejected him/her. LIMITATIONS ON THE AUTHORITY OF THE GENERAL MANAGER 7. UAG shall advise TMS of the limitations, by category and, where applicable, by specific action, on the authority of the General Manager regarding the operation of the dealership, and shall provide the name of the individual at UAG who has such authority with respect to each listed category or specific action, in accordance with Paragraph 8 below. -3- IDENTIFICATION OF UAG CONTACT OFFICIAL 8. UAG shall identify, in each Toyota and Lexus Dealer Agreement, the UAG executive (other than the General Manager of the dealership) who will respond directly to any Toyota or Lexus concerns regarding the operation or performance of the dealership, which executive will have full authority, in accordance with UAG management policies, to resolve issues raised by TMS in connection with the operation of the dealership. SELLING TOYOTA PRODUCTS 9. UAG shall make available to the customers at its Toyota and Lexus dealerships, all Toyota products, including vehicles, Genuine Parts and Accessories, retail financing (whether for purchases or leases) and extended service contracts. REPRESENTATION ON TOYOTA AND LEXUS DEALER ORGANIZATIONS 10. No more than one representative each from the Toyota, and, separately, Lexus, dealerships owned, directly or through an Affiliate, by UAG, may serve on the National Dealer Council or any future Toyota or Lexus national board(s) which may be established, and no more than one representative each may serve on either a Regional or Area Dealer Council, or Toyota or Lexus Dealer Association Board of Directors. DEALERSHIP PERSONNEL TRAINING 11. UAG shall not substitute training courses or certification programs of its own for those provided or sponsored by TMS without the prior approval of TMS. PUBLIC OFFERING OF SECURITIES BY UAG 12. TMS shall not object to a public offering of securities by United Auto Group so long as the limitations on ownership of voting control of UAG contained in this agreement are not exceeded or breached in any way. In addition, TMS hereby approves the increase to 100% in equity interest in each Toyota and Lexus dealership in which subsidiaries of UAG now have a majority equity interest. FINANCIAL DISCLOSURES 13. UAG shall provide TMS with copies of all information and materials filed with the Securities Exchange Commission, including, but not limited to, quarterly and annual financial statement filings, prospectuses and other materials related to UAG. -4- PROSPECTUS DISCLAIMER AND INDEMNIFICATION AND HOLD HARMLESS AGREEMENT 14. UAG shall place in its registration statement and its prospectus, as well as in any other document offering shares in UAG to public or private investors, the following disclaimer: No Manufacturer (as defined in this Prospectus) has been involved, directly or indirectly, in the preparation of this Prospectus or in the Offering being made hereby. No Manufacturer has made any statements or representations in connection with the Offering or has provided any information or materials that were used in connection with the Offering, and no Manufacturer has any responsibility for the accuracy or completeness of this Prospectus. UAG shall indemnify and hold harmless TMS pursuant to the terms of the Indemnification and Hold Harmless Agreement set forth in Attachment 1 to this Agreement. SOLE AGREEMENT OF THE PARTIES 15. There are no prior agreements or understandings, either oral or written, between the Parties affecting this Agreement, except as otherwise specified or referred to in this Agreement. No change or addition to, or deletion of any portion of this Agreement shall be valid or binding upon the parties hereto unless approved in writing signed by an officer of each of the parties hereto. SEVERABILITY 16. If any provision of this Agreement should be held invalid or unenforceable for any reason whatsoever, or conflicts with any applicable law, this Agreement will be considered divisible as to such provision(s), and such provision(s) will be deemed amended to comply with such law, or if it (they) cannot be so amended without materially affecting the tenor of the Agreement, then it (they) will be deemed deleted from this Agreement in such jurisdiction, and in either case, the remainder of the Agreement will be valid and binding. NO IMPLIED WAIVERS 17. The failure of either party at any time to require performance by the other party of any provision herein shall in no way affect the right of such party to require such performance an any time thereafter, nor shall any waiver by any party of a breach of any provision herein constitute a -5- waiver of any succeeding breach of the same or any other provision, nor constitute a waiver of the provision itself. TMS POLICIES 18. This Agreement refers to certain policies and standards. UAG acknowledges that these policies and standards are prepared by TMS in its sole discretion based upon TMS' evaluation of the marketplace. TMS may reasonably amend its policies and standards from time to time. APPLICABLE LAW 19. This Agreement shall be governed by and construed according to the laws of California. BENEFIT 20. This Agreement is entered into by and between TMS and UAG for their sole and mutual benefit. Neither this Agreement nor any specific provision contained in it is intended or shall be construed to be for the benefit of any third party. NOTICE TO THE PARTIES 21. Any notices permitted or required under the terms of this Agreement shall be directed to the following respective addresses of the parties, or if either of the parties shall have specified another address by notice in writing to the other party, then to the address last specified: TOYOTA MOTOR SALES, U.S.A., INC. 19001 South Western Avenue Torrance, California 90509 UNITED AUTO GROUP 375 Park Avenue 22nd Floor New York, New York 10152 -6- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. UNITED AUTO GROUP, INC. BY: /s/ Carl Spielvogel ----------------------------- Carl Spielvogel, Chairman and Chief Executive Officer TOYOTA MOTOR SALES, U.S.A., INC. BY: /s/ Illegible ----------------------------- -7- ATTACHMENT 1 INDEMNIFICATION AGREEMENT INDEMNIFICATION AGREEMENT, made this 24th day of July, 1996 between United Auto Group, Inc., a Delaware corporaton the address of which is 375 Park Avenue, 22nd Floor, New York, NY 10152, ("UAG") and Toyota Motor Sales, U.S.A., Inc., a California corporation the address of which is 19001 S. Western Avenue, Torrance, CA 90509 ("TMS"). WITNESSETH WHEREAS, UAG has been formed to own subsidiary corporations which will own and operate automobile dealerships; and; WHEREAS, UAG intends to publicly offer and sell shares of stock ("UAG Stock") in a public offering pursuant to the Securities Act of 1933 (the "Act"); WHEREAS, TMS has consented to the offer and sale of such UAG stock to the public; and WHEREAS, in recognition of TMS' demand for complete protection against liability and threats of legal action and in order to obtain TMS' consent to the offer and sale of such shares, UAG wishes to provide in this Agreement for the indemnification of and the advancing of expenses to TMS as set forth herein. NOW, THEREFORE, in consideration of the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. INDEMNITY OF TMS UAG hereby agrees to indemnify and hold harmless TMS and its affiliates from and against any and all losses, liabilities, judgments, amounts paid in settlement, claims, damages and expenses whatsoever (collectively a "Claim"), including, but not limited to, any and all expenses whatsoever incurred investigating, preparing or defending against any litigation, commenced or threatened, to which TMS may become subject under the Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the securities laws of any state (the "Blue Sky Laws"), any other statute or at common law or otherwise under the laws of any foreign country, arising in connection with the sale of the UAG stock. In addition, UAG hereby agrees to indemnify and hold harmless TMS from any and all claims of the shareholders of UAG with respect to any matter, PROVIDED, that if it is ultimately determined, based upon a final decision of a court, arbitrator or other authorized panel or a settlement entered into by the parties to the dispute and consented to by TMS that TMS was liable for such Claim in whole or in part, the indemnification set forth herein shall be of no force or effect, and TMS shall immediately reimburse UAG for any expenses advanced by UAG pursuant to Paragraph 3 of this Agreement. 2. NOTIFICATION AND DEFENSE OF CLAIM (a) If any litigation is commenced against TMS in respect of which indemnity may be sought pursuant to this Agreement, TMS shall promptly notify UAG in writing of the commencement of any such litigation, and UAG shall then assume the defense of any such litigation, including the employment and fees of counsel (reasonably satisfactory to TMS) and the payment of all such expenses. (b) TMS shall have the right to employ its own counsel in any such case to oversee the litigation on behalf of TMS, to consult with the attorneys engaged by UAG as to the proper handling of the litigation and to take such actions in connection with the litigation as are reasonably necessary to protect TMS' interests. UAG shall pay the reasonable fees and expenses of not more than one additional firm of attorneys for TMS. (c) UAG agrees promptly to notify TMS of the commencement of any litigation against UAG in connection with the issue and sale of the UAG stock. UAG and TMS agree to cooperate with each other in the defense of any litigation. (d) UAG shall not be obligated to indemnify or reimburse TMS under this Agreement for any amounts paid in settlement of any litigation effected without UAG's prior written consent. UAG shall not, in the defense of any such litigation, except with TMS' prior written consent, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to TMS of a release from all liability in respect to such litigation. Neither UAG nor TMS shall unreasonably withhold its consent to any proposed settlement. 3. PAYMENT OF EXPENSES UAG agrees that it will pay and all expenses incurred by TMS in defending any civil or criminal action, suit or proceeding against TMS in advance of the time such expenses are due. With respect to legal fees and disbursements of TMS' attorneys, UAG will pay such attorneys an advance retainer of up to $20,000 and will pay additional fees and expenses of such attorneys in increments of not more than $20,000 periodically in advance of the dates that such fees and expenses are incurred. -2- 4. ENFORCEMENT (a) UAG expressly confirms and agrees that it has entered into this Agreement and assumes the obligations imposed on it in order to induce TMS to consent to the offer and sale of UAG stock and acknowledges that TMS is relying upon this Agreement to grant such consent. (b) In the event TMS is required to bring any action to enforce rights or to collect moneys due under this Agreement and is successful in such action, UAG shall reimburse TMS for all of TMS' reasonable fees and expenses in bringing and pursuing such action. 5. SUBROGATION (a) In the event of payment under this Agreement, UAG shall be subrogated to the extent of such payment to all of the rights of recovery of TMS, which shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such document necessary to enable UAG effectively to bring suit to enforce such rights. (b) UAG shall not be liable under this Agreement to make any payment in connection with any claim or litigation made against TMS to the extent TMS has otherwise actually received payment (under any insurance policy or otherwise) of the amounts otherwise indemnifiable hereunder. 6. MISCELLANEOUS (a) This Agreement shall be interpreted and construed in accordance with the laws of the State of California, without giving effect to the conflict of law rules. (b) This Agreement shall be binding upon and inure to the benefit of UAG and TMS and their respective legal representatives, successors and assigns. (c) No amendment, modification or termination of this Agreement shall be effective unless in writing and signed by both parties hereto. -3- IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written. UNITED AUTO GROUP TOYOTA MOTOR SALES, U.S.A., INC. By: /s/Carl Spielvogel By: /s/Illegible ---------------------------- ---------------------------- Carl Spielvogel Title: Chairman and Chief Executive Title: ----------------------------- -------------------------- Officer -4- EX-10.2-2-1 13 EXHIBIT 10.2.2.1 (LOGO) LEXUS DEALER AGREEMENT TABLE OF CONTENTS PAGE ---- I. TERM OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . 1 II. OWNERSHIP AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . 2 III. MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 IV. APPROVED DEALER LOCATIONS. . . . . . . . . . . . . . . . . . . . . 3 V. CERTIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 4 VI. ACQUISITION, DELIVERY AND INVENTORY OF LEXUS PRODUCTS. . . . . . . 5 A. APPOINTMENT OF DEALER. . . . . . . . . . . . . . . . . . . . . . . 5 B. AVAILABILITY AND ALLOCATION OF PRODUCT . . . . . . . . . . . . . . 5 C. PRICES AND TERMS OF SALE . . . . . . . . . . . . . . . . . . . . . 5 D. MODE, PLACE AND CHARGES FOR DELIVERY OF PRODUCTS . . . . . . . . . 6 E. DAMAGE CLAIMS AGAINST TRANSPORTATION CARRIERS. . . . . . . . . . . 6 F. DELAY OR FAILURE OF DELIVERY . . . . . . . . . . . . . . . . . . . 6 G. DIVERSION CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . 6 H. CHANGES OF DESIGN, OPTIONS OR SPECIFICATIONS . . . . . . . . . . . 7 I. DISCONTINUANCE OF MANUFACTURE OR IMPORTATION . . . . . . . . . . . 7 J. MINIMUM VEHICLE INVENTORIES. . . . . . . . . . . . . . . . . . . . 7 K. PRODUCT MODIFICATIONS. . . . . . . . . . . . . . . . . . . . . . . 7 VII. DEALER MARKETING OF LEXUS PRODUCTS . . . . . . . . . . . . . . . . 7 A. DEALER'S SALES RESPONSIBILITIES. . . . . . . . . . . . . . . . . . 7 B. EXPORT POLICY. . . . . . . . . . . . . . . . . . . . . . . . . . . 8 C. LEXUS DEALER ASSOCIATION . . . . . . . . . . . . . . . . . . . . . 8 D. USED VEHICLES. . . . . . . . . . . . . . . . . . . . . . . . . . . 9 E. PRIMARY AREA OF RESPONSIBILITY . . . . . . . . . . . . . . . . . . 9 F. EVALUATION OF DEALER'S SALES AND MARKETING PERFORMANCE . . . . . . 9 VIII.. DEALER SERVICE OBLIGATIONS. . . . . . . . . . . . . . . . . . . . 9 A. CUSTOMER SERVICE STANDARDS . . . . . . . . . . . . . . . . . . . . 9 B. NEW MOTOR VEHICLE PRE-DELIVERY SERVICE . . . . . . . . . . . . . . 10 C. WARRANTY AND POLICY SERVICE. . . . . . . . . . . . . . . . . . . . 10 (i) IX. USE OF PARTS AND ACCESSORIES IN NON-WARRANTY SERVICE . . . . . . . 11 A. WARRANTY DISCLOSURES AS TO NON-GENUINE PARTS AND ACCESSORIES . . . 11 B. ROADSIDE ASSISTANCE PROGRAM. . . . . . . . . . . . . . . . . . . . 11 C. SERVICE CAMPAIGN INSPECTIONS AND CORRECTIONS . . . . . . . . . . . 11 D. COMPLIANCE WITH SAFETY AND EMISSION CONTROL REQUIREMENTS . . . . . 12 E. COMPLIANCE WITH CONSUMER PROTECTION STATUTES, RULES AND REGULATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 X. SERVICE AND PARTS ORGANIZATION . . . . . . . . . . . . . . . . . . 13 A. ORGANIZATION AND STANDARDS . . . . . . . . . . . . . . . . . . . . 13 B. SERVICE EQUIPMENT AND SPECIAL TOOLS. . . . . . . . . . . . . . . . 13 C. PARTS STOCKING LEVEL . . . . . . . . . . . . . . . . . . . . . . . 13 D. AFTER-HOURS DELIVERY . . . . . . . . . . . . . . . . . . . . . . . 14 E. ASSISTANCE PROVIDED BY DISTRIBUTOR . . . . . . . . . . . . . . . . 14 F. EVALUATION OF DEALER'S SERVICE AND PARTS PERFORMANCE . . . . . . . 14 XI. CUSTOMER SATISFACTION RESPONSIBILITIES . . . . . . . . . . . . . . 14 A. DEALER'S CUSTOMER SATISFACTION OBLIGATIONS . . . . . . . . . . . . 15 B. EVALUATION OF DEALER'S CUSTOMER SATISFACTION PERFORMANCE . . . . . 16 XII. DEALERSHIP FACILITIES AND IDENTIFICATION . . . . . . . . . . . . . 16 A. FACILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 B. SERVICE RECEPTION AREA . . . . . . . . . . . . . . . . . . . . . . 17 C. DEALER'S OPERATING HOURS . . . . . . . . . . . . . . . . . . . . . 17 D. SIGNS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 E. EVALUATION OF DEALERSHIP FACILITIES. . . . . . . . . . . . . . . . 17 F. USE OF LEXUS MARKS . . . . . . . . . . . . . . . . . . . . . . . . 18 . XIII . CAPITAL, CREDIT, RECORDS AND UNIFORM SYSTEMS. . . . . . . . . . . 19 A. NET WORKING CAPITAL. . . . . . . . . . . . . . . . . . . . . . . . 19 B. FLOORING AND LINES OF CREDIT . . . . . . . . . . . . . . . . . . . 19 C. PAYMENT TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . 19 D. UNIFORM ACCOUNTING SYSTEM. . . . . . . . . . . . . . . . . . . . . 20 E. RECORDS MAINTENANCE. . . . . . . . . . . . . . . . . . . . . . . . 20 F. EXAMINATION OF DEALERSHIP ACCOUNTS AND RECORDS . . . . . . . . . . 20 G. TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 (ii) H. CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . . 21 I. DATA TRANSMISSION SYSTEMS. . . . . . . . . . . . . . . . . . . . 21 J. SALES REPORTING. . . . . . . . . . . . . . . . . . . . . . . . . 21 XIV. TRANSFERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 A. SALE OF OWNERSHIP INTEREST IN DEALERSHIP . . . . . . . . . . . . 22 B. RIGHTS OF FIRST REFUSAL OR OPTION TO PURCHASE. . . . . . . . . . 22 XV. SUCCESSION RIGHTS UPON DEATH OR INCAPACITY . . . . . . . . . . . 24 A. SUCCESSION TO OWNERSHIP AFTER DEATH OF OWNER . . . . . . . . . . 24 B. INCAPACITY OF OWNER. . . . . . . . . . . . . . . . . . . . . . . 25 C. NOMINATION OF SUCCESSOR PRIOR TO DEATH OR INCAPACITY OF OWNER. . 26 XVI. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 26 A. VOLUNTARY TERMINATION BY DEALER. . . . . . . . . . . . . . . . . 26 B. TERMINATION FOR CAUSE. . . . . . . . . . . . . . . . . . . . . . 26 C. NOTICE OF TERMINATION. . . . . . . . . . . . . . . . . . . . . . 30 D. CONTINUANCE OF BUSINESS RELATIONS. . . . . . . . . . . . . . . . 30 E. REPURCHASE PROVISIONS. . . . . . . . . . . . . . . . . . . . . . 30 XVII. MANAGEMENT OF DISPUTES . . . . . . . . . . . . . . . . . . . . . 32 A. ALTERNATIVE DISPUTE RESOLUTION PROGRAMS. . . . . . . . . . . . . 32 B. APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . . 33 C. MUTUAL RELEASE . . . . . . . . . . . . . . . . . . . . . . . . . 33 XVIII. DEFENSE AND INDEMNIFICATION. . . . . . . . . . . . . . . . . . . 33 A. DEFENSE AND INDEMNIFICATION BY DISTRIBUTOR . . . . . . . . . . . 33 B. DEFENSE AND INDEMNIFICATION BY DEALER. . . . . . . . . . . . . . 34 C. CONDITIONAL DEFENSE AND/OR INDEMNIFICATION . . . . . . . . . . . 35 D. THE EFFECT OF SUBSEQUENT DEVELOPMENTS. . . . . . . . . . . . . . 36 E. TIME TO RESPOND AND RESPONSIBILITIES OF THE PARTIES. . . . . . . 36 XIX. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . 37 A. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 B. NO IMPLIED WAIVERS . . . . . . . . . . . . . . . . . . . . . . . 37 C. SOLE AGREEMENT OF THE PARTIES. . . . . . . . . . . . . . . . . . 37 D. DEALER NOT AN AGENT OR REPRESENTATIVE. . . . . . . . . . . . . . 37 E. ASSIGNMENT OF RIGHTS OR DELEGATION OF DUTIES . . . . . . . . . . 38 F. NO FRANCHISE FEE . . . . . . . . . . . . . . . . . . . . . . . . 38 (iii) G. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . 38 H. NEW AND SUPERSEDING DEALER AGREEMENTS. . . . . . . . . . . . . . 38 I. BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 XX. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 39 XXI. ADDITIONAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . 40 (iv) LEXUS DEALER AGREEMENT This is an Agreement between LEXUS, A Division of TOYOTA MOTOR SALES, U.S.A., INC. ("LEXUS" or "DISTRIBUTOR") and Somerset Motors Partnership ("DEALER") doing business as DiFeo Lexus. LEXUS GOALS AND COMMITMENTS LEXUS is committed to creating luxury automobiles which are and will be among the finest ever built anywhere in the world. LEXUS is equally committed to setting a new standard for extraordinary customer satisfaction throughout the ownership cycle. To achieve this goal, LEXUS intends to maintain the finest dealer network in the industry. This Agreement embodies the LEXUS commitment to promote fairness within a harmonious and mutually profitable business relationship between LEXUS and DEALER. The ultimate goal shared by all parties to this Agreement is the satisfaction of the LEXUS customer. PURPOSES OF AGREEMENT Lexus is the exclusive distributor in the continental United States of LEXUS Products which are manufactured or approved by TOYOTA MOTOR CORPORATION ("FACTORY"). The principal purposes of this Agreement are to set forth and affirm the commitment of LEXUS and DEALER to the goals of LEXUS; authorize DEALER to sell and service LEXUS Products; and identify the rights and responsibilities of LEXUS and DEALER. I. TERM OF AGREEMENT This Agreement is effective on the date signed by LEXUS and shall continue for a period of one year unless ended earlier by mutual agreement or terminated as provided herein. This Agreement may not be extended except by written consent of LEXUS. Any continuation of business relations between the parties following expiration of this Agreement shall be on a day-to-day basis and subject to the provisions of this Agreement. Such a continuation shall not be deemed a waiver of the right of termination nor shall it imply that either party has committed to continue to do business with the other at any time in the future. Upon the expiration of this Agreement, DISTRIBUTOR shall have no obligation to renew the Agreement or to extend DEALER a subsequent Agreement. However, should this Agreement be renewed or any other form of agreement be offered to DEALER, DISTRIBUTOR reserves the right to 1 offer an agreement of a term to be determined at DISTRIBUTOR's sole discretion. II. OWNERSHIP AND OFFICERS This is a personal service Agreement and has been entered into by LEXUS upon, and in consideration of, DEALER'S representation that only the following named persons are the owners and officers of DEALER, and that such persons are committed to achieving the purposes, goals and commitments of this Agreement: PERCENT OF OWNERS NAMES ADDRESS OWNERSHIP DiFeo Partnership SCT, Inc. 153 East 53rd St., Suite 5900 70% New York, NY 10022 Somerset Motors, Inc. 585 Route 440 30% Jersey City, NJ 07304 OFFICERS NAMES ADDRESS TITLE Ezra P. Mager 40 East 88th St. Chief Executive New York, NY 10128 Officer Joseph C. Herman 16 Gateway Chief Executive Highlands, NJ 07732 Officer Joseph C. DiFeo 17 Black Point Horseshoe Executive Vice Rumson, NJ 07760 President Samuel X. DiFeo 121 Lorraine Ave. Executive Vice Spring Lake, NJ 07762 President Donald Betson 89 Van Allen Rd. Chief Financial Glen Rock, NJ 07452 Officer Sam C. DiFeo 2219 First Ave. Executive Vice Spring Lake, NJ 07762 President 2 III. MANAGEMENT LEXUS and DEALER agree that qualified dealership management and active, day-to-day owner involvement are critical to the successful operation of DEALER. OWNERS agree, and LEXUS enters into this Agreement on the condition that at least one OWNER will be involved on a full-time basis in the day-to-day operations of the dealership. If no OWNER is involved on a full-time basis in DEALER's day-to-day operations, the General Manager named below shall devote his or her personal services on a full-time basis to the general management of the dealership. DEALER appoints Matthew Fava as General Manager. The General Manager has full managerial authority to make all operating decisions on behalf of DEALER. DEALER shall make no change in the dealership's ownership or General Manager without the prior written approval of LEXUS. IV. APPROVED DEALER LOCATIONS In order that DISTRIBUTOR may establish and maintain an effective network of authorized LEXUS dealers, DEALER agrees that it shall conduct its LEXUS operations only in facilities and at locations herein designated and approved by DISTRIBUTOR. DISTRIBUTOR hereby designates and approves the following facilities as the exclusive location(s) for the sale and servicing of LEXUS Products and the display of LEXUS Marks: NEW VEHICLE SALES AND USED VEHICLE DISPLAY AND SHOWROOM SALES Route 22 East Route 22 East Bound Brook, NJ 08805 Bound Brook, NJ 08805 SALES AND GENERAL OFFICE BODY AND PAINT Route 22 East N/A Bound Brook, NJ 08805 PARTS AND SERVICE OTHER FACILITIES Route 22 East N/A Bound Brook, NJ 08805 DEALER shall not modify or change the designated usage or function of any facility without the prior written consent of LEXUS. 3 V. CERTIFICATION By their signatures hereto, the parties certify that they have read and understood this Agreement, including the Standard Provisions which are incorporated herein, and agree to abide and be bound by all of its terms and conditions. DIFEO LEXUS DEALER -------------------- DBA DATE: Sept. 24, 1992 By: /s/ Ezra P. Mager Chief Executive Officer --------------- ------------------------ ----------------------- SIGNATURE Ezra P. Mager Title LEXUS, A Division of TOYOTA MOTOR SALES, U.S.A.,INC. DATE: Oct. 5, 1992 By: /s/ Shinji Sakai President --------------- ------------------------ ----------------------- SIGNATURE Shinji Sakai Title 4 [Standard Provisions Appear Here] XXI. ADDITIONAL PROVISIONS In consideration of DISTRIBUTOR'S agreement to appoint DEALER as an authorized LEXUS dealer, DEALER further agrees: These Additional Provisions to Lexus Dealer Agreement ("Additional Provisions") are entered into as of October 5, 1992 among DISTRIBUTOR, DEALER, DIFEO PARTNERSHIP SCT, INC., a Delaware corporation (hereinafter "DP"), SOMERSET MOTORS, INC., a New Jersey corporation (hereinafter "SMI"; DP and SMI are hereinafter collectively referred to as the "Partners"), EMCO MOTOR HOLDINGS, INC., a Delaware corporation (hereinafter "EMCO"), "21" INTERNATIONAL HOLDINGS, INC., a Delaware corporation (hereinafter "TIHI"), MARSHALL S. COGAN (hereinafter "Cogan"), SAMUEL X. DIFEO and JOSEPH C. DIFEO (hereinafter collectively the "DiFeos"), and form a part of and are incorporated into the Dealer Agreement. RECITALS 1. DISTRIBUTOR and DEALER have entered into a Lexus Dealer Agreement (the "Dealer Agreement") dated as of October 5, 1992. 2. The Partners are the sole partners of DEALER; EMCO is the sole shareholder of DP; TIHI is the Majority (defined below) shareholder of EMCO; Cogan is the Majority shareholder of TIHI; and the DiFeos are the sole shareholders (including ownership by related persons or entities) of SMI. For purposes of these Additional Provisions, "Majority" means direct or indirect ownership (including ownership by related persons or entities) of 66 2/3% or more of the voting power and 40% or more 36 of the fair market value of the equity securities of the entity in question. A "related" person is an individual who is a member of the immediate family of the person in question. A related entity is (a) a corporation or partnership 80% or more of the interests in which are owned by the person in question or a related person or (b) a trust benefiting the person in question or a related person or entity. "Controlled" has the meaning given to it in Rule 405 under the Rules and Regulations of the Securities Act of 1993, as amended. 3. EMCO, DEALER, the Partners, TIHI, Cogan and the DiFeos are hereinafter collectively referred to as the "EMCO Parties". DISTRIBUTOR and the EMCO Parties are hereinafter collectively referred to as the "Parties". 4. The Parties wish to enter into these Additional Provisions for the purposes of agreeing to be bound by the terms of these Additional Provisions, which are a part of and are incorporated into the Dealer Agreement. NOW THEREFORE, in consideration for the mutual agreements contained herein and in the Dealer Agreement, the Parties agree as follows: A. GENERAL 1. The Parties acknowledge that DISTRIBUTOR has been provided with copies of the Master Agreement dated as of March 11, 1992, as amended, between EMCO, DP, SMI, TIHI, DEALER, the DiFeos and others, the Partnership Agreement of DEALER dated as of October 1, 1992, the Management Agreement among DEALER, EMCO 37 and others dated as of October 1, 1992 (the "Management Agreement") and certain other documentation relating to the relationships between the EMCO Parties and others (collectively the "Underlying Documentation"). The EMCO Parties agree that nothing contained in the Underlying Documentation will in any way be deemed to be consented to by or binding on DISTRIBUTOR, and that the legal rights and obligations between DISTRIBUTOR, on the one hand, and any of the EMCO Parties, on the other hand, will be governed exclusively by the Dealer Agreement, these Additional Provisions and any other agreements executed by both DISTRIBUTOR and DEALER in connection therewith and herewith. 2. The EMCO Parties acknowledge and agree that if any provision of these Additional Provisions is violated in any material respect by any of the EMCO Parties, DISTRIBUTOR will have the right to terminate the Dealer Agreement on written notice to DEALER. B. PROVISIONS RELATING TO THE STRUCTURE OF DEALER 1. SINGLE PURPOSE ENTITY. DEALER will be maintained as a separate legal entity, and will not engage in any business other than operation of a Lexus dealership and activities related thereto. 2. SINGLE PURPOSE PARTNERS. DP and SMI will be maintained as separate legal entities, and will not engage in any business other than acting as partners of DEALER and activities related thereto. 38 3. NO MERGER, CONSOLIDATION, ETC. Neither DEALER nor either of the Partners will be merged with or into, or be consolidated with, or acquire substantially all of the assets of, any other entity. C. PROVISIONS RELATING TO MANAGEMENT 1. ROLE OF DIFEOS. Samuel X. DiFeo, Joseph C. DiFeo or both of them will remain actively involved in the management of all aspects of the operations of DEALER. a. Both of the DiFeos will be members of the Executive Committee, Board of Directors or other governing body of DEALER. The DiFeos will have complete control over all management decisions of DEALER or relating to DEALER, including day-to-day activities and extraordinary matters, provided, that the Executive Committee, Board of Directors or other governing body of DEALER may take part in decisions relating to extraordinary matters, including but not limited to a change in business location and a sale or liquidation of the business. b. The General Manager will report directly to and be responsible for the DiFeos. c. Subject to Section C.2., the DiFeos will at all times be the sole shareholders of SMI (including ownership by related persons or entities), and SMI will at all times own at least a 25% interest in the profits and capital of DEALER, provided, that if SMI's interest falls below 30%, any interest below 30% will be transferred to DP. 39 d. DISTRIBUTOR may rely on oral or written communications and agreements from either of the DiFeos as being the binding agreements of DEALER, without any duty of DISTRIBUTOR to confirm that such communication or agreement has been approved by the Executive Committee or any other person or entity. 2. SUCCESSORS TO THE DIFEOS. In the event that (a) neither of the DiFeos wishes to continue his role in the management of DEALER as set forth in Section C.1., (b) the DiFeos wish to cease being the sole shareholders of SMI (including ownership of related persons or entities) or (c) SMI wishes to decrease its ownership in DEALER to less than 25%, such action may be taken only with the prior written consent of DISTRIBUTOR. Such consent of DISTRIBUTOR may be conditioned on either (i) transfer of the DiFeos' management responsibilities and/or ownership interest (direct or indirect) as applicable, in DEALER to an individual or individuals approved by DISTRIBUTOR, taking into account such factors as DISTRIBUTOR deems to be relevant and are consistent with applicable laws or (ii) transfer of not less than 25% of the voting power, profits interest and capital interest in DEALER to the then General Manager of DEALER, which transfer may be accomplished by having such General Manager acquire such interest in increments of not less than 5% per year over a period of not more than 5 years. 40 3. ROLE OF GENERAL MANAGER. a) Matthew Fava, or any subsequent General Manager of DEALER approved by DISTRIBUTOR, will serve exclusively as General Manager of DEALER on a full time basis and will not have any management responsibilities with respect to any other dealership or other business or appear as the General Manager on any automobile dealership franchise agreement other than that of DEALER. b) The General Manager will have responsibility for and authority with respect to the day-to-day operations of DEALER in the ordinary course of business, under the supervision of the DiFeos (subject to Section C.2.), and either the DiFeos or the General Manager will have the following authority, without the need for obtaining the prior approval of any other person: (i) the authority to hire or terminate any employee of DEALER. (ii) the authority to order vehicles and other products. (iii) the authority to place advertising. (iv) the authority to communicate with DISTRIBUTOR with respect to all aspects of the business of DEALER. (v) the authority to approve expenditures by DEALER in the ordinary course of business in amounts of less than $50,000 per item. (vi) the authority to approve capital improvements or modifications to the DEALER'S facilities in 41 amounts not to exceed $100,000 with respect to any expenditure. 4. MEMBERSHIP OF EXECUTIVE COMMITTEE. There shall be no change in the membership of the Executive Committee, Board of Directors or other governing body of DEALER without the prior written approval of DISTRIBUTOR. D. PROVISIONS RELATING TO CAPITALIZATION AND ACCOUNTING 1. No distributions will be made by DEALER to the Partners if such distributions would cause DEALER to fail to meet any of DISTRIBUTOR's capitalization guidelines, including but not limited to net working capital requirements. 2. The operations and financial results of DEALER will be reported to DISTRIBUTOR separately from those of any other entity, business or activity, including but not limited to any of the EMCO Parties and any other dealerships directly or indirectly owned or controlled by any of the EMCO Parties. 3. DEALER will maintain complete and separate departments for new and used vehicle sales, service, parts sales, leasing and finance and insurance, and will provide separate identifiable areas for each department. DEALER will maintain a separate and permanent personnel staff and separate retail operations from other dealerships directly or indirectly owned by any of the EMCO Parties. DEALER shall not combine its used car operation with that of any other entity, including any other dealerships directly or indirectly owned by any of the EMCO Parties. 42 4. DEALER will not transfer assets or liabilities on an intercompany receivable or payable basis; or place vehicles on consignment to any other dealership, except on payment terms requiring payment in full within three (3) business days and in an outstanding amount not to exceed $150,000 at any one time. Any loan from DEALER to any person or entity controlled by any EMCO Party will be treated as a distribution by DEALER to the Partners for purposes of determining compliance with Section D.1. 5. If DEALER transfers assets to any commonly controlled person or entity for less than fair market value consideration, the excess of the fair market value of such assets over the consideration paid, if any, will be treated as a distribution by DEALER to the Partners for purposes of determining compliance with Section D.1. 6. DEALER will submit to DISTRIBUTOR a consolidated, audited financial statement of all dealerships controlled by the EMCO Parties on an annual basis, on or before June 30 of each year for the previous year ended December 31. E. PROVISIONS RELATING TO OWNERSHIP 1. CHANGES IN INDIRECT OWNERSHIP. In addition to the right of DISTRIBUTOR to approve changes in ownership of DEALER as set forth in the Dealer Agreement, DISTRIBUTOR will also have the right, in compliance with applicable laws, to approve transfers in ownership of DP, SMI and EMCO, and will have the right to approve any transfer in ownership of TIHI which results in Cogan no longer being the Majority shareholder of TIHI. 43 2. NO PUBLIC OFFERING. (a) The EMCO Parties acknowledge that the Dealer Agreement is a personal service contract, and that the personal service nature of the Dealer Agreement was a material inducement to DISTRIBUTOR in entering into the Dealer Agreement. In light of the foregoing, none of DEALER, any Partner, or any person or entity directly or indirectly owning an interest in, or, directly or indirectly, controlling, controlled by or under common control with (within the meaning of Rule 405 under the Rules and Regulations of the Securities Act of 1933, as amended), DEALER or any partner of DEALER (as applicable, the "Issuer") will offer, issue or sell securities that are required to be registered pursuant to the Securities Act of 1933, as amended ("Public Securities"), or permit any of their securities to become Public Securities, or merge or consolidate with any entity the securities of which are Public Securities without the prior written consent of DISTRIBUTOR, such consent to be granted or denied in DISTRIBUTOR's sole discretion. (b) Nothing contained in this Section E.2 will be deemed to prohibit (i) one or more entities which have issued Public Securities from owning equity securities of TIHI, provided that Cogan agrees that, subject to compliance with applicable laws, (A) neither he nor any related person or entity will transfer any equity security in TIHI to any entity which has issued public securities and (B) any transfer of equity securities in TIHI by Cogan will contain a specific restriction prohibiting the transferee (or any subsequent transferee) from 44 reselling such equity securities to an entity which has issued Public Securities, or (ii) TIHI from holding an interest in one or more entities which have issued Public Securities, provided that such entities do not own an interest in any of the EMCO Parties. (c) Notwithstanding this Section E.2, in the event that at any time after the date hereof, DISTRIBUTOR issues a Dealer Agreement to an entity which owns and operates a Lexus dealership in the United States which specifically permits the issuance of Public Securities or contains specific restrictions on the issuance of Public Securities which are different from this Section E.2 in any material respect, DISTRIBUTOR, upon request by DEALER, agrees to offer DEALER the option of amending this Section E.2 to contain provisions relating to issuance of Public Securities which are substantially the same as those which are contained in the Dealer Agreement of such other dealership. 3. SUCCESSORS AND ASSIGNS. In the event that any interest in any of the EMCO Parties is transferred in accordance with the provisions of the Dealer Agreement and these Additional Provisions, as a condition to such transfer the transferee must agree in writing to be bound by all of the terms and provisions of the Dealer Agreement and these Additional Provisions, such agreement to be in form and substance reasonably acceptable to DISTRIBUTOR. 4. COMPETITORS. In no event may any interest in any of the EMCO Parties be transferred to an entity which is directly 45 or indirectly engaged in the business of manufacturing and/or distributing automobiles, or an affiliate thereof. IN WITNESS WHEREOF, the Parties have executed these Additional Provisions as of the date first above written. LEXUS, A DIVISION OF SOMERSET MOTORS PARTNERSHIP TOYOTA MOTOR SALES, U.S.A. By: /s/ Ezra P. Mager ----------------------------- General Partner By: /s/ Shirji Sakai -------------------------- Title: President ----------------------- By: /s/ Ezra P. Mager ----------------------------- Title: -------------------------- DIFEO PARTNERSHIP, INC. SOMERSET MOTORS, INC. By: /s/ Ezra P. Mager By: /s/ Joseph C. DiFeo -------------------------- ----------------------------- Title: Title: ----------------------- -------------------------- EMCO MOTORS HOLDINGS, INC. "21" INTERNATIONAL HOLDINGS, INC. By: /s/ Ezra P. Mager By: /s/ Marshall S. Cogan -------------------------- ----------------------------- Title: Title: ----------------------- -------------------------- /s Marshall S. Cogan /s/ Samuel X. DiFeo - ----------------------------- -------------------------------- MARSHALL S. COGAN SAMUEL X. DIFEO /s/ Joseph C. DiFeo - ----------------------------- JOSEPH C. DIFEO 46 EX-10.2-2-2 14 EXHIBIT 10.2.2.2 LEXUS DEALER AGREEMENT STANDARD PROVISIONS The following Standard Provisions are expressly incorporated in and made a part of the LEXUS Dealer Agreement. VI. ACQUISITION, DELIVERY AND INVENTORY OF LEXUS PRODUCTS A. APPOINTMENT OF DEALER DISTRIBUTOR hereby appoints DEALER and grants unto it the non- exclusive right to buy and resell the LEXUS Products identified in the LEXUS Product Addendum. DEALER accepts such appointment and understands that its appointment as a DEALER does not grant it an exclusive right to sell LEXUS Products in any specified geographical area. DEALER shall have the right to purchase LEXUS Products from DISTRIBUTOR in accordance with the provisions set forth herein and such other requirements as may be established from time to time by LEXUS. B. AVAILABILITY AND ALLOCATION OF PRODUCT DISTRIBUTOR will allocate LEXUS Products among its dealers in a fair and equitable manner. DEALER acknowledges and agrees that DISTRIBUTOR may consider, among other things, DEALER'S service capacity, customer satisfaction performance, sales performance, sales potential and facilities in determining the quantity of Product to offer to DEALER. DISTRIBUTOR will, upon DEALER'S request, explain the considerations and method used to distribute LEXUS Products to DEALER. C. PRICES AND TERMS OF SALE DISTRIBUTOR, from time to time, shall establish and revise prices and other terms for the sale of LEXUS Products to DEALER. Revised prices, terms, or provisions shall apply to any LEXUS Product not invoiced to DEALER by DISTRIBUTOR at the time the notice of such change is given to DEALER (in the case of LEXUS Motor Vehicles), or upon issuance of a new or modified Parts Price List or through change notices, letters, bulletins, or revision sheets (in the case of parts, options and accessories), or at such other times as may be designated in writing by DISTRIBUTOR. 5 D. MODE, PLACE AND CHARGES FOR DELIVERY OF PRODUCTS DISTRIBUTOR shall designate the distribution points and the mode of transportation and shall select carrier(s) for the delivery of LEXUS Products to DEALER. DEALER shall pay DISTRIBUTOR such charges as DISTRIBUTOR in its sole discretion establishes for such transportation services. E. DAMAGE CLAIMS AGAINST TRANSPORTATION CARRIERS DEALER shall promptly notify DISTRIBUTOR of any damage occurring during transit and shall, if so directed by DISTRIBUTOR, file claims against transportation carrier for damage. DEALER agrees to assist DISTRIBUTOR in obtaining recovery against any transportation carrier or insuree for loss or damage to LEXUS Products shipped hereunder. DISTRIBUTOR shall not be liable for loss or damage to LEXUS Products sold hereunder occurring after delivery thereof to premises of DEALER. To the extent required by law, DEALER shall notify the purchaser of a vehicle of any damage sustained by such vehicle prior to sale. DEALER shall indemnify and hold DISTRIBUTOR harmless from any liability resulting from DEALER'S failure to so notify such purchasers. F. DELAY OR FAILURE OF DELIVERY DISTRIBUTOR shall not be liable for delay or failure to deliver LEXUS Products which it has previously agreed to deliver, where such delay or failure to deliver is the result of any event beyond the control of DISTRIBUTOR, including but not limited to any law or regulation of any governmental entity, acts of God, foreign or civil wars, riots, interruptions of navigation, shipwrecks, fires, floods, storms, strikes, lockouts or other labor troubles, embargoes, blockades, or delay or failure of FACTORY to deliver LEXUS Products. G. DIVERSION CHARGES If after shipment DEALER fails or refuses to accept LEXUS Products that it had agreed to purchase, DEALER shall pay all charges incurred by DISTRIBUTOR as a result of such diversion. Such charges shall not exceed the charge of returning any such product to the point of original shipment by DISTRIBUTOR plus all charges for demurrage, storage or other charges related to such diversion. 6 DEALER also agrees to assume responsibility for, and shall pay any and all reasonable charges for, demurrage, storage or other charges accruing after arrival of shipment at the diversion point established by DISTRIBUTOR. H. CHANGES OF DESIGN, OPTIONS OR SPECIFICATIONS DISTRIBUTOR may change the design or specifications of any LEXUS Product or the options in any LEXUS Product and shall be under no obligation to provide notice of same or to make any similar change upon any product previously purchased by or shipped to DEALER. No change shall be considered a model year change unless so specified by DISTRIBUTOR. I. DISCONTINUANCE OF MANUFACTURE OR IMPORTATION FACTORY and/or DISTRIBUTOR may discontinue the manufacture, importation or distribution of all or part of any LEXUS Product, whether motor vehicle, parts, options, or accessories, including any model, series, or body style of any LEXUS Motor Vehicle at any time without any obligation or liability to DEALER by reason thereof. J. MINIMUM VEHICLE INVENTORIES DEALER agrees that it shall, at all times, maintain in showroom ready condition at least the minimum inventory of LEXUS Motor Vehicles as may be established by DISTRIBUTOR from time to time. K. PRODUCT MODIFICATIONS DEALER agrees that it will not install aftermarket accessories or make any modifications to LEXUS vehicles that may impair or adversely affect a vehicle's safety, emissions, structural integrity or performance. VII. DEALER MARKETING OF LEXUS PRODUCTS A. DEALER'S SALES RESPONSIBILITIES DEALER recognizes that customer satisfaction and the successful promotion and sale of LEXUS Products are significantly dependent on DEALER'S advertising and sales promotion activities. Therefore, DEALER at all times shall: 1. Use its best efforts to promote, sell and service new and used LEXUS Products; 7 Advertise and merchandise LEXUS Products and use current LEXUS showroom displays; 3. Ensure that its sales personnel meet the educational and management standards established by DISTRIBUTOR and have such personnel, as are appropriate, attend all sales training courses prescribed by DISTRIBUTOR at DEALER'S expense; 4. Maintain a high standard of ethics in advertising, promoting and selling LEXUS Products and avoid engaging in any misrepresentation or unfair or deceptive practices. DEALER shall discontinue any advertising that DISTRIBUTOR may find to be injurious to DISTRIBUTOR'S business or reputation or to the LEXUS Marks, or that are likely to be violative of applicable laws or regulations; 5. Advertise in the local classified telephone directories identifying itself as an authorized LEXUS DEALER. Such ad(s) shall properly display the LEXUS Marks; and 6. Accurately represent to customers the total selling price of LEXUS Products. DEALER agrees to explain to customers of LEXUS Products the items that make up the total selling price and to give the customers itemized invoices and all other information required by law. DEALER understands and hereby acknowledges that it may sell LEXUS Products at whatever price DEALER desires. B. EXPORT POLICY DEALER is authorized to sell LEXUS Motor Vehicles only to customers located in the United States. DEALER agrees that it will not sell LEXUS Motor Vehicles for resale or use outside the United States. DEALER agrees to abide by any export policy established by DISTRIBUTOR. C. LEXUS DEALER ASSOCIATION Except where prohibited by law, DEALER will participate in a LEXUS Dealer Advertising Association. DEALER agrees to cooperate in the establishment of such an association and to fund its fair share of advertising and merchandising programs undertaken by the association. 8 D. USED VEHICLES DEALER agrees to display and sell used vehicles at the Approved Location(s). DEALER shall maintain for resale an adequate inventory of used vehicles. E. PRIMARY AREA OF RESPONSIBILITY DISTRIBUTOR will assign DEALER a geographic area called a Primary Market Area ("PMA"), DEALER'S PMA may be altered or adjusted by DISTRIBUTOR at any time. The PMA is a tool used by DISTRIBUTOR to evaluate DEALER'S performance of its obligations. DEALER agrees that it has no right or interest in any PMA that DISTRIBUTOR, in its sole discretion, may designate. As permitted by local law, DISTRIBUTOR may add new dealers to, or relocate dealers in or into the PMA assigned to DEALER. F. EVALUATION OF DEALER'S SALES AND MARKETING PERFORMANCE DISTRIBUTOR periodically will evaluate DEALER'S sales and marketing performance under this Agreement. DEALER'S evaluation will be based on such reasonable criteria as DISTRIBUTOR may establish including, without limitation, comparisons of DEALER'S sales with those of other LEXUS dealers. DISTRIBUTOR will review such evaluations with DEALER and DEALER shall take prompt corrective action, if required, to improve its performance. VIII. DEALER SERVICE OBLIGATIONS A. CUSTOMER SERVICE STANDARDS DEALER and DISTRIBUTOR agree that the success and future growth of the LEXUS franchise is substantially dependent upon the customers' ability to obtain responsive, high-quality vehicle servicing. Therefore, DEALER agrees to: 1. Take all reasonable steps to provide service of the highest quality for all LEXUS Motor Vehicles, regardless of where purchased and whether or not under warranty; 2. Ensure that the customer is advised of the necessary repairs and his or her consent is obtained prior to the initiation of any repairs; 9 3. Ensure that necessary repairs on LEXUS Motor Vehicles are accurately diagnosed and professionally performed; and 4. Assure that the customer is treated courteously and fairly at all times. B. NEW MOTOR VEHICLE PRE-DELIVERY SERVICE DEALER agrees that, prior to delivery of a new LEXUS Motor Vehicle to a customer, it shall perform, if directed by DISTRIBUTOR, pre-delivery service on each LEXUS Motor Vehicle in accordance with LEXUS standards. DISTRIBUTOR shall reimburse DEALER for such pre-delivery service according to such directives and the applicable provisions of the LEXUS Warranty Policies and Procedures Manual. C. WARRANTY AND POLICY SERVICE DEALER acknowledges that the only warranties of DISTRIBUTOR or FACTORY applicable to LEXUS Products shall be the New Vehicle Limited Warranty or such other written warranties that may be expressly furnished by DISTRIBUTOR or FACTORY. Except for its limited liability under such written warranty or warranties, DISTRIBUTOR and FACTORY do not assume any other warranty, obligation or liability. DEALER is not authorized to assume any additional warranty obligations or liabilities on behalf of DISTRIBUTOR or FACTORY. Any such additional obligations assumed by DEALER shall be the sole responsibility of DEALER. DEALER shall perform warranty and policy service specified by DISTRIBUTOR, in accordance with the LEXUS Warranty Policies and Procedures Manual. DISTRIBUTOR agrees to compensate DEALER for all warranty and policy work, including labor, diagnosis and Genuine LEXUS Parts and Accessories in accordance with procedures and at rates to be announced from time to time by DISTRIBUTOR and in accordance with applicable law. Unless otherwise approved in advance by DISTRIBUTOR, DEALER shall use only Genuine LEXUS Parts and Accessories when performing LEXUS warranty repairs. Warranty and policy service is provided for the benefit of customers and DEALER agrees that the customer shall not be obligated to pay any charges for warranty or policy work or any other services for which DEALER is reimbursed by DISTRIBUTOR, except as required by law. 10 IX. USE OF PARTS AND ACCESSORIES IN NON-WARRANTY SERVICE Subject to the provisions of Sections VI(k) and VIII(c), DEALER has the right to sell, install or use for making non-warranty repairs products that are not Genuine LEXUS Parts or Accessories. DEALER acknowledges, however, that its customers expect that any parts or accessories that DEALER sells, installs or uses in the sale, repair or servicing of LEXUS vehicles are, or meet the high quality standards of, Genuine LEXUS Parts or Accessories. DEALER agrees that in sales, repairs or servicing where DEALER does not use Genuine LEXUS Parts or Accessories, DEALER only will utilize such other parts or accessories as: 1. Will not adversely affect the mechanical operation of the LEXUS vehicle being sold, repaired or serviced; and 2. Are equivalent in quality and design to Genuine LEXUS Parts or Accessories. DEALER further agrees that it will not offer to sell any parts or accessories that for reasons of quality or image are reasonably objected to by LEXUS. A. WARRANTY DISCLOSURES AS TO NON-GENUINE PARTS AND ACCESSORIES In order to avoid confusion and to minimize potential customer dissatisfaction, in any non-warranty instance where DEALER sells, installs or uses non-Genuine LEXUS Parts or Accessories, DEALER shall disclose such fact to the customer and shall advise the customer that the item is not included in warranties furnished by DISTRIBUTOR or FACTORY. Such disclosure shall be written, conspicuous and stated on the customer's copy of the service or repair order or sale document. In addition, DEALER will clearly explain to the customer the extent of any warranty covering the parts or accessories involved and will deliver a copy of the warranty to the customer. B. ROADSIDE ASSISTANCE PROGRAM Dealer agrees to participate in the LEXUS Roadside Assistance Program as specified by DISTRIBUTOR. C. SERVICE CAMPAIGN INSPECTIONS AND CORRECTIONS DEALER agrees to perform service campaign inspections and/or corrections for owners or users 11 of all LEXUS Products that qualify for such inspections and/or corrections. DEALER further agrees to comply with all DISTRIBUTOR'S directives and with the applicable procedures in the LEXUS Warranty Policies and Procedures Manual relating to those inspections and/or corrections. DISTRIBUTOR agrees to reimburse DEALER for all replacement parts and/or other materials required and used in connection with such work and for labor according to such directives and the applicable provisions of the LEXUS Warranty Policies and Procedures Manual. D. COMPLIANCE WITH SAFETY AND EMISSION CONTROL REQUIREMENTS DEALER agrees to comply and operate consistently with all applicable provisions of the National Traffic and Motor Vehicle Safety Act of 1966 and the Federal Clean Air Act, as amended, including applicable rules and regulations issued from time to time thereunder, and all other applicable federal, state and local motor vehicle safety and emission control statutes, rules and regulations. In the event that the laws of the state in which DEALER is located require motor vehicle dealers or distributors to install in new or used motor vehicles, prior to their retail sale, any safety devices or other equipment not installed or supplied as standard equipment by FACTORY, then DEALER, prior to the sale of any LEXUS Motor Vehicle on which such installations are required, shall properly install such devices or equipment on such LEXUS Motor Vehicles. DEALER shall comply with state and local laws pertaining to the installation and reporting of such equipment. In the interest of motor vehicle safety and emission control, DISTRIBUTOR and DEALER agree to provide to each other such information and assistance as may reasonably be requested by the other in connection with the performance of obligations imposed on either party by the National Traffic and Motor Vehicle Safety Act of 1966 and the Federal Clean Air Act, as amended, and their rules and regulations, and all other applicable federal, state and local motor vehicle safety and emissions control statutes, rules and regulations. E. COMPLIANCE WITH CONSUMER PROTECTION STATUTES, RULES AND REGULATIONS. Because certain customer complaints may impose liability upon DISTRIBUTOR under various repair or 12 replace laws or other consumer protection laws and regulations, DEALER agrees to provide prompt notice to DISTRIBUTOR of such complaints and take such other steps as DISTRIBUTOR may require. DEALER will do nothing to affect adversely DISTRIBUTOR'S rights under such laws and regulations. Subject to any law or any regulation to the contrary, DEALER shall be liable to DISTRIBUTOR for any refunds or vehicle replacements provided to customer where DISTRIBUTOR reasonably establishes that DEALER failed to carry out vehicle repairs in accordance with DISTRIBUTOR'S written published policies and procedures or its express oral instructions subsequently confirmed in writing. DEALER also agrees to provide applicable required customer notifications and disclosures as prescribed by repair or replacement laws or other consumer laws or regulations. X. SERVICE AND PARTS ORGANIZATION A. ORGANIZATION AND STANDARDS DEALER agrees to organize and maintain a complete service and parts organization of the highest quality, including a qualified Service Manager, Parts Manager, Diagnostic Specialists, Technicians and a sufficient complement of qualified customer relations, service and parts personnel as recommended in the LEXUS Dealer Facility Planner. DEALER'S personnel will meet the educational, management and technical training standards established by DISTRIBUTOR, and will attend all service, parts and customer satisfaction training courses prescribed by DISTRIBUTOR at DEALER'S expense. B. SERVICE EQUIPMENT AND SPECIAL TOOLS DEALER agrees to acquire and properly maintain adequate service equipment and such special service tools and instruments as are specified by DISTRIBUTOR. C. PARTS STOCKING LEVEL DEALER agrees to maintain its parts stock at minimum stocking levels established by DISTRIBUTOR. In consideration for DEALER'S maintenance of the Dealer Stocking Guide, DISTRIBUTOR grants DEALER a one hundred percent (100%) obsolescence parts return policy. For non-stocking guide parts, parts orders will accrue a five percent (5%) obsolescence eligibility. 13 D. AFTER-HOURS DELIVERY Dealer agrees to provide DISTRIBUTOR, upon request, access to a secure area for after-hours parts or vehicle delivery. E. ASSISTANCE PROVIDED BY DISTRIBUTOR 1. SERVICE MANUALS AND MATERIALS DISTRIBUTOR agrees to make available to DEALER copies of such service manuals and bulletins, publications and technical data as DISTRIBUTOR shall deem to be necessary for the needs of DEALER'S service and parts organization. DEALER shall be responsible for keeping such manuals, publications and data current and available for consultation by its employees. 2. FIELD SERVICE PERSONNEL ASSISTANCE To assist DEALER in handling service responsibilities under this Agreement, DISTRIBUTOR agrees to make available qualified field service personnel who will, from time to time, advise and counsel DEALER on service-related subjects, including service policies, product and technical adjustments, repair and replacement of product components, customer relations, warranty administration, service and parts merchandising, and personnel/management training. F. EVALUATION OF DEALER'S SERVICE AND PARTS PERFORMANCE DISTRIBUTOR will evaluate periodically DEALER'S: (i) service performance in areas such as customer satisfaction, warranty administration, service repairs, service management, facilities, operating procedures, new vehicle pre-delivery service; and (ii) parts operations, facilities, tools and equipment. DISTRIBUTOR agrees to review such evaluations with DEALER and DEALER agrees to take prompt action to improve the service and parts performance to satisfactory levels as DISTRIBUTOR may require. Such action shall, if requested by DISTRIBUTOR, include an action plan by DEALER for improvement of service and parts performance within a specific time period approved by DISTRIBUTOR. XI. CUSTOMER SATISFACTION RESPONSIBILITIES A goal of DISTRIBUTOR and DEALER is to be recognized as marketing the finest products and providing the best 14 service in the automobile industry. The LEXUS name should be synonymous with the highest level of customer satisfaction. A. DEALER'S CUSTOMER SATISFACTION OBLIGATIONS DEALER will be responsible for satisfying LEXUS customers in all matters except those that are directly related to product design and manufacturing or are otherwise out of DEALER'S control. DEALER will take all reasonable steps to ensure that each customer is completely satisfied with his or her LEXUS Products and the services and practices of DEALER. DEALER will not engage in any practice or method of operation if its nature or quality may impair the reputation of LEXUS or LEXUS Products and it has been reasonably objected to by DISTRIBUTOR. 1. DEALER'S CUSTOMER SATISFACTION PLAN DEALER shall provide a detailed plan of DEALER'S customer satisfaction program to DISTRIBUTOR and shall implement such program on a continuous basis. This plan shall include an ongoing system for emphasizing customer satisfaction to all DEALER'S employees, for training DEALER employees and for conveying to customers that DEALER is committed to the highest possible level of customer satisfaction. 2. EMPLOYEE TRAINING DEALER agrees to participate and to have its employees participate in LEXUS customer satisfaction training as required by DISTRIBUTOR, at DEALER'S expense. 3. CUSTOMER SATISFACTION MANAGER If requested by DISTRIBUTOR, DEALER agrees to employ a full- time Customer Satisfaction Manager with the necessary authority to make all decisions regarding customer satisfaction and to resolve all customer problems. 4. CUSTOMER ASSISTANCE RESPONSE SYSTEM DEALER agrees to implement a system, approved by DISTRIBUTOR, that will respond immediately to requests for customer assistance from DISTRIBUTOR. 15 B. EVALUATION OF DEALER'S CUSTOMER SATISFACTION PERFORMANCE DISTRIBUTOR periodically will evaluate DEALER'S customer satisfaction performance based on the following considerations an efforts by DEALER. 1. DISTRIBUTOR will provide DEALER with Owner Satisfaction Index ("OSI") reports or such other equivalent data as will permit DEALER to assess its performance and maintain the highest level of customer satisfaction. DEALER agrees to review with its employees on a regular basis the results of the customer satisfaction reports or other data it receives. 2. DEALER agrees to develop and implement specific action plans to improve results in the event that DEALER is below the average for other LEXUS dealers. The plans are to be reviewed with DISTRIBUTOR on a basis that DISTRIBUTOR deems appropriate. DEALER will use its best efforts to respond on a timely basis to requests from DISTRIBUTOR to take action on unsatisfactory customer satisfaction matters and to commit necessary resources to remedy deficiencies reasonably specified by DISTRIBUTOR. XII. DEALERSHIP FACILITIES AND IDENTIFICATION A. FACILITIES 1. In order for DISTRIBUTOR to establish an effective network of authorized LEXUS dealers, DEALER shall provide, and at all times maintain, attractive dealership facilities at the Approved Location(s) that satisfy the image, size, layout, interior design, color, equipment and identification required by DISTRIBUTOR. DEALER'S facility shall meet the minimum facility standards established by LEXUS. 2. To assist DEALER in planning, building, remodeling, or maintaining dealership facilities, DISTRIBUTOR will provide DEALER a LEXUS Dealer Facility Planner and will identify sources from which DEALER may purchase facility consultation and planning services, and architectural materials and furnishings that meet LEXUS standards and guidelines. DISTRIBUTOR will also make available to DEALER, upon request, sample copies of building layout 16 plans, facility planning recommendations, and an applicable identification program covering the placement, installation and maintenance of required signs. In addition, representatives of DISTRIBUTOR will be available to DEALER from time to time to counsel and advise DEALER and dealership personnel in connection with DEALER'S planning and equipping the dealership premises. B. SERVICE RECEPTION AREA DEALER agrees to maintain a service reception area that meets all requirements set forth in the LEXUS Dealer Facility Planner, that is consistent with the LEXUS image and that will promote a high level of customer satisfaction. C. DEALER'S OPERATING HOURS DEALER agrees to keep its dealership operations open for business during all days and hours that are customary and lawful for such operations in the community or locality in which DEALER is located and in accordance with industry standards. D. SIGNS Subject to applicable governmental statutes, ordinances and regulations, DEALER agrees to erect, display and maintain, at Approved Location(s) only and at DEALER'S sole expense, such standard authorized product and service signs as specified by DISTRIBUTOR. E. EVALUATION OF DEALERSHIP FACILITIES DISTRIBUTOR periodically will evaluate DEALER'S facilities. In making such evaluations, DISTRIBUTOR may consider, among other things: the actual building and land provided by DEALER for the performance of its responsibilities under this Agreement; compliance with DISTRIBUTOR'S current requirements for dealership operations; the appearance, condition, layout and signage of the dealership facilities; and such other factors as in DISTRIBUTOR'S opinion may relate to DEALER'S performance of its responsibilities under this Agreement. DISTRIBUTOR will discuss such evaluations with DEALER and DEALER shall take prompt action to comply with DISTRIBUTOR'S recommendations and minimum facility standards. 17 F. USE OF LEXUS MARKS 1. USE BY DEALER DISTRIBUTOR grants to DEALER the non-exclusive privilege of displaying or otherwise using authorized LEXUS Marks as specified in the LEXUS Graphic Standards Manual at the Approved Location(s) in connection with the selling or servicing of LEXUS Products. DEALER further agrees that it promptly shall discontinue the display and use of any such LEXUS Marks, and shall change the manner in which any LEXUS Marks are displayed and used, when for any reason it is requested to do so by DISTRIBUTOR. DEALER may use the LEXUS Marks only at Approved Location(s) and for such purposes as are specified in this Agreement. DEALER agrees that such LEXUS Marks may be used as part of the name under which DEALER'S business is conducted only with the prior written approval of DISTRIBUTOR. 2. DISCONTINUANCE OF USE Upon termination, non-renewal, or expiration of this Agreement, DEALER agrees that it shall immediately: a. Discontinue the use of the word LEXUS and the LEXUS Marks, or any semblance of same, including without limitation, the use of all stationery, telephone directory listing, and other printed material referring in any way to LEXUS or bearing any LEXUS Mark; b. Discontinue the use of the word LEXUS or the LEXUS Marks, or any semblance of same, as part of its business or corporate name, and file a change or discontinuance of such name with appropriate authorities; c. Remove all product signs bearing said word(s) or LEXUS Marks at DEALER'S sole cost and expense; d. Cease representing itself as an authorized LEXUS Dealer; and e. Refrain from any action, including without limitation, any advertising, stating or 18 implying that is authorized to sell or distribute LEXUS Products. In the event DEALER fails to comply with the terms and conditions of this Section, DISTRIBUTOR shall have the right to enter upon DEALER'S premises and remove, without liability, all such product signs and identification bearing the word LEXUS or any LEXUS Marks. DEALER agrees that it shall reimburse DISTRIBUTOR for any costs and expenses incurred in such removal, including reasonable attorney fees. XIII. CAPITAL, CREDIT, RECORDS AND UNIFORM SYSTEMS A. NET WORKING CAPITAL DEALER agrees to establish and maintain actual net working capital in an amount not less than the minimum net working capital specified by DISTRIBUTOR. DISTRIBUTOR will have the right to increase the minimum net working capital required, and DEALER agrees promptly to establish and maintain the increased amount. B. FLOORING AND LINES OF CREDIT DEALER agrees to obtain and maintain at all times a confirmed and adequate flooring line with a bank or financial institution or other method of financing acceptable to DISTRIBUTOR to enable DEALER to perform its obligations pursuant to this Agreement. DISTRIBUTOR may increase the required amounts of flooring or lines of credit, and DEALER agrees promptly to establish and maintain the increased amount. Subject to the foregoing obligations, DEALER is free to do its financing business, wholesale, retail or both, with whomever it chooses and to the extent it desires. C. PAYMENT TERMS All monies or accounts due DEALER from DISTRIBUTOR will be considered net of DEALER'S indebtedness to DISTRIBUTOR. DISTRIBUTOR may deduct or offset any amounts due or to become due from DEALER to DISTRIBUTOR, or any amounts held by DISTRIBUTOR, from or against any sums or accounts due or to become due from DISTRIBUTOR to DEALER. Any amounts owed by DEALER to DISTRIBUTOR that are not paid when due shall bear interest as established by DISTRIBUTOR and permitted by law. Payments by 19 DEALER to DISTRIBUTOR shall be made in such a manner as prescribed by DISTRIBUTOR and shall be applied against DEALER'S indebtedness in accordance with DISTRIBUTOR'S policies and practices. D. UNIFORM ACCOUNTING SYSTEM DEALER agrees to maintain its financial books and records in accordance with the LEXUS Accounting Manual, as amended from time to time by DISTRIBUTOR. In addition, DEALER shall furnish to DISTRIBUTOR complete and accurate financial or operating information, including without limitation, a financial and/or operating statement covering the current month and calendar year- to-date operations and showing the true and accurate condition of DEALER'S business. DEALER shall promptly furnish to DISTRIBUTOR copies of any adjusted financial and/or operating statements, including any and all adjusted, year-end statements prepared for tax or any other purposes. All such information shall be furnished by DEALER to DISTRIBUTOR via DISTRIBUTOR'S electronic communications network and in such a format and at such times as prescribed by DISTRIBUTOR. E. RECORDS MAINTENANCE DEALER agrees to keep complete, accurate and current records regarding its sale, leasing and servicing of LEXUS Products for a minimum of five (5) years, exclusive of any retention period required by any governmental entity. DEALER shall prepare, keep current and retain records in support of requests for reimbursement for warrant and policy work performed by DEALER in accordance with the LEXUS Warranty Policies and Procedures Manual. F. EXAMINATION OF DEALERSHIP ACCOUNTS AND RECORDS DISTRIBUTOR shall have the right at all reasonable times and during regular business hours to inspect DEALER'S facilities and to examine, audit and to reproduce all records, accounts and supporting data relating to the operations of DEALER, including without limitation, sales reporting, service and repair of LEXUS Products by DEALER. G. TAXES DEALER shall be responsible for and duly pay all sales taxes, use taxes, excise taxes and other governmental or municipal charges imposed, levied or based upon the purchase or sale of LEXUS Products by 20 DEALER, and shall maintain accurate records of the same. H. CONFIDENTIALITY DISTRIBUTOR agrees that it shall not provide any financial data or documents submitted to it by DEALER to any third party unless authorized by DEALER, required by law, or required to generate composite or comparative data for analytical purposes. DEALER agrees to keep confidential and not to disclose, directly or indirectly, any information that DISTRIBUTOR designates as confidential. I. DATA TRANSMISSION SYSTEMS DISTRIBUTOR has established a national, private, centralized database of information about all LEXUS vehicles and customers. In order to provide the highest level of service and support and to facilitate accurate and timely reporting of relevant DEALER operational and financial data, DEALER shall provide information to DISTRIBUTOR as specified by DISTRIBUTOR from time to time, including, but not limited to, customer service, sales, parts inventory and accounting information. All information shall be submitted by DEALER via the LEXUS electronic communications network. DEALER will acquire, install and maintain at its expense the necessary equipment and systems compatible with the LEXUS electronic communications network. DISTRIBUTOR will recommend to DEALER an independent source for purchasing the required equipment and systems. DEALER, however, may purchase equipment from any source, provided the equipment meets the LEXUS electronic communications network specifications. J. SALES REPORTING DEALER agrees to accurately report to DISTRIBUTOR, with such relevant information as DISTRIBUTOR may reasonably require, the delivery of each new motor vehicle to a purchaser by the end of the day in which the vehicle is delivered to the purchaser thereof, and to furnish DISTRIBUTOR with such other reports as DISTRIBUTOR may reasonably require from time to time. 21 XIV. TRANSFERS A. SALE OF OWNERSHIP INTEREST IN DEALERSHIP This is a personal services Agreement based upon the personal skills, service, qualifications and commitment of DEALER'S OWNERS and General Manager. For this reason, and because DISTRIBUTOR has entered into this Agreement in reliance upon DEALER'S, OWNERS' and General Manager's qualifications, DEALER agrees to obtain DISTRIBUTOR'S prior written approval of any proposed change in its ownership, General Manager or any proposed disposition of DEALER'S principal assets. DISTRIBUTOR shall not be obligated to renew this Agreement or to execute a new Agreement to a proposed transferee unless DEALER first makes arrangements acceptable to DISTRIBUTOR to satisfy any outstanding indebtedness to DISTRIBUTOR. B. RIGHTS OF FIRST REFUSAL OR OPTION TO PURCHASE 1. RIGHTS GRANTED If a proposal to sell the dealership's assets or transfer its ownership is submitted by DEALER to DISTRIBUTOR, or in the event of the death of the majority owner of DEALER, DISTRIBUTOR has a right of first refusal or option to purchase the dealership assets or stock, including any leasehold interest or realty. DISTRIBUTOR'S exercise of its right or option under this Section supersedes DEALER'S right to transfer its interest in, or ownership of, the dealership. DISTRIBUTOR'S right or option may be assigned by it to any third party and DISTRIBUTOR hereby guarantees the full payment to DEALER of the purchase price by such assignee. DISTRIBUTOR may disclose the terms of any pending buy/sell agreement and any other relevant dealership performance information to any potential assignee. DISTRIBUTOR'S rights under this Section will be binding on and enforceable against any assignee or successor in interest of DEALER or purchaser of DEALER'S assets. 2. EXERCISE OF DISTRIBUTOR'S RIGHTS DISTRIBUTOR shall have thirty (30) days from the following events within which to exercise its option to purchase or right of first refusal: (i) DISTRIBUTOR'S receipt of all data 22 and documentation customarily required by it to evaluate a proposed transfer of ownership; (ii) DISTRIBUTOR'S receipt of notice from DEALER of the death of the majority owner of DEALER; or (iii) DISTRIBUTOR'S disapproving of any application submitted by an OWNER'S heirs pursuant to Section XIV. DISTRIBUTOR'S exercise of its right of first refusal under this Section neither shall be dependent upon nor require its prior refusal to approve the proposed transfer. 3. RIGHT OF FIRST REFUSAL If DEALER has entered into a bona fide written buy/sell agreement for its dealership business or assets, DISTRIBUTOR'S right under this Section is a right of first refusal, enabling DISTRIBUTOR to assume the buyer's rights and obligations under such buy/sell agreement, and to cancel this Agreement and all rights granted DEALER. Upon DISTRIBUTOR'S request, DEALER agrees to provide other documents relating to the proposed transfer and any other information which DISTRIBUTOR deems appropriate, including, but not limited to, those reflecting other agreements or understandings between the parties to the buy/sell agreement. Refusal to provide such documentation or to state that no such documents exist shall create the presumption that the buy/sell agreement is not a bona fide agreement. 4. OPTION TO PURCHASE In the event of the death of a majority OWNER or if DEALER submits a proposal which DISTRIBUTOR determines is not bona fide or in good faith, DISTRIBUTOR has the option to purchase the principal assets of DEALER utilizing the dealership business, including real estate and leasehold interest, and to cancel this Agreement and the rights granted DEALER. The purchase price of the dealership assets will be determined by good faith negotiations between the parties. If an agreement cannot be reached, the purchase price will be exclusively determined by binding arbitration in accordance with the commercial arbitration rules of the American Arbitration Association. The site of the arbitration shall be the office of the American Arbitration Association in the locality of DISTRIBUTOR'S principal place of business. 23 5. DEALER'S OBLIGATIONS Upon DISTRIBUTOR'S exercise of its rights or option and tender of performance under the buy/sell agreement or upon whatever terms may be expressed in the buy/sell agreement, DEALER shall forthwith transfer the affected real property by warranty deed conveying marketable title free and clear of all liens, claims, mortgages, encumbrances, tenancies and occupancies. The warranty deed shall be in proper form for recording, and DEALER shall deliver complete possession of the property and deed at the time of closing. DEALER shall also furnish to DISTRIBUTOR all copies of any easements, licenses or other documents affecting the property or dealership operations and shall assign any permits or licenses that are necessary or desirable for the use of or appurtenant to the property or the conduct of such dealer operations. DEALER also agrees to execute and deliver to DISTRIBUTOR instruments satisfactory to DISTRIBUTOR conveying title to all personal property, including leasehold interests, involved in the transfer or sale to DISTRIBUTOR. If any personal property is subject to any lien or charge of any kind, DEALER agrees to procure the discharge and satisfaction thereof prior to the closing of sale of such property to DISTRIBUTOR. XV. SUCCESSION RIGHTS UPON DEATH OR INCAPACITY A. SUCCESSION TO OWNERSHIP AFTER DEATH OF OWNER In the event that OWNER dies and his or her interest in dealership passes directly to any person or persons ("Heirs") who wish to succeed to OWNER'S interest, then OWNER'S legal representative must notify DISTRIBUTOR within sixty (60) days of the death of the OWNER of such Heir's or Heirs' intent to succeed OWNER. The legal representative also must then designate a proposed General Manager for DISTRIBUTOR approval. The effect of such notice from OWNER'S legal representative will be to suspend any notice of termination provided for in Section XVI(B)(4) issued hereunder. Upon delivery of such notice, OWNER'S legal representative shall immediately request any person(s) identified by it as intending to succeed OWNER and the designated candidate for General Manager to submit an application and to provide all personal and financial information that DISTRIBUTOR 24 may reasonably and customarily require in connection with its review of such applications. All requested information must be provided promptly to DISTRIBUTOR and in no case later than thirty (30) days after receipt of such request from OWNER'S legal representative. Upon the submission of all requested information, DISTRIBUTOR agrees to review such application(s) pursuant to the then current criteria generally applied by DISTRIBUTOR in qualifying dealer OWNERS and/or General Managers. DISTRIBUTOR shall either approve or disapprove the application(s) within ninety (90) days of full compliance with all DISTRIBUTOR'S requests for information. If DISTRIBUTOR approves the application(s), it shall offer to enter into a new LEXUS Dealer Agreement with OWNER'S Heir(s) in the form then currently in use, subject to such additional conditions and for such term as DISTRIBUTOR deems appropriate. In the event that DISTRIBUTOR does not approve the designated Heir(s) or designated candidate for Manager, or if the OWNER'S legal representative withdraws his or her notice of the Heir(s) intent to succeed as OWNER(S) or if the legal representative or any proposed OWNERS or General Manager fails to timely provide the required information, DISTRIBUTOR may reinstate or issue a notice of termination. Nothing in this Section shall waive DISTRIBUTOR'S right to exercise its Option to Purchase set forth in Section XIV herein. B. INCAPACITY OF OWNER The parties agree that, as used herein, incapacity shall refer to any physical or mental ailment that, in DISTRIBUTOR'S opinion, adversely affects OWNER'S ability to meet his or her obligations under this Agreement. DISTRIBUTOR may terminate this Agreement when an incapacitated OWNER also is the General Manager identified herein. Prior to the effective date of any notice of termination, an incapacitated OWNER who is also the General Manager, or his or her legal representative, may propose a new candidate for the position of General Manager. Such proposal shall be in writing and shall suspend any pending notice of termination until DISTRIBUTOR advises DEALER of its approval or disapproval of the new candidate. Upon receipt of such notice, DISTRIBUTOR and DEALER shall follow the qualification procedures set forth in subsection A above. 25 C. NOMINATION OF SUCCESSOR PRIOR TO DEATH OR INCAPACITY OF OWNER An OWNER owning a majority of DEALER'S stock may nominate a candidate to assume ownership and/or the position of General Manager of the dealership upon his or her death or incapacity. As soon as practicable after such nomination, DISTRIBUTOR will request such personal financial information from the nominated OWNER and/or General Manager candidate as it reasonably and customarily may require in evaluating such candidates. DISTRIBUTOR shall apply criteria then currently used by DISTRIBUTOR in qualifying OWNERS and/or General Managers of authorized dealers. Upon receipt of all requested information, DISTRIBUTOR shall either approve or disapprove such candidate. If DISTRIBUTOR initially approves the candidate, said approval shall remain in effect for the duration of the current Agreement. DISTRIBUTOR agrees that DEALER may renominate the candidate after the expiration of this Agreement, and DISTRIBUTOR will approve such nomination provided: (i) DISTRIBUTOR and DEALER have entered into a new LEXUS Dealer Agreement; and (ii) the proposed candidate continues to comply with the then current criteria used by DISTRIBUTOR in qualifying such candidates. If DISTRIBUTOR does not initially qualify the candidate, DISTRIBUTOR agrees to review the reason(s) for its decision with OWNER. OWNER is free at any time to renew its nomination. However, in such instances, the candidate must again qualify pursuant to the then current criteria. OWNER may, by written notice, withdraw a nomination at any time, even if DISTRIBUTOR has previously qualified said candidate. XVI. TERMINATION A. VOLUNTARY TERMINATION BY DEALER DEALER may voluntarily terminate this Agreement at any time by written notice to DISTRIBUTOR. Termination shall be effective thirty (30) days after receipt of the notice by DISTRIBUTOR, unless otherwise mutually agreed in writing. B. TERMINATION FOR CAUSE 1. IMMEDIATE TERMINATION DEALER and DISTRIBUTOR agree that the following conduct is within DEALER'S control and is so 26 contrary to the goals, purposes and objectives of this Agreement as to warrant its immediate termination. Accordingly, DEALER agrees that if it engages in any of the following types of conduct, DISTRIBUTOR shall have the right to terminate this Agreement immediately: a. If DEALER fails to conduct any customary dealership operations for seven consecutive business days, except in the event such closure or cessation of operation is caused by some physical event beyond the control of the DEALER, such as strikes, civil war, riots, fires, floods, earthquakes, or other acts of God; b. If DEALER becomes insolvent, or files any petition under bankruptcy law, or executes an assignment for the benefit of creditors, or appoints a receiver or trustee or another officer having similar powers is appointed for DEALER and is not removed within thirty (30) days from his appointment thereto or there is any levy under attachment or execution or similar process which is not vacated or removed by payment or bonding within ten (10) days; c. If DEALER, or any OWNER or Officer of DEALER is convicted of any felony; d. If DEALER or any OWNER, Officer or General Manager of Dealer makes any material misrepresentation to DISTRIBUTOR; or e. If DEALER fails to obtain or maintain any license, permit or authorization necessary for the conduct by DEALER of his or her business pursuant to this Agreement, or such license, permit or authorization is suspended or revoked. 2. TERMINATION UPON SIXTY DAYS NOTICE The following conduct violates the terms and conditions of this Agreement and, if DEALER engages in such conduct, DISTRIBUTOR shall have the right to terminate this Agreement upon sixty (60) days notice: a. Any attempted or actual sale, transfer or assignment by DEALER of this Agreement or any of the rights granted DEALER hereunder, or any attempted or actual 27 transfer, assignment or delegation by DEALER of any of the responsibilities assumed by it under this Agreement without the prior written approval of DISTRIBUTOR; b. Any unreasonable removal of the General Manager; c. Appointment of a new General Manager without the prior written approval of DISTRIBUTOR; d. The conducting, directly or indirectly, of any LEXUS dealer operation other than at the Approved Location(s); e. Failure of DEALER to pay DISTRIBUTOR for any LEXUS Products; f. Failure of DEALER to establish or maintain during the existence of this Agreement the required net working capital or adequate flooring and lines of credit; g. Any dispute, disagreement or controversy among managers, officers or stockholders of DEALER that, in the reasonable opinion of DISTRIBUTOR, adversely affects the ownership, operation, management, business, reputation or interests of DEALER or DISTRIBUTOR; h. Retention by DEALER of any General Manager, who, in DISTRIBUTOR'S reasonable opinion, is not competent or, if previously approved by DISTRIBUTOR, no longer possesses the requisite qualifications for the position, or who has acted in a manner contrary to the continued best interest of both DEALER and DISTRIBUTOR; i. Impairment of the reputation of financial standing of DEALER subsequent to the execution of this Agreement; j. Refusal to permit DISTRIBUTOR to examine or audit DEALER'S accounting records as provided herein upon receipt by DEALER from DISTRIBUTOR of written notice requesting such permission or information; 28 k. Failure of DEALER to timely furnish accurate sales or financial information and related supporting data; l. Breach or violation by DEALER of any other term or provision of this Agreement; or m. Any civil or administrative liability found against DEALER or any OWNER or Officer of DEALER for any automotive-related matter which in DISTRIBUTOR'S opinion tends to seriously and adversely affect the ownership, operation, management, reputation, business or interests of DEALER, or to impair the goodwill associated with the LEXUS Marks. 3. TERMINATION FOR FAILURE OF PERFORMANCE If, upon evaluation of DEALER's performance pursuant to paragraphs VII(F), X(F), X(B) or XII(E) herein, DISTRIBUTOR concludes that DEALER has failed to perform adequately its sales, service or customer satisfaction responsibilities or to provide adequate dealership facilities, DISTRIBUTOR shall notify DEALER in writing of such failure(s) and will endeavor to review promptly with DEALER the nature and extent of such failure(s), and will grant DEALER 180 days or such other period as may be required by law to correct such failure(s). If DEALER fails or refuses to correct such failure(s) or has not made substantial progress towards remedying such failure(s) at the expiration of such period, DISTRIBUTOR may terminate this Agreement upon sixty (60) days notice or such other notice as may be required by law. 4. TERMINATION UPON DEATH OR INCAPACITY Subject to certain exceptions identified in Section XV, DISTRIBUTOR may terminate this Agreement in the event of the death of an OWNER or upon the incapacity of any OWNER who is also the General Manager identified herein, upon written notice to DEALER and such OWNER'S legal representative. Termination, upon either of these events shall be effective ninety (90) days from the date of such notice. 29 C. NOTICE OF TERMINATION Any notice of termination under this Agreement shall be in writing and shall be mailed to person(s) designated to receive such notice, via certified mail, or shall be delivered in person. Such notice shall be effective upon the date of receipt. DISTRIBUTOR shall state the grounds on which it relies in its termination of DEALER, and shall have the right to amend such notice as appropriate. DISTRIBUTOR'S failure to refer to additional grounds for termination shall not constitute a waiver of its right later to rely upon such grounds. D. CONTINUANCE OF BUSINESS RELATIONS Upon receipt of any notice of termination or non-renewal, DEALER agrees to conduct itself and its operation until the effective date of termination or non-renewal in a manner that will not injure the reputation or goodwill of the LEXUS Marks or DISTRIBUTOR. E. REPURCHASE PROVISIONS 1. DISTRIBUTOR'S Obligations Upon the expiration or termination of this Agreement, DISTRIBUTOR shall have the right to cancel any and all shipments of LEXUS Products scheduled for delivery to DEALER and DISTRIBUTOR shall repurchase from DEALER the following: a. New, unused, unmodified and undamaged LEXUS Motor Vehicles then unsold in DEALER'S inventory. The price of such Motor Vehicles shall be the same as those at which they were originally purchased by DEALER, less all prior refunds or other allowances made by DISTRIBUTOR to DEALER with respect thereto. b. New, unused and undamaged LEXUS parts and accessories then unsold in DEALER'S inventory that are in good and saleable condition. The prices for such parts and accessories shall be the prices last established by DISTRIBUTOR for the sale of identical parts or accessories to dealers in the area in which DEALER is located. c. Special service tools recommended by DISTRIBUTOR and then owned by DEALER and 30 that are especially designed for servicing LEXUS Motor Vehicles. The prices for such special service tools will be the price paid by DEALER less appropriate depreciation, or such other price as the parties may negotiate. d. Signs that DISTRIBUTOR has recommended for identification of DEALER. The price of such signs shall be the price paid by DEALER less appropriate depreciation or such other price as the parties may negotiate. 2. RESPONSIBILITIES OF DEALER DISTRIBUTOR'S obligations to repurchase the items set forth in this Section are contingent upon DEALER fulfilling the following obligations: a. Within thirty (30) days after the date of expiration or the effective date of termination of this Agreement, DEALER shall deliver or mail to DISTRIBUTOR a detailed inventory of all items referred to in this Section which it requests DISTRIBUTOR repurchase and shall certify that such list is true and accurate. b. DEALER shall be entitled to request repurchase of only those items which it purchased from DISTRIBUTOR, unless DISTRIBUTOR agrees otherwise. c. Products and special service tools to be repurchased by DISTRIBUTOR from DEALER shall be delivered by DEALER to DISTRIBUTOR'S place of business at DEALER'S expense. If DEALER fails to do so, DISTRIBUTOR may transfer such items and deduct the cost therefor from the repurchase price. d. DEALER will execute and deliver to DISTRIBUTOR instruments satisfactory to DISTRIBUTOR conveying good and marketable title to the aforesaid items to DISTRIBUTOR. If such items are subject to any lien or charge of any kind, DEALER will procure the discharge in satisfaction thereof prior to their repurchase by DISTRIBUTOR. DEALER will comply with the requirements of any state or federal laws 31 that relate to the repurchase including bulk sales or transfer laws. e. DEALER will remove, at its own expense, all signage from DEALER'S approved locations including all LEXUS Marks before it is eligible for payment hereunder. 3. PAYMENT BY DISTRIBUTOR DISTRIBUTOR will pay DEALER for such items as DEALER may request be repurchased and that qualify hereunder as soon as practicable upon DEALER'S compliance with the obligations set forth herein and upon computation of any outstanding indebtedness of DEALER to DISTRIBUTOR. DISTRIBUTOR shall have the right to offset from any amounts due to DEALER hereunder the total sum of DEALER'S outstanding indebtedness to DISTRIBUTOR. If DEALER disagrees with DISTRIBUTOR'S valuation of any item herein, and DEALER and DISTRIBUTOR have not resolved their disagreement within sixty (60) days of the effective date of termination or expiration of this Agreement, DISTRIBUTOR shall pay to DEALER the amount to which it reasonably believes DEALER is entitled. DEALER'S exclusive remedy to recover any additional sums that it believes is due under this Section shall be by resort to an Alternative Dispute Resolution program, including arbitration, that is binding on both parties. XVII. MANAGEMENT OF DISPUTES A. ALTERNATIVE DISPUTE RESOLUTION PROGRAMS 1. DISTRIBUTOR and DEALER acknowledge that disputes involving the performance of this Agreement may from time to time arise. In order to minimize the effects of such disputes on their business relationship, the parties agree to participate in such Alternative Dispute Resolution programs as may be established by DISTRIBUTOR. 2. Such Alternative Dispute Resolution programs may be established to resolve disputes in matters including, but limited to, sales reporting and/or sales credit disputes, product 32 allocation disputes, DEALER liability for repair/replace claims, warranty and service campaign reimbursement, sales contests and merchandising incentive programs, and accounts of debt between the parties. 3. In all disputes between DEALER and DISTRIBUTOR, the parties shall first resort to such Alternative Dispute Resolution programs, including mediation, as may have been established by DISTRIBUTOR. 4. It is expressly understood that, unless otherwise specified in this Agreement, the results of any Alternative Dispute Resolution program will not be binding upon DEALER or DISTRIBUTOR. 5. The parties' commitment to support and participate in non- binding Alternative Dispute Resolution programs specifically is not a waiver of DEALER'S or DISTRIBUTOR'S right to later resort to litigation before any judicial or administrative forum. B. APPLICABLE LAW This Agreement shall be governed by and construed according to the laws of the state in which DEALER is located. C. MUTUAL RELEASE Each party hereby releases the other from any and all claims and causes of action that it may have against the other for money damages arising from any event occurring prior to the date of execution of this Agreement, except for any accounts payable by one party to the other as a result of the purchase of any LEXUS Products, audit adjustments or reimbursement for any services. This release does not extend to claims which either party does not know or reasonably suspect to exist in its favor at the time of the execution of this Agreement. XVIII. DEFENSE AND INDEMNIFICATION A. DEFENSE AND INDEMNIFICATION BY DISTRIBUTOR DISTRIBUTOR agrees to assume the defense of DEALER and to indemnify and hold DEALER harmless in any lawsuit naming DEALER as a defendant and involving any LEXUS Product when the lawsuit also involves allegations of: 33 1. Breach of warranty provided by DISTRIBUTOR, bodily injury or property damage arising out of an occurrence allegedly caused solely by a defect or failure to warn of a defect in design, manufacture or assembly of a LEXUS Product (except for tires not manufactured by FACTORY), provided that the defect could not reasonably have been discovered by DEALER during the pre-delivery service of the LEXUS Product; 2. Any misrepresentation or misleading statement or unfair or deceptive trade practice of DISTRIBUTOR; or 3. Any damage to a LEXUS Product purchased by DEALER from DISTRIBUTOR that was repaired by DISTRIBUTOR and where DEALER had not been notified of such damage in writing prior to the delivery of the subject vehicle, part or accessory to a retail Customer; and Provided: 4. That DEALER delivers to DISTRIBUTOR, in a manner to be designated by DISTRIBUTOR, within twenty (20) days of the service of any summons or complaint, copies of such documents and requests in writing a defense and/or indemnification therein (except as provided in Paragraph (D) below); 5. That the complaint does not involve allegations of DEALER misconduct, including but not limited to, improper or unsatisfactory service or repair, misrepresentation, or any claim of DEALER'S unfair or deceptive trade practice; 6. That the LEXUS Product which is the subject of the lawsuit was not altered by or for DEALER; 7. That DEALER agrees to cooperate fully in the defense of such action as DISTRIBUTOR may reasonably require; and 8. That DEALER agrees that DISTRIBUTOR may offset any recovery on DEALER'S behalf against any indemnification that may be required hereunder. B. DEFENSE AND INDEMNIFICATION BY DEALER DEALER agrees to assume the defense of DISTRIBUTOR or FACTORY and to indemnify and hold them harmless 34 in any lawsuit naming DISTRIBUTOR or FACTORY as a defendant when the lawsuit involves allegations of: 1. DEALER'S alleged failure to comply, in whole or in part, with any obligations assumed by DEALER pursuant to this Agreement; 2. DEALER'S alleged negligent or improper repairing or servicing of a new or used LEXUS Motor Vehicle or equipment, or such other motor vehicles or equipment as may be sold or serviced by DEALER; 3. DEALER'S alleged breach of any contract or warranty other than that provided by DISTRIBUTOR or FACTORY; 4. DEALER'S alleged misleading statements, misrepresentations, or deceptive or unfair trade practices; 5. Any modification or alteration made by or on behalf of DEALER to a LEXUS Product, except those made pursuant to the express instruction or with the express approval of DISTRIBUTOR; and Provided: 6. That DISTRIBUTOR delivers to DEALER, within twenty (20) days of the service of any summons or complaint, copies of such documents, and requests in writing a defense and/or indemnification therein (except as provided in Paragraph (D) below); 7. That DISTRIBUTOR agrees to cooperate fully in the defense of such action as DEALER may reasonably require; and, 8. That the complaint does not involve allegations of liability premised upon separate DISTRIBUTOR'S conduct or omissions. C. CONDITIONAL DEFENSE AND/OR INDEMNIFICATION In agreeing to defend and/or indemnify each other, DEALER and DISTRIBUTOR may make their agreement conditional on the continued existence of the state of facts as then known to such party and may provide for the withdrawal of such defense and/or indemnification at such time as facts arise which, if known at the time of the original request for a 35 defense and/or indemnification, would have caused either DEALER or DISTRIBUTOR to refuse such request. The party withdrawing from its agreement to defend and/or indemnify shall give timely notice of its intent to withdraw. Such notice shall be in writing and shall be effective upon receipt. The withdrawing party shall be responsible for all costs and expenses of defense up to the date of receipt of its notice of withdrawal. D. THE EFFECT OF SUBSEQUENT DEVELOPMENTS In the event that subsequent developments in a case make clear that the allegations which initially preclude a request or an acceptance of a request for a defense and/or indemnification are no longer at issue therein or are without foundation, any party having a right to a defense and/or indemnification hereunder may tender such request for a defense and indemnification to the other party. Neither DEALER nor DISTRIBUTOR shall be required to agree to such subsequent request for a defense and/or indemnification where that party would be unduly prejudiced by such delay. E. TIME TO RESPOND AND RESPONSIBILITIES OF THE PARTIES DEALER and DISTRIBUTOR shall have sixty (60) days from the receipt of a request for a defense and/or indemnification to conduct an investigation to determine whether or not, or under what conditions, it may agree to defend and/or indemnify pursuant to this Section. If local rules require a response to the complaint in the lawsuit prior to the time provided hereunder for a response to such request, the requesting party shall take all steps necessary, including obtaining counsel, to protect its own interest in the lawsuit until DEALER or DISTRIBUTOR assumes the requested defense and/or indemnification. In the event that DEALER or DISTRIBUTOR agrees to assume the defense and/or indemnification of a lawsuit, it shall have the right to engage and direct counsel of its own choosing and, except in cases where the request is made pursuant to Paragraph (D) above, shall have the obligation to reimburse the requesting party for all reasonable costs and expense, including actual attorneys' fees, incurred prior to such assumption. 36 XIX. GENERAL PROVISIONS A. NOTICES Except as otherwise specifically provided herein, any notice required to be given by either party to the other shall be in writing and delivered personally or by certified mail, return receipt requested, and shall be effective from the date of mailing. Notices to DEALER shall be directed to DEALER or its General Manager at DEALER'S Approved Location. Notices to DISTRIBUTOR shall be directed to the General Manager of DEALER'S LEXUS Area Office. B. NO IMPLIED WAIVERS The failure of either party at any time to require performance by the other party of any provision herein shall in no way affect the right of such party to require such performance at any time thereafter, nor shall any waiver by any party of a breach of any provision herein constitute a waiver of any succeeding breach of the same or any other provision, nor constitute a waiver of the provision itself. C. SOLE AGREEMENT OF THE PARTIES There are no prior agreements or understandings, either oral or written, between the parties affecting this Agreement or relating to the sale or service of LEXUS Products, except as otherwise specifically provided for or referred to in this Agreement. DEALER acknowledges that no representations or statements other than those expressly set forth therein were made by DISTRIBUTOR or any officer, employee, agent or representative thereof, or were relied upon by DEALER in entering into this Agreement. This Agreement cancels and supersedes all previous agreements between the parties relating to the subject matters covered herein. D. DEALER NOT AN AGENT OR REPRESENTATIVE DEALER is an independent business. This Agreement is not a property right and does not constitute DEALER the agent or legal representative of DISTRIBUTOR or FACTORY for any purpose whatsoever. DEALER is not granted any express or implied right or authority to assume or create any obligation on behalf of or in the name of DISTRIBUTOR or FACTORY 37 or to bind DISTRIBUTOR or FACTORY in any manner whatsoever. E. ASSIGNMENT OF RIGHTS OR DELEGATION OF DUTIES This is a personal services agreement and may not be assigned or sold in whole or in part, directly or indirectly, voluntarily or by operation of law, without the prior written approval of DISTRIBUTOR. Any attempted transfer, assignment or sale without DISTRIBUTOR'S prior written approval will be void and not binding upon DISTRIBUTOR. F. NO FRANCHISE FEE DEALER warrants that it has paid no fee, nor has it provided any goods or services in lieu of same, to DISTRIBUTOR in consideration of entering into this Agreement. The sole consideration for DISTRIBUTOR'S entering into this Agreement is DEALER'S ability, integrity, assurance of personal services and expressed intention to deal fairly and equitably with DISTRIBUTOR and the public. G. SEVERABILITY If any provision of this Agreement should be held invalid or unenforceable for any reason whatsoever, or conflicts with any applicable law, this Agreement will be considered divisible as to such provisions, and such provisions will be deemed amended to comply with such law, or if it cannot be so amended without materially affecting the tenor of the Agreement, then it will be deemed deleted from this Agreement in such jurisdiction, and in either case, the remainder of the initial Agreement will be valid and binding. H. NEW AND SUPERSEDING DEALER AGREEMENTS In the event any new and superseding form of dealer agreement is offered by DISTRIBUTOR to authorized LEXUS dealers generally at any time prior to the expiration of the term of this Agreement, DISTRIBUTOR, may, by written notice to DEALER, replace this Agreement with a new agreement in a new and superseding form for a term not less than the then unexpired term of this Agreement. I. BENEFIT This Agreement is entered into by and between DISTRIBUTOR and DEALER for their sole and mutual benefit. Neither this Agreement nor any specified 38 provision contained in it is intended or shall be construed to be for the benefit of any third party. XX. DEFINITIONS As used in this Agreement, the parties agree that the following terms shall be defined exclusively as set forth below: A. DEALER: The entity that executes the Dealer Agreement and is authorized by DISTRIBUTOR to sell and service LEXUS Products. B. OWNER: The persons identified in Section II hereof. C. GENERAL MANAGER: The person identified in Section III hereof. D. DEALER FACILITIES: The buildings, improvements, fixtures, and equipment situated at the Approved Location(s). E. APPROVED LOCATION(S): The location(s) and any facilities thereon, designated in Section IV that DISTRIBUTOR has approved for the dealership operation(s) specified therein. F. LEXUS MARKS: The various LEXUS trademarks, service marks, names, logos and designs that DEALER is authorized by DISTRIBUTOR to use in the sale and servicing of LEXUS Products. G. LEXUS MOTOR VEHICLES: All motor vehicles identified in the current LEXUS Product Addendum that DISTRIBUTOR sells to DEALER for resale. H. GENUINE LEXUS PARTS AND ACCESSORIES: All LEXUS brand Parts and Accessories manufactured by or on behalf of DISTRIBUTOR or FACTORY, or other parts and accessories specifically approved by FACTORY for use in servicing LEXUS Motor Vehicles and sold by DISTRIBUTOR to DEALER for resale. I. LEXUS PRODUCTS: All LEXUS Motor Vehicles, Parts and Accessories that DISTRIBUTOR, in its sole discretion, sells to DEALER for resale. The term "LEXUS PRODUCTS" specifically excludes any motor vehicle, part or accessory imported into the United States by any individual or company other than DISTRIBUTOR. 39 EX-10.2-3-1 15 EXHIBIT 10.2.3.1 MITSUBISHI MOTOR SALES OF AMERICA, INC. - -------------------------------------------------------------------------------- DEALER SALES AND SERVICE AGREEMENT - -------------------------------------------------------------------------------- THIS AGREEMENT is made and entered into by and between MITSUBISHI MOTOR SALES OF AMERICA, INC., a California corporation, with headquarters at 6400 West Katella Avenue, Cypress, California 90630 (hereinafter referred to as "MMSA"), and Rockland Motors Partnership, a New York corporation ____, partnership __X__, individual ____ , doing business as Rockland Mitsubishi at 73-75 North Highland Avenue, Nyack, Rockland County, New York 10960 (hereinafter referred to as "DEALER"). 1. BASIS OF AGREEMENT THIS AGREEMENT provides for the nonexclusive right of DEALER to sell and service motor vehicles which are listed on the most recent MMSA Product List as issued by MMSA from time to time, and related parts, accessories and options distributed in the United States by MMSA. DEALER acknowledges that Mitsubishi Motors Corporation and other manufacturers supplying motor vehicles to MMSA may now or in the future distribute motor vehicles or related products in the United States through distributors other than MMSA, and that entering into THIS AGREEMENT confers no rights or benefits upon DEALER with respect to the sale or servicing of such motor vehicles or products. 2. TERM THIS AGREEMENT shall continue in effect for a period of three (3) years from its effective date, unless earlier terminated by DEALER pursuant to Section X.A. of the accompanying MMSA Dealer Sales and Service Agreement Standard Provisions (hereinafter referred to as the "Standard Provisions")or earlier terminated by MMSA pursuant to Section X.B. of the Standard Provisions. Unless earlier terminated by MMSA or DEALER, MMSA shall, not less than three (3) months prior to the expiration of -2- THIS AGREEMENT, conduct an evaluation of DEALER'S performance to determine whether DEALER qualifies for renewal of THIS AGREEMENT for an additional three (3) year term. Criteria considered in such evaluation shall be as set forth in the Dealer Development Plan then in effect for DEALER. If MMSA determines that DEALER qualifies for renewal of its MMSA dealership, DEALER and MMSA shall execute an MMSA Dealer Sales and Service Agreement in the form then used by MMSA, which agreement will include similar provisions for further re-qualification and renewal. If at any time, MMSA determines that a different or revised form of dealer sales and service agreement would better serve the interests of the parties, MMSA may, upon a minimum of thirty (30) days' notice to DEALER, terminate THIS AGREEMENT and offer the new or amended form of agreement to DEALER in its stead. DEALER must accept the new or amended form of agreement within thirty (30) days of receipt thereof. 3. OWNERSHIP OF DEALER MMSA and DEALER recognize that the ability of DEALER to satisfactorily perform THIS AGREEMENT is conditioned upon the continued active involvement in and/or ownership of DEALER by the following person(s) in the percentage(s) shown (hereinafter referred to as the "Owners"): Involvement in Management Percentage of (Active or Name Title Ownership Inactive) Rockland Motors Corp. 30% Active - -------------------------------------------------------------------------------- DiFeo Partnership RCM, Inc. 70% Active - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THIS AGREEMENT has been entered into by MMSA in reliance upon, and in consideration of, the personal qualifications and representations of the above- named Owners. Accordingly, except as otherwise provided herein, no change in the active involvement in DEALER'S management by the Owners and no change in the ownership of DEALER by the Owners which results in a change in majority control or interest shall be permitted by DEALER or any Owner without the prior written approval of MMSA, which approval shall not be unreasonably withheld. -3- 4. MANAGEMENT OF DEALER DEALER represents that Neale Kuperman exercises the functions of general manager and Neale Kuperman exercises the functions of Dealer Principal (hereinafter referred to as the "Executive Managers") of its MMSA dealership and that each has complete authority to make all decisions on behalf of DEALER with respect to the dealership operations. MMSA has entered into THIS AGREEMENT in reliance upon, and in consideration of, the personal qualifications and representations of the above-named EXECUTIVE MANAGERS. Accordingly, DEALER agrees that there shall be no change in the EXECUTIVE MANAGERS without MMSA'S prior written consent. DEALER shall give MMSA prior written notice of any proposed change in EXECUTIVE MANAGERS (including the name and qualifications of the person proposed to be appointed as a replacement EXECUTIVE MANAGER) and MMSA shall have the right, in its sole and reasonable discretion, to determine whether the proposed candidate possesses the requisite qualifications and experience for the position. 5. SALES LOCALITY Subject to and in accordance with the terms and conditions hereof, MMSA has established the following SALES LOCALITY as the nonexclusive, primary area of responsibility for DEALER'S promotion and sale of MMSA PRODUCTS: City of Nyack ------------------------------------------------------------------------ County or Parish of Rockland State of New York ------------------- ------------------------------- Except as may be otherwise required by applicable law, MMSA reserves the right to sell and/or lease MMSA PRODUCTS to others (including, without limitation, public or private fleet purchasers and employees of MMSA or its affiliates) and to enter into MMSA Dealer Sales and Service Agreements with others within and without the SALES LOCALITY. MMSA and DEALER agree that additional MMSA DEALERS may be appointed in or near the SALES LOCALITY when MMSA determines, in accordance with applicable law, that additional MMSA sales and service facilities are warranted. Nothing contained in THIS AGREEMENT shall require or be construed to require DEALER'S approval of MMSA entering into MMSA Dealer Sales and Service Agreements OR ANY OTHER AGREEMENTS WITH OTHERS WITHIN OR WITHOUT THE SALES Locality. 6. DEALERSHIP PREMISES MMSA has approved the following premises as the location of DEALER'S MMSA sales and service operations (hereinafter referred to as the "DEALERSHIP PREMISES") -4- MMSA NEW VEHICLE SALES FACILITIES 73-75 North Highland Avenue - -------------------------------------------------------------------------------- Nyack, New York 10960 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PARTS AND SERVICE FACILITIES 73-75 North Highland Avenue - -------------------------------------------------------------------------------- Nyack, New York 10960 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SALES AND GENERAL OFFICES 73-75 North Highland Avenue - -------------------------------------------------------------------------------- Nyack, New York 10960 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- USED VEHICLE DISPLAY AND SALES FACILITIES 73-75 North Highland Avenue - -------------------------------------------------------------------------------- Nyack, New York 10960 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- STORAGE FACILITIES 73-75 North Highland Avenue - -------------------------------------------------------------------------------- Nyack, New York 10960 - -------------------------------------------------------------------------------- 170 Route 303 (additional storage) - -------------------------------------------------------------------------------- N. Nyack, New York 10994 - -------------------------------------------------------------------------------- -5- BODY AND PAINT FACILITIES N/A - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- OTHER N/A - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- MMSA and DEALER recognize that DEALER may sell MMSA PRODUCTS to customers wherever they may be located. However, in order that MMSA may establish and maintain an effective network of MMSA DEALERS for the sale and servicing of MMSA PRODUCTS, DEALER specifically agrees that, without the prior written approval of MMSA, it shall not display MMSA TRADEMARKS or, either directly or indirectly, establish any place or places of business for the conduct of any of its MMSA dealership operations, except on the DEALERSHIP PREMISES in the manner and for the purposes described above. DEALER shall maintain all requirements and conditions of this MMSA Dealer Sales and Service Agreement as outlined in DEALER'S most recent Dealer Development Plan, including but not limited to exclusive facility, management and capital requirements. 7. LICENSES DEALER agrees to secure and maintain all licenses required for the operation of its business as contemplated by THIS AGREEMENT in any state or jurisdiction where its MMSA dealership operations are to be conducted. If any such license or licenses are required, THIS AGREEMENT shall not become effective unless and until all such required licenses have been obtained and DEALER furnishes MMSA with a copy of all such licenses together with written notice specifying the date and number, if any, of all such licenses. DEALER shall notify MMSA immediately in writing if DEALER fails to secure, maintain or renew any such license. If any required license is suspended or revoked, DEALER shall notify MMSA immediately in writing of the effective date of such suspension or revocation. 8. SCOPE OF AGREEMENT DEALER agrees to be bound by and comply with each and every term of this MMSA Dealer Sales and Service Agreement, all schedules hereto, the Standard Provisions, the DEALER DEVELOPMENT -6- PLAN, the most recent PRODUCT LIST and all PRODUCT ADDENDA, the WARRANTY MANUAL and all other manuals heretofore or hereafter issued by MMSA, all modifications, extensions or renewals of any of the foregoing, and each and every bulletin or directive heretofore or hereafter issued to DEALER by MMSA. MMSA may from time to time deliver to DEALER a PRODUCT ADDENDUM setting forth special terms and conditions applicable to particular MMSA VEHICLES designated in the PRODUCT ADDENDUM. Such special terms and conditions shall supersede and control any inconsistent terms and conditions in THIS AGREEMENT with respect to the MMSA VEHICLES designated in the PRODUCT ADDENDUM. Each PRODUCT ADDENDUM shall be effective as of the date specified in the PRODUCT ADDENDUM and shall remain effective (1) until it is amended or terminated by its own terms or by a new PRODUCT ADDENDUM, (2) until the MMSA VEHICLES designated in the PRODUCT ADDENDUM are no longer distributed by MMSA, or (3) until termination of THIS AGREEMENT. 9. DEFINITIONS Italicized terms used herein shall have the meanings set forth in Section II of the Standard Provisions. 10. GOVERNING LAW THIS AGREEMENT shall be governed by, and construed in accordance with, the laws of the State of California. 11. JURISDICTION MMSA and DEALER agree that all litigation between MMSA and DEALER which may arise out of or in connection with THIS AGREEMENT or any transaction between them shall be subject to the exclusive jurisdiction of the courts of the State of California or of the federal courts sitting therein, and each hereby consents to the jurisdiction of such courts. DEALER agrees that any and all process directed to it in any such litigation may be served upon it outside of California with the same force and effect as if such service had been made within California. 12. LEGAL EFFECT THIS AGREEMENT terminates and supersedes all prior written or oral agreements and understandings, if any, between MMSA and DEALER, except (1) any agreements expressly referred to and incorporated herein, (2) any indebtedness which may be owing by either MMSA or DEALER to the other, and (3) any of DEALER'S unfilled orders with MMSA for any MMSA PRODUCTS placed with MMSA pursuant to the provisions of any sales agreement terminated or superseded by THIS AGREEMENT. Except as herein otherwise provided, upon execution of THIS AGREEMENT by DEALER and in consideration of MMSA'S entering into THIS AGREEMENT, DEALER releases MMSA from any and all claims, demands, contracts and liabilities (including, but not limited to, statutory -7- liabilities), known or unknown, of any kind or nature whatsoever, arising from or out of or in connection with any such prior agreements, business transactions, course of dealing, discussions or negotiations between the parties prior to the effective date hereof. DEALER expressly acknowledges and waives the application of California Civil Code Section 1542 which provides as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." 13. NOTICES Any notice to be given hereunder may be delivered to the party if a sole proprietor, to a partner of the party if a partnership, or to an officer of the party if a corporation, or may be given by sending such notice by registered or certified mail or by telegram or tested telex addressed, if to DEALER, to its principal office as above stated, and if to MMSA, to its headquarters as above stated, marked "Attention President." Except as otherwise provided in THIS AGREEMENT, any notice so given shall be considered to have been given when delivered or mailed as provided above. 14. AUTHORITY OF DEALER If DEALER is a partnership or corporation, DEALER shall provide MMSA with a certified copy of the partnership authorization, corporate resolution or other document evidencing the authority of DEALER to enter into and adhere to the terms of THIS AGREEMENT. 15. VALIDITY No representative of MMSA shall have authority, other than by a writing signed by the President or an Executive Vice President or two Vice Presidents of MMSA, to renew, extend or terminate THIS AGREEMENT, or to amend, modify or waive any provision of THIS AGREEMENT or any performance required hereby, or to make any agreement which imposes obligations on either MMSA or DEALER not specifically imposed by THIS AGREEMENT. -8- IN WITNESS OF THE FOREGOING, the parties hereto have executed THIS AGREEMENT in duplicate. THIS AGREEMENT SHALL NOT BECOME EFFECTIVE UNTIL IT HAS BEEN SIGNED BY THE PRESIDENT OR AN EXECUTIVE VICE PRESIDENT OR TWO VICE PRESIDENTS OF MMSA. DEALER WILL BE NOTIFIED IN WRITING BY MMSA WHEN THIS AGREEMENT HAS BEEN SO SIGNED, WHICH NOTICE WILL SPECIFY THE EFFECTIVE DATE OF THIS AGREEMENT. Rockland Motors Partnership dba Rockland Mitsubishi - ----------------------------------- (Dealer's Firm Name) By /s/ Illegible Date 8/29/94 ------------------------------- -------------------- Title V.P. ---------------------------- By Date ------------------------------- -------------------- Title ---------------------------- /s/ Illegible ------------------------- (Witness) MITSUBISHI MOTOR SALES OF AMERICA, INC. By Date ------------------------------- -------------------- (President) OR By Date ------------------------------- -------------------- (Executive Vice President) OR By /s/ Robert LaBass Date October 13, 1994 ------------------------------- -------------------- (Vice President) and By /s/ Illegible Date October 13, 1994 ------------------------------- -------------------- (Vice President) -9- ATTACHMENT 1 DRAFT ONLY CHANGE IN MAJORITY OWNERSHIP OR CONTROL, OR MANAGEMENT OF DEALER August 20, 1996 Mr. Samuel X. DiFeo EMCO DiFeo Automative Group 583 Route 440 Jersey City, NJ 07304 Re: ROCKLAND MOTORS PARTNERSHIP dba ROCKLAND MITSUBISHI Dear Mr. DiFeo: The Dealer Sales and Service Agreement (the "Dealer Agreement") with Mitsubishi Motor Sales of America, Inc. ("MMSA") prohibits a change of majority ownership or control of the Dealer without the prior written approval of MMSA, which approval will not be unreasonably withheld. The purpose of this provision, together with the provision requiring MMSA approval for a change in the Executive Managers of the Dealer, is to preserve the identity of the owners and managers whose automotive industry experience, reputation and abilities were the basis for MMSA's decision to award to the Dealer the Mitsubishi automobile dealership. A failure to observe these provisions can result in termination of the Dealer Agreement. Some Mitsubishi Dealers, or one of their parent entities in a chain of ownership, may consist of entities whose equity securities are, or will in the future become, publicly traded. The purpose of this letter is to explain in greater detail what constitutes a change of ownership or control of the Dealer in that context. For purposes of this letter, capitalized terms used herein without definition shall have the meanings ascribed to them in the Dealer Agreement. Additionally, the following definitions shall apply herein: "GROUP" shall have the meaning contemplated in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended. "MAJORITY OWNERSHIP" of a Dealer or other Person shall mean beneficial ownership or control, directly or indirectly, of either (a) a majority of the outstanding equity securities of such Dealer or other Person entitled to vote generally in the election of directors, trustees or Rockland Motors Partnership August 20, 1996 Page 2 members of any other governing body of such Dealer or other Person or (b) equity securities of such Dealer or other Person representing a majority of all outstanding votes entitled to be cast in the election of directors, trustees or members of any other governing body of such Dealer or other Person. "PARENT COMPANY" shall mean a Person holding, directly or indirectly, Majority Ownership of the Dealer. "PERSON" shall mean to any individual, corporation, partnership, trust, or other entity. For a Dealer whose equity securities are publicly traded, and for a Dealer having one or more Parent Companies with publicly traded equity securities, a change of majority ownership or control of such Dealer will be deemed to have occurred upon the happening or existence of any of the following events or circumstances: (a) Any Person or Group holding, as of the date hereof, Majority Ownership of the Dealer or a Parent Company thereof ceases to hold such Majority Ownership; or (b) Any Person or Group acquires Majority Ownership of the Dealer or a Parent Company thereof after the date hereof; or (c) A majority of the directors, trustees or other members of the governing body of the Dealer or any Parent Company thereof who newly assume such positions after the date of the Dealer Agreement were not nominated to such positions by their predecessors on such governing body. You have advised us, through your attorney Laurence Weltman of Willkie Farr & Gallagher, that several of the minority shareholders in your Parent Company, United Auto Group, Inc. ("United Auto") are parties to a shareholder agreement that will be terminated when United Auto consummates a public entity offering later this year. This is to advise you that, notwithstanding the foregoing, the termination of such shareholder agreement will not, in and of itself, constitute a change of majority ownership or control pursuant to the terms of your Dealer Agreement with us. Further, the existing shareholders will not be deemed to be a Group solely by virtue of having or exercising in concert registration rights with respect to their shares in United Auto. -2- Rockland Motors Partnership August 20, 1996 Page 3 Please acknowledge your understanding of and agreement with the foregoing by executing a copy of this letter in the space provided below and returning such copy to me. Very truly yours, MITSUBICHI MOTOR SALES OF AMERICA, INC. By: /s/ Illegible ------------------------------- ACKNOWLEDGED AND AGREED TO: ROCKLAND MOTORS PARTNERSHIP by DIFEO PARTNERSHIP RCM, INC. By: /s/ Carl Spielvogel ------------------------------- -3- EX-10.2-3-2 16 EXHIBIT 10.2.3.2 EXHIBIT 10.2.3.2 MITSUBISHI MOTOR SALES OF AMERICA, INC. DEALER SALES AND SERVICE AGREEMENT STANDARD PROVISIONS 2 TABLE OF CONTENTS Page I. GENERAL OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 1 II. DEFINITIONS . . . . .. . . . . . . . . . . . . . . . . . . . . . . . 1 III. SALES OF MMSA PRODUCTS TO DEALER. . . . . . . . . . . . . . . . 4 A. Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 B. Deliveries . . . . . .. . . . . . . . . . . . . . . . . . . . . 5 1. Mode and Place of Delivery . . . . . . . . . . . . . . . . 5 2. Diversion of Deliveries. . . . . . . . . . . . . . . . . . 5 3. Delay or Failure to Deliver. . . . . . . . . . . . . . . . 5 4. Damage Claims Against Carriers . . . . . . . . . . . . . . 5 C. Prices and Other Terms of Sales . . . . . . . . . . . . . . . . . 6 1. Price Changes. . . . . . . . . . . . . . . . . . . . . . . 6 2. Payment for MMSA Vehicles. . . . . . . . . . . . . . . . . 6 3. Payment for MMSA Products other than MMSA Vehicles . . . . 6 4. Failure of Financing Arrangements. . . . . . . . . . . . . 7 5. Title and Risk of Loss . . . . . . . . . . . . . . . . . . 8 6. Collection of Indebtedness . . . . . . . . . . . . . . . . 8 7. Refunds. . . . . . . . . . . . . . . . . . . . . . . . . . 9 D. Product Warranties. . . . . . . . . . . . . . . . . . . . . . . 9 E. Change of Design, Options or Specifications . . . . . . . . . .10 F. Vehicles Excluded . . . . . . . . . . . . . . . . . . . . . . .10 IV. DEALERSHIP PREMISES. . . . . . . . . . . . . . . . . . . . . . . . .11 A. Responsibilities of Dealer. . . . . . . . . . . . . . . . . . .11 B. Automobile Leasing or Rental Business . . . . . . . . . . . . .11 C. Related Activities of Dealer or Dealer's Owners or Executive Managers. . . . . . . . . . . . . . . . . . . . . . .12 D. Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . .13 E. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .13 F. Maintaining Operations Open for Business. . . . . . . . . . . .14 i G. Minimum Vehicle Inventories . . . . . . . . . . . . . . . . . .14 H. Signs. . . . . . . .. . . . . . . . . . . . . . . . . . . . . .15 I. Electronic Communications System. . . . . . . . . . . . . . . .15 J. Planning Assistance for Dealership Premises . . . . . . . . . .15 V. NET WORKING CAPITAL. . . . . . . . . . . . . . . . . . . . . . . . .16 VI. ACCOUNTS, RECORDS AND REPORTS. . . . . . . . . . . . . . . . . . . .16 A. Uniform Accounting System . . . . . . . . . . . . . . . . . . .16 B. Sales Reporting . . . . . . . . . . . . . . . . . . . . . . . .16 C. Sales and Service Records . . . . . . . . . . . . . . . . . . .17 D. Examination of Accounts and Records . . . . . . . . . . . . . .17 VII. PROMOTING AND SELLING MMSA PRODUCTS . . . . . . . . . . . . . . . .17 A. Responsibilities of Dealer . . . . . . . . . . . . . . . . . .17 B. Sales and Performance Criteria. . . . . . . . . . . . . . . . .18 1. Dealer Development Plan . . . . . . . . . . . . . . . . .18 2. Determination of Minimum Sales Responsibility. . . . . . .18 C. Sales Operations. . . . . . . . . . . . . . . . . . . . . . . .19 1. Sales Organization . . . . . . . . . . . . . . . . . . . .19 2. Representations in the Sales of MMSA Vehicles. . . . . . .20 3. Customer Deposits. . . . . . . . . . . . . . . . . . . . .20 D. Advertising . . . . . . . . . . . . . . . . . . . . . . . . . .20 1. Misleading Advertising . . . . . . . . . . . . . . . . . .20 2. MMSA Dealer Advertising Association. . . . . . . . . . . .21 3. Dealer Cooperative Promotional Fund. . . . . . . . . . . .21 E. Assistance Provided by MMSA . . . . . . . . . . . . . . . . . . .22 1. Sales Training Assistance. . . . . . . . . . . . . . . . .22 2. Field Sales Personnel. . . . . . . . . . . . . . . . . . .22 VIII. SERVICING MMSA VEHICLES. . . . . . . . . . . . . . . . . . . . . .23 A. Responsibilities of Dealer. . . . . . . . . . . . . . . . . . .23 1. Warranty Service . . . . . . . . . . . . . . . . . . . . .23 2. New Motor Vehicle Pre-Delivery Service . . . . . . . . . .23 3. Free Maintenance . . . . . . . . . . . . . . . . . . . . .24 4. Use of Parts . . . . . . . . . . . . . . . . . . . . . . .24 5. Campaign Inspections and Corrections . . . . . . . . . . .25 ii 6. Compliance With Safety and Emission Control Requirements . . . . . . . . . . . . . . . . . . . . . . .26 B. Service Operations. . . . . . . . . . . . . . . . . . . . . . . .27 1. Service and Parts Organization . . . . . . . . . . . . . .27 2. Paint and Body Facilities. . . . . . . . . . . . . . . . .27 3. Workshop . . . . . . . . . . . . . . . . . . . . . . . . .27 4. Handling of Service Complaints . . . . . . . . . . . . . .28 5. Stock of Parts . . . . . . . . . . . . . . . . . . . . . .28 6. Parts Inventory Control. . . . . . . . . . . . . . . . . .29 7. Service Rentals. . . . . . . . . . . . . . . . . . . . . .29 C. Assistance Provided by MMSA . . . . . . . . . . . . . . . . . .30 1. Service Training Assistance. . . . . . . . . . . . . . . .30 2. Service Manuals and Materials. . . . . . . . . . . . . . .30 3. Field Service Personnel Assistance . . . . . . . . . . . .30 IX. DISPLAY OF TRADEMARKS, SERVICE MARKS AND TRADE NAMES . . . . . . . .31 X. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . .31 A. Dealer May Terminate This Agreement Upon Thirty (30) Days Prior Written Notice To MMSA . . . . . . . . . . . . . . .31 B. MMSA May Terminate This Agreement For Cause . . . . . . . . . .31 1. Immediately. . . . . . . . . . . . . . . . . . . . . . . .32 2. By Giving Thirty (30) Days Prior Written Notice Upon . . . . . . . . . . . . . . . . . . . . . . . . . . .32 3. By Giving Ninety (90) Days Prior Written Notice Upon . . . . . . . . . . . . . . . . . . . . . . . . . . .35 C. Notice and Effect of Termination. . . . . . . . . . . . . . . .36 D. Establishment of Successor Dealer . . . . . . . . . . . . . . .36 1. Because of the Death of an Owner . . . . . . . . . . . . .36 2. Because of Death or Incapacity of Executive Manager. . . . . . . . . . . . . . . . . . . . . . . . . .37 3. Evaluation of Successor Dealer . . . . . . . . . . . . . .38 4. Termination of Market Representation . . . . . . . . . . .38 5. Termination of Offer . . . . . . . . . . . . . . . . . . .38 E. Continuance of Business Relations . . . . . . . . . . . . . . .39 F. Discontinuance of Use of Marks. . . . . . . . . . . . . . . . .39 G. Repurchase Provisions . . . . . . . . . . . . . . . . . . . . .40 XI. POLICY REVIEW BOARD . . . . . . . . . . . . . . . . . . . . . . . .42 A. Establishment of Policy Review Board. . . . . . . . . . . . . .42 iii B. Appeal of Dealer Appointment to Policy Review Board . . . . . .42 C. Appeal of Termination to Policy Review Board. . . . . . . . . .42 D. Arbitration of Claims by Dealer . . . . . . . . . . . . . . . .43 XII. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . .45 A. Indemnification . . . . . . . . . . . . . . . . . . . . . . . .45 B. No Implied Waivers. . . . . . . . . . . . . . . . . . . . . . .47 C. Waiver of Trial by Jury . . . . . . . . . . . . . . . . . . . .47 D. Dealer Not Agent or Representative. . . . . . . . . . . . . . .47 E. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . .47 F. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .48 G. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48 iv DEALER SALES AND SERVICE AGREEMENT STANDARD PROVISIONS The following Standard Provisions have been made a part of and are incorporated by reference in the Mitsubishi Motor Sales of America, Inc. Dealer Sales and Service Agreement and shall apply to and govern the transactions, dealings, and relations between MMSA and Dealer. I. GENERAL OBLIGATIONS The purpose of this Agreement is to provide for the sale and servicing of MMSA Products in a manner that will best serve the interests of MMSA, Dealer, other Authorized MMSA Dealers, and the owners and purchasers of MMSA Products. Dealer has entered into this Agreement with confidence in MMSA's integrity and expressed intention to deal fairly with Dealer and the consuming public of MMSA Products and services. MMSA has entered into this Agreement with confidence in Dealer's integrity, ability and expressed intention to deal fairly with MMSA, other Authorized MMSA Dealers and the consuming public of MMSA Products and services and with reliance upon Dealer's undertaking to perform and carry out the duties, obligations and responsibilities of an Authorized MMSA Dealer as set forth in this Agreement. Dealer shall engage in no discourteous, deceptive, misleading or unethical practices and shall actively promote the sale of MMSA Products. Dealer shall give prompt, efficient and courteous service to all customers of MMSA Products whether or not those customers purchased MMSA Products from Dealer. MMSA will actively assist Dealer in all aspects of Dealer's MMSA dealership operations. MMSA shall offer suggestions and provide materials designed to assist Dealer and its personnel, conduct periodic annual evaluations of Dealer's premises, performance and facilities as described in Section VII.B.1. hereof, and provide special training programs for the active participation of Dealer and its sales, service and parts personnel. II. DEFINITIONS As used in this Agreement, the following terms shall have the meanings indicated: A. MMSA shall mean Mitsubishi Motor Sales of America, Inc., a California corporation which is the authorized distributor in the United States of MMSA Products. B. MMSA VEHICLE shall mean any new passenger car or truck with a Gross Vehicle Weight Rating of under 7,000 pounds (whether or not manufactured or supplied by MMC) distributed in the United States by MMSA and set forth in the Product List. C. MMSA PARTS AND/OR ACCESSORIES shall mean genuine new parts, components and accessories, designed primarily for use on MMSA Vehicles and distributed by MMSA. D. MMSA PRODUCTS shall mean MMSA Vehicles , MMSA Parts and Accessories, and other new products (whether or not manufactured or supplied by MMC) which from time to time may be offered by MMSA to Dealer under this Agreement. E. MMSA TRADEMARKS shall mean the trademarks, service marks, design marks and trade names which are used by MMSA in connection with MMSA Products, including, without limitation, the names "Mitsubishi" and "MMSA," and the Mitsubishi three-diamond logo. F. MMC shall mean Mitsubishi Motors Corporation, a Japanese corporation which manufactures or supplies to MMSA some or all of the MMSA VEHICLES. G. AUTHORIZED MMSA DEALER OR MMSA DEALER shall mean any dealer located in the United States authorized by MMSA to conduct dealership operations in connection with the sale of MMSA Products pursuant to an MMSA Dealer Sales and Service Agreement. H. OWNERS shall mean the persons named in Section 3 of the MMSA Dealer Sales and Service Agreement. I. EXECUTIVE MANAGERS shall mean the persons named in Section 4 of the MMSA Dealer Sales and Service Agreement. J. DEALERSHIP PREMISES shall mean the place or places of business established by Dealer and approved by MMSA in accordance with Section 6 of the MMSA Dealer Sales and Service Agreement. K. DEALERSHIP FACILITIES shall mean the buildings and other improvements on the Dealership Premises provided -2- by Dealer in accordance with requirements set forth in the Dealer Development Plan. L. DEALER DEVELOPMENT PLAN shall mean the written development plan, as amended from time to time by MMSA, setting forth the criteria relied upon by MMSA to determine initially whether Dealer qualifies for appointment as an MMSA Dealer and thereafter to evaluate whether Dealer's performance hereunder qualifies Dealer for renewal(s) of its MMSA dealership. M. GROSS VEHICLE WEIGHT RATING shall mean the value specified by the manufacturer of MMSA Vehicles as the loaded weight of a single vehicle. N. SALES LOCALITY shall mean the locality which is designated in Section 5 of the MMSA Dealer Sales and Service Agreement as the primary area of Dealer's sales and service responsibility for MMSA Products. O. WARRANTY MANUAL shall mean the MMSA Warranty Policy and Procedure Manual, as the same may be amended from time to time by MMSA, which sets forth policies and procedures concerning warranties on MMSA Products. P. PRE-DELIVERY INSPECTION MANUAL shall mean the MMSA Pre-delivery Inspection Procedures Manual, as the same may be amended from time to time by MMSA, which sets forth MMSA policies and procedures concerning the servicing of MMSA Vehicles prior to their delivery to purchasers of MMSA Vehicles. Q. INVOICE PRICE shall mean, with respect to each MMSA Product to which it refers, the price to Dealer for such product as from time to time established by MMSA. R. PARTS DISCOUNT AND PURCHASE TERMS SCHEDULE shall mean a listing of the terms, discounts and conditions relating to the purchase of MMSA Parts and Accessories supplied by MMSA to Dealer, as amended from time to time by MMSA. S. MMSA MASTER PARTS PRICE LIST shall mean a listing of the suggested list prices and the prices of MMSA Parts and Accessories issued by MMSA from time to time. T. POLICY REVIEW BOARD shall mean the MMSA Policy Review Board described in Section XI hereof. U. THIS AGREEMENT shall mean the Mitsubishi Motor Sales of America, Inc. Dealer Sales and Service Agreement, all -3- schedules thereto, these Standard Provisions, the Warranty Manual and the Dealer Development Plan, the most recent Product List and all Product Addenda, each as amended from time to time, and all other guides, bulletins or directives issued from time to time by MMSA to MMSA Dealers. V. PRODUCT LIST shall mean a list of MMSA Products distributed by MMSA which shall be provided to Dealers and amended or supplemented by MMSA from time to time. W. PRODUCT ADDENDUM or ADDENDA shall mean any addendum to this Agreement which MMSA may issue to Dealers from time to time setting forth special terms and conditions governing the sale or servicing only of the particular vehicles or products designated in the Product Addendum. III. SALES OF MMSA PRODUCTS TO DEALER A. Orders Dealer shall submit to MMSA firm orders for MMSA Products in such quantity and variety as are necessary to fulfill Dealer's obligations under this Agreement. Dealer agrees to submit current orders and estimated projections of Dealer's future requirements for MMSA Products at such times and for such periods as MMSA may reasonably request. Dealer will submit all orders and projections in the format prescribed by MMSA. All orders are subject to acceptance by MMSA. MMSA is under no obligation to accept orders from Dealer and may accept any order in whole or in part. Acceptance of any order may be by oral or written notice to Dealer or by shipment of the MMSA Products ordered. No order may be canceled by Dealer and each order shall remain binding upon Dealer unless rejected in writing by MMSA. Except as otherwise provided herein, MMSA agrees to ship MMSA Products to Dealer only on Dealer's orders. MMSA will use its best efforts to fill any orders which it has accepted, but nothing contained in this Agreement shall obligate MMSA to deliver to Dealer any particular number of MMSA Vehicles or MMSA Parts and Accessories. -4- B. Deliveries 1. Mode and Place of Delivery MMSA shall select the distribution points, carriers and modes of transportation in effecting delivery of MMSA Products to Dealer. Dealer agrees to reimburse MMSA for any delivery, freight, handling and other charges which appear on MMSA's invoice to Dealer. 2. Diversion of Deliveries If MMSA is required to divert any MMSA Product ordered by Dealer because of Dealer's failure or refusal to accept such product, Dealer agrees to assume responsibility for and pay any charges incurred by MMSA as a result of such diversion including, without limitation, charges incurred by MMSA in returning any such product to the point of original shipment or other distribution point selected by MMSA, plus all charges for demurrage or storage related to such diversion. 3. Delay or Failure to Deliver MMSA shall not be liable for delay or failure to fill orders that have been accepted, where such delay or failure is the result of any domestic or foreign laws, regulations, ordinances, rules, orders or other governmental requests, acts of God, foreign or civil wars, riots, interruptions of navigation, shipwrecks, fires, strikes, lockouts or other labor troubles, embargoes, blockades, delay or failure of MMC, other suppliers of MMSA or any carrier to deliver MMSA Products, or any other event whether similar or dissimilar to the foregoing which is beyond the reasonable control of MMSA. 4. Damage Claims Against CarriersUnless otherwise specified in the Warranty Manual, MMSA agrees, upon request by Dealer, to assist Dealer in recovery against any carrier for loss or damage to MMSA Products shipped hereunder. -5- C. Prices and Other Terms of Sales 1. Price Changes MMSA reserves the right, without prior notice to Dealer, to change prices, charges and terms of purchase of all MMSA Products sold under this Agreement and, except as provided in Section III.C.7. hereof, Dealer or its customer shall have no right of cancellation or to any refund or credit with respect thereto. MMSA will charge Dealer for MMSA Products according to the prices, charges and terms of purchase in effect on the date of shipment. Prices, charges and terms of purchase for MMSA Parts and Accessories shall be established from time to time by MMSA in the MMSA Master Parts Price List and in the Parts Discount and Purchase Terms Schedule. 2. Payment for MMSA Vehicles Unless otherwise permitted by MMSA in writing, payment for MMSA Vehicles shall be by cash draft issued prior to shipment of each MMSA Vehicle from its port of entry against Dealer's then applicable wholesale credit line, which line shall be approved by MMSA and established in Dealer's name with a financial institution acceptable to MMSA. The minimum amount of such credit line must be expressly approved by MMSA and must be sufficient to meet MMSA's estimate of Dealer's anticipated sales volume, as the same may be revised from time to time in the Dealer's Development Plan. MMSA may find it necessary, from time to time, to advise Dealer that the amount of available credit required of Dealer must be increased. Such decisions will be based upon criteria reasonably established by MMSA, including the sufficiency of the existing credit line and anticipated increases in sales. Dealer agrees to cooperate fully with MMSA and to arrange promptly for all required changes in its financial arrangements. 3. Payment for MMSA Products other than MMSA Vehicles MMSA will invoice Dealer for all MMSA Products other than MMSA Vehicles purchased by Dealer. Payment for invoices shall be due by the tenth (10th) day of the month following the month in which the products covered by the invoice are -6- delivered. MMSA reserves the right, at any time with or without notice to Dealer, to place any and all sales of MMSA Products other than MMSA Vehicles on a C.O.D. basis, cash in advance basis or otherwise alter the credit terms available to Dealer. Dealer's right to return MMSA Products (other than MMSA Vehicles) shall be governed by the terms and provisions set forth in the Parts Discount and Purchase Terms Schedule. 4. Failure of Financing Arrangements It is Dealer's sole responsibility to institute appropriate controls to ensure the uninterrupted availability of sufficient funds under its approved credit line with Dealer's financial institution. Should Dealer fail to pay for, or should any applicable financing arrangement fail to provide credit for the payment of, any MMSA Products ordered by Dealer when payment is due therefor, MMSA may, with respect to any such MMSA Products (i) cause the same to be stored at the sole risk and expense of Dealer, or (ii) cause such MMSA Products to be shipped elsewhere (including returning the same to MMSA) and Dealer shall pay to MMSA promptly upon demand all expenses sustained by MMSA in storing, handling and shipping occasioned thereby; or (iii) without obligation to pay any sum to Dealer, sell such MMSA Products directly to any other MMSA Dealer, person, firm or corporation, all expenses or losses occasioned thereby to be borne by Dealer. In addition to the foregoing, in the event of an oral or written refusal by Dealer's financing institution to make payment against drafts for any MMSA Vehicle ordered by Dealer, MMSA may impose a fixed administrative charge for each MMSA Vehicle refused. The amount of such charge, which shall be in addition to otherwise applicable delivery, storage and demurrage charges, shall reflect a reasonable estimate of the average administrative cost incurred by MMSA in arranging for alternative disposition of the MMSA Vehicle so refused. Furthermore, any failure of Dealer's financial institution to maintain for a period of sixty (60) or more days the unrestricted availability to MMSA of Dealer's credit line in an amount and in accordance with the terms approved by MMSA shall constitute grounds for termination of this Agreement under Section X.B.2.(f) hereof. -7- "Unrestricted availability" as used in this section shall mean that upon presentment of MMSA's drafts to Dealer's financial institution as contemplated hereunder, no approval of Dealer, the financial institution itself or any other party will be required before payment to MMSA is made. 5. Title and Risk of Loss Title and risk of loss or damage to any MMSA Product sold to Dealer shall pass to Dealer upon (i) its delivery to Dealer, (ii) its delivery to a common carrier for delivery to Dealer, or (iii) receipt by MMSA of payment therefor, whichever shall first occur. MMSA shall retain, and Dealer hereby grants to MMSA, a security interest in, and the right to retain or repossess, all MMSA Products sold to Dealer by MMSA until MMSA is paid in full therefor. 6. Collection of IndebtednessDealer agrees to execute and deliver and shall, where appropriate, cooperate with MMSA in causing to be filed with the appropriate authorities any and all statements and documents required or permitted by the Uniform Commercial Code and any other local laws for the protection of unpaid sellers. Dealer agrees that MMSA may apply toward payment of any amount due MMSA from Dealer any credit owed to Dealer by MMSA, and MMSA may, at its option, collect any sums owed by Dealer to MMSA by making a separate draft or by including any such sums in any draft issued for the sale of MMSA Products sold under this Agreement. Dealer will pay the amount of each draft and all exchange and collection charges. In addition, MMSA may impose an interest charge for balances thirty (30) days or more overdue. Such charge shall be assessed at the maximum rate permitted by law. The foregoing rights of MMSA are in addition to, and not in lieu of, any rights or remedies it may have by law as an unpaid seller. 7. Refunds Should MMSA reduce the Invoice Price of any MMSA Vehicle then in current production, MMSA will give written notice of such reduction to Dealer and -8- will refund to Dealer an amount equal to the difference between any higher price paid by Dealer for such MMSA Vehicles and the reduced price. Such refunds will be payable only for MMSA Vehicles actually purchased by Dealer at a price higher than the reduced price and which are new and unsold by Dealer on the effective date of the price reduction set forth in MMSA's notice thereof. To be entitled to such refund, Dealer must, within thirty (30) days after receipt of notice of the price reduction, make written claim therefor supported by evidence satisfactory to MMSA. MMSA shall have no obligation to make refunds or give credits with respect to: a) Any MMSA Vehicle used as a demonstrator and not promptly registered with MMSA by Dealer when assigned to demonstrator use; b) Any reduction in the amount of MMSA charges for distribution and delivery or taxes; c) Any reduction in the amount of any contribution or any other sum for advertising or sales promotion; or d) Any reduction by MMSA in the suggested retail price or Invoice Price established by MMSA by reason of any law, order, or regulation of any government or any governmental agency. MMSA reserves the right to pay refunds to any financial institution which has financed the purchase of, and retains a lien or ownership interest in, any MMSA Vehicle for which application for refund or credit is made by Dealer. D. Product Warranties Dealer understands and agrees that the only warranties applicable to each new MMSA Product sold to Dealer by MMSA shall be the written warranty or warranties expressly furnished by MMSA or by the manufacturer of the MMSA Product and as stated in the Warranty Manual. Anything in this Agreement to the contrary notwithstanding, all warranties made by MMSA as set forth in the Warranty Manual shall survive and, in accordance with their respective terms, continue in -9- full force and effect, despite any expiration or termination of this agreement pursuant to Section X hereof. E. Change of Design, Options or Specifications MMSA reserves the right, at any time, to make changes in or discontinue the supply of any design or specification of MMSA Products (regardless of whether such products are MMSA Vehicles, MMSA Parts and Accessories or options), without notice to Dealer and, unless required by law, without obligation to make any changes with respect to MMSA Vehicles and MMSA Parts and Accessories or options previously delivered to Dealer or being imported, manufactured, or sold in accordance with Dealer's orders. No change shall be considered a model year change unless so specified by MMSA. Except as specifically provided in Section III.C.7. hereof, MMSA shall be under no liability to Dealer on account of any discontinuance or change and shall have no obligation to Dealer to make any refund on MMSA Products previously purchased by Dealer, whether or not the price of MMSA Products previously sold by MMSA is affected thereby. Unless directed in writing by MMSA or required to do so by law, Dealer shall not alter any MMSA Product or change or substitute any of its components as sold by MMSA, except for minor or cosmetic changes which do not affect the mechanical operation, safety or structural integrity of any MMSA Product. F. Vehicles Excluded Dealer acknowledges that this Agreement confers rights or benefits with respect to vehicles or products of any kind not distributed by MMSA, and that Dealer's right to purchase MMSA Vehicles from MMSA shall at all times be limited to those MMSA Vehicles listed on the most recent Product List. Without limiting the generality of the foregoing, Dealer acknowledges that: (1) MMC distributes in the United States trucks with a Gross Vehicle Weight Rating of 7,000 pounds or more, truck tractors, buses, other heavy vehicles, and parts and accessories therefor through a distribution company known as Mitsubishi Fuso Truck America, Inc. ("MFTA"); (2) this Agreement confers no right upon Dealer to purchase for resale or lease, sell service or lease MFTA vehicles or products; (3) MFTA vehicles are of a separate "line make" from MMSA Vehicles; and (4) this Agreement confers no right upon Dealers to protest, object or invoke any other administrative or judicial -10- process to bar or delay the establishment of any MFTA dealership within or without Dealer's Sales Locality. IV. DEALERSHIP PREMISES A. Responsibilities of Dealer MMSA and Dealer recognize the importance of establishing an effective network of qualified Authorized MMSA Dealers meeting MMSA's established standards. Accordingly, Dealer agrees that it shall not, under any circumstance, establish an associate dealer or subdealer for MMSA Products or establish any MMSA dealership premises or operations other than those expressly approved by MMSA. Dealer agrees to operate its MMSA dealership only the Dealership Premises, and to provide and utilize the Dealership Facilities only in accordance with standards established by MMSA set forth in the Dealer Development Plan. Dealer recognizes that if it engages in other business activities in the Dealership Facilities and/or on the Dealership Premises, the physical facilities necessary for the sale and servicing of MMSA Products may be adversely affected. Accordingly, Dealer agrees that it shall not modify, relocate, change the usage of, reduce or expand the Dealership Premises or the Dealership Facilities without first consulting with MMSA and obtaining its written approval of such changes. B. Automobile Leasing or Rental Business Dealer may, as part of its MMSA dealership operations, engage in the leasing of MMSA Vehicles on the Dealership Premises so long as Dealer complies fully with all standards and requirements established by MMSA in connection therewith. Dealer, its Owners and Executive Managers shall not, however, without the prior written consent of MMSA, form or acquire, directly or indirectly, a separate legal entity for the purpose of conducting such leasing operations, whether within or without the Dealership Premises. Nor shall Dealer, its Owners and Executive Managers acquire for themselves or for members of their respective families any substantial interest in such separate business without the prior written consent of MMSA. If MMSA consents to the operation or substantial ownership of such separate leasing business by Dealer, its Owners, Executive Managers or their respective families, such business shall be subject to the provisions of Section IV.C. hereof. -11- C. Related Activities of Dealer or Dealer's Owners or Executive Managers If Dealer or any of Dealer's Owners or Executive Managers should have or should acquire, directly or indirectly, for themselves or for members of their respective families, any substantial interest in an enterprise the business of which is in any way connected with new or used MMSA Products (hereinafter referred to as "Related Business"), or any property which is being used or will be used in connection with new or used MMSA Products (hereinafter referred to as "Related Property"), or any beneficial interest in any Related Property, Dealer will: 1. At the time this Agreement is executed by Dealer, or immediately upon such acquisition, whichever may be later, require such Related Business or the holder of legal title or beneficial interest in the Related Property to execute and deliver to MMSA a written instrument in which such Related Business or holder shall assume the following obligations: a) To refrain from all conduct which might be harmful to the goodwill of MMSA or to the reputation of MMSA Products or which might be inconsistent with the public interest; b) To grant to MMSA, until the expiration or prior termination of this Agreement, the right, through MMSA's employees and other designees, to inspect, at all reasonable times during regular business hours, the premises, as well as the records and accounts, of such Related Business or holder; and c) To refrain from any use of any MMSA Trademark. 2. Furnish to MMSA, at the time this Agreement is executed by Dealer or immediately upon such acquisition, whichever may be later, a written report setting forth in detail: a) The ownership of beneficial interests in such Related Business or Related Property; and b) The business activities of such Related Business and the use of such Related Property -12- including, among other things, the names of all Authorized MMSA Dealers with which such Related Business has any dealings or who use or have any interest in such Related Property, and the terms of such dealings, use and interests. 3. In the event of any change in the ownership, activities or use of the Related Business or Related Property, furnish to MMSA a written report setting forth the details of such change. 4. Furnish to MMSA such other reports concerning the Related Business or Related Property as MMSA may from time to time require. D. Personnel Dealer agrees that it will employ qualified personnel in such capacities and in such number as may be specified in the Dealer Development Plan or as otherwise required by MMSA. E. Insurance Dealer shall obtain fire and casualty insurance issued by an insurer of recognized responsibility satisfactory to MMSA, with coverage for each occurrence and in an aggregate amount acceptable to MMSA, and providing coverage for, among other things, death, bodily injury and property damage claims which may arise in connection with Dealer's operations. Such insurance shall be maintained in full force and effect at Dealer's sole cost throughout the term of this Agreement and all extensions or renewals hereof. F. Maintaining Operations Open for Business Since the transportation and maintenance needs of customers served by Dealer can be properly met only if Dealer keeps the Dealership Premises open for business, Dealer agrees to maintain its dealership operations open for business during all days and hours which are customary and lawful for such operations in the community or locality in which the Dealership Premises are located. Any unexcused failure to remain open for business during such hours in excess of five (5) consecutive business days shall constitute grounds for termination of this Agreement under Section X.B.1.(a) hereof. -13- G. Minimum Vehicle Inventories Subject to the ability of MMSA to supply MMSA Vehicles ordered by Dealer, Dealer agrees that it shall, at all times, maintain the minimum inventory of MMSA Vehicles for immediate sale as set forth in the Dealer Development Plan from time to time by MMSA after consultation with Dealer. Dealer also agrees that it shall have available at all times, for purposes of showroom display and demonstration, the number of current models of MMSA Vehicles required of Dealer as determined from time to time by MMSA after consultation with Dealer. Dealer agrees to maintain all MMSA Vehicles in excellent condition at all times. Failure of Dealer to maintain the required minimum number of MMSA Vehicles shall constitute grounds for termination of this Agreement under Section X.B.2.(n) hereof. Dealer recognizes that it is the goal of all MMSA Dealers to meet efficiently the needs of all customers of MMSA Products wherever located and that, although an MMSA Dealer may attempt to continually maintain its minimum inventory, occasionally its customers may request a specific MMSA Vehicle or MMSA Part or Accessory which is not currently in stock. Accordingly, Dealer agrees to use its best efforts to cooperate with other MMSA Dealers by providing them with access to information regarding its parts and MMSA Vehicle inventory and whenever possible, trading its MMSA Products to satisfy the needs of a customer of another MMSA Dealer. H. Signs Subject to applicable governmental ordinances, regulations and statutes, Dealer agrees to buy or rent from MMSA or from sources designated by MMSA and to erect and maintain on the Dealership Premises, entirely at Dealer's expense, authorized sales and service signs conforming to the requirements established and approved for Dealer's use by MMSA. Dealer further agrees to obtain and maintain any licenses or permits necessary to erect such signs. Failure to obtain, erect, maintain, repair, illuminate and prominently display such signs in a manner approved by MMSA shall constitute grounds for termination of this Agreement under Section X.B.2.(j) hereof. -14- I. Electronic Communications System MMSA has elected to implement an electronic data processing system to facilitate communications between MMSA and each MMSA Dealer. Such a system is designed to enable each MMSA Dealer to electronically transmit current information regarding its sales and service operations, including without limitation, orders for MMSA Vehicles and MMSA Parts and Accessories, sales reports, and warranty claims data. In recognition of the benefits of such a system, Dealer agrees to acquire and install, at its sole expense, on the Dealership Premises a dealer computer terminal approved by MMSA and to utilize the system in accordance with MMSA's instructions. J. Planning Assistance for Dealership PremisesTo assist Dealer in planning, establishing and maintaining the Dealership Premises, MMSA will, if feasible, make available to Dealer upon request, copies of sample building layout plans, facility planning recommendations and an identification program covering the placement, installation and maintenance of recommended signs. In addition, representatives of MMSA will be available to Dealer from time to time to advise Dealer and dealership personnel in connection with Dealer's planning of the Dealership Facilities and Dealership Premises. V. NET WORKING CAPITAL Dealer agrees to establish and maintain net working capital in an amount not less than the minimum net working capital agreed upon by Dealer and MMSA and specified in the Dealer Development Plan. If, because of changed conditions, MMSA deems it necessary to increase or decrease the minimum amount of Dealer's net working capital, the minimum net working capital required of Dealer under the Dealer Development Plan may be revised by MMSA after consultation with Dealer. If the amount thereof is increased, Dealer agrees to meet the new minimum net working capital standard within the time period reasonably prescribed by MMSA after consultation with Dealer. VI. ACCOUNTS, RECORDS AND REPORTS A. Uniform Accounting System It is for the mutual benefit of Dealer and MMSA that uniform accounting systems and practices be maintained -15- by all Authorized MMSA Dealers. Accordingly, Dealer agrees to maintain such systems and practices as designated by MMSA in accordance with the uniform accounting system and practices established by MMSA for use by all MMSA Dealers. Dealer agrees that it will furnish to MMSA by the tenth (10th) day of each month, in the form prescribed by MMSA, true, complete and accurate financial and operating statements covering the preceding month and showing calendar-year-to-date operations. B. Sales Reporting To assist in the evaluation of current market trends and other matters, Dealer agrees to: 1. Immediately upon delivery of an MMSA Vehicle to the purchaser thereof, complete and transmit to MMSA a report of the retail sale called the "Retail Delivery Report"; and 2. Furnish MMSA with such other reports or records which may reasonably be required by MMSA. C. Sales and Service Records Dealer agrees to keep complete, accurate and current records regarding the sale and servicing of MMSA Products. In order that policies and procedures relating to applications for reimbursement for warranty and policy work may be applied uniformly to all Authorized MMSA Dealers, Dealer agrees to prepare, keep current and retain records in support of requests for reimbursement for warranty and policy work performed by Dealer in accordance with the policies and procedures prescribed in the Warranty Manual and standards established by MMSA consistent with said manual. D. Examination of Accounts and Records Dealer agrees that it will permit MMSA to make examinations and audits of its accounts and records at any time during regular business hours, and in connection therewith, to reproduce and take for its own use copies of Dealer's records including, without limitation, records supporting requests for reimbursement for warranty and policy work performed or to be performed by Dealer. A report of any such examination will be furnished to Dealer. Failure to allow authorized personnel of MMSA to examine, audit, reproduce and take copies for MMSA's use of Dealer's -16- records, whether or not located on the Dealership Premises, shall constitute grounds for termination of this Agreement under Section X.B.2(m) hereof. VII. PROMOTING AND SELLING MMSA PRODUCTS A. Responsibilities of Dealer Dealer agrees to use its best efforts to promote, sell and service MMSA Vehicles and MMSA Parts and Accessories in the Sales Locality. Dealer recognizes that Dealer's fundamental obligation under this Agreement is to stock, sell and service all models and types of MMSA Vehicles distributed in the Sales Locality by MMSA. Accordingly, Dealer expressly assumes responsibility for fulfilling this obligation, and in connection therewith, Dealer expressly agrees to develop that sales volume necessary to meet Dealer's Minimum Sales Responsibility as outlined in this Agreement and as is more particularly described in the Dealer Development Plan. B. Sales and Performance Criteria 1. Dealer Development Plan The parties hereto shall periodically, and in any event at least annually, review Dealer's performance under this Agreement. Dealer's performance will be evaluated on the basis of the performance criteria set forth in the Dealer Development Plan, which criteria shall include such factors as maintenance of facilities, service and sale of MMSA Parts and Accessories and sales performance. During each such periodic review, MMSA shall note in writing any deficiencies it finds in Dealer's performance and operations, and MMSA will offer suggestions for the improvement thereof. MMSA shall give Dealer a reasonable opportunity to implement its suggestions and take other steps necessary to cure deficiencies in Dealer's performance. Dealer agrees to cooperate with MMSA during such evaluation and to furnish any data regarding the Dealer's operations which may reasonably be requested by MMSA. Dealer agrees that it will use its best efforts to meet the performance standards established from time to time by MMSA and to cure any deficiencies set forth in its Dealer Development Plan. Failure by -17- Dealer to correct such deficiencies after having had a reasonable opportunity to do so shall constitute grounds for termination of this Agreement under Section X.B.3.(a) hereof. 2. Determination of Minimum Sales Responsibility If Dealer is the only MMSA Dealer located in the Sales Locality, calculation of Dealer's Minimum Sales Responsibility will be based upon the ratio of sales and registrations of MMSA Vehicles to sales and registrations of competitive vehicles and MMSA Vehicles in the Sales Locality. In metropolitan markets where multiple MMSA Dealers are located, Dealer (together with all other MMSA Dealers in the Sales Locality) will be assigned a percentage share of responsibility for total sales performance in the Sales Locality based upon Dealer's trading area. MMSA may from time to time change the size and/or boundaries of Dealer's trading area after appropriate analyses of new car purchasing patterns in the Sales Locality. Such trading areas will be used solely for the purpose of determining the percentage of sales responsibility assigned to Dealer and should not be interpreted as a market area assigned to Dealer. In evaluating Dealer's performance, MMSA will consider recent trends in Dealer's sale performance and any special local conditions which would uniquely affect Dealer's performance. To the extent that MMSA for any reason, other than Dealer's failure to submit orders or arrange payment, delivers to Dealer less than the number of new MMSA Vehicles that represents Dealer's Minimum Sales Responsibility, Dealer's Minimum Sales Responsibility set forth in the Dealer Development Plan will be reduced accordingly. The term "competitive vehicles" as used in this section shall mean those new vehicles which are from time to time designated by MMSA as competitive with MMSA Vehicles. The term "Dealer's trading area" as used in this section shall mean an area immediately surrounding the Dealership Premises which is determined by MMSA from time to time based upon an analysis of census tracts or other geographical boundaries. -18- C. Sales Operations 1. Sales Organization To enable Dealer to fulfill satisfactorily its responsibilities under this Agreement, Dealer agrees to organize and maintain the minimum number of trained sales and customer relations personnel required by MMSA in the Dealer Development Plan. 2. Representations in the Sales of MMSA Vehicles Dealer agrees that it will sell all MMSA Vehicles in accordance with directives issued by MMSA designating model and model year classifications and will not make any misleading statements or misrepresentations regarding MMSA Products, including without limitation, selling as new any MMSA Vehicle which is not in fact new and unused, misrepresenting the model year or year of manufacture, or the items or prices of the items making up the total selling price of any MMSA Vehicle. Dealer shall not make any statements tending to lead any customer to believe that a greater portion of the selling price of an MMSA Vehicle represents destination charges and/or factory handling charges than the amounts of such items actually charged to and paid for by Dealer. 3. Customer Deposits Dealer will hold in trust until completion of sale any down payment and all other property it may receive from customers in connection with their purchases of MMSA Products. Dealer will not sell or place any lien on any property taken as a trade-in unless at the same time it segregates and holds in trust an amount equal to the trade-in allowance agreed upon with the customer for such property until completion of the sale for which such property was taken as a trade-in. Dealer will ensure that all purchase order forms signed by its customers contain provisions binding Dealer to hold all down payments and other property in the manner specified in this section. -19- D. Advertising 1. Misleading Advertising Both MMSA and Dealer recognize the need for maintaining standards of ethical advertising of a quality and dignity consonant with the reputation and standing of MMSA Products in order to maintain public confidence in, and respect for, Dealer, MMSA and MMSA Products. Accordingly, neither MMSA nor Dealer will publish or cause or permit to be published any advertising relating to MMSA Products likely to mislead or deceive the public or to impair the goodwill of MMSA or Dealer or the reputation of MMSA Products. Dealer shall, promptly upon written notice from MMSA, discontinue any advertising which MMSA, in its sole judgment, considers may be injurious to Dealer's or MMSA's business, or to the reputation of MMSA Products, or likely to mislead or deceive the public, or at variance with the business, advertising or public relations policies of MMSA. 2. MMSA Dealer Advertising Association MMSA and Dealer recognize the benefits which may be derived from a comprehensive joint advertising effort by MMSA Dealers. Accordingly, MMSA agrees to assist MMSA Dealers in the formation and effective operation of such cooperative dealer advertising association. Dealer agrees to cooperate with MMSA in the establishment of such a group and, once it is established, to participate actively and contribute to it in accordance with the bylaws of the association. The MMSA dealer advertising association will finance its advertising programs through the assessment of a fixed charge for each new MMSA Vehicle purchased by member MMSA Dealers. As a service to the dealer association, MMSA will collect the agreed upon charge, provided that the dealer association maintains control over both the amount of the assessment and the manner in which such funds will be expended. 3. Dealer Cooperative Promotional Fund MMSA will establish and maintain general advertising programs and will make sales promotion and campaign materials available to Dealer to -20- promote the sale of MMSA Vehicles. Dealer recognizes that it will benefit from the simultaneous use by all Authorized MMSA Dealers of new model announcement literature, catalogs, banners and like materials and from the economies attendant upon preparation and purchase by MMSA of such basic sales promotion literature, parts and service manuals and other materials for all dealers. Accordingly, Dealer agrees to cooperate in MMSA's advertising programs and to fully utilize the materials offered Dealer by MMSA. MMSA's sales promotion services will include the supply, at no additional cost to Dealer, of new model announcement and other sales promotion materials, and parts and service materials as described from time to time in MMSA sales letters. Dealer agrees to contribute to the cost of MMSA's sales promotion services an amount established by MMSA from time to time for each MMSA Vehicle sold by MMSA to Dealer. These amounts do not include the cost of special campaigns or special literature not described in MMSA sales letters. E. Assistance Provided by MMSA 1. Sales Training Assistance To assist Dealer in the fulfillment of its responsibilities hereunder, MMSA shall offer general and specialized sales management and sales training courses for the benefit and use of Dealer's sales organization. Dealer understands the importance of having a well trained and knowledgeable staff in the successful operation of a dealership and, therefore, Dealer agrees to require the attendance of all its sales personnel at any special courses, meetings or training sessions offered for their benefit from time to time by MMSA. Whenever possible, MMSA will give Dealer thirty (30) days' advance notice of any such mandatory event so that all sales personnel may make arrangements to be present. Repeated failure by Dealer's sales personnel (including but not limited to management) to participate fully in such programs shall constitute grounds for termination of this Agreement under Section X.B.2.(i) hereof. -21- 2. Field Sales PersonnelTo assist Dealer in handling its sales responsibilities under this Agreement, MMSA agrees to provide field sales personnel from time to time to advise and counsel Dealer regarding merchandising, training and sales management. VIII. SERVICING MMSA VEHICLES A. Responsibilities of Dealer Dealer agrees to provide service and parts to all MMSA Vehicles whether or not under warranty and whether or not the MMSA Vehicle to be serviced was purchased from Dealer. 1. Warranty Service Warranty and policy service shall be performed in accordance with the Warranty Manual and any related bulletins and directives issued from time to time by MMSA to Dealer. Dealer shall furnish to the purchaser of each MMSA Product, at the time each product is delivered, copies of any applicable warranties. Dealer shall be responsible for the timely submission of warranty claims in the format required by MMSA. MMSA agrees to compensate Dealer for all warranty and policy work in accordance with procedures and rates established from time to time by MMSA and in accordance with applicable law; and Dealer agrees that such rates shall constitute full and complete payment to Dealer for such work. Dealer agrees that where MMSA reimburses Dealer for warranty or policy work, the customer shall not be obligated to pay any charges for warranty or policy work except as required by law. 2. New Motor Vehicle Pre-Delivery Service Dealer agrees that prior to delivery of each new MMSA Vehicle to a retail customer, Dealer will conduct pre-delivery service and inspections in accordance with the Pre-delivery Inspection Manual. Dealer shall be reimbursed by MMSA for such pre-delivery service and inspection in accordance with procedures and rates established from time to time by MMSA and in accordance with applicable law. -22- 3. Free Maintenance In accordance with directives to be issued from time to time by MMSA, certain maintenance services, excluding lubricant and oil filter costs, may be free of charge to the customer; if Dealer delivers an MMSA Vehicle to a customer pursuant to such directives, Dealer shall be reimbursed according to the terms of such directives. In the event that such free maintenance services are performed by another MMSA Dealer upon an MMSA Vehicle sold by Dealer, Dealer shall pay to such other MMSA Dealer the charge then in effect as established by MMSA for such maintenance services. Conversely, in the event that Dealer performs such free maintenance with respect to an MMSA Vehicle sold by another MMSA Dealer, Dealer shall be entitled to receive from such other MMSA Dealer the amount of such charge. All claims for payment for such charges by or against Dealer shall be processed through MMSA. All such free maintenance services shall be performed in conformity with current service policies and practices as outlined in service manuals, the Pre-delivery Inspection Manual, the Warranty Manual and warranty bulletins or technical service bulletins and directives issued from time to time by MMSA. 4. Use of Parts Dealer agrees not to use in the repair or servicing of MMSA Vehicles parts other than MMSA Parts and Accessories or other parts (including accessories) expressly approved by MMSA unless: a) the replacement parts are equivalent in quality and design to MMSA Parts and Accessories or parts expressly approved by MMSA; or b) the parts to be replaced are not necessary to the mechanical operation of the MMSA Vehicle and the replacement parts will not adversely affect the mechanical operation of the MMSA Vehicle. Failure by Dealer to use MMSA Parts and Accessories or parts expressly approved by MMSA (or other parts equivalent thereto in quality and design) in accordance with the -23- requirements of this section shall constitute grounds for termination of this Agreement under Section X.B.2.(r) hereof. In the event of any dispute or litigation between Dealer and MMSA regarding the use by Dealer of parts other than MMSA Parts and Accessories or parts expressly approved by MMSA, Dealer agrees that it shall have the burden of establishing either: a. that parts used by it are equivalent in quality and design to MMSA Parts and Accessories or parts expressly approved by MMSA; or b. that the parts replaced were not necessary to the mechanical operation of the MMSA Vehicle and the replacement parts would not adversely affect the mechanical operation of the MMSA Vehicle. Dealer agrees that it will not represent or offer to sell as MMSA Parts and Accessories, or parts expressly approved by MMSA, any parts used by it in the repair or servicing of MMSA Vehicles which are not in fact genuine MMSA Parts and Accessories, or parts expressly approved by MMSA. If Dealer uses parts for the service or repair of MMSA Vehicles which are not MMSA Parts and Accessories and which have not otherwise been approved in writing by MMSA for use in MMSA Vehicles, Dealer does so at its own risk and neither MMSA nor any manufacturer of MMSA Products will be responsible to Dealer or any third party for any products liability, warranty or other claim which may arise as a result of the installation and/or use of such parts and Dealer agrees to indemnify and hold MMSA and any manufacturer of MMSA Products harmless from any such claim or liability. 5. Campaign Inspections and Corrections Dealer agrees to perform campaign inspections and/or corrections for owners and users of all MMSA Products that qualify for such inspections and/or corrections, regardless of where or from whom such products were purchased. Dealer further -24- agrees to comply with all procedures relating thereto set forth in the Warranty Manual and applicable bulletins, manuals, directives and technical data issued from time to time by MMSA to Dealer. MMSA agrees to reimburse Dealer for all replacement parts and/or other materials required and used in connection therewith and for labor in accordance with the applicable provisions of the Warranty Manual as supplemented by bulletins and directives issued from time to time by MMSA to Dealers. The term "campaign inspection and/or correction" as used in this section shall mean specially designated service operations initiated by MMSA to be performed by Dealer on specified vehicles. 6. Compliance With Safety and Emission Control Requirements Dealer agrees to comply with, and operate consistently with, all applicable provisions of the National Traffic and Motor Vehicle Safety Act of 1966, as amended, and the federal Clean Air Act, as amended, including applicable rules and regulations issued from time to time thereunder, and all other applicable federal, state and local motor vehicle safety and emission control requirements. In the event that the laws of the state in which Dealer is located require motor vehicle dealers or distributors to install in new or used motor vehicles, prior to the retail sale thereof, any safety devices or other equipment not installed or supplied as standard equipment by MMSA, then Dealer, prior to its sale of any MMSA Vehicles on which such installations are so required, shall properly install such equipment on such MMSA Vehicles. Dealer shall comply with all state and local laws pertaining to the installation requirements of any such equipment including, without limitation, the reporting of such installation. MMSA shall not be liable for any failure of Dealer or its employees to comply with such state and local laws. In the interests of motor vehicle safety and emission control, MMSA agrees to provide to Dealer, and Dealer agrees to provide to MMSA, such information and assistance as may reasonably be requested by the other in connection with the -25- performance of obligations imposed on either party by the National Traffic and Motor Vehicle Safety Act of 1966, as amended, and the federal Clean Air Act, as amended, and the rules and regulations issued thereunder, and all other applicable federal, state and local motor vehicle safety and emission control requirements. B. Service Operations 1. Service and Parts Organization Dealer agrees to organize and maintain a complete service and parts organization, including a qualified service manager, a qualified parts manager and the minimum number of competent service and parts personnel established by MMSA in the Dealer Development Plan. 2. Paint and Body Facilities If permissible under local government ordinances, regulations and statutes, Dealer will use its best efforts to provide paint and body facilities for MMSA Vehicles. Such facilities will be subject to MMSA's prior written approval and, once approved, shall become part of the Dealership Premises and subject to the terms and conditions of this Agreement. If local law does not permit the operation of such services on the Dealership Premises, Dealer agrees to enter into a contract for the services of an independent company in order to provide complete warranty service for MMSA Vehicles. The company selected by Dealer for paint and body services must be approved in writing by MMSA. 3. Workshop In the installation and operation of Dealer's workshop and body and paint shop, if any, Dealer will comply with such standards and requirements as MMSA may prescribe from time to time, particularly with respect to: a) Procurement and maintenance of general tools and equipment, including hydraulic hoists and lubricating equipment; b) Procurement and maintenance of special tools from time to time designated by MMSA as -26- necessary to properly provide warranty and repair services to MMSA Customers; c) Use of workshop forms which may be prescribed by MMSA and use of MMSA customer service promotional material, as well as procurement and maintenance of at least one complete set of MMSA service literature; and d) Proper execution of all service and repair work with respect to MMSA Products. Failure by Dealer to procure and maintain necessary special tools, general tools and equipment shall constitute grounds for termination of this Agreement under Section X.B.2.(k) hereof. 4. Handling of Service Complaints Dealer will receive, investigate and handle all complaints received from MMSA customers with a view to securing and maintaining the goodwill of the public toward Dealer, MMSA and MMSA Products. All complaints received by Dealer which cannot be readily remedied shall be promptly reported in detail to MMSA. Dealer recognizes that the repeated failure to properly resolve customer complaints shall constitute grounds for termination of this Agreement under Section X.B.2.(l) thereof. 5. Stock of Parts Dealer agrees to carry in stock at all times during the term of this Agreement an inventory of MMSA Parts and Accessories and MMSA approved parts and accessories adequate at any given time to enable Dealer to fulfill customer demands, warranty repairs and its other service obligations under this Agreement. For this purpose, Dealer agrees to purchase each year an initial supply of parts for the new models of MMSA Vehicles. MMSA shall at least fifteen (15) days prior to the introduction of new models provide a list of the parts which should be purchased by Dealer. MMSA shall have the right to audit Dealer's inventory from time to time and may require changes in the volume and contents thereof. In addition, Dealer agrees to provide adequate equipment for an effective parts supply operation. Failure to maintain an adequate stock of parts in accordance -27- with standards and requirements established by MMSA shall constitute grounds for termination of this Agreement under Section X.B.2.(o) hereof. 6. Parts Inventory Control MMSA has elected to implement an electronic data processing parts inventory control system for the purpose of providing adequate records regarding the availability of parts. In recognition of the benefits of such a system, Dealer agrees to acquire and install, at its sole expense, on the Dealership Premises a computer terminal for the purpose of utilizing the parts inventory control system offered by MMSA in accordance with MMSA's instructions. Alternatively, at the dealer's own discretion and to meet this requirement, Dealer may use at the Dealership Premises another inventory control system provided that (1) it is fully integrated with an automated accounting system; (2) the inventory control and accounting system software are already operating and controlling the operation of two or more other dealerships which are owned by the Dealer, and (3) the inventory control and accounting software are operated on a single mainframe computer for all such dealerships. This requirement shall not apply to Dealer if Dealer began doing business as an authorized MMSA Dealer prior to November 1, 1985, provided however, Dealer has already installed on the Dealership Premises before said date a parts inventory control system approved by MMSA. 7. Service Rentals In accordance with standards established by MMSA, Dealer shall maintain or have available for use by Dealer's service customers a fleet of rental vehicles adequate to serve the needs of customers who leave their MMSA Vehicles with Dealer for repair or servicing. C. Assistance Provided by MMSA 1. Service Training Assistance Dealer and MMSA both recognize the importance of providing consistent, dependable service of the highest quality to MMSA customers. Accordingly, MMSA agrees to provide service training assistance -28- to Dealer designed to continually improve the level of service provided by Dealer's service and parts personnel. Since MMSA and Dealer recognize that the maximum benefit from such training programs may only be derived if all service and parts employees attend the programs, Dealer agrees to require the attendance of all such personnel. MMSA will endeavor to provide at least thirty (30) days' prior notice of all such mandatory programs to Dealer. Repeated failure of Dealer's service and parts personnel including, but not limited to, management, to attend such sessions shall constitute grounds for termination of this Agreement under Section X.B.2.(i) hereof. 2. Service Manuals and Materials MMSA agrees to provide Dealer with one copy of each service manual or other publication MMSA deems necessary for the operation of Dealer's service organization. Additional copies may be purchased by Dealer at its option. 3. Field Service Personnel Assistance To assist Dealer in handling its service responsibilities under this Agreement, MMSA agrees to make available field service personnel who from time to time will advise and counsel Dealer's personnel on service-related subjects, including product quality, technical adjustment, repair and replacement of product components, owner complaints, warranty administration, service and parts merchandising, training and service management. IX. DISPLAY OF TRADEMARKS, SERVICE MARKS AND TRADE NAMES Dealer acknowledges that MMSA is the exclusive owner of, or is authorized to use and to permit Dealer and others to use, the MMSA Trademarks. During the term of this Agreement, Dealer is granted a nonexclusive privilege of displaying and otherwise using the MMSA Trademarks in connection with and for the purpose of identifying, advertising and selling MMSA Products; provided, however, that Dealer shall promptly discontinue the display and use of any such MMSA Trademarks, and shall change the manner in which any such MMSA Trademarks are displayed and used, whenever requested to do so by MMSA. Dealer shall not use the MMSA Trademarks or the words "Mitsubishi" or "MMSA" or any other word confusingly similar to "Mitsubishi" in its corporate name if Dealer is a -29- corporation, or in its partnership name if Dealer is a partnership, or in its proprietorship name if Dealer is a proprietorship; provided, however, that if MMSA gives its prior written consent, Dealer may use the words "Mitsubishi Motors" as part of the trade name under which it conducts its business. If Dealer uses the words "Mitsubishi Motors" as part of its trade name, upon the request of MMSA or upon the termination of this Agreement for any reason whatsoever, Dealer shall cease to use the words "Mitsubishi Motors" in its trade name and shall take or cause to be taken all steps to eliminate such words therefrom. Dealer will do nothing to impair the value of, or contest the right of MMSA to the exclusive use of, any trademark, design mark, service mark, or trade name at any time acquired, claimed, used or adopted by MMSA. X. TERMINATION OF AGREEMENT A. Dealer May Terminate This Agreement Upon Thirty (30) Days Prior Written Notice To MMSA. B. MMSA May Terminate This Agreement For Cause: 1. Immediately- a) Upon failure of Dealer to keep its MMSA dealership operations, or any part thereof, open for business for a period in excess of five (5) consecutive business days as required under Section IV.F. hereof, except in the event such closure or cessation of operation is caused by some physical event beyond the control of Dealer, such as civil war, riots, fires, floods, earthquakes, or other acts of God; or b) Upon any change in location of the Dealership Premises or upon any change in the amount or usage of the Dealership Facilities or in the event Dealer directly or indirectly conducts any of its MMSA dealership operations at any other location or in any other facilities, without the prior written consent of MMSA; or c) Upon the effective date of the expiration or earlier termination of MMSA's right to distribute MMSA Products. -30- 2. By Giving Thirty (30) Days Prior Written Notice Upon- a) Failure of Dealer to obtain or maintain any license, or the suspension or revocation of any license, necessary for the conduct by Dealer of its business pursuant to this Agreement; or b) Failure of Dealer to pay MMSA for any MMSA Products in accordance with the terms and conditions of this Agreement or the terms and conditions governing the purchase of such products; or c) The death of any Owner or upon the death or incapacity of any Executive Manager (provided that the terms and conditions of Section X.D. hereof shall apply in any such case); or d) Any sale, transfer, relinquishment or other change, voluntary or involuntary, by operation of law or otherwise, of any majority interest in the direct or indirect ownership or in the management of Dealer as set forth in Sections 3 and 4, respectively, of the MMSA Dealer Sales and Service Agreement, without the prior written consent of MMSA; or e) The inability of Dealer to generally pay its debts as such debts become due, or the filing of any voluntary or involuntary petition under any bankruptcy law, or the execution by Dealer of an assignment for the benefit of creditors, or the appointment for Dealer of a receiver or trustee or other officer having similar powers for Dealer who is not removed within thirty (30) days from his appointment thereto, or any levy under attachment or execution or similar process which is not within ten (10) days vacated or removed by payment or bonding, or the conviction of Dealer, or any principal officer or manager of Dealer, of any crime tending to affect adversely the ownership, operation, management, business or interests of Dealer or MMSA; or f) Failure of Dealer to establish or maintain the unrestricted availability of lines of -31- credit in the amount set forth in the Dealer Development Plan and under terms approved by MMSA with financial institutions acceptable to MMSA for use in connection with Dealer's purchase and maintenance of its inventory of MMSA Products as required under the provisions of this Agreement, including, but not limited to, Sections III.C.2. and III.C.4. hereof; or g) Impairment of the reputation or financial standing of Dealer or any of its management subsequent to the execution of this Agreement, or ascertainment by MMSA subsequent to the execution of this Agreement of any fact existing at or prior to the time of execution of this Agreement which tends to impair the reputation or financial standing of Dealer or any of its management and which would substantially impair the operation of the dealership; or h) Any submission by Dealer to MMSA of a false or fraudulent dealership application report, statement or claim for reimbursement, refund, credit, or financial information, or submission to a customer of a false or fraudulent report or statement of any kind, including but not limited to statements concerning pre-delivery preparation, testing, servicing, repair or maintenance; or i) Repeated failure of Dealer's sales, service and parts personnel, including but not limited to management, to fully participate in any training and/or mandatory promotional programs offered by MMSA to Dealer as required under Sections VII.E.1. and VIII.C.1. hereof; or j) Failure of Dealer to properly obtain, erect, maintain, repair and illuminate signs and other displays in a manner approved by MMSA as required under the provisions of this Agreement, including, but not limited to, Section IV.H. hereof; or k) Failure of Dealer to procure and maintain an adequate supply of general and special tools and equipment designated by MMSA as required under the provisions of this Agreement, -32- including, but not limited to, Section VIII.B.3. hereof; or l) Failure of Dealer to maintain good relations with its customers, including, but not limited to, failure to notify MMSA of complaints by customers and repeated failure to properly resolve customer complaints as required under Section VIII.B.4. hereof; or m) Failure of Dealer to permit authorized MMSA representatives to examine, audit, reproduce and take for MMSA's use copies of Dealer's records, whether or not located on the Dealership Premises, as required under Section VI.D. hereof; or h) Failure of Dealer to maintain the minimum inventory of MMSA Vehicles, whether for showroom display, demonstration or immediate sale, as required under Section IV.G. hereof; or o) Failure of Dealer to maintain an adequate stock of parts as required under section VIII.B.5. hereof; or p) Failure of Dealer to accept an amended form of MMSA Dealer Sales and Service Agreement or renewal thereof within thirty (30) days after its presentation to Dealer, as required under Section 2 of the MMSA Dealer Sales and Service Agreement; or q) Failure of Dealer to promote effectively MMSA Products by using sales promotional literature offered by MMSA; or r) Failure of Dealer to use proper parts and accessories in the repair and servicing of MMSA Vehicles as required under Section VIII.A.4. hereof. 3. By Giving Ninety (90) Days Prior Written Notice Upon- a) Failure of Dealer to reach and maintain its Minimum Sales Responsibility as defined in the Dealer Development Plan or to correct deficiencies described in the Dealer Development Plan, as required under Section -33- VII.B.1. hereof, or failure of Dealer to otherwise conduct its business in accordance with any of its obligations or requirements set forth herein to the satisfaction of MMSA; or b) Any material or continuing breach or violation by Dealer of any other term or provision of this Agreement; or c) Any dispute, disagreement or controversy between or among partners, managers, officers or stockholders of Dealer which in the good faith opinion of MMSA adversely affects the ownership, operation, management, business or interests of Dealer or MMSA, or the presence in the management of Dealer of any person who in MMSA's good faith opinion no longer has the requisite qualifications to discharge his or her responsibilities. C. Notice and Effect of Termination The date of any notice of termination shall be the date such notice is mailed. Any notice of termination by MMSA shall inform Dealer of the grounds therefor, and any such notice may be withdrawn if during the applicable notice period Dealer cures to MMSA's satisfaction the condition or conditions upon which the notice is based. If any period of advance notice of termination required hereunder is less than that required by applicable law, such period of advance notice shall be deemed to be the minimum period required by such laws. MMSA's election to terminate this Agreement shall be without prejudice to any other right or remedy which may be available to MMSA hereunder or under applicable law. D. Establishment of Successor Dealer 1. Because of the Death of an Owner In the event of termination of this Agreement by MMSA because of the death of an Owner, pursuant to Section X.B.2.(c) hereof, the following provisions shall apply: a) Subject to the other provisions of this Agreement, MMSA shall offer an MMSA Interim -34- Sales and Service Agreement (a conditional and temporary sales and service agreement the term of which may not exceed one (1) year) in the form then used by MMSA to a successor dealer ("Successor Dealer") comprised of the person nominated by such deceased Owner as his or her successor, together with the other Owner(s), provided that: (i) the nomination was submitted to MMSA in writing, was consented to by all remaining Owners, and was approved by MMSA prior to the death of such Owner; (ii) either (a) there has been no change in the Executive Managers of Dealer or (b) the provisions of Section X.D.2. below have been complied with; and (iii) the Successor Dealer has capital and facilities substantially in accordance with MMSA's established standards and requirements therefor at the time the MMSA Interim Sales and Service Agreement is offered. b) If the deceased Owner has not nominated a successor in accordance with this section, but all of the beneficial interest of the decreased Owner has passed by will or by the laws of intestate succession directly to the deceased Owner's spouse and/or children (the "Proposed New Owners"), subject to the other provisions of this section, MMSA shall offer an MMSA Interim Sales and Service Agreement in the form then used by MMSA to a Successor Dealer comprised of the Proposed New Owners, together with the other Owner(s), provided that: (i) Either (a) there has been no change in the Executive Managers of Dealer or (b) the provisions of Section X.D.2. below have been complied with; and (ii) The Successor Dealer has capital and facilities substantially in accordance with MMSA's established standards and requirements therefor at the time the MMSA Interim Sales and Service Agreement is offered. -35- 2. Because of Death or Incapacity of Executive Manager In the event of the termination of this Agreement by MMSA because of the death, physical or mental incapacity of an Executive Manager, subject to the other provisions of this section of this Agreement, MMSA shall offer an MMSA Interim Sales and Service Agreement to a Successor Dealer comprised of the Owners, provided that: a) Either (i) the Owners have nominated in writing a person to succeed the deceased or disabled Executive Manager which nomination was approved by MMSA prior to the event causing the death, disability or incapacity of such Executive Manager, or (ii) not later than one (1) month after the occurrence of such death or disabling event a new Executive Manager is proposed to MMSA by all of the Owners and such person is approved by MMSA; and b) The Successor Dealer has capital and facilities substantially in accordance with MMSA's established standards and requirements therefor at the time the MMSA Interim Sales and Service Agreement is offered. 3. Evaluation of Successor Dealer During the term of any MMSA Interim Sales and Service Agreement offered pursuant to Sections X.D.1. or X.D.2. hereof, MMSA will periodically review the performance of the Successor Dealer using the standards set forth in the Successor Dealer's Dealer Development Plan. If such Successor Dealer is able to satisfactorily meet such standards and desires to continue the dealership operation, the Successor Dealer will be given an opportunity to enter into an MMSA Dealer Sales and Service Agreement and such Successor Dealer shall be thereafter treated in the same manner as any Authorized MMSA Dealer. 4. Termination of Market RepresentationNotwithstanding anything stated or implied to the contrary in this Agreement, MMSA shall not be obligated to offer a dealership agreement to any Successor Dealer if MMSA notifies Dealer in -36- writing prior to the event causing the termination of this Agreement that MMSA's market representation plans do not provide for continuation of that Dealership operation in the Sales Locality. 5. Termination of Offer Any offer of an MMSA Interim Sales and Service Agreement to a proposed Successor Dealer made under this section shall automatically expire if not accepted within thirty (30) days after presentation by MMSA. E. Continuance of Business Relations If, after the effective date of termination or expiration, MMSA chooses to accept orders from Dealer to fill customers' orders received prior to such date by Dealer, or if MMSA otherwise transacts business with Dealer relating to the sale of MMSA Products, all such transactions will be governed by the terms of this Agreement, so far as those terms are applicable. Nevertheless, no such acceptance of orders or other acts by MMSA shall waive termination or constitute a renewal of this Agreement. F. Discontinuance of Use of Marks Upon expiration or termination of this Agreement, Dealer agrees that it shall immediately: 1. Discontinue the use of the words "Mitsubishi," "MMSA" and all other MMSA Trademarks, or any semblance of any of the foregoing, including without limitation, the use of all stationery and other printed material referring in any way to Mitsubishi, MMSA, or MMC, any other manufacturer of MMSA Products, or bearing any MMSA Trademarks; and 2. Discontinue any use of the words "Mitsubishi," "MMSA" or other MMSA Trademarks, or any semblance of any of the foregoing, as a part of its trade name, and file a change or discontinuance of such name with appropriate authorities; and 3. Remove all product signs bearing any MMSA Trademarks from the Dealership Premises at Dealer's sole cost and expense; and -37- 4. Not represent itself as an Authorized MMSA Dealer; and 5. Refrain from any action including, without limitation, any advertising stating or implying that it is authorized to sell or distribute MMSA Products. In the event Dealer fails to comply with the terms and conditions of this Section X.F., MMSA shall have the right to enter upon the Dealership Premises and remove all such signs bearing any MMSA Trademarks without liability to Dealer; and Dealer agrees that it shall reimburse MMSA for any costs and expenses incurred in connection therewith, including but not limited to reasonable attorneys' fees. G. Repurchase Provisions Upon the expiration or termination of this Agreement, MMSA may at its option purchase from Dealer all or any part of the following: 1. New, unused, undamaged current model year MMSA Vehicles then unsold in Dealer's inventory. The prices of such vehicles shall be the lower of (i) the price at which they were originally purchased by Dealer from MMSA, or (ii) the Invoice Price last established by MMSA for the sale of identical vehicles to MMSA Dealers in the area in which Dealer is located, less in either case all prior refunds or allowances, if any, made by MMSA with respect thereto, and also less any costs and expenses required to place the repurchased vehicles in new car condition. 2. New, unused and undamaged MMSA Parts and Accessories then unsold in Dealer's inventory which are in good and saleable condition, provided that they are listed in the then current MMSA Master Parts Price List and have not been superseded by another part or accessory. All such parts and accessories must be in the original container bearing a label with the appropriate part identification number. Should MMSA elect to purchase parts, the repurchased price shall be the price last established by MMSA for the sale of identical MMSA Parts or Accessories to MMSA Dealers in the area in which Dealer is located, less the maximum dealer's discount available under -38- the most favorable purchase terms available to Dealer and also less handling and packing charges then in effect as established by MMSA. If Dealer purchased MMSA Parts and Accessories from sources other than MMSA, Dealer must present to MMSA evidence of the price which it paid for such parts before MMSA will consider repurchasing such parts. In no event shall MMSA pay a price which exceeds the price for any part as calculated hereinabove. 3. Tools and equipment especially designed for servicing MMSA Vehicles. The prices for such tools and equipment shall be as mutually agreed upon by MMSA and Dealer. 4. Signs recommended by MMSA for identification of Dealer. The prices of such signs shall be as mutually agreed upon by MMSA and Dealer. Within thirty (30) days after the date of expiration or termination of this Agreement, Dealer shall deliver or mail to MMSA a detailed inventory of all items referred to in subsections 1, 2, 3 and 4 above and Dealer shall certify the truth thereof. In the event Dealer fails to supply such a list to MMSA within said period, MMSA shall have the right to enter the Dealership Premises, without liability to Dealer, for the purpose of compiling such an inventory list; and Dealer shall reimburse MMSA for any costs and expenses incurred in connection therewith. If, upon review of the inventory list, MMSA decides to purchase any of the items in subsections 1-4 hereinabove, MMSA will, within a reasonable period of time, provide Dealer with a written offer specifying the items MMSA wishes to purchase. Dealer shall act promptly in arranging for the sale and delivery of such items to MMSA. If Dealer fails to promptly cooperate in effectuating the sale, MMSA may, at its option, withdraw its offer to repurchase. Any purchase made hereunder shall be deemed to be only with respect to those items which were purchased by Dealer from MMSA, unless MMSA by its notice of such purchase states otherwise. Dealer agrees that products to be purchased by MMSA from Dealer shall be delivered by Dealer to MMSA's place of business at Dealer's expense; or, if Dealer fails to do so, MMSA may transport such products and deduct the costs therefor from the repurchase price. Dealer agrees to execute -39- and deliver to MMSA instruments satisfactory to MMSA conveying title to the aforesaid property to MMSA. If such property is subject to any lien or charge of any kind, Dealer agrees to procure the discharge and satisfaction thereof prior to the repurchase of such property by MMSA. XI. POLICY REVIEW BOARD A. Establishment of Policy Review Board In the interest of maintaining harmonious relations between MMSA and Dealer and to provide for the resolution of protests, controversies and claims related to the transactions contemplated under this Agreement, MMSA shall establish the Mitsubishi Motor Sales of America, Inc. Policy Review Board (the "Policy Review Board") to be comprised of two corporate officers and one MMSA Dealer representative. Dealer agrees to abide by the procedures of the Policy Review Board, as they may be revised from time to time by MMSA. B. Appeal of Dealer Appointment to Policy Review Board If, as a result of a market analysis undertaken by MMSA, MMSA proposes to appoint an additional MMSA Dealer in the Sales Locality, and if Dealer objects to such proposed addition, Dealer may file a written objection to such proposed addition with the Policy Review Board in accordance with the procedures established therefor within fifteen (15) days from the date of Dealer's receipt of notice of MMSA's intent to appoint such additional MMSA Dealer. MMSA will not appoint such additional dealer until the Policy Review Board has rendered its decision on the matter and any decision of the Policy Review Board shall be binding on MMSA but not on Dealer. C. Appeal of Termination to Policy Review Board Any protests, controversies or claims by Dealer (whether for damages, stays of action or otherwise) with respect to any termination of this Agreement or the settlement of the accounts of Dealer with MMSA after termination of this Agreement has become effective shall be appealed by Dealer to the Policy Review Board within fifteen (15) days after Dealer's receipt of notice of termination or, as to settlement of accounts after termination, within six (6) months after the termination has become effective. Appeal to -40- the Policy Review Board shall be a condition precedent to Dealer's right to pursue any other remedy available under this Agreement or otherwise available under law. MMSA, but not Dealer, shall be bound by the decision of the Policy Review Board. D. Arbitration of Claims by Dealer If Dealer is dissatisfied with a decision of the Policy Review Board in a case arising under Section XI.C. hereof, Dealer may submit the matter to binding arbitration as hereinafter provided. 1. Arbitration shall be initiated by Dealer by filing a written request therefor within fifteen (15) days after Dealer's receipt of notice of the decision of the Policy Review Board issued under Section XI.C. hereof. Dealer's written request to arbitrate, together with the appropriate filing fee, shall be filed by Dealer with the office of the American Arbitration Association located nearest to the Dealership Premises, which shall then become the site of the arbitration proceedings, unless otherwise agreed to by the parties. The arbitration request shall set forth a clear and complete statement of the nature of Dealer's claim and its basis, the amount involved, if any, and the remedy sought. 2. Arbitration shall be the sole and exclusive remedy of Dealer in such cases, and the decision and award of the arbitrator shall be final and binding on both parties. 3. The arbitration shall be conducted in accordance with the Commercial Rules of the American Arbitration Association then in effect (hereinafter referred to as the "Commercial Rules") and in consonance with the United States Arbitration Act (9 U.S.C. Section 1, et seq.). 4. The arbitration shall be heard by a single, impartial arbitrator mutually agreeable to the parties, who shall be an attorney at law admitted to practice for at least five (5) years and selected from a panel of American Arbitration Association arbitrators. If the parties shall fail to reach such an agreement within fifteen (15) days of the Dealer's request to arbitrate, an arbitrator meeting such qualifications shall be named by the American Arbitration Association from -41- such panel in accordance with the Commercial Rules. 5. If the arbitrator finds that termination of this Agreement by MMSA would be in accord with the provisions hereof, the standards set forth in the Automobile Dealer Suits Against Manufacturers Act, 15 U.S.C. Sections 1221-1225 (the "Dealer's Day in Court Act"), and any applicable state or local law, the arbitrator shall render an award in favor of MMSA, the termination shall become effective on the date of such award, and the termination shall be expressly recognized by Dealer as having been made by MMSA without breach by MMSA of this Agreement, the Dealer's Day in Court Act, or any applicable state or local law. If the arbitrator shall render an award in favor of Dealer, MMSA's notice of termination shall be void and shall not be deemed to constitute a breach of this Agreement. The decision and award of the arbitrator shall be conclusive as to all matters within the arbitrator's jurisdiction in all other proceedings between the parties, their successors or assigns, and judgment upon the award may be entered in any Court of competent jurisdiction. 6. To facilitate the selection of a competent and experienced arbitrator, the parties agree to make reasonable arrangements to compensate the arbitrator for the time spent in the performance of his or her duties. The compensation shall be commensurate with the professional standing of the arbitrator and shall be arranged in conformance with the Commercial Rules. The compensation of the arbitrator, the administrative fees and charges of the American Arbitration Association, and the other expenses of the arbitration shall be borne by the parties as provided in the Commercial Rules. The arbitrator shall, however, have discretion in the arbitrator's award to assess such compensation, administrative fees and charges and other expenses of the arbitration against either party in such proportions (or in their entirety) as the arbitrator may determine to be fair and equitable, provided that in all cases each party shall pay the fees and disbursements of its own legal counsel. 7. Unless MMSA and Dealer specifically agree to the contrary, and subject to the Commercial Rules and the procedures of the American Arbitration -42- Association, the arbitration hearing shall be concluded not more than sixty (60) days after the date of Dealer's written request to arbitrate. XII. GENERAL PROVISIONS A. Indemnification 1. Dealer shall defend and indemnify MMSA and any manufacturer of MMSA Products and hold each of them harmless from any and all liabilities that may be asserted or arise by reason or out of: (a) Dealer's failure or alleged failure to comply, in whole or in part, with any obligation assumed by Dealer pursuant to this Agreement; (b) Dealer's negligent or improper, or alleged negligent or improper, repairing or servicing of new or used MMSA Vehicles or equipment, or such other motor vehicles or equipment as may be sold or serviced by Dealer; (c) Dealer's breach, or alleged breach, of any contract between Dealer and Dealer's customer; or (d) Dealer's misleading statement or misrepresentation, or alleged misleading statement or misrepresentation, either direct or through advertisement, to any customer of Dealer. This indemnification shall include all attorneys' fees, court costs and expenses incurred by MMSA and/or any manufacturer of MMSA Products in defending any claim or suit asserted as a result of the foregoing. In the event that any legal action arising out of any of the foregoing causes or alleged causes is brought against MMSA, any manufacturer of MMSA Products and/or any of their shareholders, then Dealer shall undertake, at its sole expense, the defense of said action on their behalf. Should any tender of such defense be refused by Dealer, then MMSA, any manufacturer of MMSA Products and/or any of their shareholders shall conduct such defense; and Dealer shall be liable to MMSA, any manufacturer of MMSA Products and/or any of their shareholders for costs of such defense, including attorneys' fees, together with any judgment or settlement paid by MMSA, any manufacturer of MMSA Products and/or any of their shareholders. Dealer shall have no obligation to indemnify MMSA and/or any manufacturer of MMSA Products pursuant to this paragraph if the injury or damage as to -43- which indemnification is demanded is alleged to have been caused or contributed to in any way by any act or omission by MMSA and/or any manufacturer of MMSA Products. 2. MMSA and/or any manufacturer of MMSA Products shall indemnify Dealer and hold it harmless from any and all claims for personal injury or property damage resulting from the alleged malfunctioning of an MMSA Product claimed to have been caused by a factory defect or deficiency in design of such product. This indemnification shall include all attorneys' fees, court costs and expenses incurred by Dealer in defending any claim or suit asserted as a result of the foregoing. In the event that any legal action arising out of any of the foregoing causes or alleged causes is brought against Dealer and/or any of their shareholders, then MMSA and/or any manufacturer of MMSA Products shall undertake, at its sole expense, the defense of said action on their behalf. Should any tender of such defense be refused by MMSA and/or any manufacturer of MMSA Products, the Dealer, and/or any of their shareholders, shall conduct such defense; and MMSA and/or any manufacturer of MMSA Products shall be liable to Dealer, and/or any of their shareholders for costs of such defense, including attorneys' fees, together with any judgment or settlement paid by Dealer, and/or any of their shareholders. MMSA and/or any manufacturer of MMSA Products shall have no obligation to indemnify Dealer pursuant to this paragraph if the injury or damage as to which indemnification is demanded is alleged to have been caused or contributed to in any way by any act or omission by Dealer, including, but not limited to, improper or unsatisfactory service or repair, misrepresentation or any claim of Dealer's unfair or deceptive trade practice. 3. Any party seeking indemnification shall promptly give written notice to the proposed indemnitor of any lawsuit and provide copies of any pleadings which have been served, together with all information then available regarding the circumstances giving rise to the suit. The proposed indemnitee shall at all times take all reasonable steps to insure that the defense of such lawsuit is not prejudiced by its action or -44- inaction. The parties shall cooperate fully in the defense of such lawsuit in such manner and to such extent as the indemnitor may reasonably require. B. No Implied Waivers Any failure of either party at any time to require performance by the other party of any provision hereof shall in no way affect the full right to require such performance at any time thereafter, nor shall any waiver by either party of a breach of any provision hereof constitute a waiver of any succeeding breach of the same or any other provision, nor constitute a waiver of the provision itself. The election by either party of a particular remedy on default (including but not limited to termination of this Agreement) will not be exclusive of any other remedy provided hereunder or by applicable law, and all rights and remedies of the parties hereto will be cumulative. C. Waiver of Trial by Jury For all disputes, controversies or claims which may arise between MMSA and Dealer out of, or in connection with, this Agreement, its construction, interpretation, effect, performance or nonperformance, termination or the consequences thereof, or in connection with any transaction between them contemplated hereby, MMSA and Dealer hereby waive, to the extent permitted by law, the right to trial by jury. D. Dealer Not Agent or Representative This Agreement does not make Dealer the agent or legal representative of MMSA or any other manufacturer of MMSA Products for any purpose whatsoever. Dealer is not granted any express or implied right or authority to assume or to create any obligation or responsibility on behalf of or in the name of MMSA or any other manufacturer of MMSA Products or to bind either in any manner whatsoever. E. Assignment Neither party may assign this Agreement or any of its interest herein without the prior written consent of the other party, except that MMSA may assign this Agreement without such consent to any person, firm or corporation succeeding to its business and to any subsidiary or affiliated company of MMSA. -45- F. Expenses Except as provided in this Agreement, MMSA shall not be under any liability whatsoever for any expenditure made or incurred by Dealer in connection with Dealer's performance of its obligations pursuant to this Agreement. G. Taxes Dealer agrees that it shall be responsible for and shall duly pay any and all sales taxes, use taxes, excise taxes, and other governmental or municipal charges, whenever imposed, levied or based upon the sale of MMSA Products by MMSA to Dealer and shall maintain accurate records of same for reporting purposes. Dealer agrees to pay and to hold MMSA harmless from any sales tax, use tax or similar tax, and any claims or demands (whether or not lawful) made by tax authorities with respect to such taxes, applicable with respect to the sale of MMSA Products from MMSA to Dealer and from Dealer to its customers. -46- EX-10.2-7-1 17 EXHIBIT 10.2.7.1 Exhibit 10.2.7.1 OLDSMOBILE DIVISION DEALER SALES AND SERVICE AGREEMENT Oldsmobile has a long-standing tradition of providing quality, family oriented vehicles of good value. Building upon its heritage, Oldsmobile's mission is to be the volume leader in the midsize and large vehicle segments, and to increase its market share with upscale models in other growth segments. Oldsmobile intends to fulfill this mission through the joint efforts of Oldsmobile and its dealers. The long-term growth and mutual success of Oldsmobile and its dealers also depends significantly upon the ability and efforts of its dealers. Oldsmobile expects its dealers to effectively sell, service, and protect the reputation of Oldsmobile Products and to satisfy the customers of Oldsmobile Products in a manner that demonstrates a caring attitude toward those customers. CUSTOMER SATISFACTION FIRST Oldsmobile and Dealer recognize that customer satisfaction is essential to our mutual business success. Therefore, Oldsmobile and Dealer are dedicated to working together to assure complete satisfaction with our Products and services, with the goal that each of our customers will remain lifelong members of the Oldsmobile family. Oldsmobile commits to advise Dealer no less than on a yearly basis of the results of any dealer customer satisfaction index generated by Oldsmobile and to relate such index to local and national geography. In the event that ratings of the satisfaction of Dealer's customers place Dealer in an unsatisfactory position relative to comparable indexes, Dealer shall, upon request of Oldsmobile, cooperate in a comprehensive review of Dealer's performance and participate in a customer satisfaction improvement program designed by Dealer and Oldsmobile. To enhance customer satisfaction, Oldsmobile has implemented the Oldsmobile Edge programs. Dealer participation is essential to the success of these programs, and Dealer agrees to participate in these programs. Oldsmobile may modify these programs from time to time, and Oldsmobile will obtain dealer input before adopting such modifications. COMMUNICATION SECOND Oldsmobile and Dealer recognize the importance of good communication in our business and marketing planning, and in our respective ongoing operations. Oldsmobile has established the following dealer representative entities to counsel with Oldsmobile, and may establish from time to time other representative dealer entities to further enhance our mutual interests. NATIONAL DEALER COUNCIL The responsibility of the Oldsmobile National Dealer Council ("Council") is to develop and maintain a business relationship between Oldsmobile and the dealer body that fosters the mutual interests of both Dealer and Oldsmobile. The Council is composed of dealer elected members representing the various geographical areas of the United States and includes members that represent large and small volume dealers. The Council meets with Oldsmobile at least twice annually to discuss matters of mutual interest and importance. Much progress and improvement has been made over the years as a result of Council input, and Oldsmobile intends to continue this important link of communication with its dealers. In addition to the Council, and recognizing the important contribution of dealers in fulfilling the Oldsmobile mission, Oldsmobile has established three advisory committees to obtain dealer input. These committees are comprised of Oldsmobile Dealer Operators selected by either the Council or Oldsmobile. Dealer agrees that Dealer Operator will serve on the Council or on an Advisory Committee when requested. MARKETING ADVISORY COMMITTEE The purpose of the Marketing Advisory Committee is to promote the exchange of ideas and concerns between Oldsmobile and its dealers on topics relating to the marketing of Oldsmobile Products. Topics may include advertising and incentive activities, product option packages, special options, point of sale material, customer satisfaction and similar activities relating to our mutual marketing objectives. SERVICE ADVISORY COMMITTEE The purpose of the Service Advisory Committee is to provide for the exchange of ideas and concerns between Oldsmobile and its dealers on service related subjects. Subjects may include warranty coverage, customer satisfaction and owner loyalty, -2- service merchandising, dealership premises, dealership training, tools and equipment and service policies and procedures. PRODUCT ADVISORY COMMITTEE The purpose of the Product Advisory Committee is to obtain dealer input into future product programs. Subjects may include product strategies, vehicle specifications, model lineup changes, specialty vehicle programs and color and trim selections. DEALER OPERATOR THIRD Dealer agrees that the following Dealer Operator will provide personal services in accordance with Article 2 of the Standard Provisions: JOSEPH J. MITOLO - -------------------------------------------------------------------------------- DEALERSHIP IMAGE AND DESIGN FOURTH As the point of customer contact with Oldsmobile's Products, the appearance and qualify of dealership Premises can affect the way customers perceive Oldsmobile's Products and Dealer. Dealer, therefore agrees that its dealership Premises will be properly equipped and maintained, and that the interior and exterior retail environment and signs will comply with any reasonable requirements Oldsmobile may establish to promote and preserve the image of Oldsmobile and its dealers. Oldsmobile will take into account existing economic and marketing conditions, and consult with the Dealer Marketing and Service Advisory Committees, in establishing such requirements. To assist Dealer, Oldsmobile will counsel and advise Dealer concerning facility appearance and design. ADVERTISING AND PROMOTIONAL ACTIVITY FIFTH Oldsmobile and Dealer agree to promote Oldsmobile Products in the conduct of their business, refrain from any activity harmful to the reputation of Oldsmobile Products and maintain uniformly high standards of ethical advertising. Oldsmobile believes in and supports dealer advertising associations and encourages Dealer to support and participate in Dealer's local advertising association. -3- DEALER SALES REVIEW SIXTH Oldsmobile will provide to Dealer, at least annually, a written Dealer Sales and Registration Report ("Report") advising Dealer of Dealer's retail sales index, Dealer's state ranking, and Oldsmobile's retail registration index and fleet registration performance in Dealer's Area of Primary Responsibility. Oldsmobile may modify the sales review process from time to time and will obtain dealer input before adopting such modifications. A Retail Sales Index of 100 is the minimum standard for Dealer to be considered in compliance with its commitment under Article 5.1 to effectively sell and promote the purchase, lease and use of Oldsmobile Products. Oldsmobile also expects Dealer to pursue available sales opportunities exceeding the minimum acceptable standard. Additionally, Oldsmobile expectations for performance in an area may exceed the minimum acceptable standard for individual dealer compliance. DEALER SERVICE REVIEW SEVENTH Oldsmobile commits to review at least annually, Dealer's responsibility to provide efficient and quality service to Oldsmobile owners. The manner in which that review will be conducted and those items which will be included in the process will be set forth in the Service Policies and Procedures Manual. Oldsmobile may modify the service review process from time to time and will obtain the input of the Service Advisory Committee before adopting such modifications. TRAINING EIGHTH Oldsmobile and Dealer agree that professional and knowledgeable personnel are essential to customer satisfaction and to the long-term success of Oldsmobile and Dealer. Accordingly, Oldsmobile agrees to make available or recommend product, sales, service and parts, accounting and business management training for its dealers. Dealer agrees that its personnel will attend training identified by Oldsmobile as necessary. If Oldsmobile identifies Dealer deficiencies, Dealer agrees that its personnel will complete courses specified by Oldsmobile. Oldsmobile agrees to consult with the Marketing and/or Service Advisory Committee before adopting additional required training and will consider the Marketing and/or Service Advisory Committee recommendations as to content and frequency of additional required training. Oldsmobile and Dealer acknowledge that competent training from other sources is available and that Dealer may benefit from it. -4- TOOLS AND EQUIPMENT NINTH Oldsmobile and Dealer acknowledge that a properly equipped dealership promotes customer satisfaction and sale of Oldsmobile Products. Oldsmobile agrees to provide Dealer with lists of those tools and equipment that Oldsmobile regards as essential. Dealer agrees that it will acquire and use essential tools and equipment identified by Oldsmobile. Oldsmobile agrees to consult with the Service Advisory Committee prior to requiring additional tools other than those required to service new model Products. BUSINESS MANAGEMENT RESPONSIBILITY TENTH If Dealer is an authorized dealer for more than one division of General Motors, OLDSMOBILE DIVISION will be primarily responsible for administering the provisions of the Dealer Agreements relating to the Dealer Statement of Ownership, Dealership Location and Premises Addendum, and Capital Standard Addendum. OLDSMOBILE DIVISION will execute those documents for all divisions. TERM OF AGREEMENT ELEVENTH This Agreement shall expire on OCTOBER 01, 1997, or ninety days after the death or incapacity of a Dealer Operator or Dealer Owner, whichever occurs first, unless earlier terminated. Dealer is assured the opportunity to enter into a new Dealer Agreement with Oldsmobile at the expiration date if Oldsmobile determines Dealer has fulfilled its obligations under this Agreement. DISPUTE RESOLUTION PROCESS TWELFTH General Motors has long recognized that mutual respect, trust, and confidence are vital to the relationship between General Motors and each authorized dealer. In those instances where a dispute arises between Dealer and Oldsmobile, Dealer is encouraged to present the matter to Oldsmobile management for review. If the matter is not resolved through management review, Dealer is encouraged to submit the dispute to the Dispute Resolution Process. Oldsmobile will provide Dealer with a written copy of the Dispute Resolution Process. Oldsmobile may modify the Dispute Resolution Process from time to time, and will obtain dealer input before adopting such modifications. -5- INCORPORATION OF STANDARD PROVISIONS THIRTEENTH The "Standard Provisions" (GMMS 1013) are incorporated as a part of this Agreement. ADDITIONAL AGREEMENTS AND UNDERSTANDINGS FOURTEENTH The following agreements and understandings are hereby incorporated into this Agreement: (List any special letters, facility agreements, etc.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- IDENTIFICATION OF PARTIES AND EFFECTIVE DATE FIFTEENTH This Agreement, effective OCTOBER 02, 1992, is entered into by General Motors Corporation, Oldsmobile Division ("Oldsmobile"), a Delaware corporation, and J & F OLDSMOBILE-ISUZU PARTNERSHIP, a -X- NEW JERSEY corporation, incorporated on DECEMBER 18, 1978; --- proprietorship; --- partnership; doing business at 315 CLENDENNY AV ON RT 440 JERSEY CITY, NEW JERSEY 07304 ("Dealer"). EXECUTION OF AGREEMENT SIXTEENTH This Agreement and related agreements are valid only if signed: (a) on behalf of Dealer by its duly authorized representative and, in the case of this Agreement, by its Dealer Operator; and -6- (b) on behalf of Oldsmobile by its General Sales and Service Manager and his authorized representative. J & F OLDSMOBILE-ISUZU PARTNERSHIP - -------------------------------------------------------------------------------- Dealership Name OLDSMOBILE DIVISION General Motors Corporation By /s/ Joseph Mitolo 10-2-92 By /s/ D. E. Lahti -------------------------- ---------------------------------- Dealer Operator Date General Sales and Service Manager By /s/ Illegible 10-2-92 ----------------------------------- Authorized Representative Date -7- OLDSMOBILE DIVISION MOTOR VEHICLE ADDENDUM TO GENERAL MOTORS CORPORATION DEALER SALES AND SERVICE AGREEMENT J & F OLDSMOBILE-ISUZU PARTNERSHIP - -------------------------------------------------------------------------------- Dealer Firm Name JERSEY CITY, NEW JERSEY ---------------------------------- City, State Effective November 1, 1990, Dealer, as an authorized Oldsmobile dealer, has a non-exclusive right to buy the following new Motor Vehicles marketed by Oldsmobile Division of General Motors Corporation: PASSENGER CARS ACHIEVA, CUTLASS CIERA, CUTLASS SUPREME, EIGHTY-EIGHT ROYALE, NINETY-EIGHT LIGHT DUTY TRUCK BRAVADA, SILHOUETTE This Motor Vehicle Addendum shall remain in effect unless and until superseded by a new Motor Vehicle Addendum furnished Dealer by Oldsmobile. This Motor Vehicle Addendum cancels and supersedes any previous Motor Vehicle Addendum furnished Dealer by Oldsmobile. OLDSMOBILE DIVISION General Motors Corporation By__________________________________ Signature Date /s/ Illegible 10/2/92 ------------------------------------ OLDSMOBILE ZONE MANAGER (Dealer should file this Motor Vehicle Addendum with Dealer's current Dealer Agreement.) NOTICE OF AREA OF PRIMARY RESPONSIBILITY TO GENERAL MOTORS CORPORATION DEALER SALES AND SERVICE AGREEMENT Effective OCTOBER 02, 1992, the communities and area described below, shall be Dealer's Area of Primary Responsibility for the undersigned division of General Motors. IN THE STATE OF: NEW JERSEY IN THE COUNTY OF: BERGEN THE FOLLOWING WHOLE OR PARTIAL COMMUNITIES: CLIFF PARK CLIFFSIDE PARK FAIRVIEW IN THE STATE OF: NEW JERSEY IN THE COUNTY OF: BERGEN AS DESCRIBED BY THE FOLLOWING U.S. CENSUS TRACTS: 63.00 181.00 182.00 IN THE STATE OF: NEW JERSEY IN THE COUNTY OF: HUDSON THE FOLLOWING WHOLE OR PARTIAL COMMUNITIES: BAYONNE BERGEN BERGEN POINT BERGENLINE CASTLE POINT FORTY THIRD STRE GENERAL LAFAYETT GREENVILLE GUTTENBERG HOBOKEN HUDSON CITY HUDSON HEIGHTS JACKSON AVENUE JERSEY CITY JOURNAL SQUARE MEADOWVIEW MILITARY OCEAN T MONITOR NORTH BERGEN PAMRAPO PARK AVENUE SECAUCUS SUMMIT AVENUE TAURUS TYLER PARK UNION CITY UPTOWN WASHINGTONSTREE WEEHAWKEN WEST NEW YORK WEST SIDE WOODCLIFF IN THE STATE OF: NEW JERSEY IN THE COUNTY OF: HUDSON THE ENTIRE COUNTY LESS THE FOLLOWING U.S. CENSUS TRACTS: 58.02 103.99 123.00 124.00 125.00 126.00 127.00 128.00 129.00 130.00 131.00 132.00 133.00 134.00 135.00 136.00 [COUNTY CONTINUED ON FOLLOWING PAGE(S)] NOTICE OF AREA OF PRIMARY RESPONSIBILITY TO GENERAL MOTORS CORPORATION DEALER SALES AND SERVICE AGREEMENT [COUNTY CONTINUED FROM PRECEDING PAGE(S)] IN THE STATE OF: NEW JERSEY IN THE COUNTY OF: HUDSON THE ENTIRE COUNTY LESS THE FOLLOWING U.S. CENSUS TRACTS: 137.00 138.00 139.00 The Area of Primary Responsibility will be employed by Division to review the effectiveness of Dealer's performance under the Dealer Agreement, and for other matters relating to Dealership Operations. The Area of Primary Responsibility described herein will continue in effect until changed by written notice to Dealer. J & F OLDSMOBILE - ISUZU PARTNERSHIP - -------------------------------------------------------------------------------- Dealer Firm Name JERSEY CITY, NEW JERSEY - -------------------------------------- City, State OLDSMOBILE DIVISION GENERAL MOTORS CORPORATION By /s/ Illegible ------------------------------------ OLDSMOBILE ZONE MANAGER Date DEALER STATEMENT OF OWNERSHIP J & F OLDSMOBILE - ISUZU PARTNERSHIP - -------------------------------------------------------------------------------- Dealer Firm Name JERSEY CITY, NEW JERSEY - --------------------------------------------- City, State - --- a proprietorship, -X- a partnership or --- a corporation incorporated on DECEMBER 18, 1978 in the State of NEW JERSEY The undersigned Dealer hereby certifies that the following information is true, accurate and complete, as of OCTOBER 02, 1992
Names and Titles of all individuals, beneficiaries of trusts or other entities owning 5% or more of Dealer and entitled to receive dividends or profits from Dealer as a If a Corporation, Show result of ownership Active Number of Shares and Class in Value of the Owner- Percentage Dealer- ship Interest of Each of (Identify Holding ship Type* Voting Person Listed Based Ownership Company owners on GMMS (Yes or Number or (Yes or on Dealership's of Record 1014-4) No) Shares Class No) Current Net Worth in Dealer - ------------------------------------------------------------------------------------------------------------------------------- JOSEPH J. MITOLO YES $ 66,525 7.50% PRESIDENT '21' INT'L HOLDINGS, INC. NO $ 603,160 68.00% SAM C. DIFEO NO $ 199,575 22.50% VICE-PRESIDENT EZRA P. MAGER NO $ 17,740 2.00% $ % $ % TOTAL XXX $ 887,000 100.00%
* Indicate various classes of common or preferred stock issued. State Par Value of each share of preferred stock. Remarks: J & F OLDSMOBILE-ISUZU PARTNERSHIP - -------------------------------------------------------------------------------- Dealer Firm Name By /s/ Joseph Mitolo 10/2/92 By /s/ Illegible 10/2/92 ------------------------------------ --------------------------------- OLDSMOBILE DIVISION GENERAL MOTORS CORPORATION J & F OLDSMOBILE - ISUZU PARTNERSHIP - -------------------------------------------------------------------------------- Dealer Firm Name JERSEY CITY, NEW JERSEY --------------------------------- City, State List below any person named on Page 1 that has any ownership in, or is active in the management of, any other entity that merchandises General Motors Automotive products. Name Firm Name, Address and Position and Product Line(s) '21' INT'L HOLDINGS, INC. DIFEO VOLKSWAGEN OF BRIDGEWATER BOUND BROOK NJ OLDSMOBILE PASS CAR SAM C. DIFEO CROWN CADILLAC-OLDSMOBILE, INC. WATCHUNG NJ PRESIDENT OLDSMOBILE PASS CAR CADILLAC PASS CAR EZRA P. MAGER DIFEO VOLKSWAGEN OF BRIDGEWATER BOUND BROOK NJ OLDSMOBILE PASS CAR List below any person named on Page 1 that has any ownership in, or is active in the management of, any other entity that merchandises motor vehicles other than those marketed by General Motors. Name Firm Name, Address and Position and Product Line(s) JOSEPH J. MITOLO J & F ISUZU JERSEY CITY ,NEW JERSEY PRESIDENT ISUZU SAM C. DIFEO HUDSON TOYOTA JERSEY CITY ,NEW JERSEY PRESIDENT TOYOTA SAM C. DIFEO J & F ISUZU JERSEY CITY ,NEW JERSEY PRESIDENT ISUZU STATEMENT OF HOLDING COMPANY OWNERSHIP J & F OLDSMOBILE-ISUZU PARTNERSHIP - -------------------------------------------------------------------------------- Dealer Firm Name JERSEY CITY, NEW JERSEY - -------------------------------------------------------- City, State INVESTORS PERCENT OF OWNERSHIP OTHER INVESTORS 54.76% MARSHALL S. COGAN 45.24% % % % % % % % % % % % % % % % % % % % % % % CAPITAL STANDARD ADDENDUM TO GENERAL MOTORS CORPORATION DEALER SALES AND SERVICE AGREEMENT This Capital Standard Addendum, effective OCTOBER 02, 1992, is pursuant to Article 10 of the Dealer Sales and Service Agreement in effect between General Motors and Dealer. General Motors has determined that the minimum net working capital (standard) necessary for this Dealer to adequately conduct Dealership Operations consistent with the Dealer's responsibilities is $687,000.00. Dealer has established, or will, within a reasonable time, establish and maintain actual dealer net working capital in an amount not less than the minimum amount specified above. GENERAL MOTORS DEALER CAPITAL STANDARD PROGRAM General Motors Corporation has endeavored, through the General Motors Capital Standard Program, to help dealers develop sound financial positions. Over the years, this Program has contributed substantially to the effectiveness and relative permanency of General Motors dealers as a whole. The purpose of the General Motors Dealers Capital Standard Program is to establish the minimum amount of regularly needed net working capital which should be provided by the owners through capital stock, other investment and earnings. A minimum net working capital standard is established for each dealer based on the dealership operations it is expected to conduct under its Dealer Sales and Service Agreement(s). Dealer having actual net working capital equal to the standard established for the dealership operations contemplated at its dealership location should have net working capital sufficient to operate through normal variations in the business cycle, provided its management prudently maximizes the use of those funds. Net working capital, as it is commonly understood, is the difference between current assets and current liabilities without reference to the source from which the working capital has been obtained. As used herein, however, the actual dealer net working capital to be compared to the standard shall be determined by arriving at the sum of Total Current Assets plus Driver Training Vehicles, Lease and Rental Units and Total Accumulated LIFO Writedown minus the sum of Total Liabilities excluding those listed below. Those liabilities which are not subtracted are: 1. Long term notes payable which are qualified long term debt. Qualified long term debt is defined by the following criteria: a. The note must be payable to an owner of Dealer. b. Principal payments must be restricted to profits. c. The amount to be excluded is limited to 50% of the standard. This exception is made because an owner would be less inclined to collect on a note payable at maturity than an outside creditor when payment of such a note would place the dealership in financial jeopardy. 2. Long term notes payable secured by real property. This exception is made because dealers are not required to own land and buildings which they use. Many dealers, however, elect to acquire and hold title to all or a portion of such real property, thereby investing a portion of the total equity capital in land and buildings which would otherwise be available for working capital purposes. J & F OLDSMOBILE - ISUZU PARTNERSHIP - -------------------------------------------------------------------------------- DEALER FIRM NAME JERSEY CITY, NEW JERSEY - -------------------------------------------------- City, State OLDSMOBILE DIVISION GENERAL MOTORS CORPORATION By /s/ 10/2/92 --------------------------------------- OLDSMOBILE ZONE MANAGER Date LOCATION AND PREMISES ADDENDUM TO GENERAL MOTOTS CORPORATION DEALER SALES AND SERVICE AGREEMENT The undersigned Dealer and the undersigned Division of General Motors Corporation, acting for itself and the other Division(s), if any, identified on Page 4, hereby agree that as of the effective date shown below: 1. Part I on Page 3 hereof, entitled "Description of Premises," identifies the Location and describes the Premises at which Dealer is authorized to conduct Dealership Operations under the Dealer Agreement(s). Dealer also represents that Part I accurately reflects the terms under which it occupies the premises and the manner in which each is used for GM Dealership Operations. 2. Part II beginning on Page 4 hereof, entitled "Premises Space Analysis," sets forth the actual space Dealer represents it uses in GM Dealership Operations, and the actual space at the same locations used by Dealer for a purpose other than GM Dealership Operations. All changes in the Location and Premises that may be agreed upon by Dealer and General Motors pursuant to provisions of Article 4.4 of the Dealer Agreement(s) requirements shall be reflected in a new Location and Premises Addendum executed by Dealer and General Motors. J&F OLDSMOBILE - ISUZU PARTNERSHIP - -------------------------------------------------------------------------------- Dealer Firm Name JERSEY CITY, NEW JERSEY - ------------------------------------------------------ City, State OLDSMOBILE DIVISION GENERAL MOTORS CORPORATION By /s/ Jospeh Mitolo ---------------------------- Signature Title By By /s/ Illegible ---------------------------- ------------------------- Signature Title OLDSMOBILE ZONE MANAGER 10/2/92 10/2/92 - ------------------------------ ------------------------- Date Date Identify any special letters in effect or special or unusual circumstances relating to Dealership Premises: (Turn to page 2 for instructions for completing this form) INSTRUCTIONS FOR COMPLETING LOCATION AND PREMISES ADDENDUM Page 1 - When pages 3 and 4 are completed, page 1 of the Addendum should be signed and dated by Dealer. Page 3 - "LOCATION, USE AND OWNERSHIP OF PREMISES" Column A - Indicate the STREET ADDRESS and USE of each separate location used by Dealer in the GM Dealership Operation. Also indicate the distance of each separate location from the main location, in tenths of miles. A "separate" location is one that is not immediately adjacent to the dealership main location. Column B - Indicate by "X" whether the premises at each location are owned and carried as a dealership asset or leased. Column C - If premises are leased, indicate for each such location the name of the lessor, the beginning and expiration date of the lease, the annual rental and the terms of any renewal options. SECTION D - Provide total roofed and unroofed square footage as indicated. Page 4 - Part II - "PREMISES SPACE ANALYSIS" In Columns A and C, indicate the actual number of stalls available in each of the departments listed on lines 1 thru 8, used for operations under GM Agreement(s). In Columns B and D, indicate the stalls used for operations under "Other" product agreements. The following should be taken into consideration when completing each line: Line 1 - Specify the number of stalls in building and lot used for the display of new cars and trucks ready for sale. Line 2 - Number of stalls used for the display of used cars and trucks, including used vehicles awaiting reconditioning and wholesaling. Line 3 - Show productive service stalls available in building. Line 4 - Number of stalls used for sheet metal repairs, panel refinishing, frame straightening and all other body related services. Line 5 and 6 - Number of stalls for service reception and customer parking. Line 7 - Number of stalls in building and lot used for new vehicle storage. Line 8 - Number of stalls devoted to employe and demo parking and miscellaneous activities not included in line 1 above. Line 9 - Total of lines 1 - 8. Line 10 and 11 - Specify, in square feet, in Column A the space used for operations under your GM Agreement and in Column C the space used for "Other" operations. Line 12 - Total of Lines 10 and 11. GENERAL PROVISIONS GM PULSAT NETWORK EQUIPMENT INSTALLATION AGREEMENT 1. Consents. As used herein, "landowner" means each fee titleholder and all other persons holding an interest in the Dealer's dealership premises where Pulsat Equipment is to be installed ("Premises"), including land and improvements, which interest affects Dealer's occupation and possession of the Premises, and their respective successors and assigns. Dealer will obtain from each landowner its consent to this Equipment Installation Agreement and to the installation, maintenance, removal and operation of the Pulsat Equipment pursuant to this Equipment Installation Agreement, and to any changes required to be made to the Premises as deemed necessary by GM in order to provide adequate support and any necessary power wiring or any electrical equipment. Such consent of landowners will acknowledge the clear and unencumbered title to said Pulsat Equipment in GM and the right to remove the Pulsat Equipment as provided herein. Dealer is responsible for any changes associated with such consent. In the event Dealer is unable to obtain the consent of any landowner in the form provided by or satisfactory to GM within ten days from the date of execution hereof, then this Agreement will become voidable at the option of GM, and upon GM's exercise of such option the parties will be released from all obligations hereunder. 2. Installation Restrictions. It is agreed with respect to each piece of Equipment subject to this Agreement that: (a) It will comply with all applicable state and local laws, ordinances and regulations, and all required installation permits therefore must be obtained from the appropriate governmental authorities. (b) In GM's judgment, it must be practicable from both an engineering and a financial standpoint to install the Pulsat Equipment at the Premises. Dealers will cooperate with and assist GM in accomplishing installation of the Pulsat Equipment within the foregoing limitations. If no Equipment offered by GM will meet the foregoing limitations, this Agreement will become null and void and the parties will be released from all obligations hereunder. 3. Installations. Pulsat Equipment will be installed at such date and time as may be reasonably scheduled by GM; GM will not be liable for any delays in commencing or completing the installation thereof. GM agrees to install the Pulsat Equipment upon the Premises in accordance with the specifications set forth herein. Dealer agrees to allow GM to remove or relocate any existing equipment which may interfere with or be duplicative of Pulsat Equipment. Upon termination of this Agreement GM will not be responsible for the replacement of any equipment so removed or relocated. Dealer will provide normal power and any telephone hookup required for use of the Equipment. 4. Additional Equipment/Services. The basic Equipment configuration, basic installation and basic maintenance provided without separate charge by GM are described further in written procedures provided by GM from time to time, and are subject to change if changes are made for dealers in general. Any agreement or services required by Dealer in addition to the basic levels provided herein are subject to a separate charge. GM offerings of additional equipment and services for use with the GM Pulsat Network, and charges therefore, are also described in the written procedures. Any charges hereunder will be calculated in accord with GM's then published schedule of (2) charges, which is subject to change from time to time, and will be debited to Dealer's open account. Additional installation services may include such things as additional cable, special footings, and related work required for a non-standard installation resulting from inability to locate the satellite dish in close proximity to the other Equipment or to mount it in a standard fashion, removal of unrelated antennas, installation of an electrical outlet for operation of the Equipment, or installation of additional television hookups within the Premises for receiving the satellite video signal. Installation of the Pulsat Equipment establishes Dealer's Premises as a node on the GM Pulsat Network. To receive video applications, Dealer must provide the necessary television and video recording equipment. To use the data communications applications, Dealer must obtain hardware and software from an authorized dealer systems provider and have a service agreement with GM for access to GM's host computer. 5. GM's Property. All Pulsat Equipment installed pursuant to this Agreement will be appropriately marked and identified as the property of GM (including its affiliates). Dealer will ensure that such stickers, labels or plaques as become affixed to the Equipment so as to mark and identify it as property of GM are not removed, damaged or obscured. Dealer agrees to take such measures and precautions as are necessary to ensure that Equipment remains on Dealer's Premises as installed and is protected from damage, deterioration and other abuse. Upon GM's request Dealer will execute such documents as GM may require for filing in public records to give notice that the Pulsat Equipment is the property of GM bailed to Dealer. Dealer will take such further actions as GM may from time to time require so as to protect GM's interest in the Equipment. GM may inspect the Equipment at the Premises at any time during Dealer's normal business hours. 6. Equipment Relocations. No Equipment subject to this Agreement will be relocated except as expressly authorized by GM. Authorization by GM of any relocation will be evidenced by a writing, which will be made part of this Agreement effective as of the date noted thereon. The expense of any authorized relocation will be borne by Dealer. In the event of any unauthorized relocation, GM will have the option of restoring the Equipment to the location specified herein, or of inspecting the Equipment as relocated and taking such measures as GM deems appropriate to bring such Equipment into compliance with GM's installation specifications, and in either such event Dealer will bear the expense thereof. 7. Dealership Relocation. In the event Dealer relocates its dealership operations to new premises, GM will have the option either of terminating this Agreement without any further obligation or liability to Dealer hereunder, or amending this Agreement to cover the new location, in which case this Agreement will be amended accordingly and the new landowner consents obtained as appropriate, and the expense of removing the Equipment from the old location and of installing it at the new location will be borne by Dealer. 8. Termination. This Agreement will automatically terminate and be of no force and effect, without notice, upon the termination by GM or Dealer of Dealer's Dealer Sales and Service Agreement(s) with GM, the non-renewal of such Dealer Sales and Service Agreement(s) upon the expiration of its term, the termination of Dealer's DCS Service Agreement with GM, or if for any (3) reason Dealer vacates the Premises or ceases to operate them in the regular course of business for the sale and service of GM vehicles as an authorized dealer. Upon such termination Dealer will remain responsible for any damage to the Equipment until it is removed. This Agreement will not operate or be construed to extend, or imply intention to extend, Dealer's Dealer Sales and Service Agreement(s) with GM beyond its expiration or in any way whatsoever affect the rights and obligations of either of the parties to such Dealer Sales and Service Agreement(s). 9. Taxes and Permits. GM will report and pay any personal property taxes applicable to its property bailed to Dealer under this Agreement. Dealer will cooperate with and assist GM in identifying any applicable personal property taxes. Dealer will cooperate with and assist GM in obtaining any permits or licenses required for installation of the Equipment. Thereafter, Dealer will be responsible for and obtain and maintain any permits or licenses necessary for the Equipment. If Dealer fails for any reason to maintain such permits or licenses, GM may do so and charge the cost of said permits or licenses, or any other such cost due to such failure, to Dealer. 10. Ordinance Changes. Dealer will notify GM of any changes in local ordinances or regulations which affect the Equipment subject to this Agreement. GM will perform any alterations or relocations necessary to comply with said changes at Dealer's expense. 11. Dealer's Use of Equipment. Dealer agrees to use the Equipment only in connection with authorized transmissions over the GM Pulsat Network and in accordance with written procedures provided by GM from time to time. Dealer further agrees to use the video programming only in connection with Dealer business under its GM Dealer Sales and Service Agreement. Dealer will take no action which may interfere with normal operation of the Equipment or increase the expense of operating or maintaining the Equipment. No banners, signs, lights, or other materials of any kind whatsoever will be attached or affixed to the Equipment or any part thereof, including the satellite dish and its supporting structure. 12. No assignments by Dealers. This Agreement may not be assigned by Dealer except with the express prior written consent of GM. Any attempt by Dealer to assign this Agreement without consent will be deemed a void assignment and constitute default by Dealer of the terms and conditions hereof. 13. Operation and Maintenance. Dealer will use its best efforts to keep the Equipment in good working order and condition and operate the Equipment in accordance with written procedures provided by GM from time to time, which may include routine maintenance procedures. Dealer will notify GM promptly whenever the Equipment requires any repairs or services. GM will be responsible for providing and paying for all such repairs or services; however, Dealer will reimburse GM for any repairs or services which become necessary as a result of abuse, misuse, or negligent use of the Equipment or failure to comply with procedures prescribed by GM. Dealer will provide GM and its contractor with access to the Premises and Equipment as required for repairs or services. 14. Equipment Damage or Destruction. In the event of damage to or destruction of Pulsat Equipment by any cause whatsoever, GM may rebuild, replace or restore said Equipment. (4) Dealer will be solely responsible for damages to or destruction of Equipment caused by or resulting from any act, omission or negligence of Dealer, its agents, invitees, employes or guests. Dealer will promptly reimburse GM for the cost to GM to repair or replace Pulsat Equipment when damages result from Dealer's or its agents', invitees', employees' or guests' act, omission or negligence. GM will carry at its expense Comprehensive General Liability Insurance on the Equipment in the amount of at least two million ($2,000,000) dollars, combined single limit. The maintenance of such insurance by GM will in no way limit or release Dealer from liability as more particularly set forth herein. GM will furnish a Certificate of Insurance upon request to any landowner. IN NO EVENT WILL GM BE LIABLE TO DEALER OR THIRD PARTIES FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES SUCH AS BUT NOT LIMITED TO LOSS OF ANTICIPATED PROFITS, OTHER ECONOMIC LOSS, LOSS OF USE OF EQUIPMENT OR MATERIALS, COST OF SUBSTITUTE EQUIPMENT OR MATERIALS, OR DOWNTIME COST(S) IN CONNECTION WITH OR ARISING OUT OF THE FURNISHING, FUNCTIONING OR USE OF ANY ITEM OF EQUIPMENT OR SERVICE PROVIDED FOR IN THIS AGREEMENT. 15. Equipment Removal. It is agreed that the Pulsat Equipment is and at all times pertinent hereto will remain personal property, owned by GM (including its affiliates), and that even though attached or connected to real estate it will not become or be deemed to be real estate improvements, fixtures or appurtenances. GM will have the right, at the expiration or termination of this Agreement, to remove all Equipment bailed to Dealer pursuant hereto. GM will not be required to remove any satellite dish foundations or footings in their entirety, but only to grade level. In the case of a roof-mounted satellite dish, removal will be deemed complete when any structure is removed to several inches above the roof level, even though columns or supports may extend below. GM will endeavor to complete the removal within ninety days following termination of this Agreement or following GM's receipt of a written request therefore from Dealer or a landowner in lawful possession of the Premises. 16. Defaults by Dealer. In the event Dealer is in default of any provision of this Agreement for a period of sixty days, then GM may, at its option, terminate this Agreement, remove the Pulsat Equipment from the Premises and be relieved of all obligations to Dealer under this Agreement. Any waiver or non-enforcement by GM of a breach of this Agreement on the part of Dealer will not constitute a waiver of any further or future breach by Dealer. In the event of termination of this Agreement pursuant to this section, Dealer will be responsible for any damage to the Equipment until it is removed. 17. Advance Notice By Dealer. Dealer agrees to notify GM in writing at least thirty days in advance of any impending sale, mortgage, or property lease expiration of the real estate and improvements used by Dealer as dealership facilities. 18. Equipment and Service Changes by GM. GM will have the right (but not the duty) to change the Pulsat Equipment installed pursuant to this Agreement, and related services, if similar changes are made for dealers in general. GM will have the further right (but not the duty) to change the size, style, design, specifications and type of Equipment or relocate any or all Equipment installed pursuant to this Agreement if in the opinion of GM such change or (5) relocation is desirable to promote better performance. Any additional or replacement equipment will be deemed Pulsat Equipment under this Agreement. 19. Assignment or Delegation By GM. All obligations under this Agreement to be performed by GM may, at GM's option, be performed by parties with whom GM has contracted for such performance or such parties as may be designated by GM to perform the obligations. GM reserves the right to assign this Agreement. 20. Notices. All notices required by or permitted under this Agreement will be in writing and will be deemed received when sent by certified or registered mail properly addressed to the other party at the business address shown on the Equipment Installation Agreement, or when actually delivered to the other party. Either party may substitute for itself a new address by due notice to the other party. 21. General. This Agreement, including these General Provisions and GM's written procedures described herein, constitutes the full understanding of the parties, and a complete and exclusive statement of the terms and conditions of their agreement pertaining to the Pulsat Equipment. It cancels and supersedes all prior understandings and agreements between them, whether express or implied, pertaining to Dealer's acquisition and use of the Equipment. No understanding or agreement which purports to modify or supplement this Agreement will be binding unless hereafter made in writing and signed by the parties to be bound thereby. This Agreement is binding on the parties and their respective successors and permitted assigns. It is governed in all respects by the laws of the State of Michigan. If any term, condition or provision of this Agreement or the application thereof is judicially or otherwise determined to be invalid or unenforceable, or if the parties mutually agree in writing to any revision of this Agreement, the remainder of this Agreement and the application thereof will not be affected, and this Agreement will otherwise remain in full force and effect. [PULSAT LOGO] GM PULSAT NETWORK EQUIPMENT INSTALLATION AGREEMENT This Agreement is made between General Motors Corporation ("GM") and the party identified below as "Dealer." Reference is made to (1) Dealer's Dealer Sales and Service Agreement(s) for GM vehicles, (2) Dealer's DCS Service Agreement and any other service agreement(s) pertaining to transmittal of authorized data over the GM Pulsat Network. Where Dealer is not the landowner, this Agreement is signed by Dealer's authorized representative in conjunction with a Consent and Agreement of Landowner providing the landowner's consent for installation and removal of the Equipment. This Agreement is effective upon signature by an authorized Dealer representative and a GM Pulsat Network authorized representative. 1. Dealer agrees to the installation, maintenance, removal and operation of the Equipment described herein ("Pulsat Equipment" or "Equipment"), which Equipment is bailed to Dealer in accord with this Agreement, including the General Provisions attached hereto. 2. No separate charge is made to Dealer for a basic Equipment configuration, Dealer's use of the Equipment in connection with the GM Pulsat Network, basic installation, or basic GM provided maintenance. The basic Equipment configuration, installation and GM provided maintenance are described below and in the General Provisions. If the Dealer requires Equipment or services other than or in addition to the basic levels, they are also described below and will be subject to a separate charge. 3. Dealer acknowledges the Equipment is the property of GM (including affiliated companies) held by Dealer in bailment. Upon termination of the Agreement GM may remove from the installation premises all of the Equipment installed hereunder, and GM's only obligations upon such removal will be those described in the General Provisions. Dealer 315 CLENDENNY AV ON RT 40 ------------------------- Address: JERSEY CITY, NEW JERSEY 07304 ----------------------------- Business Management Division (BMD): OLDSMOBILE DIVISION ------------------------- Premises of Installation (if different from above): BMD Dealer Code: 02015 ----- ------------------------------ ------------------------------ Basic Equipment: Optional Equipment/Services: Digital Interface Unit (DIU) ___ Antenna De-icer Integrated Receiver Decoder (IRD) ___ Extended Maintenance Very Small Aperture Terminal (VSAT)___ ____________________ ____________________ GM Pulsat Coordinator: Name:______________________________________ Phone: _____________________ Alternate:_________________________________ Phone: _____________________ J & F OLDSMOBILE-ISUZU PARTNERSHIP ---------------------------------- Dealer Firm Name GENERAL MOTORS CORPORATION By /s/ Joseph Mitolo 10/2/92 By /s/ Illegible ------------------------------------- -------------------------------- Signature and Title Date General Director, Dealer Systems By /s/ Illegible 10/2/92 ------------------------------------- -------------------------------- uthorized Representative Date After signing above, mail document to: GM Pulsat Network, Administrative Offices, P. O. Box 500, Troy, MI 48007-0500 PART I DESCRIPTION OF PREMISES J & F OLDSMOBILE - ISUZU PARTNERSHIP --------------------------------------------- Dealer Firm Name JERSEY CITY, NEW JERSEY OCTOBER 02, 1992 - ------------------------------------- ------------------------------- City, State Date of this GMMS (Mo., Day, Yr.) JANUARY 1973 JANUARY 1979 - ------------------- ------------------- ------------------------------- Facts Dealer Number Date Main Facility Date Main Facility Remodeled or Constructed(Mo., Yr.) Added to (Mo., Yr.) LOCATION, USE AND OWNERSHIP OF PREMISES
A Identify by street address each separate B Indicate by C IF LEASED, INDICATE: dealership location and describe how each (X) Whether Name of Lessor: is used for GM operations. Specify: Beginning and Expiration NEW VEHICLE SALES, USED VEHICLE Date of Lease SALES, SERVICE, PARTS, OFFICE, Premises Are NEW VEHICLE STORAGE, BODY SHOP, etc. Also indicate distance of each separate Annual Rental: $ location from main location. Dealer Leased Renewal Option: Term and Asset Annual Rental MAIN 315 CLENDENNY AV ON RT 440 X J&S EQUITY JERSEY CITY, NEW JERSEY 06-01-1983 THRU 05-31-1993 NEW DISP. USED DISP, MECHANICAL, SERV $180,000 RECP, PARK-CUST, GEN OFFICE, PARTS 10 YEAR WITH 10 YEAR 2 45 BENNETT JERSEY CITY, NEW JERSEY J&S EQUITY ASSOC. SERV RECP, PARK-CUST, EMP PK/MSC X 06-01-1983 THRU 05-31-1993 0.1 MILES FROM MAIN SAME AS MAIN FACILITY 3 34-30 BENNETT STREET JERSEY CITY, NEW JERSEY ADELE MIRTO 11-01-1987 THRU 10-31-1990 USED DISP, SERV RECP, NEW STORAGE X $36,000 0.1 MILES FROM MAIN 4 27-37 BENNETT STREET JERSEY CITY, NEW JERSEY ADELE MIRTO 11-01-1987 THRU 10-31-1990 SERV RECP, PARK-CUST, EMP PK/MSC X $12,000 0.1 MILES FROM MAIN 5 599 RT. 440 JERSEY CITY, NEW JERSEY J & S FORD NEW STORAG X $36,000 0.1 MILES FROM MAIN 6 MILES FROM MAIN
TOTAL DEALERSHIP IN SQUARE FEET D GM Use Other Use Total Area ------------ --------------- ---------------- Total Building 22,074 14,350 36,424 Total Lot 37,000 4,000 41,000 Grand Total 59,074 18,350 77,424 (Location and Premises Addendum continued) PART II PREMISES SPACE ANALYSIS J & F OLDSMOBILE - ISUZU PARTNERSHIP ------------------------------------------ Dealer Firm Name JERSEY CITY, NEW JERSEY OCTOBER 02, 1992 - ---------------------------------------- ---------------------------- City, State Date of GMMS 1016 (Mo., Day, Yr.)
Actual Space in Number of Stalls TOTAL Lot DEPARTMENTAL ALLOCATION Building (Do not include building) GM Use Other Use GM Use Other Use (A+B+C+D) (A) (B) (C) (D) (E) (1) New Vehicle Display 8 6 14 (2) Used Vehicle Display 67 67 (3) Productive Service - Mechanical 17 9 26 (4) Productive Service - Body (5) Service Reception 5 1 6 (6) Parking Customer 70 22 92 (7) New Vehicle Storage 400 100 500 (8) Employee Parking and Miscellaneous 35 5 40 (9) Total of Lines (1) through (8) 30 16 572 127 745 Actual Space in Square Feet TOTAL GM Use Other Use (A + B) (A) (B) (E) (10) General Office 3,000 1,400 4,400 (11) Parts 6,000 2,950 8,950 (12) Total of Lines (10) and (11) 9,000 4,350 13,350 CAR LINES HANDLED General Motors Division(s) Non-GM Lines Handled OLDSMOBILE
GM space requirements are currently under review and updated GM space requirements will be published in the Service Policy and Procedures Manual. SUCCESSOR ADDENDUM TO GENERAL MOTORS CORPORATION DEALER SALES AND SERVICE AGREEMENT This Successor Addendum is effective OCTOBER 22, 1992 and --------------------------------------- is executed pursuant to the provisions of Article 12.1 of the current Dealer Agreement in effect between the undersigned Dealer and Division of General Motors. On the basis of the information provided by Dealer, in connection with the Request for Execution of Successor Addendum, Division and Dealer Agree that: 1. Subject to paragraphs 2 and 3 below, the proposed dealer operator(s) for purposes of designating and establishing a proposed successor dealer as provided in Article 12.1 of the Dealer Agreement shall be JOSEPH C. DIFEO --------------------------------------------------------------- --------------------------------------------------------------- 2. If more than one current Dealer Operator is named in 1 above, a. the remaining Dealer Operator alone shall have the right to designate a proposed successor dealer, or ___ Yes b. all of the proposed dealer operators who remain or survive,including the remaining Dealer Operator, shall acting together have such rights, ___ Yes 3. The following person(s), if any, shall be proposed owner(s) (indicate "none", if applicable): NONE - ------------------------------------------------------------------- - ------------------------------------------------------------------- 4. Dealer may cancel an executed Successor Addendum at any time prior to the death of any party named as Dealer Operator in Paragraph THIRD of this Agreement. General Motors may cancel an executed Successor Addendum only if the proposed dealer operator no longer complies with the requirements of Article 12.1.1. The parties may execute a new and superseding Successor Addendum by mutual agreement. If Division has previously notified Dealer that it does not plan to continue Dealership Operations at the Dealership Location, Division shall have no obligation to execute a Successor Addendum, except for a renewal of an existing Successor Addendum with the same proposed dealer operator provided Dealer and the Proposed Dealer Operator comply with the requirements of Article 12.1.1. 5. This Addendum shall become null and void upon the execution of a new Dealer Agreement by Dealer and Division. 6. This Successor Addendum cancels and supersedes any previous Successor Addendum between the parties. J & F OLDSMOBILE - ISUZU PARTNERSHIP -------------------------------------------------------------------- Dealer Firm Name JERSEY CITY, NEW JERSEY ---------------------------------------------------------- City, State OLDSMOBILE DIVISION General Motors Corporation By /s/ Joseph Mitolo, President By /s/ Illegible ----------------------------------- ------------------------------------- Signature and Title Date OLDSMOBILE ZONE MANAGER Date The undersigned, as all Dealer Operator(s) and Owner(s) of Dealer, hereby individually signify their concurrence with the above agreements and waive any rights in conflict with the above agreements they may have or acquire under either the Dealer Agreement or applicable law. /s/ Jospeh Mitolo - ------------------------------------- ---------------------------------------- DATE DATE /s/ Sam C. DiFeo - ------------------------------------- ---------------------------------------- DATE DATE -27- [LETTERHEAD OF OLDSMOBILE] October 2, 1992 J & F Oldsmobile-Isuzu Partnership 315 Clendenny Avenue, Route 440 Jersey City, New Jersey 07304 Attention: Joseph J. Mitolo Samuel C. DiFeo Ezra P. Mager Marshall S. Cogan Gentlemen: This "Letter Agreement" will confirm our discussions regarding your request that Oldsmobile Division approve the ownership of your dealer entity J & F Oldsmobile-Isuzu Partnership (30%) and DiFeo Partnership, Inc. (70%) - through a holding company arrangement. This holding company arrangement is shown in Exhibit 1. The General Motors Corporation Dealer Sales and Service Agreement is a personal service contract requiring that the person named as Dealer Operator in Paragraph THIRD, Mr. Joseph J. Mitolo will actively exercise full managerial authority in the Dealership Operations, and that all Owners of Dealer will each continue to own, both of record and beneficially, the percentage of ownership set forth in the Dealer Statement of Ownership. In order to maintain the reputation and goodwill of Oldsmobile and its dealer network, Oldsmobile retains the right to identify and approve each party participating in the financial ownership and general management of dealerships selling and servicing its automotive product. Experience has shown that successful dealerships, in general, are those in which the individual or individuals who operate the dealership enjoy the financial benefits resulting from their successful management. It has also been found that a dealership cannot generally be operated satisfactorily where the handling of operating details are subject to actual or potential interference by parties who are solely financial participants. Further, it has been Oldsmobile's policy for many years to be able to identify and approve each party participating in the financial ownership and general management of dealerships franchised by Oldsmobile Division. Jersey City, New Jersey Page Two October 2, 1992 For reasons such as these, Oldsmobile has had an operating policy that provides that Oldsmobile may approve ownership of a dealer entity by a corporation or holding company, with the express provision that there be no change in the composition of the financial interests and/or ownership comprising such corporation or holding company unless such change has first been accepted and approved by Oldsmobile in writing. Further, that the Dealer Operator shall own an unencumbered interest in the dealer company and/or of the holding company that is at least equivalent to 15% of the greater of: (a) The total equity investment of the dealer entity (excluding real estate); -OR- (b) The sum of the dealer entity's net working capital standard amount, plus all fixed and other assets (excluding real estate) net of depreciation. You have represented and certified to Oldsmobile that J & F Oldsmobile Corp. will hold a 30% ownership in the DiFeo Oldsmobile Partnership and that EMCO Motor Holding, Inc. a subsidiary of "21" International Holdings, Inc., will hold a 70% ownership in Difeo Oldsmobile Partnership. As evidenced by Attachment "A", Joseph J. Mitolo and Samuel C. DiFeo are sole owners of J & F oldsmobile Corp. respectively. It is represented and certified to Oldsmobile that EMCO Motor Holdings, Inc., 70% owner of DiFeo Partnership, Inc., is owner by two stockholders: Ezra Mager, and "21" International Holdings, Inc. as evidenced by Attachment "B". It is further represented and certified to Oldsmobile that Marshall S. Cogan personally holds a 45.24% equity ownership and 76.51% voting control in "21" International Holdings, Inc. as evidenced by Attachment "C". After considering all matters relevant to your request, Oldsmobile hereby approves the ownership of the DiFeo Oldsmobile Partnership by J & F Oldsmobile Corp. (30%) and EMCO Motor Holding, Inc. (70%), subject to the conditions and understandings in the Supplemental Agreement to General Motors Dealer Sales and Service Agreement. -2- Jersey City, New Jersey Page Three October 2, 1992 Also, further subject to condition and understanding that the ownership of the stock, J & F Oldsmobile, Corp. and EMCO Motor Holdings, Inc. set forth on the "ownership attachments" hereto, will not be changed without the PRIOR written approval of Oldsmobile, which will be evidenced solely by means of acceptable replacement "ownership attachments" duly signed on behalf of Oldsmobile. It is recognized that failure to obtain such prior written approval will constitute cause for termination of the Dealer Agreement under Article 12.2.1. thereof. J & F Oldsmobile, Corp. and EMCO Motor Holdings, Inc. agree to maintain accurate records reflecting the owners and managers of the DiFeo Oldsmobile Partnership and to provide new "ownership attachments" to Dealer and Oldsmobile upon request. Further, GM prior written approval is not required when there are ownership changes in "21" International Holdings, Inc. provided there is no change in Marshall S. Cogan's equity ownership and/or voting control in "21" International Holdings, Inc. GM prior written approval is required for all changes in Marshall S. Cogan's equity ownership and/or voting control in "21" International Holdings, Inc. By affixing your signatures to the Attachments "A", "B" and "C", you are agreeing to all the terms and conditions as set forth in this "Letter Agreement". Very truly yours, Oldsmobile Division General Motors Corporation /s/ J.J. Zubor --------------- J.J. Zubor Zone Manager -3- ATTACHMENT "C" TO LETTER AGREEMENT With Oldsmobile Division Dated: October 2, 1992 - -------------------------------------------------------------------------------- In accordance with provisions of the Letter Agreement dated October 2, 1992 between Oldsmobile Division, General Motors Corporation, and "21" International Holding, Inc., the undersigned hereby represents and certifies to Oldsmobile Division that the following information pertaining to record and/or beneficial ownership of the capital stock of "21" International Holding, Inc. is true, accurate, and complete. Shares Owned Type or Book Owner Of Record Beneficially Class Value $ - ----- ------------------------ --------- ------- See Attached Schedule ------------------------- --------- -------- of Owners ----------- ----------- ---------- --------- -------- - --------------------- ----------- ---------- --------- -------- - --------------------- ----------- ---------- --------- -------- T O T A L S ----------- ---------- $ 52,300,000 ----------------------- DECEMBER 31, 1991 By:/s/ M.S. Cogan --------------------------- Marshall S. Cogan, Chairman Date: ---------------------------- OWNERSHIP OF ABOVE HOLDING COMPANY AS OF DECEMBER 31, 1992, IS ACCEPTED AS REPRESENTED ABOVE. OLDSMOBILE DIVISION General Motors Corporation By:/s/ J.J. Zubor ---------------- J.J. Zubor ATTACHMENT "B" TO LETTER AGREEMENT With Oldsmobile Division Dated: October 2, 1992 - -------------------------------------------------------------------------------- Statement of Ownership EMCO Motor Holdings, Inc. As of October 2, 1992 In accordance with provisions of the Letter Agreement dated October 2, 1992 between Oldsmobile Division, General Motors Corporation, and DiFeo Oldsmobile Partnership, the undersigned hereby represents and certifies to Oldsmobile Division that the following information pertaining to record and/or beneficial ownership of the capital stock of EMCO Motor Holdings, Inc. - 100% owner of DiFeo Partnership, Inc. - is true, accurate, and complete. Shares Owned Type or Book Owner Of Record Beneficially Class Value $ - ----- ------------------------ --------- ------- Ezra P. Mager 3.0% 17,740 - --------------------- ---------- -------- --------- ------- "21" International 97.0% 603,160 - --------------------- ---------- -------- --------- ------- Holdings, Inc. - --------------------- ---------- -------- --------- ------- T O T A L S 100.0% $620,900 ---------- -------- --------- ------- By:/s/ Ezra P. Mager OCTOBER 2, 1992 ------------------------------ Ezra P. Mager, Pres/Sec/Treas. /s/ M. S. Cogan By: --------------------------- --------------------------- Marshall S. Cogan, Chairman Date: October 2, 1992 ------------------------- OWNERSHIP OF ABOVE HOLDING COMPANY AS OF OCTOBER 2, 1992, IS ACCEPTED AS REPRESENTED ABOVE. OLDSMOBILE DIVISION General Motors Corporation By: /s/ J.J. Zubor ----------------- J.J. Zubor ATTACHMENT "A" TO LETTER AGREEMENT With Oldsmobile Division Dated: October 2, 1992 - -------------------------------------------------------------------------------- Statement of Ownership J & F Oldsmobile, Corp. As of 10/2/92 In accordance with provisions of the Letter Agreement dated October 2, 1992 between Oldsmobile Division, General Motors Corporation, and DiFeo Oldsmobile Partnership, the undersigned hereby represents and certifies to Oldsmobile Division that the following information pertaining to record and/or beneficial ownership of the capital stock of J & F Oldsmobile, Corp. is true, accurate, and complete. Shares Owned Type or Book Owner Of Record Beneficially Class Value $ - ----- ------------------------ --------- ------- Samuel C. DiFeo 75 75% Common 66,525 - -------------------- ---------- ----------- --------- ------- Joseph J. Mitolo 25 25% Common 199,575 - -------------------- ---------- ----------- --------- ------- - -------------------- ---------- ----------- --------- ------- - -------------------- ---------- ----------- --------- ------- T O T A L S $ 266,100 ---------- ----------- ---------------------- OCTOBER 2, 1992 By: /s/ Joseph J. Mitolo -------------------- Joseph J. Mitolo Sam C. DiFeo -------------------- Sanuel C. DiFeo OWNERSHIP OF ABOVE CORPORATION AS OF OCTOBER 2, 1992, IS ACCEPTED AS REPRESENTED ABOVE. OLDSMOBILE DIVISION General Motors Corporation By: /s/ J.J. Zubor ---------------- J. J. Zubor Jersey City, New Jersey Page Four October 2, 1992 Agreed this 2nd day of October, 1992 DiFeo Oldsmobile Partnership By: /s/ Joseph J. Mitolo ----------------------- Joseph J. Mitolo /s/ Samuel C. DiFeo ----------------------- Samuel C. DiFeo /s/ Marshall S. Cogan ----------------------- Marshall S. Cogan /s/ Ezra P. Mager ----------------------- Ezra P. Mager J & F Oldsmobile, Corp. By: /s/ Samuel C. DiFeo ----------------------- Samuel C. DiFeo /s/ Joseph C. Mitolo ----------------------- Joseph C. Mitolo DiFeo Partnership, Inc. "21" International Holdings, Inc. By: /s/ Marshall S. Cogan By: /s/ Marshall S. Cogan ----------------------- -------------------------- Marshall S. Cogan Marshall S. Cogan /s/ Ezra P. Mager ----------------------- Ezra P. Mager EMCO Motor Holdings, Inc. By: /s/ Marshall S. Cogan ----------------------- Marshall S. Cogan /s/ Ezra P. Mager ----------------------- Ezra P. Mager [LETTERHEAD OF OLDSMOBILE] October 2, 1992 J & F Oldsmobile Partnership 315 Clendenny Avenue, Route 440 Jersey City, New Jersey 07304 Attention: Joseph J. Mitolo Samuel C. DiFeo Marshall S. Cogan Ezra P. Mager Gentlemen: This Supplemental Agreement ("Agreement") is entered into between DiFeo Oldsmobile Partnership, J & F Oldsmobile, Corp. DiFeo Partnership, Inc., EMCO Motor Holdings, Inc. (EMCO), and "21" international Holdings, Inc. (THHI) and General Motors Corporation, Oldsmobile Division. WHEREAS, Oldsmobile has entered into a General Motors Corporation Dealer Sales and Service Agreement ("Dealer Agreement") with DiFeo Partnership ("The Partnership"). WHEREAS, "The Partnership" is the Dealer and J & F Oldsmobile, Corp. and DiFeo Partnership, Inc. are the Dealer Owners as those terms are identified in the Dealer Agreements; and WHEREAS, the Division has entered into the Dealer Agreement in consideration for the reliance upon certain understandings, assurances and representatives which parties hereto wish to document; NOW, THEREFORE, the parties agree as follows: 1. For purposes of the Dealer Agreements, including Paragraph Third and Article 12.2 Joseph J. Mitolo shall be considered a Dealer Operator. The Divisions have relied and will rely upon the personal qualifications and management skills of Joseph J. Mitolo as Executive V-P of the Partnership. The Partnership and EMCO represent that Joseph J. Mitolo with the concurrence of the Executive Committee, has complete and irrevocable authority to make all decisions, and enter into any and all necessary business commitments on behalf of The Partnership and may take all actions normally required of a Dealer Operator pursuant to Paragraph Third and Article 2 of the Dealer Agreement. Neither The Partnership nor EMCO will revoke, modify or amend such authority without prior written approval of Oldsmobile which will act on behalf of all Divisions in administering this Agreement. 2. Mr. Joseph J. Mitolo's removal or withdrawal as Dealer Operator without prior written consent shall constitute grounds for termination of dealer Agreement. However, the Division recognizes that Mr. Mitolo's employment responsibilities with The Partnership may change, as described in Section 1(d) of the Employment Agreement, making it impractical for him to continue to fulfill his responsibilities as Dealer Operator. In this event, or in the event Mr. Mitolo leaves the employ of The Partnership or transfers his interests in The Partnership pursuant to Sections 7.03 and 70.4 of Master Agreements and Articles 7.2, 7.3 and 7.4 of the Partnership Agreement; then The Partnership shall have the opportunity to propose a replacement Dealer Operator. the Division will comparable to those of Mr. Mitolo The Partnership shall make every effort to obtain the consent of the Division to proposed replacement dealer Operator prior to Mr. Mitolo's withdrawal: if such is not practical in the circumstances, The Partnership shall notify Oldsmobile writing within 10 days following Mr. Mitolo's withdrawal. Within 60 days of that withdrawal, The Partnership will submit to Oldsmobile a plan to replace Mr. Mitolo with qualified Dealer Operator acceptable to Oldsmobile. the replacement Dealer Operator must assume his responsibilities no later than 120 days following Mr. Mitolo's withdrawal. 3. DiFeo Partnership, Inc. is wholly-owned subsidiary of EMCO, which in turn, is a subsidiary or TIHI. DiFeo Partnership, Inc. hereby represents that its representatives and assurances herein are within its authority to make and do not contravene any directive, policy or procedure of EMCO or TIHI. DiFeo Partnership, Inc. hereby represents that EMCO and TIHI are aware of and concur with the representation of DiFeo Partnership, Inc. are herein. 4. Any change at all in ownership of DiFeo Partnership or EMCO or any change in Marshall Cogan's equity ownership and/or voting control in TIHI shall be considered a change in ownership of Dealer under terms of the Dealer Agreements, and all applicable provisions of those Dealer Agreements will apply to any such change. 5. Given the ultimate control which EMCO and TIHI have over DiFeo Partnership. Inc. and J & F Oldsmobile, Corp. and, thus, J & F Oldsmobile - Isuzu Partnership, and the Divisions strong interest in assuring that those who own and control its dealers have interests consistent with those of the Divisions, J & F Oldsmobile Isuzu Partnership, J & F Oldsmobile, Corp. and DiFeo Partnership, Inc. agree that if an ownership interest is acquired in TIHI by a person or entity which notifies TIHI via schedule 13D filed with the Securities and Exchange Commission, The Partnership, J & F Oldsmobile, Corp. and DiFeo Partnership, Inc. shall advise Oldsmobile in writing, providing a copy of that Schedule. In the event that Item 4 of that Schedule discloses that the person or entity acquiring such ownership interest intends or may intend either: -2- (a) an acquisition of additional securities of TIHI or (b) an extraordinary corporate transaction such as a merger, reorganization or liquidation, involving TIHI or any of its subsidiaries or (c) a sale or transfer of material amount of assets of TIHI or any of its subsidiaries or (d) any change in the present Board of Directors or management of TIHI or (e) any other material change in TIHI business or corporate structure or (f) any action similar to those noted above, then, if the Divisions reasonably conclude that such person or entity does not have interests compatible with those of General Motors, or is otherwise not qualified to have an ownership interest in a General Motors dealership, the Partnership, J & F Oldsmobile, Corp. and DiFeo Partnership, Inc. agree that within one year of receipt of written notice from Oldsmobile of this fact, they will, (1) transfer The Partnership's assets to a third party acceptable to the Division (2) voluntarily terminate The Partnership's Dealer Agreements, or (3) provide evidence to Oldsmobile such person or entity no longer has such ownership interest in TIHI. However, The Partnership, J & F Oldsmobile, Corp. and DiFeo Partnership, Inc. will have six additional months to accomplish 1,2, or 3 above if at the end of one year. Oldsmobile concludes that The Partnership, J & F Oldsmobile, Corp. and DiFeo Paernership's assets to a third party acceptable to the Division, and the Partnership is otherwise effectively fulfilling its obligations under its Dealer Agreement. 6. The executive Committee and Officers of The Partnership ad the Directors and Officers of J & F Oldsmobile, Corp. DiFeo Partnership, Inc., EMCO, and TIHI has all passed resolutions affirming the representations herein, copies of which are attached hereto. 7. The parties agree that this Agreement shall Supplement the terms of the dealer Agreements in accordance with Article 17.1 of the Dealer Agreements. 8. In the event that the policies of General Motors Corporation with regard to the issues addresses herein should be modified, the parties agree to review such modifications to determine modification to this Addendum is appropriate. IN WITNESS WHEREOF, the parties have executed this Agreement this 2nd day of October, 1992. GENERAL MOTORS CORPORATION DiFEO OLDSMOBILE PARTNERSHIP OLDSMOBILE DIVISION By:/s/ By: /s/ Joseph J. Mitolo ________________________ ---------------------- Joseph J. Mitolo /s/ Ezra P. Mager ---------------------- Ezra P. Mager -3- Its: /s/ Sam C. DiFeo /s/ Marshall S. Cogan ---------------------------- ----------------- ---------------------- Sam C. DiFeo Marshall S. Cogan "21" International Holdings EMCO Motor Holdings, Inc. By:/s/ Marshall S. Cogan By:/s/ Marshall S. Cogan ----------------------- ----------------------- Marshall S. Cogan Marshall S. Cogan Chairman Chairman /s/ Ezra P. Mager ----------------------- Ezra P. Mager, Pres -4- [LETTERHEAD OF OLDSMOBILE] December 20, 1993 Mr. George Lowrance EMCO DiFeo Automotive Group 585 Route 440 Jersey City, NJ 07304 Dear Mr. Lowrance: This will acknowledge your letters dated October 4, 1993 regarding your request for a change in the ownership of EMCO Motor Holdings, Inc. for Fair Cadillac- Oldsmobile-Isuzu Partnership, DiFeo Oldsmobile Partnership and J & F Oldsmobile- Isuzu Partnership t/a DiFeo Oldsmobile. Enclosed find executed new Attachment "B" Letter Agreements reflecting capital stock and ownership changes in EMCO Motor Holdings, Inc. for each partnership. Please have the respective officers of EMCO sign and date the Letter Agreements and return to my attention. Upon completion of all required signatures, I will forward you copies for the dealership records. Should you have any questions, please contact me personally. Sincerely, /s/ M. A. LoBianco M. A. LoBianco Business Management Manager MAL/mg cc: J. J. Zubor ATTACHMENT "B" TO LETTER AGREEMENT With Oldsmobile Division Revision Date: 12/14/1993 - -------------------------------------------------------------------------------- Statement of Ownership EMCO Motor Holdings, Inc. As of 12/14/93 In accordance with provisions of the Letter Agreement dated October 2, 1992, between Oldsmobile Division, General Motors Corporation, and J & F Oldsmobile - -Isuzu-Partnership t/a DiFeo Oldsmobile, the undersigned hereby represents and certifies to Oldsmobile Division that the following information pertaining to record and/or beneficial ownership of the capital stock of EMCO Motor Holdings, Inc. - 100% owner of DiFeo Partnership, Inc. - is true, accurate and complete. Shares Owned Type or Book Owner Of Record Beneficially Class Value $ - ----- ---------- ------------ --------- ------- Ezra P. Mager 156,250 1.56% Common "21" International 3,437,500 34.36% Common Holdings, Inc. Reserved "Options" 1,500,838 15.00% Common OTHERS - see attached 4,911,000 49.08% Preferred Schedule T O T A L S 10,005,588 100.0% $ 77,860,000 By:/s/ Marshall S. Cogan Date: Dec 22, 1993 --------------------------- Marshall S. Cogan, Chairman By:/s/ Joseph Herman By:/s/ E Mager ------------------------------ ------------------------------ Joseph C. Herman, Executive VP Ezra P. Mager, Pres/Sec/Treas. OWNERSHIP OF ABOVE HOLDING COMPANY AS OF JAN 3, 1994, IS ACCEPTED AS REPRESENTED ABOVE. OLDSMOBILE DIVISION General Motors Corporation By:/s/ J.J. Zubor ------------------ J.J. Zubor -2- SUPPLEMENTAL AGREEMENT TO GENERAL MOTORS CORPORATION DEALER SALES AND SERVICE AGREEMENT This Supplemental Agreement ("Agreement") is entered into among J&F Oldsmobile- Isuzu Partnership ("Dealer"), DiFeo Partnership, Inc. and UAG Northeast, Inc. (each a "Dealer Owner" and collectively "Dealer Owners"), United Auto Group, Inc. ("Public Company") and General Motors Corporation, Chevrolet Motor Division, acting on behalf of itself, and _________N/A__________ (collectively "Divisions"). WHEREAS, the Divisions have each entered into a General Motors Corporation Dealer Sales and Service Agreement ("Dealer Agreement") with Dealer permitting Dealer to conduct Dealership Operations on behalf of Divisions from approved locations identified in the Dealer Agreement; WHEREAS, the organization and ownership structure of Dealer and Dealer Owners are such that the terms of the Dealer Agreement are not wholly adequate to address the legitimate business needs and concerns of the Dealer, Dealer Owners and Divisions; and WHEREAS, Dealer, Dealer Owners and the Divisions have entered into their respective Dealer Agreements in consideration for and reliance upon certain understandings, assurances and representations which the parties hereto wish to document; NOW, THEREFORE, the parties agree as follows: 1. For purposes of the Dealer Agreement, including Paragraph Third and Article 2, [individual to be approved by GM] shall be considered as Dealer Operator. The Divisions have relied and will rely upon the personal qualifications and management skills of Dealer Operator who also serves as executive manager of the Dealer. Dealer and Dealer Owners hereby represent that Dealer Operator has complete and irrevocable authority to make all decisions, and enter into any and all necessary business commitments required in the normal course of conducting Dealership Operations on behalf of Dealer and may take all actions normally required of a Dealer Operator pursuant to Paragraph Third and Article 2 of the Dealer Agreement. Neither Dealer nor Dealer Owners will revoke, modify or amend such authority without the prior written approval of Divisions. Because of the unique structure of Dealer, the 20% ownership requirement contained in Article 2 shall not apply to Dealer Operator. 2. The removal or withdrawal of Dealer Operator without Divisions' prior written consent shall constitute grounds for termination of the Dealer Agreements subject to applicable law. However, the Divisions recognize that employment responsibilities of the Dealer Operator with Dealer and/or Dealer Owners may change, making it impractical for the Dealer Operator to continue to fulfill his/her responsibilities as Dealer Operator. In that case, or in the event Dealer Operator leaves the employ of Dealer and/or Dealer Owners, Dealer shall have the opportunity to propose a replacement Dealer Operator. The Divisions will not unreasonably withhold approval of any such proposal, provided the proposed replacement has the skills and qualifications to act as Dealer Operator pursuant to the standard policies and procedures of General Motors Corporation. Dealer shall make every effort to obtain the consent of the Divisions to a proposed replacement Dealer Operator prior to the removal or withdrawal of the approved Dealer Operator. If that is not practical, Dealer shall notify Division in writing within 10 days following the withdrawal of the approved Dealer Operator. Within 60 days of that withdrawal, Dealer will submit to Division a plan and appropriate applications to replace Dealer Operator with a qualified replacement acceptable to Division. The replacement Dealer Operator must assume his/her responsibilities no later than 90 days following the withdrawal of the approved Dealer Operator. 3. All of the partnership interests of Dealer are owned by Dealer Owners, which, in turn, are wholly-owned subsidiaries of Public Company. Dealer, Dealer Owners and Public Company hereby warrant that the representations and assurances of each herein are within their respective authority to make and do not contravene any directive, policy or procedure of Dealer, Dealer Owners or Public Company. The parties hereto acknowledge that the provisions of this Agreement shall not be applicable until such time as Public Company completes a public offering of its stock. 4. Any material change in ownership of Dealer or of Dealer Owners, or any event with respect to Public Company described in Paragraph 5 below, shall be considered a change in ownership of Dealer under the terms of the Dealer Agreements, and all applicable provisions of those Dealer Agreements will apply to any such change. The Divisions have executed the Dealer Agreements in reliance upon the ownership and management structure and any material change in such structure (other than changes in ownership of Public Company, which are discussed in Paragraph 5 below), shall be the basis for a review of the agreements between us and whether changes and modifications are required and whether the business relationship between us should continue or terminate. 5. Given the ultimate control Dealer Owners have over Dealer, the control of Dealer Owners by Public Company, and the Divisions' strong interest in assuring that those who own -2- and control their Dealers have interests consistent with those of the Divisions, Dealer, Dealer Owners and Public Company agree that if an ownership interest is acquired in Public Company by a person or entity which notifies Public Company via Schedule 13D filed with the Securities and Exchange Commission, Dealer shall advise Division in writing, and attach a copy of that Schedule. In the Event Item 4 of that Schedule discloses that the person or entity acquiring such ownership interest owns or controls twenty percent (20%) of Public Company and intends or may intend either: (a) an acquisition of additional securities of Public Company or (b) an extraordinary corporate transaction such as a merger, reorganization or liquidation, involving Public Company or any of its subsidiaries or (c) a sale or transfer of a material amount of assets of Public Company or any of its subsidiaries or (d) any change in the present Board of Directors or management of Public Company or (e) any other material change in Public Company's business or corporate structure or (f) any action similar to those noted above, then, if the Divisions reasonably conclude that such person or entity does not have interests compatible with those of General Motors, or is otherwise not qualified to have an ownership interest in a General Motors dealership, Dealer and Dealer Owners agree that within 90 days of receipt of written notice from Division of this fact, it will: (i) transfer the assets associated with Dealer to a third party acceptable to the Division, (ii) voluntarily terminate the Dealer Agreements in effect with Dealer, or (iii) provide evidence to Divisions that such person or entity no longer has such an ownership interest in Public Company. Should Dealer enter into an agreement to transfer its assets to a third party, the right of first refusal described in Article 12.3 shall apply to any such transfer. 6. Dealer, Dealer Owners, Public Company and General Motors stipulate and agree that the dispute resolution process for the appropriate General Motors Division shall be the initial, exclusive source of resolution of any dispute regarding the General Motors Dealer Agreement(s) and this Supplemental Agreement including, but not limited to, involuntary termination of the Dealer Agreement(s) and/or approval of Dealer Owner or Public Company for additional investment in or ownership of General Motors dealerships. Upon final determination through such dispute resolution, each party shall have recourse to a review de novo by the appropriate state court or administrative agency consistent with the provisions of state law. The parties agree that should a party making such appeal lose the issues presented on appeal, then that party shall pay the reasonable expenses, including reasonable attorneys' fees, of the other party for the defense of such de novo review. The parties further agree that if a dispute is specific to a particular division, the appropriate divisional dispute resolution -3- mechanism will be used for the resolution of that particular matter. 7. Dealer, Dealer Owners and Public Company further stipulate and agree that if Dealer, Dealer Owners, General Motors and the public are to realize the potential benefits that Dealer, Dealer Owners and Public Company represent to be the result of General Motors approving the ownership structure proposed by Dealer Owners, then an integral component of the participation by Dealer, Dealer Owners and Public Company is their agreement that all such dealerships owned by Dealer Owners or Public Company shall fully comply with General Motors Network 2000 Channel Strategy including proper franchise alignment and facilities that are properly located and that are in compliance with appropriate divisional image programs. The Channel Strategy as it relates to Dealer is set forth in a memorandum dated October 5, 1995, from Ronald L. Zarrella to all GM dealers, a copy of which is attached hereto and in a facsimile from General Motors Corporation to Dealer dated April 1, 1996. Dealer and Dealer Owners further stipulate and agree that within 12 months of the acquisition of any General Motors dealership that is not consistent with the Channel Strategy, Dealer and Dealer Owners will have complied with the Channel Strategy for that location. If Dealer and Dealer Owners fail to do so within the time provided, then Dealer will terminate the representation of such products as reasonably required by General Motors to comply with the Channel Strategy. If such termination is required, General Motors will compensate Dealer and Dealer Owners the total sum of Fifty Thousand Dollars ($50,000) for each Dealer Agreement so terminated. 8. Dealer and Dealer Owners agree that all such dealerships shall be solely for the exclusive representation of General Motors products and related services and in no event shall be used for the display, sale or promotion of any new vehicle other than those of General Motors Corporation or Saturn Corporation. Dealer and Dealer Owners agree that should Dealer cease to provide exclusive representation of General Motors products, based on the proper franchise alignment as determined by the Channel Strategy, then that shall constitute good cause in and of itself for the termination of the Dealer Agreements then in effect with Dealer and Dealer shall voluntarily terminate the Dealer Agreements then in effect. 9. In the event of any termination of the Dealer Agreement or any transaction or event that would, in effect, discontinue Dealership Operations from that location, Dealer Owners agree to provide General Motors with: (a) a right of first refusal on any bona fide offer to purchase the dealership -4- facilities, (b) an assignment of any existing lease or lease options that are available, or if desired by the Divisions, Dealer Owners agree to enter into good faith negotiations for the sale or lease of the facility to the Divisions or their assignee. 10. Dealer and Dealer Owners agree to provide to Divisions a list of the officers and key management of Dealer and Dealer Owners along with those individuals' key responsibilities in regard to the control and management of Dealer. Dealer and Dealer Owners agree to propose to Divisions any material changes in the individuals or their responsibilities. Such proposal should be provided to the Divisions in writing sixty (60) days prior to such change and shall include sufficient information to permit Divisions to evaluate the proposed change consistent with normal policies and procedures. For purposes of this Agreement, the term "key management" shall mean Carl Spielvogel - Chairman and CEO, Arthur J. Rawl - Executive Vice President and Chief Financial Officer, and George Lowrance - Executive Vice President, Secretary and General Counsel. 11. Dealer Owners recognize that customers benefit from competition in the marketplace and agree that any proposal to acquire additional GM dealerships shall be subject to and considered consistent with the terms of General Motors Multiple Dealer Investor/Multiple Dealer Operator policies as set forth in NAO Bulletin 94-11, a copy of which has been provided to Dealer Owners. 12. Dealer Owners agree that all General Motors dealerships in which Dealer Owners maintain an investment will use Electronic Funds Transfer (E.F.T.) for settlement of the dealership obligations to General Motors and that General Motors will have right of offset for any unpaid debit balances for any General Motors dealership in which Dealer Owners maintain or maintained an investment at the time the indebtedness occurred and the right to collect those amounts from the account for any other General Motors dealership in which Dealer Owners maintain an investment. 13. Dealer and Dealer Owners agree that Dealer shall maintain, at all times, sufficient working capital to meet or exceed the minimum net working capital standards for the Dealer as determined from time to time by the Divisions consistent with the normal practices and procedures of the Divisions. Dealer and Dealer Owners shall provide such documentation as reasonably requested by the Divisions to assure compliance with that requirement. Dealer Owners shall submit an annual audited consolidated balance sheet for the combined dealership operations of Dealer Owners. -5- 14. The parties agree that this Agreement shall supplement the terms of the Dealer Agreements in accordance with Article 17.11 of the Dealer Agreements. 15. In the event that the policies of General Motors Corporation with regard to the issues addressed herein should be modified, the parties agree to review such modifications to determine whether modification to this Agreement is appropriate. 16. Nothing in this Agreement or the Dealer Agreement shall be construed to confer any rights upon any person not a party hereto or thereto, nor shall it create in any party an interest as a third party beneficiary of this Agreement or the Dealer Agreement. Dealer and Dealer Owners hereby agree to indemnify and hold harmless General Motors Corporation, its directors, officers, employees, subsidiaries, agents and representatives from and against all claims, actions, damages, expenses, costs and liability arising from or in connection with any action by a third party in its capacity as a stockholder of Public Company other than through a derivative stockholder suit authorized by the Board of Directors of Public Company. 17. This Agreement is intended to modify and adapt certain provisions of the Dealer Agreement and is intended to be incorporated as part of the Dealer Agreement. In the event that any provision of this Agreement are in conflict with other provisions of the Dealer Agreement Standard Provisions, the provisions contained in this Supplemental Agreement shall govern. -6- IN WITNESS WHEREOF, the parties have executed this Agreement as of this 23 day of July, 1996. J&F Oldsmobile-Isuzu Partnership DiFeo Partnership, Inc. /s/ Carl Spielvogel /s/ Carl Spielvogel - ---------------------- ---------------------- By: Carl Spielvogel By: Carl Spielvogel Title: Chairman and CEO Title: Chairman and CEO Date: Date: United Auto Group, Inc. UAG Northeast, Inc. /s/ Carl Spielvogel /s/ Carl Spielvogel - ---------------------- ---------------------- By: Carl Spielvogel By: Carl Spielvogel Title: Chairman and CEO Title: Chairman and CEO Date: Date: General Motors Corporation Chevrolet Division /s/ G. M. Desmond - ---------------------- By: G. M. Desmond Title: Director, Dealer Organization Date: June 12, 1996 -7- EX-10.2-7-2 18 EXHIBIT 10.2.7.2 STANDARD PROVISIONS DEALER SALES AND SERVICE AGREEMENT GENERAL MOTORS CORPORATION TABLE OF CONTENTS FOR STANDARD PROVISIONS PAGE PURPOSE OF AGREEMENT....................................................... 1 ARTICLE 1. APPOINTMENT AS AUTHORIZED DEALER............................... 2 ARTICLE 2. DEALER OPERATOR................................................ 2 ARTICLE 3. DEALER OWNER................................................... 2 ARTICLE 4. AUTHORIZED LOCATIONS........................................... 2 4.1. Dealer Network Planning........................................... 2 4.2. Area of Primary Responsibility.................................... 3 4.3. Establishment of Additional Dealers............................... 3 4.4. Facilities........................................................ 4 4.4.1. Location................................................... 4 4.4.2. Change in Location or Use of Premises...................... 4 4.4.3. Size....................................................... 5 4.4.4. Dealership Image and Design................................ 5 4.4.5. Dealership Equipment....................................... 5 ARTICLE 5. DEALER'S RESPONSIBILITY TO PROMOTE, SELL AND SERVICE PRODUCTS. 6 5.1. Responsibility to Promote and Sell................................ 6 5.2. Responsibility to Service......................................... 7 5.3. Customer Satisfaction............................................. 8 5.4. Business Planning................................................. 8 ARTICLE 6. SALE OF PRODUCTS TO DEALERS.................................... 8 6.1. Sale of Motor Vehicles to Dealer.................................. 8 6.2. Sale of Parts and Accessories to Dealer........................... 9 6.3. Prices and Other Terms of Sale.................................... 9 6.3.1. Motor Vehicles............................................. 9 6.3.2. Parts and Accessories...................................... 9 6.4. Inventory......................................................... 10 6.4.1. Motor Vehicle Inventory.................................... 10 6.4.2. Parts and Accessories...................................... 10 6.5. Warranties on Products............................................ 10 ARTICLE 7. SERVICE OF PRODUCTS............................................ 11 7.1. Service for Which Division Pays................................... 11 7.1.1. New Motor Vehicle Pre-Delivery Inspections and Adjustments................................................ 11 7.1.2. Warranty and Special Policy Repairs........................ 11 7.1.3. Campaign Inspections and Corrections....................... 11 7.1.4. Payment for Pre-Delivery Adjustments, Warranty, Campaign and Transportation Damage Work............................. 11 7.2. Parts, Accessories, and Body Repairs.............................. 12 7.2.1. Warranty and Policy Repairs................................ 12 i 7.2.2. Representations and Disclosures as to Parts and Accessories................................................ 12 7.2.3. Body Repairs............................................... 12 7.2.4. Tools and Equipment........................................ 12 ARTICLE 8. TRAINING....................................................... 12 ARTICLE 9. REVIEW OF DEALER'S SALES AND SERVICE PERFORMANCE............... 13 ARTICLE 10. CAPITALIZATION................................................ 13 ARTICLE 11. ACCOUNTS AND RECORDS.......................................... 14 11.1. Uniform Accounting System........................................ 14 11.2. Examination of Accounts and Records.............................. 14 11.3. Confidentiality of Dealer Data................................... 14 ARTICLE 12. CHANGES IN MANAGEMENT AND OWNERSHIP........................... 14 12.1. Succession Rights Upon Death or Incapacity....................... 15 12.1.1. Successor Addendum........................................ 15 12.1.2. Absence of Successor Addendum............................. 16 12.1.3. Successor Dealer Requirements............................. 16 12.1.4. Term of New Dealer Agreement.............................. 16 12.1.5. Limitation on Offers...................................... 16 12.1.6. Cancellation of Addendum.................................. 17 12.2. Other Changes in Ownership or Management......................... 17 12.3. Right of First Refusal to Purchase............................... 18 12.3.1. Creation and Coverage..................................... 18 12.3.2. Purchase Price and Other Terms of Sale.................... 18 12.3.3. Consummation.............................................. 19 12.3.4. Assignment................................................ 19 12.3.5. Transfer Involving Family Members and Dealer Management... 19 ARTICLE 13. BREACHES AND OPPORTUNITY TO REMEDY............................ 20 13.1. Certain Acts or Events........................................... 20 13.2. Failure of Performance by Dealer................................. 21 ARTICLE 14. TERMINATION OF AGREEMENT...................................... 22 14.1. By Dealer........................................................ 22 14.2. By Agreement..................................................... 22 14.3. Failure to be Licensed........................................... 22 14.4. Incapacity of Dealer Operator.................................... 22 14.5. Acts or Events................................................... 23 14.6. Reliance on Any Applicable Termination Provision................. 24 14.7. Transactions After Termination................................... 24 14.7.1. Effect on Orders.......................................... 24 14.7.2. Termination Deliveries.................................... 24 14.7.3. Effect of Transactions After Termination.................. 24 ARTICLE 15. TERMINATION ASSISTANCE........................................ 25 15.1. Deferral of Effective Date....................................... 25 15.2. Purchase of Personal Property.................................... 25 ii 15.2.1. Division's Obligations.................................... 25 15.2.2. Dealer's Responsibilities................................. 26 15.2.3. Payment................................................... 27 15.2.4. Assignment of Rights...................................... 27 15.3. Assistance on Premises........................................... 27 15.3.1. Division's Obligation..................................... 27 15.3.2. Owned Premises............................................ 28 15.3.3. Leased Premises........................................... 28 15.3.4. Rent and Price............................................ 29 15.3.5. Limitations on Obligation to Provide Assistance........... 29 ARTICLE 16. DISPUTE RESOLUTION PROCESS.................................... 30 ARTICLE 17. GENERAL PROVISIONS............................................ 30 17.1. No Agent or Legal Representative Status.......................... 30 17.2. Responsibility for Operations.................................... 30 17.3. Taxes............................................................ 31 17.4. Indemnification by General Motors................................ 31 17.5. Trademarks and Service Marks..................................... 32 17.6. Notices.......................................................... 33 17.7. No Implied Waivers............................................... 33 17.8. Assignment of Rights or Delegation of Duties..................... 33 17.9. No Third Party Benefit Intended.................................. 34 17.10. Accounts Payable................................................ 34 17.11. Sole Agreement of Parties....................................... 34 17.12. Applicable Law.................................................. 34 17.13. Superseding Dealer Agreements................................... 35 GLOSSARY................................................................... 36 iii STANDARD PROVISIONS The following Standard Provisions are part of Division's Dealer Sales and Service Agreement (Form GMMS 1012). PURPOSE OF AGREEMENT The purpose of this Agreement is to promote a relationship between Division and its Dealers which encourages and facilitates cooperation and mutual effort to satisfy customers, and permits Division and its dealers to fully realize their opportunities for business success. Division has established a network of authorized dealers operating at approved locations to effectively sell and service its Products and to build and maintain consumer confidence and satisfaction in Dealer and Division. Consequently, Division relies upon each Dealer to provide appropriate skill, capital, equipment, staff and facilities to properly sell, service, protect the reputation, and satisfy the customers of Division's Products in a manner that demonstrates a caring attitude toward those customers. At the same time, Dealer relies upon Division to provide sales and service support and to continually strive to enhance the quality and competitiveness of its Products. This mutual dependence requires a spirit of cooperation, trust and confidence between Division and its dealers. To facilitate attainment of cooperation, trust and confidence, and to provide Division with the benefit of dealer advice regarding many decisions which affect dealer business operations, Division has established mechanisms to obtain dealer input in the decision- making process. These mechanisms are described in Division's Dealer Sales and Service Agreement. This Agreement (i) authorizes Dealer to sell and service Division's Products and represent itself as a Division Dealer; (ii) states the terms under which Dealer and Division agree to do business together; (iii) states the responsibilities of Dealer and Division to each other and to customers; and (iv) reflects the mutual dependence of the parties in achieving their business objectives. 1 ARTICLE 1. APPOINTMENT AS AUTHORIZED DEALER Division appoints Dealer as a non-exclusive dealer of Division Products. Dealer has the right to buy Products and the obligation to market and service those Products in accordance with this Agreement and related documents. ARTICLE 2. DEALER OPERATOR This is a Personal Services Agreement, entered into in reliance on the qualifications of Dealer Operator identified in Paragraph Third, and on Dealer's assurance that Dealer Operator will provide personal services by exercising full managerial authority over Dealership Operations. Dealer Operator will have an unencumbered ownership interest in Dealer of at least 15 percent at all times. A Dealer Operator must be a competent business person, an effective manager, must have demonstrated a caring attitude toward customers, and should have a successful record as a merchandiser of automotive products and services or otherwise have demonstrated the ability to manage a dealership. The experience necessary may vary with the potential represented by each dealer location. ARTICLE 3. DEALER OWNER Division enters into this Agreement in reliance on the qualifications of dealer owner(s) identified in the Dealer Statement of Ownership. Division and Dealer agree each dealer owner will continue to own, both of record and beneficially, the percentage stated in the Dealer Statement of Ownership, unless a change is made in accordance with Article 12. ARTICLE 4. AUTHORIZED LOCATIONS 4.1. DEALER NETWORK PLANNING Because Division distributes its Products through a network of authorized dealers operating from approved locations, those dealers must be appropriate in number, located properly, and have proper facilities to represent and service Division's Products competitively and to permit each dealer 2 the opportunity to achieve a reasonable return on investment if it fulfills its obligations under its Dealer Agreement. Through such a dealer network, the Division can maximize the convenience of customers in purchasing Products and having them serviced. As a result, customers, dealers, and the Division all benefit. To maximize the effectiveness of its dealer network, Division agrees to monitor marketing conditions and strive, to the extent practicable, to have dealers appropriate in number, size and location to achieve the objectives stated above. Such marketing conditions include Division's sales and registration performance, present and future demographic and economic considerations, competitive dealer networks, the ability of Division's existing dealers to achieve the objectives stated above, the opportunities available to existing dealers, and other appropriate circumstances. 4.2. AREA OF PRIMARY RESPONSIBILITY Dealer is responsible for effectively selling, servicing and otherwise representing Division's Products in the area designated in a Notice of Area of Primary Responsibility. Division retains the right to revise Dealer's Area of Primary Responsibility at Division's sole discretion consistent with dealer network planning objectives. If Division determines that marketing conditions warrant a change in Dealer's Area of Primary Responsibility, it will advise Dealer in writing of the proposed change, the reasons for it, and will consider any information the Dealer submits. Dealer must submit such information in writing within 30 days of receipt of notice of the proposed change. If Division thereafter decides the change is warranted, it will issue a revised Notice of Area of Primary Responsibility. 4.3. ESTABLISHMENT OF ADDITIONAL DEALERS Division reserves the right to appoint additional dealers but Division will not exercise this right without first analyzing dealer network planning considerations. Prior to establishing an additional dealer within Dealer's Area of Primary Responsibility, Division will advise Dealer in writing and give Dealer thirty days to present relevant information 3 before Division makes a final decision. Division will advise Dealer of the final decision, which will be made solely by Division pursuant to its business judgment. Nothing in this Agreement is intended to require Dealer's consent to the establishment of an additional dealer. Neither the appointment of a dealer at or within three miles of a former dealership location as a replacement for the former dealer nor the relocation of an existing dealer will be considered the establishment of an additional Dealer for purposes of this Article 4.3. Such events are within the sole discretion of Division, pursuant to its business judgment. 4.4. FACILITIES 4.4.1. LOCATION Dealer agrees to conduct Dealership Operations only from the approved location(s) within its Area of Primary Responsibility. The Location and Premises Addendum identifies Dealer's approved location(s) and facilities ("Premises"). If more than one location is approved, Dealer agrees to conduct from each location only those Dealership Operations authorized in the Addendum for such location. 4.4.2. CHANGE IN LOCATION OR USE OF PREMISES If Dealer wants to make any change in location(s) or Premises, or in the uses previously approved for those Premises, Dealer will give Division written notice of the proposed change, together with the reasons for the proposal, for Division's evaluation and final decision in light of dealer network planning considerations. No change in location or in the use of Premises, including addition of any other vehicle lines, will be made without Division's prior written authorization. Before Division requires any changes in Premises, it will consult with Dealer, indicate the rationale for the change, and solicit Dealer's views on the proposal. If, after such review with Dealer, Division determines a change in premises or location is appropriate, the Dealer will be allowed a reasonable time to implement the change. Any such changes will be reflected in a new Location and Premises Addendum or other written agreement executed by Dealer and Division. 4 Nothing herein is intended to require the consent or approval of any dealer to a proposed relocation of any other dealer. 4.4.3. SIZE Dealer agrees to provide Premises at its approved location(s) that will promote the effective performance and conduct of Dealership Operations, and the Division's image and goodwill. Consistent with Division's dealer network planning objectives and Division's interest in maintaining the stability and viability of its dealers, Dealer agrees that its facilities will be sized in accordance with Division's requirements for that location. Division agrees to establish and maintain a clearly stated policy for determining reasonable dealer facility space requirements and to periodically re-evaluate those requirements to ensure that they continue to be reasonable. 4.4.4. DEALERSHIP IMAGE AND DESIGN The appearance of Dealer's Premises is important to the image of Dealer and Division, and can affect the way customers perceive Division's Products and its dealers generally. Dealer therefore agrees that its premises will be properly equipped and maintained, and that the interior and exterior retail environment and signs will comply with any reasonable requirements Division may establish to promote and preserve the image of Division and its dealers. Division will monitor developments in automotive and other retailing to ensure that Division's image and facility requirements are responsive to changes in the marketing environment. Division will take into account existing economic and marketing conditions, and consult with dealers as described in Division's Dealer Sales and Service Agreement, in establishing such requirements. 4.4.5. DEALERSHIP EQUIPMENT Effective performance of Dealer's responsibilities under this Agreement requires that the dealership be reasonably equipped to communicate with customers and the Division and to properly 5 diagnose and service Products. Accordingly, Dealer agrees to provide for use in the Dealership Operations any equipment reasonably designated by Division as necessary to Dealer's effective performance under this Agreement. Division will make such designations only after having consulted with dealers as described in Division's Dealer Sales and Service Agreement. ARTICLE 5. DEALER'S RESPONSIBILITY TO PROMOTE, SELL AND SERVICE PRODUCTS 5.1. RESPONSIBILITY TO PROMOTE AND SELL 5.1.1. Dealer agrees to effectively, ethically and lawfully sell and promote the purchase, lease and use of Products by consumers located in its Area of Primary Responsibility. To achieve this objective, Dealer agrees to: (a) maintain an adequate force of trained sales personnel; (b) explain to Product purchasers the items which make up the purchase price and provide purchasers with itemized invoices; (c) not charge customers for services for which Dealer is reimbursed by General Motors; (d) include in customer orders only equipment or accessories requested by customer or required by law; and (e) ensure that the customer's purchase and delivery experience are satisfactory. If Dealer modifies or sells a modified new Motor Vehicle, or installs any equipment, accessory or part not supplied by General Motors, or sells any non- General Motors service contract for a Motor Vehicle, Dealer will disclose this fact on the purchase order and bill of sale, indicating that the modification, equipment, accessory or part is not warranted by General Motors or, in the case of a service contract, the coverage is not provided by General Motors or an affiliate. 5.1.2. Dealer is authorized to sell new Motor Vehicles only to customers located in the United States. Dealer agrees that it will not sell new Motor Vehicles for resale or principal use outside 6 the United States. Dealer also agrees not to sell any new Motor Vehicles which were not originally manufactured for sale and distribution in the United States. 5.1.3. Division will conduct general advertising programs to promote the sale of Products for the mutual benefit of Division and dealers. Division will make available to Dealer advertising and sales promotion materials from time to time and advise Dealer of any applicable charges. 5.2. RESPONSIBILITY TO SERVICE 5.2.1. Dealer agrees to maximize customer satisfaction by providing courteous, convenient, prompt, efficient and quality service to owners of Motor Vehicles, regardless of from whom the Vehicles were purchased. All service will be performed and administered in a professional manner and in accordance with all applicable laws and regulations, and this Agreement, including the Service Policies and Procedures Manual, as amended from time to time. 5.2.2. Dealer agrees to maintain an adequate service and parts organization as recommended by Division, including a competent, trained service and parts manager(s), trained service and parts personnel and, where service volume or other conditions make it advisable, a consumer relations manager. 5.2.3. Dealer and Division will each provide the other with such information and assistance as may reasonably be requested by the other to facilitate compliance with applicable laws, regulations, investigations and orders relating to Products. 5.2.4. To build and maintain consumer confidence in, and satisfaction with, Dealer and Division, Dealer will comply with Divisional procedures for the investigation and resolution of Product-related complaints. 5.2.5. Division will make available to Dealer current service and parts manuals, bulletins, and technical data publications relating to Motor Vehicles. 7 5.3. CUSTOMER SATISFACTION Dealer and Division recognize that appropriate care for the customer will promote customer satisfaction with Division's Products and its dealers, which is critically important to our current and future business success. Dealer therefore agrees to conduct its operations in a manner which will promote customer satisfaction with the purchase and ownership experience. Division agrees to provide Dealer with reasonable support to assist Dealer's attainment of customer satisfaction. At its discretion, Division will monitor the satisfaction of Dealer's customers, and report the results to Dealer. Any written response from Dealer concerning a customer satisfaction report issued to Dealer will become a part of the report. 5.4. BUSINESS PLANNING To enable Dealer to most effectively meet its obligations under this Agreement, and to enable Division to effectively support Dealer's efforts, Dealer agrees to develop and implement a Business Plan if such is required by Division. ARTICLE 6. SALE OF PRODUCTS TO DEALERS 6.1. SALE OF MOTOR VEHICLES TO DEALER Division will periodically furnish Dealer one or more Motor Vehicle Addenda specifying the current model types or series of new Motor Vehicles which Dealer may order under this Agreement. Division may change a Motor Vehicle Addendum by furnishing a superseding one, or may cancel an Addendum at any time. Division will endeavor to distribute new Motor Vehicles among its dealers in a fair and equitable manner. Many factors affect the availability and distribution of Motor Vehicles to dealers, including component availability and production capacity, sales potential in Dealer's Area of Primary Responsibility, varying consumer demand, weather and transportation conditions, governmental regulations, and other conditions beyond the control of General Motors. Division reserves to itself 8 discretion in accepting orders and distributing Motor Vehicles, and its judgments and decisions are final. Upon written request, Division will advise Dealer of the total number of new Motor Vehicles, by series, sold to Dealers in Dealer's Zone or Branch during the preceding month. 6.2. SALE OF PARTS AND ACCESSORIES TO DEALER New, reconditioned or remanufactured automotive parts and accessories marketed by General Motors and listed in current Dealer Parts and Accessories Price Schedules or supplements furnished to Dealer are called Parts and Accessories. Orders for Parts and Accessories will be submitted and processed according to written procedures established by General Motors or other designated suppliers. 6.3. PRICES AND OTHER TERMS OF SALE 6.3.1. MOTOR VEHICLES Prices, destination charges, and other terms of sale applicable to purchases of new Motor Vehicles will be those established according to Vehicle Terms of Sale Bulletins furnished periodically to Dealer. Prices, destination charges, and other terms of sale applicable to any Motor Vehicle may be changed at any time. Except as otherwise provided in writing, changes apply to Motor Vehicles not shipped to Dealer at the time the changes are made effective. Dealer will receive written notice of any price increase before any Motor Vehicle to which such increase applies is shipped, except for initial prices for a new model year or for any new model or body type. Dealer has the right to cancel or modify the affected orders by delivering written notice to Division within 10 days after its receipt of the price increase notice. 6.3.2. PARTS AND ACCESSORIES Prices and other terms of sale applicable to Parts and Accessories are established by General Motors according to the Parts and Accessories Terms of Sale Bulletin furnished to Dealer. 9 Prices and other terms of sale applicable to Parts and Accessories may be changed by General Motors at any time. Such changes apply to Parts and Accessories not shipped to Dealer at the time changes become effective. 6.4. INVENTORY 6.4.1. MOTOR VEHICLE INVENTORY Dealer recognizes that customers expect Dealer to have a reasonable quantity and variety of current model Motor Vehicles in inventory. Accordingly, Dealer agrees to order and stock and Division agrees to make available, subject to Article 6.1, a mix of models and series of Motor Vehicles identified in the Motor Vehicle Addendum in quantities adequate to enable Dealer to fulfill its obligations in its Area of Primary Responsibility. 6.4.2. PARTS AND ACCESSORIES Dealer agrees to stock sufficient Parts and Accessories made available by General Motors to perform warranty repairs and policy adjustments and meet customer demand. 6.5. WARRANTIES ON PRODUCTS General Motors warrants new Motor Vehicles and Parts and Accessories (Products) as explained in documents provided with the Products or in the Service Policies and Procedures Manual. EXCEPT AS OTHERWISE PROVIDED BY LAW, THE WRITTEN GENERAL MOTORS WARRANTIES ARE THE ONLY WARRANTIES APPLICABLE TO PRODUCTS. WITH RESPECT TO DEALERS, SUCH WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES OR LIABILITIES, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY LIABILITY FOR COMMERCIAL LOSSES BASED UPON NEGLIGENCE OR MANUFACTURER'S STRICT LIABILITY. EXCEPT AS MAY BE PROVIDED UNDER AN ESTABLISHED GENERAL MOTORS PROGRAM OR PROCEDURE, GENERAL MOTORS NEITHER ASSUMES NOT AUTHORIZES ANYONE TO ASSUME FOR IT ANY OTHER OBLIGATION OR LIABILITY IN 10 CONNECTION WITH PRODUCTS, AND GENERAL MOTORS MAXIMUM LIABILITY IS TO REPAIR OR REPLACE THE PRODUCT. ARTICLE 7. SERVICE OF PRODUCTS 7.1. SERVICE FOR WHICH DIVISION PAYS 7.1.1. NEW MOTOR VEHICLE PRE-DELIVERY INSPECTIONS AND ADJUSTMENTS Because new vehicle delivery condition is critical to customer satisfaction, Dealer agrees to perform specified pre-delivery inspections and adjustments on each new Motor Vehicle and verify completion according to procedures identified in the Service Policies and Procedures Manual. 7.1.2. WARRANTY AND SPECIAL POLICY REPAIRS Dealer agrees to perform (i) required warranty repairs on each qualified Motor Vehicle at the time of pre-delivery service and when requested by owner, and (ii) special policy repairs approved by Division. When the vehicle is returned to the owner, Dealer will provide owner a copy and explanation of the repair document reflecting all services performed. 7.1.3. CAMPAIGN INSPECTIONS AND CORRECTIONS Division will notify Dealer of suspected unsatisfactory conditions on Products and issue campaign instructions. Dealer agrees to inspect and correct suspected unsatisfactory conditions on Products in accordance with the instructions. Dealer will also determine that campaign inspections and corrections have been made on new and used Motor Vehicles in its inventory prior to sale, and follow-up on Products on which campaigns are outstanding. Division may ship, and Dealer agrees to accept, unordered parts and materials required for campaigns. Upon campaign completion, Dealer will receive credit for excess parts and materials so shipped if they are returned or disposed of according to Division's instructions. 11 7.1.4. PAYMENT FOR PRE-DELIVERY ADJUSTMENTS, WARRANTY, CAMPAIGN AND TRANSPORTATION DAMAGE WORK For Dealer's performance of services, pre-delivery inspections and adjustments, warranty repairs, special policy repairs, campaign inspections and corrections, and transportation damage repairs, Division will provide or pay Dealer for the Parts and other materials required and will pay Dealer a reasonable amount for labor. Payment will be made according to policies in the Service Policies and Procedures Manual. Dealer will not impose any charge for such service on owners or users except where a deductible or pro-rata charge applies. 7.2. PARTS, ACCESSORIES, AND BODY REPAIRS 7.2.1. WARRANTY AND POLICY REPAIRS Dealer agrees to use only genuine GM or General Motors approved Parts and Accessories in performing warranty repairs, special policy repairs, and any other repairs paid for by Division, in accordance with the applicable provisions of the Service Policies and Procedures Manual. 7.2.2. REPRESENTATIONS AND DISCLOSURES AS TO PARTS AND ACCESSORIES In servicing vehicles marketed by General Motors, Dealer agrees to disclose the use of non-General Motors parts and accessories as set forth in Article 5.1.1. 7.2.3. BODY REPAIRS Dealer agrees to provide quality body repair service for Motor Vehicles. Dealer can provide this service through its own body shop, or by arrangement with an alternate repair establishment. 7.2.4. TOOLS AND EQUIPMENT Dealer agrees to provide essential service tools as required by Division and other tools and equipment as necessary to fulfill its responsibilities to properly diagnose and service Products. 12 ARTICLE 8. TRAINING Properly trained personnel are essential to the success of Dealer and Division, and to providing customers with a satisfactory sales and service experience. Division agrees to make available or recommend to Dealer product, sales, service and parts, accounting and business management training courses for Dealer personnel. Division will make such training available as conveniently in time and location as practical circumstances permit. Division will assist Dealer in determining training requirements and periodically will require that Dealer have personnel attend specific courses. Dealer agrees to comply with any such reasonable training requirements and pay any specified training charges. Division will consult with dealers as described in Division's Dealer Sales and Service Agreement prior to determining the training courses or programs from which an individual Dealer's requirements under this Article may be established. Specific minimum service training requirements will be described in Division's Service Policies and Procedure Manual. Division will make available personnel to advise and counsel Dealer personnel on sales, service, parts and accessories, and related subjects. ARTICLE 9. REVIEW OF DEALER'S SALES AND SERVICE PERFORMANCE Dealer's performance of its obligations is essential to the effective representation of Division's Products, and to the reputation and goodwill of Dealer, Division, and other Division dealers. Periodically, Division will review various aspects of Dealer's sales and service performance. Division and Dealer will use the review process to identify areas in which improvements or changes are necessary so that Dealer can take prompt action to achieve acceptable performance. ARTICLE 10. CAPITALIZATION The Capital Standard Addendum reflects the minimum net working capital necessary for Dealer to conduct Dealership Operations. Dealer agrees to maintain at least this level of net working 13 capital. Division will issue a new Addendum if changes in operating conditions or Divisional guidelines indicate capital needs have changed materially. To avoid damage to goodwill which could result if Dealer is financially unable to fulfill its commitments, Dealer agrees to have and maintain a separate line of credit from a financial institution available to finance its purchase of new vehicles. The amount of the line of credit will be sufficient for Dealer to meet its obligations under Article 6.4. ARTICLE 11. ACCOUNTS AND RECORDS 11.1. UNIFORM ACCOUNTING SYSTEM A uniform accounting system facilitates an evaluation of Dealer business management practices and the impact of Division's policies and practices. Division therefore agrees to maintain, and Dealer agrees to use and maintain records in accordance with, a uniform accounting system set forth in an accounting manual furnished to Dealer. Dealer also agrees to timely submit true and accurate applications or claims for payments, discounts or allowances; true and correct orders for Products and reports of sale and delivery; and any other reports or statements required by Division, in the manner specified by Division, and to retain such records for at least two years. 11.2. EXAMINATION OF ACCOUNTS AND RECORDS Dealer agrees to permit any designated representative of Division to examine, audit, and take copies of any of the accounts and records Dealer is to maintain under the accounting manual and this Agreement. Dealer agrees to make such accounts and records readily available at its facilities during regular business hours. Division agrees to furnish Dealer with a list of any reproduced records. 14 11.3. Confidentiality of Dealer Data Division agrees not to furnish any personal or financial data submitted to it by Dealer to any non-affiliated entity unless authorized by Dealer, required by law, or pertinent to judicial or administrative proceedings, or to proceedings under the Dispute Resolution Process. ARTICLE 12. CHANGES IN MANAGEMENT AND OWNERSHIP The parties recognize that customers and authorized dealers, as well as shareholders and employees of General Motors, have a vital interest in the continued success and efficient operation of Division's dealer network. Accordingly, Division has the responsibility of continuing to administer the network to ensure that dealers are owned and operated by qualified persons able to meet the requirements of this Agreement. 12.1. SUCCESSION RIGHTS UPON DEATH OR INCAPACITY 12.1.1. SUCCESSOR ADDENDUM Dealer can apply for a Successor Addendum designating a proposed dealer operator and/or owners of a successor dealer to be established if this Agreement expires or is terminated because of death or incapacity. Division will execute the Addendum provided Dealer is meeting its obligations under this Agreement and under any Dealer Agreement which Dealer may have with other Divisions of General Motors for the conduct of Dealership Operations at the approved location; and the proposed dealer operator is, and will continue to be, employed full-time by Dealer or a comparable automotive dealership, and is already qualified or is being trained to qualify as a dealer operator; and provided all other proposed owners are acceptable. Division may refuse to enter into a Successor Addendum with Dealer if Division has previously notified Dealer it does not plan to continue Dealership Operations at the approved location, except for renewal of an existing Successor Addendum where the same proposed dealer operator continues to be qualified. 15 Upon expiration of this Agreement, Division will, upon Dealer's request, execute a new Successor Addendum provided a new and superseding dealer agreement is executed with Dealer, and Dealer, the proposed dealer operator and dealer owners are then qualified as described above. 12.1.2. ABSENCE OF SUCCESSOR ADDENDUM If this Agreement expires or is terminated because of death or incapacity and Dealer and Division have not executed a Successor Addendum, the Dealer Operator or, if there is not a remaining Dealer Operator, the remaining dealer owners may propose a successor dealer to continue the operations identified in this Agreement. The proposal must be made to Division in writing at least 30 days prior to the expiration or termination of this Agreement, including any deferrals. 12.1.3. SUCCESSOR DEALER REQUIREMENTS Division will accept a proposal to establish a successor dealer submitted by a proposed dealer operator under this Article 12.1 provided: (a) the proposed successor dealer and the proposed dealer operator are ready, willing and able to meet the requirements of a new dealer agreement at the approved location(s); (b) Division approves the proposed dealer operator and all proposed owners not previously approved for the existing Dealership Operations; (c) all outstanding monetary obligations of Dealer to General Motors have been satisfied; and (d) Dealer has not been previously notified that Division may discontinue Dealership Operations at that location. 12.1.4. TERM OF NEW DEALER AGREEMENT The dealer agreement offered a successor dealer will be for a three-year term. Division will notify the successor dealer in writing at least 90 days prior to the expiration date whether the successor dealer has performed satisfactorily and, if so, that Division will offer a new dealer agreement. 16 12.1.5. LIMITATION ON OFFERS Dealer will be notified in writing of the decision on a proposal to establish a successor dealer submitted under Article 12.1 within 60 days after Division has received from Dealer all applications and information reasonably requested by Division. Division may condition its offer of a dealer agreement on the relocation of dealership operations to an approved location by successor dealer within a reasonable time. Division's offer of a new dealer agreement under this Article 12.1 will automatically expire if not accepted in writing by the proposed successor dealer within 60 days after it receives the offer. 12.1.6. CANCELLATION OF ADDENDUM Dealer may cancel an executed Successor Addendum at any time prior to the death of a Dealer Operator or Dealer Owner, or the incapacity of Dealer Operator. Division may cancel an executed Successor Addendum only if the proposed dealer operator is no longer qualified under Article 12.1.1. 12.2. OTHER CHANGES IN OWNERSHIP OR MANAGEMENT If Dealer proposes a change in Dealer Operator, a change in ownership, or a transfer of the dealership business or its principal assets to any person conditioned upon Division's entering into a dealer agreement with that person, Division will consider Dealer's proposal and not arbitrarily refuse to approve it, subject to the following: 12.2.1. Dealer agrees to give Division prior written notice of any proposed change or transfer described above. Dealer understands that if any such change is made prior to Division's approval of the proposal, termination of this Agreement will be warranted and Division will have no further obligation to consider Dealer's proposal. 12.2.2. Division agrees to consider Dealer's proposal, taking into account factors such as (a) the personal, business, and financial qualifications of the proposed dealer operator and owners, and (b) whether the proposed change is likely to result in a successful dealership operation with acceptable 17 management, capitalization, and ownership which will provide satisfactory sales, service, and facilities at an approved location, while promoting and preserving competition and customer satisfaction. 12.2.3. Division will notify Dealer in writing of Division's decision on Dealer's proposal within 60 days after Division had received from Dealer all applications and information reasonably requested by Division. If Division disagrees with the proposal, it will specify its reasons. 12.2.4. Any material change in Dealer's proposal, including change in price, facilities, capitalization, proposed owners, or dealer operator, will be considered a new proposal, and the time period for Division to respond shall recommence. 12.2.5. Division's prior written approval is not required where the transfer of equity ownership or beneficial interest to an individual is (a) less than ten percent in a calendar year, and (b) between existing dealer owners previously approved by Division where there is no change in majority ownership or voting control. Dealer agrees to notify Division within 30 days of the date of the change and to execute a new Dealer Statement of Ownership. 12.2.6. Division is not obligated to approve any proposed changes in management or ownership under this Article unless Dealer makes arrangements acceptable to Division to satisfy any indebtedness of Dealer to General Motors. 12.3. RIGHT OF FIRST REFUSAL TO PURCHASE 12.3.1. CREATION AND COVERAGE If Dealer submits a proposal for a change of ownership under Article 12.2, Division will have a right of first refusal to purchase the dealership assets regardless of whether the proposed buyer is qualified to be a dealer. If Division chooses to exercise this right, it will do so in its written response to Dealer's proposal. Division will have a reasonable opportunity to inspect the assets, including real estate, before making its decision. 18 12.3.2. PURCHASE PRICE AND OTHER TERMS OF SALE (a) BONA FIDE AGREEMENT If Dealer has entered into a bona fide written buy/sell agreement, the purchase price and other terms of sale will be those set forth in such agreement and any related documents, unless Dealer and Division agree to other terms. Upon Division's request, Dealer agrees to provide all documents relating to the proposed transfer. If Dealer refuses to provide such documentation or state in writing that such documents do not exist, it will be presumed that the agreement is not bona fide. (b) ABSENCE OF BONA FIDE AGREEMENT In the absence of a bona fide written buy/sell agreement, the purchase price of the dealership assets will be determined by good faith negotiations by Dealer and Division. If agreement cannot be reached within a reasonable time, the price and other terms of sale will be established by arbitration according to the rules of the American Arbitration Association. 12.3.3. CONSUMMATION Dealer agrees to transfer the property by Warranty Deed, where possible, conveying marketable title free and clear of liens and encumbrances. The Warranty Deed will be in proper form for recording and Dealer will deliver complete possession of the property when the Deed is delivered. Dealer will also furnish copies of any easements, licenses or other documents affecting the property and assign any permits or licenses necessary for the conduct of Dealership Operations. 12.3.4. ASSIGNMENT Division's rights under this section may be assigned to any third party ("Assignee"). If there is an assignment, Division will guarantee full payment of the purchase price by the Assignee. Division shall have the opportunity to discuss the terms of the buy/sell agreement with a potential Assignee. Division's rights under this Article are binding on and enforceable against any Assignee or successor in interest of Dealer or purchaser of Dealer's assets. 19 12.3.5 TRANSFER INVOLVING FAMILY MEMBERS AND DEALER MANAGEMENT When the proposed change of ownership involves a transfer by a dealer owner solely to a member or members of his or her immediate family, or to a qualifying member of Dealer's Management, the Division's right of first refusal will not apply. An "immediate family member" shall be the spouse, child, grandchild, spouse of a child or grandchild, brother, sister or parent of the dealer owner. A "qualifying member of Dealer's Management" shall be an individual who has been employed by Dealer for at least two years and otherwise qualifies as a dealer operator. ARTICLE 13. BREACHES AND OPPORTUNITY TO REMEDY 13.1. CERTAIN ACTS OR EVENTS The following acts or events, which are within the control of Dealer or originate from action taken by Dealer or its management or owners, are material breaches of this Agreement. If Division learns that any of the acts or events has occurred, it may notify the Dealer in writing. If notified, Dealer will be given the opportunity to respond in writing within 30 days of receipt of the notice, explaining or correcting the situation to Division's satisfaction. 13.1.1. The removal, resignation, withdrawal, or elimination from Dealer for any reason of any Dealer Operator or dealer owner without Division's prior written approval. 13.1.2. Any attempted or actual sale, transfer, or assignment by Dealer of this Agreement or any of the rights granted Dealer hereunder, or any attempted or actual transfer, assignment or delegation by Dealer of any of the responsibilities assumed by it under this Agreement contrary to the terms of this Agreement. 13.1.3. Any change, whether voluntary or involuntary, in the record or beneficial ownership of Dealer as set forth in the Dealer Statement of Ownership furnished by Dealer, unless permitted by Article 12.2.5 or pursuant to Division's written approval. 20 13.1.4. Any undertaking by Dealer or any of its owners to conduct, either directly or indirectly, any of the Dealership Operations at any unapproved location. 13.1.5. Any sale, transfer, relinquishment, or discontinuance of use by Dealer of any of the Dealership Premises or other principal assets required in the conduct of the Dealership Operations, without Division's prior written approval. 13.1.6. Any dispute among the owners or management personnel of Dealer which, in Division's opinion, may adversely affect the Dealership Operations or the interests of Dealer or Division. 13.1.7. Refusal by Dealer to timely furnish sales, service or financial information and related supporting data, or to permit Division's examination or audit of Dealer's accounts and records. 13.1.8. A finding by a government agency or court of original jurisdiction or a settlement arising from charges that Dealer, or a predecessor of Dealer owned or controlled by the same person, had committed a misdemeanor or unfair or deceptive business practice which, in Division's opinion, may adversely affect the reputation or interests of Dealer or Division. 13.1.9. Willful failure of Dealer to comply with the provisions of any laws or regulations relating to the sale or service of Products. 13.1.10. Submission by Dealer of false applications or reports, including false orders for Products or reports of delivery or transfer of Products. 13.1.11. Failure of Dealer to maintain the line of credit required by Article 10. 13.1.12. Failure of Dealer to timely pay its obligations to General Motors. 13.1.13. Any other material breach of Dealer's obligations under this Agreement not otherwise identified in this Article 13 or in Article 14. If Dealer's response demonstrates that the breach has been corrected, or otherwise explains the circumstances to Division's satisfaction, then Division shall confirm this fact in writing to Dealer. 21 If, however, Dealer's response does not demonstrate that the breach has been corrected, or explain the circumstances to Division's satisfaction, termination is warranted and Division may terminate this Agreement upon written notice to Dealer. Termination will be effective 60 days following Dealer's receipt of the notice. 13.2. FAILURE OF PERFORMANCE BY DEALER If Division determines that Dealer's Premises are not acceptable, or that Dealer has failed to adequately perform its sales or service responsibilities, including those responsibilities relating to customer satisfaction and training, Division will review such failure with Dealer. As soon as practicable thereafter, Division will notify Dealer in writing of the nature of Dealer's failure and of the period of time (which shall not be less than six months) during which Dealer will have the opportunity to correct the failure. If Dealer does correct the failure by the expiration of the period, Division will so advise the Dealer in writing. If, however, Dealer does not correct the failure by the expiration of the period, Division may terminate this Agreement by giving dealer 90 days advance written notice. ARTICLE 14. TERMINATION OF AGREEMENT 14.1. BY DEALER Dealer has the right to terminate this Agreement without cause at any time upon written notice to Division. Termination will be effective 30 days after Division's receipt of the notice, unless otherwise mutually agreed in writing. 14.2. BY AGREEMENT This Agreement may be terminated at any time by written agreement between Division and Dealer. Termination assistance will apply only as specified in the written termination agreement. 22 14.3. FAILURE TO BE LICENSED If Division or Dealer fails to secure or maintain any license required for the performance of obligations under this Agreement or such license is suspended or revoked, either party may immediately terminate this Agreement by giving the other party written notice. 14.4. INCAPACITY OF DEALER OPERATOR Because this is a Personal Services Agreement, Division may terminate this Agreement by written notice to Dealer if Dealer Operator is so physically or mentally incapacitated that the Dealer Operator is unable to actively exercise full managerial authority. The effective date of termination will be stated in such written notice and will be not less than three months after receipt of such notice. 14.5. ACTS OR EVENTS If Division learns that any of the following has occurred, it may terminate this Agreement by giving Dealer written notice of termination. Termination will be effective on the date specified in the notice. 14.5.1. Conviction in a court of original jurisdiction of Dealer, or a predecessor of Dealer owned or controlled by the same person, or any Dealer Operator or dealer owner of any felony. 14.5.2. Insolvency of Dealer; or filing by or against Dealer of a petition in bankruptcy; or filing of a proceeding for the appointment of a receiver or trustee for Dealer, provided such filing or appointment is not dismissed or vacated within thirty days; or execution by Dealer of an assignment for the benefit of creditors or any foreclosure or other due process of law whereby a third party acquires rights to the operation, ownership or assets of Dealer. 14.5.3. Failure of Dealer to conduct customary sales and service operations during customary business hours for seven consecutive business days. 14.5.4. Any misrepresentation to General Motors by Dealer or by any Dealer Operator or owner in applying for this Agreement, or in identifying the Dealer Operator, or record or beneficial ownership of Dealer. 23 14.5.5. Submission by Dealer of false applications or claims for any payment, credit, discount, or allowance, including false applications in connection with incentive activities, where the false information was submitted to generate a payment to Dealer for a claim which would not otherwise have qualified for payment. Termination for failure to correct other breaches will be according to the procedures outlined in Article 13. 14.6. RELIANCE ON ANY APPLICABLE TERMINATION PROVISION The terminating party may select the provision under which it elects to terminate without reference in its notice to any other provision that may also be applicable. The terminating party subsequently also may asset other grounds for termination. 14.7. TRANSACTIONS AFTER TERMINATION 14.7.1. EFFECT ON ORDERS If Dealer and Division do not enter into a new Dealer Agreement when this Agreement expires or is terminated, all of Dealer's outstanding orders for products will be automatically cancelled except as provided in this Article 14.7. Termination of this Agreement will not release Dealer or Division from the obligation to pay any amounts owing the other, nor release Dealer from the obligation to pay for Special Vehicles if Division has begun processing such orders prior to the effective date of termination. 14.7.2. TERMINATION DELIVERIES If this Agreement is voluntarily terminated by Dealer or expires or is terminated because of the death or incapacity of a Dealer Operator or death of a Dealer Owner, without a termination or expiration deferral, Division will use its best efforts consistent with its distribution procedures to furnish Dealer with Motor Vehicles to fill Dealer's bona fide retail orders on hand on the effective date of termination or expiration, not to exceed, however, the total number of Motor Vehicles invoiced to Dealer for retail sale during the three months immediately preceding the effective date of termination. 24 14.7.3. EFFECT OF TRANSACTIONS AFTER TERMINATION Neither the sale of Products to Dealer nor any other act by Division or Dealer after termination of this Agreement will be construed as a waiver of the termination. ARTICLE 15. TERMINATION ASSISTANCE 15.1. DEFERRAL OF EFFECTIVE DATE If this Agreement is scheduled to expire or terminate because of the death or incapacity of a Dealer Operator or the death of a Dealer Owner and Dealer requests an extension of the effective date of expiration or termination thirty days prior to such date, Division will defer the effective date for up to a total of eighteen months after such death or incapacity occurs to assist Dealer in winding up its Dealership Operations. 15.2. PURCHASE OF PERSONAL PROPERTY 15.2.1. DIVISION'S OBLIGATIONS If this Agreement expires or is terminated and Division does not offer Dealer or a replacement dealer that has substantially the same ownership (more than 50 percent including total family ownership) a new Dealer Agreement, Division will offer to purchase the following items of personal property (herein called Eligible Items) from Dealer at the prices indicated: (a) New and unused Motor Vehicles of the current model year purchased by Dealer from Division at a price equal to the net prices and charges that were paid to General Motors; (b) Any signs owned by Dealer of a type recommended in writing by Division and bearing any Marks at a price agreed upon by Division and Dealer. If Division and Dealer cannot agree on a price, they will select a third party who will set the price; (c) Any essential tools recommended by Division and designed specifically for service of Motor Vehicles that Division offered for sale during the three years preceding termination at 25 prices established in accordance with the applicable pricing formula in the Service Policies and Procedures Manual; and (d) Unused and undamaged Parts and Accessories that (i) are still in the original, resalable merchandising packages and in unbroken lots (in the case of sheet metal, a comparable substitute for the original package may be used); (ii) are listed for sale in the then current Dealer Parts and Accessories Price Schedules (except "discontinued" or "replaced" Parts and Accessories); and (iii) were purchased by Dealer either directly from General Motors or from an outgoing dealer as a part of Dealer's initial Parts and Accessories inventory. Prices will be those dealer prices in effect at the time General Motors receives the Parts and Accessories, less any applicable allowances whether or not any such allowances were made to Dealer when Dealer purchased the Parts and Accessories. In addition, an allowance of five percent of dealer price for packing costs and reimbursement for transportation charges to the destination specified by General Motors will be credited to Dealer's account. 15.2.2. DEALER'S RESPONSIBILITIES Division's obligation to purchase Eligible Items is subject to Dealer fulfilling its responsibility under this subsection. Within fifteen days following the effective date of termination or expiration of this Agreement, Dealer will furnish Division with a list of vehicle identification numbers and such other information as Division may request pertaining to eligible Motor Vehicles. Dealer will deliver the eligible Motor Vehicles to a destination determined by Division that will be in a reasonably proximity to Dealer's Premises. Within two months following the effective date of termination or expiration of this Agreement, Dealer will mail or deliver to General Motors a complete and separate list of each of the Eligible Items other than Motor Vehicles. Dealer will retain the Eligible Items until receipt of written shipping 26 instructions from General Motors. Within thirty days after receipt of instructions, Dealer will ship the Eligible Items, transportation charges prepaid, to the destinations specified in the instructions. Dealer will take action and execute and deliver such instruments as necessary to (a) convey to Division and General Motors good and marketable title to all Eligible Items to be purchased, (b) comply with the requirements of any applicable state law relating to bulk sales or transfer, and (c) satisfy and discharge any liens or encumbrances on Eligible Items prior to their delivery to Division and General Motors. 15.2.3. PAYMENT Subject to Article 17.10, Division will pay for the Eligible Items as soon as practicable following their delivery to the specified destinations. Payment may be made directly to anyone having a security or ownership interest in the Eligible Items. If Division has not paid Dealer for the Eligible Items within two months after delivery, and if Dealer has fulfilled its termination obligations under this Agreement, Division will, at Dealer's written request, estimate the purchase price of the unpaid Eligible Items and all other amounts owed Dealer by General Motors. After deducting the amounts estimated to be owing General Motors and its subsidiaries by Dealer, Division will advance Dealer 75 percent of the net amount owed Dealer and will pay the balance, if any, as soon as practicable thereafter. 15.2.4. ASSIGNMENT OF RIGHTS If Division has decided to appoint a replacement dealer at Dealer's location, Dealer may sell its Eligible Items and if approved in writing by Division, assign its rights under this Article 15.2 to a designated replacement dealer provided the replacement dealer assumes Dealer's obligations under this Article. 27 15.3. ASSISTANCE ON PREMISES 15.3.1. DIVISION'S OBLIGATION Subject to Article 17.10, Division agrees to give Dealer assistance in disposing of the Premises if (i) this Agreement expires for any reason or is terminated by Division under Articles 13.2 or 14.4 and (ii) Dealer is not offered a new Dealer Agreement. Such assistance shall be given only on Premises that are described in the Location and Premises Addendum and only if: (a) they are used solely for Dealership Operations (or similar dealership operations under agreements with other Divisions of General Motors which will be terminated simultaneously with this Agreement); and (b) they are not substantially in excess of space requirements at the time of termination or, if they are substantially in excess, they became excessive because of a reduction in the requirements applicable to Dealer's facilities. Any Dealer request for such assistance must be in writing and received by Division within thirty days of the expiration or termination of this Agreement. Premises that consist of more than one parcel of property or more than one building, each of which is separately usable, distinct and apart from the whole or any other part with appropriate ingress or egress, shall be considered separately under this Article 15.3. 15.3.2. OWNED PREMISES Division will provide assistance on owned Premises by either (a) locating a purchaser who will offer to purchase the Premises at a reasonable price, or (b) locating a lessee who will offer to lease the Premises. If Division does not locate a purchaser or lessee within a reasonable time, Division will itself either purchase or, at its option, lease the Premises for a reasonable term at a reasonable rent. If the cause of termination or expiration is a death or the incapacity of the Dealer Operator, Division may instead pay Dealer a sum equal to a reasonable rent for a period of twelve months immediately following the effective date of termination or expiration of this Agreement. 28 15.3.3. LEASED PREMISES Division will provide assistance on leased Premises by either: (a) locating a tenant(s), satisfactory to lessor, who will sublet for the balance of the lease or assume it; or (b) arranging with the lessor for the cancellation of the lease without penalty to Dealer; or (c) reimbursing Dealer for the lesser of the rent specified in the lease or settlement agreement or a reasonable rent for a period equal to the lesser of twelve months from the effective date or termination or expiration of the balance of the lease term. Upon request, Dealer will use its best efforts to effect a settlement of the lease with the lessor subject to Division's prior approval of the terms. Division is not obligated to reimburse Dealer for rent for any month during which the Premises are occupied by Dealer or anyone else after the first month following the effective date of termination or expiration. 15.3.4. RENT AND PRICE Division and Dealer will fix the amount of a reasonable rent and a reasonable price for the Premises by agreement at the time Dealer requests assistance. The factors to be considered in fixing those amounts are: (a) the adequacy and desirability of the Premises for a dealership operation; and (b) the fair market value of the Premises. If Division and Dealer cannot agree, the fair market value will be determined by the median appraisal of three qualified real estate appraisers, of whom Dealer and Division will each select one and the two selected will select the third. The cost of appraisals will be shared equally by Dealer and Division. 15.3.5. LIMITATIONS ON OBLIGATION TO PROVIDE ASSISTANCE Division will not be obligated to provide assistance on Premises if Dealer: 29 (a) fails to accept a bona fide offer from a prospective purchaser, sublessee or assignee; (b) refuses to execute a settlement agreement with the lessor if the agreement would be without cost to Dealer; (c) refuses to use its best efforts to effect a settlement when requested by Division; or (d) refuses to permit Division to examine Dealer's books and records if necessary to verify claims of Dealer under this Article. Any amount payable by Division as rental reimbursement or reasonable rent shall be proportionately reduced if the Premises are leased or sold to another party during the period for which such amount is payable. Payment of rental reimbursement or reasonable rent is waived by Dealer if it does not file its claim therefor within two months after the expiration of the period covered by the payment. Upon request, Dealer will support its claim with satisfactory evidence of its accuracy and reasonableness. ARTICLE 16. DISPUTE RESOLUTION PROCESS Division and Dealer agree that mutual respect, trust and confidence are vital to the relationship between Division and Dealer. So that such respect, trust and confidence can be maintained, and differences that may develop between Dealer and Division may be resolved amicably, Division and Dealer agree to resolve disputes in accordance with the Dispute Resolution Process, a copy of which has been provided to Dealer. ARTICLE 17. GENERAL PROVISIONS 17.1. NO AGENT OR LEGAL REPRESENTATIVE STATUS This Agreement does not make either party the agent or legal representative of the other for any purpose, nor does it grant either party authority to assume or create any obligation on behalf of or in the name of the others. No fiduciary obligations are created by this Agreement. 30 17.2. RESPONSIBILITY FOR OPERATIONS Except as provided in this Agreement, Dealer is solely responsible for all expenditures, liabilities and obligations incurred or assumed by Dealer for the establishment and conduct of its operations. 17.3. TAXES Dealer is responsible for all local, state, federal, or other applicable taxes and tax returns related to its dealership business and will hold General Motors harmless from any related claims or demands made by any taxing authority. 17.4. INDEMNIFICATION BY GENERAL MOTORS General Motors will assume the defense of Dealer and indemnify Dealer against any judgment for monetary damages or rescission of contract, less any offset recovered by Dealer, in any lawsuit naming Dealer as a defendant relating to any Product that has not been altered when the lawsuit concerns: 17.4.1. Breach of the General Motors warranty related to the Product, bodily injury or property damage claimed to have been caused solely by a defect in the design, manufacture, or assembly of a Product by General Motors (other than a defect which should have been detected by Dealer in a reasonable inspection of the Product); 17.4.2. Failure of the Product to conform to the description set forth in advertisements or product brochures distributed by General Motors because of changes in standard equipment or material component parts unless Dealer received notice of the changes prior to retail delivery of the affected Product by Dealer; or 17.4.3. Any substantial damage to a Product purchased by Dealer from General Motors which has been repaired by General Motors unless Dealer has been notified of the repair prior to retail delivery of the affected Product. 31 If General Motors reasonably concludes that allegations other than those set forth in 17.4.1, 17.4.2, or 17.4.3 above are being pursued in the lawsuit, General Motors shall have the right to decline to accept the defense or indemnify dealer or, after accepting the defense, to transfer the defense back to Dealer and withdraw its agreement to indemnify Dealer. Procedures for requesting indemnification, administrative details, and limitations are contained in the Service Policies and Procedures Manual under "Indemnification." The obligations assumed by General Motors are limited to those specifically described in this Article and in the Service Policies and Procedures Manual and are conditioned upon compliance by Dealer with the procedures described in the Manual. This Article shall not affect any right either party may have to seek indemnification or contribution under any other contract or by law and such rights are hereby expressly preserved. 17.5. TRADEMARKS AND SERVICE MARKS General Motors or affiliated companies are the exclusive owners or licensees of the various trademarks, service marks, names and designs ("Marks") used in connection with Products and services. Dealer is granted the non-exclusive right to display Marks in the form and manner approved by Division in the conduct of its dealership business. Dealer agrees to permit any designated representative of Division upon the Premises during regular business hours to inspect Products or services in connection with Marks. Dealer will not apply to register any Marks either alone or as part of another mark, and will not take any action which may adversely affect the validity of the Marks or the goodwill associated with them. Dealer agrees to purchase and sell goods bearing Marks only from parties authorized or licensed by Division or General Motors. Marks may be used as part of the Dealer's name with Division's written approval. 32 Dealer agrees to change or discontinue the use of any Marks upon Division's request. Dealer agrees that no company owned by or affiliated with Dealer or any of its owners may use any Mark to identify a business without Division's written permission. Upon termination of this Agreement, Dealer agrees to immediately discontinue, at its expense, all use of Marks. Thereafter, Dealer will not use, either directly or indirectly, any Marks or any other confusingly similar marks in a manner that Division determines is likely to cause confusion or mistake or deceive the public. Dealer will reimburse Division for all legal fees and other expenses incurred in connection with action to require Dealer to comply with this Article 17.5. 17.6. NOTICES Any notice required to be given by either party to the other in connection with this Agreement will be in writing and delivered personally or by first class or express mail or by facsimile. Notices to Dealer will be directed to Dealer or its representatives at Dealer's principal place of business and, except for indemnification requests made pursuant to Article 17.4, notices by Dealer will be directed to the appropriate Zone or Branch Manager of the Division(s) of General Motors. 17.7. NO IMPLIED WAIVERS The delay or failure of either party to require performance by the other party or the waiver by either party of a breach of any provision of this Agreement will not affect the right to subsequently require such performance. 17.8. ASSIGNMENT OF RIGHTS OR DELEGATION OF DUTIES Dealer has not paid any fee for this Agreement. Neither this Agreement nor any right granted by this Agreement is a property right. Except as provided in Article 12, neither this Agreement nor the rights or obligations of Dealer may be sold, assigned, delegated or otherwise transferred. 33 Division may assign this Agreement and any rights, or delegate any obligations, under this Agreement to any affiliated or successor company, and will provide Dealer written notice of such assignment or delegation. Such assignment or delegation shall not relieve Division of liability for the performance of its obligations under this Agreement. 17.9. NO THIRD PARTY BENEFIT INTENDED This Agreement is not enforceable by any third parties and is not intended to convey any rights or benefits to anyone who is not a party to this Agreement. 17.10. ACCOUNTS PAYABLE All monies or accounts due Dealer are net of Dealer's indebtedness to Division, General Motors and its subsidiaries. In addition, Division may deduct any amounts due or to become due from Dealer to Division or General Motors, or any amounts held by Division, from any sums or accounts due or to become due from Division, General Motors or its subsidiaries. 17.11. SOLE AGREEMENT OF PARTIES Except as provided in this Agreement, Division has made no promises to Dealer, Dealer Operator, or dealer owner and there are no other agreements or understandings, either oral or written, between the parties affecting this Agreement or relating to any of the subject matters covered by this Agreement. Except as otherwise provided herein, this Agreement cancels and supersedes all previous agreements between the parties that relate to any matters covered herein, except as to any monies which may be owing between the parties. No agreement between Division and Dealer which relates to matters covered herein, and no change in, addition to (except the filling in of blank lines) or erasure of any printed portion of this Agreement, will be binding unless permitted under the terms of this Agreement or related documents, or approved in a written agreement executed as set forth in Division's Dealer Sales and Service Agreement. 34 17.12. APPLICABLE LAW This Agreement is governed by the laws of the State of Michigan. However, if performance under this Agreement is illegal under a valid law of any jurisdiction where such performance is to take place, performance will be modified to the minimum extent necessary to comply with such law if it was effective as of the effective date of this Agreement. 17.13. SUPERSEDING DEALER AGREEMENTS If Division offers a superseding form of dealer agreement to Division's dealers generally at any time prior to expiration of this Agreement, Division may terminate this Agreement by prior written notice to Dealer, provided Division offers Dealer a dealer agreement in the superseding form for a term of not less than the unexpired term of this Agreement. Unless otherwise agreed in writing, the rights and obligations of Dealer that may otherwise become applicable upon termination or expiration of the term of this Agreement shall not be applicable if Division and Dealer execute a superseding dealer agreement, and the matured rights and obligations of the parties hereunder shall continue under the new agreement. Dealer's performance under any prior agreement may be considered in an evaluation of Dealer's performance under this or any succeeding agreement. 35 GLOSSARY 1. AREA OF PRIMARY RESPONSIBILITY -- The geographic area designated by Division from time to time in a Notice of Area of Primary Responsibility. 2. DEALER -- The corporation, partnership or proprietorship that signs the Dealer Agreement with Division. 3. DEALER AGREEMENT -- The Dealer Sales and Service Agreement, including the Agreement proper that is executed, the Standard Provisions, all of the related Addenda, the Accounting and Service Policies and Procedures Manuals, and the Terms of Sale Bulletins. 4. DEALERSHIP OPERATIONS -- All operations contemplated by the Dealer Agreement. These operations include the sale and service of Products and any other activities undertaken by Dealer related to Products, including rental and leasing operations, used vehicle sales and body shop operations and finance and insurance operations whether conducted directly or indirectly by Dealer. 5. DIVISION -- The unit of General Motors Corporation that has entered into a Dealer Agreement with Dealer authorizing it to market and service Division's Motor Vehicles. 6. GENERAL MOTORS -- General Motors Corporation. 7. MOTOR VEHICLES -- All current model types or series of new motor vehicles specified in any Motor Vehicle Addendum and all past General Motors motor vehicles marketed through Motor Vehicle Dealers. 8. PRODUCTS -- Motor Vehicles, Parts and Accessories. 9. SERVICE POLICIES AND PROCEDURES MANUAL -- The Manual issued periodically which details certain administrative and performance requirements for Dealer service under the Dealer Agreement. 10. SPECIAL VEHICLES -- Motor Vehicles that have limited marketability because they differ from standard specifications or incorporate special equipment. 36 EX-10.2-10-2 19 EXHIBIT 10.2.10.2 Chrysler Corporation SALES AND SERVICE AGREEMENT ADDITIONAL TERMS AND PROVISIONS INDEX PAGE 11 SELLING, SERVICE, COMPLIANCE, FACILITIES AND LOCATION, FINANCES, PERSONNEL AND SIGNAGE....................... 2 (a) SELLING..................................................... 2 (b) SERVICE..................................................... 5 (c) COMPLIANCE.................................................. 8 (d) FACILITIES AND LOCATION..................................... 8 (i) DEALER's Responsibilities.............................. 8 (ii) Changes in Facilities or Location...................... 10 (e) FINANCES.................................................... 10 (f) PERSONNEL................................................... 11 (g) SIGNAGE..................................................... 12 12 ADVERTISING..................................................... 12 13 REPORTS, RECORDS AND BUSINESS SYSTEMS........................... 13 14 ORDERS.......................................................... 15 15 DELIVERY........................................................ 15 16 ACCEPTANCE OF SHIPMENTS......................................... 16 17 OTHER CHARGES................................................... 16 18 DELAY OR FAILURE TO FILL ORDERS................................. 17 19 OPTION TO REPURCHASE DAMAGED VEHICLES........................... 17 20 CLAIMS FOR DAMAGE OR SHORTAGE................................... 18 21 PRICES, CHARGES, TERMS OF PURCHASE AND PAYMENT.................. 18 22 CHANGE IN PRICE................................................. 19 23 SALE AND SUPPLY OF PARTS........................................ 21 24 COLLECTION OF INDEBTEDNESS...................................... 22 25 TITLE........................................................... 23 26 WARRANTY AND INDEMNIFICATION FOR PRODUCT LIABILITY LITIGATION................................ 23 (a) WARRANTY.................................................... 23 (b) INDEMNIFICATION FOR PRODUCT LIABILITY LITIGATION............ 24 (c) REPAIR/REPLACE REQUIREMENTS................................. 25 27 CHANGE OF MODELS, PARTS AND ACCESSORIES DECLARED OBSOLETE OR DISCONTINUED............................... 26 28 TERMINATION..................................................... 26 29 REPURCHASE OBLIGATIONS UPON TERMINATION......................... 32 30 DISPOSITION OF DEALER'S PREMISES................................ 34 31 TRANSACTIONS AFTER TERMINATION.................................. 38 32 SUCCESSORS TO DEALER............................................ 38 33 SURVIVING SPOUSE'S FINANCIAL INTEREST........................... 40 34 SALE OF DEALERSHIP ASSETS OR OWNERSHIP INTERESTS................ 41 35 USE OF TRADE NAMES, TRADEMARKS, LOGOS, ETC...................... 44 36 DEALER IS NOT AGENT............................................. 45 37 INABILITY TO PERFORM............................................ 45 38 ASSIGNMENT...................................................... 46 39 NON-WAIVER...................................................... 46 40 SEVERABILITY.................................................... 46 41 TITLES.......................................................... 47 42 INTERPRETATION.................................................. 47 43 NOTICES......................................................... 47 CHRYSLER CORPORATION SALES AND SERVICE AGREEMENT ADDITIONAL TERMS AND PROVISIONS The following additional terms and provisions apply to and are part of the Chrysler Corporation Sales and Service Agreement(s) to which DEALER is a signatory: 11 SELLING, SERVICE, COMPLIANCE, FACILITIES AND LOCATION, FINANCES, PERSONNEL AND SIGNAGE (a) SELLING DEALER shall use its best efforts to promote energetically and sell aggressively and effectively at retail (which includes lease and rental units) each and every model of CC vehicles identified in the aforementioned Motor Vehicle Addendum and CC vehicle parts, accessories and other CC products and services, to private and fleet customers in DEALER's Sales Locality. DEALER will sell the number of new CC vehicles necessary to fulfill DEALER's Minimum Sales Responsibility for each passenger car line or truck line represented by the vehicles listed on the Motor Vehicle Addendum, as defined below. DEALER's Minimum Sales Responsibility for each such line will be determined as follows: From time to time, but at least once a year for each such line, CC will compute the ratio of the number of new CC passenger cars -2- and/or trucks registered in the most recent whole or partial calendar year-to-date period for which registration figures are available in the CC Sales Zone in which DEALER is located to the total number of new passenger cars or, if CC deems it appropriate, the total number of those new passenger cars or trucks which CC, in its sole discretion, determines to be competitive with any or all of its passenger cars or trucks so registered in that Zone during the same period. The ratio thus obtained will be applied to the comparable category of the total number of new passenger cars or competitive passenger cars and/or trucks, as appropriate, registered during the same period in Dealer's Sales Locality. The resulting number will be DEALER's Minimum Sales Responsibility for each of said lines during this same period, subject to adjustment as described below. Upon DEALER's written request, CC may adjust DEALER's Minimum Sales Responsibility, if appropriate in CC's judgment, to take into account extraordinary local conditions to the extent, in CC's opinion, such conditions are beyond DEALER's control and have affected DEALER's sales performance differently from the sales performance of other new vehicle dealers in DEALER's Sales Locality or other like vehicle line CC dealers in the Sales Zone in which DEALER is located. If DEALER's Sales Locality is shared by one or more other CC dealer(s) of the same line, DEALER's Minimum Sales Responsibility for such line will be the number of new vehicles DEALER must sell -3- in order to achieve DEALER's fair share of the Minimum Sales Responsibility for all such CC dealers in the Sales Locality. The Minimum Sales Responsibility for the total CC dealers of the same line in the Sales Locality will be determined by using the same method described above in this Paragraph 11(a). CC will determine DEALER's fair share by assessing the relative importance of DEALER's immediate area of influence as compared with the Sales Locality as a whole. This assessment will then be converted to a percentage which will represent DEALER's fair share of the Minimum Sales Responsibility for the Sales Locality. Registration figures used in these computations will be new vehicle registrations as reported by any recognized reporting organization selected by CC. If vehicle registration data is not reasonably available, CC may use other records, generally accepted in the industry, for the purpose of determining motor vehicle purchases and to establish DEALER's Minimum Sales Responsibility. To the extent that registration figures or other records generally accepted in the automotive industry for purposes of determining motor vehicle purchases are not reasonably available for purposes of considering any of the factors specified herein, CC may rely on other records and data developed by CC that reasonably depict purchases of motor vehicles in an applicable area to establish DEALER's Minimum Sales Responsibility. -4- (b) SERVICE DEALER shall service CC vehicles actively and effectively and provide and maintain, for servicing CC vehicles, adequate facilities equipped with the basic tools common to the trade and with special tools and equipment peculiar to CC products and necessary for servicing and repairing specified CC vehicles properly, efficiently and competitively. DEALER shall comply with parts, service and warranty guides established by CC from time to time, make a sincere effort to satisfy service customers, and render prompt, efficient and courteous service to all owners or lessees of all CC vehicles badged Chrysler, Plymouth or Dodge regardless of where such vehicle was purchased or leased. DEALER shall perform all pre-delivery and road-ready services recommended by CC on new CC vehicles DEALER sells. After six (6) quarters of operation, including operation under any preceding CC Dealer Agreement, DEALER shall, at all times during this Agreement, meet its minimum service satisfaction requirements by maintaining a rating on Chrysler Corporation's Customer Satisfaction Index, Prep-It-Right and Deliver-It-Right evaluations (as determined by Chrysler Corporation from time to time, based upon surveys conducted of DEALER's customers) which is equal to or greater than the average Customer Satisfaction Index, Prep-It-Right and Deliver-It-Right ratings for the national Sales Level Group (as those groups are determined by CC from time to time) in which DEALER is included within DEALER's -5- Sales Zone (as said Sales Zone is determined by CC from time to time). CC will review, at least once a year, DEALER's performance under the Customer Satisfaction Index and DEALER's Prep-It-Right and Deliver-It-Right ratings. DEALER shall supply to all purchasers from DEALER of new CC vehicles a copy of CC's appropriate new vehicle warranty; make such certifications and verifications of odometer readings and maintenance and service performed on vehicles badged Chrysler, Plymouth or Dodge, or other matters as may be required under the terms of the CC vehicle warranty and as CC may from time to time otherwise prescribe; and provide owners of CC vehicles badged Chrysler, Plymouth or Dodge all warranty service and campaign inspections or corrections to which they may be entitled in accordance with the policies and procedures set forth in Chrysler Corporation's Warranty Policy and Procedure Manual and in bulletins and documents relating to service that CC may, from time to time, supply to DEALER. The provisions of said Warranty Policy and Procedure Manual, including any revisions thereto which shall be furnished to DEALER by CC from time to time, constitute a part of this Agreement with the same force and effect as if set forth in its entirety herein. DEALER shall comply with all policies, procedures, directives and rulings of the Chrysler Corporation Customer Arbitration Board. -6- CC has placed its trust and confidence in the integrity and fidelity of DEALER and, therefore, CC shall compensate DEALER for services claimed to have been performed by DEALER under CC's warranties or campaign inspections and corrections if claimed in accordance with CC's then current policies and procedures described above. DEALER agrees to comply with all such policies and procedures including, but not limited to, policies and procedures relating to the keeping of books and records respecting claims DEALER may make for compensation for service DEALER performs under CC's warranties or campaign inspections and corrections. DEALER agrees that CC may inspect DEALER's books and records regarding any warranty service or other claims for compensation DEALER may submit to CC. CC may charge DEALER's account for claims which have been disallowed as a result of such inspection. DEALER shall perform all warranty, pre-delivery, road-ready, campaign inspections and corrections, and other services hereunder as an independent contractor and not as the agent of CC and shall assume responsibility for and hold CC harmless from, all claims (including, but not limited to, claims resulting from the negligent or willful acts or omissions of DEALER) against CC arising out of or in connection with DEALER's performance of such service. If DEALER modifies any CC vehicle or installs on any CC vehicle any equipment, part or accessory that has not been supplied or -7- approved by CC, or sells any CC vehicle which has been modified after leaving the possession, custody or control of CC, or sells a non-Chrysler Corporation service contract in connection with the sale of any CC vehicle, DEALER shall disclose to the customer in writing that the modification, equipment, accessory or part is not supplied or approved by CC and is not included in warranties furnished by CC or, in the case of a service contract, the coverage is not provided by Chrysler Corporation, its parent, subsidiaries or its affiliates. DEALER will write such disclosure on the purchase order and on the customer's bill of sale. Notwithstanding the foregoing, DEALER may not use parts which have not been authorized by CC in performing repairs under CC warranties. (c) COMPLIANCE DEALER shall comply with all applicable federal, state and local laws, rules or regulations in the operation of the dealership. (d) FACILITIES AND LOCATION (i) DEALER's Responsibilities DEALER shall provide facilities for the sale and service of CC products and related activities ("Dealership Operations") at the location set forth in the aforementioned Dealership Facilities and Location Addendum. The entire Dealership Facilities including, but not in limitation of the foregoing, new and used vehicle display area, salesrooms, service area, parts and -8- accessories area, building exterior and grounds will be satisfactory to CC as to appearance and layout, and will be maintained and used as set forth in the Dealership Facilities and Location Addendum. DEALER shall at all times maintain the Dealership Facilities so that they are of adequate capacity to accommodate DEALER's total vehicle sales volume and are relatively equivalent in their attractiveness, level of maintenance, overall appearance and use to those facilities maintained by DEALER's principal competitors. DEALER shall conduct its Dealership Operations only from the dealership location and dealership facilities above mentioned and in the manner and at least during the hours usual in the trade in DEALER's Sales Locality. DEALER shall not, except as provided for in subparagraph 11(d)(ii) hereunder, either directly or indirectly, establish any place or places of business for the conduct of its Dealership Operations other than at the Dealership Facilities and Dealership Operations location as set forth in the Dealership Facilities and Location Addendum. If all of the Dealership Facilities are not at the same location, DEALER shall not utilize any separate portion of the Dealership Facilities for the conduct of any Dealership Operations other than as specified in the current Dealership Facilities and Location Addendum. The Dealership Facilities and Location Addendum shall identify any other purposes for which the -9- Dealership Facilities are to be used and the actual space and areas to be allocated for such purposes. (ii) Changes in Facilities or Location DEALER shall not make any change in the location of Dealership Operations or make any change in the area and use of Dealership Facilities without the prior written approval of CC. Any written approval of a change in the location or in the area or use of Dealership Facilities shall be valid only if in the form of a new Dealership Facilities and Location Addendum or a separate written agreement signed by DEALER and one of the authorized representatives of CC identified in Paragraph 10 hereinabove. (e) FINANCES DEALER shall maintain and employ in connection with DEALER's business such net working capital, net worth, and wholesale credit and retail financing arrangements necessary for DEALER to carry out successfully DEALER's undertakings pursuant to this Agreement and in accordance with guides therefor as may be issued by CC from time to time. At no time shall DEALER's net working capital be less than the amount specified in the Minimum Working Capital Agreement executed in conjunction with this Agreement and incorporated herein by reference, or the amount thereafter established by any superseding Minimum Working Capital Agreement. -10- (f) PERSONNEL DEALER shall employ in accordance with the volume of DEALER's business such number of competent technicians in DEALER's repair shops as may be required to assure prompt, satisfactory and competitive customer service for all owners of CC vehicles who may request such service from DEALER. In particular and without limitation to the generality of the foregoing, DEALER shall cause its service personnel to receive such training from time to time required by CC to maintain their technical expertise to render competent customer service, including the use of improved methods of repair, or the repair of new parts or systems, developed by CC. Failure to comply with the service training requirements of the immediately preceding subparagraph of this Paragraph 11(f) may result in suspension of deliveries of CC vehicles until DEALER complies with such training requirements. Protracted failure to comply with such training requirements may result in termination of this Agreement pursuant to Paragraph 28 hereunder. The immediately foregoing sentence shall not be construed as in any way limiting the general applicability of Paragraph 28 to any of the other provisions of this Paragraph 11. DEALER shall employ and maintain for its retail business a number of trained and competent new and used motor vehicle sales, lease, service, parts and general management personnel that are sufficient for DEALER to carry out successfully all of DEALER's -11- undertakings in this Agreement. In particular and without limitation of the generality of the foregoing, DEALER shall cause its sales personnel to receive such training from time to time as may be required by CC to maintain their sales expertise to render satisfactory sales. (g) SIGNAGE DEALER shall display and maintain brand signs, fascia and other signage in compliance with the policies and guidelines of Chrysler Corporation's Dealership Identification Program, including any modification or revisions to such policies and guidelines, which shall from time to time be furnished to DEALER by CC. 12 ADVERTISING CC, in promoting the sale and lease of its products by DEALER and other CC dealers, shall seek to advertise in the most effective manner to develop public interest and confidence in its dealers and products. DEALER shall engage in advertising and sales promotion programs and shall use effective showroom displays to help fulfill DEALER's responsibility to promote CC products and services vigorously and aggressively. In advertising in support of DEALER's selling, leasing and servicing CC products, DEALER shall advertise only in a manner that will develop customer confidence -12- in DEALER and CC products and shall not use any advertising tending to mislead or deceive the public or violate any applicable federal, state or local laws, rules or regulations, nor shall DEALER disparage CC or any company, or products of such company, directly involved in the manufacture of CC vehicles. DEALER shall discontinue any advertising that CC may find to be injurious to CC's business or likely to deceive the public or violative of any applicable federal, state or local laws, rules or regulations. DEALER shall at all times be a member in good standing of the Dealer Advertising Association, for the lines set forth in the Motor Vehicle Addendum, which covers a geographical area that encompasses, in whole or significant part, DEALER's Sales Locality and which has been approved by CC. 13 REPORTS, RECORDS AND BUSINESS SYSTEMS DEALER shall submit to CC for confidential use by CC and its affiliates, in such manner, in such form, and at such times as CC may reasonably request, complete and accurate reports of sales and stocks of new and used vehicles on hand and other reports, including monthly financial statements and operating reports. DEALER shall use and keep accurate and current at all times a uniform accounting system and will follow accounting practices, satisfactory to CC, which will enable CC to develop comparative -13- information in order, among other things, to provide business management assistance to dealers for the mutual benefit of DEALER and CC. DEALER agrees that CC may at any time for confidential use inspect DEALER's books and records to determine whether they are kept in such manner that the data shown in them can be used in CC's business management assistance to dealers, to assess DEALER's financial condition, and to verify invoices or other claims DEALER may render to CC. CC may, during the course of such inspection, make copies of such books and records and retain such copies for CC's confidential use. DEALER shall maintain an electronic data storage, transmission and communication system in the manner and form required from time to time by CC. CC and its affiliates shall not, without approval of DEALER, disclose the contents of DEALER's financial records to persons not a party or an affiliate of a party to this Agreement except when required by compulsory process from a court, government agency or arbitrator, or when CC, in its discretion, considers it appropriate to disclose said financial records in an adjudicatory or arbitration proceeding involving the parties to this Agreement. -14- 14 ORDERS CC shall ship specified CC vehicles, parts and accessories to DEALER only on DEALER's order. DEALER shall submit to CC, in the manner and form required by CC, current orders for CC vehicles, parts and accessories, and estimates of DEALER's future vehicle requirements at such times and for such periods as CC reasonably may request for the mutual benefit of all CC dealers and CC. All orders are subject to acceptance by CC, which acceptance may be in whole or in part. Except as otherwise allowed by this Agreement, CC shall use its best efforts to fill accepted orders for specified CC vehicles, parts and accessories. Notwithstanding the foregoing, in the event that demand exceeds supply of specified CC vehicles, DEALER acknowledges that CC has the right to allocate such supply in any reasonable manner CC deems fit in any geographical market. 15 DELIVERY CC may deliver specified CC vehicles by rail, truck, boat or any other means of transport, or deliver them for driveaway, endeavoring, when exceptional circumstances arise and the cost is not increased, to meet DEALER's preference as to mode of transportation. CC may deliver specified CC vehicles to a carrier that CC selects, for shipment to DEALER at DEALER's place of business or to the city or town where DEALER's place of -15- business is located (or to the nearest practicable unloading point) "to CC's order, notify DEALER," or may deliver such vehicles at any other point that CC may establish. CC may deliver parts and accessories to DEALER by delivering them to a carrier that CC selects for shipment to the city or town where DEALER's place of business is located, or by delivering them to DEALER at any point that CC may establish. 16 ACCEPTANCE OF SHIPMENTS If DEALER requests diversion of CC products shipped to DEALER or if CC is required to divert any CC products because DEALER fails, refuses or is unable to accept delivery of such products, or if there is a failure to pay as required for the products that DEALER has ordered, or a failure to accept C.O.D. shipments of products DEALER has ordered, CC may divert the shipments and charge DEALER the demurrage, transport, storage and other expense arising by reason of any such diversion. 17 OTHER CHARGES DEALER shall be responsible for and will pay any and all charges for demurrage, storage or other charges accruing after arrival of shipment at the distribution point established by CC. -16- 18 DELAY OR FAILURE TO FILL ORDERS CC shall not be liable for delay or failure to fill orders that have been accepted, where such delay or failure is the result of any event beyond the control of CC including, but not in limitation of the generality of the foregoing, any law, regulation or administrative or judicial order, or any acts of God, wars, riots, wrecks, fires, strikes, lockouts, other labor troubles, embargoes, blockades, delay or failure of any other supplier or carrier of CC to deliver or make delivery of CC products, or any material shortage or curtailment of production, including those due to economic conditions, or any discontinuance of manufacture or sale of products by CC or its suppliers. Furthermore, CC will not be liable for delay or failure to fill orders when such delay or failure is pursuant to any provision under this Agreement. 19 OPTION TO REPURCHASE DAMAGED VEHICLES DEALER shall notify CC if any new and unused CC vehicle in DEALER's possession has sustained major damage as defined in the Warranty Policy and Procedure Manual. To preserve the quality and value of new CC vehicles ordered for the public, CC shall have the option to divert such a vehicle prior to delivery to DEALER or repurchase from DEALER all or any of such vehicles at a price equal to the net purchase price paid by DEALER to CC. DEALER agrees to assign its rights under any insurance contract -17- related to the repurchased CC vehicles to CC. CC shall make appropriate payment for repurchased CC vehicles directly to any lien holder or, if there is no lien, directly to DEALER. 20 CLAIMS FOR DAMAGE OR SHORTAGE CC shall not be liable for loss of or damage to CC products sold hereunder occurring after delivery thereof to DEALER, DEALER's agent, or a carrier within the North American Continent for shipment to DEALER, as provided in Paragraph 15 of this Agreement. Should any products sold under this Agreement be delivered in damaged condition or with shortages, claims for said damages or shortages shall be made in accordance with CC's then current policies and procedures. To the extent required by law, DEALER shall notify the purchaser of a vehicle of any damage sustained by such vehicle prior to sale. DEALER shall indemnify and hold CC harmless from any liability resulting from DEALER's failure to so notify such purchasers. 21 PRICES, CHARGES, TERMS OF PURCHASE AND PAYMENT CC shall notify DEALER from time to time of the prices, charges and terms of purchase for products sold under this Agreement and shall charge DEALER for such products according to the prices, charges and terms of purchase in effect at the date of shipment. CC reserves the right, without prior notice, to change prices, -18- charges and terms of purchase for any product sold under this Agreement. DEALER shall pay CC for products sold under this Agreement in lawful money of the United States of America by such method and/or in such manner as CC may announce from time to time or approve in writing, with collection charges, if any, added. If not included in the price, DEALER shall pay all excise or other taxes which may be levied on the products purchased hereunder or on the sale, shipment, ownership or use thereof. Further, DEALER certifies as of the date of each purchase hereunder that all products purchased hereunder are purchased for resale, retail lease or demonstration purposes. 22 CHANGE IN PRICE Should CC reduce the wholesale price at factory of any CC vehicle (not including accessories and optional equipment) of a particular yearly model, line and body style then currently in production, CC shall refund to DEALER in cash or by a credit against DEALER's indebtedness to CC, for each new, unused and unsold CC vehicle (not including demonstrators) of that particular model, line and body style that at the time of the reduction is in DEALER's stock or in transit to DEALER, an amount equal to the difference between the reduced wholesale price and the wholesale price paid to CC by DEALER. -19- If, at the time of the official model introduction date (as determined by CC) of a new yearly model, CC announces a wholesale price of any CC vehicle (not including accessories and optional equipment) of any particular body style and line of the new model which is below the wholesale price of a vehicle of the same body style and line of the discontinued yearly model, CC shall refund to DEALER in cash or by credit against DEALER's indebtedness to CC an amount equal to the difference between the reduced wholesale price and the wholesale price of the same body style and line of the discontinued yearly model. Such refund will apply only to new, unused and unsold CC vehicles (not including demonstrators) of the particular body style and line of the discontinued yearly model that on the official model introduction date (as determined by CC) of the new yearly model is in DEALER's stock or in transit to DEALER, unless CC determines that the line or particular body style of the new yearly model is so changed in size, design, equipment, specifications or price as, for all practical purposes, to make the line a new and different line or to make the particular body style a new and different body style of the discontinued yearly model. Notwithstanding the provisions of the two paragraphs immediately above, in any case where items considered standard equipment on a current vehicle or on a vehicle of the discontinued yearly model are not included as standard equipment on the corresponding vehicle with a reduced wholesale price or on the corresponding -20- vehicle of the new model, any wholesale price decrease resulting from the exclusion of such standard equipment will not be included in any refund under this paragraph 22. In order to qualify for a refund in either case set forth above, DEALER must make a written claim, supported by adequate evidence, within thirty (30) days of the effective date of the reduction in price or the official model introduction date of the new yearly model. Should CC increase the wholesale price of any CC vehicle, said price increase will not apply to an order submitted to CC by DEALER prior to the date the notification of such price increase was issued if the order was submitted for the specific purpose of fulfilling a valid and legitimate purchase agreement between DEALER and a retail purchaser and if such an order was properly identified in the manner required by CC and was delivered to the ordering retail purchaser. 23 SALE AND SUPPLY OF PARTS DEALER shall not represent, sell, offer for sale or use in repairing CC vehicles, parts which are represented as new or remanufactured Chrysler Corporation or Mopar parts or parts which are represented to be manufactured or produced by any company directly involved in the manufacture of the vehicles specified in the Motor Vehicle Addendum to this Agreement, unless such parts are in fact manufactured, remanufactured or designed for or by -21- Chrysler Corporation, Mopar or a company directly involved in the manufacture of said specified vehicles and are properly identified as Chrysler Corporation or Mopar parts or parts of said directly involved companies with the respective consent of each of the aforementioned organizations. DEALER at all times shall keep on hand in DEALER's place of business the number and assortment of Chrysler Corporation or Mopar parts, that, in CC's judgment, is necessary to meet the service requirements of DEALER's CC customers and to meet all of DEALER's obligations under this Agreement. 24 COLLECTION OF INDEBTEDNESS CC may apply to any amount owed by DEALER to CC or to any of CC's affiliates any credit owing to DEALER by CC or any of its affiliates. As used in this Agreement, "affiliate" means Chrysler Corporation and any of its subsidiaries or their subsidiaries, or any other corporation, partnership or other legal entity which has an ownership interest in CC or any corporation, partnership or other legal entity in which CC has an ownership interest, or any subsidiary thereof. Should DEALER assign its right to amounts owed to DEALER by CC to any third party, prior to executing such an assignment DEALER shall notify such third party of CC's first priority right to such credits. -22- 25 TITLE Title to products CC sells to DEALER hereunder and risk of loss will pass to DEALER on delivery of the products to DEALER, DEALER's agent, or the carrier, whichever occurs first. However, CC retains a lien for payment on the products so sold until paid for in full, in cash. CC will receive negotiable instruments only as conditional payment. 26 WARRANTY AND INDEMNIFICATION FOR PRODUCT LIABILITY LITIGATION (a) WARRANTY CC's warranty on new CC vehicles, as in effect from time to time, will be as set forth in Chrysler Corporation's Warranty Policy and Procedure Manual. CC shall supply sufficient copies of CC's then current CC vehicle warranty to DEALER to permit DEALER, in accordance with DEALER's obligation under Paragraph 11 of this Agreement, to provide a copy to each purchaser from DEALER of a new CC vehicle. EXCEPT FOR THE CC WARRANTY, THERE ARE NO OTHER EXPRESS OR IMPLIED WARRANTIES MADE OR DEEMED TO HAVE BEEN MADE TO ANY PERSON BY CC APPLICABLE TO PRODUCTS SOLD UNDER THIS AGREEMENT. THE CC WARRANTY WILL BE EXPRESSLY IN LIEU OF ANY OTHER WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE; AND THE REMEDIES SET FORTH IN SUCH WARRANTY -23- WILL BE THE ONLY REMEDIES AVAILABLE TO ANY PERSON WITH RESPECT TO PRODUCTS SOLD HEREUNDER. CC neither assumes nor authorizes any other person, including DEALER, to assume for CC any other obligation or liability in regard to such products. (b) INDEMNIFICATION FOR PRODUCT LIABILITY LITIGATION If a product liability lawsuit is filed naming DEALER as a defendant and it is determined that the bodily injury or property damage alleged by the plaintiff was caused solely by a design defect or a defect created by CC in the manufacture or assembly of a CC vehicle, part or accessory, which latter defect was not reasonably susceptible of discovery by DEALER in either DEALER's new car preparation or subsequent servicing during the warranty period, then CC shall indemnify and hold DEALER harmless from losses, damages and expenses, including reasonable attorneys' fees, resulting from such product liability lawsuit. As used in this Paragraph 26(b), a "product liability lawsuit" shall mean a lawsuit seeking damages for bodily injury or property damage allegedly sustained in a motor vehicle accident, and which injury or damage is alleged to have been caused in any part by a defect in the design, manufacture or assembly of a CC vehicle, part or accessory. Whenever DEALER intends to request CC to indemnify DEALER with respect to a product liability lawsuit, DEALER shall file with the court an appropriate response which will prevent a default -24- judgment from being taken against DEALER, and DEALER shall, within thirty (30) business days after service of the complaint, notify CC in writing and shall provide at that time copies of any pleadings which may have been served, together with all information then available regarding the circumstances giving rise to such product liability lawsuit. Any such notices shall be sent by certified mail to the attention of the Office of the General Counsel, Chrysler Corporation, Post Office Box 1919, Detroit, Michigan 48288 or such other address as CC may designate in writing to DEALER. Upon such request for indemnification, CC shall have the option, upon reasonable notice to DEALER, to retain counsel and assume full control over the defense of the lawsuit. If CC is prevented by DEALER from exercising this option, CC's obligation hereunder to indemnify DEALER shall be rendered null and void and be of no force or effect. (c) REPAIR/REPLACE REQUIREMENTS This provision shall apply if DEALER is located in a state which has in effect or hereafter adopts or enacts any law or regulation imposing liability on a motor vehicle manufacturer, importer, distributor and/or dealer for sale of a vehicle presumed under such law or regulation to be defective by reason, inter alia, of repeated unsuccessful attempts to repair such vehicle within a specified period of time or by reason of such vehicle being unavailable and out of service to the purchaser for a specified period of time. -25- DEALER shall make a good faith effort to immediately notify CC in writing of the existence of any vehicle which may become subject to such law or regulation prior to a presumption of liability arising under such law or regulation from the inability to repair or correct a nonconformity or condition of a vehicle. 27 CHANGE OF MODELS, PARTS AND ACCESSORIES DECLARED OBSOLETE OR DISCONTINUED CC at any time may discontinue any or all models, lines or body styles and may revise, change or modify their construction or classification. All DEALER orders for specified CC vehicles shall refer to models, lines and body styles in production at the time CC receives the orders unless DEALER specifies otherwise. CC at any time may declare obsolete or discontinue any or all parts, accessories and other merchandise. CC may act under this Paragraph 27 without notice and, except as set forth in Paragraph 22 of this Agreement, without any obligation to DEALER by reason of DEALER's previous purchases. 28 TERMINATION (a) DEALER may terminate this Agreement on not less than thirty (30) days written notice. (b) CC may terminate this Agreement on not less than sixty (60) days written notice for the following reasons: -26- (i) in accordance with CC's ordinary and customary procedures, upon the failure of DEALER to fully perform any of DEALER's undertakings under Paragraph 11(a) of this Agreement or failure of DEALER to meet its minimum service satisfaction requirements set forth in Paragraph 11(b) of this Agreement within one hundred and eighty (180) days after notification by CC that DEALER has not fully performed the aforementioned undertakings, obligations or requirements, or (ii) the failure of DEALER to perform fully any of DEALER's undertakings or obligations as set forth in this Agreement including, but without limiting the generality of the foregoing, the undertakings and obligations set forth in Paragraphs 11(b) through 11(g) or Paragraphs 12, 13, 14, 23, 26(c) or 35 of this Agreement, or (iii) the death of any person listed in Paragraph 2 of this Agreement (other than the death of DEALER if DEALER is a sole proprietorship) or the failure of any such person so listed to continue active and substantial personal participation in the management of the Dealership Operation as required by Paragraph 2, or (iv) a misrepresentation of or change, whether voluntary or by operation of law, in the ownership if DEALER is an individual, or of the ownership interests listed in Paragraph 3 of this -27- Agreement resulting in a transfer of control or majority interest in the capital stock or partnership interest of DEALER, unless CC has given prior written approval to such change, or (v) any material misrepresentation by any of DEALER's owners or executives as to any fact relied upon by CC in entering into this Agreement, or (vi) a disagreement, dispute or controversy between or among principals, partners, managers, officers or stockholders of DEALER that, in the opinion of CC, may adversely affect the operation, management or business of DEALER, or (vii) the conviction of DEALER or any individual named in Paragraph 2 or 3 herein of any crime that, in CC's opinion, may affect adversely the operation or business of DEALER or the name, goodwill or reputation of Chrysler Corporation, CC products, or DEALER, or (viii) the failure of DEALER to pay any indebtedness of DEALER to CC in accordance with the applicable terms and conditions required by CC, or (ix) impairment of the reputation or financial standing of DEALER or any of DEALER's owners or executives or discovery by CC of any facts existing prior to or at the time of signing this -28- Agreement which, in CC's opinion, tend to impair such reputation or financial standing, or (x) any submission by DEALER to CC of a false or fraudulent application or claim, or any claim or statements in support thereof, for payment including, but not limited to, pre-delivery inspection or adjustments, warranty repairs, special policy or campaign adjustments or repairs performed by DEALER, sales incentives, parts compensation, or any other discount, allowance, refund or credit under any plan, provision or other program offered by CC, whether or not DEALER offers or makes to CC or CC seeks or obtains from DEALER restitution of any payments made to DEALER on the basis of any such false or fraudulent application, claim or statement, or (xi) conduct by DEALER which, in DEALER's dealings with customers or the public, is fraudulent or constitutes a deceptive or unfair act or practice, or (xii) DEALER's failure to comply with requirements set forth in the National Traffic and Motor Vehicle Safety Act of 1966 or any other legislation or regulation pertaining to safety, air pollution or noise control which may be imposed on automobile dealers or with reasonable requests of CC made in conjunction with action being taken on its part to comply with the aforementioned statutory or regulatory requirements, or -29- (xiii) the notification of termination or termination, for any reason, of any other Chrysler Corporation Dealer Agreement(s) which may be in effect between DEALER and Chrysler Corporation, or (xiv) the failure of DEALER to comply fully with the policies, procedures, directives and rulings of the CC Customer Arbitration Board, or (xv) CC offers a new Sales and Service Agreement to all of its dealers selling the line(s) of vehicles set forth on the Motor Vehicle Addendum. Termination by CC will not be effective unless the President or a Vice President or the National Dealer Placement Manager of Chrysler Corporation signs the notice. (c) Notwithstanding the provisions above, this Agreement will terminate automatically without notice from either party on: (i) the death of DEALER, if DEALER is a sole proprietorship, or (ii) an attempted or actual assignment or transfer of this Agreement or an attempted or actual transfer of a substantial portion of dealership assets by DEALER without the prior written consent of CC, or -30- (iii) an assignment by DEALER for the benefit of creditors, or (iv) the insolvency of DEALER, or the preparation of any petition by or for DEALER for voluntary institution of any proceeding under the Bankruptcy Act or under any State insolvency law, whether or not such petition is ever filed; or the involuntary institution against DEALER of any proceeding under the Bankruptcy Act or under any State insolvency law which is not vacated within ten (10) days from the institution thereof; or the appointment of a receiver or other officer having similar powers for DEALER or DEALER's business which is not removed within ten (10) days from his/her appointment; or any levy under attachment, execution or similar process which is not within ten (10) days vacated or removed by payment or bonding, or (v) the discontinuance by CC of the production or distribution of all CC vehicles listed on the Motor Vehicle Addendum, or (vi) the failure of DEALER to fully conduct its Dealership Operations for seven (7) consecutive business days, or (vii) the loss, termination or expiration of any license or permit required by law for DEALER to perform DEALER's obligations under this Agreement or otherwise conduct business as a new vehicle dealer for CC products. -31- Termination of this Agreement will cancel all unfilled orders for vehicles, parts and accessories. The obligations of the parties to this Agreement as set forth in Paragraphs 9, (or Paragraph 7 in a Term Agreement), 21, 24, 26(a), 26(b), 29, 30, 31 and 35 shall remain in full force and effect after the effective date of termination. 29 REPURCHASE OBLIGATIONS UPON TERMINATION Except when termination of this Agreement will be followed by CC issuing to DEALER, or to DEALER's successors, assigns, heirs or devisees, a new agreement of any sort for the sale and service of CC vehicles, including, but not in limitation of the generality of the foregoing, such an agreement with a term of limited duration, CC agrees to buy and DEALER agrees to sell, free and clear of any liens and encumbrances, within ninety (90) days after the effective date of any termination under Paragraph 28: (a) All new, unused and unsold specified CC vehicles (not including demonstrators), unmodified and in good, undamaged condition, of the yearly model current at the effective date of termination that were purchased by DEALER from CC and that are on the effective date of termination the property of and in the possession, custody and control of DEALER. The repurchase price will be the dealer net invoice price at the time of DEALER's -32- purchase of each such vehicle from CC, less any applicable rebates, incentive payments, adjustments or allowances paid or credited by CC to DEALER. CC shall not be required to repurchase CC vehicles built on DEALER's special order to other than CC standard specifications. (b) All new, unused and undamaged CC parts that are priced and identified as eligible for return in Chrysler Corporation's then current parts lists and that were purchased by DEALER from CC and are on the effective date of termination the property of and in possession, custody and control of DEALER, at current listed prices (exclusive of transportation charges). CC shall add to such current listed prices (exclusive of transportation charges) an allowance of five percent (5%) of such prices for packing and crating by DEALER and a credit for transportation charges paid by DEALER to ship such parts to the destination CC designates. CC shall subtract from such current listed prices (exclusive of transportation charges) all maximum allowable discounts and the cost of any necessary refinishing, reconditioning or repacking to restore the parts to their original salable condition, and CC's cost of determining whether such parts are free and clear of all liens and encumbrances. Prior to purchase by CC, DEALER shall deliver the parts (tagged and inventoried in accordance with CC's instructions) for inspection F.O.B. at any point CC may designate. CC's determination of the quantity and value of the parts returned will be conclusive unless DEALER notifies CC in writing within -33- fifteen (15) days of receiving the check or statement of account for such parts returned of any error made in such determination. (c) All new, unused and undamaged CC accessories or accessories packages for the yearly model current at the effective date of termination, complete as supplied to and purchased by DEALER from CC during the twelve (12) months immediately preceding the effective date of termination and that are on the effective date of termination the property of and in the possession, custody and control of DEALER at the prices then applicable (less maximum allowable discounts) and current at the effective date of termination, exclusive of transportation charges. CC shall add to such currently applicable prices an allowance of five percent (5%) of such prices (less maximum allowable discounts) for packing and crating by DEALER and a credit for transportation charges paid by DEALER in shipping such accessories to the destination CC designates. CC shall subtract from such currently applicable prices (less maximum allowable discounts) the cost of necessary refinishing, reconditioning or repackaging of such accessories or accessories packages to restore them to their original salable condition and CC's cost of determining whether such accessories or accessories packages are free and clear of all liens and encumbrances. Prior to purchase by CC, DEALER will deliver the accessories or accessories packages, tagged and inventoried in accordance with CC's instructions, for inspection F.O.B. at any point CC may designate. CC's determination of the quantity and value of the -34- accessories or accessories packages returned will be conclusive unless DEALER notifies CC in writing within fifteen (15) days of receiving the check or statement of account for such accessories or accessories packages returned of any error made in such determination. (d) All signs of a type required by CC belonging to DEALER, showing the name "Chrysler Corporation" or one of the designated trade names applicable only to CC products or CC's affiliated companies. CC shall pay to DEALER for such signs the fair market value or the price for which DEALER purchased such signs, whichever is lower. CC shall have the right, upon termination of this Agreement, to enter DEALER's premises peacefully and remove all such signs. (e) Special tools (in complete sets), of a type recommended by CC, adapted only to the servicing of CC vehicles and purchased by DEALER during the thirty-six (36) months immediately preceding the effective date of termination at a price and under terms and conditions to be agreed upon by CC and DEALER. CC will pay DEALER for any items purchased pursuant to this Paragraph 29 within ninety (90) days of CC's receipt and acceptance of said items, subject to Paragraph 24 of this Agreement. 30 DISPOSITION OF DEALER'S PREMISES -35- On termination of this Agreement by CC on sixty (60) days' written notice pursuant to Paragraph 28 hereof, except when termination results because DEALER's facilities have been closed for seven (7) consecutive business days or from a person named in Paragraph 2 of this Agreement ceasing to participate in the management of DEALER, CC shall take the following action respecting DEALER's premises as defined below (herein called the Premises), if DEALER so requests, and provided that DEALER has paid to CC all monies owing to CC: (a) If, on DEALER's receipt of notice of termination, DEALER owns the Premises: CC shall assist DEALER in effecting an orderly and equitable disposition of the Premises by a sale or lease. If necessary to effect such disposition, CC, at its option, within a reasonable time shall lease the Premises from DEALER for at least one (1) year or purchase the Premises, or cause them to be leased or purchased, on fair and equitable terms. In such event, DEALER and CC shall agree on the value or rental value of the Premises for the purpose of either a sale or lease. If DEALER and CC are unable to so agree, each shall appoint a disinterested qualified real estate appraiser and the two so appointed will agree on the value or rental value of the Premises, as the case may be. If the two appraisers are unable to agree, they shall select a third disinterested qualified real estate appraiser who shall determine such value. The value or rental value so determined shall be -36- final and binding on both DEALER and CC. If one or more appraisals are necessary, DEALER and CC shall share equally the cost of such appraisals. (b) If, on DEALER's receipt of notice of termination, DEALER is leasing the Premises: CC shall assist DEALER in effecting an orderly and equitable disposition of DEALER's leasehold interest in the Premises. If necessary to effect such disposition, CC, at its option, within a reasonable time, for the remainder of the lease or for twelve (12) months, whichever period is shorter, shall (1) sublet the Premises from DEALER, or (2) take an assignment of the lease of the Premises from DEALER, or (3) pay DEALER monthly or otherwise, as the parties may agree, the lower of the rental specified in the lease or the fair rental value of the Premises determined in the manner provided in (a) above; provided, however, that DEALER may receive such payments under only one dealer agreement with Chrysler Corporation or any of their affiliates or subsidiaries. (c) If DEALER owns part of the Premises and leases part of them, section (a) above will apply to the part owned and section (b) above to the part leased. CC shall have no obligation to DEALER under this Paragraph 30 if, after receipt of notice of termination, (1) DEALER in any way encumbers the Premises or DEALER's interest in them or takes any -37- other action respecting the Premises that would adversely affect any of CC's obligations under this Paragraph 30, or performance thereof, or (2) DEALER receives and refuses a bona fide offer to purchase, lease or sublet all or substantially all of the Premises at a price and on terms that CC believes are fair, or (3) DEALER's lease of the Premises or part thereof is continued, renewed or extended by DEALER's act or failure to act, or (4) DEALER fails or refuses to use DEALER's best efforts to sell, lease or sublease the Premises or to notify CC of any offer to buy, lease or sublease the Premises; or if, after the effective date of termination of this agreement, (a) the Premises or part hereof are used or occupied by anyone for any purpose, or (b) DEALER, if a proprietor, or any of the persons named in Paragraph 3 of this agreement is in the business of selling and/or servicing new or used motor vehicles in the Sales locality referred to in this agreement or the general area surrounding it, or (c) DEALER, if a proprietor, or any of the persons named in Paragraph 3 of this agreement occupies or could, in CC's opinion, occupy all or substantially all of the Premises for any business in which one or more of them engages. "Premises" as used in this Paragraph 30 means the place or places of business in the Sales Locality (1) that DEALER uses exclusively to carry out DEALER's obligations in selling and servicing new products under this agreement or jointly under this and any other agreement or agreements with CC on the date of -38- DEALER's receipt of notice of termination and (2) are set forth in the Dealership Facilities and Location Addendum (Addenda). To receive CC's assistance as set forth in this Paragraph 30, DEALER must have operated continuously as a CC dealer for the twelve (12) months immediately preceding the effective date of termination and must have given CC a written request for such assistance within thirty (30) days after DEALER's receipt of the notice of termination of this Agreement. On receipt of such request from DEALER, CC will initiate compliance with its obligations under this Paragraph 30. If under section (b) above CC elects to make monthly payments, then DEALER shall make written application for them on such forms and at such times as CC reasonably may require. If DEALER requests assistance under this Paragraph 30, then CC, at all reasonable times, shall have full access to the Premises and DEALER's books and records pertaining to the Premises. 31 TRANSACTIONS AFTER TERMINATION After the effective date of termination, if CC, in its discretion, elects to fill retail orders of DEALER or otherwise transacts business related to the sale of CC products with DEALER, all such transactions will be governed by the same terms that this Agreement provides, so far as those terms are applicable. Notwithstanding any such transactions, CC shall not be deemed to have waived or rescinded the termination or have renewed this Agreement. -39- 32 SUCCESSORS TO DEALER On termination of this Agreement by reason of the death of DEALER if an individual, or on termination by CC because of the death of any of the persons named in Paragraph 2 of this Agreement if DEALER is a partnership or corporation: (a) If DEALER had so requested in writing (signed by DEALER if an individual or by those persons representing a majority of the ownership interest in DEALER if DEALER is a partnership or corporation), delivered to CC during the lifetime of such decedent, CC shall offer a Chrysler Corporation Sales and Service Agreement (limited to a two (2) year term) to any person DEALER has nominated in such written requests to CC as the person DEALER desires to continue DEALER's business after such death, provided that such nominated person has demonstrated operating qualifications satisfactory to CC in the course of active, substantial and continuing participation in the management of DEALER's organization, and possesses or is able to acquire within a reasonable time after such death, capital and facilities that are satisfactory to CC, and will be able to exercise as much control over the operations and affairs of the dealership as the deceased exercised. Such Chrysler Corporation Sales and Service Agreement(s) shall be limited to a term of two (2) years and subject to earlier termination as provided therein. At least ninety (90) days before the expiration of the two (2) year term referred to above, CC shall determine if the person granted said -40- two (2) year agreement possesses the required capital and facilities and has satisfactorily performed the obligations under said two (2) year agreement. This determination will be based on said person's performance during the aforementioned two (2) year period to qualify for the standard Chrysler Corporation Sales and Service Agreement then in effect. If CC determines that said person possesses all such qualifications, then CC shall offer such standard agreement to said person. (b) CC shall, if DEALER has not nominated a successor under this Paragraph 32 and has not named a person whose surviving spouse may hold a financial interest under Paragraph 33, review the qualifications of any remaining person named in Paragraph 2 of this Agreement. If any such person possesses operating qualifications satisfactory to CC and possesses or is able to acquire within a reasonable time facilities and capital necessary to qualify as a CC dealer, CC shall offer such person a Chrysler Corporation Sales and Service Agreement or Term Sales and Service Agreement, as CC deems appropriate. If more than one such person qualifies, CC will select the person or persons to whom an agreement will be offered. 33 SURVIVING SPOUSE'S FINANCIAL INTEREST On termination of this Agreement by reason of the death of DEALER, if an individual, or on termination by CC because of the death of any of the persons named in Paragraph 2 of this Agreement if DEALER is a partnership or corporation, the -41- surviving spouse of the person who died may hold a financial interest in any successor dealership, provided that the following conditions are met: (a) Prior to the death referred to above, DEALER had delivered to CC a notice in writing signed by all the persons named in Paragraph 2 of this Agreement naming the deceased person (who must also be named in Paragraph 2 of this Agreement) as the person whose surviving spouse may hold the financial interest. DEALER may name only one person but may, on written notice to CC, signed as above, change the person named. (b) Within sixty (60) days of the date of such death, the surviving spouse executes with the person or persons who will be named in Paragraph 2 of the CC Sales and Service Agreement(s) between CC and the successor dealership a written agreement in which the surviving spouse agrees not to participate in any way in the management or operation of the successor dealership. Such agreement shall be delivered to CC within fifteen (15) days after it has been signed by both parties. Notwithstanding the immediately foregoing provisions of this Paragraph 33(b), such an agreement not to participate need not be made if CC has approved the surviving spouse as a person to be named in Paragraph 2 of the CC Sales and Service Agreement(s) between CC and the successor dealership. -42- Nothing contained herein will obligate CC to enter into a sales and service agreement with the surviving spouse or any person not otherwise acceptable to CC or require CC to continue this or any other agreement with the surviving spouse or any other person for any period of time beyond the time when CC would have a right to terminate such an agreement in accordance with the terms thereof. "Successor dealership" as used in this Paragraph 33 means a dealership (1) that qualifies for and enters into a Chrysler Corporation Sales and Service Agreement with CC, (2) that possesses and has the right to use the physical assets and organization that remain after the death first referred to in this Paragraph 33, and (3) in which the surviving spouse retains or acquires the financial interest as referred to above. 34 SALE OF DEALERSHIP ASSETS OR OWNERSHIP INTERESTS CC acknowledges that DEALER may at any time negotiate for the sale of its assets, and any of the owners of DEALER may at any time negotiate the sale of their ownership interests in DEALER, with any purchaser on such terms as may be agreed upon by them and the prospective purchaser. Any such sale, however, will not create any obligation of CC to do business with any such purchaser. DEALER acknowledges that, in connection with any such sale to any such purchaser, this Agreement is not assignable without the written consent of CC. If the proposed purchase and sale arrangement contemplates or is conditioned upon the prospective -43- purchaser being granted by CC an agreement similar to this Agreement, DEALER shall provide CC written notice thereof prior to any completion or closing of the transactions contemplated by such purchase and sale arrangement and the prospective purchaser shall apply to CC, on forms provided by CC, for such an agreement. In order that CC can determine whether effective dealership operations will result if the prospective purchaser's application is approved, CC may, in processing the application, without liability to DEALER or any such owners, counsel with the prospective purchaser regarding any matters including, but not limited to, matters relating to the investments in the proposed dealership operations, the management and the facilities that may be required by CC. If DEALER or such owners have notified CC, and the prospective purchaser has made application as provided above, CC shall consider and process such application, together with the applications of any others for such an agreement, in accordance with its established procedures and CC shall not unreasonably withhold its approval of such an application. Any such approval shall be conditioned upon payment in full by DEALER of all of DEALER's obligations to CC, which payment shall be made as CC's option on or before the sale to the prospective purchaser. If CC decides not to continue authorized dealership operations at DEALER's premises, however, no such application will be considered or processed by CC and CC shall so notify DEALER or such owners and the prospective purchaser. -44- Notwithstanding the foregoing provision of Paragraph 34, even if the prospective purchaser of DEALER's assets or ownership interests in DEALER meets CC's qualifications for appointment as a dealer, CC may, at its discretion, offer to purchase DEALER's assets or ownership interest in DEALER on the same terms as said qualified prospective purchaser. If CC makes such an offer, DEALER shall sell the dealership assets to CC on the aforementioned same terms. However, if CC has not made such an offer within fifteen (15) business days after CC's receipt of the aforementioned application and all necessary information, CC shall be deemed to have declined to offer to purchase DEALER's assets or ownership interests in DEALER. Within fifteen (15) days after CC has communicated its offer to purchase DEALER's assets or ownership interest in DEALER, as described above, DEALER may withdraw, by written notification to CC, its proposal to sell said assets or ownership interest to any purchaser, in which case CC's aforementioned offer to purchaser will be null and void. Additionally, DEALER may request in writing that CC predetermine whether a proposed purchaser would be acceptable to CC prior to entering into an agreement to sell DEALER's assets or ownership interests. If such a request is made, CC shall make such determination. If CC determines that the proposed purchaser is acceptable to CC, CC shall decline to make an offer to purchase such assets or ownership interest. Such determination of acceptability and declination will not act to deny CC its -45- right not to approve the proposed purchase and sale arrangement as set forth above. 35 USE OF TRADE NAMES, TRADEMARKS, LOGOS, ETC. DEALER may use in DEALER's corporate, firm or trade name in a manner CC approves in writing any trade name applicable to those CC products set forth in the Motor Vehicle Addendum. DEALER shall discontinue immediately the use of any such trade names in DEALER's corporate, firm or trade name when CC so requests in writing and DEALER shall take such steps as may be necessary or appropriate, in CC's opinion, to change such corporate, firm or trade name so as to eliminate any trade name of CC products therefrom. Except as specifically allowed herein, DEALER shall not use, in any manner, the trademarks, trade names, insignias or the like of CC, its divisions, affiliates or subsidiaries without CC's explicit and prior written consent. DEALER shall discontinue immediately any and all use of any such trademark, trade name, insignias or the like when CC so requests in writing. On termination of this Agreement, DEALER shall discontinue immediately using any trade names applicable to CC vehicles or other products in DEALER's corporate, firm or trade name or using any trade names, trademarks or insignias adopted or used by CC or its divisions, affiliates or subsidiaries, and will take such steps as may be necessary or appropriate, in CC's opinion, to change such corporate, firm or trade name so as to eliminate any -46- trade names applicable to CC products therefrom, and will discontinue using any signs, stationery or advertising containing any such trade names, trademarks or insignias or anything else that might make it appear that DEALER is an authorized dealer for CC vehicles or products. 36 DEALER IS NOT AGENT This Agreement does not create the relationship of principal and agent between CC and DEALER, and under no circumstances is either party to be considered the agent of the other. 37 INABILITY TO PERFORM In addition to any other exemption from liability specifically provided for in this Agreement, neither DEALER nor CC will be liable for failure to perform its part of this Agreement when the failure is due to fire, flood, strikes or other labor disputes, accident, war, riot, insurrection, acts of government, governmental regulation or other circumstances beyond the control of the parties. 38 ASSIGNMENT DEALER may not assign or transfer this Agreement, or any part hereof, or delegate any duties or obligations under this Agreement without the written consent of CC, executed by the President or a Vice President or the National Dealer Placement Manager of Chrysler Corporation. -47- 39 NON-WAIVER The waiver by either party of any breach or violation of or default under any provision of this Agreement will not operate as a waiver of such provision or of any subsequent breach or violation thereof or default thereunder. 40 SEVERABILITY If any provision of this Agreement should be held invalid or unenforceable for any reason whatsoever or to violate any law of the United States, the District of Columbia or any State, this Agreement is to be considered divisible as to such provision, and such provision is to be deemed deleted from this Agreement or, in the event that it should be held to violate only the laws of the District of Columbia or of any State, to be inapplicable within the territory thereof, and the remainder of this Agreement will be valid and binding as if such provision were not included herein or as if it were included herein only with respect to territories outside of such District or State, as the case may be. Notwithstanding the foregoing, when, in the absence of this Paragraph 40, Federal law would otherwise be deemed to preempt a state law which purports to limit or prohibit any right, obligation or duty under any provision of this Agreement, then this Paragraph 40 shall not be construed to delete any such provision of this Agreement and the parties hereto will be -48- subject to the terms of such provision as if such a state law did not exist. 41 TITLES The titles appearing in this Agreement have been inserted for convenient reference only and do not in any way affect the construction, interpretation or meaning of the text. 42 INTERPRETATION In the event of a dispute hereunder, the terms of this Agreement shall be construed in accordance with the laws of the State of Michigan. 43 NOTICES Unless otherwise specifically required by the terms of this Agreement, any notice required or permitted under this Agreement must be in writing and will be sufficient if delivered personally, or sent through the United States mail system, postage prepaid, addressed, as appropriate, either to DEALER at the place of business designated in this Agreement, or at such other address as DEALER may designate in writing to CC, or to Chrysler Corporation at Post Office Box 857, Detroit, Michigan 48288 or such other address as CC may designate in writing to DEALER. -49- EX-10.3-1 20 EXHIBIT 10.3.1 RECEIVABLES PURCHASE AGREEMENT Dated as of June 28, 1995 ATLANTIC AUTO FUNDING CORPORATION, a Delaware corporation (the "Buyer"), and ATLANTIC AUTO FINANCE CORPORATION, a Delaware corporation (the "Originator"), agree as follows: PRELIMINARY STATEMENTS. (1) Certain terms which are capitalized and used throughout this Agreement (in addition to those defined above) are defined in Article I of this Agreement. (2) The Originator in its ordinary course of business finances the cost of new Automobiles purchased by Obligors; (3) The Buyer is a special-purpose Subsidiary of the Originator established to purchase or otherwise acquire Eligible Receivables and Related Security; (4) The Originator wishes from time to time to offer to sell to the Buyer Eligible Receivables and Related Security; and (5) The Buyer desires to purchase or otherwise procure such Eligible Receivables and Related Security from the Originator; NOW, THEREFORE, the parties agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "AFFILIATE" means, with respect to a Person, another Person that directly or indirectly controls, is controlled by or is under common control with such first Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to vote ten percent (10%) or more of the Securities having voting power for the election of directors of such Person or otherwise to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting Securities or by contract or otherwise. "AGENT" means CNAI. "AUTOMOBILE" means the new or used automobile or light-duty truck that is purchased by the Obligor to which a particular Receivable relates. "BANK" means Citibank, N.A., a national banking association. "BANKRUPTCY CODE" means Title 11 of the United States Code (11 U.S.C. Section 101 ET SEQ.), as amended from time to time, or any successor statute. "BUSINESS DAY" means any day other than a Saturday, Sunday or public holiday or the equivalent for banks in New York City. "CNAI" means Citicorp North America, Inc., a Delaware corporation. "COLLECTIONS" means with respect to each Purchased Receivable, without limitation, all (i) payments received and collected on such Purchased Receivable, (ii) net proceeds received by virtue of the liquidation of such Purchased Receivable, (iii) retained proceeds received under any property damage, casualty or other insurance policy with respect to such Purchased Receivable, (iv) proceeds received under the VSI Policy, (v) interest of the Buyer in any property damage, casualty or other insurance policies as the same relate to the Automobile securing such Purchased Receivable and (vi) other proceeds relating to such Purchased Receivable or its Contract File. "COMMITTED RECEIVABLES PURCHASE AGREEMENT" means the receivables purchase agreement or agreements between the Buyer and the Liquidity Banks. "COMPANY DOCUMENTS" shall mean the Expense and Tax-Sharing Agreement. -2- "CONTRACT" means, with respect to each Receivable, the note, retail sales installment contract or other evidence of the Obligor's obligation to repay Indebtedness to the Originator, executed by such Obligor in connection with the purchase of an Automobile. "CONTRACT FILE" means, with respect to each Receivable, the original Contract, either a copy of the application to the appropriate state authorities for a Title to the related Automobile or a standard assurance in the form commonly used in the industry relating to the provision of Title and when issued to the appropriate state authorites, the related Title (but only to the extent that Title documents are required under applicable state law to be held by a secured party in order to perfect such secured party's security interest in the related Automobile), all original instruments modifying the terms and conditions of the Receivable and the original endorsements or assignments of such Contract. "CREDIT AND COLLECTION POLICY" means the Credit and Collection Policy of the Originator for the Contracts and the Receivables as described in EXHIBIT A, as modified in compliance with SECTION 5.02(c). "CUSTODIAL AGREEMENT" means that certain custodial agreement dated the date hereof by and among the Originator, the Buyer, the Agent and the Custodian. "CUSTODIAN" means Safesite National Business Records Management, Inc., a Delaware corporation. "CXC" means CXC Incorporated, a Delaware corporation. "CXC RECEIVABLES PURCHASE AGREEMENT" means the receivables purchase agreement or agreements between the Buyer and CXC. "DEFAULTED RECEIVABLE" means a Receivable (i) with respect to which any payment thereon has remained unpaid more than ninety (90) days past the due date therefor or (ii) charged off as uncollectible by the Originator. A Receivable shall be deemed to be a Defaulted Receivable upon the earlier to occur of the events specified in clauses (i) and (ii) of the preceding sentence. -3- "DELINQUENT RECEIVABLE" means a Receivable that is not a Defaulted Receivable and (i) with respect to which any payment thereon has remained unpaid more than 60 days past the due date therefor or (ii) which has been classified as delinquent by the Originator. "ELIGIBLE RECEIVABLE" means a Receivable: (i) the Obligor of which is a U.S. resident; (ii) which is not a Delinquent Receivable or a Defaulted Receivable; (iii) which is due and payable in full in 75 months or less; (iv) which, together with the related Contract, constitutes "chattel paper" within the meaning of Section 9-105 of the UCC; (v) which is denominated in Dollars and payable in the United States; (vi) which, together with the related Contract, represents the legal, valid and binding obligation of the related Obligor under such Contract and is not subject to any dispute, offset, counterclaim or defense, except as provided for under state or federal consumer protection law; (vii) which, together with the related Contract, does not contravene applicable laws, rules or regulations concerning, without limitation, such matters as usury, consumer protection, truth in lending, fair credit billing and equal credit opportunity; (viii) which arose under a Contract for the retail sale of an Automobile where such Automobile has already been delivered and the Obligor thereof is not in default under the terms of such Contract; (ix) which satisfies all applicable requirements of the Originator's Credit and Collection Policy; -4- (x) with respect to which the related Obligor received a Fair Isaac Score (as defined in the Credit and Collection Policy) of at least 160; (xi) which, together with the related Contract, has not been assigned or pledged by the Originator, except pursuant to the terms of this Agreement, with respect to which the Originator has good and marketable title, and with respect to which the Originator is the sole legal and beneficial owner and has full right to transfer, sell and encumber the same free and clear of any Lien except as created in favor of the Buyer pursuant to the terms of this Agreement; (xii) with respect to which there is no default, breach, violation or event of acceleration existing under the related Contract, and there is no event which, with the passage of time, or with notice and the expiration of any grace or cure period, would constitute a default, breach, violation or event of acceleration, and the Originator has not waived any default, breach, violation or event of acceleration; (xiii) with respect to which the related Contract contains customary and enforceable provisions so as to render the rights and remedies of the holder thereof against the property subject to such Contract adequate for the realization of the benefits of the security provided thereby, including all the rights of a secured party under the UCC as in effect in the state in which the related Obligor resides or such Contract was executed; (xiv) with respect to which the related Contract is not secured by any collateral, except the Lien with respect to the corresponding Automobile as noted on the related Title; (xv) with respect to which, at the time a Lien with respect to the Automobile was granted by,the related Obligor, the Automobile was and is free of material damage and is in good repair; (xvi) with respect to which the Originator is the lienholder of record on the related Title; and (xvii) with respect to which the related Obligor maintains casualty and liability insurance for the -5- Automobile in accordance with the Credit and Collection Policy. "EXPENSE AND TAX-SHARING AGREEMENT" means the Office Space, Administrative and Office Support Services, and Tax Allocation Agreement dated as of the date hereof between the Originator and the Buyer. "FACILITY DOCUMENTS" shall mean collectively, this Agreement, the Lock-Box Agreements, the Custodial Agreement, the Support Agreement, the Company Documents and all other agreements, documents and instruments delivered pursuant thereto or in connection therewith. "INDEBTEDNESS" means (i) indebtedness for borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other similar instruments, (iii) obligations to pay the deferred purchase price of property or services, (iv) obligations as lessee under leases which shall have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases, and (v) obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above. "INITIAL PURCHASE DATE" means the date the first Purchase is made pursuant to this Agreement. "LICENSE AGREEMENT" means the Remote Outsourcing Agreement dated as of July 15, 1994 between Systematics Financial Services, Inc. and the Originator. "LIEN" means any mortgage, deed of trust, pledge, hypothecation, assignment, conditional sale agreement, deposit arrangement, security interest, encumbrance, lien (statutory or other), preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever in respect of any property of a Person, whether granted voluntarily or imposed by law, and includes the interest of a lessor under a capital lease or under any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement or similar notice (other than a financing statement filed by a "true" lessor or consignor -6- pursuant to Section 9-408 of the UCC), naming the owner of such property as debtor, under the UCC or other comparable law of any jurisdiction. "LIQUIDITY BANKS" means the banks identified as such in the Committed Receivables Purchase Agreement. "LOAN AGREEMENT" means the Loan Agreement dated as of the date hereof among the Bank, the Buyer, in its capacity as Borrower thereunder, and the Originator, in its capacity as Servicer thereunder. "LOCK-BOX ACCOUNT" means an account maintained for the purpose of receiving Collections. "LOCK-BOX AGENT" means at any time CNAI or such other Person(s) then authorized pursuant to the Loan Agreement and, upon its execution and delivery, the Receivables Purchase Agreement to act as lock-box agent on behalf of the Bank and the Purchasers, as applicable, and their respective assignees. "LOCK-BOX AGREEMENT" means an agreement, in substantially the form of EXHIBIT B, among the Originator, the Buyer and a Lock-Box Bank which agreement sets forth the rights of the Lock-Box Agent, the Originator, the Buyer and the Lock-Box Bank with respect to the disposition and application of the Collections received into the applicable Lock-Box Account. "LOCK-BOX BANK" means any of the banks holding one or more lock-box accounts for receiving Collections. "OBLIGOR" means the obligor and any co-obligor(s) under a Receivable. "OUTSTANDING BALANCE" means, with respect to any date and any Receivable, the then outstanding principal amount of such Receivable. For the avoidance of doubt, it is understood that in no event shall the definition of "Outstanding Balance" include any amount in respect of (i) finance charges and income with respect to any such Receivable or (ii) prepaid dealer reserves or other marketing expenses with respect to any such Receivable. "PERMITTED SECURITIZATION TRANSACTION" means a transfer by the Borrower of Receivables (i) pursuant to the Receivables Purchase Agreement and (ii) by way of a term securitization -7- transaction, provided that (x) upon the effectiveness of such transaction and the application of the proceeds therefrom to prepay loans made under the Loan Agreement secured immediately prior to the effectiveness of such transaction by the Purchased Receivables subject to such transaction, no prepayment of loans is required under Section 2.03(a) of the Loan Agreement and (y) the parties to such transaction enter into intercreditor arrangements with the Agent, the Bank and the Purchasers reasonably satisfactory to each of the Agent, the Bank and the Purchasers. "PERSON" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, government (or any agency or political subdivision thereof) or other entity. "PURCHASE" means a purchase of Purchased Receivables, Related Security with respect to such Purchased Receivables and Collections with respect thereto by the Buyer from the Originator pursuant to SECTIONS 2.01 and 2.02. "PURCHASE DATE" means the Initial Purchase Date and thereafter, each Business Day of each week. "PURCHASE NOTICE" means a notice, in substantially the form of EXHIBIT C, furnished by the Originator to the Buyer pursuant to SECTION 2.02. "PURCHASE PERCENTAGE" shall mean initially 100%; PROVIDED, HOWEVER, that the Purchase Percentage may change from time to time to reflect historic loss experience of the Originator's Receivable portfolio, as agreed upon by the Originator and the Buyer. The Buyer shall notify the Bank and the Agent of any change in the Purchase Percentage. "PURCHASED ASSETS" means, at any time, all then outstanding Purchased Receivables, Related Security with respect to such Purchased Receivables and Collections with respect to, and other proceeds of, such Purchased Receivables. "PURCHASED RECEIVABLE" means any Receivable which appears on any list of Receivables at any time hereafter submitted to and accepted by the Buyer pursuant to SECTION 2.02, whether purchased by the Buyer or contributed to the capital of the Buyer. Once a Receivable appears on any such list it shall remain a Purchased Receivable; PROVIDED HOWEVER, that with -8- respect to any Receivable that is repurchased by the Originator pursuant to SECTION 7.02, following the Buyer's receipt of the repurchase price for such Receivable, "PURCHASED RECEIVABLE" shall not include the Receivable so repurchased. "PURCHASER" means CXC or the Liquidity Banks, as applicable and their respective successors and assigns. "RECEIVABLES" means the indebtedness evidenced by the Contracts, whether constituting accounts, general intangibles, contract rights, chattel paper or instruments. "RECEIVABLES PURCHASE AGREEMENT" means, collectively, (i) the CXC Receivables Purchase Agreement and (ii) the Committed Receivables Purchase Agreement. "RECORDS" means, with respect to each Purchased Receivable, all factory invoices and work orders describing the related Automobile, the bill of sale and guaranty of title, insurance policies, tax receipts, property and casualty insurance policies or binders naming the Servicer as loss payee or additional named insured, as is appropriate, insurance premium receipts, ledger sheets, payment records, insurance claim files and correspondence, all documentation in connection with any modification, release, accommodation, cosigning or guaranty of the Purchased Receivable and all other documents and instruments, including all books, records, files, tapes, correspondence and other information or materials (including, without limitation, computer programs, tapes, discs, punch cards, data processing software and related property and rights) relating to the Purchased Receivable, the Contract, the Title and the Automobile relating to the Purchased Receivable and this Agreement. "RELATED SECURITY" means, with respect to any Receivable, (i) the related Contract File, (ii) the related Automobile, (iii) all related Records and (iv) all proceeds of the foregoing. "SECURITIES" means any limited, general or other partnership interest, or any stock, shares, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or any certificates of interest, shares, or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire any of the foregoing. -9- "SERVICER" means at any time the Person(s) then authorized pursuant to the Loan Agreement and, upon its execution and delivery, the Receivables Purchase Agreement to act as servicer with respect to the Purchased Receivables. "SUBSIDIARY" means any corporation or other entity of which Securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned or controlled by such Person, one or more of the other subsidiaries of such Person or any combination thereof. "SUPPORT AGREEMENT" means the support agreement of UAG in favor of the Buyer to be entered into concurrently with the Buyer's execution of this Agreement. "TERMINATION DATE" means the earlier of (i) that Business Day which the Buyer designates as the Termination Date by notice to the Originator at least five Business Days prior to such Business Day, (ii) the occurrence of a Termination Event and (iii) June 28, 1999 (or such other date as the Originator and the Buyer may agree in writing. "TERMINATION EVENT" means the occurrence of any of the following events: (a) UAG's cumulative net losses, commencing with the fiscal quarter beginning on January 1, 1995, as reflected in the consolidated statements of income and retained earnings as of the end of each fiscal quarter of UAG shall exceed $6,000,000, PROVIDED, that for the fiscal quarters ending on June 30, 1995 and September 30, 1995, cumulative net losses shall be measured for the four fiscal quarters ended on the last day of each such quarter; (b) UAG's net worth, as set forth in UAG's annual audited financial statements, shall be less than $28,000,000; (c) The net worth of the Originator and its consolidated subsidiaries, as set forth in the Originator's annual audited financial statements, shall be less than $2,400,000, PROVIDED, that, for purposes of the foregoing, net -10- worth shall be computed excluding intercompany transactions, dealer reserves, capitalized excess servicing fees and the effects of gains on sale for securitization transactions; (d) UAG shall fail to pay any principal of or premium or interest on any indebtedness in a principal amount of at least $1,000,000 when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such indebtedness, or any other event shall occur or condition shall exist under any agreement or instrument relating to any such indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such indebtedness; PROVIDED, that a Termination Event shall not occur hereunder unless UAG receives written notice that any of the foregoing events shall have occurred and fails to cure the foregoing within 15 days following receipt of such notice; (e) There shall occur a "Change in Control" (as defined below) of UAG; "Change of Control" shall mean (i) the sale of all or substantially all of the assets of UAG to an entity not controlled by UAG, (ii) prior to UAG's "Qualified Public Offering" (as defined below), a reduction in the ownership by the shareholders of the voting stock of UAG as of the date hereof (the "Initial Shareholder Group") to less than a majority of UAG's outstanding voting stock, or (iii) after the Qualified Public Offering, the ownership of another Person or group of Persons of a greater number of shares of UAG's voting stock than owned by the Initial Shareholder Group; "Qualified Public Offering" shall mean a public offering of UAG's capital stock pursuant to which UAG receives gross proceeds of $30,000,000 or more (when aggregated with all prior public offerings) and has a market valuation in excess of $100,000,000; (f) Both of Richard Harrison and Harry Hardy shall cease to be actively involved in the day-to-day management of the Originator, except as a result of death or illness; (g) There shall occur any event which may be reasonably expected to have a material adverse effect on the Originator or UAG or may be reasonably expected to cause a -11- material adverse change in the condition or prospects, financial condition or business of the Originator or UAG; or (h) There shall occur a breach of the Support Agreement by UAG. "TITLE" means, with respect to each Receivable, the original certificate or other instrument or registration evidencing ownership of the related Automobile, which certificate, other instrument or registration shall have the Lien of the Originator noted thereon or a UCC financing statement signed by the Obligor and filed in the appropriate jurisdiction evidencing the perfection of the Lien granted by the Obligor to the Originator and assigned to the Buyer or its designee as provided herein. "UAG" means United Auto Group, Inc., a Delaware corporation. "UCC" means the Uniform Commercial Code as from time to time in effect in the specified jurisdiction. "VSI POLICY" means the vendors single interest physical damage insurance policy maintained with respect to the Receivables, a copy of which is attached as EXHIBIT D. SECTION 1.02. OTHER TERMS. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. SECTION 1.03. COMPUTATION OF TIME PERIODS. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." -12- ARTICLE II AMOUNTS AND TERMS OF THE PURCHASES SECTION 2.01. GENERAL TERMS. (a) On the terms and conditions hereinafter set forth, from the date the condition precedent to the initial Purchase in SECTION 3.01 is satisfied to the Termination Date, the Originator will offer to sell to the Buyer on each Purchase Date all right, title and interest of the Originator in, to and under all Eligible Receivables then existing, Related Security with respect to such Eligible Receivables and Collections with respect thereto and the Buyer in its sole discretion may purchase all or any portion of such Eligible Receivables, Related Security and Collections from the Originator. Nothing in this Agreement shall be deemed to be or construed as a commitment by the Buyer to purchase any Purchased Assets at any time. (b) It is the intention of the parties hereto that each Purchase of Eligible Receivables, Related Security and Collections made hereunder shall constitute a "sale of chattel paper," as such term is used in Article 9 of the UCC, which sales are absolute, irrevocable and without recourse except as specifically provided herein and provide the Buyer with the full benefits of ownership of the Purchased Receivables and such related Purchased Assets. Neither the Originator nor the Buyer intends the transactions contemplated hereunder to be, or for any purpose to be characterized as, loans from the Buyer to the Originator secured by such assets. If at any time a court characterizes the Purchases hereunder as loans by the Buyer to the Originator, then the Originator hereby pledges, grants a security interest in and assigns to the Buyer, all of the Originator's right and title to and interest in the Purchased Receivables, the Related Security and Collections related thereto as security for such loans and for the payment and performance of all obligations of the Originator hereunder. In view of the intention of the parties hereto that the Purchases of Eligible Receivables, Related Security and Collections made hereunder shall constitute sales of such Purchased Receivables, Related Security and Collections rather than a loan secured by such Purchased Receivables, Related Security and Collections, the Originator agrees to note on its financial statements that such Purchased Receivables, Related Security and Collections have been sold to the Buyer. -13- SECTION 2.02. PURCHASES FROM THE ORIGINATOR. (a) Each Purchase shall be made on a Purchase Date, provided, that a Purchase Notice requesting such Purchase is received by the Buyer by the close of business on such Purchase Date. Each such Purchase Notice shall list all Eligible Receivables of the Originator and shall specify the Purchase Price therefor. The Buyer shall promptly thereafter notify the Originator whether the Buyer has determined to purchase all or any portion of such Eligible Receivables. (b) The purchase price (the "PURCHASE PRICE") for the new Purchased Receivables noted on a Purchase Notice (together with the related Purchased Assets) payable with respect to any Purchase Date shall be an amount equal to the product of the Outstanding Balance of such Purchased Receivables on the Purchase Date and the Purchase Percentage on such date plus interest accrued on such Purchased Receivables as of such date. (c) Subject to paragraph (d) below, the Purchase Price for the Purchased Assets sold by the Originator under this Agreement shall be payable in full in cash by the Buyer, in each case on the Business Day following the date of each such Purchase, except that the Buyer may, with respect to any Purchase, offset against such Purchase Price any amounts owed by the Originator to the Buyer hereunder and which remain unpaid. Subject to paragraph (d) below, on the Business Day following the date of each such Purchase, the Buyer shall, upon satisfaction of the applicable conditions set forth in Article III, make available to the Originator the Purchase Price in same day funds. (d) If, on the Business Day following the date of any Purchase, the Buyer has insufficient funds to pay in full the Purchase Price owed on such day, then the amount of the difference between the Purchase Price and such available funds shall, at option of the Originator (as evidenced by written notice by the Originator to the Buyer on such date (which notice may be a standing instruction)) be deemed to be (i) a capital contribution from the Originator to the Buyer, (ii) a loan by the Originator to the Buyer (a "SUBORDINATED LOAN"), evidenced by the Subordinated Note of the Buyer substantially in the form attached hereto as EXHIBIT E or (iii) any combination of capital contribution and Subordinated Loan. Any Subordinated Loan hereunder shall be fully subordinated to every other obligation of the Buyer. -14- SECTION 2.03. COLLECTIONS; LOCK-BOX ACCOUNTS. In connection with the Purchases of Purchased Receivables hereunder, the Originator hereby transfers and assigns to the Buyer all the Originator's right, title to and interest in each Lock-Box Account. In connection with such transfer and assignment, the Originator hereby agrees to instruct each Obligor of a Purchased Receivable to remit payment on the Purchased Receivables to the Lock-Box Accounts. The Originator further agrees that it will not make any change in its instructions to Obligors regarding payments to be made to any Lock-Box Account. The Originator agrees that if it shall receive any Collections, the Originator shall hold such Collections in trust for the benefit of the Buyer and remit such Collections to the Buyer by depositing such Collections into the Lock-Box Account within one Business Day following the Originator's receipt thereof. Notwithstanding the foregoing, the Servicer shall be entitled to make withdrawals from the Lock-Box Accounts in accordance with the Loan Agreement and, upon its execution and delivery, the Receivables Purchase Agreement until the Lock-Box Agent shall have instructed the Lock-Box Banks to the contrary in accordance with the Lock-Box Agreements. The account numbers of all Lock-Box Accounts, together with the names and addresses of all the Lock-Box Banks maintaining such Lock-Box Accounts, are specified in EXHIBIT F. SECTION 2.04. TRANSFER OF RECORDS TO THE BUYER. (a) In connection with the Purchases of Purchased Receivables hereunder, the Originator hereby sells, transfers, assigns and otherwise conveys to the Buyer all of the Originator's right and title to and interest in the Records relating to all Purchased Receivables, without the need for any further documentation in connection with any Purchase. In connection with such transfer, the Originator, to the extent permitted under the License Agreement, hereby grants to the Buyer and the Servicer an irrevocable, non-exclusive license to use, without royalty or payment of any kind, all software used by the Originator to account for the Purchased Receivables, to the extent necessary to administer the Purchased Receivables, whether such software is owned by the Originator or is owned by others and used by the Originator under license agreements with respect thereto. The license granted hereby shall be irrevocable, and shall terminate when all Purchased Receivables have been collected or charged off as uncollectible. -15- (b) The Originator shall take such action requested by the Buyer and/or the Servicer, from time to time hereafter, that may be necessary or appropriate to ensure that the Buyer has (i) an enforceable ownership interest in the Records relating to the Purchased Receivables and (ii) an enforceable right (whether by license or sublicense or otherwise) to use all of the computer software used to account for the Purchased Receivables and/or to recreate such Records. SECTION 2.05. PERFECTION OF LIENS; FURTHER ASSURANCES. Upon the request of the Buyer, the Originator shall, at its expense, promptly execute and deliver all further instruments and documents, and take all further action (including, without limitation, the execution and filing of such financing or continuation statements, or amendments thereto or assignments thereof), that may be necessary or desirable, or that the Buyer may request, in order to perfect and protect any ownership or security interest granted or purported to be granted to the Buyer hereunder or to enable the Buyer to exercise and enforce its rights and remedies hereunder with respect to any Purchased Assets (including, without limitation, the security interest of the Buyer in the Automobiles securing the Purchased Receivables). The Originator hereby authorizes the Buyer to file one or more financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any part of the Purchased Assets now existing or hereafter arising without the signature of the Originator where permitted by law. A carbon, photographic or other reproduction of this Agreement or any financing statement covering the Purchased Assets or any part thereof shall be sufficient as a financing statement. The Originator will furnish to the Buyer from time to time statements and schedules further identifying and describing the Purchased Assets and such other reports in connection with the Purchased Assets as the Buyer may reasonably request, all in reasonable detail. -16- ARTICLE III CONDITIONS OF PURCHASES SECTION 3.01. CONDITIONS PRECEDENT TO INITIAL PURCHASE. The initial Purchase shall be subject to the condition precedent that the Buyer shall have received the following, each in form and substance satisfactory to the Buyer: (a) The Company Documents executed by the Buyer and the Originator; (b) Acknowledgment copies of proper UCC-1 Financing Statements executed by the Originator, as may be necessary or, in the opinion of the Buyer, desirable under the UCC of all appropriate jurisdictions or any comparable law to perfect the Buyer's interests in all Purchased Receivables and Related Security in which an interest may be assigned to it hereunder; (c) Certified copies of Requests for Information or Copies (Form UCC- 11) (or a similar search report certified by a party acceptable to the Buyer), dated a date reasonably near to the date hereof, listing all effective financing statements which name the Originator (under its present name and any previous names) as debtor and which are filed in the jurisdictions in which filings were made pursuant to subsection (b) of this SECTION 3.01, together with copies of such financing statements; (d) A copy of the resolutions of the Board of Directors of the Originator approving this Agreement, the Company Documents and the other Facility Documents to be delivered by it hereunder and the transactions contemplated hereby, certified by its Secretary or Assistant Secretary; (e) The Certificate of Incorporation of the Originator certified by the Secretary of State of Delaware; (f) A certificate of the Secretary or Assistant Secretary of the Originator certifying (i) the names and true signatures of the officers authorized on its behalf to sign this Agreement, the Company Documents and the other Facility Documents to be delivered by it hereunder (on which certificate the Buyer may conclusively rely until such time as the Buyer shall receive from the Originator a revised certificate meeting the requirements of this subsection (f)) and (ii) a copy of the Originator's by-laws; -17- (g) An opinion of Nixon, Hargrave, Devans & Doyle, special counsel for the Originator, in form and substance satisfactory to the Buyer and the Agent, as to such matters as the Buyer and the Agent may reasonably request; (h) The Support Agreement shall have been duly executed and delivered by each of UAG and the Originator and shall be in full force and effect; and (i) The Custodial Agreement shall have been duly executed and delivered by each of the Originator, the Buyer, the Custodian and the Agent and shall be in full force and effect. SECTION 3.02. CONDITIONS PRECEDENT TO ALL PURCHASES. Each Purchase (including the initial Purchase) by the Buyer from the Originator shall be subject to the further conditions precedent that (a) with respect to any such Purchase, not later than the close of business on the date of such Purchase, the Originator shall have delivered (i) to the Buyer, in form and substance satisfactory to the Buyer, a completed Purchase Notice dated the date of such Purchase and containing such additional information as may be reasonably requested by the Buyer and (ii) to the Custodian the original copy of the related Contract File and (b) on the date of such Purchase the representations and warranties contained in SECTION 4.01 shall be correct on and as of such date as though made on and as of such date (and the Originator by accepting the Purchase Price for such Purchase shall be deemed to have certified to such effect). SECTION 3.03. EFFECT OF PAYMENT OF PURCHASE PRICE. Upon the payment of the Purchase Price for any Purchase, (whether in cash, through a capital contribution or a Subordinated Loan), title to the Purchased Receivables and the other related Purchased Assets shall vest in the Buyer, whether or not the conditions precedent to such Purchase were in fact satisfied; PROVIDED, HOWEVER, that the Buyer shall not be deemed to have waived any claim it may have under this Agreement for the failure by the Originator in fact to satisfy any such condition precedent. -18- ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE ORIGINATOR. The Originator represents and warrants as follows: (a) DUE INCORPORATION AND GOOD STANDING. The Originator is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction named at the beginning hereof and is duly qualified to do business, and is in good standing, in every jurisdiction in which the nature of its business requires it to be so qualified. (b) DUE AUTHORIZATION AND NO CONFLICT. The execution, delivery and performance by the Originator of this Agreement and all other agreements, instruments and documents to be delivered hereunder, and the transactions contemplated hereby and thereby, are within the Originator's corporate powers, have been duly authorized by all necessary corporate action, do not contravene (i) the Originator's charter or by-laws, (ii) any law, rule or regulation applicable to the Originator, (iii) any contractual restriction contained in any material indenture, loan or credit agreement, lease, mortgage, security agreement, bond, note, or other agreement or instrument binding on or affecting the Originator or its property or (iv) any order, writ, judgment, award, injunction or decree binding on or affecting the Originator or its property, and do not result in or require the creation of any Lien upon or with respect to any of its properties (other than in favor of the Buyer as contemplated hereunder); and no transaction contemplated hereby requires compliance with any bulk sales act or similar law. This Agreement has been duly executed and delivered on behalf of the Originator. (c) GOVERNMENTAL CONSENT. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Originator of this Agreement or any other agreement, document or instrument to be delivered hereunder. (d) ENFORCEABILITY OF FACILITY DOCUMENTS. This Agreement and each other Facility Document to be delivered by the -19- Originator in connection herewith constitute the legal, valid and binding obligation of the Originator enforceable against the Originator in accordance with their respective terms. (e) NO LITIGATION. There are no actions, suits or proceedings pending, or to the knowledge of the Originator threatened, against or affecting the Originator or any of its Subsidiaries, or the property of the Originator or any of its Subsidiaries, in any court, or before any arbitrator of any kind, or before or by any governmental body, which may materially adversely affect the financial condition of the Originator or the Originator and its consolidated Subsidiaries taken as a whole or (ii) the ability of the Originator to perform its obligations under this Agreement or (iii) the collectibility of the Purchased Receivables. Neither the Originator nor any of its Subsidiaries is in default with respect to any order of any court, arbitrator or governmental body. (f) USE OF PROCEEDS. No proceeds of any Purchase will be used by the Originator to acquire any security in any transaction which is subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended. (g) ELIGIBILITY OF PURCHASED RECEIVABLES; PERFECTION OF INTEREST IN PURCHASED RECEIVABLES. (i) As of the date of Purchase hereunder of each Purchased Receivable, such Purchased Receivable will satisfy the conditions of the definition of "Eligible Receivable." (ii) Prior to the Buyer's Purchase of each Purchased Asset hereunder, the Originator is or will be the lawful owner of, and have good title to, such Purchased Asset free and clear of any Lien and upon each Purchase by the Buyer of Purchased Assets hereunder, the Buyer shall acquire a valid and perfected first priority ownership interest in each Purchased Receivable then existing or thereafter arising and in the Related Security and Collections with respect thereto, in each case free and clear of any Lien. All such Purchases of Purchased Receivables and related Purchased Assets constitute true and valid sales, and all such Purchases of Purchased Receivables and related Purchased Assets constitute true and valid transfers and assignments of all of the Originator's right, title and interest in, to and under such Purchased Assets (and not merely a pledge of such Purchased Receivables and related Purchased Assets for security purposes), enforceable against creditors of the Originator. No such Purchased Assets shall constitute property of the Originator; and -20- no effective financing statement or other instrument similar in effect covering any Purchased Receivable, the Related Security, Collections or any other Purchased Assets shall at any time be on file in any recording office except such as may be filed in favor of the Buyer (or its assignees) in accordance with this Agreement. (h) ACCURACY OF INFORMATION. No Purchase Notice, information, exhibit, financial statement, document, book, record or report furnished or to be furnished by the Originator to the Buyer in connection with this Agreement is or shall be inaccurate in any material respect as of the date it is or shall be dated or (except as otherwise disclosed to the Buyer, as the case may be, at such time) as of the date so furnished, or contains or shall contain any material misstatement of fact or omits or shall omit to state a material fact or any fact necessary to make the statements contained therein not misleading. (i) LOCATION OF CHIEF EXECUTIVE OFFICE AND RECORDS. The chief place of business and chief executive office of the Originator are located at the address of the Originator referred to in SECTION 8.02 hereof and the locations of the offices where the Originator keeps all the Records are listed on EXHIBIT G (or at such other locations, notified to the Buyer in accordance with SECTION 5.01(e), in jurisdictions where all action required by SECTION 6.03 has been taken and completed). (j) SEPARATE CORPORATE EXISTENCE. The Originator is entering into the transactions contemplated by this Agreement in reliance on the Buyer's identity as a separate legal entity from the Originator and each of its Affiliates, and acknowledges that the Buyer and the other parties to the Facility Documents are similarly entering into the transactions contemplated by the other Facility Documents in reliance on the Buyer's identity as a separate legal entity from the Originator and each such other Affiliate. (k) TAXES. The Originator has filed or caused to be filed all federal, state and local tax returns which are required to be filed by it, and has paid or caused to be paid all taxes shown to be due and payable on such returns or on any assessments received by it, other than any taxes or assessments, the validity of which are being contested in good faith by appropriate proceedings and with respect to which the Originator has set aside adequate reserves on its books in accordance with generally -21- accepted accounting principles and which have not given rise to any Liens. (l) SOLVENCY. The Originator: (i) is not "insolvent" (as such term is defined in Section 101(32)(A) of the Bankruptcy Code, (ii) is able to pay its debts as they mature; and (iii) does not have unreasonably small capital for the business in which it is engaged or for any business or transaction in which it is about to engage. (m) NO FRAUDULENT CONVEYANCE. The transactions contemplated by this Agreement and by each of the Facility Documents are being consummated by the Originator in furtherance of the Originator's ordinary business, with no contemplation of insolvency and with no intent to hinder, delay or defraud any of its present or future creditors. By its receipt of the Purchase Prices hereunder and its ownership of the capital stock of the Buyer, the Originator shall have received reasonably equivalent value for the Purchased Receivables sold or otherwise conveyed to the Buyer under this Agreement. SECTION 4.02. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and warrants as follows: (a) DUE INCORPORATION AND GOOD STANDING. The Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction named at the beginning hereof and is duly qualified to do business, and is in good standing, in every jurisdiction in which the nature of its business requires it to be so qualified. (b) DUE AUTHORIZATION AND NO CONFLICT. The execution, delivery and performance by the Buyer of this Agreement and all other agreements, instruments and documents to be delivered hereunder, and the transactions contemplated hereby and thereby, are within the Buyer's corporate powers, have been duly authorized by all necessary corporate action, do not contravene (i) the Buyer's charter or by-laws, (ii) any law, rule or regulation applicable to the Buyer, (iii) any contractual restriction contained in any material indenture, loan or credit agreement, lease, mortgage, security agreement, bond, note, or other agreement or instrument binding on or affecting the Buyer or its property or (iv) any order, writ, judgment, award, injunction or decree binding on or affecting the Buyer or its property, and do -22- not result in or require the creation of any Lien upon or with respect to any of its properties; and no transaction contemplated hereby requires compliance with any bulk sales act or similar law. This Agreement has been duly executed and delivered on behalf of the Buyer. (c) GOVERNMENTAL CONSENT. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Buyer of this Agreement or any other agreement, document or instrument to be delivered hereunder. (d) ENFORCEABILITY OF FACILITY DOCUMENTS. This Agreement and each other Facility Document to be delivered by the Buyer in connection herewith constitute the legal, valid and binding obligation of the Buyer enforceable against the Buyer in accordance with their respective terms. ARTICLE V GENERAL COVENANTS OF THE ORIGINATOR SECTION 5.01. AFFIRMATIVE COVENANTS OF THE ORIGINATOR. The Originator will, unless the Buyer shall otherwise consent in writing: (a) COMPLIANCE WITH LAWS, ETC. Comply in all material respects with all applicable laws, rules, regulations and orders with respect to it, its business and properties and all Receivables and related Contracts. (b) PRESERVATION OF CORPORATE EXISTENCE. Preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction in which the nature of its business requires it to be so qualified. (c) AUDITS. At any time and from time to time upon prior written notice to the Originator and during regular business hours, permit the Buyer, or its agents or representatives, (i) to examine and make copies of and abstracts from all Records, and (ii) to visit the offices and properties of the Originator for the purpose of examining such Records, and to -23- discuss matters relating to the Purchased Receivables or the Originator's performance hereunder with any of the officers or employees of the Originator having knowledge of such matters. (d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing the Purchased Receivables in the event of the destruction of the originals thereof) and keep and maintain, all documents, books, records and other information reasonably necessary or advisable for the collection of all Purchased Receivables (including, without limitation, records adequate to permit the daily identification of all Collections of and adjustments to each Purchased Receivable). (e) LOCATION OF RECORDS. Keep its chief place of business and chief executive office, and the offices where it keeps the Records, at the address(es) of the Originator referred to in SECTION 4.01(i), or, in any such case, upon 30 days' prior written notice to the Buyer, at such other locations within the United States where all action required by SECTION 6.03 shall have been taken and completed. (f) CREDIT AND COLLECTION POLICY. Comply in all material respects with its Credit and Collection Policy in regard to each Purchased Receivable and the related Contract. (g) NATURE OF BUSINESS. Engage principally in, directly or indirectly through the ownership of its Subsidiaries, the business of financing the cost of new Automobiles purchased by Obligors. (h) MAINTENANCE OF INSURANCE. (i) Maintain and keep in force insurance in amounts and with companies as is customary for companies engaged in the same business as that of the Originator. (i) SEPARATE IDENTITY. Take all actions required to maintain the Buyer's status as a separate legal entity, including, without limitation, (i) not holding the Buyer out to third parties as other than an entity with assets and liabilities distinct from the Originator and the Originator's other Subsidiaries; (ii) not holding itself out to be responsible for the debts of the Buyer or, other than by reason of owning capital -24- stock of the Buyer, for any decisions or actions relating to the business and affairs of the Buyer; (iii) cause any financial statements consolidated with those of the Buyer to state that the Buyer is a separate corporate entity with its own separate creditors who, in any liquidation of the Buyer, will be entitled to be satisfied out of the Buyer's assets prior to any value in the Buyer becoming available to the Buyer's equity holders; (iv) taking such other actions as are necessary on its part to ensure that all corporate procedures required by its and the Buyer's respective certificates of incorporation and by- laws are duly and validly taken; (v) keeping correct and complete records and books of account and corporate minutes; and (vi) not acting in any other manner that could foreseeably mislead others with respect to the Buyer's separate identity. (j) SOFTWARE. Use its reasonable efforts to enable each of the Buyer and the Servicer (whether by license, sublicense, assignment or otherwise) to use all of the computer software used to account for the Purchased Receivables to the extent necessary to administer the Purchased Receivables. SECTION 5.02. NEGATIVE COVENANTS OF THE ORIGINATOR. The Originator will not, without the written consent of the Buyer: (a) SALES, LIENS, ETC. AGAINST RECEIVABLES AND RELATED ASSETS. Except pursuant to the Loan Agreement and a Permitted Securitization Transaction and as otherwise provided herein, sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist, any Lien upon or with respect to, any Purchased Receivable, Related Security or Collections, or upon or with respect to any Lock-Box Account to which any Collections of any Purchased Receivable are sent, or assign any right to receive income in respect thereof. (b) EXTENSION OR AMENDMENT OF RECEIVABLES. Except to the extent permitted in the Loan Agreement and, upon execution and delivery of the Receivables Purchase Agreement, in the Receivables Purchase Agreement, in each case in its capacity as Servicer thereunder, extend, amend or otherwise modify, the terms of any Purchased Receivable, or amend, modify or waive, any term or condition of any Contract related thereto. -25- (c) CHANGE IN BUSINESS OR CREDIT AND COLLECTION POLICY. Make any change in the character of its business or in the Credit and Collection Policy without prior notice to and approval by the Buyer; PROVIDED, HOWEVER, that the Buyer will be deemed to have approved any such change unless it shall have disapproved of such change within ten (10) Business Days of its receipt of such notice. (d) CHANGE IN CORPORATE NAME. Make any change to its corporate name or use any trade names, fictitious names, assumed names or "doing business as" names unless, prior to the effective date of any such name change or use, the Originator delivers to the Buyer such Financing Statements (Form UCC-1 and UCC- 3) executed by the Originator which the Buyer may reasonably request to reflect such name change or use, together with such other documents and instruments that the Buyer may request in connection therewith. (e) ACCOUNTING TREATMENT. Prepare any financial statements or other statements which shall account for the transactions contemplated by this Agreement in any manner other than as the sale of the Purchased Assets by the Originator to the Buyer. (f) NONPETITION COVENANT. Notwithstanding any prior termination of this Agreement, the Originator and the Buyer shall not, prior to the date which is one year and one day after the termination of this Agreement, with respect to the Buyer, acquiesce, petition or otherwise invoke or cause the Buyer to invoke the process of any governmental authority for the purpose of commencing or sustaining a case against the Buyer under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Buyer or any substantial part of its property or ordering the winding-up or liquidation of the affairs of the Buyer. (g) SUBORDINATED NOTE. The Originator shall not transfer the Subordinated Note to any Person. -26- ARTICLE VI ADMINISTRATION AND COLLECTION SECTION 6.01. DESIGNATION OF SERVICER. Pursuant to the Loan Agreement, the Originator has been appointed as the Servicer thereunder and the Originator has accepted such appointment thereunder. Upon the execution and delivery of the Receivables Purchase Agreement, the Originator will be appointed as Servicer thereunder and will accept such appointment thereunder. As part of the consideration for the Purchases hereunder, the Originator hereby acknowledges and consents to such appointments as Servicer and agrees to perform each of the duties and obligations of the Servicer pursuant to the terms of the Loan Agreement and the Receivables Purchase Agreement, as applicable. Subject to the terms of the Loan Agreement and the Receivables Purchase Agreement, the Buyer may at any time, upon ten Business Days' prior written notice, designate as Servicer any Person to succeed the Originator or any successor Servicer. SECTION 6.02. RIGHTS OF THE BUYER. At any time: (a) The Buyer may notify the Obligors of Purchased Receivables, or any of them, of the Buyer's ownership interest in Purchased Assets and direct such Obligors, or any of them, that payment of all amounts payable under any Purchased Receivable be made directly to the Buyer or its designee. (b) The Originator shall, at the Servicer's or Buyer's request and at the Originator's expense, give notice of the Buyer's interest in Purchased Receivables to each Obligor and direct that payments be made directly to the Buyer or its designee. (c) The Originator shall, at the Buyer's request, assemble all Records which the Buyer reasonably believes are necessary or appropriate for the administration and enforcement of the Purchased Receivables, and shall make the same available to the Buyer at a place selected by the Buyer or its designee. (d) The Originator hereby authorizes the Buyer and the Servicer to take any and all steps in the Originator's name and on behalf of the Originator necessary or desirable, in the determination of the Buyer and/or the Servicer, to collect all -27- amounts due under any and all Purchased Receivables, including, without limitation, endorsing the Originator's name on checks and other instruments representing Collections and enforcing such Purchased Receivables and the Related Security. SECTION 6.03. FURTHER ACTION EVIDENCING TRANSFERS. The Originator agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action that the Buyer may reasonably request in order to perfect, protect or more fully evidence the Buyer's interest in the Purchased Assets (including, without limitation, the security interest of the Buyer in the Automobiles securing the Purchased Receivables), or to enable the Buyer to exercise or enforce any of its rights hereunder. Without limiting the generality of the foregoing, the Originator will mark its master data processing records evidencing such Purchased Receivables and Related Security with a legend, acceptable to the Buyer, evidencing that the Buyer has acquired an ownership interest therein as provided in this Agreement and, upon the request of the Buyer, will execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate or as the Buyer may reasonably request. The Originator hereby authorizes the Buyer to file one or more financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any of the Purchased Receivables and the Purchased Assets now existing or hereafter arising without the signature of the Originator where permitted by law. A carbon, photographic or other reproduction of this Agreement or any financing statement covering the Purchased Receivables and the other Purchased Assets, or any part thereof, shall be sufficient as a financing statement. If the Originator fails to perform any of its agreements or obligations under this Agreement, the Buyer may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the expenses of the Buyer incurred in connection therewith shall be payable by the Originator upon the Buyer's demand therefor; PROVIDED, HOWEVER, prior to taking any such action, the Buyer shall give notice of such intention to the Originator and provide the Originator with a reasonable opportunity to take such action itself. -28- ARTICLE VII INDEMNIFICATION; REPURCHASES SECTION 7.01. INDEMNITIES BY THE ORIGINATOR. (a) Without limiting any other rights which the Buyer may have hereunder or under applicable law, the Originator hereby agrees to indemnify the Buyer, from and against any and all damages, losses, claims, liabilities and related costs and expenses, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") awarded against or incurred by the Buyer relating to or resulting from any of the following (excluding, however, (i) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of the Buyer or (ii) recourse (except with respect to payment and performance obligations provided for in this Agreement) for uncollectible Purchased Receivables) : (i) reliance on any representation or warranty made or deemed made by the Originator (or any of its officers) under or in connection with this Agreement, any Purchase Notice or any other information or report delivered by the Originator pursuant hereto, which shall have been false or incorrect in any material respect when made or deemed made or delivered; (ii) the failure by the Originator to comply with any term, provision or covenant contained in this Agreement, or any agreement executed in connection with this Agreement or with any applicable law, rule or regulation with respect to any Purchased Receivable, the Related Security or the other Purchased Assets, or the nonconformity of any Purchased Receivable, the Related Security or the other Purchased Assets with any such applicable law, rule or regulation; (iii) the failure to vest and maintain vested in the Buyer or to transfer to the Buyer an interest in the Receivables which are, or are purported to be, Purchased Receivables, together with all Collections, Related Security and the other Purchased Assets, free and clear of any Lien (except in favor of the Buyer or its assignees) whether existing at the time of the Purchase of such Receivable or at any time thereafter; -29- (iv) the failure to file, or any delay in filing (other than solely as a result of the action or inaction of the Buyer), financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws against the Originator with respect to any Receivables or Related Security which are, or are purported to be, Purchased Assets, whether at the time of any Purchase or at any subsequent time; (v) any failure of the Originator, as Servicer or otherwise, to perform its duties or obligations in accordance with the provisions of Article VI; and (vii) any products liability claim or personal injury or property damage suit or other similar or related claim or action of whatever sort arising out of or in connection with the Automobile that is the subject of any Contract. Any amounts subject to the indemnification provisions of this SECTION 7.01 shall be paid by the Originator to the Buyer within two Business Days following Buyer's demand therefor. SECTION 7.02. REPURCHASE OF RECEIVABLES. (a) If, with respect to any Purchased Receivable, (i) such Receivable did not constitute an Eligible Receivable on the date such Receivable became a Purchased Receivable (or if, within three Business Days of any Purchase, the Buyer notifies the Originator that any Receivable which became a Purchased Receivable on the date of such Purchase is not an Eligible Receivable) or the Originator shall have breached any representation or warranty made hereunder with respect to such Receivable, (ii) such Receivable, after the date such Receivable became a Purchased Receivable, became subject to any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of such Receivable (including without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms) or (iii) the Originator shall at any time breach any covenant made herein with respect to any such Receivable (a Purchased Receivable described in any of clauses (i), (ii) or (iii) above being referred to as an "Ineligible Purchased Receivable"), then the Originator shall on the next succeeding Purchase Date, upon the Buyer's demand, repurchase such Ineligible Purchased Receivable for the -30- repurchase price specified in the following sentence. Upon the Buyer's demand, the Originator shall, on the Purchase Date coinciding with such repurchase, pay to the Buyer an amount equal to the Outstanding Balance of such Purchased Receivable plus accrued interest thereon as of such Purchase Date. The proceeds of any such repurchase shall be paid to the Buyer by depositing such proceeds into the Lock-Box Account. Any such repurchase shall be made without recourse or warranty, express or implied, by the Buyer. ARTICLE VIII MISCELLANEOUS SECTION 8.01. AMENDMENTS, ETC. No amendment to or waiver of any provision of this Agreement nor consent to any departure by the Originator, shall in any event be effective unless the same shall be in writing and signed by (i) the Originator and the Buyer (with respect to an amendment) or (ii) the Buyer (with respect to a waiver or consent by it) or the Originator (with respect to a waiver or consent by it), as the case may be, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. This Agreement contains a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement (together with the exhibits hereto) among the parties hereto with respect to the subject matter hereof, superseding all prior oral or written understandings. SECTION 8.02. NOTICES, ETC. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including telex communication and communication by facsimile copy) and mailed, telexed, transmitted or delivered, as to each party hereto, at its address set forth under its name on the signature pages hereof or at such other address as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective, upon receipt, or in the case of delivery by mail, five days after being deposited in the mails, or, in the case of notice by telex, when telexed against receipt of answer back, or in the case of notice by facsimile copy, when verbal communication of receipt is obtained, in each case addressed as -31- aforesaid, except that notices and communications pursuant to Article II shall not be effective until received. SECTION 8.03. NO WAIVER; REMEDIES. No failure on the part of the Buyer to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 8.04. BINDING EFFECT; ASSIGNABILITY. This Agreement shall be binding upon and inure to the benefit of the Originator, the Buyer and their respective successors and permitted assigns (which successors of the Originator shall include a trustee in bankruptcy). The Originator may not assign any of its rights and obligations hereunder or any interest herein without the prior written consent of the Buyer. The Buyer may assign at any time its rights and obligations hereunder and interests herein to any other Person without the consent of the Originator. The Originator agrees that any assignee of the Buyer (to the extent of its interest so assigned) shall have the right to enforce this Agreement and to exercise directly all of the Buyer's rights and remedies under this Agreement, and the Originator agrees to cooperate fully with any such assignee in the exercise of such rights and remedies. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until such time, after the Termination Date, as the Purchased Receivables shall have been collected or charged off as uncollectible; PROVIDED, HOWEVER, that the rights and remedies with respect to any breach of any representation and warranty made by the Originator pursuant to Article IV and the indemnification and payment provisions of Article VII and this Article VIII shall be continuing and shall survive any termination of this Agreement. SECTION 8.05. GOVERNING LAW; WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE INTERESTS OF THE BUYER IN THE PURCHASED ASSETS OR REMEDIES HEREUNDER OR THEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. THE ORIGINATOR -32- HEREBY AGREES TO THE JURISDICTION OF ANY FEDERAL COURT LOCATED WITHIN THE STATE OF NEW YORK, AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE ORIGINATOR AT THE ADDRESS SET FORTH ON THE SIGNATURE PAGE HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE PREPAID. THE ORIGINATOR HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE ORIGINATOR AND THE BUYER ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY. WITH RESPECT TO THE FOREGOING CONSENT TO JURISDICTION, THE ORIGINATOR HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION 8.05 SHALL AFFECT THE RIGHT OF THE BUYER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF THE BUYER TO BRING ANY ACTION OR PROCEEDING AGAINST THE ORIGINATOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. SECTION 8.06. COSTS, EXPENSES AND TAXES. (a) In addition to the rights of indemnification under Article VII hereof, the Originator agrees to pay on demand all reasonable costs and expenses in connection with the preparation, execution, delivery and administration (including periodic auditing and any requested amendments, waivers or consents) of this Agreement and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Buyer (and the Bank and the Agent) with respect thereto and with respect to advising the Buyer (and the Bank and the Agent) as to its rights and remedies under this Agreement, and the other agreements executed pursuant hereto and all costs and expenses, if any (including reasonable counsel fees and expenses), in connection with the enforcement of this Agreement and the other agreements and documents to be delivered hereunder. (b) In addition, the Originator shall pay any and all stamp, sales, excise and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement or the other -33- agreements and documents to be delivered hereunder, and agrees to indemnify the Buyer and its assignees against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. SECTION 8.07. EXECUTION IN COUNTERPARTS; SEVERABILITY. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. -34- IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. BUYER: ATLANTIC AUTO FUNDING CORPORATION By /s/ Suzanne A. O'Connor ------------------------------- Name: Suzanne A. O'Connor Title: Vice President 800 Perinton Hills Office Park Fairport, New York 14450 Telecopy No. ORIGINATOR: ATLANTIC AUTO FINANCE CORPORATION By /s/ Richard J. Harrison ------------------------------- Name: Richard J. Harrison Title: President 800 Perinton Hills Office Park Fairport, New York 14450 Telecopy No. EX-10.3-2 21 EXHIBIT 10.3.2 EXECUTION COPY LOAN AND SECURITY AGREEMENT Dated as of June 28, 1995 ATLANTIC AUTO FUNDING CORPORATION, a Delaware corporation (the "Borrower"), ATLANTIC AUTO FINANCE CORPORATION, a Delaware corporation ("Atlantic Auto" or the "Servicer"), and CITIBANK, N.A., a national banking association (the "Bank"), agree as follows: ARTICLE I DEFINITIONS Section A. DEFINITIONS. As used in this Agreement, the following terms have the following meanings: "ADVANCE RATE" means (i) prior to the Initial CXC Purchase, eighty percent (80%) and (ii) thereafter, ninety three percent (93%); PROVIDED, HOWEVER, that such percentage, in the case of clause (ii) only, shall in no event exceed 100% minus the Aggregate Reserve Percentage (as defined in the Receivables Purchase Agreement). "AAFC PURCHASE AGREEMENT" means the Receivables Purchase Agreement between Atlantic Auto, as originator, and the Borrower, as buyer, pursuant to which the Borrower shall purchase all of Atlantic Auto's right, title and interest in and to the Receivables, including the assignment to the Borrower of the Contract and Title relating to each Receivable. "AFFILIATE" means, with respect to a Person, another Person that directly or indirectly controls, is controlled by or is under common control with such first Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to vote ten percent (10%) or more of the Securities having voting power for the election of directors of such Person or otherwise to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting Securities or by contract or otherwise. "AGENT" means CNAI. "AGING RECEIVABLE REPORT" means a monthly report delivered pursuant to SECTION 4.01(h) in the form attached hereto as EXHIBIT A. "AUTOMOBILE" means the new or used automobile or light-duty truck that is purchased by the Obligor to which a particular Receivable relates. "BASE RATE" means, for any period, a fluctuating interest rate per annum as shall be in effect from time to time, which rate per annum shall at all times be equal to the highest of: (i) the rate of interest announced publicly by Citibank, N.A. in New York, New York from time to time, as Citibank, N.A.'s base rate; and (ii) the sum (adjusted to the nearest one quarter of one percent (0.25%) or, if there is no nearest one quarter of one percent (0.25%), to the next higher one quarter of one percent (0.25%)) of (A) one half of one percent (0.50%) per annum PLUS (B) the rate per annum obtained by dividing (I) the latest three-week moving average of secondary market morning offering rates in the United States for three-month certificates of deposit of major United States money market banks, such three-week moving average (adjusted to the basis of a year of 360 days) being determined weekly on each Monday (or, if such day is not a Business Day, on the next succeeding Business Day) for the three-week period ending on the previous Friday (or, if such day is not a Business Day, on the next preceding Business Day) by Citibank, N.A. on the basis of such rates reported by certificate of deposit dealers to, and published by, the Federal Reserve Bank of New York, or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank, N.A. from three (3) New York certificate of deposit dealers of recognized standing selected by Citibank, N.A., by (II) a percentage equal to 100% minus the average of the daily percentages specified -2- during such three-week period by the Federal Reserve Board (or any successor) for determining the maximum reserve requirement (including, but not limited to, any emergency, supplemental or other marginal reserve requirement) for Citibank, N.A. in respect of liabilities which consist of or which include (among other liabilities) three-month Dollar nonpersonal time deposits in the United States PLUS (C) the average during such three- week period of the annual assessment rates estimated by Citibank, N.A. for determining the then current annual assessment payable by Citibank, N.A. to the Federal Deposit Insurance Corporation (or any successor) for insuring Dollar deposits of Citibank, N.A. in the United States; and (iii) the sum of (A) one half of one percent (0.50%) per annum PLUS (B) the Federal Funds Rate in effect from time to time during such period. "BORROWING" means a borrowing consisting of Loans made on the same day. "BORROWING BASE" means, with respect to any date, the product of (i) the Outstanding Balance of Eligible Receivables as of such date and (ii) the Advance Rate as of such date. "BORROWING BASE CERTIFICATE" means a certificate, in substantially the form of EXHIBIT B, setting forth the Outstanding Balance of Eligible Receivables. "BUSINESS DAY" means a day which is not a Saturday or Sunday or a legal holiday and on which banks are not required or permitted by law or other governmental action to close in New York, New York. "CLOSING DATE" means the date on which this Agreement is executed by the parties hereto and becomes effective. "CNAI" means Citicorp North America, Inc., a Delaware corporation. "COLLATERAL" shall have the meaning ascribed to such term in SECTION 5.01. -3- "COLLECTIONS" means with respect to each Receivable, without limitation, all (i) payments received and collected on such Receivable, (ii) net proceeds received by virtue of the liquidation of such Receivable (including pursuant to a sale by the Borrower of such Receivable under the Receivables Purchase Agreement or a Permitted Securitization Transaction), (iii) retained proceeds received under any property damage, casualty or other insurance policy with respect to such Receivable, (iv) proceeds received under the VSI Policy, (v) interest of the Borrower in any property damage, casualty or other insurance policies as the same relate to the Automobile securing such Receivable and (vi) other proceeds relating to such Receivable or its Contract File. "COMMITTED RECEIVABLES PURCHASE AGREEMENT" means the receivables purchase agreement or agreements between the Borrower and the Liquidity Banks. "CONTRACT" means, with respect to each Receivable, the note, retail sales installment contract or other evidence of the Obligor's obligation to repay Debt to the Borrower (as assignee of Atlantic Auto), executed by such Obligor in connection with the purchase of an Automobile. "CONTRACT FILE" means, with respect to each Receivable, the original Contract, either a copy of the application to the appropriate state authorities for a Title to the related Automobile or a standard assurance in the form commonly used in the industry relating to the provision of Title and when issued by the appropriate state authorities, the related Title (but only to the extent that Title documents are required under applicable state law to be held by a secured party in order to perfect such secured party's security interest in the related Automobile), all original instruments modifying the terms and conditions of the Receivable and the original endorsements or assignments of such Contract. "CREDIT AND COLLECTION POLICY" means the Credit and Collection Policy of Atlantic Auto for the Contracts and the Receivables as set forth on EXHIBIT C. "CUSTODIAL AGREEMENT" means that certain custodial agreement dated the date hereof by and among Atlantic Auto, the Borrower, the Agent and the Custodian. -4- "CUSTODIAN" means Safesite National Business Records Management, Inc., a Delaware corporation. "CUSTODIAN'S CONFIRMATION" means the Custodian's certificate in the form of EXHIBIT A to the Custodian's Agreement confirming that it has received (i) an itemized schedule of the Receivables (which shall also briefly describe each related Contract File) and (ii) the Contract File with respect to each such Receivable. "CXC" means CXC Incorporated, a Delaware corporation. "CXC RECEIVABLES PURCHASE AGREEMENT" means the receivables purchase agreement or agreements between the Borrower and CXC. "DEBT" means (i) indebtedness for borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other similar instruments, (iii) obligations to pay the deferred purchase price of property or services, (iv) obligations as lessee under leases which shall have been or should be, in accordance with GAAP, recorded as capital leases, and (v) obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above. "DEFAULT" means an event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default. "DEFAULTED RECEIVABLE" means a Receivable (i) with respect to which any payment thereon has remained unpaid more than ninety (90) days past the due date therefor or (ii) charged off as uncollectible by the Servicer. A Receivable shall be deemed to be a Defaulted Receivable upon the earlier to occur of the events specified in clauses (i) and (ii) of the preceding sentence. "DOLLARS" and "$" mean the lawful money of the United States. -5- "ELIGIBLE RECEIVABLE" means any Receivable with respect to which the representations and warranties contained in SECTION 5.03(a) are true and correct at all times and which have not been sold by the Borrower to the Purchaser pursuant to the Receivables Purchase Agreement. "EVENT OF DEFAULT" means any of the occurrences set forth in SECTION 6.01 after the expiration of any applicable grace period and the giving of any applicable notice, in each case as expressly provided in SECTION 6.01. "FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day in New York, New York, for the next preceding Business Day) in New York, New York by the Federal Reserve Bank of New York, or if such rate is not so published for any day which is a Business Day in New York, New York, the average of the quotations for such day on such transactions received by the Bank from three federal funds brokers of recognized standing selected by the Bank. "FINANCING AGREEMENTS" means, without limitation, the Custodial Agreement, the Support Agreement, the AAFC Purchase Agreement and the Receivables Purchase Agreement. "FUNDING DATE" means, with respect to any Loan, the date of funding of such Loan. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accounting Standards Board or in such other statements by such other entity as may be in general use by significant segments of the accounting profession as in effect on the date hereof (unless otherwise specified herein as in effect on another date or dates). "INITIAL CXC PURCHASE" means the first purchase of Receivables by CXC from the Borrower pursuant to the Receivables Purchase Agreement. -6- "INTERCREDITOR AGREEMENT" means the intercreditor agreement among the Bank, CXC, the Liquidity Banks, the Surety and the Custodian to be entered into concurrently with the Borrower's execution of the Receivables Purchase Agreement. "LIEN" means any mortgage, deed of trust, pledge, hypothecation, assignment, conditional sale agreement, deposit arrangement, security interest, encumbrance, lien (statutory or other), preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever in respect of any property of a Person, whether granted voluntarily or imposed by law, and includes the interest of a lessor under a capital lease or under any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement or similar notice (other than a financing statement filed by a "true" lessor or consignor pursuant to Section 9-408 of the UCC), naming the owner of such property as debtor, under the UCC or other comparable law of any jurisdiction. "LIQUIDITY BANKS" means the banks identified as such in the Committed Receivables Purchase Agreement. "LOAN DOCUMENTS" means this Agreement, the Note, and any other document or instrument executed and delivered by the Borrower to the Bank in connection with this Agreement. "LOANS" means all loans made to the Borrower pursuant to SECTION 2.01(a). "LOCK-BOX ACCOUNT" means an account maintained for the purpose of receiving Collections. "LOCK-BOX AGENT" means at any time CNAI or such other Person(s) then authorized pursuant to this Agreement and, upon its execution and delivery, the Receivables Purchase Agreement to act as lock-box agent on behalf of the Bank and the Purchasers, as applicable, and their respective assignees. "LOCK-BOX AGREEMENT" means an agreement, in substantially the form of EXHIBIT D, among the Lock-Box Agent, Atlantic Auto, the Borrower and a Lock-Box Bank which agreement sets forth the rights of the Lock-Box Agent, Atlantic Auto, the Borrower and -7- the Lock-Box Bank with respect to the disposition and application of the Collections received into the applicable Lock-Box Account. "LOCK-BOX BANK" means any of the banks holding one or more lock-box accounts for receiving Collections. "NET WORTH" means with respect to any Person (i) total consolidated assets of such Person MINUS (ii) total consolidated liabilities of such Person. "NOTE" has the meaning ascribed to such term in SECTION 2.01(c). "NOTICE OF BORROWING" means a Notice of Borrowing attached hereto as EXHIBIT E and made a part hereof with respect to any proposed borrowing of a Loan pursuant to SECTION 2.01(b). "OBLIGATIONS" means all loans, advances, debts, liabilities, obligations, covenants and duties of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, due to the Bank from Borrower, arising under this Agreement, the Note, the other Loan Documents, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, indemnification or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now or hereafter arising and however acquired, together with all interest, charges, expenses, attorneys' fees and other sums chargeable to the Borrower under this Agreement. "OBLIGOR" means the obligor and any co-obligor(s) under a Receivable. "ORIGINATOR RECEIVABLES" means any Automobile loan receivable originated by Atlantic Auto other than the Receivables. "OUTSTANDING BALANCE" means, with respect to any date and any Receivable, the then outstanding principal amount of such Receivable. For the avoidance of doubt, it is understood that in no event shall the definition of "Outstanding Balance" include any amount in respect of (i) finance charges and income with respect to any such Receivable or (ii) prepaid dealer reserves or other marketing expenses with respect to any such Receivable. -8- "PERMITTED SECURITIZATION TRANSACTION" means a transfer by the Borrower of Receivables (i) pursuant to the Receivables Purchase Agreement and (ii) by way of a term securitization transaction, provided that (x) upon the effectiveness of such transaction and the application of the proceeds therefrom to prepay Loans secured immediately prior to the effectiveness of such transaction by the Receivables subject to such transaction, no prepayment of Loans is required under SECTION 2.03(a) of this Agreement and (y) the parties to such transaction enter into intercreditor arrangements with the Agent, the Bank and the Purchasers reasonably satisfactory to each of the Agent, the Bank and the Purchasers. "PERSON" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature. "PURCHASER" means CXC or the Liquidity Banks, as applicable and their respective successors and assigns. "RECEIVABLES" means the indebtedness evidenced by the Contracts assigned by Atlantic Auto to the Borrower pursuant to the AAFC Purchase Agreement, whether constituting accounts, general intangibles, contract rights, chattel paper or instruments. "RECEIVABLES PURCHASE AGREEMENT" means, collectively, (i) the CXC Receivables Purchase Agreement and (ii) the Committed Receivables Purchase Agreement. "RECORDS" means, with respect to each Receivable, all factory invoices and work orders describing the related Automobile, the bill of sale and guaranty of title, insurance policies, tax receipts, property and casualty insurance policies or binders naming the Servicer as loss payee or additional named insured, as is appropriate, insurance premium receipts, ledger sheets, payment records, insurance claim files and correspondence, all documentation in connection with any modification, release, accommodation, cosigning or guaranty of the Receivable and all other documents and instruments, including all books, records, files, tapes, correspondence and other information or materials (including, without limitation, computer programs, tapes, discs, punch cards, data processing software and -9- related property and rights) relating to the Receivable, the Contract, the Title and the Automobile relating to the Receivable and this Agreement. "RELATED SECURITY" means, with respect to any Receivable, (i) the related Contract File, (ii) the related Automobile, (iii) all related Records and (iv) all proceeds of the foregoing. "SECURITIES" means any limited, general or other partnership interest, or any stock, shares, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or any certificates of interest, shares, or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire any of the foregoing, but shall not include any evidence of the Obligations. "SUBSIDIARY" means any corporation or other entity of which Securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned or controlled by such Person, one or more of the other subsidiaries of such Person or any combination thereof. "SUPPORT AGREEMENT" means the support agreement of UAG in favor of the Borrower to be entered into concurrently with the Borrower's execution of the AAFC Purchase Agreement. "SURETY" means Capital Markets Assurance Corporation, a New York corporation. "TAXES" has the meaning ascribed to such term in SECTION 2.07(a). "TERMINATION DATE" means the earliest of (i) July 5, 1996, (ii) the date this Agreement is terminated pursuant to SECTION 7.11 and (iii) the date the Committed Receivables Purchase Agreement is terminated; PROVIDED, HOWEVER, that if the Initial CXC Purchase does not occur by September 1, 1995, then April 1, 1996 shall be substituted for the date specified in clause (i) of this definition. -10- "TITLE" means, with respect to each Receivable, the original certificate or other instrument or registration evidencing ownership of the related Automobile, which certificate, other instrument or registration shall have the Lien of Atlantic Auto noted thereon or a UCC financing statement signed by the Obligor and filed in the appropriate jurisdiction evidencing the perfection of the Lien granted by the Obligor to Atlantic Auto and assigned to the Borrower as provided herein. "UAG" means United Auto Group, Inc., a Delaware corporation. "UCC" means the Uniform Commercial Code as enacted in the State of New York, as it may be amended from time to time. "UCC AGENT" means at any time CNAI or such other Person(s) then authorized pursuant to this Agreement and, upon its execution and delivery, the Receivables Purchase Agreement to act as assignee of the Borrower on behalf of the Bank and the Purchasers, as applicable, and their respective assignees under UCC financing statements filed pursuant to this Agreement. "VSI POLICY" means the vendors single interest physical damage insurance policy maintained with respect to the Receivables, a copy of which is attached as EXHIBIT F. ARTICLE II AMOUNTS AND TERMS OF THE LOANS SECTION 1.021. LOANS. (a) AVAILABILITY. The Bank in its sole and absolute discretion and subject to the terms and conditions hereinafter set forth, may make loans (each individually, a "Loan" and, collectively, the "Loans") to the Borrower from time to time during the period from the date hereof to the Business Day immediately preceding the Termination Date, up to an aggregate outstanding principal amount equal to the lesser of (i) Five Million Dollars ($5,000,000) or (ii) the Borrowing Base in effect at such time. Subject to the provisions hereof, the Borrower may repay any outstanding Loan made to it on any day which is a -11- Business Day and any amounts so repaid may be readvanced to the Borrower, up to the amount available under this SECTION 2.01(a) at such time, in the sole and absolute discretion of the Bank. (b) NOTICE OF BORROWING. When the Borrower desires to borrow under this SECTION 2.01, it shall deliver to the Bank a Notice of Borrowing, signed by it, no later than 10:00 a.m. (New York time) on the proposed Funding Date. Such Notice of Borrowing shall specify (i) the proposed Funding Date (which shall be a Business Day), (ii) the amount of the proposed Borrowing and (iii) instructions for the disbursement of the proceeds of the proposed Borrowing. Loans made on any Funding Date shall be in minimum amount of $10,000. Any Notice of Borrowing (or telephonic notice in lieu thereof) given pursuant to this SECTION 2.01(b) shall be irrevocable. Each submission by the Borrower to the Bank of a Notice of Borrowing and each acceptance by the Borrower of the proceeds of each Loan made hereunder shall constitute a representation and warranty by the Borrower, as of the Funding Date, that (a) the representations and warranties made in Article III shall be true and correct on and as of the date of the Loans, before and after giving effect to such Loans and to the application of the proceeds therefrom, as though made on and as of such date (other than representations and warranties which expressly speak as of a different date) and (b) no event shall have occurred and be continuing, or would result from the Loans, or from the application of the proceeds therefrom, which would constitute a Default or an Event of Default in effect on, and as of the date of, such Loans. Each submission by the Borrower to the Bank of a Notice of Borrowing shall be accompanied by a Borrowing Base Certificate and a Custodian's Confirmation. (c) PROMISE TO REPAY. The Borrower hereby agrees to pay when due the principal amount of each Loan which is made to it, and further agrees to pay when due all unpaid interest accrued thereon, in accordance with the terms of this Agreement and the Note. The Borrower shall execute and deliver to the Bank a promissory note to evidence the Loans owing to the Bank, substantially in the form of EXHIBIT G hereto (such promissory note and all amendments thereto, replacements thereof and substitutions therefor being collectively referred to as the "Note"). -12- SECTION 1.022. USE OF PROCEEDS. The Borrower shall apply proceeds of the Loans to purchase Receivables from Atlantic Auto pursuant to the AAFC Purchase Agreement, repay outstanding Loans and pay transaction costs associated therewith. SECTION 1.023. REPAYMENTS; PREPAYMENTS. (a) Whenever the aggregate principal amount of Loans outstanding exceeds the Borrowing Base, a mandatory prepayment of principal shall be made in the amount of such excess. Such prepayments shall be applied to the Obligations as set forth in SECTION 2.03(d) and shall be accompanied by a payment of all interest accrued and unpaid through the date of such mandatory prepayment and allocable to the amount so prepaid. (b) The entire remaining outstanding principal balance of the Loans, together with any accrued and unpaid interest and any other Obligations hereunder, shall be due and payable on the Termination Date and following an Event of Default as provided in SECTION 6.01. (c) The Borrower may, at any time and from time to time, prepay or repay any Loan, in whole or in part, without premium or penalty, upon at least one Business Day's notice to the Bank stating the proposed date and principal amount of the prepayment, and if such notice is given the Borrower shall prepay such Loan, together with accrued interest to the date of such prepayment on the principal amount prepaid; PROVIDED, HOWEVER, that each partial prepayment shall be in an aggregate principal amount not less than $10,000. (d) All payments of any amounts due under any provision of this Agreement shall be applied in the following order: FIRST to payment of interest due and owing allocable to the portion of principal paid; SECOND to the then outstanding principal balance of the Loans in the order in which they were first made; and THIRD to the remaining balance of the Obligations. SECTION 1.024. INTEREST AND FEES. (a) RATE OF INTEREST. All Loans and the outstanding principal balance of all other Obligations shall bear interest on the unpaid principal amount thereof from the date such Loans are -13- made and such other Obligations are due and payable until paid in full, except as otherwise provided in SECTION 2.04(c), at a rate per annum equal to the sum of the Base Rate, as in effect from time to time as interest accrues PLUS one half of one percent (0.50%) per annum. (b) INTEREST PAYMENTS. (i) Interest accrued on each Loan shall be payable in arrears (A) on the first day of each calendar month, commencing on the first such day following the making of such Loan and (B) if not theretofore paid in full, at maturity (whether by acceleration or otherwise) of such Loan. (ii) Interest accrued on the principal balance of all other Obligations shall be payable in arrears (A) on the first day of each calendar month, commencing on the first such day following the incurrence of such Obligation and (B) if not theretofore paid in full, at the time such other Obligation becomes due and payable (whether by acceleration or otherwise). (c) DEFAULT INTEREST. Notwithstanding the rate of interest specified in SECTION 2.04(a) or elsewhere in this Agreement, effective immediately upon (i) the occurrence of an Event of Default described in SECTION 6.01(a) or (b) or (ii) the occurrence of any other Event of Default and notice from the Bank of the effectiveness of this SECTION 2.04(c), and for as long thereafter as such Event of Default shall be continuing, the principal balance of all Loans, and the principal balance of all other Obligations, shall bear interest at a rate which is two percent (2%) per annum in excess of the Base Rate PLUS one half of one percent (0.50%) per annum. (d) UNUSED LINE FEE. The Borrower shall pay to the Bank a fee (the "Unused Line Fee"), accruing at the rate of one-half of one percent (0.50%) per annum on the amount from time to time by which $5,000,000 exceeds the outstanding principal amount of the Loans, for the period commencing on the Closing Date and ending on the Termination Date, payable monthly, in arrears, on the first Business Day of each calendar month, commencing on the first such Business Day after the Closing Date, and on the Termination Date. SECTION 1.025. INCREASED COSTS. If, after the date hereof, due to any increase in capital adequacy or reserve requirements or other charges or costs imposed by any -14- governmental authority, the Bank shall determine in good faith that there has been a direct increase in the cost to the Bank of making, funding, renewing or maintaining the Loans or a reduction in the yield received by the Bank thereon, then the Borrower shall from time to time, upon the Bank's written demand to such effect, pay to the Bank additional amounts sufficient to compensate the Bank for such increased cost or such reduction in the yield to the Bank. Such demand shall be accompanied by a detailed statement as to the amount of such increased cost or reduction in yield, which statement shall be conclusive and binding for all purposes, absent manifest error. If such increased costs are incurred as a result of the Bank's selection of a particular lending office, the Bank shall take reasonable efforts to make, fund and maintain its Loans through another lending office of the Bank in another jurisdiction, if the making, funding or maintaining of such Loans through such other office of the Bank does not, in the judgment of the Bank, otherwise materially adversely affect such Loans of the Bank. SECTION 1.026. PAYMENTS AND COMPUTATIONS. (a) The Borrower shall make each payment hereunder and under the Note of principal of and interest on the Loans and other Obligations, without condition or reservation of right, in immediately available funds, not later than 1:00 P.M. (New York City time) on the day when due in Dollars to the Bank at its address referred to in SECTION 7.02. (b) The Borrower hereby authorizes the Bank, if and to the extent payment is not made when due hereunder or under the Note, to charge from time to time against any or all of the Borrower's accounts with the Bank any amount so due. (c) All computations of interest shall be made by the Bank on the basis of a year of 360 days and the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. Each determination by the Bank of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. (d) Whenever any payment hereunder or under the Note shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of the time shall in such case be included in the computation of payment of interest. -15- SECTION 1.027. TAXES. (a) PAYMENT OF TAXES. Any and all payments by the Borrower hereunder or under the Note or other document evidencing any Obligations shall be made free and clear of and without reduction for any and all present or future taxes, levies, imposts, deductions, charges, withholdings, and all stamp or documentary taxes, excise taxes, ad valorem taxes and other taxes imposed on the value of the property, charges or levies which arise from the execution, delivery or registration, or from payment or performance under, any of the Loan Documents and all other liabilities with respect thereto excluding taxes imposed on or measured by net income or overall gross receipts and capital and franchise taxes now or hereafter imposed on the Bank by (i) the United States, (ii) the governmental authority of the jurisdiction in which the Bank's applicable domestic lending office is located or any political subdivision thereof or (iii) the governmental authority in which the Bank is organized, managed and controlled or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges and withholdings being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to withhold or deduct any Taxes from or in respect of any sum payable hereunder or under the Note or such document to the Bank, (x) the sum payable to the Bank shall be increased as may be necessary so that after making all required withholding or deductions (including withholding or deductions applicable to additional sums payable under this SECTION 2.07) the Bank receives an amount equal to the sum it would have received had no such withholding or deductions been made, (y) the Borrower shall make such withholding or deductions and (z) the Borrower shall pay the full amount withheld or deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) INDEMNIFICATION. The Borrower will indemnify the Bank against, and reimburse the Bank on demand for, the full amount of all Taxes (including, without limitation, any Taxes imposed by any governmental authority on amounts payable under this SECTION 2.07 and any additional income or franchise taxes resulting therefrom) incurred or paid by the Bank or any bank holding company parent of the Bank and any liability (including penalties, interest, and out-of-pocket expenses paid to third parties) arising therefrom or with respect thereto, whether or -16- not such Taxes were lawfully payable. A certificate as to any additional amount payable to any Person under this SECTION 2.07 shall be submitted to the Borrower and shall, unless the Borrower within ten (10) Business Days after its receipt of such certificate shall dispute the additional amount payable, be final, conclusive and binding upon all parties hereto. In connection with any such dispute, the Bank agrees, within a reasonable time after receiving a written request from the Borrower, to provide the Borrower with documentation supporting its calculation of such additional amounts payable; PROVIDED, HOWEVER, that the Bank shall not be required to disclose to the Borrower any tax returns of the Bank or any bank holding company parent of the Bank or any other confidential information relating to the Bank or such bank holding company parent. In addition, the Bank agrees, within a reasonable time after receiving a written request from the Borrower, to provide the Borrower with such certificates as are reasonably required, and take such other actions as are reasonably necessary to claim such exemptions as the Bank may be entitled to claim in respect of all or a portion of any Taxes which are otherwise required to be paid or deducted or withheld pursuant to this SECTION 2.07 in respect of any payments under this Agreement or under the Note. (c) RECEIPTS. Within thirty (30) days after the date of any payment of Taxes by the Borrower, it will furnish to the Bank, at its address referred to in SECTION 7.02, the original or a certified copy of a receipt or other documentation reasonably satisfactory to the Bank, evidencing payment thereof. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 1.031. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The Borrower represents and warrants as follows: (a) The Borrower is duly incorporated, validly existing and in good standing under the laws of Delaware, has the corporate power and authority to own its assets and to transact the business in which it is now engaged or proposed to be engaged and is duly qualified as a foreign corporation and in good standing under the laws of each -17- other jurisdiction where the nature and extent of the business transacted by it or the ownership of its assets makes such authorization necessary. (b) The execution, delivery and performance by the Borrower of the Loan Documents and each Financing Agreement to which it is a party have been duly authorized by all necessary corporate actions and do not and will not (i) contravene its charter or by-laws; (ii) violate any provision of, or require any filing, registration, consent or approval under, any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award having applicability to the Borrower; (iii) result in a breach of or constitute a default or require any consent under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected; or (iv) cause the Borrower to be in default (with or without notice or lapse of time or both) under any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any such indenture, agreement, lease or instrument. (c) Each of the Loan Documents and each of the Financing Agreements to which it is a party has been duly executed and delivered by the Borrower and constitutes its legal, valid and binding obligation enforceable against it in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). (d) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of this Agreement, the Note, the other Loan Documents or any Financing Agreement to which it is a party. (e) Except as disclosed on SCHEDULE 3.01(e) hereto, there is no pending or threatened action, proceeding or -18- investigation affecting the Borrower before any court, commission, agency or instrumentality of the federal or any state or municipal government or any agency or subdivision thereof or before any arbitration which may materially adversely affect the financial condition or operations of the Borrower or which purports to affect the legality, validity or enforceability of this Agreement, the Note or the other Loan Documents or any of the Financing Agreements. (f) The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of the Loans will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. (g) The Borrower has filed all tax returns (federal, state and local) required to be filed and paid all taxes shown thereon to be due, including interest and penalties, or has filed for and/or received valid extensions of time for such filings or payments. No assessments have been made against the Borrower by any taxing authority nor has any penalty or deficiency been asserted by any such authority which has not been paid unless the validity thereof is being contested in good faith by appropriate proceedings. (h) No representation or warranty of the Borrower contained in this Agreement, any other Loan Document, any Financing Agreement or in any certificate, document or other written materials including, without limitation, financial information delivered by the Borrower to the Bank in connection therewith contains any untrue statement of material fact or omits to state a material fact necessary in order to make the statements contained therein not misleading. (i) The Borrower is not an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. (j) The AAFC Purchase Agreement creates a valid sale, transfer and assignment to the Borrower of, and the Borrower is the legal and beneficial owner of, all right, title and -19- interest of Atlantic Auto in and to the Receivables now existing and hereafter-created and the proceeds thereof. Subject to the terms of the Intercreditor Agreement, the Bank has a perfected, first-priority security interest in each Receivable and no further action is required to perfect such security interest, other than the possession by the Custodian of the Contracts and Titles relating to each Receivable, which possession is evidenced by the Custodian's Confirmations. SECTION 1.032. REPRESENTATIONS AND WARRANTIES OF THE SERVICER. The Servicer represents and warrants as follows: (a) The Servicer is duly incorporated, validly existing and in good standing under the laws of Delaware, has the corporate power and authority to own its assets and to transact the business in which it is now engaged or proposed to be engaged and is duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction where the nature and extent of the business transacted by it or the ownership of its assets makes such authorization necessary. (b) The execution, delivery and performance by the Servicer of this Agreement and each Financing Agreement to which it is a party have been duly authorized by all necessary corporate actions and do not and will not (i) contravene its charter or by-laws; (ii) violate any provision of, or require any filing, registration, consent or approval under, any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award having applicability to the Servicer; (iii) result in a breach of or constitute a default or require any consent under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Servicer is a party or by which it or its properties may be bound or affected; or (iv) cause the Servicer to be in default (with or without notice or lapse of time or both) under any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any such indenture, agreement, lease or instrument. (c) Each of this Agreement and each of the Financing Agreements to which it is a party has been duly executed and delivered by the Servicer and constitutes its legal, valid and binding obligation enforceable against it in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). (d) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Servicer of this Agreement, or any Financing Agreement to which it is a party. (e) The consolidated balance sheets of the Servicer as at December 31, 1994, and the related consolidated statements of income and retained earnings of the Servicer for the fiscal period then ended, copies of which have been furnished to the Bank, fairly present the financial condition of the Servicer as at such date and the results of the operations of the Servicer for the period ended on such date, all in accordance with GAAP, and since December 31, 1994, there has been no material adverse change in such condition or operations which would materially adversely affect the ability of the Servicer to perform its obligations under this Agreement or any Financing Agreement to which it is a party. (f) Except as disclosed on SCHEDULE 3.02(f), there is no pending or threatened action, proceeding or investigation affecting the Servicer before any court, commission, agency or instrumentality of the federal or any state or municipal government or any agency or subdivision thereof or before any arbitration which may materially adversely affect the financial condition or operations of the Servicer or which purports to affect the legality, validity or enforceability of this Agreement or any of the Financing Agreements. (g) The Servicer has filed all tax returns (federal, state and local) required to be filed and paid all taxes shown thereon to be due, including interest and penalties, or has filed for and/or received valid extensions of time -21- for such filings or payments. No assessments have been made against the Servicer by any taxing authority nor has any penalty or deficiency been asserted by any such authority which has not been paid unless the validity thereof is being contested in good faith by appropriate proceedings. (h) No representation or warranty of the Servicer contained in this Agreement, any Financing Agreement to which it is a party or in any certificate, document or other written materials including, without limitation, financial information delivered by the Servicer to the Bank in connection therewith contains any untrue statement of material fact or omits to state a material fact necessary in order to make the statements contained therein not misleading. ARTICLE IV COVENANTS OF THE BORROWER AND THE SERVICER SECTION 1.041. AFFIRMATIVE COVENANTS. Until the later of (i) the date on which all of the Obligations have been paid in full and (ii) the Termination Date, each of the Borrower and the Servicer shall, unless the Bank shall otherwise consent in writing: (a) CORPORATE MAINTENANCE. At all times maintain its corporate existence and preserve and keep in full force and effect its rights, privileges and franchises necessary to its business. (b) COMPLIANCE WITH LAWS, ETC. Comply in all material respects with (i) all applicable laws, rules, regulations and orders and (ii) all indentures, or loan or credit agreements or any other agreement, lease or instrument to which it is a party or by which it or its properties may be bound or affected. (c) TAXES. Duly file all tax returns with respect to it and its property which are required to be filed, duly pay all taxes (including all quarterly tax assessments) due and payable by it and all assessments and other governmental charges imposed on it or on any of its property or assets or -22- in respect of any of its business, income or property before any penalty accrues thereon; PROVIDED that no such taxes, assessments and governmental charges above need be paid if being contested in good faith by appropriate proceedings diligently instituted and conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor. (d) BOOKS AND RECORDS. Keep proper books of record and account in which entries in conformity with GAAP shall be made of all dealings and transactions in relation to their businesses and activities. (e) FURTHER ASSURANCES. (i) Execute and deliver from time to time to the Bank all such further documents and instruments and do all such other acts and things as may be reasonably required by the Bank to enable the Bank to exercise and enforce its rights hereunder and under the other documents referred to herein and to perfect, continue the perfection of, preserve and protect its lien on the Collateral. (ii) From time to time, at its own expense, (x) take whatever action is reasonably requested by the Bank or its legal counsel to preserve, protect or perfect the security interest in the Collateral granted pursuant to ARTICLE V, including, without limitation, executing UCC financing statements, endorsing notes, executing additional security documents or delivering possession of Collateral to the Custodian, (y) appear in and defend any action or proceeding which may affect the Borrower's title to the Collateral or the security interest granted hereunder and (z) perform such acts as the Bank shall reasonably deem necessary or appropriate to effectuate the purposes of this Agreement. (f) LITIGATION. Give the Bank prompt notice of any suit at law or in equity against it, except where damages of less than $100,000 are sought (exclusive of claims covered by insurance policies unless the applicable insurance carrier has disclaimed coverage or has reserved the right to disclaim coverage on such claims). -23- (g) MATERIAL ADVERSE EFFECT. Notify the Bank of the occurrence of any event which may be reasonably expected to have a material adverse effect on or may be reasonably expected to cause a material adverse change in the condition or prospects, financial condition or business, of it, as soon as it becomes aware of such event. (h) REPORTING REQUIREMENTS. Furnish to the Bank: (i) As soon as available and in any event within 30 days after the end of each calendar month in each fiscal year, (x) in the case of the Borrower, a balance sheet of the Borrower as of the end of such month and a statement of income of the Borrower for such month and for the period commencing at the end of the previous fiscal year and ending with the end of such month, certified by the chief financial officer of the Borrower and (y) in the case of the Servicer, consolidated balance sheets of the Servicer and its Subsidiaries as of the end of such month and consolidated statements of income of the Servicer and its Subsidiaries for such month and for the period commencing at the end of the previous fiscal year and ending with the end of such month, certified by the chief financial officer of the Servicer; (ii) As soon as available and in any event within 120 days after the end of its fiscal year (x) in the case of the Borrower, a copy of its financial statements for such year and a balance sheet for the twelve month period then ended, a statement of income, cash flow and changes in shareholder equity of the Borrower for such fiscal year, together with comparative information for the previous fiscal year, and copies of all reports and management letters, if any, from the independent certified public accountants to the Borrower, which reports and letters shall be reasonably satisfactory to the Bank, all certified by the chief financial officer of the Borrower and (y) in the case of the Servicer, a copy of its consolidated financial statements for such year and consolidated balance sheets for the twelve month period then ended, consolidated statements of income, cash flow and -24- changes in shareholder equity of the Servicer and its Subsidiaries for such fiscal year, together with comparative information for the previous fiscal year, and copies of all reports and management letters, if any, from the independent certified public accountants to the Servicer, which reports and letters shall be reasonably satisfactory to the Bank, all certified by the chief financial officer of the Servicer; (iii) Promptly upon obtaining knowledge of the occurrence of each Default and Event of Default continuing on the date of such statement, a statement of the chief financial officer of the Borrower or the Servicer, as applicable, setting forth details of such Default or Event of Default and the action which the Borrower or the Servicer, as applicable, has taken and proposes to take with respect thereto; (iv) In the case of the Borrower only, (x) at least once every ten (10) Business Days, a Borrowing Base Certificate, together with such supporting documents as the Bank requests (provided that this reporting requirement may be satisfied for such a period by the Borrower's delivery of a Borrowing Base Certificate in accordance with SECTION 2.01(b) in connection with a Borrowing during such period) and (y) on or before the tenth day of each calendar month (or such more frequent period as the Bank shall determine in its sole discretion), a schedule of activity for the Receivables for the preceding calendar month, which sets forth (1) the aggregate principal amount of Receivables, (2) an Aging Receivable Report setting forth the aggregate principal amount of Receivables which are delinquent and the number of days payments on such Receivables are delinquent, and (3) any other pertinent information reasonably requested by the Bank, all certified as being true, accurate and complete by the chief financial officer of the Borrower. (v) Promptly upon receipt thereof, copies of any notices, reports (financial or other) or other information required to be delivered to the Borrower by Atlantic Auto pursuant to the AAFC Purchase Agreement, -25- by UAG pursuant to the Support Agreement or by the Custodian pursuant to the Custodial Agreement; (vi) Such other information respecting the condition or operations, financial or otherwise, of the Borrower or the Servicer, as applicable, as the Bank may from time to time reasonably request; and (vii) together with each delivery of any financial statement pursuant to subsection (i) and (ii) hereof, a certificate from the chief financial officer of the Borrower or the Servicer, as applicable, containing a statement that no Default or Event of Default has occurred and is continuing on the date of such certificate, or if any such Default or Event of Default has occurred, setting forth details of such Default or Event of Default and the action which the Borrower or the Servicer, as applicable, has taken and proposes to take with respect thereto. (i) COMPLIANCE WITH FINANCING AGREEMENTS. Comply promptly with any and all covenants and provisions of the Financing Agreements to which it is a party. (j) MAINTENANCE OF INSURANCE. (i) In the case of the Servicer only, maintain and keep in force insurance in amounts and with companies as is customary for companies engaged in the same business as that of the Servicer. (ii) In the case of the Borrower only, pay or cause to be paid all annual insurance premiums with respect to the VSI Policy and all charges and fees relating thereto. (k) MAINTENANCE OF INDEPENDENT DIRECTOR. The Borrower will maintain at least one independent director who is not an officer, director or employee of (i) Atlantic Auto or (ii) any Affiliate thereof, or a parent, child, spouse or sibling of any such Person; PROVIDED, HOWEVER, that if such independent director dies or resigns the Borrower shall have thirty (30) Business Days to replace that person with another independent director; PROVIDED, FURTHER, HOWEVER, -26- that until any such independent director shall have been replaced the Borrower shall take no action requiring the vote or consent of its independent director. SECTION 1.042. NEGATIVE COVENANTS OF THE BORROWER. Until the later of (i) the date on which all of the Obligations have been paid in full and (ii) the Termination Date, the Borrower will not, without the written consent of the Bank: (a) Merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to, acquire all or substantially all of the assets of, any Person or division of any Person or materially change the nature or conduct of its business as conducted on the date hereof other than pursuant to or as permitted by this Agreement and any Financing Agreement. (b) Incur, create, assume, suffer to exist or otherwise become liable with respect to any Debt other than the Loans, its obligations under any Financing Agreement, its obligations under any Permitted Securitization Transaction and Debt for operational expenses of the Borrower in an amount not to exceed $25,000. (c) Amend, modify or otherwise change any of the terms or provisions in its articles/certificate of incorporation, its by-laws, any document setting forth the designation, amount, relative rights, limitations and preferences of any class or series of its capital stock, and in each case, any equivalent documents, as in effect on the date hereof. (d) (i) Cancel or terminate the AAFC Purchase Agreement or the Custodial Agreement or consent to or accept any cancellation or termination of either agreement, (ii) amend or otherwise modify any term or condition of the AAFC Purchase Agreement or the Custodial Agreement or give any consent, waiver or approval under either agreement, (iii) waive any default under or breach of the AAFC Purchase Agreement or the Custodial Agreement or (iv) take any other action under the AAFC Purchase Agreement or the Custodial Agreement not required by the terms thereof. -27- (e) Use the proceeds of any Loan for any purpose other than the purchase of Receivables, repayment of the outstanding Loans and the payment of any transaction costs associated therewith. (f) Except in accordance with the Credit and Collection Policy and in the ordinary course of business, compromise, extend, release or adjust payments on any Contracts or Receivables, accept a conveyance of an Automobile in full or partial satisfaction of any Contract or Receivable, or release the Lien noted on any Title to any Automobile securing any Receivable unless, after excluding each Receivable with respect to which any such action has been taken from the calculation of the Borrowing Base, the Borrowing Base exceeds the aggregate principal amount of Loans outstanding. (g) Change the location of its chief executive office and principal place of business from 800 Perinton Hills Office Park, Fairport, New York 14450 or change its name, identity or corporate structure to such an extent that any financing statement filed in connection with this Agreement would become misleading, unless the Borrower shall have given the Bank at least 30 days' prior written notice thereof and prior to effecting any such change, taken such steps as the Bank may deem necessary or desirable to continue the perfection and priority of the Liens in favor of the Bank granted in connection herewith. (h) (i) Fail to do all things necessary to maintain its existence as a corporation separate and apart from Atlantic Auto and any Affiliate of Atlantic Auto, and any Affiliate of the Borrower, including, without limitation, conducting business correspondence in its own name, holding regular meetings of, or obtaining regular written consents from, its Board of Directors and maintaining appropriate books and records; (ii) suffer any limitation on the authority of its own directors and officers to conduct its business and affairs in accordance with their independent business judgment, or authorize or suffer any Person other than its own directors and officers to act on its behalf with respect to matters (other than matters customarily delegated to others under powers of attorney) for which a corporation's own directors and officers would customarily -28- be responsible; (iii) fail to (A) subject to the terms of the Custodial Agreement, maintain or cause to be maintained by an agent of the Borrower under the Borrower's control physical possession of all its books and records, (B) maintain capitalization adequate for the conduct of its business, (C) account for and manage its liabilities separately from those of any other Person, including, without limitation, payment of all payroll and other administrative expenses and taxes from its own assets, (D) segregate and identify separately all of its assets from those of any other Person, and (E) maintain offices through which its business is conducted separate from those of Atlantic Auto and any Affiliates of Atlantic Auto and any Affiliates of the Borrower (PROVIDED that, to the extent that the Borrower and any of its Affiliates have offices in the same location, there shall be a fair and appropriate allocation of overhead costs and expenses among them, and each such entity shall bear its fair share of such expenses); or (iv) commingle its funds with those of Atlantic Auto or any Affiliate of Atlantic Auto or any Affiliates of the Borrower except to the extent permitted by ARTICLE V, or use its funds for other than the Borrower's uses. SECTION 1.043. NEGATIVE COVENANTS OF THE SERVICER. Until the later of (i) the date on which all of the Obligations have been paid in full and (ii) the Termination Date, the Servicer will not, without the written consent of the Bank: (a) Merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to, acquire all or substantially all of the assets of, any Person or division of any Person or materially change the nature or conduct of its business as conducted on the date hereof. (b) Amend, modify or otherwise change any of the terms or provisions in its articles/certificate of incorporation, its by-laws, any document setting forth the designation, amount, relative rights, limitations and preferences of any class or series of its capital stock, and in each case, any equivalent documents, as in effect on the date hereof. -29- (c) Compromise, extend, release or adjust payments on any Contracts or Receivables, accept a conveyance of an Automobile in full or partial satisfaction of any Contract or Receivable, or release the Lien noted on any Title to any Automobile securing any Receivable, except to the extent permitted in SECTION 4.02(f) with respect to the Borrower. ARTICLE V COLLATERAL; ADMINISTRATION AND COLLECTION Section 1.051. SECURITY INTEREST. To secure the prompt and complete payment, observance and performance of all of the Obligations, subject to the terms of the Intercreditor Agreement, the Borrower hereby grants to the Bank a security interest in all of the Borrower's right, title and interest in and to the following property, whether now owned or existing or hereafter arising or acquired and wheresoever located (the "Collateral"): (a) All of the Borrower's right, title and interest in and to the Receivables and the Related Security with respect to such Receivables. (b) All Records relating to the Receivables, the Contracts, the Titles, and the Automobiles, whether now or hereafter delivered to, or in the possession, custody or control of, the Custodian, Atlantic Auto and/or the Bank. (c) All guarantees, indemnities, warranties, insurance policies and proceeds thereof and other agreements or arrangements of whatever character from time to time supporting or securing payment of the Receivables whether pursuant to the related Contract or otherwise. (d) All right, title and interest of the Borrower in and to the Lock- Box Accounts, and any and all items deposited therein and all investments held therein; PROVIDED, HOWEVER, that the Bank shall have no interest in any collections of Originator Receivables deposited in the Lock-Box Accounts. -30- (e) Any and all interest of the Borrower in and under the AAFC Purchase Agreement and the Support Agreement. (f) All Collections and other cash and non-cash proceeds of the foregoing items (a) - (d) and the documents pertaining thereto, together with whatever is receivable or received when any of items (a) - (d) or the proceeds thereof are sold, collected or exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary and also including, without limitation, all rights to payment with respect to any cause of action affecting or relating to the foregoing and all additions thereto, substitutions therefor and replacements thereof. Section 1.052. POWER OF ATTORNEY. Subject to the terms and provisions of this Agreement and the Intercreditor Agreement, at any time, without notice and at the expense of the Borrower, the Bank may, and the Borrower hereby appoints the Bank its true attorney-in-fact (such agency being coupled with an interest) for such purposes, upon the occurrence of an Event of Default, perform any obligation of the Borrower hereunder in the Borrower's name or otherwise. Section 1.053. REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. (a) The Borrower represents and warrants with respect to each Receivable identified on each Borrowing Base Certificate as an "Eligible Receivable", as of the date of such Borrowing Base Certificate, as follows: (i) The Obligor of such Receivable is a U.S. resident. (ii) Such Receivable is not a Defaulted Receivable. (iii) Such Receivable is evidenced by a Contract which matures in 75 months or less. (iv) Such Receivable arose pursuant to a Contract which constitutes "chattel paper" within the meaning of Section 9-105 of the UCC. (v) Such Receivable is denominated in Dollars and payable in the United States. -31- (vi) Such Receivable arose under a Contract which represents the legal, valid and binding obligation of the related Obligor under such Contract and is not subject to any dispute, offset, counterclaim or defense, except as provided for under state or federal consumer protection law. (vii) Such Receivable and related Contract do not contravene applicable laws, rules or regulations concerning, without limitation, such matters as usury, consumer protection, truth in lending, fair credit billing and equal credit opportunity. (viii) Such Receivable arose under a Contract for the retail sale of an Automobile where such Automobile has already been delivered and the Obligor under such Contract is not in default under the terms of the Contract. (ix) Such Receivable satisfies all applicable requirements of Atlantic Auto's Credit and Collection Policy. (x) The related Obligor received a Fair Isaac Score (as defined in the Credit and Collection Policy) of at least 160. (xi) Such Receivable or Contract has not been assigned or pledged by Atlantic Auto or the Borrower except pursuant to the terms of the AAFC Purchase Agreement and this Agreement, the Borrower has good and marketable title thereto, and the Borrower is the sole legal and beneficial owner thereof and has full right to transfer, sell and encumber the same free and clear of any Lien except as created in favor of the Bank pursuant to the terms of this Agreement and as contemplated by the Intercreditor Agreement. (xii) To the best of the Borrower's knowledge, after diligent inquiry, there is no default, breach, violation or event of acceleration existing under the related Contract, and there is no event which, with the passage of time, or with notice and the expiration of any grace or cure period, would constitute a default, breach, violation or event of acceleration, and the Borrower has not waived any default, breach, violation or event of acceleration. -32- (xiii) The related Contract contains customary and enforceable provisions so as to render the rights and remedies of the holder thereof against the property subject to such Contract adequate for the realization of the benefits of the security provided thereby, including all the rights of a secured party under the Uniform Commercial Code as in effect in the state in which the related Obligor resides or such Contract was executed. (xiv) The related Contract is not secured by any collateral, except the Lien with respect to the corresponding Automobile as noted on the related Title. (xv) At the time a Lien with respect to the Automobile was granted by the related Obligor, the Automobile was and is free of material damage and is in good repair. (xvi) Atlantic Auto is the lienholder of record on the related Title. (xvii) The related Obligor maintains casualty and liability insurance for the Automobile in accordance with the Credit and Collection Policy. (b) In addition, the Borrower represents and warrants with respect to the Collateral as follows: (i) The Custodian's Confirmation required to be delivered under SECTION 2.01(b) has been delivered to the Bank prior to each advance made hereunder and Atlantic Auto has retained (i) all documents relating to the Receivables not delivered to the Custodian and (ii) a copy of each Contract File. (ii) The Borrower's chief executive office and principal place of business are located at 800 Perinton Hills Office Park, Fairport, New York 14450 and Atlantic Auto's chief executive office and principal place of business are located at 800 Perinton Hills Office Park, Fairport, New York 14450. (iii) The origination and collection practices used by Atlantic Auto with respect to each Receivable have been, and -33- are, in all respects legal and prudent and comply with all requirements of the Credit and Collection Policy. (iv) The transfer, assignment and conveyance of the Contracts by Atlantic Auto to the Borrower pursuant to the AAFC Purchase Agreement are not subject to any bulk transfer or similar statutory provisions in effect in any applicable jurisdiction. Section 1.054. COVENANTS WITH RESPECT TO THE COLLATERAL. (a) Each of the Borrower and the Servicer shall comply with any and all requirements of any federal, state or local law applicable to the Contracts, including, without limitation, all consumer protection laws. (b) The Borrower shall keep the Collateral, or cause the Collateral to be kept, in accordance with safe and sound business practices. (c) The Borrower shall not sell, assign, pledge, grant or suffer to exit any Lien on, transfer, dispose of or otherwise encumber any of the Collateral except for (i) the Liens securing the Obligations and (ii) sales of Receivables pursuant to the Receivables Purchase Agreement or a Permitted Securitization Transaction. Section 1.055. RELEASE OF RECEIVABLES AND LIENS WITH RESPECT TO AUTOMOBILES. (a) Whether or not an Event of Default exists, in the event that any Receivable is to be paid or prepaid in full, the Custodian shall release the corresponding Contract and Title to the Servicer for further delivery to the Obligor under such Receivable; PROVIDED, HOWEVER, that the Servicer hereby agrees (i) to hold any such Contract and Title in trust for the benefit of the Bank and to segregate such Contract and Title from any other property belonging to the Servicer until such Receivable has been paid or prepaid in full and such payment has been deposited in a Lock-Box Account; and (ii) to return such Contract and Title to the Custodian within twenty (20) days of the Custodian's release thereof if such Receivable has not been paid or prepaid by such time. -34- (b) Whether or not an Event of Default exists, in the event that the Borrower requests of the Bank and the Custodian that any Contracts which are to be canceled in connection with a foreclosure, deed in lieu of foreclosure or other similar proceeding, be delivered to the Servicer prior to such event, the Custodian shall release such Contracts and all related documents to the Servicer; PROVIDED, HOWEVER, that the Servicer hereby agrees to segregate and hold such Contracts and related documents together with all proceeds thereof in trust for the benefit of the Bank, and such Contracts, related documents and proceeds thereof shall remain Collateral hereunder. (c) In connection with any sale by the Borrower of any Receivable pursuant to the Receivables Purchase Agreement or a Permitted Securitization Transaction, the Bank shall release its Lien in such Receivable and the related Contract and Title upon the terms and subject to the conditions set forth in the Intercreditor Agreement; PROVIDED, HOWEVER, that nothing in this SECTION 5.05(c) shall be deemed to constitute a release by the Bank of (i) its Lien on the proceeds received by the Borrower for the sale, purported sale or other transfer of any such Receivable pursuant to the Receivables Purchase Agreement or (ii) any Lien or other interest or right the Bank has in any "Unsold Receivables" (as defined in the Intercreditor Agreement) and the proceeds thereof, including without limitation, collections of Unsold Receivables which are at any time deposited in any Lock-Box Account. Section 1.056. LOCK-BOX AGENT; UCC AGENT. (a) CNAI is hereby designated as the Lock-Box Agent. Each of Atlantic Auto and the Borrower agrees to enter into a Lock-Box Agreement with each Lock-Box Bank and the Lock-Box Agent on or prior to the Closing Date or as promptly thereafter as practicable and, in any event, no later than August 5, 1995. (b) CNAI is hereby designated as the UCC Agent. Section 1.057. DESIGNATION OF SERVICER. The servicing, administering and collection of the Receivables shall be conducted by the Person (the "Servicer") so designated from time to time in accordance with this SECTION 5.07. Until the Borrower or the Bank, as applicable, gives notice to Atlantic Auto of the designation of a new Servicer, Atlantic Auto is hereby designated as, and hereby agrees to perform the duties and obligations of, -35- the Servicer pursuant to the terms hereof. The Borrower, in accordance with Section 6.01 of the AAFC Purchase Agreement and with the prior written consent of the Bank, at any time prior to the occurrence of an Event and the Bank at any time following the occurrence of an Event of Default, may designate as Servicer any Person to succeed Atlantic Auto or any successor Servicer, on the condition that any such Person so designated shall agree to perform the duties and obligations of the Servicer pursuant to the terms hereof. The Servicer may, with the prior consent of the Borrower and the Bank, subcontract with any other Person for servicing, administering or collecting the Receivables, provided that the Servicer shall remain liable for the performance of the duties and obligations of the Servicer pursuant to the terms hereof. The charges, fees or reimbursements for services provided by the Servicer hereunder shall be determined by mutual agreement of the Servicer and the Borrower and shall be paid by the Borrower. The Bank's exercise of any of its rights with respect to the Servicer created under this SECTION 5.07 shall in each case be subject to the terms of the Intercreditor Agreement. Section 1.058. DUTIES OF THE SERVICER. (a) The Servicer shall take or cause to be taken all such actions as may be necessary or advisable to collect each Receivable from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy. Each of the Borrower and the Bank hereby appoints as its agent the Servicer, from time to time designated pursuant to SECTION 5.07, to enforce its respective rights and interests in and under the Receivables, the Related Security and Collections with respect thereto. Atlantic Auto (so long as it is Servicer) will at all times apply the same standards and follow the same procedures with respect to the decision to commence, and in prosecuting and litigating with respect to Receivables as it applies and follows with respect to Originator Receivables. In no event shall the Servicer be entitled to make the Bank or the Borrower a party to any litigation without the Bank's express prior written consent. (b) On each day prior to the Termination Date, the Servicer shall set aside and hold in trust for the Bank (to the extent of its interest therein determined in accordance with the Intercreditor Agreement) all Collections of Receivables received on such day. Subject to the terms of the Intercreditor Agreement, within two (2) Business days of deposit into the Lock- -36- Box Account of such Collections the Servicer shall identify such Collections and apply such Collections in the following order of priority: (i) if such Collections are collections of Originator Receivables, the Servicer shall remit such collections to Atlantic Auto in accordance with Section 5.08(d); (ii) if such Collections are Collections of Receivables and payment of any amount is due the Bank under any provision of this Agreement, the Servicer shall apply such Collections to the payment of such amount in accordance with SECTION 2.03(d); and (iii) all Collections remaining after giving effect to clauses (i) and (ii) above shall be remitted to (x) if no Event of Default has occurred and is continuing, the Borrower or (y) if an Event of Default has occurred and is continuing, the Bank to prepay outstanding Loans in accordance with SECTION 2.03(d). (c) Provided that the Termination Date shall not have occurred, Atlantic Auto, while it is Servicer, may, in accordance with the Credit and Collection Policy and in the ordinary course of business, amend, modify or waive any term or condition of any Contract unless such amendment, modification or waiver relates to a negative change in the related Obligor's creditworthiness or inability to make any payment under the related Contract. Atlantic Auto shall deliver to the Servicer, and the Servicer shall hold in trust for the Borrower and the Bank in accordance with their respective interests (determined in accordance with the Intercreditor Agreement), all Records. Notwithstanding anything to the contrary contained herein but subject to the terms of the Intercreditor Agreement, following the occurrence of an Event of Default, the Bank shall have the absolute and unlimited right to direct the Servicer (whether the Servicer is Atlantic Auto or otherwise) to commence or settle any legal action to enforce collection of any Receivable or to foreclose upon or repossess any Related Security. (d) The Servicer shall as soon as practicable following receipt turn over to Atlantic Auto the collections of any Originator Receivable less, in the event Atlantic Auto is not the Servicer, all reasonable and appropriate out-of- pocket -37- costs and expenses of such Servicer of servicing, collecting and administering the Originator Receivables to the extent not covered by the servicer fee received by it. The Servicer, if other than Atlantic Auto, shall as soon as practicable upon demand deliver to Atlantic Auto all records in its possession relating to Originator Receivables and copies of Records in its possession relating to Receivables. The Servicer's authorization under this Agreement shall terminate after the Termination Date on such date as the Receivables shall have been collected or charged off as uncollectible. (e) Notwithstanding anything to the contrary contained in this ArticleV, the Servicer, if the Bank or its designee, shall have no obligation to collect, enforce or take any other action described in this Article V with respect to any Originator Receivable other than to deliver to Atlantic Auto the collections and documents with respect to any such Originator Receivable as described in the first two sentences of SECTION 5.08(d) and to exercise the same degree of care with respect to such collections and documents in its possession as it would with respect to its own property. Section 1.059. RIGHTS OF THE BANK. (a) Subject to the terms of the Intercreditor Agreement, the Bank is hereby authorized at any time to instruct the Lock-Box Agent to notify any or all of the Lock-Box Banks to remit all Collections of Receivables deposited in such Lock-Box Accounts directly to the Lock-Box Agent. The Lock-Box Agent agrees that it will identify and apply Collections in accordance with SECTION 5.08(b) if the Bank exercises the foregoing right. Each of the Servicer and the Borrower agrees to supply the Lock-Box Agent with all Records necessary for the Lock-Box Agent to perform its obligation set forth in the preceding sentence. (b) Subject to the terms of the Intercreditor Agreement, at any time following the designation of a Servicer other than Atlantic Auto pursuant to SECTION 5.07: (i) The Bank may notify at any time the Obligors of Receivables, or any of them, of its interest in such Receivables and direct such Obligors, or any of them, that payment of all amounts payable under any Receivable be made directly to the Bank or its designee. -38- (ii) Atlantic Auto shall, at the Bank's request and at Atlantic Auto's expense, give notice of the Bank's interest in Receivables to each Obligor and direct that payments be made directly to the Bank or its designee. (iii) Atlantic Auto shall, at the Bank's request, (A) assemble all Records which the Bank reasonably believes are necessary or appropriate for the administration and enforcement of the Receivables, and shall make the same available to the Bank at a place selected by the Bank or its designee, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections of Receivables in a manner acceptable to the Bank and shall, promptly upon receipt, remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to the Bank or its designee. (iv) Atlantic Auto hereby authorizes the Bank to take any and all steps in Atlantic Auto's name and on behalf of Atlantic Auto necessary or desirable, in the determination of the Bank, to collect all amounts due under any and all Receivables, including, without limitation, endorsing Atlantic Auto's name on checks and other instruments representing Collections and enforcing such Receivables and the related Contracts. Section 5.10. RESPONSIBILITIES OF THE BORROWER. Anything herein to the contrary notwithstanding, the Borrower shall (i) perform all of its obligations under the Contracts related to the Receivables and the exercise by the Bank of its rights hereunder shall not relieve the Borrower from such obligations and (ii) pay when due any taxes, including without limitation, sales, excise and personal property taxes payable in connection with the Receivables, unless the Borrower is contesting the payment of such taxes in good faith and by appropriate proceedings. Section 5.11. APPLICATION OF PAYMENTS. To the extent the Servicer receives a payment from an Obligor of a Receivable with respect to which the Obligor has not identified the Receivable to which such payment should be applied (a payment in -39- the exact amount of an outstanding invoice being sufficient identification), the Servicer shall use its best efforts to contact such Obligor to confirm the Receivable to which such Obligor intended that such payment be applied. ARTICLE VI EVENTS OF DEFAULT SECTION 1.061. EVENTS OF DEFAULT. If any of the following Events of Default shall occur and be continuing: (a) The Borrower shall fail to pay any principal of the Note when the same becomes due and payable; or (b) The Borrower shall fail to pay any interest on the Note or any other amount payable with respect to which the Borrower has knowledge hereunder or under any of the other Loan Documents when the same becomes due and payable and such non-payment continues for a period of more than five (5) days; or (c) Any representation or warranty made by the Borrower herein (other than those made in SECTION 5.03(a)), in the other Loan Documents, in any Financing Agreement to which it is party or in any certificate, agreement or written statement contemplated by or made and delivered to the Bank in connection with this Agreement shall prove to have been incorrect in any material respect when made; or (d) The Borrower shall default in the performance or compliance with any term contained in this Agreement (other than as covered by paragraphs (a), (b) or (c) of this SECTION 6.01) or any default or event of default shall occur under any of the other Loan Documents or any Financing Agreement to which it is a party and such default or event of default continues for a period of more than thirty (30) days after notice thereof; or (e) The Borrower shall fail to pay any principal of or premium or interest on any Debt (but excluding indebtedness evidenced by the Note) in a principal amount of at least 40 $100,000 when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (f) The Borrower shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of the Borrower or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for the Borrower or for any substantial part of its property and, in the case of any such proceeding instituted against the Borrower (but not instituted by the Borrower), either such proceeding shall remain undismissed or unstayed for a period of 45 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, the Borrower or for any substantial part of its property) shall occur; or the Borrower shall take any corporate action to authorize any of the actions set forth above in this subsection (f); or -41- (g) Any judgment or order for the payment of money in excess of $100,000 (excluding amounts covered by insurance) shall be rendered against the Borrower and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of ten consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (h) At any time, for any reason, (i) any Loan Document ceases to be in full force and effect or the Borrower seeks to repudiate its obligations thereunder and the Liens intended to be created thereby are, or the Borrower seeks to render such Liens, invalid and unperfected, or (ii) Liens in favor of the Bank contemplated by the Loan Documents shall, at any time, for any reason, be invalidated or otherwise cease to be in full force and effect, or such Liens shall be subordinated or shall not have the priority contemplated by this Agreement or the other Loan Documents; or (i) The Borrower shall fail to be a wholly-owned Subsidiary of Atlantic Auto; or (j) The Net Worth of the Borrower shall be less than $100,000; or (k) Any representation or warranty made by the Servicer herein, in any Financing Agreement to which it is a party or in any certificate, agreement or written statement contemplated by or made and delivered to the Bank in connection with this Agreement shall prove to have been incorrect in any material respect when made; or (l) The Servicer shall default in the performance or compliance with any term contained in this Agreement (other than as covered by paragraph (k) of this SECTION 6.01) or any default or event of default shall occur under any Financing Agreement to which it is a party and such default or event of default continues for a period of more than thirty (30) days after notice thereof; or (m) The Servicer shall fail to pay any principal of or premium or interest on any Debt in a principal amount of at least $100,000 when the same becomes due and payable -42- (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (n) The Servicer shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Servicer seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of the Servicer or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for the Servicer or for any substantial part of its property and, in the case of any such proceeding instituted against the Servicer (but not instituted by the Servicer), either such proceeding shall remain undismissed or unstayed for a period of 45 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, the Servicer or for any substantial part of its property) shall occur; or the Servicer shall take any corporate action to authorize any of the actions set forth above in this subsection (n); or (o) (i) The occurrence of a default, breach or failure of condition by the Borrower or Atlantic Auto under any -43- Financing Agreement to which the Borrower or Atlantic Auto is a party which (unless such default otherwise constitutes an Event of Default pursuant to another provision of this SECTION 6.01) is not remedied within the applicable cure period contained therein, if any; or (ii). the Borrower or Atlantic Auto for any reason fails to remain a party to the AAFC Purchase Agreement or any other Financing Agreement to which the Borrower or Atlantic Auto is a party on the date hereof; or (p) (i) Any of the Financing Agreements, or any Lien or priority claim granted thereunder shall terminate, cease to be effective or cease to be the legal, valid, binding and enforceable obligation of the Borrower, Atlantic Auto or any servicer or subservicer, as applicable, thereunder; or (ii) the Borrower shall, directly or indirectly, contest in any manner such effectiveness, validity, binding nature or enforceability (it being understood that the Borrower may, in good faith, question the accuracy of any mathematical calculation of an amount owed thereunder); or (q) The VSI Policy shall cease to be in full force and effect; or (r) Atlantic Auto ceases to be qualified to do business as a foreign corporation in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of any of the Receivables or the AAFC Purchase Agreement or the ability of Atlantic Auto to perform its duties hereunder or under the AAFC Purchase Agreement; or (s) The occurrence of an Event of Termination (as defined in the Committed Receivables Purchase Agreement) under the Committed Receivables Purchase Agreement which is not remedied within the applicable cure period specified therein, if any; or (t) (i) The Support Agreement shall terminate, cease to be effective or cease to be the legal, valid, binding and enforceable obligation of UAG; (ii) UAG shall, directly or indirectly, contest in any manner such effectiveness, validity, binding nature or enforceability; or (iii) UAG shall default in the performance or compliance with any term -44- contained in the Support Agreement which is not remedied within the applicable cure period contained therein, if any; then, and in any such event, the Bank may, by notice to the Borrower, declare the Note, all interest thereon and all of the Obligations to be forthwith due and payable, whereupon the Note, all such interest and all of the Obligations shall become and be forthwith due and payable, without presentment, demand, protest, or further notice of any kind, all of which are hereby expressly waived by the Borrower; PROVIDED, HOWEVER, that in the event of an actual or deemed entry of an order for relief with respect to the Borrower or the Servicer under the Federal Bankruptcy Code, the Loans, the Note, all such interest and all the Obligations shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. Notwithstanding any other rights the Bank may have under applicable law and hereunder, the Borrower agrees that upon the occurrence and during the continuance of an Event of Default, the Bank shall have the right to take any or all of the following actions at the same or different times: with or without legal process and with or without previous notice or demand for performance, to take possession of the Collateral and without liability for trespass to enter any premises where the Collateral may be located for the purpose of taking possession of or removing the Collateral and to apply (including by way of set-off) any of the Collateral or any other property of the Borrower held by the Bank or thereafter coming into the Bank's possession (including account balances of the Borrower) to a reduction of the Obligations of the Borrower and, generally, to exercise any and all rights afforded to a secured party under the UCC or other applicable law. ARTICLE VII MISCELLANEOUS SECTION 1.071. AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement or the Note, nor consent to any departure by the Borrower or the Servicer therefrom, shall in any event be effective unless the same shall be in writing and signed by the Bank, and then such waiver or consent shall be effective only in -45- the specific instance and for the specific purpose for which given. SECTION 1.072. NOTICES, ETC. (a) All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic, telex or cable communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered, if to the Borrower, at its address at 800 Perinton Hills Office Park, Fairport, New York 14450, Attention: Robert Anderson, Secretary and Treasurer, Telecopier No. 716/421-1954; if to the Servicer, at its address at 800 Perinton Hills Office Park, Fairport, New York 14450, Attention: Suzanne O'Connor, Treasurer, Telecopier No. 716/421-1954; and if to the Bank, at its address at 399 Park Avenue, New York, New York 10043, Attention: Reinhard Kleinschmitt, Telecopier No. (212) 758-6272; or, as to each party, at such other address as shall be designated by such party in a written notice to the other party. All such notices and communications shall, when mailed, telecopied, telegraphed, telexed or cabled, be effective when deposited in the mails, telecopied, delivered to the telegraph company, confirmed by telex answerback or redelivered to the cable company, respectively, except that notices to the Bank pursuant to the provisions of Article II shall not be effective until received by the Bank. The Bank shall be entitled to rely conclusively on any written notice sent to it by telecopy. (b) The Borrower agrees to indemnify and hold harmless each Indemnitee from and against any and all claims, damages, liabilities, obligations, losses, penalties, actions, judgments, suits, costs, disbursements and expenses of any kind or nature (including, without limitation, reasonable fees and disbursements of counsel to any such Indemnitee) which may be imposed on, incurred by or asserted against any such Indemnitee in any manner relating to or arising out of any action taken or omitted by such Indemnitee in good faith in reliance on any notice or other written communication in the form of a telecopy or facsimile purporting to be from the Borrower; PROVIDED that the Borrower shall not have any obligation under this SECTION 7.02(b) to an Indemnitee with respect to any indemnified matter caused by or resulting from the gross negligence or willful misconduct of that Indemnitee as finally determined by a court of competent jurisdiction. SECTION 1.073. NO WAIVER; REMEDIES. No failure on the part of the Bank to exercise, and no delay in exercising, any -46- right hereunder or under the Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 1.074. ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistently applied. SECTION 1.075. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all reasonable costs and expenses in connection with the preparation, execution, delivery, administration, modification and amendment of this Agreement, the Note and the other Loan Documents, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Bank with respect thereto and with respect to advising the Bank as to its rights and responsibilities under this Agreement. The Borrower further agrees to pay after an Event of Default on demand all costs and expenses, if any (including reasonable counsel fees and expenses), (i) in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement, the Note and the other Loan Documents, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of rights under this SECTION 7.05; (ii) in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or in any insolvency or bankruptcy proceeding; and (iii) in commencing, defending or intervening in any litigation or in filing a petition, complaint, motion or other pleadings in any legal proceeding relating to the Obligations, the Collateral, the Borrower and related to or arising out of the transactions contemplated hereby or by any of the other Loan Documents. In addition, the Borrower shall pay any and all stamp and other taxes (other than those taxes excluded pursuant to SECTION 2.07) payable or determined to be payable in connection with the execution and delivery of this Agreement, the Note and the other Loan Documents to be delivered hereunder, and agrees to save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. -47- SECTION 1.076. RIGHT OF SET-OFF. Subject to the terms and conditions of the Intercreditor Agreement, upon the occurrence and during the continuance of an Event of Default, the Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Bank to or for the credit or the account of the Borrower against any and all of the Obligations of the Borrower now or hereafter existing, whether or not the Bank shall have made any demand under this Agreement, the Note or any other Loan Document and although such Obligations may be unmatured. The Bank agrees promptly to notify the Borrower after any such set-off and application, PROVIDED that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Bank under this SECTION 7.06 are in addition to other rights and remedies (including, without limitation, other rights of set- off) which the Bank may have. SECTION 1.077. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Bank. The Bank may assign all or a portion of its rights and obligations under this Agreement to an institution with a comparable credit rating upon notice to the Borrower and the Bank may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, Obligations owing to it and the Note held by it) in favor of any Federal Reserve bank in accordance with Regulation A of the Federal Reserve Board. SECTION 1.078. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 1.079. ENTIRE AGREEMENT; SEVERABILITY OF PROVISIONS. This Agreement, taken together with all of the other Loan Documents, embodies the entire agreement and understanding of the parties hereto and all prior agreements and understandings, written and oral, relating to the subject matter -48- hereof. In case any provision in or obligation under this Agreement or the other Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 7.10 INDEMNIFICATION. The Borrower agrees to indemnify the Bank and its Affiliates and each of their respective stockholders, directors, officers, agents, attorneys and employees, and the successors and assigns of the foregoing (collectively, "Indemnitees"), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against any Indemnitee in any way relating to or arising out of the Loan Documents, any Financing Agreement or any related transactions (whether actual or proposed), or any action taken or omitted by the Bank under the Loan Documents or any Financing Agreement, PROVIDED that the Borrower shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the breach by the Bank of any agreement contained herein or the gross negligence or wilful misconduct of such Indemnitee as finally determined by a court of competent jurisdiction. The foregoing agreements shall survive the making and repayment of the Loans. SECTION 7.11. TERMINATION OF AGREEMENT. This Agreement may be terminated by either the Bank or the Borrower upon 3 days' prior written notice to the other party hereto, and, in the case of termination by the Borrower, payment in full of the Obligations on the Termination Date. No such termination shall affect the obligations of the Borrower with respect to the Loans hereunder outstanding at the time of such termination. SECTION 7.12. GOVERNING LAW. This Agreement and the Note shall be governed by, and construed in accordance with, the laws of the State of New York (including, without limitation, Section 5-1401 of the General Obligations Law of New York but otherwise without regard to conflicts of laws principles). SECTION 7.13. CERTAIN CONSENTS AND WAIVERS OF THE BORROWER. -49- (a) PERSONAL JURISDICTION. EACH OF THE BORROWER, THE SERVICER AND THE BANK IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT SITTING IN NEW YORK, NEW YORK, AND ANY COURT HAVING JURISDICTION OVER APPEALS OF MATTERS HEARD IN SUCH COURTS, IN ANY ACTION OR PROCEEDING ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY LOAN DOCUMENT OR ANY FINANCING AGREEMENT, WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE BORROWER, THE SERVICER AND THE BANK AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. EACH OF THE BORROWER AND THE SERVICER WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE. (b) SERVICE OF PROCESS. EACH OF THE BORROWER AND THE SERVICER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER'S OR THE SERVICER'S, AS APPLICABLE, NOTICE ADDRESS SPECIFIED HEREIN, SUCH SERVICE TO BECOME EFFECTIVE FIVE (5) DAYS AFTER SUCH MAILING. EACH OF THE BORROWER AND THE SERVICER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY FINANCING AGREEMENT IN ANY JURISDICTION SET FORTH ABOVE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE BANK TO BRING PROCEEDINGS AGAINST THE BORROWER OR THE SERVICER IN THE COURTS OF ANY OTHER JURISDICTION. (c) WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE BANK IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY FINANCING AGREEMENT. -50- SECTION 7.14. EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall become effective when the Borrower, the Servicer and the Bank have executed this Agreement and the Bank shall have received each of the documents set forth on the List of Closing Documents attached hereto as EXHIBIT H. -51- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. ATLANTIC AUTO FUNDING CORPORATION By:/s/Suzanne A. O'Connor -------------------------- Name: Suzanne A. O'Connor Title: Vice President ATLANTIC AUTO FINANCE CORPORATION, as Servicer By:/s/Richard J. Harrison -------------------------- Name: Richard J. Harrison Title: President CITIBANK, N.A. By:/s/Christopher J. Kiernan -------------------------- Name: Christopher J. Kiernan Title: Vice President Acknowledged and Accepted: CITICORP NORTH AMERICA, INC. By:/s/Reinhard Kleinschmitt --------------------------- Name: Reinhard Kleinschmitt Title: Vice President EXHIBIT D FORM OF LOCKBOX AGREEMENT This Agreement, effective as of July __, 1995 is by and among Atlantic Auto Finance Corporation ("Atlantic"), Atlantic Funding Corporation ("AFC"), Citicorp North America, Inc., acting in its capacity as agent (the "Agent") and ______________________ (the "Lockbox Bank"). 1. Pursuant to a Receivables Purchase Agreement dated as of June 28, 1995 between Atlantic and AFC (the "AFC Purchase Agreement"), Atlantic has sold, and will hereafter sell, certain of Atlantic's auto loan receivables ("Receivables") to AFC. Pursuant to certain loan, security and purchase agreements (collectively, the "Citicorp Agreements") entered into, or to be entered into, among AFC, Atlantic, Citibank, N.A. ("Citibank"), CXC Incorporated, certain other financial institutions and the Agent (collectively, the "Secured Parties"), AFC has granted a security interest or transferred an ownership interest in the Receivables, including all proceeds thereof, to the Secured Parties. Atlantic has agreed to act as the servicer of the Receivables under the Citicorp Agreements (in such capacity, the "Servicer"). 2. In order to provide for the orderly collection and processing of the proceeds of the Receivables, Atlantic has established a Post Office Box with the United States Post Office (the "Lockbox"). In addition, Atlantic has established account no. ____________ at the Lockbox Bank (the "Account") into which collections remitted to the Lockbox are to be deposited. In connection with the AFC Purchase Agreement, Atlantic has transferred exclusive ownership and control of the Lockbox and the Account to AFC and in connection with the Citicorp Agreements, AFC has transferred exclusive ownership and control of the Account and the Lockbox to the Agent for the benefit of the Secured Parties. 3. The monies, checks, instruments and other items of payment mailed to the Lockbox and the funds deposited into the Account will not be subject to deduction, set-off, banker's lien, or any other similar right in favor of the Lockbox Bank or in favor of any person other than the Agent, except that returned or dishonored items may be charged back to the Account and netted against collections in accordance with the Lockbox Bank's usual practices. It is understood and agreed that all fees and charges associated with the establishment, maintenance and operation of the Lockbox, the Account and this Agreement shall be the responsibility of Atlantic. 4. Notwithstanding the transfer of ownership and control of the Lockbox and the Account described above, unless and until the Lockbox Bank is otherwise notified by the Agent as hereinafter set forth, the Lockbox Bank shall (i) collect and deposit into the Lockbox Account all monies, checks, instruments and other items of payment received in the Lockbox; (ii) transfer all funds deposited and collected in the Account pursuant to the instructions of Atlantic; and (iii) permit Atlantic and/or the Agent to obtain upon request any information relating to the Account and the Lockbox, including, without limitation, any information regarding the balance or activity of the Account. The Agent may, at any time by written notice to the Lockbox Bank, terminate the authority of Atlantic to direct transfers of funds in the Account pursuant to CLAUSE (II) above. Atlantic, AFC and the Agent hereby authorize and direct the Lockbox Bank, upon its receipt of such notice from the Agent, to remit by wire transfer to, or at the direction of, the Agent all funds in the Account from time to time in accordance with instructions from the Agent, and from and after the date of any such notice, the Agent shall be entitled to exercise any and all rights in respect of or in connection with the Account and the Lockbox. Under no circumstances shall the Lockbox Bank be obligated to make any independent inquiry whatsoever as to the Agent's right or authority to give the Lockbox Bank any instruction, order or direction with respect to the Lockbox or the items received therein, or as to the use the Agent makes of any monies deposited to the Account as herein provided. 5. This Agreement may not be terminated at any time by Atlantic, AFC or by Atlantic in its separate capacity as servicer for AFC or for the Agent, but may be terminated by either the Lockbox Bank upon 30 days' prior written notice to the Agent or by the Agent upon 30 days' prior written notice to the Lockbox Bank. 6. The Lockbox Bank will not assign or transfer its rights or obligations hereunder (other than to the Agent) without the prior written consent of the other parties hereto. Subject to the preceding sentence, this Agreement shall inure to the benefit of and be binding upon all parties hereto and their respective successors and assigns. 7. Any change, amendment, modification or waiver of this Agreement or any provision hereof will not be effective unless such change, amendment, modification or waiver is in writing and signed by all parties hereto. 8. All notices, demands, instructions and other communications required or permitted to be given to or made upon any party hereto shall be effective if communicated in writing and personally delivered or sent by registered, certified, express or regular mail, postage prepaid, return receipt requested, or by telex, telecopy (receipt promptly confirmed by telephone) or prepaid telegram (with messenger delivery specified in the case of a telegram) or by telephone (promptly confirmed in writing) and shall be deemed to be given for purposes of this Agreement on the day that such communication is delivered to the intended recipient thereof in accordance with the provisions of this paragraph. Unless otherwise specified in a notice sent or delivered in accordance with the foregoing provisions of this paragraph, notices, demands, instructions and other communications shall be given to or made upon the respective parties hereto at their respective addresses (or to their respective telex, telecopy or telephone numbers) indicated below, or at such other address as any party hereto may notify to the other parties in accordance with the provisions of this paragraph. 9. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be an original hereof, and it will not be necessary in making proof of this Agreement to produce or account for more than one counterpart hereof. 10. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, including, without limitation, Section 5-1401 of the General Obligations Law but otherwise without regard to conflict of laws principles. [Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers, all as of the day and year first written above. ATLANTIC AUTO FINANCE CORPORATION By: _____________________________ Title: __________________________ Address: ATLANTIC FUNDING CORPORATION By: _____________________________ Title: __________________________ Address: CITICORP NORTH AMERICA, INC., as Agent By: _____________________________ Title: Vice President Address: 450 Mamaroneck Avenue Harrison, New York 10528 LOCKBOX BANK By: _______________________ Title: ____________________ Address: EXHIBIT G [FORM OF NOTE] ATLANTIC AUTO FUNDING CORPORATION $5,000,000 June 28, 1995 New York, New York For value received, the undersigned, ATLANTIC AUTO FUNDING CORPORATION, a Delaware corporation (the "Borrower"), promises to pay to the order of Citibank, N.A. (the "Bank"), on the "Termination Date" (as defined in the "Loan Agreement" referred to below), the lesser of (i) the principal amount of FIVE MILLION DOLLARS ($5,000,000) or (ii) the unpaid principal amount of all amounts loaned by the Bank to the Borrower as Loans under the Loan Agreement. The Borrower also promises to pay interest on the unpaid principal amount of all Loans from the date advanced until paid at the rates (which shall not exceed the maximum rate permitted by applicable law) and at the times determined in accordance with the provisions of that certain Loan and Security Agreement dated as of June 28, 1995 among the Borrower, Atlantic Auto Finance Corporation, as Servicer, and the Bank (as amended, restated, supplemented or otherwise modified from time to time, the "Loan Agreement"). This Note is issued pursuant to, and is entitled to the benefits of, the Loan Agreement, to which reference is hereby made for a more complete statement of the terms and conditions under which the Loans evidenced hereby are made and are to be repaid. Terms defined in the Loan Agreement and not otherwise defined herein are used herein with the meanings so defined. All payments of principal and interest in respect of this Note shall be made to the Bank not later than 1:00 p.m. (New York time) on the date and at the place due, to the Bank's Account in lawful money of the United States of America in immediately available funds. This Note may be prepaid at the option of the Borrower as provided in SECTION 2.03(c) of the Loan Agreement and must be prepaid as provided in SECTION 2.03(a) of the Loan Agreement. THE LOAN AGREEMENT AND THIS NOTE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. Upon the occurrence of any one or more of certain Events of Default, the unpaid balance of the principal amount of this Note may become, and upon the occurrence and continuation of any one or more of certain other Events of Default, such unpaid balance may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Loan Agreement. No reference herein to the Loan Agreement and no provisions of this Note, the Loan Agreement or the other Loan Documents shall alter or impair the obligation of the Borrower, which is absolute and unconditional, to pay the principal of and interest on this Note at the place, at the respective times, and in the currency herein prescribed. The Borrower promises to pay all costs and expenses, including reasonable attorneys' fees and disbursements incurred in the collection and enforcement of this Note or any appeal of a judgment rendered thereon all in accordance with the provisions of the Loan Agreement. The Borrower hereby waives diligence, presentment, protest, demand and notice of every kind except as required pursuant to the Loan Agreement and to the full extent permitted by law the right to plead any statute of limitations as a defense to any demands hereunder. This Note is secured and reference is made to the Loan Documents for the terms and conditions governing the collateral security for the Obligations of the Borrower hereunder. IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and delivered by its duly authorized officer, as of the day and year and at the place first above written. ATLANTIC AUTO FUNDING CORPORATION By_____________________________ Name: Title: EX-10.3-3 22 EXHIBIT 10.3.3 Execution Copy SUPPORT AGREEMENT THIS SUPPORT AGREEMENT ("Agreement") is executed as of this 28th day of June, 1995 by United Auto Group, Inc., a Delaware corporation ("UAG") in favor of Atlantic Auto Funding Corporation, a Delaware corporation ("AFC") (AFC and its respective successors and assigns are referred to herein as the "AFC Parties"). PRELIMINARY STATEMENTS 1. AFC and Atlantic Auto Finance Corporation, a Delaware corporation ("Atlantic") have executed that certain Receivables Purchase Agreement of even date herewith (the "AAFC Purchase Agreement") pursuant to which AFC may, from time to time, purchase Eligible Receivables from Atlantic; 2. Atlantic is a subsidiary of UAG; and 3. It is a condition precedent to the initial Purchase by AFC under the AAFC Purchase Agreement that UAG execute this Agreement and deliver it to AFC. 4. It is intended by the parties hereto that this Agreement not create any recourse against Atlantic or UAG for the payment of any uncollectible Purchased Receivable. In consideration of the execution of the AAFC Purchase Agreement by AFC, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by UAG, UAG agrees as follows: ARTICLE I. DEFINITIONS SECTION 1.1 DEFINITIONS. Unless otherwise defined in this Agreement, all defined terms used in this Agreement, including the Preliminary Statements hereof, shall have the meanings ascribed to such terms in the AAFC Purchase Agreement. ARTICLE II. PERFORMANCE SUPPORT OBLIGATION SECTION 2.1 PERFORMANCE SUPPORT OBLIGATION. UAG hereby unconditionally and irrevocably guarantees for the benefit of each of the AFC Parties, the due and punctual performance, observance and payment by Atlantic and its respective successors and assigns of all of the terms, covenants, conditions, agreements, undertakings and obligations on the part of Atlantic (whether individually or as Servicer or otherwise) to be paid, performed or observed under Sections 2.02, 2.03, 2.04, 2.05, 3.03, 4.01 and 8.06 and Articles V, VI and VII of the AAFC Purchase Agreement (all such terms, covenants, conditions, agreements, undertakings and obligations on the part of Atlantic to be paid, performed or observed being collectively called the "Atlantic Obligations"); PROVIDED, HOWEVER, for purposes of this Agreement, the "Atlantic Obligations" shall not include (a) any obligation of Atlantic under Section 7.02(i) of the AAFC Purchase Agreement to repurchase any Purchased Receivable if the request to make such repurchase occurs more than 12 months after the breach of a representation and warranty as described in such Section 7.02(i) except there shall be no such time limit applicable with respect to any breach of the representation and warranty contained in Section 4.01(g) of the AAFC Purchase Agreement and (b) Atlantic's obligations to repurchase any Purchased Receivable under Section 7.02(ii) or (iii) of the AAFC Purchase Agreement. In the event that Atlantic shall fail in any manner whatsoever, to perform, observe, or pay any of the Atlantic Obligations when the same shall be required to be performed, observed or paid, then UAG will itself duly and punctually perform, observe and pay, or cause to be duly and punctually performed, observed or paid the Atlantic Obligations, and it shall not be a condition to the accrual of the obligation of UAG hereunder to perform, observe or pay any Atlantic Obligation (or to cause the same to be performed, observed or paid) that any AFC Party shall have first made any request of or demand upon or given any notice to UAG or to Atlantic or its respective successors and assigns or have initiated any action or proceeding against UAG or Atlantic or any of their respective successors and assigns in respect thereof. Any AFC Party may proceed to enforce the obligations of UAG under this Section 2.1 without first pursuing or exhausting any right or remedy which any AFC Party may have against Atlantic, any other Person, the Purchased Receivables or any other property. Each AFC Party hereby acknowledges that the Atlantic Obligations do not (i) include any obligation of Atlantic to repurchase the Purchased Receivables acquired by AFC under the AAFC Purchase Agreement, except as described in Section 7.02 of the AAFC Purchase Agreement or (ii) create recourse against Atlantic or UAG for the payment of any uncollectible Purchased Receivable. ARTICLE III. REPRESENTATIONS AND WARRANTIES SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF UAG. UAG hereby represents and warrants as follows: i) UAG is a corporation duly organized, validly existing and in good standing under the laws of the State of -2- Delaware and is duly qualified to do business, and in good standing, in every jurisdiction where the nature of its business requires it to be so qualified. (ii) The execution, delivery and performance by UAG of this Agreement and the other instruments and documents to be delivered hereunder, and the transactions contemplated hereby, are within UAG's corporate powers, have been duly authorized by all necessary corporate action, do not contravene (A) UAG's charter or by-laws, (B) any law, rule or regulation applicable to UAG, (C) any contractual restriction contained in any indenture, loan or credit agreement, lease, mortgage, security agreement, bond, note or other agreement or instrument binding on UAG or its property or (D) any order, writ, judgment, award, injunction or decree binding on UAG or its property, and do no result in or require the creation of any Lien upon or with respect to any of its properties. (iii) This Agreement has been duly executed and delivered on behalf of UAG and is the legal, valid and binding agreement of UAG enforceable against UAG in accordance with its terms, subject as to enforcement to bankruptcy, insolvency, reorganization and other similar laws of general applicability relating to or affecting creditor creditor's rights and general principles of equity. (iv) UAG is the registered and beneficial owner of each class of the issued and outstanding capital stock of Atlantic. ARTICLE IV. COVENANTS SECTION 4.1. REPORTING COVENANTS. UAG covenants and agrees that, until this Agreement is terminated pursuant to Section 5.7, UAG will deliver to AFC: (a) as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of UAG, a consolidated balance sheet of UAG and its consolidated Subsidiaries as at the end of such quarter and the related consolidated statements of income and retained earnings of UAG and its consolidated Subsidiaries for such quarter and the then elapsed portion of the fiscal year, certified by the chief financial officer or the chief accounting officer of UAG; and (b). as soon as available and in any event within 90 days after the end of each fiscal year of UAG, a copy of the consolidated balance sheets of UAG and its consolidated Subsidiaries as of the end of such year and the related consolidated statements of income and retained earnings of UAG -3- and its consolidated Subsidiaries for such year each reported on by nationally recognized public accountants. SECTION 4.2 STOCK OWNERSHIP AND MERGER RESTRICTIONS. UAG covenants and agrees that, until this Agreement is terminated pursuant to Section 5.7, UAG will continue to be the direct or indirect beneficial owner of each class of the issued and outstanding capital stock of Atlantic (except for such capital stock owned by management of Atlantic). UAG shall not merge or consolidate with any Person unless (i) UAG shall be the surviving entity of any such merger or consolidation or (ii) such surviving entity expressly assumes the obligations of UAG hereunder. SECTION 4.3. DISTRIBUTIONS. UAG covenants and agrees that, until this Agreement is terminated pursuant to Section 5.7, UAG will not pay any dividend or make any distribution, directly or indirectly, on account of any shares of any class of its capital stock now or hereafter outstanding (any of the foregoing being a "Restricted Payment"), except UAG may make Restricted Payments on a pro rata basis to all of its shareholders which, in the aggregate, do not exceed fifty percent (50%) of UAG's cumulative net income during the period commencing with the fiscal year beginning on January 1, 1995 through the date of the most recent consolidated statements of income and retained earnings delivered pursuant to Section 4.1(b) above. ARTICLE V. MISCELLANEOUS SECTION 5.1. VALIDITY OF OBLIGATIONS. UAG agrees that its obligations under this Agreement shall be unconditional, irrespective of (i) the validity, enforceability, avoidance, subordination, discharge, or disaffirmance by any Person (including a trustee in bankruptcy) of the Atlantic Obligations, any Purchased Receivable or the AAFC Purchase Agreement, (ii) the absence of any attempt to collect any Purchased Receivables from the Obligor related thereto or any guarantor, or to collect the Atlantic Obligations from Atlantic or any other Person, (iii) the waiver, consent, extension, forbearance or granting of any indulgence by any of the AFC Parties with respect to any provision of any instrument evidencing the Atlantic Obligations or any Purchased Receivable, (iv) any change of the time, manner or place of performance of, or in any other term of any of the Atlantic Obligations or any Purchased Receivable, including without limitation, any amendment to or modification of the AAFC Purchase Agreement, (v) any law, regulation or order of any jurisdiction affecting any term of any of the Atlantic Obligations, any Purchased Receivable, or rights of any of the AFC Parties with respect thereto, (vi) the failure by any of the AFC Parties to take any steps to perfect and maintain perfected its respective interest in any Purchased Receivable or other property acquired by any of the AFC Parties from Atlantic or in -4- any security or collateral related to the Atlantic Obligations, (vii) any exchange or release of any Purchased Receivable or other property acquired by the AFC Parties from Atlantic, (viii) any failure to obtain any authorization or approval from or other action by or to notify or file with, any governmental authority or regulatory body required in connection with the performance of the obligations hereunder by UAG or (ix) any impossibility or impracticability of performance, illegality, force majeure, any act of government, or other circumstances which might constitute a default available to, or a discharge of Atlantic or UAG, or any other circumstance, event or happening whatsoever whether foreseen or unforeseen and whether similar to or dissimilar to anything referred to above. UAG further agrees that its obligations under this Agreement shall not be limited by any valuation, estimation or disallowance made in connection with any proceedings involving Atlantic filed under the Bankruptcy Code, whether pursuant to Section 502 of the Bankruptcy Code or any other Section thereof. UAG further agrees that none of the AFC Parties shall be under any obligation to marshall any assets in favor of or against or in payment of any or all of the Atlantic Obligations. UAG further agrees that, to the extent that Atlantic makes a payment or payments to any of the AFC Parties, which payment or payments (or any part thereof) are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to Atlantic, its estate, trustee or receiver or any other party, including, without limitation, UAG, under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such payment or repayment, the Atlantic Obligation or part thereof which had been paid, reduced or satisfied by such amount shall be reinstated and continued in full force and effect as of the date such initial payment, reduction or satisfaction occurred. UAG waives all set- offs and counterclaims and all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor and notices of acceptance of this Agreement. UAG's obligations under this Agreement shall not be limited if the AFC Parties are precluded for any reason (including without limitation, the application of the automatic stay under Section 362 of the Bankruptcy Code) from enforcing or exercising any right or remedy with respect to the Atlantic Obligations, and UAG shall pay to the AFC Parties, upon demand, the amount of the Atlantic Obligations that would otherwise have been due and payable had such rights and remedies been permitted to be exercised. SECTION 5.2. IRREVOCABILITY. UAG agrees that its obligations under this Agreement shall be irrevocable. In the event that under applicable law (notwithstanding UAG's agreement regarding the irrevocable nature of its obligations hereunder), UAG shall have the right to revoke this Agreement, this Agreement shall continue in full force and effect until a written revocation hereof specifically referring hereto, signed by UAG is actually received by AFC at [address]. Any such revocation shall not affect the right of any of the AFC Parties to enforce their -5- respective rights under this Agreement with respect to (i) any Atlantic Obligation (including any Atlantic Obligation that is contingent or unmatured) which arose on or prior to the date the aforementioned revocation was received by AFC or (ii) any Purchased Receivable which was a Purchased Receivable on the date the aforementioned revocation was received by AFC. If any of the AFC Parties acquire Purchased Receivables or take other action in reliance on this Agreement after any such revocation by UAG but prior to the receipt by AFC of said written notice, the rights of the AFC Parties with respect thereto shall be the same as if such revocation had not occurred. Without limiting the foregoing, this Agreement may not be revoked at any time on or after the Termination Date. SECTION 5.3. WAIVER. UAG hereby waives promptness, diligence, notice of acceptance, notice of default by Atlantic, notice of the incurrence of any Atlantic Obligation and any other notice with respect to any of the Atlantic Obligations and this Agreement, the AAFC Purchase Agreement, and any other document related thereto and any requirement that the AFC Parties exhaust any right or take any action against Atlantic, any other Person or any property. UAG warrants to the AFC Parties that it has adequate means to obtain from Atlantic on a continuing basis, all information concerning the financial condition of Atlantic and the collectibility of the Purchased Receivables, and that is it not relying on the AFC Parties to provide such information either now or in the future. SECTION 5.4. SUBROGATION. UAG will not exercise or assert any rights which it may acquire by way of subrogation under this Agreement unless and until all of the Atlantic Obligations shall have been paid and performed in full and the Termination Date shall have occurred under the AAFC Purchase Agreement. If any payment shall be made to UAG on account of any subrogation rights at any time prior to the occurrence of the events described in the preceding sentence, each and every amount so paid will be held in trust for the benefit of the AFC Parties and forthwith be paid to AFC to be credited and applied to the Atlantic Obligations to the extent then unsatisfied, in accordance with the terms of the AAFC Purchase Agreement or any document delivered in connection therewith. SECTION 5.5 COSTS AND EXPENSES. UAG shall pay all reasonable costs and expenses including, without limitation, all court costs and reasonable attorneys' fees and expenses paid or incurred by any of the AFC Parties in connection with (a) the collection of all or any part of the obligations of UAG hereunder, (b) the enforcement of any term or provision of this Agreement or (c) the prosecution or defense of any action by or against any of the AFC Parties in connection with this Agreement or the AAFC Purchase Agreement, whether involving Atlantic, UAG or any other Person including a trustee in bankruptcy. -6- SECTION 5.6. BINDING EFFECT; ASSIGNABILITY. This Agreement shall be binding upon UAG and upon the successors and assigns of UAG and shall inure to the benefit of the successors and assigns of the AFC Parties; all references herein to UAG and to Atlantic shall be deemed to include their respective successors and assigns. The successors and assigns of Atlantic shall include, without limitation, a receiver, trustee or debtor-in-possession of or for Atlantic. UAG may not assign any of its rights and obligations hereunder or any interest herein without the prior written consent of AFC, such consent not to be unreasonably withheld. AFC may assign at any time its rights and obligations hereunder and interests herein to any other Person without the consent of UAG or Atlantic. UAG agrees that any assignee of AFC (to the extent of its interest so assigned) shall have the right to enforce this Agreement and to exercise directly all of AFC's rights and remedies under this Agreement, and UAG agrees to cooperate fully with any such assignee in the exercise of such rights and remedies. All references to the singular shall be deemed to include the plural where the context so requires. SECTION 5.7. TERMINATION. This Agreement shall terminate after the latest to occur of (i) the date on which all the Atlantic Obligations are paid and/or performed in full, (ii) the Termination Date under the AAFC Purchase Agreement, and (iii) the date on which UAG has satisfied in full its obligations hereunder. SECTION 5.8. INTEGRATION; CONDITIONS. This Agreement contains a final and complete integration of all prior expressions of the parties hereto with respect to the subject matter hereof, superseding all prior oral or written understandings. No course of dealing, course of performance or trade usage and no parol evidence shall be used to supplement or modify any term hereof. This Agreement is fully effective as of the date set forth above. SECTION 5.9. GOVERNING LAW; WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND REMEDIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS AND DECISIONS (AS OPPOSED TO CONFLICTS OF LAW PROVISIONS) OF THE STATE OF NEW YORK. UAG HEREBY AGREES TO THE JURISDICTION OF ANY FEDERAL COURT LOCATED WITHIN THE STATE OF NEW YORK, AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO UAG AT THE ADDRESS SET FORTH ON THE SIGNATURE PAGE HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE PREPAID. UAG HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE BETWEEN UAG AND ANY AFC PARTY ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A -7- BENCH TRIAL WITHOUT A JURTY. UAG HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION 5.9 SHALL AFFECT THE RIGHT OF ANY AFC PARTY TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF ANY AFC PARTY TO BRING ANY ACTION OR PROCEEDING AGAINST UAG OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. SECTION 5.10. SEVERABILITY. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. SECTION 5.11. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, this Agreement has been duly executed by UAG as of the day and year first above written. UNITED AUTO GROUP, INC. By: /s/ Arthur J. Rawl --------------------------- Name: Arthur J. Rawl Title: Exec V.P. & CFO 375 Park Avenue, 22nd Floor New York, New York 10152 Acknowledged and accepted this 28th day of June, 1995. ATLANTIC AUTO FUNDING CORPORATION By: /S/ SUZANNE A. O'CONNOR ----------------------------------- Name: Suzanne A. O'Connor Title: Vice President, Treasurer 800 Perinton Hills Office Park Fairport, New York 14450 Telecopy No.: 716-421-1954 -8- EX-10.3-4 23 EXHIBIT 10.3.4 EXECUTION COPY - -------------------------------------------------------------------------------- PURCHASE AGREEMENT between ATLANTIC AUTO FINANCE CORPORATION, as Originator, and ATLANTIC AUTO SECOND FUNDING CORPORATION, as Buyer, Dated as of June 14, 1996 - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- ARTICLE I DEFINITIONS SECTION 1.1. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.2. Computation of Time Periods . . . . . . . . . . . . . . . . . 14 ARTICLE II TRANSFERS AND SETTLEMENTS SECTION 2.1. General Terms . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 2.2. Purchases from the Originator . . . . . . . . . . . . . . . . 15 SECTION 2.3. Transfers and Assignments . . . . . . . . . . . . . . . . . . 15 SECTION 2.4. Protection of Ownership of the Buyer. . . . . . . . . . . . . 17 SECTION 2.5. Optional Retransfer; Retransfer of Liquidated Receivables . . . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 2.6. Mandatory Repurchase Under Certain Circumstances. . . . . . . 18 SECTION 2.7. Dilution. . . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 2.8. Transfers by Buyer. . . . . . . . . . . . . . . . . . . . . . 19 SECTION 2.9. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties of Originator. . . . . . . . . 19 SECTION 3.2. Representations and Warranties of the Originator With Respect to Each Sale of Receivables. . . . . . . . . . . 22 ARTICLE IV CONDITIONS PRECEDENT SECTION 4.1. Conditions to Closing . . . . . . . . . . . . . . . . . . . . 25 SECTION 4.2. Conditions to Purchases . . . . . . . . . . . . . . . . . . . 26 SECTION 4.3. Effect of Payment of Purchase Price . . . . . . . . . . . . . 27 i ARTICLE V COVENANTS SECTION 5.1. Covenants of the Originator . . . . . . . . . . . . . . . . . 28 SECTION 5.2. Negative Covenants of the Originator. . . . . . . . . . . . . 33 ARTICLE VI INDEMNIFICATION SECTION 6.1. Indemnification . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 6.2. Tax Indemnification . . . . . . . . . . . . . . . . . . . . . 36 SECTION 6.3. Additional Costs. . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 6.4. Other Costs and Expenses. . . . . . . . . . . . . . . . . . . 38 ARTICLE VII MISCELLANEOUS SECTION 7.1. Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 7.2. Waivers; Amendments . . . . . . . . . . . . . . . . . . . . . 38 SECTION 7.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 7.4. Governing Law; Submission to Jurisdiction; Integration . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 7.5. Severability; Counterparts, Waiver of Setoff. . . . . . . . . 40 SECTION 7.6. Assignments . . . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 7.7. Waiver of Confidentiality . . . . . . . . . . . . . . . . . . 40 Exhibit A Form of Purchase Notice Exhibit B Schedule of Litigation Exhibit C Schedule of Location of Records Exhibit D VSI Policy Exhibit E Form of Compliance Certificate Exhibit F Schedule of Corporate Names, Trade Names or Assumed Names Exhibit G Permitted Lockbox Banks and Permitted Lockboxes Exhibit H Credit and Collection Policy Exhibit I Form of Subordinated Note Schedule 1 Schedule of Receivables ii PURCHASE AGREEMENT PURCHASE AGREEMENT, dated as of June 14, 1996 (as amended, supplemented or otherwise modified and in effect from time to time, this "AGREEMENT"), by and between ATLANTIC AUTO SECOND FUNDING CORPORATION, a Delaware corporation, as buyer (the "BUYER") and ATLANTIC AUTO FINANCE CORPORATION, a Delaware corporation, as originator (the "ORIGINATOR"). R E C I T A L S : - - - - - - - - WHEREAS, subject to the terms and conditions of this Agreement, the Originator desires to sell from time to time to the Buyer, and the Buyer desires to purchase from time to time from the Originator certain retail automotive installment sales contracts and related property and proceeds (the "Receivables"), subject to the terms and conditions of this Agreement; NOW THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. CERTAIN DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings: "ADDITIONAL COSTS" shall have the meaning specified in Section 6.3(a). "ADVERSE CLAIM" shall mean a Lien, security interest, charge or encumbrance, or other right or claim in, of or on any Person's assets or properties in favor of any other Person. "AFFILIATE" shall mean any Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, another Person or a Subsidiary of such other Person. A Person shall be deemed to control another Person if the controlling Person owns, directly or indirectly, 10% or more of any class of voting securities of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock or otherwise. "AMOUNT FINANCED" with respect to a Receivable means the amount advanced under the Receivable toward the purchase price of the Financed Vehicle and any related costs, exclusive of 1 any amounts allocable to the premium for physical damage insurance force-placed by the Originator covering the Financed Vehicle and of prepaid Dealer reserves and other marketing expenses. "ANNUAL PERCENTAGE RATE" or "APR" of a Receivable means the annual rate of Finance Charges stated in the Receivable. "BANK" shall mean Morgan Guaranty Trust Company of New York, a New York banking corporation, and its successors and assigns. "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or other day on which banking institutions or trust companies in The City of New York are authorized or obligated by law, executive order or governmental decree to be closed. "CLOSING DATE" shall mean June 14, 1996. "COLLECTIONS" shall mean, with respect to each Receivable, all cash collections and other cash proceeds of such Receivable, including, without limitation, all recoveries and cash proceeds of Related Security with respect to such Receivable, Repurchase Amounts and proceeds received under the VSI Policy. "CONTRACT" shall mean, with respect to any Receivable, any and all instruments, agreements, invoices or other writings pursuant to which such Receivable arises, or which evidences such Receivable including, but not limited to, the retail installment sales contracts related thereto. "CONTRACT FILE" shall mean, with respect to each Receivable, the original Contract, either a copy of the application to the appropriate state authorities for a Title to the related Financed Vehicle or a standard assurance in the form commonly used in the industry relating to the provision of the Title and when issued by the appropriate state authorities, the related Title (but only to the extent that Title documents are required under applicable state law to be held by a secured party in order to perfect such secured party's security interest in the related Financed Vehicle), all original instruments modifying the terms and conditions of the Receivable and the original endorsements or assignments of such Contract. "CREDIT AND COLLECTION POLICY" shall mean the Originator's credit and collection policies and practices relating to the Contracts and the Receivables existing on the date hereof in the form of Exhibit H hereto, as the same may from 2 time to time be amended, supplemented or otherwise modified in the ordinary course of the Originator's business. "CUSTODIAL AGREEMENT" shall mean the Custodial Agreement dated as of June 14, 1996, by and among the Originator, the Buyer, the Bank and the Custodian, as the same may be amended from time to time. "CUSTODIAN" shall mean Safesite National Business Records Management, Inc., a Delaware corporation, and its successors and assigns. "CUSTODIAN CONFIRMATION" means the Custodian's certificate in the form of EXHIBIT A to the Custodial Agreement confirming that it has received (i) an itemized schedule of the Receivables (which shall also briefly describe each related Contract File) and (ii) the Contract File with respect to each such Receivable. "DEALER" means the dealer who sold a Financed Vehicle and who originated and assigned the respective Receivable to the Originator under an existing agreement between such Dealer and the Originator. "DEALER RECOURSE" shall mean, with respect to a Receivable, all recourse rights against the Dealer which originated the Receivable and any successor Dealer. "DOLLARS" or "$" shall mean the lawful currency of the United States of America. "ELIGIBLE RECEIVABLE" shall mean, on the applicable Purchase Date on which ownership thereof is first acquired by the Buyer, a Receivable: (i) (a) which shall have been originated in the United States of America to an Obligor domiciled in the United States by a Dealer for the retail sale of a Financed Vehicle in the ordinary course of such Dealer's business, shall have been fully and properly executed by the parties thereto, shall have been purchased by the Originator from such Dealer under an existing dealer agreement which agreement shall be consistent with the Originator's customary business practices and shall be in a form acceptable to the Buyer, which Receivable in turn shall have been validly assigned by such Dealer to the Originator, and then shall be transferred and assigned to the Buyer, (b) which shall have created or shall create a valid, subsisting, and enforceable first priority security interest in favor of the Originator in the Financed Vehicle, which in turn shall be assigned to the Buyer, (c) which shall contain customary and enforceable 3 provisions such that the rights and remedies of the holder thereof shall be adequate for the realization against the collateral of the benefits of the security and (d) which arises under a Contract which shall provide for level monthly payments (PROVIDED that the payment in the first or last month in the life of the Receivable may be minimally different from the level payment) that fully amortize the financed amount over no greater than 66 payments; (ii) with respect to which the Originator is the lienholder of record on the related Title; (iii) as to which the Contract File was delivered to the Custodian prior to the purchase thereof by the Buyer from the Originator, except that if the original certificate of title shall have been applied for and not yet received at the time of such purchase, then such certificate shall have been delivered to the Custodian within 180 days of such purchase; (iv) as to which only one original executed Contract exists; (v) as to which the related Obligor is not the United States of America or any state or any agency, department, subdivision or instrumentality thereof; (vi) which shall not have been originated in, or shall be subject to the laws of, any jurisdiction under which the transfer of such Receivable under this Agreement shall be unlawful, void or voidable; (vii) which is denominated and payable only in Dollars in the United States of America; (viii) which is less than 30 days delinquent; (ix) which when transferred by the Originator to the Buyer was selected at random from the Originator's retail installment sale contracts at the time of such transfer, but conformed to certain requirements set forth herein or otherwise agreed by the Originator and the Buyer; (x) which is "chattel paper" within the meaning of Section 9-105 of the Relevant UCC; (xi) which arises under a Contract which, together with such Receivable, (A) is in full force and effect and constitutes the legal, valid and binding obligation of the related Obligor, enforceable against such Obligor in 4 accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally, (B) is evidenced by only one original executed copy, (C) is not the subject of any rescission, setoff, counterclaim or other defense and (D) shall not have been satisfied, subordinated, or rescinded; (xii) which arises under a Contract which (A) does not require the Obligor under such Contract to consent to the transfer of the rights and duties of the Originator under such Contract and (B) does not contain a confidentiality provision that purports to restrict the ability of the Buyer to exercise its rights under this Agreement, including, without limitation, its right to review the Contract; (xiii) no provision of which has been waived by the Originator, except in accordance with the Credit and Collection Policy; (xiv) which, together with the Contract related thereto, complied on the date of its origination and now complies in all material respects with all requirements of applicable Federal, state and local laws and regulations thereunder, including, without limitation, usury laws, the Federal Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Federal Trade Commission Act, the Magnuson-Moss Warranty Act, Regulations B and Z of the Federal Reserve Board, various state "lemon laws" designed to prevent fraud in the sale of used vehicles and various state adaptations of the National Consumer Act and of the Uniform Consumer Credit Code, and other consumer credit laws and equal credit opportunity and disclosure laws; (xv) which satisfies in all material respects all applicable requirements of the Credit and Collection Policy on the applicable Purchase Date; and (xvi) as to which the Originator shall be in full compliance in all material respects with all of its obligations thereunder and under the related Contract and any other agreements or instruments relating thereto; PROVIDED that breach of any notice provision shall not be deemed to cause this condition to be unsatisfied unless such breach causes the related Contract to be unenforceable. (xvii) which directs payment thereof to be sent to a Permitted Lockbox; 5 (xviii) which is owned solely by the Originator free and clear of all Liens; (xix) which, together with the aggregate of the Principal Balances of other Receivables payable by the same Obligor or any party related to such Obligor, does not exceed $150,000; (xx) with respect to which the initial payment in respect thereof is due no more than 3 months after the date on which the Receivable was originated; (xxi) with respect to which the Originator, in accordance with its Credit and Collection Policy, has required that the Obligor has obtained an Insurance Policy covering the Financed Vehicle; (xxii) with respect to which all filings (including Relevant UCC filings) necessary in any jurisdiction to give the Buyer a first priority perfected ownership interest in such Receivable have been made; (xxiii) with respect to which the Obligor was not noted in the related Records as being (i) the subject of a bankruptcy, insolvency or similar proceeding or (ii) if the Obligor is a natural person, deceased; (xxiv) which, if at the time of the creation of such Receivable the related Financed Vehicle was a used automobile or light-duty truck, such Receivable, together with similar Eligible Receivables, shall not exceed 70% of the aggregate Principal Balance of Eligible Receivables transferred to the Buyer hereunder; and (xxv) which is covered under the VSI Policy. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder. "ERISA AFFILIATE" means, with respect to the Originator, any Person which is a member of any group of organizations (i) described in Section 414(b) or (c) of the Internal Revenue Code of which the Originator is a member, or (ii) solely for the purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Internal Revenue Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Internal Revenue Code, described in Section 414(m) or (o) of the Internal Revenue Code of which the Originator is a member. 6 "EVENT OF TERMINATION" shall, with respect to the Originator, mean (i) with respect to any Plan, a reportable event, as defined in Section 4043(b) of ERISA, as to which the PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, or (ii) the withdrawal of the Originator or any ERISA Affiliate from a Plan during a plan year in which it is a substantial employer, as defined in Section 4043(b) of ERISA, or (iii) the failure by the Originator or any ERISA Affiliate to meet the minimum funding standard of Section 412 of the Internal Revenue Code or Section 302 of ERISA with respect to any Plan, including, without limitation, the failure to make on or before its due date a required installment under Section 412(m) of the Internal Revenue Code or Section 302(e) of ERISA, or (iv) the distribution under Section 4041 of ERISA of a notice of intent to terminate any Plan or any action taken by the Originator or any ERISA Affiliate to terminate any Plan, or (v) the adoption of an amendment to any Plan that pursuant to Section 401(a)(29) of the Internal Revenue Code or Section 307 of ERISA would result in the loss of tax-exempt status of the trust of which such Plan is a part if the Originator or an ERISA Affiliate fails to timely provide security to the Plan in accordance with the provisions of said Sections, or (vi) the institution by the PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or (vii) the receipt by the Originator or any ERISA Affiliate of a notice from a Multiemployer Plan that action of the type described in the previous clause (vi) has been taken by the PBGC with respect to such Multiemployer Plan, or (viii) the complete or partial withdrawal from a Multiemployer Plan by the Originator or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default), or (ix) the receipt by the Originator or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA, or (x) any event or circumstance exists which may reasonably be expected to constitute grounds for the Originator or any ERISA Affiliate to incur liability under Title IV of ERISA or under Sections 412(c)(11) or 412(n) of the Internal Revenue Code with respect to any Plan. "EXPENSE AND TAX-SHARING AGREEMENT" shall mean the Office Space, Administrative and Office Support Services, and Tax Allocation Agreement dated as of June 14, 1996, between the Originator and the Buyer. "FACILITY DOCUMENTS" shall mean collectively, this Agreement, each Supplemental Conveyance, the Transfer and Administration Agreement, the Lockbox Agreement, the Custodial 7 Agreement, the Support Agreement, the Expense and Tax-Sharing Agreement and all other agreements, documents and instruments delivered pursuant thereto or in connection therewith. "FINANCE CHARGES" shall mean, with respect to a Contract, any finance, interest or similar charges owing by the Obligor pursuant to such Contract. "FINANCED VEHICLE" shall mean, with respect to a Receivable, the new or used automobile or light-duty truck, together with all accessories thereto, securing the related Obligor's indebtedness thereunder. "INDEMNIFIED AMOUNTS" shall have the meaning specified in Section 6.1. "INITIAL PURCHASE DATE" means the date the first Purchase is made pursuant to this Agreement. "INSURANCE POLICY" shall mean, with respect to a Receivable, any insurance policy benefiting the holder of the Receivable providing loss or physical damage, credit life, credit disability, theft, mechanical breakdown or similar coverage with respect to the Financed Vehicle or the Obligor. "LIEN" shall mean a security interest, lien, charge, pledge, equity or encumbrance of any kind, other than tax liens, mechanics' liens and any liens which attach to the respective Receivable by operation of law as a result of any act or omission by the related Obligor. "LOCKBOX ACCOUNT" shall mean a demand deposit account identified on Exhibit G hereto maintained with a Permitted Lockbox Bank pursuant to the Lockbox Agreement for the purpose of depositing payments made by the Obligors or such other account of which the Originator may have notified the Buyer from time to time. "LOCKBOX AGREEMENT" shall mean the agreement relating to lockbox services in connection with a Permitted Lockbox and related Lockbox Account which are in form and substance satisfactory to the Buyer, which have been executed and delivered by the Originator to a Permitted Lockbox Bank. "MATERIAL ADVERSE EFFECT" shall mean, with respect to the Originator, a material adverse effect on (i) the financial condition or operations of the Originator and its Subsidiaries, taken as one enterprise, (ii) the ability of the Originator to perform its obligations under this Agreement, (iii) the legality, validity or enforceability of this Agreement, (iv) the Buyer's ownership of the Receivables or (v) the collectibility of the 8 Receivables or of any significant portion of the Receivables, other than, in the case of clauses (i) through (v), such Material Adverse Effects which are the direct result of actions or omissions of the Buyer. "OBLIGOR" shall mean any Person obligated to make payments pursuant to a Contract. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "PERMITTED LOCKBOX" shall mean a post office box identified on Exhibit G hereto maintained by a Permitted Lockbox Bank for the purpose of receiving payments made by the Obligors or such other post office box as the Originator may identify to the Buyer from time to time. "PERMITTED LOCKBOX BANK" shall mean a bank identified on Exhibit G hereto or such other bank as the Originator may identify to the Buyer from time to time. "PERSON" shall mean any corporation (including a business trust), natural person, firm, joint venture, joint stock company, partnership, trust, unincorporated organization, enterprise, government or any department or agency of any government. "PLAN" means any employee benefit or other plan which is or was at any time during the current year or immediately preceding five years established or maintained by the Originator or any ERISA Affiliate and which is covered by Title IV of ERISA, other than a Multiemployer Plan. "POTENTIAL TERMINATION EVENT" shall mean an event which, but for the lapse of time or the giving of notice or both, would constitute a Termination Event. "PRINCIPAL BALANCE" of a Receivable, as of the close of business on the last day of a calendar month, means the Amount Financed MINUS the sum of (i) that portion of all amounts paid by or on behalf of the related Obligor allocable to principal using the Simple Interest Method, (ii) any payments made by the Originator and allocable to principal pursuant to Section 2.7, and (iii) any payment of the Repurchase Amount with respect to the Receivable allocable to principal. "PROCEEDS" shall mean "proceeds" as defined in Section 9-306(l) of the Relevant UCC. 9 "PURCHASE" means a purchase of Receivables, Related Security with respect to such Receivables and Collections with respect thereto by the Buyer from the Originator pursuant to Section 2.1 and 2.2. "PURCHASE DATE" means the Initial Purchase Date and thereafter, each Business Day on which a Purchase occurs. "PURCHASE NOTICE" means a notice, in substantially the form of Exhibit A, furnished by the Originator to the Buyer pursuant to Section 2.2. "PURCHASE PRICE" shall have the meaning specified in Section 2.2(b) hereof. "PURCHASED ASSETS" shall mean, the Buyer's (a) ownership interest in (i) each and every Receivable identified on Schedule 1 hereto, (ii) all Related Security with respect to each such Receivable, (iii) all Collections with respect thereto, and (iv) all Proceeds of the foregoing and (b) interest in the Support Agreement. "RECEIVABLE" shall mean any retail installment sale contract arising out of or in connection with the sale of new or used automobiles or light-duty trucks and includes the right of payment of any Finance Charges and other obligations of the Obligor with respect thereto, originated by dealers or the Originator and sold by the Originator to the Buyer hereunder, which shall appear on Schedule 1 hereto (which Schedule 1 may be in the form of a computer file or microfiche list), as amended or modified on each Purchase Date and otherwise from time to time pursuant to the terms hereof. "RECORDS" shall mean, with respect to each Receivable, all factory invoices and work orders describing the related Financed Vehicle, the bill of sale and guaranty of title, insurance policies, tax receipts, property and casualty insurance policies or binders naming the Originator as loss payee or additional named insured, as is appropriate, insurance premium receipts, ledger sheets, payment records, insurance claim files and correspondence, all documentation in connection with any modification, release, accommodation, consigning or guaranty of the Receivable and all other documents and instruments, including all books, records, files, tapes, correspondence and other information or materials (including, without limitation, computer programs, tapes, discs, punch cards, data processing software and related property and rights) relating to the Receivable, the Contract, the Title and the Financed Vehicle relating to the Receivable and this Agreement. 10 "REGULATION D" shall mean Regulation D of the Board of Governors of the Federal Reserve System, as the same may be amended, supplemented or otherwise modified and in effect from time to time. "REGULATORY CHANGE" shall mean any change after the date of this Agreement in United States (federal, state or municipal) or foreign laws or regulations (including Regulation D) or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks (including the Bank) of or under any United States (federal, state or municipal) or foreign, laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "RELATED SECURITY" shall mean, with respect to any Receivable: (i) all of the Originator's interest in the Financed Vehicle, and all of the Originator's interest in all insurance contracts with respect thereto; (ii) all of the Originator's interest in all other security interest or liens and property subject thereto from time to time, if any, purporting to secure payment of the Contract related thereto, whether pursuant to such Contract or otherwise, together with all financing statements signed by an Obligor and security agreements describing any collateral securing such Contract; (iii) all of the Originator's interest in all guaranties, insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise; (iv) all of the Originator's interest in Dealer Recourse and all service contracts and other contracts and agreements associated with such Receivable; (v) all of the Originator's interest in Contract Files and all Records related to such Receivable; and (vi) all proceeds of the foregoing. "RELEVANT UCC" shall mean the Uniform Commercial Code as in effect from time to time in all applicable jurisdictions. 11 "REPURCHASE AMOUNT" shall mean the amount described in Section 2.5(a) and payable in accordance with Sections 2.5, 2.6 and 3.2 (the last paragraph thereof). "RESPONSIBLE OFFICER" shall mean, with respect to any Person, the chief executive officer, principal financial officer, treasurer or controller of such Person. "SECTION 6.2 COSTS" shall have the meaning specified in Section 6.2. "SECTION 6.3 COSTS" shall have the meaning specified in Section 6.3(c). "SERVICER" shall mean, initially, the Originator, and any successor Servicer designated pursuant to the Transfer and Administration Agreement. "SIMPLE INTEREST METHOD" means the method of allocating a fixed level payment to principal and interest, pursuant to which the portion of such payment that is allocated to interest is equal to the product of the APR multiplied by the unpaid principal balance, multiplied by the quotient obtained by calculating the period of time elapsed since the preceding payment of interest was made and dividing such period of time by 360, provided that each monthly period shall be deemed to have 30 days. "SUBORDINATED LOAN" shall have the meaning specified in Section 2.2(d) hereof. "SUBORDINATED NOTE" shall have the meaning specified in Section 2.2(d) hereof. "SUBSIDIARY" shall mean, for any Person, any corporation or other business organization 50% or more of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more such corporations or organizations or by such Person and one or more such corporations or organizations, and any partnership of which such Person or any such corporation or organization is a general partner. "SUPPORT AGREEMENT" shall mean the Support Agreement dated as of June 14, 1996, executed by UAG in favor of the Buyer, and any amendments or modifications thereto. "TERMINATION DATE" means the earliest of (i) that Business Day which the Buyer designates as the Termination Date by notice to the Originator at least five Business Days prior to such Business Day, (ii) the occurrence of a Termination Event and 12 (iii) June 13, 1997 ( or such other date as the Originator and the Buyer may agree in writing). "TERMINATION EVENT" means the occurrence of any of the following events: (a) The net worth of the Originator and its consolidated subsidiaries, as set forth in the Originator's annual audited financial statements, shall be less than $2,400,000; (b) UAG shall fail to pay any principal of or premium or interest on any indebtedness in a principal amount of at least $1,000,000 when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such indebtedness, or any other event shall occur or condition shall exist under any agreement or instrument relating to any such indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such even or condition is to accelerate, or to permit the acceleration of, the maturity of such indebtedness; PROVIDED, that a Termination Event shall not occur hereunder unless UAG receives written notice that any of the foregoing events shall have occurred and fails to cure the foregoing within 15 days following receipt of such notice; (c) There shall occur a "Change in Control" (as defined below) of UAG; "Change of Control" shall mean (i) the sale of all or substantially all of the assets of UAG to an entity not controlled by UAG, (ii) prior to UAG's "Qualified Public Offering" (as defined below), a reduction in the ownership by the shareholders of the voting stock of UAG as of the date hereof (the "Initial Shareholder Group") to less than a majority of UAG's outstanding voting stock, or (iii) after the Qualified Public Offering, the ownership of another Person or group of Persons of a greater number of shares of UAG's voting stock than owned by the Initial Shareholder Group; "Qualified Public Offering" shall mean a public offering of UAG's capital stock pursuant to which UAG receives gross proceeds of $30,000,000 or more (when aggregated with all prior public offerings) and has a market valuation in excess of $100,000,000; (d) Both of Richard Harrison and Harry Hardy shall cease to be actively involved in the day-to-day management of the Originator, except as a result of death or illness; (e) There shall occur any event which may be reasonably expected to have a material adverse effect on the Originator or UAG or may be reasonably expected to cause a 13 material adverse change in the condition or prospects, financial condition or business of the Originator or UAG; or (f) There shall occur a breach of the Support Agreement by UAG. "TITLE" means, with respect to a Financed Vehicle, an original certificate of title, certificate of lien or other notification issued by the registrar of titles of the applicable state to a secured party which indicates that the lien of the secured party on the Financed Vehicle is recorded on the original certificate of title. In any jurisdiction in which the original certificate of title is required to be given to the Obligor, the term "Title" shall mean only a certificate or notification issued to a secured party. "TRANSFER AND ADMINISTRATION AGREEMENT" shall mean the Transfer and Administration Agreement dated as of June 14, 1996 by and among the Originator, the Buyer, as transferor, and the Bank, as transferee. "UAG" shall mean United Auto Group, Inc., a Delaware corporation, and its successors and assigns. "VSI POLICY" means the vendors single interest physical damage insurance policy maintained with respect to the Receivables, a copy of which is attached hereto as EXHIBIT D. SECTION 1.2. COMPUTATION OF TIME PERIODS. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." ARTICLE II TRANSFERS AND SETTLEMENTS SECTION 2.1. GENERAL TERMS. On the terms and conditions hereinafter set forth, from the date the conditions precedent to the initial Purchase in Section 4.1 are satisfied to the Termination Date, the Originator will sell to the Buyer on each Purchase Date all right, title and interest of the Originator in, to and under the Receivables which the Originator has determined to sell hereunder, Related Security with respect to such Receivables and Collections with respect thereto and the Buyer in its sole discretion may purchase such Receivables, Related Security and Collections from the Originator. Nothing in this Agreement shall be deemed to be or construed as a commitment by the Buyer to purchase any Purchased Assets at any time. 14 SECTION 2.2. PURCHASES FROM THE ORIGINATOR. (a) Each Purchase shall be made on a Purchase Date, provided, that a Purchase Notice requesting such Purchase is received by the Buyer by the close of business on such Purchase Date and provided that all conditions to purchase specified in Section 4.2 are satisfied. Each such Purchase Notice shall include a schedule of all Receivables proposed to be sold by the Originator on such Purchase Date and shall specify the Purchase Price therefor. The Buyer shall promptly thereafter notify the Originator whether the Buyer has determined to purchase such Receivables. (b) The purchase price (the "PURCHASE PRICE") for the Receivables listed in a Purchase Notice (together with the related Purchased Assets) payable with respect to any Purchase Date shall be an amount equal to the aggregate Principal Balance of such Receivables plus accrued Finance Charges on such Receivables as of such date. (c) Subject to paragraph (d) below, the Purchase Price for the Purchased Assets sold by the Originator under this Agreement shall be payable in full in cash by the Buyer, in each case on the Business Day following the date of each such Purchase, except that the Buyer may, with respect to any Purchase, offset against such Purchase Price any amounts owed by the Originator to the Buyer hereunder and which remain unpaid. Subject to paragraph (d) below, on the Business Day following the date of each such Purchase, the Buyer shall, upon satisfaction of the applicable conditions set forth in Article IV, make available to the Originator the Purchase Price in same day funds. (d) If, on the Business Day following the date of any Purchase, the Buyer has insufficient funds to pay in full the Purchase Price owed on such day, then the amount of the difference between the Purchase Price and such available funds shall, at option of the Originator (as evidenced by written notice by the Originator to the Buyer on such date (which notice may be a standing instruction)) be deemed to be (i) a capital contribution from the Originator to the Buyer, (ii) a loan by the Originator to the Buyer (a "SUBORDINATED LOAN"), evidenced by the Subordinated Note (the "SUBORDINATED NOTE") of the Buyer substantially in the form attached hereto as Exhibit I or (iii) any combination of capital contribution and Subordinated Loan. Any Subordinated Loan hereunder shall be fully subordinated to every other obligation of the Buyer. SECTION 2.3. TRANSFERS AND ASSIGNMENTS. The Originator hereby assigns, transfers and conveys to the Buyer and its successors and assigns all of the Originator's right, title, and interest, whether now owned or hereafter acquired, in and to (i) the Receivables, (ii) the Related Security with respect to such Receivables, (iii) all Collections, including all cash 15 collections and other cash proceeds of the Receivables, exclusive of any amounts allocable to the premium for physical damage insurance force-placed by the Originator covering any related Financed Vehicle, (iv) all monies from time to time on deposit in the Lockbox Accounts relating to the Receivables and (v) all cash and non-cash proceeds of any of the foregoing. It is the intention of the parties hereto that each Purchase of Receivables, Related Security and Collections made hereunder shall constitute a "sale of chattel paper," as such term is used in Article 9 of the UCC, which sales are absolute, irrevocable and without recourse except as specifically provided herein and provide the Buyer with the full benefits of ownership of the Receivables and such related Purchased Assets. In the event that such assignment, transfer or conveyance is deemed to constitute a pledge rather than an assignment of the aforementioned property, the Originator does hereby grant to the Buyer a first priority perfected security interest therein. The possession by the Buyer or its transferee of notes and such other goods, letters of credit, advises of credit, money, documents, chattel paper or certificated securities shall be deemed to be "possession by the secured party," for purposes of perfecting the security interest pursuant to the Relevant UCC (including, without limitation, Section 9-305 thereof). Notifications to persons holding such property, and acknowledgments, receipts or confirmations from persons holding such property, shall be deemed to be notifications to, or acknowledgments, receipts or confirmations from, bailees or agents (as applicable) of the Buyer or its transferee for the purpose of perfecting such security interest under applicable laws. The foregoing conveyance does not constitute an assumption by the Buyer or its successors and assigns of any obligations of the Originator to Obligors or to any other Person in connection with Receivables or under any agreement or instrument relating to the Receivables. In connection with such transfer, the Originator agrees to record and file, at its own expense, financing statements with respect to the Receivables now existing and hereafter created for the transfer of chattel paper and general intangibles (each as defined in Article 9 of the Relevant UCC) meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect the transfer and assignment of the interest in the Receivables to the Buyer, and to deliver a file-stamped copy of such financing statements or other evidence of such filing satisfactory to the Buyer on or prior to the applicable Purchase Date. In connection with such transfer, the Originator further agrees to deliver to the Custodian the Contract Files relating to the Receivables. 16 The Originator shall maintain its books and records so that such records that refer to a Receivable shall indicate clearly that the Originator's right, title and interest in such Receivable has been sold to the Buyer. Indication of the Buyer's interest in a Receivable shall be deleted from or modified on the Originator's records when, and only when, the Receivable shall have been paid in full or the Buyer's interest in such Receivable shall have been repurchased or repaid by the Originator hereunder. In addition, the Originator shall maintain its computer systems so that the Originator's master computer records (including any back-up archives) that refer to a Receivable shall indicate clearly that such Receivable has been sold to the Buyer pursuant to this Agreement and that an interest in such Receivable has been transferred and assigned by the Buyer to the Bank. The Originator agrees to deliver to the Buyer a list, which may be a computer file or microfiche list, containing a true and complete schedule of all such Receivables, identified by account number and by Principal Balance as of the origination date of such Receivable. Such file or list shall be marked as the "Receivables Schedule" and Schedule 1 to this Agreement, delivered to the Buyer as confidential and proprietary, and is hereby incorporated into and made a part of this Agreement. SECTION 2.4. PROTECTION OF OWNERSHIP OF THE BUYER. The Originator agrees that from time to time, at its expense, it will promptly execute and deliver all instruments and documents and take all action that the Buyer may reasonably request in order to perfect or protect the Purchased Assets or to enable the Buyer to exercise or enforce any of its rights hereunder. Without limiting the foregoing, the Originator will, upon the request of the Buyer, in order to accurately reflect this transaction, execute and file such financing or continuation statements or amendments thereto or assignments thereof (as permitted pursuant to Section 7.6 hereof) as may be reasonably requested by the Buyer and mark its master data processing records with a notation describing the acquisition by the Buyer of the Purchased Assets, as the Buyer may reasonably request. To the fullest extent permitted by applicable law, the Buyer shall be permitted to sign and file continuation statements and amendments thereto and assignments thereof without the Originator's signature in such cases where the Originator is obligated hereunder to sign such statements, amendments or assignments if, after written notice to the Originator, the Originator shall have failed to sign such continuation statements, amendments or assignments within ten (10) Business Days after receipt of such notice from the Buyer. Carbon, photographic or other reproduction of this Agreement or any financing statement shall be sufficient as a financing statement. The Originator shall neither change its name, identity or corporate structure (within the meaning of Section 9-402(7) of any applicable enactment of the Relevant UCC), nor relocate its 17 chief executive office or any office where Records are kept unless it shall have: (i) given the Buyer at least fifteen (15) days' prior notice thereof and (ii) delivered to the Buyer all financing statements, instruments and other documents requested by the Buyer in connection with such change or relocation. SECTION 2.5. OPTIONAL RETRANSFER; RETRANSFER OF LIQUIDATED RECEIVABLES. (a) Subject to the next succeeding sentence, the Originator shall have the right to repurchase all of the existing Receivables if, at any time, the aggregate Principal Balance of the Receivables falls below $3,500,000 (or such higher amount as the parties hereto may agree from time to time). The Originator shall be entitled to effectuate such reconveyance on the 15th day of each month (or if such 15th day is not a Business Day, the next succeeding Business Day) provided prior written notice has been given to the Buyer at a repurchase amount equal to the aggregate Principal Balance of the Receivables on such repurchase date plus accrued and unpaid Finance Charges thereon through such day (the "REPURCHASE AMOUNT"). (b) The Originator has the option, to be exercised in its sole and absolute discretion, to repurchase any Liquidated Receivable (as defined in the Transfer and Administration Agreement), on the 15th day of each month (or if such 15th day is not a Business Day, the next succeeding Business Day) provided prior written notice has been given to the Buyer by paying to the Buyer the Repurchase Amount. (c) If, on any day with respect to any Receivable which (i) has become a Liquidated Receivable, as to which the Buyer has been paid the Principal Balance with respect to such Liquidated Receivable or (ii) has been repurchased by the Originator pursuant to Section 2.5(a) or (b), 2.6 or 3.2 (the last paragraph thereof) or repaid in full pursuant to Section 2.7, then, in such event and upon payment of all amounts due hereunder (if all Receivables have been repurchased or repaired), the Buyer shall, on such day and at the expense of the Originator, (i) retransfer to the Originator all of its right, title and interest in, to and under such Receivable and all Related Security and Collections with respect thereto, and all Proceeds of the foregoing and (ii) execute any and all instruments, certificates and other documents reasonably necessary to effect such retransfer. SECTION 2.6. MANDATORY REPURCHASE UNDER CERTAIN CIRCUMSTANCES. (a) The Originator shall repurchase from the Buyer all Receivables if at any time upon written advice of counsel, the Buyer shall cease to have a first priority perfected security interest in the Receivables, free and clear of any lien (except for liens arising from or relating to the financial 18 condition of the Obligor), within three days of notice thereof by the Buyer. The Repurchase Amount shall be paid by the Originator to the Buyer in connection with such repurchase. (b) The Originator shall repurchase from the Buyer any Receivables as to which the Buyer has not received a Custodian Confirmation within fifteen (15) Business Days of the Purchase Date on which such Receivable was sold to the Buyer hereunder, or the Settlement Date next following receipt of notice of failure to receive such Custodian Confirmation, at the Repurchase Amount. SECTION 2.7. DILUTION. If the Principal Balance of a Receivable is either (i) reduced or cancelled as a result of any (a) refunded item included in the Amount Financed, such as extended warranty protection plan costs or Insurance Policy premiums, (b) defective or rejected Financed Vehicle, goods or services, any cash discount or of any adjustment by the Originator, or (ii) reduced or cancelled as a result of a set off in respect of any claim by any Person (whether such claim arises out of the same or a related transaction or an unrelated transaction), the Originator shall pay to the Buyer on such day the amount of such reduction or, if such transferred Receivable is cancelled, the amount of the Principal Balance thereof, together with the Finance Charges accrued thereon through such day. SECTION 2.8. TRANSFERS BY BUYER. The Originator acknowledges and agrees that (a) the Buyer will, pursuant to the Transfer and Administration Agreement, sell the Purchased Assets and assign its rights under this Agreement to the Bank and (b) the representations and warranties contained in this Agreement and the rights of the Buyer under this Agreement are intended to benefit the Bank. The Originator hereby consents to all such sales and assignments. SECTION 2.9. FEES. Notwithstanding any limitation on recourse contained in this Agreement, the Originator shall pay the Buyer the Commitment Fees (as defined in the Transfer and Administration Agreement) as the same become due and payable by the Buyer to the Bank pursuant to the Transfer and Administration Agreement. 19 ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF ORIGINATOR. The Originator represents and warrants to the Buyer on and as of the Closing Date that: (a) CORPORATE EXISTENCE AND POWER. The Originator is a corporation duly organized, validly existing and in good standing under the laws of the State of its incorporation, and has all corporate power and all governmental licenses, authorizations, consents and approvals required to carry on its business relating to the Originator's purchasing and selling of receivables relating to sales of automobiles and light-duty trucks in each jurisdiction in which its business is now conducted. (b) DUE QUALIFICATION. The Originator shall be duly qualified to do business as a foreign corporation in good standing, and shall have obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of property or the conduct of its business shall require such qualifications. (c) CORPORATE AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION. The execution, delivery and performance by the Originator of this Agreement and each other Facility Document are within the Originator's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official (except as contemplated by Section 2.4), and do not contravene or violate, or constitute a default under, any provision of applicable law or to the best of Originator's knowledge any order rule, or regulation applicable to the Originator or of the Certificate of Incorporation or Bylaws of the Originator or of any agreement of a material nature, judgment, injunction, order, decree or other instrument binding upon the Originator or result in the creation or imposition of any lien on assets of the Originator (except as contemplated by Section 2.4). The Originator has obtained all approvals and releases of security interests from its creditors as are necessary to sell, transfer and assign the Purchased Assets to the Buyer hereunder. (d) BINDING EFFECT. This Agreement and the other Facility Documents constitute the legal, valid and binding obligations of the Originator, enforceable against the Originator in accordance with their respective terms, subject to the effect of bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally. 20 (e) ACCURACY OF INFORMATION. All information heretofore furnished by the Originator for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and such other information hereafter furnished by the Originator to the Buyer will be, true and accurate in every material respect, on the date such information is stated or certified. (f) ACTIONS, SUITS. Except as set forth in Exhibit B, there are no actions, suits or proceedings pending, or to the knowledge of the Originator threatened, against or affecting the Originator or their respective properties, in or before any court, arbitrator or other body, which (i) may have a Material Adverse Effect, (ii) assert the invalidity of this Agreement, any of the other Facility Documents or any material amount of Receivables or (iii) seek to prevent the consummation of the transactions contemplated hereby or thereby. (g) PLACE OF BUSINESS. The chief place of business and chief executive office of the Originator are located at 800 Perinton Hills Office Park, Fairport, New York 14450, and the offices where the Originator keeps all the Records, are located at the addresses described on Exhibit C or such other locations notified to the Buyer in accordance with Section 2.4 in jurisdictions where all action required by Section 2.4 has been taken and completed. Since its incorporation, the Originator has not merged or consolidated with any other corporation or been the subject of any bankruptcy proceeding. (h) NAMES. Except as described in Exhibit F, the Originator has not used any corporate names, tradenames or assumed names other than its name set forth on the signature pages of this Agreement. (i) USE OF PROCEEDS. No proceeds of any Purchase made hereunder will be used for a purpose which violates, or would be inconsistent with regulations G, T, U or X promulgated by the Board of Governors of the Federal Reserve System from time to time. (j) NO TERMINATION EVENT. No Termination Event or Potential Termination Event has occurred on or before the Closing Date or Purchase Date, as applicable. (k) FINANCIAL CONDITION. The Originator is not insolvent or the subject of any bankruptcy proceeding and the transfer of the Receivables on such day will not be made in contemplation of the occurrence thereof. (l) TAXES. The Originator has filed all income tax returns (federal, state and local) and all other material tax 21 returns which are required to be filed by them and has paid all taxes due pursuant to such returns or pursuant to any assessment received by it except for any such tax assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings. (m) BOOKS AND RECORDS. The Originator has indicated on its books and records (including any computer files), that the Purchased Assets are the property of the Buyer. (n) PERMITTED LOCKBOX BANKS. The names and addresses of all Permitted Lockbox Banks, together with the numbers of all Lockbox Accounts at such Permitted Lockbox Banks and the addresses of all related Permitted Lockboxes, are specified in Exhibit G (or such other Permitted Lockbox Banks, Lockbox Accounts and/or Permitted Lockboxes as have been notified by the Originator to the Buyer). (o) INVESTMENT COMPANY. The Originator is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (p) SEPARATE CORPORATE EXISTENCE. The Originator is entering into the transactions contemplated by this Agreement in reliance on the Buyer's identity as a separate legal entity from the Originator and each of its Affiliates, and acknowledges that the Buyer and the other parties to the Facility Documents are similarly entering into the transactions contemplated by the other Facility Documents in reliance on the Buyer's identity as a separate legal entity from the Originator and each such other Affiliate. (q) NO FRAUDULENT CONVEYANCE. The transactions contemplated by this Agreement and by each of the Facility Documents are being consummated by the Originator in furtherance of the Originator's ordinary business, with no contemplation of insolvency and with no intent to hinder, delay or defraud any of its present or future creditors. By its receipt of the Purchase Prices hereunder and its ownership of the capital stock of the Buyer, the Originator shall have received reasonably equivalent value for the Receivables sold or otherwise conveyed to the Buyer under this Agreement. SECTION 3.2. REPRESENTATIONS AND WARRANTIES OF THE ORIGINATOR WITH RESPECT TO EACH SALE OF RECEIVABLES. By selling Receivables to the Buyer on each Purchase Date, the Originator represents and warrants to the Buyer as of each such Purchase Date and only as to Receivables sold by the Originator to the Buyer hereunder on such Purchase Date (in addition to its other 22 representations and warranties contained herein or made pursuant hereto) that: (a) STATEMENTS. All information set forth on the related Purchase Notice relating to such Receivables is true and correct as of such date of Purchase. (b) ASSIGNMENT. This Agreement vests in the Buyer, all the right, title and interest of the Originator in and to the Purchased Assets, and constitutes a valid sale of the Purchased Assets, enforceable against, and creating an interest prior in right to, all creditors of and purchasers from such Originator, subject to all applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and general principles of equity, regardless of whether enforcement is sought in a proceeding in equity or at law. (c) GOOD TITLE; PERFECTION. The original Title for each Financed Vehicle shows the Originator as the original secured party and as the holder of a first priority security interest in the related Financed Vehicle. Immediately prior to the transfer hereunder, the Originator shall be the legal and beneficial owner of the Receivables and Related Security with respect thereto, free and clear of any Adverse Claim and each Receivable shall be secured by a first perfected security interest in the related Financed Vehicle in favor of the Originator. This Agreement is effective to, and shall transfer to the Buyer, a valid and perfected first priority ownership or security interest in each Receivable and in the Related Security and Collections (to the extent provided by Section 9-306 of the Relevant UCC) with respect thereto and the documents entered into in connection therewith, free and clear of any Adverse Claim (except as created by this Agreement). On or prior to the date hereof, all financing statements and other documents required to be recorded or filed in order to perfect and protect the Buyer's interest in the Purchased Assets against all creditors of and transferees from the Originator will have been duly filed in each filing office necessary for such purpose and all filing fees and taxes, if any, payable in connection with such filings shall have been paid in full. No effective financing statement and other instrument similar in effect covering any Contract relating to a Receivable or the Related Security or Collections with respect thereto is on file in any recording office, except those filed pursuant to this Agreement or the Transfer and Administration Agreement. (d) ELIGIBLE RECEIVABLES. Each Receivable transferred to the Buyer is an Eligible Receivable. (e) BINDING EFFECT OF RECEIVABLES AND CONTRACT. Each Receivable and related Contract constitutes a legal, valid and 23 binding obligation of the related Obligor enforceable in accordance with its terms against such Obligor subject to the effect of bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights and remedies generally and general principles of equity. (f) CREDIT AND COLLECTION POLICY. The Originator has complied in all material respects with the Credit and Collection Policy in regard to each Receivable and related Contract. The Originator has not extended or modified the terms of any Receivable or the related Contract except in accordance with the Credit and Collection Policy. (g) INSURANCE POLICIES. The Originator, in accordance with its normal and customary procedures, shall have determined that the Obligor has obtained or agreed to obtain an Insurance Policy covering the Financed Vehicle, and the Obligor is required under the terms of its related Contract to maintain such Insurance Policy. (h) FILINGS. On or prior to each Purchase Date, all financing statements and other documents required to be recorded or filed in order to perfect and protect the Purchased Assets against all creditors of and purchasers from the Originator and all other Persons whatsoever will have been duly filed in each filing office necessary for such purpose and all filing fees and taxes, if any, payable in connection with such filings shall have been paid in full. (i) MAINTENANCE OF RECORDS. The Originator maintains at its chief executive office or shall cause the Servicer to maintain at its chief executive office the complete Records for each Receivable. To the extent that any of the statements and representations made in Section 3.1(e) or Section 3.2(a), (c), (d), (e), (f), (g) or (i) shall prove to have been untrue or incorrect with respect to any Receivable at the time made and, if the Originator is unable to remedy such untrue or incorrect statement or representation within ten (10) days of the Originator's receipt of notice of such untrue or incorrect statement or representation, such a finding shall not result in a Termination Event hereunder, but the Originator shall reacquire such Receivables from the Buyer for an amount equal to the Repurchase Amount at the time of such repurchase, and (i) all such reconveyed Receivables shall no longer constitute Receivables hereunder and (ii) following such reacquisition by the Originator, the Buyer shall have no further remedy against the Originator with respect to such reconveyed Receivables. 24 ARTICLE IV CONDITIONS PRECEDENT SECTION 4.1. CONDITIONS TO CLOSING. On or prior to the Closing Date, the Originator shall deliver to the Buyer the following documents and instruments, all of which shall be in form and substance acceptable to the Buyer: (a) A Certificate of the Secretary of the Originator certifying (i) the names and signatures of the officers authorized on its behalf to execute this Agreement and any other documents to be delivered by it hereunder (on which Certificate the Buyer may conclusively rely until such time as the Buyer shall receive from the Originator a revised Certificate meeting the requirements of this clause (a)(i)), (ii) a copy of the Articles of Incorporation of the Originator certified as of the date reasonably near the date hereof by the Secretary of State of the Originator's jurisdiction of incorporation, (iii) a copy of the By-laws of the Originator, as amended, (iv) a copy of resolutions of the Board of Directors (or any executive committee designated by the Board of Directors) of the Originator approving the transactions contemplated hereby, (v) a certificate as of a date reasonably near the date hereof of the Secretary of State of the Originator's jurisdiction of incorporation certifying the Originator's good standing under the laws of such jurisdiction, and (vi) certificates of qualification as a foreign corporation issued by the Secretary of State or other similar official of each jurisdiction where such qualification is material to the transactions contemplated by this Agreement and either certificates of the appropriate state official in each jurisdiction specified by the Buyer or search reports by parties acceptable to the Buyer as to the absence of any tax liens against the Originator under the laws of such jurisdiction, each such certificate or report to be dated a date reasonably near the date hereof; (b) An incumbency and authorization certificate of the Originator in such form as the Buyer may reasonably request; (c) Acknowledgment copies of proper financing statements (Form UCC-1), dated a date reasonably near to the date hereof naming the Originator as the transferor (debtor) of the Receivables and the Buyer as transferee (secured party) or other similar instruments or documents as may be necessary or in the opinion of the Buyer desirable under the Relevant UCC or any comparable law to perfect the Buyer's fractional undivided ownership interest in the Receivables; (d) Acknowledgment copies of proper financing statements (Form UCC-3), if any, necessary to release all 25 security interests and other rights of any Person in the Receivables and Related Security previously granted by the Originator; (e) Certified copies of request for information or copies (Form UCC-11) (or a similar search report certified by parties acceptable to the Buyer) dated a date reasonably near the date hereof listing all effective financing statements which name the Originator (under its present name or any previous or "doing business" name) as transferor or debtor and which are filed in jurisdictions in which the filings were made pursuant to item (c) above together with copies of such financing statements (none of which shall cover any Receivables or related Contracts); (f) Favorable opinions of Nixon, Hargrave, Devans & Doyle, special counsel for the Originator, addressed to the Originator and the Buyer as to corporate enforceability, true sale, substantive consolidation, fraudulent conveyance, perfection and tax matters, in forms reasonably acceptable to the Buyer; (g) The Purchase Notice for the initial Purchase hereunder; (h) A form of Contract or Contracts; (i) An executed copy of the Subordinated Note; (j) Copies of Lockbox Agreements and any amendments thereto and all other agreements previously given or entered into with each of the Permitted Lockbox Banks; and (k) An executed copy of the Custodial Agreement; (l) An executed copy of the Expense and Tax-Sharing Agreement; (m) The fully executed VSI Policy; and (n) Such other documents as the Buyer may reasonably request. SECTION 4.2. CONDITIONS TO PURCHASES. The Buyer's obligation to Purchase on any Purchase Date pursuant to Sections 2.1 and 2.2 hereof shall be subject to satisfaction of the following applicable conditions precedent: (a) the truth and correctness of: 26 (i) the representations and warranties in Section 3.1 hereof as of such Purchase Date, as though made on and as of such date, and (ii) the representations and warranties in Section 3.2 of this Agreement, but only as to the Receivables sold hereunder by the Originator to the Buyer on such Purchase Date; (b) the requirement that no Termination Event or Potential Termination Event shall exist or shall occur as a result of such purchase; (c) the Originator shall have delivered to the Buyer any necessary modifications or additions to Schedule I hereto; (d) the Originator shall have delivered to the Buyer a Purchase Notice; (e) the Originator shall have taken any actions necessary or advisable to maintain the Buyer's perfected security interest in the Purchased Assets (including in the Receivables purchased on such Purchase Date); (f) the satisfactory completion by the Buyer of any due diligence determined necessary by the Buyer with respect to the Receivables and the related Obligors and Contracts; (g) the Originator shall have delivered to the Buyer an executed Support Agreement; (h) the receipt by the Buyer of any approvals, opinions or other documents as the Buyer shall have reasonably requested. SECTION 4.3. EFFECT OF PAYMENT OF PURCHASE PRICE. Upon the payment of the Purchase Price for any Purchase, (whether in cash, through a capital contribution or a Subordinated Loan), title to the Receivables and the other related Purchased Assets shall vest in the Buyer, whether or not the conditions precedent to such Purchase were in fact satisfied; PROVIDED, HOWEVER, that the Buyer shall not be deemed to have waived any claim it may have under this Agreement for the failure by the Originator in fact to satisfy any such condition precedent. 27 ARTICLE V COVENANTS SECTION 5.1. COVENANTS OF THE ORIGINATOR. At all times during the term of this Agreement, unless the Buyer shall otherwise consent in writing: (a) FINANCIAL REPORTING. The Originator will maintain a system of accounting established and administered in accordance with generally accepted accounting principles, and furnish to the Buyer: (i) ANNUAL REPORTING. Within 120 days after the close of each of its fiscal years, a copy of its consolidated financial statements for such year and consolidated balance sheets as of the end of such year, consolidated statements of income, cash flow and changes in shareholder equity of the Originator and its Subsidiaries for such fiscal year, together with comparative information for the previous fiscal year, and copies of all reports and management letters, if any, from the independent certified public accountants to the Originator, which reports and letters shall be reasonably satisfactory to the Buyer, all certified by the chief financial officer of the Originator; (ii) MONTHLY REPORTING. Within 30 days following the close of each calendar month, consolidated balance sheets of the Originator and its Subsidiaries as of the end of such month and consolidated statements of income of the Originator and its Subsidiaries for such month and for the period commencing at the end of the previous fiscal year and ending with the end of such month, certified by the chief financial officer of the Originator; (iii) COMPLIANCE CERTIFICATE. Together with the annual report required above, a compliance certificate in substantially the form of Exhibit E hereto signed by its chief accounting officer or treasurer of the Originator stating that no Termination Event or Potential Termination Event exists, or if any Termination Event or Potential Termination Event exists, stating the nature and status thereof. (iv) NOTICE OF CANCELLATION OF VSI POLICY. As soon as a Responsible Officer of the Originator becomes aware thereof, the Originator shall notify the Buyer of receipt of notice from the issuer of the VSI Policy of such issuer's intention to cancel, not to renew or to conditionally renew the VSI Policy, and the action which the Originator proposes to take to replace such policy. 28 (v) NOTICE OF TERMINATION EVENTS OR POTENTIAL TERMINATION EVENTS. As soon as possible, and in any event within five (5) days after a Responsible Officer of the Originator obtains knowledge of the occurrence of each Termination Event or Potential Termination Event, a statement of the chief financial officer or chief accounting officer of the Originator setting forth details of such Termination Event or Potential Termination Event and the action which the Originator proposes to take with respect thereto. (vi) NOTICE OF MATERIAL ADVERSE CHANGE. As soon as any Responsible Officer of the Originator becomes aware thereof, the Originator shall give the Buyer notice of any event which may have a Material Adverse Effect. (vii) OTHER INFORMATION. Such other information (including non- financial information) as the Buyer may from time to time reasonably request. (b) CONDUCT OF BUSINESS. The Originator will do all things necessary to remain duly incorporated, validly existing and in good standing as a domestic corporation in its jurisdiction of incorporation and will maintain all requisite authority to conduct its business in each jurisdiction in which its business requires such authority. (c) COMPLIANCE WITH LAWS. The Originator will comply in all material respects with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject and which are applicable to all Receivables. (d) FURNISHING OF INFORMATION AND INSPECTION OF RECORDS. The Originator will furnish to the Buyer, within ten (10) Business Days after receiving a request therefor, such information with respect to the Receivables as the Buyer may reasonably request, including, without limitation, listings identifying the Principal Balance for each Receivable. The Originator will from time to time on a reasonable basis during regular business hours with prior written notice permit the Buyer, or its agents or representatives, to visit the offices of the Originator at the Buyer's expense unless a Potential Termination Event or a Termination Event shall have occurred for the purpose of discussing matters relating to Receivables or the Originator's performance hereunder with any of the officers, directors, employees or independent public accountants of the Originator having knowledge of such matters. (e) FULFILLMENT OF OBLIGATIONS. The Originator will duly observe and perform, or cause to be observed or performed, all material obligations and undertakings on its part to be 29 observed and performed under or in connection with this Agreement and the Receivables, will duly observe and perform all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables, will do nothing to materially impair the rights, title and interest of the Buyer in and to the Purchased Assets and will pay when due (or contest in good faith) any taxes, including without limitation any sales tax, excise tax or other similar tax or charge, payable in connection with the Receivables and their creation and satisfaction. (f) LITIGATION. As soon as possible, and in any event within ten Business Days of the knowledge of any Responsible Officer, the Originator shall give the Buyer notice of (i) any litigation, investigation or proceeding against the Originator which may exist at any time which, in the reasonable judgment of the Originator, could reasonably be expected to have a Material Adverse Effect and (ii) any material adverse development in any such previously disclosed litigation. (g) FEES, TAXES AND EXPENSES. The Originator shall pay all filing fees, stamp taxes, other taxes (other than taxes imposed directly on the overall net income of the Buyer) and expenses, including the fees and expenses set forth in Sections 2.9 and 6.4 hereof, if any, which may be incurred on account of or arise out of this Agreement and the documents and transactions entered into pursuant to this Agreement. (h) NO OTHER BUSINESS. The Originator shall engage in no business other than the business contemplated under its Certificate of Incorporation. (i) MAINTENANCE OF VSI POLICY. The Originator shall maintain in effect the VSI Policy or other similar insurance policy reasonably acceptable to the Buyer with respect to all Receivables transferred under this Agreement. (j) SUBORDINATED NOTE. The Originator shall not transfer the Subordinated Note to any person. (k) COPIES OF REPORTS, FILINGS, ETC. The Originator shall furnish to the Buyer, as soon as practicable after the issuance, sending or filing thereof, copies of all proxy statements, financial statements, reports and other communications which the Originator sends to its security holders generally, and, if the Originator is required to file reports with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, copies of all regular, periodic and special reports which the Originator files with the Securities and Exchange Commission or with any 30 securities exchange on Forms 10-K, 10-Q, 8-K or any successor forms thereto. (l) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Originator will maintain and implement administrative and operating procedures, including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain, or obtain, as and when required, all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the daily identification of all Collections of and adjustments to each existing Receivable). The Originator will give the Buyer prompt notice of any material change in the administrative and operating procedures referred to in the previous sentence, to the extent such change is likely to have a Material Adverse Effect. (m) CUSTOMER LIST. The Originator shall at all times maintain a current list (which may be stored on magnetic tapes or disks) of all Obligors under Contracts related to Receivables, including the name, address, telephone number and account number of each such Obligor. The Originator shall deliver or cause to be delivered a copy of such list to the Buyer as soon as practicable following the Buyer's request. (n) ADMINISTRATIVE AND OPERATING PROCEDURES. The Originator shall maintain and implement administrative and operating procedures adequate to permit the identification of the Receivables and all collections and adjustments attributable thereto and shall comply in all material respects with the Credit and Collection Policy in regard to each Receivable and related Contract. (o) INSURANCE. The Originator shall keep insured by financially sound and reputable insurers all property of a character usually insured by corporations engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such corporations and carry such other insurance as is usually carried by such corporations. (p) ERISA EVENTS. (i) Promptly upon becoming aware of the occurrence of any Event of Termination which together with all other Events of Termination occurring within the prior 12 months involve a payment of money by or a potential aggregate liability of the Originator or any ERISA Affiliate or any combination of such entities in excess of $5,000,000, the Originator shall give the Buyer a written notice specifying 31 the nature thereof, what action the Originator or any ERISA Affiliate has taken and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto. (ii) Promptly upon receipt thereof, the Originator shall furnish to the Buyer copies of (i) all notices received by the Originator or any ERISA Affiliate of the PBGC's intent to terminate any Plan or to have a trustee appointed to administer any Plan; (ii) all notices received by the Originator or any ERISA Affiliate from the sponsor of a Multiemployer Plan pursuant to Section 4202 of ERISA involving a withdrawal liability in excess of $5,000,000; and (iii) all funding waiver requests filed by the Originator or any ERISA Affiliate with the Internal Revenue Service with respect to any Plan, the accrued benefits of which exceed the present value of the plan assets as of the date the waiver request is filed by more than $5,000,000, and all communications received by the Originator or any ERISA Affiliate from the Internal Revenue Service with respect to any such funding waiver request. (q) SEPARATE IDENTITY. The Originator shall take all actions required to maintain the Buyer's status as a separate legal entity, including, without limitation, (i) not holding the Buyer out to third parties as other than an entity with assets and liabilities distinct from the Originator and the Originator's other Subsidiaries; (ii) not holding itself out to be responsible for the debts of the Buyer or, other than by reason of owning capital stock of the Buyer, for any decisions or actions relating to the Buyer; (iii) prepare separate financial statements for the Buyer (which shall be audited by independent accountants); (iv) cause any financial statements consolidated with those of the Buyer to state that the Buyer is a separate corporate entity with its own separate creditors who, in any liquidation of the Buyer, will be entitled to be satisfied out of the Buyer's assets prior to any value in the Buyer becoming available to the Buyer's equity holders; (v) taking such other actions as are necessary on its part to ensure that all corporate procedures required by its and the Buyer's respective certificates of incorporation and by- laws are duly and validly taken; (vi) keeping correct and complete records and books of account and corporate minutes; and (vii) not acting in any other manner that could foreseeably mislead others with respect to the Buyer's separate identity. (r) SOFTWARE. The Originator shall use its reasonable efforts to enable each of the Buyer, any agent of the Buyer and the Servicer (whether by license, sublicense, assignment or otherwise) to use all of the computer software used to account for the Receivables to the extent necessary to administer the Receivables. 32 (s) CUSTODIAN CONFIRMATION. With respect to each Receivable sold on a Purchase Date, the Originator shall cause the Custodian to deliver to the Buyer a Custodian Confirmation within two (2) Business Days of the related Purchase Date. SECTION 5.2. NEGATIVE COVENANTS OF THE ORIGINATOR. During the term of this Agreement, unless the Buyer shall otherwise consent in writing: (a) NAME CHANGE, OFFICES, RECORDS AND BOOKS OF ACCOUNTS. The Originator shall not change its name, identity or corporate structure (within the meaning of Section 9-402(7) of the Relevant UCC) nor relocate its chief executive office or any office where Records are kept unless it shall have: (i) given the Buyer at least fifteen (15) days, prior written notice thereof and (ii) delivered to the Buyer all financing statements, instruments and other documents requested by the Buyer in connection with such change or relocation. The Originator shall at all times maintain its chief executive office within a jurisdiction in the United States and in which Article 9 of the Relevant UCC is in effect and in the event it moves its chief executive office to a location which may charge taxes, fees, costs, expenses or other charges to perfect the interests of the Buyer in the Receivables, it shall pay all taxes, fees, costs, expenses and other charges associated with perfecting interests of the Buyer in the Receivables and any other costs and expenses incurred in order to maintain the enforceability of this Agreement and the interest of the Buyer in the Receivables. (b) TRANSFERS, LIENS, ETC. Except for the Adverse Claims of the Buyer created by this Agreement and except as provided in the Lockbox Agreement, the Originator shall not transfer, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim (including, without limitation, the filing of any financing statement) upon or with respect to any Receivable, related Contract, Related Security, Collections, Permitted Lockbox or Lockbox Account, or upon or with respect to any account to which any Collections of any Receivable are sent, or assign any right to receive income in respect thereto. (c) STATEMENT FOR AND TREATMENT OF SALES. The Originator shall not prepare any tax returns or reports or financial statements for financial accounting or reporting purposes which shall account for the transactions contemplated herein in any manner other than as a sale of the Purchased Assets to the Buyer unless such sale or treatment is prohibited by GAAP or is not reportable for tax purposes due to the filing by the Originator of tax returns on a consolidated basis with those of the Buyer. 33 (d) NO RESCISSIONS OR MODIFICATIONS. The Originator shall not reduce, rescind or cancel any Receivable or related Contract or modify any terms or provisions thereof, except in accordance with the Credit and Collection Policy. (e) CONSOLIDATIONS MERGERS AND SALES OF ASSETS. The Originator shall not (i) consolidate or merge with or into any other Person or (ii) sell, lease or otherwise transfer all or substantially all of its assets to any other Person; PROVIDED that the Originator may merge with another Person if (A) the Originator is the corporation surviving such merger and (B) immediately after and giving effect to such merger, no Termination Event or Potential Termination Event shall have occurred and be continuing. (f) NO CHANGES. The Originator shall not (i) make any change in the character of its business or in the Credit and Collection Policy, which change would, in either case, impair the collectibility of any material amount of the Receivables or make any material change in the Credit and Collection Policy or in its current payment terms with respect to Receivables without prior written notification to and consent of the Buyer; provided, however, that the Buyer shall be deemed to have approved any such change unless it shall have disapproved of such change within ten (10) Business Days of its receipt of such notice and (ii) change, terminate or waive or consent to any such change, termination or waiver of any provision of the Custodial Agreement without the prior written consent of the Buyer; provided, however, that the Buyer shall be deemed to have approved any such change unless it shall have disapproved of such change within ten (10) Business Days of its receipt of such notice. (g) CHANGE IN PAYMENT INSTRUCTIONS TO OBLIGORS. The Originator shall not make any change in its instructions to Obligors regarding payments to be made with respect to the Receivables (other than changes with respect to the mailing addresses for remittances) unless the Buyer shall have received, at least ten (10) Business Days before the proposed effective date therefor, written notice of such change. (h) CHANGE IN PAYMENTS OR DEPOSITS OF PAYMENTS. Except with the prior written notice to the Buyer, the Originator shall not add or terminate any Person as a Permitted Lockbox Bank from those Persons listed in Exhibit G hereto, make or permit any change in the location of any Permitted Lockbox or the location or account number of any Lockbox Account. (i) ERISA MATTERS. The Originator shall not permit any event or condition which is described in any of clauses (i) through (vi), clause (viii) or clause (x) of the definition of Event of Termination to occur or exist with respect to any Plan 34 or Multiemployer Plan if such event or condition, together with all other events or conditions described in the definition of Event of Termination occurring within the prior 12 months involve the payment of money by or an incurrence of liability of the Originator or any ERISA Affiliate in an amount in excess or $10,000,000. (j) NONPETITION COVENANT. Notwithstanding any prior termination of this Agreement, the Originator and the Buyer shall not, prior to the date which is one year and one day after the termination of this Agreement, with respect to the Buyer, acquiesce, petition or otherwise invoke or cause the Buyer to invoke the process of any governmental authority for the purpose of commencing or sustaining a case against the Buyer under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Buyer or any substantial part of its property or ordering the winding-up or liquidation of the affairs of the Buyer. ARTICLE VI INDEMNIFICATION SECTION 6.1. INDEMNIFICATION. Without limiting any other rights which the Buyer may have hereunder or under applicable law, the Originator hereby agrees to indemnify the Buyer and its officers, directors, agents and assigns (the "Indemnified Parties"; each, an "Indemnified Party") from and against any and all damages, losses, claims, liabilities, costs and expenses (other than in respect of taxes, which shall be governed by Section 6.2), including reasonable attorneys, fees and disbursements (all of the foregoing being collectively referred to as "INDEMNIFIED AMOUNTS") awarded against or incurred by any of them arising out of or as a result of any of the circumstances described below, provided, however, that in no event shall the Originator indemnify any Indemnified Party for (i) Indemnified Amounts resulting from the gross negligence or willful misconduct on the part of such Indemnified Party or (ii) recourse for uncollectible Receivables. The Originator shall indemnify the Indemnified Parties for Indemnified Amounts relating to or resulting from: (a) reliance on any representation or warranty made by the Originator (or any officers of the Originator) under or in connection with this Agreement, any Facility Document or any other information or report delivered by the Originator pursuant hereto, which shall have been false or incorrect in any material respect when made or deemed made; 35 (b) the failure by the Originator to comply in all material respects with any applicable law, rule or regulation with respect to any Receivable or the related Contract, or the nonconformity of any Receivable or the related Contract with any such applicable law, rule or regulation; (c) the failure as a result of acts or failures to act on the part of the Originator or the Servicer, to vest and maintain vested in the Buyer or its assignee, the Purchased Assets free and clear of any Adverse Claim; (d) the failure to file, or delay in filing, financing statements or other similar instruments or documents under the Relevant UCC or other applicable laws with respect to any Receivable; (e) any dispute, claim, offset or defense (which dispute, claim, offset or defense is made in "good faith") (other than discharge in bankruptcy of an Obligor) of an Obligor to the payment of any Receivable (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of merchandise or services related to such Receivable or the furnishing or failure to furnish such merchandise or services; for the purposes of this subsection, the term "good faith" shall mean a dispute, claim, offset or defense that is based on reasonable factual allegations which are likely to survive a motion to dismiss or which are not interposed for the purposes of hindering or delaying an Obligor's payment of the Receivable or which is not based principally on procedural or technical grounds (including, without limitation, improper service of process, statute of limitations, etc.); (f) any failure of the Originator to perform its duties or obligations in accordance with the provisions of this Agreement or the transactions contemplated by this Agreement; or (g) any products liability claim or personal injury or property damage suit arising out of or in connection with merchandise or services which are the subject of any Receivable. SECTION 6.2. TAX INDEMNIFICATION. (a) The Originator hereby agrees to pay, and to indemnify the Indemnified Parties from and against, any taxes which may at any time be asserted in respect of this transaction or the subject matter hereof (including, without limitation, any sales, gross receipts, general corporation, personal property, privilege or license taxes, but not including any federal or (except as provided below) other income or franchise taxes 36 imposed upon an Indemnified Party, with respect to its net income or profits arising out of the transactions contemplated hereby (all such excluded taxes, the "Excluded Taxes")), whether arising by reason of the acts to be performed by the Originator or the Buyer hereunder or imposed against the Originator or any Indemnified Party, the property involved or otherwise. If any tax, fee or similar charge is imposed or with respect to any payment for the account of any Indemnified Party provided for in this Agreement by any State or political subdivision thereof (other than Excluded Taxes), the Originator will, upon demand by such Indemnified Party, pay an amount necessary to make such Indemnified Party whole, taking into account any tax consequences to such Indemnified Party of the payment of such tax and the receipt of the indemnity provided for by this Section 6.2, including the effect of such tax or refund on the amount of tax measured by net income or profits which is or was payable by such Indemnified Party in the jurisdiction in which its principal executive office is located. SECTION 6.3. ADDITIONAL COSTS. (a) The Originator shall pay to the Buyer, from time to time on demand of the Buyer, such amounts as the Buyer may reasonably determine to be necessary to compensate it for any increase in costs which determines are attributable to its acquiring and funding the Receivables under this Agreement or the Transfer and Administration Agreement, or any reduction in any amount receivable by the Buyer in respect of any such acquisition or funding (such increases in costs, payments and reductions in amounts receivable being herein called "ADDITIONAL COSTS") resulting from any Regulatory Change which (i) changes the method or basis of taxation of any amounts payable to the Buyer under this Agreement or payable by the Buyer in connection with the financing of the purchase of the Receivables or (ii) imposes any other condition affecting this Agreement (or any of such extensions of credit or liabilities). The Buyer will notify the Originator of any event that will entitle Buyer to compensation pursuant to this Section 6.3(a) no later than fifteen (15) Business Days after it obtains knowledge thereof. (b) Determinations and allocations by the Buyer for purposes of this Section 6.3 shall be conclusive, provided that such determinations and allocations are made in good faith and on a reasonable basis, reasonable evidence (including an explanation of the applicable Regulatory Change and an accounting for any amounts demanded) of which shall be provided to the Originator upon request. (c) The Buyer agrees to promptly notify the Originator if the Buyer receives notice of any potential tax liability for which the Originator may be liable pursuant to Sections 6.2 or 37 6.3 hereof. The Buyer further agrees that the Originator shall bear no cost (including costs relating to penalties and interest) relating to the failure of the Buyer to file in a timely manner any tax returns required to be filed by the Buyer in accordance with applicable statutes and regulations. SECTION 6.4. OTHER COSTS AND EXPENSES. The Originator shall pay on demand all costs and expenses in connection with the preparation, execution, delivery and administration of this Agreement and any other documents delivered hereunder or contemplated hereby, including, without limitation, reasonable fees and out-of-pocket expenses of legal counsel for the Buyer (which such counsel may be employees of the Buyer) with respect thereto and with respect to advising the Buyer as to its rights and remedies under this Agreement or the Transfer and Administration Agreement, and all costs and expenses, if any, including reasonable counsel fees and expenses in connection with the enforcement or amendment of this Agreement and the other documents delivered hereunder or contemplated hereby. The Originator shall reimburse the Buyer on demand for all other costs and expenses incurred by the Buyer or any agent or assign of the Buyer ("OTHER COSTS"); including, without limitation, the cost of the Buyer's auditors auditing the Originator's books, records and procedures, and the reasonable fees and out-of-pocket expenses of counsel for the Buyer or any counsel for any agent or assign of the Buyer with respect to advising the Buyer or such agent or assign as to matters relating to the Buyer's operation. ARTICLE VII MISCELLANEOUS SECTION 7.1. SURVIVAL. The indemnification and payment provisions of Article VI shall be continuing and shall survive any termination of this Agreement, subject to applicable statutes of limitation; PROVIDED FURTHER, HOWEVER, that any such indemnification or payment claim must be presented to the Originator within ten (10) Business Days after the Buyer receives notice or otherwise becomes aware of such claim. SECTION 7.2. WAIVERS; AMENDMENTS. No failure or delay on the part of the Buyer in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other further exercise thereof or the exercise of any other power, right or remedy. The rights and remedies herein provided shall be cumulative and nonexclusive of any rights or remedies provided by law. Any provision of this Agreement may be amended if, but only if, such amendment is in writing and is signed by the parties hereto. 38 SECTION 7.3. NOTICES. Except as provided below, all communications and notices provided for hereunder shall be in writing (including bank wire, telecopy or electronic facsimile transmission or similar writing) and shall be given to the other party at its address or telecopy number set forth hereunder or at such other address or telecopy number as such party may hereafter specify for the purposes of notice to such party. Each such notice or other communication shall be effective if given by facsimile, when such facsimile is transmitted to the facsimile number specified in this Section 7.3 and the appropriate written confirmation is received or, if given by any other means, when received at the address specified in this Section 7.3. The Originator further agrees to deliver promptly to the Buyer a written confirmation of each telephonic notice signed by an authorized officer of the Originator. However, the absence of such confirmation shall not affect the validity of such notice. IF TO THE BUYER: ATLANTIC AUTO SECOND FUNDING CORPORATION P.O. Box 1502 800 Perinton Hills Office Park Fairport, New York 14450 Telephone: (716) 421-2982 Telecopy: (716) 421-1954 Attention: President IF TO THE ORIGINATOR: ATLANTIC AUTO FINANCE CORPORATION P.O. Box 1502 800 Perinton Hills Office Park Fairport, New York 14450 Telephone: (716) 421-2985 Telecopy: (716) 421-1954 Attention: President SECTION 7.4. GOVERNING LAW; SUBMISSION TO JURISDICTION; INTEGRATION. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. The Originator hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State Court sitting in New York, New York for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Originator and the Buyer hereby irrevocably waive, to the fullest extent they may effectively do so, any objection which they may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a 39 court has been brought in an inconvenient forum. Nothing in this Section 7.4 shall affect the right of the Buyer to bring any action or proceeding against the Originator or its properties in the courts of other jurisdictions. This Agreement contains the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire understanding among the parties hereto with respect to the subject matter hereof superseding all prior oral or written understandings. SECTION 7.5. SEVERABILITY; COUNTERPARTS, WAIVER OF SETOFF. This Agreement may be executed in any number.of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. The Originator hereby agrees to waive any right of setoff which it may have or to which it may be entitled against the Buyer and its assets. SECTION 7.6. ASSIGNMENTS. This Agreement shall be binding on the parties hereto and their respective successors and assigns; PROVIDED, HOWEVER, that the Originator may not assign any of its rights or delegate any of its duties hereunder without the prior written consent of the Buyer. No provision of this Agreement shall in any manner restrict the ability of the Buyer to assign, participate, grant security interests in, or otherwise transfer any portion of the Purchased Assets. Any transfer in contravention of this Section 7.6 shall be null and void and shall not confer upon the transferee thereof any of the rights under this Agreement. SECTION 7.7. WAIVER OF CONFIDENTIALITY. The Buyer and the Originator shall hold all non-public information obtained pursuant to this Agreement and the transactions contemplated hereby or effected in connection herewith in accordance with customary procedures for handling confidential information of this nature and in any event may make disclosure (a) reasonably required by a bona fide transferee, (b) necessary in order to obtain any consents, approvals, waivers or other arrangements required to permit the execution, delivery and performance by the Originator of this Agreement, or (c) as required or requested by any governmental body, agency or instrumentality, regulatory authority, court, tribunal or arbitrator or pursuant to legal process or required by applicable law. 40 IN WITNESS WHEREOF, the parties hereto have caused this Purchase Agreement to be executed and delivered by their duly authorized officers as of the date hereof. ATLANTIC AUTO SECOND FUNDING CORPORATION, as Buyer By: /s/ Suzanne A. O'Connor --------------------------- Name: Title: ATLANTIC AUTO FINANCE CORPORATION, as Originator By: /s/ Richard J. Harrison ---------------------------- Name: Title: 41 EX-10.3-5 24 EXHIBIT 10.3.5 - -------------------------------------------------------------------------------- TRANSFER AND ADMINISTRATION AGREEMENT among ATLANTIC AUTO SECOND FUNDING CORPORATION, as Transferor, ATLANTIC AUTO FINANCE CORPORATION, as Servicer, and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as transferee Bank Dated as of June 14, 1996 - -------------------------------------------------------------------------------- TABLE OF CONTENTS PAGE ARTICLE I DEFINITIONS SECTION 1.1. Certain Defined Terms . . . . . . . . . . . . . . 1 SECTION 1.2. Computation of Time Periods . . . . . . . . . . . 23 ARTICLE II TRANSFERS AND SETTLEMENTS SECTION 2.1. Commitment. . . . . . . . . . . . . . . . . . . . 23 SECTION 2.2. Transfers and Assignments . . . . . . . . . . . . 24 SECTION 2.3. Increase of Aggregate Net Investment. . . . . . . 25 SECTION 2.4. Additional Receivables. . . . . . . . . . . . . . 26 SECTION 2.5. Selection of Tranche Periods and Tranche Rates . . . . . . . . . . . . . . . . . . 26 SECTION 2.6. Discount and Other Costs and Expenses . . . . . . 27 SECTION 2.7. Protection of Ownership of the Bank . . . . . . . 28 SECTION 2.8. Allocation and Application of Collections . . . . 28 SECTION 2.9. Servicer Advances . . . . . . . . . . . . . . . . 31 SECTION 2.10. Payments and Computations, Etc. . . . . . . . . . 31 SECTION 2.11. Reports . . . . . . . . . . . . . . . . . . . . . 31 SECTION 2.12. Optional Purchase; Retransfer of Liquidated Receivables. . . . . . . . . . . . . . 32 SECTION 2.13. Mandatory Repurchase Under Certain Circumstances . . . . . . . . . . . . . . 32 SECTION 2.14. Interest Rate Cap Agreement . . . . . . . . . . . 33 SECTION 2.15. Fees. . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 2.16. Dilution. . . . . . . . . . . . . . . . . . . . . 33 ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties of Transferor. . . . . . . . . . . . . . . . . . . . 33 SECTION 3.2. Representations and Warranties of the Transferor With Respect to Each Sale of Receivables . . . . . . . . . . . . . . . 36 SECTION 3.3. Representations and Warranties of Servicer. . . . . . . . . . . . . . . . . . . . . 38 i PAGE ARTICLE IV CONDITIONS PRECEDENT SECTION 4.1. Conditions to Closing . . . . . . . . . . . . . . 40 SECTION 4.2. Conditions to Purchase of Net Investment Additional Amounts and Additional Receivables. . . . . . . . . . . . . . 42 ARTICLE V COVENANTS SECTION 5.1. Covenants of the Transferor . . . . . . . . . . . 43 SECTION 5.2. Negative Covenants of the Transferor. . . . . . . 47 SECTION 5.3. Covenants of the Servicer . . . . . . . . . . . . 49 SECTION 5.4. Negative Covenants of the Servicer. . . . . . . . 54 ARTICLE VI PROTECTION OF THE BANK; ADMINISTRATION AND COLLECTIONS SECTION 6.1. Maintenance of Information and Computer Records. . . . . . . . . . . . . . . . . 56 SECTION 6.2. Protection of the Interests of the Bank . . . . . 56 SECTION 6.3. Maintenance of Contract Files, Writings and Records; Release of Receivables . . . . . . . . . . . . . . . . . . . 58 SECTION 6.4. Information . . . . . . . . . . . . . . . . . . . 59 SECTION 6.5. Performance of Undertakings Under the Receivables . . . . . . . . . . . . . . . . . 59 SECTION 6.6. Administration and Collections. . . . . . . . . . 59 SECTION 6.7. Complete Servicing Transfer . . . . . . . . . . . 61 SECTION 6.8. Lockboxes . . . . . . . . . . . . . . . . . . . . 63 SECTION 6.9. Servicer Default. . . . . . . . . . . . . . . . . 63 SECTION 6.10. Servicer Indemnification of Affected Parties. . . . . . . . . . . . . . . . . 65 SECTION 6.11. AAFC Not to Resign as Servicer. . . . . . . . . . 65 ARTICLE VII TERMINATION EVENTS SECTION 7.1. Termination Events. . . . . . . . . . . . . . . . 66 SECTION 7.2. Remedies Upon the Occurrence of a Termination Event . . . . . . . . . . . . . . . . 68 ii PAGE ARTICLE VIII INDEMNIFICATION SECTION 8.1. Indemnification . . . . . . . . . . . . . . . . . 68 SECTION 8.2. Tax Indemnification . . . . . . . . . . . . . . . 69 SECTION 8.3. Additional Costs. . . . . . . . . . . . . . . . . 70 SECTION 8.4. Other Costs and Expenses. . . . . . . . . . . . . 71 ARTICLE IX MISCELLANEOUS SECTION 9.1. Term of Agreement . . . . . . . . . . . . . . . . 71 SECTION 9.2. Waivers; Amendments . . . . . . . . . . . . . . . 71 SECTION 9.3. Notices . . . . . . . . . . . . . . . . . . . . . 72 SECTION 9.4. Governing Law; Submission to Jurisdiction; Integration . . . . . . . . . . . . 73 SECTION 9.5. Severability; Counterparts, Waiver of Setoff . . . . . . . . . . . . . . . . . . . . 73 SECTION 9.6. Assignments . . . . . . . . . . . . . . . . . . . 73 SECTION 9.7. Waiver of Confidentiality . . . . . . . . . . . . 74 SECTION 9.8. Characterization of the Transactions Contemplated by this Agreement. . . . . . . . . . 74 SECTION 9.9. No Petition . . . . . . . . . . . . . . . . . . . 74 Exhibit A Form of Tranche Selection Notice Exhibit B Schedule of Litigation Exhibit C Schedule of Location of Records Exhibit D Form of Monthly Report Exhibit E Form of Compliance Certificate Exhibit F Schedule of Corporate Names, Trade Names or Assumed Names Exhibit G Permitted Lockbox Banks and Permitted Lockboxes Exhibit H Credit and Collection Policy Exhibit I Form of Increase Date Notice Exhibit J Form of Supplemental Conveyance Exhibit K Form of Addition Date Statement Schedule 1 Schedule of Receivables iii TRANSFER AND ADMINISTRATION AGREEMENT TRANSFER AND ADMINISTRATION AGREEMENT, dated as of June 14, 1996 (as amended, supplemented or otherwise modified and in effect from time to time, this "AGREEMENT"), by and between ATLANTIC AUTO SECOND FUNDING CORPORATION, a Delaware corporation, as transferor (the "TRANSFEROR"), ATLANTIC AUTO FINANCE CORPORATION, a Delaware corporation, as servicer (the "SERVICER" or "AAFC") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a New York banking corporation, as transferee (the "BANK"). R E C I T A L S : WHEREAS, subject to the terms and conditions of this Agreement, the Transferor desires to transfer and assign from time to time to the Bank, and the Bank desires to acquire from time to time from the Transferor a fractional undivided interest in certain retail automotive installment sales contracts and related property and proceeds (the "Receivables") which the Transferor acquires from time to time from AAFC, subject to the terms and conditions of this Agreement; WHEREAS, the Servicer has agreed to undertake the collection and servicing responsibilities in respect of the Receivables; NOW THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. CERTAIN DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings: "AAFC PORTFOLIO LOSS" shall mean, with respect to any Collection Period, the aggregate Principal Balance of AAFC Portfolio Receivables that would be treated as Liquidated Receivables hereunder during such Collection Period net of all proceeds that would be treated as Liquidation Proceeds hereunder (including estimated Liquidation Proceeds) received (or estimated to be received) with respect to any AAFC Portfolio Receivable during such Collection Period. "AAFC PORTFOLIO RECEIVABLES" shall mean all receivables (including the Receivables) serviced by AAFC. "ADDITIONAL COSTS" shall have the meaning specified in Section 8.3(a). "ADDITION DATE" shall mean, with respect to the transfer of interests in Additional Receivables to the Bank, the date of transfer of such interests in Receivables pursuant to Section 2.4. "ADDITION DATE STATEMENT" shall mean the statement prepared by the Servicer with respect to each Addition Date pursuant to Section 2.4(b)(iii). "ADDITIONAL RECEIVABLES" shall mean those Receivables designated by the Transferor as additional Receivables to be included as Receivables under this Agreement pursuant to Section 2.4. "ADJUSTED POOL BALANCE" for any date of determination shall mean the aggregate Principal Balance of the Receivables as of the close of business on the last day of the prior Collection Period, plus the aggregate of all amounts received as payments of principal in respect of Receivables (whether by or on behalf of the Obligors or from the Transferor) during the prior Collection Period, plus the aggregate Principal Balance of Additional Receivables designated since such day as shown in an Addition Date Statement, minus the aggregate Principal Balance of Liquidated Receivables as of the close of business on the last day of the prior Collection Period. "ADVANCE" shall mean the amount, as of any day on which Discount is payable, that the Servicer advances on a Receivable pursuant to Section 2.9. "ADVERSE CLAIM" shall mean a Lien, security interest, charge or encumbrance, or other right or claim in, of or on any Person's assets or properties in favor of any other Person. "AFFILIATE" shall mean any Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, another Person or a Subsidiary of such other Person. A Person shall be deemed to control another Person if the controlling Person owns, directly or indirectly, 10% or more of any class of voting securities of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock or otherwise. "AGGREGATE NET INVESTMENT" shall mean (a) from the initial Increase Date to the first Settlement Date after the initial Increase Date, the initial Net Investment Additional Amount plus any Net Investment Additional Amounts from the initial Increase Date to such Settlement Date, and (b) at any time thereafter, the Aggregate Net Investment as of the prior Settlement Date PLUS any Net Investment Additional Amounts since the prior Settlement Date LESS the aggregate amount of Collections paid to the Bank to reduce such Aggregate Net Investment pursuant to Section 2.8. 2 "AGGREGATE UNPAIDS" shall mean, at any time, an amount equal to the sum of (i) the aggregate accrued and unpaid Discount with respect to all Tranche Periods at such time, (ii) the Aggregate Net Investment at such time, and (iii) all fees and other amounts (including Early Collection Fees) owed (whether due or accrued) hereunder by the Transferor or AAFC to the Bank at such time. "AMOUNT FINANCED" with respect to a Receivable means the amount advanced under the Receivable toward the purchase price of the Financed Vehicle and any related costs, exclusive of any amounts allocable to the premium for physical damage insurance force-placed by AAFC covering the Financed Vehicle and of prepaid Dealer reserves and other marketing expenses. "ANNUAL PERCENTAGE RATE" or "APR" of a Receivable means the annual rate of Finance Charges stated in the Receivable. "AVAILABLE SUBORDINATED AMOUNT" shall mean, as of any day, the lesser of (x) the Maximum Subordinated Amount and (y) the Available Subordinated Amount for the previous Collection Period adjusted for all amounts applied in reduction or reinstatement thereof pursuant to Section 2.8(c) on the Settlement Date for such Collection Period; PROVIDED, HOWEVER, that on the initial Increase Date, the Available Subordinated Amount shall equal the Maximum Subordinated Amount; and PROVIDED FURTHER, that on each subsequent Increase Date, the Available Subordinated Amount shall be reset at the Maximum Subordinated Amount determined on such Increase Date (after giving effect to the increase of the Aggregate Net Investment on such Increase Date). "BANK" shall mean Morgan Guaranty Trust Company of New York, a New York banking corporation, and its successors and assigns. "BANK FINANCE CHARGE COLLECTIONS" shall mean, with respect to any Settlement Date, an amount equal to (A) the product of (i) the Bank Percentage for the immediately preceding Collection Period and (ii) Finance Charge Collections for such Collection Period PLUS (B) the product of (i) the Bank Percentage for the immediately preceding Collection Period and (ii) any Interest Rate Cap Payments MINUS (C) any Collections applied to pay Discount during the related Collection Period pursuant to Section 2.8(b) MINUS (D) the product of (i) the Bank Percentage for the immediately preceding Collection Period and (ii) the Servicing Fee for such Collection Period. "BANK PERCENTAGE" shall mean, with respect to any Collection Period: (a) when used with respect to Principal Collections at any time and Finance Charge Collections prior to the Termination Date, the percentage equivalent of a fraction (carried out to seven decimal places and rounded 3 upward), the numerator of which shall be the Aggregate Net Investment at the end of the immediately preceding Collection Period and the denominator of which shall be the Adjusted Pool Balance at the end of the preceding Collection Period; and (b) when used with respect to Finance Charge Collections on and after the Termination Date, 100%; and PROVIDED, that with respect to any Collection Period in which the Aggregate Net Investment is increased pursuant to Section 2.3, the numerator in (a) above shall be the Aggregate Net Investment as of the date of such increase for the period from and including the date of such increase to and including the last day of such Collection Period. "BANK PRINCIPAL COLLECTIONS" shall mean, with respect to any Settlement Date, an amount equal to the product of (i) Bank Percentage for the immediately preceding Collection Period and (ii) the Principal Collections for such Collection Period. "BUSINESS DAY" shall mean (i) with respect to any matters relating to the Eurodollar Rate, a day on which banks are open for business in The City of New York and on which dealings in Dollars are carried on in the London interbank market and (ii) for all other purposes, any day other than a Saturday, Sunday or other day on which banking institutions or trust companies in The City of New York are authorized or obligated by law, executive order or governmental decree to be closed. "CBR TRANCHE" shall mean a Tranche as to which Discount is calculated at the Corporate Base Rate. "CBR TRANCHE PERIOD" shall mean, with respect to a CBR Tranche, prior to the Termination Date, a period commencing on a Business Day selected by the Servicer pursuant to this Agreement and ending on the earlier of (i) the day on which such CBR Tranche is converted to a Eurodollar Tranche and (ii) the next succeeding Settlement Date, and except as set forth in Section 2.5(b), after the Termination Date, a period determined by the Bank. If such CBR Tranche Period would end on a day which is not a Business Day, such CBR Tranche Period shall end on the next succeeding Business Day. "CLOSING DATE" shall mean June 14, 1996. "COLLECTION ACCOUNT" shall mean the Collection Account established and maintained pursuant to Section 6.6(c) hereof. "COLLECTION PERIOD" shall mean, with respect to any Settlement Date, the calendar month immediately preceding the month of such Settlement Date. 4 "COLLECTIONS" shall mean, with respect to each Receivable, all cash collections and other cash proceeds of such Receivable received by the Servicer or in a Permitted Lockbox or the Collection Account, including, without limitation or without duplication, (a) all Finance Charge Collections, (b) Principal Collections, (c) recoveries and cash proceeds of Related Security with respect to such Receivable, (d) proceeds received under the VSI Policy and (e) Interest Rate Cap Payments. "COMMITMENT" shall mean the obligation of the Bank to acquire a fractional undivided interest in the Receivables represented by the Transferred Interest in a principal amount at any time outstanding not to exceed the Maximum Commitment. "COMMITMENT FEE" shall mean a per annum fee, payable quarterly in arrears on the last day of each calendar quarter during the term of this Agreement and on the Termination Date, equal to the product of (a) the average daily amount by which the Maximum Commitment exceeds the Aggregate Net Investment during such calendar quarter and (b) .25%. "COMPLETE SERVICING TRANSFER" shall have the meaning specified in Section 6.7(g) hereof. "CONDITION" shall mean either an Excess Spread Condition or an Incremental Enhancement Condition. "CONTRACT" shall mean, with respect to any Receivable, any and all instruments, agreements, invoices or other writings pursuant to which such Receivable arises, or which evidences such Receivable including, but not limited to, the retail installment sales contracts related thereto. "CONTRACT FILE" shall mean, with respect to each Receivable, the original Contract, either a copy of the application to the appropriate state authorities for a Title to the related Financed Vehicle or a standard assurance in the form commonly used in the industry relating to the provision of the Title and when issued by the appropriate state authorities, the related Title (but only to the extent that Title documents are required under applicable state law to be held by a secured party in order to perfect such secured party's security interest in the related Financed Vehicle), all original instruments modifying the terms and conditions of the Receivable and the original endorsements or assignments of such Contract. "CORPORATE BASE RATE" shall mean, for any day, prior to the occurrence of a Termination Event, the higher of (i) the prime rate announced from time to time by the Bank in effect on such day, or (ii) (x) the rate equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day 5 that is a Business Day, the average of the quotations for such day for such transactions received by the Bank from three Federal funds brokers of recognized standing selected by it, plus (y) one-half of one percent (1/2%). At all times after the occurrence of a Termination Event, "Corporate Base Rate" means a rate per annum equal to the higher of clauses (i) and (ii)(x) in the preceding sentence plus two percent (2%). The Corporate Base Rate applicable to any CBR Tranche shall be the weighted average Corporate Base Rate on each day during the related CBR Tranche Period. "CREDIT AND COLLECTION POLICY" shall mean AAFC's credit and collection policies and practices relating to the Contracts and the Receivables existing on the date hereof in the form of Exhibit H hereto, as the same may from time to time be amended, supplemented or otherwise modified in the ordinary course of AAFC's business. "CUSTODIAL AGREEMENT" shall mean the Custodial Agreement dated as of June 14, 1996, by and among AAFC, the Transferor, the Bank and the Custodian, as the same may be amended from time to time. "CUSTODIAN" shall mean Safesite National Business Records Management, Inc., a Delaware corporation, and its successors and assigns. "CUSTODIAN CONFIRMATION" means the Custodian's certificate in the form of EXHIBIT A to the Custodial Agreement confirming that it has received (i) an itemized schedule of the Receivables (which shall also briefly describe each related Contract File) and (ii) the Contract File with respect to each such Receivable. "DEALER" means the dealer who sold a Financed Vehicle and who originated and assigned the respective Receivable to AAFC under an existing agreement between such Dealer and AAFC. "DEALER RECOURSE" shall mean, with respect to a Receivable, all recourse rights against the Dealer which originated the Receivable and any successor Dealer. "DELINQUENCY RATIO" shall mean, for any period of determination, the ratio (expressed as a percentage) of (i) the aggregate Principal Balance of AAFC Portfolio Receivables that are Delinquent Receivables as of the last day of the period of determination to (ii) the aggregate Principal Balance of AAFC Portfolio Receivables as of the last day of such period. "DELINQUENT RECEIVABLE" shall mean an AAFC Portfolio Receivable as to which any payment is more than 60 days past due, but excluding any Liquidated Receivables or AAFC Portfolio Receivables that would be treated as Liquidated Receivables. 6 "DETERMINATION DATE" shall mean the eighth Business Day but not later than the 10th day of each calendar month, commencing July 10, 1996. "DISCOUNT" shall mean, with respect to any Tranche Period: TR x TA x AD -- B Where: TR = the Tranche Rate applicable to such Tranche Period. TA = the portion of the Aggregate Net Investment allocated to such Tranche Period. AD = the actual number of days in such Tranche Period. B = 360 days, except in the case of a CBR Tranche, in which case B = 365 or 366 days, as appropriate. PROVIDED, HOWEVER, that no provision of this Agreement shall require the payment or permit the collection of Discount in excess of the maximum permitted by applicable law; PROVIDED FURTHER, HOWEVER, that Discount shall not be considered paid by any distribution if at any time such distribution is rescinded or must be returned for any reason. "DOLLARS" or "$" shall mean the lawful currency of the United States of America. "EARLY COLLECTION FEE" shall mean, for any Tranche Period (other than a CBR Tranche Period) during which the Aggregate Net Investment allocated to such Tranche Period is reduced, or which is terminated prior to the end of the period for which it was originally scheduled to last (the amount of such reduction or, in the case of a termination of a Tranche Period, the amount of the Aggregate Net Investment allocated to such Tranche Period being herein referred to as the "ALLOCATED AMOUNT"), the sum of (a) the excess, if any, of (i) the Discount that would have accrued during the remainder of such Tranche Period subsequent to the date of such reduction or termination on the Allocated Amount if such reduction or termination had not occurred over (ii) the sum of (A) to the extent the Allocated Amount is allocated to another Tranche Period, the Discount actually accrued on the portion of Allocated Amount so allocated during the remainder of such Tranche Period, and (B) to the extent the Allocated Amount is not allocated to another Tranche Period, the income, if any, actually received by the Bank from investing the portion of the Allocated Amount not so allocated, and (b) in the case of a reduced or terminated Eurodollar Tranche, a $200 administrative fee. 7 "ELIGIBLE ACCOUNT" shall mean either (i) a segregated trust account with the trust department of a depository institution organized under the laws of the United States of America or any State thereof or the District of Columbia (or any domestic branch of a foreign bank), having a long-term deposit rating of at least Baa3 by Moody's, having trust powers and acting as trustee for funds deposited in such account, or (ii) a segregated deposit account with a depository institution organized under the laws of the United States of America or any State thereof (or any domestic branch of a foreign bank) the long-term deposit obligations of which are rated Aa3 or higher by Moody's and the short- term debt obligations of which are rated "A-1+" by S&P and "P-1" by Moody's. "ELIGIBLE INTEREST CAP AGREEMENT" as of any date means an interest rate cap agreement that meets all of the following conditions: (i) it is on the standard ISDA form; (ii) it has a maturity date that is no earlier than 12 months after the date described in clause (ii) of the definition of "Termination Date"; (iii) it is issued by a bank or other financial institution whose short term unsecured debt obligations are rated A-1+/P-1 by S&P and Moody's, respectively, and that is otherwise acceptable to the Bank; (iv) it (together with any Interest Rate Caps previously delivered) has a notional principal amount equal to the aggregate scheduled balances on the Receivables (whether or not Collections are received) on such date; (v) it has a capped interest rate equal to 8.5% per annum; (vi) it provides that any payments made by the counterparty shall be made directly to the Collection Account; (vii) it provides that it may not be amended, terminated, waived or assigned by the counterparty without the prior written consent of the Bank; and (viii) it is otherwise in form and substance reasonably satisfactory to the Bank. "ELIGIBLE INVESTMENTS" shall mean book-entry securities, negotiable instruments or securities represented by instruments in bearer or registered form which evidence: (a) obligations of the United States or any agency thereof, provided such obligations are guaranteed as to the timely payment of principal and interest by the full faith and credit of the United States; (b) general obligations of or obligations guaranteed by any state of the United States or the District of Columbia that at the time of acquisition thereof are assigned the highest rating by S&P and Moody's; (c) interests in any money market mutual fund which at the date of investment in such fund has the highest fund rating by each of Moody's and S&P which has issued a rating for such fund (which, for S&P, shall mean a rating of AAAm or AAAmg); (d) commercial paper which at the date of investment has ratings of at least A-1+ by S&P and P-1 by Moody's; 8 (e) certificates of deposit, demand or time deposits, Federal funds or banker's acceptances issued by any depository institution or trust company incorporated under the laws of the United States or of any state thereof (or any U.S. branch or agency of a foreign bank) and subject to supervision and examination by Federal or state banking authorities, provided that the short-term unsecured deposit obligations of such depository institution or trust company at the date of investment are then rated at least P-1 by Moody's and A-1+ by S&P; and (f) demand or time deposits of, or certificates of deposit issued by, any bank, trust company, savings bank or other savings institution, which deposits are fully insured by the Federal Deposit Insurance Corporation, provided that the long-term unsecured debt obligations of such bank, trust company, savings bank or other savings institution are rated at the date of investment at least Aa2 by Moody's and AA- by S&P. "ELIGIBLE RECEIVABLE" shall mean, on the applicable Addition Date and Increase Date on which an interest therein is first acquired by the Bank, a Receivable: (i)(a) which shall have been originated in the United States of America to an Obligor domiciled in the United States by a Dealer for the retail sale of a Financed Vehicle in the ordinary course of such Dealer's business, shall have been fully and properly executed by the parties thereto, shall have been purchased by the Transferor from AAFC pursuant to the Purchase Agreement, which AAFC in turn shall have purchased from such Dealer under an existing dealer agreement which agreement shall be consistent with AAFC's customary business practices and shall be in a form acceptable to the Bank, which Receivable in turn shall have been validly assigned by such Dealer to AAFC, and, in turn shall have been validly assigned pursuant to the Purchase Agreement by AAFC to the Transferor in accordance with its terms, and then shall be transferred and assigned to the Bank, (b) which shall have created or shall create a valid, subsisting, and enforceable first priority security interest in favor of AAFC in the Financed Vehicle, which security interest has been assigned pursuant to the Purchase Agreement by AAFC to the Transferor, which in turn shall be assigned to the Bank, (c) which shall contain customary and enforceable provisions such that the rights and remedies of the holder thereof shall be adequate for the realization against the collateral of the benefits of the security and (d) which arises under a Contract which shall provide for level monthly payments (PROVIDED that the payment in the first or last month in the life of the Receivable may be minimally different from the level payment) that fully amortize the financed amount over no greater than 66 payments; 9 (ii) with respect to which AAFC is the lienholder of record on the related Title; (iii) as to which the Contract File was delivered to the Custodian prior to the purchase thereof by the Transferor from AAFC, except that if the original certificate of title shall have been applied for and not yet received at the time of such purchase, then such certificate shall have been delivered to the Custodian within 180 days of such purchase; (iv) as to which only one original executed Contract exists; (v) as to which the related Obligor is not the United States of America or any state or any agency, department, subdivision or instrumentality thereof; (vi) which shall not have been originated in, or shall be subject to the laws of, any jurisdiction under which the transfer of such Receivable under this Agreement shall be unlawful, void or voidable; (vii) which is denominated and payable only in Dollars in the United States of America; (viii) which is less than 30 days delinquent; (ix) which when transferred by AAFC to the Transferor was selected at random from AAFC's retail installment sale contracts at the time of such transfer, but conformed to certain requirements set forth herein or otherwise agreed by the Transferor and the Bank; (x) which is "chattel paper" within the meaning of Section 9-105 of the Relevant UCC; (xi) which arises under a Contract which, together with such Receivable, (A) is in full force and effect and constitutes the legal, valid and binding obligation of the related Obligor, enforceable against such Obligor in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally, (B) is evidenced by only one original executed copy, (C) is not the subject of any rescission, setoff, counterclaim or other defense and (D) shall not have been satisfied, subordinated, or rescinded; (xii) which arises under a Contract which (A) does not require the Obligor under such Contract to consent to the transfer of the rights and duties of the Transferor or AAFC under such Contract and (B) does not contain a confidentiality provision that purports to restrict the 10 ability of the Bank to exercise its rights under this Agreement, including, without limitation, its right to review the Contract; (xiii) no provision of which has been waived by AAFC or the Transferor, except in accordance with the Credit and Collection Policy; (xiv) which, together with the Contract related thereto, complied on the date of its origination and now complies in all material respects with all requirements of applicable Federal, state and local laws and regulations thereunder, including, without limitation, usury laws, the Federal Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Federal Trade Commission Act, the Magnuson-Moss Warranty Act, Regulations B and Z of the Federal Reserve Board, various state "lemon laws" designed to prevent fraud in the sale of used vehicles and various state adaptations of the National Consumer Act and of the Uniform Consumer Credit Code, and other consumer credit laws and equal credit opportunity and disclosure laws; (xv) which satisfies in all material respects all applicable requirements of the Credit and Collection Policy on the applicable Addition Date or Increase Date; and (xvi) as to which AAFC shall be in full compliance in all material respects with all of its obligations thereunder and under the related Contract and any other agreements or instruments relating thereto; PROVIDED that breach of any notice provision shall not be deemed to cause this condition to be unsatisfied unless such breach causes the related Contract to be unenforceable. (xvii) which directs payment thereof to be sent to a Permitted Lockbox; (xviii) which is owned solely by the Transferor free and clear of all Liens, except for the Lien arising in connection with this Agreement; (xix) which, together with the aggregate of the Principal Balances of other Receivables payable by the same Obligor or any party related to such Obligor, does not exceed $150,000; (xx) with respect to which the initial payment in respect thereof is due no more than 3 months after the date on which the Receivable was originated; (xxi) with respect to which AAFC, in accordance with its Credit and Collection Policy, has required that the Obligor has obtained an Insurance Policy covering the Financed Vehicle; 11 (xxii) with respect to which all filings (including Relevant UCC filings) necessary in any jurisdiction to give the Bank a first priority perfected ownership interest in such Receivable have been made; (xxiii) with respect to which the Obligor was not noted in the related Records as being (i) the subject of a bankruptcy, insolvency or similar proceeding or (ii) if the Obligor is a natural person, deceased; (xxiv) which, if at the time of the creation of such Receivable the related Financed Vehicle was a used automobile or light-duty truck, such Receivable, together with similar Eligible Receivables, shall not exceed 70% of the aggregate Principal Balance of Eligible Receivables transferred to the Bank hereunder; and (xxv) which is covered under the VSI Policy. "ENGAGEMENT FEE" shall mean the fee payable on the Closing Date by AAFC in an amount equal to the greater of $350,000 or 1% of the Maximum Commitment. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder. "ERISA AFFILIATE" means, with respect to AAFC, any Person which is a member of any group of organizations (i) described in Section 414(b) or (c) of the Internal Revenue Code of which AAFC is a member, or (ii) solely for the purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Internal Revenue Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Internal Revenue Code, described in Section 414(m) or (o) of the Internal Revenue Code of which AAFC is a member. "EURODOLLAR RATE" shall mean, with respect to any Eurodollar Tranche Period, a rate per annum determined by the Bank equal to the sum of (a) 0.75% and (b) the quotient (expressed as a percentage and rounded upwards, if necessary, to the nearest 1/16 of 1%) obtained by dividing (i) LIBOR for such Eurodollar Tranche Period by (ii) 100% minus the LIBOR Reserve Percentage for such Eurodollar Tranche Period, if any. "EURODOLLAR TRANCHE" shall mean a Tranche as to which Discount is calculated at the Eurodollar Rate. "EURODOLLAR TRANCHE PERIOD" shall mean, with respect to a Eurodollar Tranche, a period greater than or equal to seven days commencing on a Business Day requested by the Servicer and agreed to by the Bank in accordance with Section 2.5. If such Eurodollar Tranche Period would end on a day which is not a Business Day, such Eurodollar Tranche Period shall end on the next succeeding Business Day, unless such extension would cause 12 the last day of such Eurodollar Tranche Period to occur in the next following calendar month, in which event the last day of such Eurodollar Tranche Period shall occur on the next preceding Business Day. "EVENT OF TERMINATION" shall, with respect to AAFC, mean (i) with respect to any Plan, a reportable event, as defined in Section 4043(b) of ERISA, as to which the PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, or (ii) the withdrawal of AAFC, as the case may be, or any ERISA Affiliate from a Plan during a plan year in which it is a substantial employer, as defined in Section 4043(b) of ERISA, or (iii) the failure by AAFC or any ERISA Affiliate to meet the minimum funding standard of Section 412 of the Internal Revenue Code or Section 302 of ERISA with respect to any Plan, including, without limitation, the failure to make on or before its due date a required installment under Section 412(m) of the Internal Revenue Code or Section 302(e) of ERISA, or (iv) the distribution under Section 4041 of ERISA of a notice of intent to terminate any Plan or any action taken by AAFC or any ERISA Affiliate to terminate any Plan, or (v) the adoption of an amendment to any Plan that pursuant to Section 401(a)(29) of the Internal Revenue Code or Section 307 of ERISA would result in the loss of tax-exempt status of the trust of which such Plan is a part if AAFC or an ERISA Affiliate fails to timely provide security to the Plan in accordance with the provisions of said Sections, or (vi) the institution by the PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or (vii) the receipt by AAFC or any ERISA Affiliate of a notice from a Multiemployer Plan that action of the type described in the previous clause (vi) has been taken by the PBGC with respect to such Multiemployer Plan, or (viii) the complete or partial withdrawal from a Multiemployer Plan by AAFC or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default), or (ix) the receipt by AAFC or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA, or (x) any event or circumstance exists which may reasonably be expected to constitute grounds for AAFC or any ERISA Affiliate to incur liability under Title IV of ERISA or under Sections 412(c)(11) or 412(n) of the Internal Revenue Code with respect to any Plan. "EXCESS SPREAD CONDITION" shall be deemed to have occurred if the weighted average Tranche Rate with respect to any Collection Period shall be greater than 7.25%. "EXCESS SPREAD PERCENTAGE" shall mean, for any Settlement Date, (i) the weighted average APR of the Receivables (taking into account any Interest Rate Cap maintained pursuant to Section 2.14 hereof) as of the last day of the immediately preceding Collection Period, minus (ii) the weighted average 13 Tranche Rate with respect to the related Collection Period, minus (iii) 1.00%, minus (iv) the Loss Ratio for such Collection Period. "EXPENSE AND TAX-SHARING AGREEMENT" shall mean the Office Space, Administrative and Office Support Services, and Tax Allocation Agreement dated as of June 14, 1996, between AAFC and the Transferor. "FACILITY DOCUMENTS" shall mean collectively, this Agreement, each Supplemental Conveyance, the Purchase Agreement, the Lockbox Agreements, the Custodial Agreement, the Support Agreement, the Expense and Tax-Sharing Agreement and all other agreements, documents and instruments delivered pursuant thereto or in connection therewith. "FINANCE CHARGE COLLECTIONS" shall mean as to any Collection Period, the sum of the following amounts with respect to such Collection Period: (i) that portion of Collections with respect to the Receivables that are properly designated in the Contracts as Finance Charges, (ii) Liquidation Proceeds to the extent allocable to interest due thereon in accordance with the Servicer's customary servicing procedures, and (iii) the Repurchase Amount of each Receivable that was repurchased or repaid pursuant to Section 2.12, 2.13, 2.16 or 3.2 (the last paragraph thereof) during the related Collection Period to the extent attributable to accrued interest thereon. "FINANCE CHARGES" shall mean, with respect to a Contract, any finance, interest or similar charges (other than any Supplemental Servicing Fee) owing by the Obligor pursuant to such Contract. "FINANCED VEHICLE" shall mean, with respect to a Receivable, the new or used automobile or light-duty truck, together with all accessories thereto, securing the related Obligor's indebtedness thereunder. "INCREASE DATE" shall mean any Business Day prior to the Termination Date on which the Aggregate Net Investment is increased pursuant to Section 2.3 hereof. "INCREASE DATE NOTICE" shall mean the notice delivered by the Transferor with respect to each Increase Date pursuant to Section 2.3 hereof. "INCREMENTAL ENHANCEMENT CONDITION" shall mean, on any date of determination, (i) the annualized average of the Portfolio Loss Ratios for any three consecutive Collection Periods shall exceed 2.5% or (ii) the average of the Delinquency Ratios for any three consecutive Collection Periods shall exceed 2.0%; PROVIDED, HOWEVER, that an Incremental Enhancement Condition shall no longer be deemed to be continuing if (x) with respect to the Incremental Enhancement Condition referred to in clause (i), the annualized average of the Portfolio Loss Ratios 14 for any three consecutive Collection Periods subsequent to the occurrence of such Condition shall be less than 2.5%, and (y) with respect to the Incremental Enhancement Condition referred to in clause (ii), the average of the Delinquency Ratios for any three Collection Periods subsequent to the occurrence of such Condition shall be less than 2.0%. Notwithstanding the foregoing, for any date of determination with respect to the first or the second Collection Period following the initial Increase Date, the Incremental Enhancement Condition shall be determined on the basis of the annualized average of the Portfolio Loss Ratios or the average of the Delinquency Ratios, as applicable, for such Collection Period or Collection Periods as the case may be. "INDEMNIFIED AMOUNTS" shall have the meaning specified in Section 8.1. "INSURANCE POLICY" shall mean, with respect to a Receivable, any insurance policy benefiting the holder of the Receivable providing loss or physical damage, credit life, credit disability, theft, mechanical breakdown or similar coverage with respect to the Financed Vehicle or the Obligor. "INTEREST RATE CAP" shall mean the Eligible Interest Cap Agreement entered into by the Transferor for the benefit of the Bank with the Interest Rate Cap Provider pursuant to Section 2.14. "INTEREST RATE CAP PAYMENT" shall mean, on each Settlement Date, any payment made by the Interest Rate Cap Provider to the Collection Account. "INTEREST RATE CAP PROVIDER" shall mean the counterparty to the Interest Rate Cap, in its capacity as obligor under the Interest Rate Cap. "LIBOR" shall mean, for any Eurodollar Tranche Period, the rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) at which deposits in Dollars are offered to the Bank by first-class banks in the London interbank market at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of such Eurodollar Tranche Period, such United States dollar deposits in immediately available funds for a period, and in an amount, comparable to the Eurodollar Tranche Period and principal amount of such Eurodollar Tranche. "LIBOR RESERVE PERCENTAGE" shall mean, for any Eurodollar Tranche and any Eurodollar Tranche Period therefor, the maximum reserve percentage, if any, applicable to the Bank under Regulation D during such Tranche Period (or if more than one percentage shall be applicable, the daily average of such percentages for those days in such Tranche Period during which any such percentage shall be applicable) for determining the Bank's reserve requirement (including any marginal, supplemental or emergency reserves) with respect to liabilities or assets 15 having a term comparable to such interest period consisting or included in the computation of Eurocurrency Liabilities (as defined in Regulation D of the Board of Governors of the Federal Reserve System). Without limiting the effect of the foregoing, but without duplicating the provisions of Section 8.3, the LIBOR Reserve Percentage shall reflect any other reserves required to be maintained by the Bank by reason of any Regulatory Change against (a) any category of liabilities which includes deposits by reference to which LIBOR is to be determined or (b) any category of extensions of credit or other assets which include LIBOR-based credits or assets. "LIEN" shall mean a security interest, lien, charge, pledge, equity or encumbrance of any kind, other than tax liens, mechanics' liens and any liens which attach to the respective Receivable by operation of law as a result of any act or omission by the related Obligor. "LIQUIDATED RECEIVABLE" shall mean a Receivable which, by its terms, is delinquent more than 120 days or, with respect to Receivables that are delinquent less than 120 days, the Servicer has (i) determined, in accordance with its customary servicing procedures, that eventual payment in full is unlikely, (ii) repossessed the Financed Vehicle, (iii) received notification that the Obligor is the subject of a bankruptcy, insolvency or similar proceeding or (iv) allocated a reserve for possible loss or recognized an estimated or actual loss. "LIQUIDATION PROCEEDS" shall mean the monies collected from whatever source, on a Liquidated Receivable, net of the sum of any amounts expended by the Servicer for the account of the Obligor, plus any amounts required by law to be remitted to the Obligor; PROVIDED, HOWEVER, that the Liquidation Proceeds with respect to any Receivable shall in no event be less than zero. "LOCKBOX ACCOUNT" shall mean a demand deposit account identified on Exhibit G hereto maintained with a Permitted Lockbox Bank pursuant to the Lockbox Agreement for the purpose of depositing payments made by the Obligors or such other account of which the Transferor may have notified the Bank from time to time. "LOCKBOX AGREEMENT" shall mean the agreement relating to lockbox services in connection with a Permitted Lockbox and related Lockbox Account which are in compliance with Section 6.8 hereof and otherwise in form and substance satisfactory to the Bank, which have been executed and delivered by AAFC to a Permitted Lockbox Bank. "LOSS RATIO" shall mean, as of any date of determination and for any Collection Period, a fraction, expressed as a percentage, the numerator of which equals the Portfolio Loss for such Collection Period and the denominator of 16 which equals the aggregate Principal Balance of all Receivables as of the first day of such Collection Period. "MATERIAL ADVERSE EFFECT" shall mean, with respect to either the Transferor or AAFC, as applicable, a material adverse effect on (i) the financial condition or operations of the Transferor or AAFC and its Subsidiaries, as the case may be, taken as one enterprise, (ii) the ability of the Transferor or AAFC, as the case may be, to perform its obligations under this Agreement, (iii) the legality, validity or enforceability of this Agreement, (iv) the Bank's interest in the Receivables or in any significant portion thereof, or (v) the collectibility of the aggregate amount of Receivables or of any significant portion of the Receivables, other than, in the case of clauses (i) through (v), such Material Adverse Effects which are the direct result of actions or omissions of the Bank. "MAXIMUM COMMITMENT" shall mean $35,000,000, or such other amount agreed to by the Transferor and the Bank. "MAXIMUM SUBORDINATED AMOUNT" shall mean, on any date of determination, (a) as long as no Incremental Enhancement Condition shall have occurred and be continuing, the difference between (i) the Aggregate Net Investment divided by 1 minus .15 and (ii) the Aggregate Net Investment, and (b) if an Incremental Enhancement Condition shall have occurred and be continuing, the difference between (i) the Aggregate Net Investment divided by 1 minus .225 and (ii) the Aggregate Net Investment. "MONTHLY REPORT" shall mean a report prepared by the Servicer in substantially the form of Exhibit D hereto. "MOODY'S" shall mean Moody's Investors Service, Inc., together with its successors. "MULTIEMPLOYER PLAN" means, with respect to AAFC, a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA which is or was at any time during the current year or the immediately preceding five years contributed to by AAFC or any ERISA Affiliate on behalf of its employees and which is covered by Title V of ERISA. "NET INVESTMENT ADDITIONAL AMOUNTS" on any Increase Date shall mean the amount paid by the Bank to the Transferor, which amount shall equal the maximum amount requested by the Transferor in the Increase Date Notice that (i) allows the conditions set forth in Section 4.2(h) hereof to be satisfied and (ii) when added to the Aggregate Net Investment, is not greater than the Maximum Commitment on such Increase Date. "OBLIGOR" shall mean any Person obligated to make payments pursuant to a Contract. 17 "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "PERMITTED LOCKBOX" shall mean a post office box identified on Exhibit G hereto maintained by a Permitted Lockbox Bank for the purpose of receiving payments made by the Obligors or such other post office box as the Servicer may identify to the Bank from time to time. "PERMITTED LOCKBOX BANK" shall mean a bank identified on Exhibit G hereto or such other bank as the Servicer may identify to the Bank from time to time. "PERSON" shall mean any corporation (including a business trust), natural person, firm, joint venture, joint stock company, partnership, trust, unincorporated organization, enterprise, government or any department or agency of any government. "PLAN" means any employee benefit or other plan which is or was at any time during the current year or immediately preceding five years established or maintained by AAFC or any ERISA Affiliate and which is covered by Title IV of ERISA, other than a Multiemployer Plan. "POOL BALANCE" for any date of determination shall mean the aggregate Principal Balance of the Receivables as of the close of business on the last day of the prior Collection Period, plus the aggregate of all amounts received as payments of principal in respect of Receivables (whether by or on behalf of the Obligors or from the Transferor) during the prior Collection Period, plus the Principal Balance of Additional Receivables designated since such day as shown in an Addition Date Statement. "PORTFOLIO LOSS" shall mean, with respect to any Collection Period, the aggregate Principal Balance of Liquidated Receivables during such Collection Period net of all Liquidation Proceeds (including estimated Liquidation Proceeds) received (or estimated to be received) during such Collection Period. "PORTFOLIO LOSS RATIO" shall mean, as of any date of determination and for any Collection Period, a fraction, expressed as a percentage, the numerator of which equals the AAFC Portfolio Loss for such Collection Period and the denominator of which equals the aggregate Principal Balance of all AAFC Portfolio Receivables as of the first day of such Collection Period. "POTENTIAL TERMINATION EVENT" shall mean an event which, but for the lapse of time or the giving of notice or both, would constitute a Termination Event. "PRINCIPAL BALANCE" of a Receivable, as of the close of business on the last day of a Collection Period, means the Amount 18 Financed MINUS the sum of (i) that portion of all amounts paid by or on behalf of the related Obligor allocable to principal using the Simple Interest Method, (ii) any payments made by the Transferor and allocable to principal pursuant to Section 2.16, and (iii) any payment of the Repurchase Amount with respect to the Receivable allocable to principal. "PRINCIPAL COLLECTIONS" means, for any Settlement Date, the sum of the following amounts with respect to the preceding Collection Period: (i) that portion of all Collections on Receivables allocable to principal, (ii) Liquidation Proceeds attributable to principal in accordance with the Servicer's customary servicing procedures, (iii) to the extent attributable to principal, the Repurchase Amount of each Receivable that was repurchased pursuant to Sections 2.12, 2.13 or 3.2 (the last paragraph thereof) during the related Collection Period, (iv) to the extent allocable to principal, any payments by the Transferor pursuant to Section 2.16, and (v) any prepayment (whether partial or in full) with respect to the Receivables allocable to principal. "PRINCIPAL DISTRIBUTION AMOUNT" shall mean, with respect to any Settlement Date, the Bank Percentage of: (i) the amount of all payments and prepayments, if any, allocated to principal during the related Collection Period; (ii) the principal portion of all payments by the Transferor pursuant to Section 2.16 received during the related Collection Period; and (iii) the portion of the Repurchase Amount allocated to principal during the related Collection Period. "PROCEEDS" shall mean "proceeds" as defined in Section 9-306(l) of the Relevant UCC. "PURCHASE AGREEMENT" shall mean the Purchase Agreement dated as of June 14, 1996, by and between AAFC, as seller, and the Transferor, as buyer. "RECEIVABLE" shall mean any retail installment sale contract arising out of or in connection with the sale of new or used automobiles or light-duty trucks and includes the right of payment of any Finance Charges and other obligations of the Obligor with respect thereto, originated by dealers or AAFC and sold by AAFC to the Transferor under the Purchase Agreement, which shall appear on Schedule 1 hereto (which Schedule 1 may be in the form of a computer file or microfiche list), as amended or modified on each Addition Date and otherwise from time to time pursuant to the terms hereof. "RECORDS" shall mean, with respect to each Receivable, all factory invoices and work orders describing the related Financed Vehicle, the bill of sale and guaranty of title, insurance policies, tax receipts, property and casualty insurance policies or binders naming the Servicer as loss payee or additional named insured, as is appropriate, insurance premium receipts, ledger sheets, payment records, insurance claim files 19 and correspondence, all documentation in connection with any modification, release, accommodation, consigning or guaranty of the Receivable and all other documents and instruments, including all books, records, files, tapes, correspondence and other information or materials (including, without limitation, computer programs, tapes, discs, punch cards, data processing software and related property and rights) relating to the Receivable, the Contract, the Title and the Financed Vehicle relating to the Receivable and this Agreement. "REGULATION D" shall mean Regulation D of the Board of Governors of the Federal Reserve System, as the same may be amended, supplemented or otherwise modified and in effect from time to time. "REGULATORY CHANGE" shall mean any change after the date of this Agreement in United States (federal, state or municipal) or foreign laws or regulations (including Regulation D) or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks (including the Bank) of or under any United States (federal, state or municipal) or foreign, laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "RELATED SECURITY" shall mean, with respect to any Receivable: (i) all of the Transferor's interest in the Financed Vehicle, and all of the Transferor's interest in all insurance contracts with respect thereto; (ii) all of the Transferor's right, title and interest in, to and under the Purchase Agreement with respect to such Receivable, including, without limitation, all amounts due or to become due to the Transferor from AAFC under such Agreement and all rights, remedies, powers, privileges and claims of the Transferor against AAFC under the Purchase Agreement with respect to such Receivable (whether arising pursuant to the terms of the Purchase Agreement or otherwise available to the Transferor at law or in equity); (iii) all of the Transferor's interest in all other security interest or liens and property subject thereto from time to time, if any, purporting to secure payment of the Contract related thereto, whether pursuant to such Contract or otherwise, together with all financing statements signed by an Obligor and security agreements describing any collateral securing such Contract; (iv) all of the Transferor's interest in all guaranties, insurance and other agreements or arrangements of whatever character from time to time supporting or 20 securing payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise; (v) all of the Transferor's interest in Dealer Recourse and all service contracts and other contracts and agreements associated with such Receivable; (vi) all of the Transferor's interest in Contract Files and all Records related to such Receivable; and (vii) all proceeds of the foregoing. "RELEVANT UCC" shall mean the Uniform Commercial Code as in effect from time to time in all applicable jurisdictions. "REPURCHASE AMOUNT" shall mean the amount described in Section 2.12(a) and payable in accordance with Sections 2.12, 2.13 and 3.2 (the last paragraph thereof). "RESPONSIBLE OFFICER" shall mean, with respect to any Person, the chief executive officer, principal financial officer, treasurer or controller of such Person. "S&P" shall mean Standard & Poor's Rating Group, together with its successors. "SECTION 8.2 COSTS" shall have the meaning specified in Section 8.2. "SECTION 8.3 COSTS" shall have the meaning specified in Section 8.3(c). "SERVICER" shall mean, initially, AAFC, and any successor Servicer designated pursuant to Section 6.7. "SERVICER DEFAULT" shall have the meaning specified in Section 6.9. "SERVICING FEE" shall mean, with respect to each Collection Period, a fee equal to 1/12 of 1.0% of the daily weighted average Pool Balance during such Collection Period, payable from the Collection Account to the Servicer from available Collections in accordance with Section 2.8(c). "SETTLEMENT DATE" shall mean the fifteenth (15th) day of each calendar month or, if such day is not a Business Day, the next succeeding Business Day. "SIMPLE INTEREST METHOD" means the method of allocating a fixed level payment to principal and interest, pursuant to which the portion of such payment that is allocated to interest is equal to the product of the APR multiplied by the unpaid principal balance, multiplied by the quotient obtained by calculating the period of time elapsed since the preceding payment of interest was made and dividing such period of time by 21 360, provided that each monthly period shall be deemed to have 30 days. "SUBSIDIARY" shall mean, for any Person, any corporation or other business organization 50% or more of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more such corporations or organizations or by such Person and one or more such corporations or organizations, and any partnership of which such Person or any such corporation or organization is a general partner. "SUPPLEMENTAL CONVEYANCE" shall mean the Supplemental Conveyance required to be delivered on each Addition Date pursuant to Section 2.4(b)(ii) hereof. "SUPPLEMENTAL SERVICING FEE" shall mean, on each Settlement Date, all late fees, prepayment charges and other administrative fees and expenses or similar charges allowed by applicable law with respect to the Receivables, collected (from whatever source) on the Receivables during the preceding Collection Period. "SUPPORT AGREEMENT" shall mean the Support Agreement dated as of June 14, 1996, executed by UAG in favor of the Transferor, and any amendments or modifications thereto. "TERMINATION DATE" shall mean the earlier to occur of (i) the occurrence of a Termination Event and the Bank's delivery of a notice of termination pursuant to Section 7.2 and (ii) June 13, 1997, or such later date agreed to between the Bank and the Transferor. "TERMINATION EVENT" shall mean an event described in Section 7.1. "TITLE" means, with respect to a Financed Vehicle, an original certificate of title, certificate of lien or other notification issued by the registrar of titles of the applicable state to a secured party which indicates that the lien of the secured party on the Financed Vehicle is recorded on the original certificate of title. In any jurisdiction in which the original certificate of title is required to be given to the Obligor, the term "Title" shall mean only a certificate or notification issued to a secured party. "TRANCHE" shall mean a portion of the Aggregate Net Investment allocated to a Tranche Period pursuant to Section 2.5. "TRANCHE PERIOD" shall mean a CBR Tranche Period or a Eurodollar Tranche Period. "TRANCHE RATE" shall mean the Corporate Base Rate or the Eurodollar Rate. 22 "TRANCHE SELECTION NOTICE" shall mean a written notice provided by the Servicer to the Bank pursuant to Section 2.5(a) in substantially the form of Exhibit A hereto. "TRANSFEROR" shall mean Atlantic Auto Second Funding Corporation, a Delaware corporation, and its successors and permitted assigns. "TRANSFEROR AMOUNT" shall mean the positive difference, if any, between the Pool Balance and the Aggregate Net Investment. "TRANSFEROR FINANCE CHARGE COLLECTIONS" shall mean with respect to any Collection Period, the Transferor Percentage of the sum of (i) Finance Charge Collections and (ii) Interest Rate Cap Payments, if any, for such Collection Period MINUS the Transferor Percentage of the Servicing Fee for such Collection Period. "TRANSFEROR PERCENTAGE" shall mean, with respect to any Collection Period, 100% MINUS the Bank Percentage for such Collection Period. "TRANSFEROR PRINCIPAL COLLECTIONS" shall mean with respect to any Collection Period, the Transferor Percentage of Principal Collections for such Collection Period. "TRANSFERRED INTEREST" shall mean, the Bank's (a) fractional undivided interest in (i) each and every Receivable identified on Schedule 1 hereto, (ii) all Related Security with respect to each such Receivable, (iii) all Collections with respect thereto, and (iv) all Proceeds of the foregoing and (b) interest in the Purchase Agreement and the Support Agreement. "UAG" shall mean United Auto Group, Inc., a Delaware corporation, and its successors and assigns. "VSI POLICY" means the vendors single interest physical damage insurance policy maintained with respect to the Receivables, a copy of which is attached as EXHIBIT D to the Purchase Agreement. SECTION 1.2. COMPUTATION OF TIME PERIODS. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." ARTICLE II TRANSFERS AND SETTLEMENTS SECTION 2.1. COMMITMENT. Upon the terms and subject to the conditions herein set forth, the Bank agrees to purchase a 23 fractional undivided interest in the Receivables represented by the Transferred Interest from time to time during the period from and including the Closing Date to but excluding the Termination Date in an aggregate principal amount at any one time outstanding not to exceed the Maximum Commitment. SECTION 2.2. TRANSFERS AND ASSIGNMENTS. The Transferor hereby assigns, transfers and conveys to the Bank and its successors and assigns a fractional undivided interest in all of the Transferor's right, title, and interest, whether now owned or hereafter acquired, in and to (i) the Receivables listed on Schedule 1 hereto and all Additional Receivables that become Receivables pursuant to Section 2.4, (ii) the Related Security with respect to such Receivables, (iii) all Collections, including all cash collections and other cash proceeds of the Receivables, exclusive of any amounts allocable to the premium for physical damage insurance force-placed by AAFC covering any related Financed Vehicle, (iv) the Interest Rate Cap and all Interest Rate Cap Payments, if any, (v) all monies from time to time on deposit in the Lockbox Accounts relating to the Receivables and the Collection Account, (vi) all cash and non-cash proceeds of any of the foregoing, (vii) the Purchase Agreement and (viii) the Support Agreement. In the event that such assignment, transfer or conveyance is deemed to constitute a pledge rather than an assignment of the aforementioned property, the Transferor does hereby grant to the Bank a first priority perfected security interest therein. The possession by the Bank or its transferee of notes and such other goods, letters of credit, advises of credit, money, documents, chattel paper or certificated securities shall be deemed to be "possession by the secured party," for purposes of perfecting the security interest pursuant to the Relevant UCC (including, without limitation, Section 9-305 thereof). Notifications to persons holding such property, and acknowledgments, receipts or confirmations from persons holding such property, shall be deemed to be notifications to, or acknowledgments, receipts or confirmations from, bailees or agents (as applicable) of the Bank or its transferee for the purpose of perfecting such security interest under applicable laws. The foregoing conveyance does not constitute an assumption by the Bank or its successors and assigns of any obligations of the Transferor to Obligors or to any other Person in connection with Receivables or under any agreement or instrument relating to the Receivables. In connection with such transfer, the Transferor agrees to record and file, at its own expense, financing statements with respect to the Receivables now existing and hereafter created for the transfer of chattel paper and general intangibles (each as defined in Article 9 of the Relevant UCC) meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect the transfer and assignment of the undivided interest in the Receivables to the Bank, and to deliver a file-stamped copy of such financing statements or other evidence of such filing satisfactory to the Bank on or prior to the Closing Date. 24 In connection with such transfer, the Transferor further agrees to deliver or cause AAFC to deliver to the Custodian the Contract Files relating to the Receivables. The Transferor shall maintain its books and records so that such records that refer to a Receivable shall indicate clearly that an interest in such Receivable has been transferred to the Bank. Indication of the Bank's interest in a Receivable shall be deleted from or modified on the Transferor's records when, and only when, the Receivable shall have been paid in full or the Bank's interest in such Receivable shall have been repurchased or repaid by the Transferor or the Servicer hereunder. In addition, the Servicer shall maintain its computer systems so that the Servicer's master computer records (including any back-up archives) that refer to a Receivable shall indicate clearly that such Receivable has been sold to the Transferor pursuant to the Purchase Agreement and that an interest in such Receivable has been transferred and assigned to the Bank. Indication of the Bank's undivided interest in a Receivable shall be deleted from or modified on the Servicer's computer system when, and only when, the Receivable shall have been paid in full or the Bank's undivided interest in such Receivable shall have been repurchased or repaid by the Transferor or the Servicer hereunder. The Servicer agrees to deliver to the Bank a list, which may be a computer file or microfiche list, containing a true and complete schedule of all such Receivables, identified by account number and by Principal Balance as of the origination date of such Receivable. Such file or list shall be marked as the "Receivables Schedule" and Schedule 1 to this Agreement, delivered to the Bank as confidential and proprietary, and is hereby incorporated into and made a part of this Agreement. SECTION 2.3. INCREASE OF AGGREGATE NET INVESTMENT. On any Increase Date, but no more than twice during any weekly period, the Transferor may request by delivery of an Increase Date Notice in the form of Exhibit I hereto (which Notice may be incorporated into the Addition Date Statement if an Increase Date and Addition Date will occur on the same day) that the Bank increase its Aggregate Net Investment by acquiring from the Transferor on such Increase Date a specified additional undivided interest in the Receivables (including any Additional Receivables) in a specified amount equal to no less than $500,000 ($1,000,000 in the case of the initial Increase Date) (each such amount, the "NET INVESTMENT ADDITIONAL AMOUNT"); PROVIDED, HOWEVER, that if such Increase Date is also a Settlement Date, then the Net Investment Additional Amount may be in an amount equal to the amount, if any, by which the Aggregate Net Investment would be reduced by the distributions pursuant to Section 2.8(c)(5) on such Settlement Date; and PROVIDED FURTHER, HOWEVER, that in no event shall the Net Investment Additional Amount on any Increase Date, together with the Aggregate Net Investment (before giving effect to such Net Investment Additional Amount), exceed the Maximum Commitment. Subject to satisfaction of the conditions precedent to the obligation of the Bank to purchase the Net Investment Additional Amount set forth 25 in Section 4.2, the Bank shall pay to the Transferor an amount equal to the Net Investment Additional Amount and the Transferor shall, automatically upon receipt of such payment, transfer to the Bank, without recourse, an additional undivided interest in Receivables equal to such Net Investment Additional Amount. The Net Investment Additional Amount paid by the Bank to the Transferor on the initial Increase Date shall be equal to the maximum amount requested by the Transferor that allows the condition set forth in Section 4.2(h) to be satisfied. SECTION 2.4. ADDITIONAL RECEIVABLES. (a) The Transferor may at any time prior to the Termination Date designate additional Eligible Receivables to be included as Receivables hereunder ("ADDITIONAL RECEIVABLES"). (b) Designation of Additional Receivables on any Addition Date shall occur upon the satisfaction in any order of the following conditions: (i) On or before the Business Day preceding such Addition Date, the Transferor shall give the Bank notice of the addition of such Additional Receivables, specifying such Addition Date and the aggregate Principal Balance of such Additional Receivables as of such Addition Date; (ii) On or prior to such Addition Date, the Transferor, the Servicer and the Bank shall have executed a supplemental conveyance in substantially the form of Exhibit J to this Agreement (a "SUPPLEMENTAL CONVEYANCE"); (iii) On or prior to such Addition Date, the Transferor or the Servicer shall have delivered to the Bank a completed Addition Date Statement in the form of Exhibit K hereto, which Addition Date Statement shall specify, among other things, the sum of the Pool Balance as determined in the most recent Monthly Report, the aggregate Principal Balance of Additional Receivables added since the date of such Monthly Report and the aggregate Principal Balance of Additional Receivables to be added on such Addition Date; and (iv) On or prior to such Addition Date, all of the applicable conditions set forth in Section 4.2 hereof shall have been satisfied. SECTION 2.5. SELECTION OF TRANCHE PERIODS AND TRANCHE RATES. (a) At all times hereafter, but prior to the Termination Date, the Servicer shall, subject to availability as described and the limitations described below, request Tranche Periods and Tranche Rates applicable thereto and allocate the Aggregate Net Investment to one or more selected Tranche Periods, so that the aggregate amounts allocated to outstanding Tranche 26 Periods at all times shall equal the Aggregate Net Investment; PROVIDED, HOWEVER, that at no time other than the thirty day period immediately preceding a term securitization transaction shall there be more than three (3) CBR Tranches outstanding. The Servicer shall, in the case of a Tranche Rate based on the Eurodollar Rate, three (3) Business Days prior to the issuance of a particular Tranche or Tranches and in the case of a Tranche Rate based on the Corporate Base Rate, on the day such Tranche is requested, give the Bank irrevocable written notice of such instructions in the form attached hereto as Exhibit A (each such notice, a "TRANCHE SELECTION NOTICE"); PROVIDED, HOWEVER, that (i) if no such notice is given, the Tranche Period shall be 30 days (or such lesser number of days as remain to the Termination Date) or (ii) if the Bank determines, in its sole discretion, that the Tranche Period requested by the Servicer is unavailable or uneconomical, the Bank may select any other Tranche Period; PROVIDED that prior to effecting such selection, the Bank shall use its best efforts to consult with and obtain the consent of the Servicer. After its receipt of any such Tranche Selection Notice, the Bank shall promptly confirm to the Servicer the Tranche Rate(s), the Tranche Period(s) and the amount of the Aggregate Net Investment allocated to each such Tranche. Each Tranche Period requested by the Servicer and approved by the Bank shall end on a Business Day. In the case of any Tranche Period scheduled to end after the Termination Date, such Tranche Period shall end instead on such Termination Date. (b) Upon the occurrence and continuation of a Termination Event, the Bank may, in its sole discretion, at any time or from time to time, by written notice to the Servicer, declare any Tranche Period to be terminated and allocate the amount of Aggregate Net Investment allocated to the Tranche for such Tranche Period to one or more other Tranches and Tranche Periods as the Bank shall select. The Bank shall be entitled to Early Collection Fees and indemnification from the Transferor in accordance with Section 8.1 in the event that a Tranche Period is ended before its scheduled final day due to the occurrence of a Termination Event. (c) At all times on and after the Termination Date occurring for the reason set forth in clause (i) of the definition of such term, the Bank may declare the Tranche Rates applicable to the Aggregate Net Investment to be equal to the Corporate Base Rate plus 2%. SECTION 2.6. DISCOUNT AND OTHER COSTS AND EXPENSES. The Transferor hereby agrees to pay to the Bank as and when due in accordance with this Agreement, the Discount. Discount based on the Tranche Rate shall accrue with respect to each Tranche on each day occurring during the Tranche Period related thereto. Discount accrued on each Tranche shall be payable on the last day of the applicable Tranche Period. If any amount hereunder shall be payable on a day which is not a Business Day, such amount shall be payable on the next succeeding Business Day (unless the amount is payable in respect of a Tranche, the Tranche Rate of 27 which is determined by reference to the Eurodollar Rate, and the next succeeding Business Day is in the next calendar month, in which event the amount shall be payable on the next preceding Business Day). Discount shall be calculated for the actual days elapsed on the basis of a year of 360 days for all Tranche Periods other than those calculated by reference to the Corporate Base Rate, and or the basis of a 365- or 366-day year, as the case may be, for the CBR Tranche Period. Nothing in this Agreement shall limit in any way the obligations of the Transferor to pay the amounts set forth in this Section 2.6. SECTION 2.7. PROTECTION OF OWNERSHIP OF THE BANK. The Transferor agrees that from time to time, at its expense, it will promptly execute and deliver all instruments and documents and take all action that the Bank may reasonably request in order to perfect or protect the Transferred Interest or to enable the Bank to exercise or enforce any of its rights hereunder. Without limiting the foregoing, the Transferor will, upon the request of the Bank, in order to accurately reflect this transaction, execute and file such financing or continuation statements or amendments thereto or assignments thereof (as permitted pursuant to Section 9.6 hereof) as may be reasonably requested by the Bank and mark its master data processing records with a notation describing the acquisition by the Bank of the Transferred Interest, as the Bank may reasonably request. To the fullest extent permitted by applicable law, the Bank shall be permitted to sign and file continuation statements and amendments thereto and assignments thereof without the Transferor's signature in such cases where the Transferor is obligated hereunder to sign such statements, amendments or assignments if, after written notice to the Transferor, the Transferor shall have failed to sign such continuation statements, amendments or assignments within ten (10) Business Days after receipt of such notice from the Bank. Carbon, photographic or other reproduction of this Agreement or any financing statement shall be sufficient as a financing statement. The Transferor shall neither change its name, identity or corporate structure (within the meaning of Section 9-402(7) of any applicable enactment of the Relevant UCC), nor relocate its chief executive office or any office where Records are kept unless it shall have: (i) given the Bank at least fifteen (15) days' prior notice thereof and (ii) delivered to the Bank all financing statements, instruments and other documents requested by the Bank in connection with such change or relocation. SECTION 2.8. ALLOCATION AND APPLICATION OF COLLECTIONS. (a) GENERAL SETTLEMENT PROCEDURES. The Servicer shall remit to the Collection Account all Collections (other than Repurchase Amounts and repayments pursuant to Section 2.16) within two Business Days of receipt thereof. The Servicer and the Transferor shall deposit or cause to be deposited in the Collection Account the Repurchase Amounts and repayments pursuant to Section 2.16 when such obligations are due. 28 (b) PAYMENT OF DISCOUNT. The Transferor hereby agrees to pay to the Bank, from Finance Charge Collections and moneys retained in the Collection Account on prior Settlement Dates pursuant to Section 2.8(c), Advances, if any, and other funds contributed by the Transferor or the Servicer, on the last day of each Tranche Period, in accordance with the terms of this Agreement, all amounts due and payable with respect to the accrued Discount on such day. (c) SERVICER ALLOCATIONS. On each Settlement Date, the Servicer shall prior to 12:00 noon, New York City time, cause to be made the following distributions and transfers in the amounts set forth in the related Monthly Report in the following priority from the aggregate Collections on the Receivables: (1) from Finance Charge Collections in respect of prior Collection Periods, to reimburse the Servicer for any Advances made with respect to the preceding Collection Period and any unreimbursed Advances from prior Collection Periods; PROVIDED, HOWEVER, that if a Termination Event has occurred and is continuing and AAFC is the Servicer, such Advances shall be reimbursed pursuant to clause (10) below; PROVIDED FURTHER, HOWEVER, that the Servicer may, in its sole discretion, defer the reimbursement of any such Advances to a future Settlement Date; (2) from Finance Charge Collections remaining in respect of the preceding Collection Period, to the Servicer in payment of the Servicing Fee for the preceding Collection Period and any unpaid Servicing Fees from prior Collection Periods; (3) from Bank Finance Charge Collections, Advances (if any) and Collections retained in the Collection Account from prior Settlement Dates pursuant to clause (4) below, to pay to the Bank any Discount due on such Settlement Date; (4) from Bank Finance Charge Collections remaining and Advances (if any), to retain in the Collection Account any accrued and unpaid Discount through the related Determination Date; (5)(A) on each Settlement Date prior to the Termination Date, from Bank Principal Collections and Bank Finance Charge Collections remaining, to the Bank in an amount equal to the Principal Distribution Amount to be used to reduce the Aggregate Net Investment until such time as the Aggregate Net Investment shall be reduced to zero, PROVIDED that if the conditions specified in Section 4.2 hereof shall have been satisfied on such Settlement Date, the amount equal to the Principal Distribution Amount shall be treated as a Net Investment Additional Amount and therefore, paid to the Transferor (such that after such treatment and payment, the Aggregate Net Investment remains 29 unchanged); and (B) on each Settlement Date on or after the Termination Date, from Bank Principal Collections and Bank Finance Charge Collections remaining, to the Bank to be used to reduce the Aggregate Net Investment until such time as the Aggregate Net Investment shall be reduced to zero; (6) to the Bank, from and to the extent of remaining Bank Finance Charge Collections and Bank Principal Collections, an amount equal to the aggregate Principal Balance with respect to Liquidated Receivables; (7) to the Transferor, the remaining Bank Finance Charge Collections, if any; (8) to the Transferor, the Transferor Finance Charge Collections; (9) to the Transferor, the Transferor Principal Collections; and (10) if as a result of a Termination Event, no distribution was made to the Servicer pursuant to clause (1) above, from the Collections remaining, to reimburse the Servicer for any Advances made with respect to the preceding Collection Period and any unreimbursed Advances from prior Collection Periods. If on any Settlement Date the Bank Finance Charge Collections, Advances, if any, and Bank Principal Collections are insufficient to pay the sum of the amounts to be distributed or retained in the Collection Account on such Settlement Date pursuant to clauses (3), (4) and (5) above or in the event there remains unpaid any aggregate Principal Balance of Liquidated Receivables after the payment pursuant to clause (6) above, the Servicer shall deduct the amount of such shortfall or unpaid amount from the amounts to be distributed to the Transferor first pursuant to clause (7) above and second pursuant to clause (8) above and third pursuant to clause (9) above, in each case up to the amount described therein and subject to an aggregate amount on any Settlement Date equal to the Available Subordinated Amount for such Settlement Date. Any amounts so deducted shall (i) be applied to the shortfall in the order set forth above, (ii) reduce the amounts distributable to the Transferor and (iii) reduce the Available Subordinated Amount, but only to the extent of the amounts deducted pursuant to clause (9) above. The Available Subordinated Amount on any Settlement Date shall be increased by the amounts available to the Transferor pursuant to clauses (7), (8) and (9) above on such Date (after giving effect to the preceding sentence). Any amounts constituting the Supplemental Servicing Fee shall be paid to the Servicer as additional servicing compensation. (d) If on any Settlement Date an Incremental Enhancement Condition has occurred, then Servicer shall deduct from the amounts payable to the Transferor pursuant to (c) above 30 and shall distribute to the Bank as a reduction of the Aggregate Net Investment any such amount to the extent necessary to cause the Bank's Percentage to equal 77.5%. SECTION 2.9. SERVICER ADVANCES. If, on any date on which Discount is due and payable or on any Settlement Date when accrued and unpaid Discount is required to be retained, Finance Charge Collections in respect of Receivables in the Collection Account or in the possession of the Servicer are insufficient to pay the Discount due or to be accrued on such date, then the Servicer may make an advance in the amount of such shortfall (each such advance, an "ADVANCE") and such Advance shall either be paid to the Bank on such date to the extent Discount is due and payable on such date or retained in the Collection Account to the extent Discount is not due and payable on such date. On each Settlement Date, the Servicer shall be entitled to reimbursement, in accordance with Section 2.8(c)(1) or (10), for any Advances not previously reimbursed, without interest, from subsequent Finance Charge Collections. SECTION 2.10. PAYMENTS AND COMPUTATIONS, ETC. All amounts to be paid or deposited to the Bank by the Transferor or the Servicer hereunder shall be paid or deposited to Account Number 001-39-968 maintained at the office of Morgan Guaranty Trust Company of New York, New York, New York, For Credit to: Morgan Guaranty Trust Company of New York - Delaware Branch until otherwise notified by the Bank in accordance with the terms hereof, no later than 2:00 p.m. (New York time) on the day when due in immediately available funds. The Transferor shall, to the extent permitted by law, pay to the Bank, upon demand, interest on all amounts not paid or deposited when due to the Bank hereunder at a rate equal to 1% per annum plus the Corporate Base Rate of interest as announced by Morgan Guaranty Trust Company of New York from time to time. All computations of interest hereunder shall be made on the basis of a year of 360 days (365 or 366 days, as applicable, for a CBR Tranche Period) for the actual number of days (including the first but excluding the last day) elapsed. SECTION 2.11. REPORTS. On or prior to each Determination Date, the Servicer shall prepare and forward to the Bank a Monthly Report in substantially the form of Exhibit D hereto, calculated as of the close of business of the Transferor on the last day of the preceding Collection Period. The Servicer shall include in the Monthly Report a determination of whether any Condition shall be deemed to have occurred during the preceding calendar month or whether any Condition shall be continuing during such preceding Collection Period, shall describe any such Condition, and shall evidence the calculation used to make such determination. The Transferor shall, or cause the Servicer to, furnish to the Bank at any time and from time to time, such other or further information in respect of the Receivables as are required hereunder or as the Bank may reasonably request. 31 SECTION 2.12. OPTIONAL PURCHASE; RETRANSFER OF LIQUIDATED RECEIVABLES. (a) Subject to the next succeeding sentence, the Transferor shall have the right to repurchase all of the existing Receivables if, at any time, the Pool Balance of the Receivables falls below 10% of the Maximum Commitment. The Transferor shall be entitled to effectuate such reconveyance on the next Settlement Date following written notice to the Bank at a repurchase amount equal to the aggregate Principal Balance of the Receivables being purchased on such Settlement Date plus accrued and unpaid Finance Charges thereon through such Settlement Date (the "REPURCHASE AMOUNT"). (b) The Transferor has the option, to be exercised in its sole and absolute discretion, to repurchase any Liquidated Receivable, by paying to the Servicer on the next Settlement Date the Repurchase Amount. (c) The Transferor shall have the right, at any time and from time to time, to repurchase all or any portion of the Receivables, upon at least ten (10) Business Days' notice to the Bank stating the proposed date of such repurchase and the aggregate Principal Balance of Receivables to be repurchased, in connection with, and from the proceeds of, any term securitization transaction. The Transferor shall effectuate such repurchase by paying the Bank the Repurchase Amount. (d) If, on any day with respect to any Receivable which (i) has become a Liquidated Receivable which has been repurchased pursuant to Section 2.8(c), or (ii) has been repurchased by the Transferor pursuant to Section 2.12(a) or (b), 2.13 or 3.2 (the last paragraph thereof) or repaid in full pursuant to Section 2.16, then, in such event and upon payment of any Aggregate Unpaids (if all Receivables have been repurchased or repaid), the Bank shall, on such day and at the expense of the Transferor, (i) retransfer to the Transferor all of its right, title and interest in, to and under such Receivable and all Related Security and Collections with respect thereto, and all Proceeds of the foregoing and (ii) execute any and all instruments, certificates and other documents reasonably necessary to effect such retransfer. Each Monthly Report delivered by the Servicer shall state the aggregate Principal Balance of the repurchased and reconveyed Receivables for the preceding Collection Period. (e) The Servicer shall apply all Repurchase Amounts received pursuant to Section 2.12, 2.13 or 3.2 (the last paragraph thereof) and all payments received from the Transferor pursuant to Section 2.16 as Principal Collections and Finance Charge Collections, as the case may be, in accordance with Section 2.8. SECTION 2.13. MANDATORY REPURCHASE UNDER CERTAIN CIRCUMSTANCES. (a)The Transferor shall repurchase from the Bank all Receivables if at any time upon written advice of counsel, the Bank shall cease to have a first priority perfected security 32 interest in the Receivables, free and clear of any lien, within three days of notice thereof by the Bank. The Repurchase Amount shall be paid by the Transferor to the Bank in accordance with Section 2.8. (b) The Transferor shall repurchase from the Bank any Receivable with respect to which the Bank has not received a Custodian Confirmation within fifteen (15) Business Days after such Receivable has been designated as a Receivable hereunder. Such repurchase shall be effectuated by the Transferor on the Settlement Date next following notice by the Bank that the Custodian's Certificate has not been received by payment to the Bank of the Repurchase Amount. SECTION 2.14. INTEREST RATE CAP AGREEMENT. On the Settlement Date immediately following receipt of a Monthly Report that indicates that an Excess Spread Condition shall have occurred, the Transferor shall, unless the Bank instructs otherwise, be obligated to provide at its own expense an Interest Rate Cap. In addition, the Transferor shall be required to provide an Interest Rate Cap on an Increase Date or an Addition Date, if required by the Bank pursuant to Section 4.2(j). Payments made by the counterparty to such Interest Rate Cap shall be treated as Finance Charge Collections. SECTION 2.15. FEES. Notwithstanding any limitation on recourse contained in this Agreement, the Transferor shall pay the Commitment Fees as the same become due and payable. SECTION 2.16. DILUTION. If the Principal Balance of a Receivable is either (i) reduced or cancelled as a result of any (a) refunded item included in the Amount Financed, such as extended warranty protection plan costs or Insurance Policy premiums, (b) defective or rejected Financed Vehicle, goods or services, any cash discount or of any adjustment by the Transferor, or (ii) reduced or cancelled as a result of a set off in respect of any claim by any Person (whether such claim arises out of the same or a related transaction or an unrelated transaction), the Transferor shall pay to the Servicer on such day the amount of such reduction or, if such transferred Receivable is cancelled, the amount of the Principal Balance thereof, together with the Finance Charges accrued thereon through such day. 33 ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF TRANSFEROR. The Transferor represents and warrants to the Bank on and as of the Closing Date, as of each Increase Date and as of each Addition Date that: (a) CORPORATE EXISTENCE AND POWER. The Transferor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has all corporate power and all governmental licenses, authorizations, consents and approvals required to carry on its business relating to the Transferor's purchasing and selling of receivables relating to sales of automobiles and light-duty trucks in each jurisdiction in which its business is now conducted. (b) DUE QUALIFICATION. The Transferor shall be duly qualified to do business as a foreign corporation in good standing, and shall have obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of property or the conduct of its business shall require such qualifications. (c) CORPORATE AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION. The execution, delivery and performance by the Transferor of this Agreement and each other Facility Document are within the Transferor's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official (except as contemplated by Section 2.7), and do not contravene or violate, or constitute a default under, any provision of applicable law or to the best of Transferor's knowledge any order rule, or regulation applicable to the Transferor or of the Certificate of Incorporation or Bylaws of the Transferor or of any agreement of a material nature, judgment, injunction, order, decree or other instrument binding upon the Transferor or result in the creation or imposition of any lien on assets of the Transferor (except as contemplated by Section 2.7). The Transferor has obtained all approvals and releases of security interests from its creditors as are necessary to sell, transfer and assign the Transferred Interest to the Bank hereunder. (d) BINDING EFFECT. This Agreement and the other Facility Documents constitute the legal, valid and binding obligations of the Transferor, enforceable against the Transferor in accordance with their respective terms, subject to the effect of bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally. (e) ACCURACY OF INFORMATION. All information heretofore furnished by the Transferor for purposes of or in connection with this Agreement or any transaction contemplated 34 hereby is, and all Increase Date Notices, Addition Date Statements and such other information hereafter furnished by the Transferor to the Bank will be, true and accurate in every material respect, on the date such information is stated or certified. (f) ACTIONS, SUITS. Except as set forth in Exhibit B, there are no actions, suits or proceedings pending, or to the knowledge of the Transferor threatened, against or affecting the Transferor or their respective properties, in or before any court, arbitrator or other body, which (i) may have a Material Adverse Effect, (ii) assert the invalidity of this Agreement, any of the other Facility Documents or any material amount of Receivables or (iii) seek to prevent the consummation of the transactions contemplated hereby or thereby. (g) PLACE OF BUSINESS. The chief place of business and chief executive office of the Transferor are located at 800 Perinton Hills Office Park, Fairport, New York 14450, and the offices where the Transferor keeps all the Records, are located at the addresses described on Exhibit C or such other locations notified to the Bank in accordance with Section 2.7 in jurisdictions where all action required by Section 2.7 has been taken and completed. Since its incorporation, the Transferor has not merged or consolidated with any other corporation or been the subject of any bankruptcy proceeding. (h) NAMES. Except as described in Exhibit F, the Transferor has not used any corporate names, tradenames or assumed names other than its name set forth on the signature pages of this Agreement. (i) USE OF PROCEEDS. No proceeds of the Net Investment Additional Amounts will be used for a purpose which violates, or would be inconsistent with regulations G, T, U or X promulgated by the Board of Governors of the Federal Reserve System from time to time. (j) NO TERMINATION EVENT. No Termination Event or Potential Termination Event has occurred on or before the Closing Date or Addition Date, as applicable. (k) FINANCIAL CONDITION. The Transferor is not insolvent or the subject of any bankruptcy proceeding and the transfer of the Receivables on such day will not be made in contemplation of the occurrence thereof. (l) TAXES. The Transferor has filed all income tax returns (federal, state and local) and all other material tax returns which are required to be filed by them and has paid all taxes due pursuant to such returns or pursuant to any assessment received by it except for any such tax assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings. 35 (m) BOOKS AND RECORDS. The Transferor has indicated on its books and records (including any computer files), that the Transferred Interest in the Receivables is the property of the Bank. (n) PERMITTED LOCKBOX BANKS. The names and addresses of all Permitted Lockbox Banks, together with the numbers of all Lockbox Accounts at such Permitted Lockbox Banks and the addresses of all related Permitted Lockboxes, are specified in Exhibit G (or such other Permitted Lockbox Banks, Lockbox Accounts and/or Permitted Lockboxes as have been notified by the Transferor to the Bank pursuant to Section 6.8). (o) INVESTMENT COMPANY. The Transferor is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (p) FRAUD. There is no fraud on its part or, to its knowledge, on the part of any other party to any of the Facility Documents, in connection with the transactions contemplated by this Agreement or any of the other Facility Documents. SECTION 3.2. REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR WITH RESPECT TO EACH SALE OF RECEIVABLES. By selling to the Bank Net Investment Additional Amounts on each Increase Date and fractional undivided interests in Additional Receivables on each Addition Date, the Transferor represents and warrants to the Bank as of each such date and only as to Receivables in which an interest is first sold by the Transferor to the Bank hereunder on such date (in addition to its other representations and warranties contained herein or made pursuant hereto) that: (a) STATEMENTS. All information set forth on the related Addition Date Statement, Increase Date Notice and/or Monthly Report, as the case may be, relating to such Receivables is true and correct as of such date of purchase. (b) ASSIGNMENT. This Agreement vests in the Bank, all the right, title and interest of the Transferor in and to the Transferred Interest, and constitutes a valid sale of the Transferred Interest, enforceable against, and creating an interest prior in right to, all creditors of and purchasers from such Transferor, subject to all applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and general principles of equity, regardless of whether enforcement is sought in a proceeding in equity or at law. (c) GOOD TITLE; PERFECTION. The original Title for each Financed Vehicle shows AAFC as the original secured party and as the holder of a first priority security interest in the related Financed Vehicle. Pursuant to the Purchase Agreement, AAFC sold, transferred and assigned to the Transferor its security interest in the Receivable and related Financed Vehicle, such that immediately prior to the transfer hereunder, the 36 Transferor shall be the legal and beneficial owner of the Receivables and Related Security with respect thereto, free and clear of any Adverse Claim and each Receivable shall be secured by a first perfected security interest in the related Financed Vehicle in favor of the Transferor. This Agreement is effective to, and shall transfer to the Bank, a valid and perfected first priority ownership or security interest in each Receivable and in the Related Security and Collections (to the extent provided by Section 9-306 of the Relevant UCC) with respect thereto and the documents entered into in connection therewith, free and clear of any Adverse Claim (except as created by this Agreement). On or prior to the date hereof, all financing statements and other documents required to be recorded or filed in order to perfect and protect the Bank's interest in the Transferred Interest against all creditors of and transferees from the Transferor will have been duly filed in each filing office necessary for such purpose and all filing fees and taxes, if any, payable in connection with such filings shall have been paid in full. No effective financing statement and other instrument similar in effect covering any Contract relating to a Receivable or the Related Security or Collections with respect thereto is on file in any recording office, except those filed pursuant to this Agreement. (d) ELIGIBLE RECEIVABLES. Each Receivable transferred to the Transferor is an Eligible Receivable. (e) BINDING EFFECT OF RECEIVABLES AND CONTRACT. Each Receivable and related Contract constitutes a legal, valid and binding obligation of the related Obligor enforceable in accordance with its terms against such Obligor subject to the effect of bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights and remedies generally and general principles of equity. (f) CREDIT AND COLLECTION POLICY. The Transferor has complied in all material respects with the Credit and Collection Policy in regard to each Receivable and related Contract. The Transferor has not extended or modified the terms of any Receivable or the related Contract except in accordance with the Credit and Collection Policy. (g) INSURANCE POLICIES. The Transferor, in accordance with its normal and customary procedures, shall have determined that the Obligor has obtained or agreed to obtain an Insurance Policy covering the Financed Vehicle, and the Obligor is required under the terms of its related Contract to maintain such Insurance Policy. (h) FILINGS. On or prior to each date on which a purchase occurs, all financing statements and other documents required to be recorded or filed in order to perfect and protect the Transferred Interest against all creditors of and purchasers from the Transferor and all other Persons whatsoever will have been duly filed in each filing office necessary for such purpose 37 and all filing fees and taxes, if any, payable in connection with such filings shall have been paid in full. (i) MAINTENANCE OF RECORDS. The Transferor maintains at its chief executive office or shall cause the Servicer to maintain at its chief executive office the complete Records for each Receivable. To the extent that any of the statements and representations made in Section 3.1(e) or Section 3.2(a), (c), (d), (e), (f), (g) or (i) shall prove to have been untrue or incorrect with respect to any Receivable at the time made and, if the Transferor is unable to remedy such untrue or incorrect statement or representation within ten (10) days of the Transferor's receipt of notice of such untrue or incorrect statement or representation, such a finding shall not result in a Termination Event hereunder, but the Transferor shall reacquire such Receivables from the Bank for an amount equal to the Repurchase Amount at the time of such repurchase, and (i) all such reconveyed Receivables shall no longer constitute Receivables hereunder and (ii) following such reacquisition by the Transferor, the Bank shall have no further remedy against the Transferor with respect to such reconveyed Receivables. SECTION 3.3. REPRESENTATIONS AND WARRANTIES OF SERVICER. AAFC, as initial Servicer, represents and warrants to the Bank on and as of the Closing Date, as of each Increase Date and as of each Addition Date, and any successor Servicer by its appointment hereunder, represents and warrants to the Bank, on and as of the date of its appointment, as of each Increase Date and as of each Addition Date after its appointment, that: (a) CORPORATE EXISTENCE AND POWER. The Servicer is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, and has all corporate power and all governmental licenses, authorizations, consents and approvals required to carry on its business in each jurisdiction in which its business is now conducted. (b) DUE QUALIFICATION. The Servicer shall be duly qualified to do business as a foreign corporation in good standing, and shall have obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of property or the conduct of its business shall require such qualifications. (c) CORPORATE AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION. The execution, delivery and performance by the Servicer of this Agreement and each of the Facility Documents to which it is a party are within the Servicer's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official (except as contemplated by Section 2.7), and do not contravene or violate, or constitute a default under, any provision of applicable law or to the best of 38 Servicer's knowledge any order rule, or regulation applicable to the Servicer or of the Articles of Incorporation or Bylaws of the Servicer or of any agreement of a material nature, judgment, injunction, order, decree or other instrument binding upon the Servicer or result in the creation or imposition of any lien on assets of the Servicer or any of its Subsidiaries (except as contemplated by Section 2.7). (d) BINDING EFFECT. This Agreement and each of the Facility Documents to which the Servicer is a party constitute the legal, valid and binding obligations of the Servicer, enforceable against the Servicer in accordance with their respective terms, subject to the effect of bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally. (e) ACCURACY OF INFORMATION. All information heretofore furnished by the Servicer to the Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all Increase Date Notices and Addition Date Statements and such other information hereafter furnished by the Servicer to the Bank will be, true and accurate in every material respect, on the date such information is stated or certified. (f) ACTIONS, SUITS. Except as set forth in Exhibit B, there are no actions, suits or proceedings pending, or to the knowledge of the Servicer threatened, against or affecting the Servicer or its Subsidiaries or their respective properties, in or before any court, arbitrator or other body, which (i) may have a Material Adverse Effect, (ii) assert the invalidity of this Agreement, any Facility Document, the Contracts or any material amount of Receivables or (iii) seek to prevent the consummation of the transactions contemplated hereby or thereby. (g) CREDIT AND COLLECTION POLICY. The Servicer has complied in all material respects with the Credit and Collection Policy in regard to each Receivable and related Contract. The Servicer has not extended or modified the terms of any Receivable or the related Contract except in accordance with the Credit and Collection Policy. (h) NO SERVICER DEFAULT OR TERMINATION EVENT. No event has occurred and is continuing which constitutes a Servicer Default, a Termination Event or a Potential Termination Event as of such date. (i) ERISA. No event or condition is occurring or exists with respect to any Plan or Multiemployer Plan concerning which the Servicer would be under an obligation to furnish a report to the Bank in accordance with Section 5.3(s). (j) NO CHANGE IN ABILITY TO SERVICE. With respect to AAFC only, since the date hereof, there has been no material 39 adverse change in the ability of the Servicer to service and collect the Receivables and the Related Security and Collections. (k) FINANCIAL CONDITION. The Servicer is not insolvent or the subject of any bankruptcy proceeding. ARTICLE IV CONDITIONS PRECEDENT SECTION 4.1. CONDITIONS TO CLOSING. On or prior to the Closing Date, the Transferor shall deliver to the Bank the following documents and instruments, all of which shall be in form and substance acceptable to the Bank: (a) A Certificate of the Secretary of each of the Transferor and AAFC certifying (i) the names and signatures of the officers authorized on its behalf to execute this Agreement and the Purchase Agreement and any other documents to be delivered by it hereunder (on which Certificate the Bank may conclusively rely until such time as the Bank shall receive from the Transferor or AAFC, as applicable, a revised Certificate meeting the requirements of this clause (a)(i)), (ii) a copy of the Articles of Incorporation of each of the Transferor and AAFC, certified as of the date reasonably near the date hereof by the Secretary of State of the State of such party's jurisdiction of incorporation, (iii) a copy of the By-laws of each of the Transferor and AAFC, as amended, (iv) a copy of resolutions of the Board of Directors (or any executive committee designated by the Board of Directors) of each of the Transferor and AAFC approving the transactions contemplated hereby, (v) a certificate as of a date reasonably near the date hereof of the Secretary of State of such party's jurisdiction of incorporation certifying each of the Transferor's and AAFC's good standing under the laws of such jurisdiction, and (vi) evidence of the filing of application for qualification as a foreign corporation with the offices of the Secretaries of State or other similar official of each jurisdiction where such qualification is material to the transactions contemplated by this Agreement; (b) An incumbency and authorization certificate of each of the Transferor and AAFC in such form as the Bank may reasonably request; (c) Acknowledgment copies of proper financing statements (Form UCC-1), dated a date reasonably near to the date hereof naming the Transferor as the transferor (debtor) of the Receivables and the Bank as transferee (secured party) or other similar instruments or documents as may be necessary or in the opinion of the Bank desirable under the Relevant UCC or any comparable law to perfect the Bank's fractional undivided ownership interest in the Receivables; 40 (d) Acknowledgment copies of proper financing statements (Form UCC-1), dated a date reasonably near to the date hereof, naming AAFC as the transferor (debtor) of the Receivables and the Transferor as transferee (secured party) or other similar instruments or documents as may be necessary or in the opinion of the Bank desirable under the Relevant UCC or other comparable law to perfect the Transferor's interest in the Receivables; (e) Acknowledgment copies of proper financing statements (Form UCC-3), if any, necessary to release all security interests and other rights of any Person in the Receivables and Related Security previously granted by the Transferor; (f) Certified copies of request for information or copies (Form UCC-11) (or a similar search report certified by parties acceptable to the Bank) dated a date reasonably near the date hereof listing all effective financing statements which name the Transferor or AAFC (under its present name or any previous or "doing business" name) as transferor or debtor and which are filed in jurisdictions in which the filings were made pursuant to item (c) or (d) above together with copies of such financing statements (none of which shall cover any Receivables or related Contracts); (g) Favorable opinions of Nixon, Hargrave, Devans & Doyle, special counsel for the Transferor and AAFC, addressed to the Transferor, AAFC and the Bank as to corporate enforceability, true sale, substantive consolidation and perfection matters, in forms reasonably acceptable to the Bank; (h) A comfort letter from Coopers & Lybrand, Transferor's accountants, addressed to the Bank, as to such matters as the Bank may reasonably request; (i) On or prior to the initial Increase Date, (i) an executed copy of the Support Agreement and (ii) favorable Opinion of Wilkie, Farr & Gallagher, special counsel to UAG, addressed to UAG and the Bank as to corporate matters and enforceability of the Support Agreement against UAG, in a form reasonably acceptable to the Buyer; (j) A form of Contract or Contracts; (k) An executed copy of the Purchase Agreement and the executed Subordinated Note described therein; (l) Receipt of the Engagement Fee; (m) Evidence of the establishment of the Collection Account; (n) Copies of Lockbox Agreements and any amendments thereto and all other agreements previously given or entered into with each of the Permitted Lockbox Banks; and 41 (o) An executed copy of the Custodial Agreement; (p) An executed copy of the Expense and Tax-Sharing Agreement; (q) The fully executed VSI Policy; and (r) Such other documents as the Bank may reasonably request. SECTION 4.2. CONDITIONS TO PURCHASE OF NET INVESTMENT ADDITIONAL AMOUNTS AND ADDITIONAL RECEIVABLES. The Bank's obligation to purchase Net Investment Additional Amounts on any Increase Date pursuant to Section 2.3 hereof and the Transferor's right to designate Additional Receivables on each Addition Date shall be subject to satisfaction of the following applicable conditions precedent: (a) the truth and correctness of: (i) the representations and warranties in Section 3.1 hereof and in Section 3.1 of the Purchase Agreement as of such Increase Date or Addition Date, as applicable, as though made on and as of such date, and (ii) the representations and warranties in Section 3.2 of this Agreement and Section 3.2 of the Purchase Agreement, but only as to the Receivables in which an interest is first sold by the Transferor to the Bank hereunder on such date; (b) compliance with the covenants and agreements in Articles II, V and VI hereof and in Articles II and V of the Purchase Agreement; (c) in the case of an Increase Date, the requirement that no Termination Event or Potential Termination Event shall exist or shall occur as a result of such purchase; (d) the Transferor or the Servicer shall have delivered to the Bank any necessary modifications or additions to Schedule I hereto; (e) the Servicer shall have delivered to the Bank an Increase Date Notice or an Addition Date Statement and an executed Supplemental Conveyance, as applicable; (f) the Transferor and the Servicer shall have taken any actions necessary or advisable to maintain the Bank's perfected security interest in the Transferred Interest (including in Additional Receivables); (g) the satisfactory completion by the Bank of any due diligence determined necessary by the Bank with respect to the Receivables and the related Obligors and Contracts; 42 (h) in the case of each Increase Date, as of such Increase Date, both before and after giving effect to the purchase of the Net Investment Additional Amount, the Adjusted Pool Balance shall not be less than the sum of (i) the Aggregate Net Investment and (ii) the Maximum Subordinated Amount; (i) if as of such Increase Date or Addition Date, as the case may be, after giving effect to the designation of Additional Receivables, if any, an Excess Spread Condition shall occur, then the Transferor shall, unless the Bank instructs otherwise, provide an Interest Rate Cap; and (j) the receipt by the Bank of any approvals, opinions or other documents as the Bank shall have reasonably requested. ARTICLE V COVENANTS SECTION 5.1. COVENANTS OF THE TRANSFEROR. At all times from the date hereof to the date on which the Aggregate Unpaids shall be equal to zero, unless the Bank shall otherwise consent in writing: (a) FINANCIAL REPORTING. The Transferor will maintain a system of accounting established and administered in accordance with generally accepted accounting principles, and furnish to the Bank: (i) ANNUAL REPORTING. Within 120 days after the close of each of its fiscal years (x) in the case of the Transferor, a copy of its financial statements for such year and a balance sheet as of the end of such year, a statement of income, cash flow and changes in shareholder equity of the Transferor for such fiscal year, together with comparative information for the previous fiscal year, and copies of all reports and management letters, if any, from the independent certified public accountants to the Transferor, which reports and letters shall be reasonably satisfactory to the Bank, all certified by the chief financial officer of the Transferor and (y) in the case of AAFC, a copy of its consolidated financial statements for such year and consolidated balance sheets as of the end of such year, consolidated statements of income, cash flow and changes in shareholder equity of AAFC and its Subsidiaries for such fiscal year, together with comparative information for the previous fiscal year, and copies of all reports and management letters, if any, from the independent certified public accountants to AAFC, which reports and letters shall be reasonably satisfactory to the Bank, all certified by the chief financial officer of AAFC; (ii) MONTHLY REPORTING. Within 30 days following the close of each calendar month (x) in the case of the 43 Transferor, a balance sheet of the Transferor as of the end of such month and a statement of income of the Transferor for such month and for the period commencing at the end of the previous fiscal year and ending with the end of such month, certified by the chief financial officer of the Transferor and (y) in the case of AAFC, consolidated balance sheets of AAFC and its Subsidiaries as of the end of such month and consolidated statements of income of AAFC and its Subsidiaries for such month and for the period commencing at the end of the previous fiscal year and ending with the end of such month, certified by the chief financial officer of AAFC; (iii) COMPLIANCE CERTIFICATE. Together with the annual report required above, a compliance certificate in substantially the form of Exhibit E hereto signed by its chief accounting officer or treasurer of the Transferor and the Servicer stating that no Termination Event, Potential Termination Event or Servicer Default exists, or if any Termination Event, Potential Termination Event or Servicer Default exists, stating the nature and status thereof. (iv) NOTICE OF TERMINATION EVENTS, POTENTIAL TERMINATION EVENTS OR SERVICER DEFAULTS. As soon as possible, and in any event within five (5) days after a Responsible Officer of the Transferor obtains knowledge of the occurrence of each Termination Event, Potential Termination Event or Servicer Default, a statement of the chief financial officer or chief accounting officer of the Transferor setting forth details of such Termination Event or Potential Termination Event or Servicer Default, and the action which the Transferor proposes to take with respect thereto. (v) NOTICE OF CANCELLATION OF VSI POLICY. As soon as a Responsible Officer of the Transferor becomes aware thereof, the Transferor shall notify the Bank of receipt of notice from the issuer of the VSI Policy of such issuer's intention to cancel, not to renew or to conditionally renew the VSI Policy, and the action which the Transferor proposes to take to replace the policy. (vi) NOTICE OF MATERIAL ADVERSE CHANGE. As soon as any Responsible Officer of the Transferor becomes aware thereof, the Transferor shall give the Bank notice of any event which may have a Material Adverse Effect with respect to the Transferor or AAFC. (vii) OTHER INFORMATION. Such other information (including non- financial information) as the Bank may from time to time reasonably request. (b) CONDUCT OF BUSINESS. The Transferor will do all things necessary to remain duly incorporated, validly existing and in good standing as a domestic corporation in its 44 jurisdiction of incorporation and will maintain all requisite authority to conduct its business in each jurisdiction in which its business requires such authority. (c) COMPLIANCE WITH LAWS. The Transferor will comply in all material respects with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject and which are applicable to all Receivables. (d) FURNISHING OF INFORMATION AND INSPECTION OF RECORDS. The Transferor will furnish to the Bank, within ten (10) Business Days after receiving a request therefor, such information with respect to the Receivables as the Bank may reasonably request, including, without limitation, listings identifying the Principal Balance for each Receivable. The Transferor will from time to time on a reasonable basis during regular business hours with prior written notice permit the Bank, or its agents or representatives, to visit the offices of the Transferor at the Bank's expense unless a Potential Termination Event or a Termination Event shall have occurred for the purpose of discussing matters relating to Receivables or the Transferor's performance hereunder with any of the officers, directors, employees or independent public accountants of the Transferor having knowledge of such matters. (e) FULFILLMENT OF OBLIGATIONS. The Transferor will duly observe and perform, or cause to be observed or performed, all material obligations and undertakings on its part to be observed and performed under or in connection with this Agreement, the Purchase Agreement and the Receivables, will duly observe and perform all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables, will do nothing to materially impair the rights, title and interest of the Bank in and to the Transferred Interest and will pay when due (or contest in good faith) any taxes, including without limitation any sales tax, excise tax or other similar tax or charge, payable in connection with the Receivables and their creation and satisfaction. (f) ENFORCEMENT. The Transferor shall take all action necessary and appropriate to enforce its rights and claims under the Purchase Agreement. (g) LITIGATION. As soon as possible, and in any event within ten Business Days of the knowledge of any responsible officer, the Transferor shall give the Bank notice of (i) any litigation, investigation or proceeding against the Transferor which may exist at any time which, in the reasonable judgment of the Transferor, could reasonably be expected to have a Material Adverse Effect and (ii) any material adverse development in any such previously disclosed litigation. (h) FEES, TAXES AND EXPENSES. The Transferor shall pay all filing fees, stamp taxes, other taxes (other than taxes imposed directly on the overall net income of the Bank) and 45 expenses, including the fees and expenses set forth in Sections 2.15 and 8.4 hereof, if any, which may be incurred on account of or arise out of this Agreement and the documents and transactions entered into pursuant to this Agreement. (i) NO OTHER BUSINESS. The Transferor shall engage in no business other than the business contemplated under its Certificate of Incorporation. (j) SEPARATE CORPORATE EXISTENCE. The Transferor shall: (i) Maintain a principal executive and administrative office through which its business is conducted separate from those of AAFC. To the extent that the Transferor and any of its stockholders or Affiliates have offices in the same location, there shall be a fair and appropriate allocation of overhead costs among them, and each such entity shall bear its fair share of such expense. (ii) Conduct its affairs strictly in accordance with its Certificate of Incorporation and observe all necessary, appropriate and customary corporate formalities, including, but not limited to, conducting business in its own name and through its duly authorized officers or agents, holding all regular and special stockholders' and directors' meetings appropriate to authorize all corporate action, keeping separate and accurate minutes of its meetings, passing all resolutions or consents necessary to authorize actions taken or to be taken, and maintaining accurate and separate books, records, accounts and financial statements, including, but not limited to, intercompany transaction accounts, separate stationery and other business forms. (iii) Maintain its own deposit account or accounts, separate from those of any Affiliate, with commercial banking institutions. The funds of the Transferor will not be diverted to any other Person or for other than corporate uses of the Transferor, nor will such funds (other than Collections on Receivables deposited in a Permitted Lockbox or in a Lockbox Account) be commingled with the funds on AAFC or any other Affiliate of AAFC. (iv) Provide for its own operating expenses and liabilities from its own funds. To the extent that it jointly contracts with any of its stockholders or Affiliates to do business with vendors or service providers or to share overhead expenses, the costs incurred in so doing shall be allocated fairly among such entities, and each such entity shall bear its fair share of such costs. To the extent that the Transferor contracts or does business with vendors or service providers where the goods and services provided are partially for the benefit of any other Person, the costs incurred in so doing shall be fairly allocated to or among such entities for whose benefits the goods and services are 46 provided, and each such entity shall bear its fair share of such costs. All material transactions between the Transferor and any of its Affiliates shall be in writing and only on an arm's length basis. (v) Except for the "Subordinated Loan" described in the Purchase Agreement, to have no intercompany loans made by the Transferor to any of its Affiliates or made by any of its Affiliates to the Transferor. The Subordinated Loan shall bear interest at an arm's length rate. (vi) To have at least one officer responsible for managing the Transferor's day-to-day operations. To the extent that it shares the same officers or other employees as any of its stockholders or Affiliates, the salaries of and the expenses related to providing benefits to such officers and other employees shall be fairly allocated among such entities, and each such entity shall bear its fair share of the salary and benefit costs associated with all such common officers and employees. (vii) Ensure that any financial reports required of such Transferor shall comply with generally accepted accounting principles and shall be issued separately from, but may be consolidated with, any reports prepared for any of its Affiliates. (viii) Ensure that at all times it has adequate capital and liquidity to engage in the transactions contemplated in its Certificate of Incorporation. (ix) To the extent that the Transferor shares tax liability with any Affiliate, such tax liabilities will be allocated among the Transferor and such Affiliates on an arm's length basis. (x) To guarantee no debts or obligations of any Affiliates of Transferor, or indemnify any Person for losses resulting from such debts or obligations of any Affiliate. SECTION 5.2. NEGATIVE COVENANTS OF THE TRANSFEROR. During the term of this Agreement, until the Aggregate Unpaids shall be equal to zero, unless the Bank shall otherwise consent in writing: (a) NAME CHANGE, OFFICES, RECORDS AND BOOKS OF ACCOUNTS. The Transferor shall not change its name, identity or corporate structure (within the meaning of Section 9-402(7) of the Relevant UCC) nor relocate its chief executive office or any office where Records are kept unless it shall have: (i) given the Bank at least fifteen (15) days, prior written notice thereof and (ii) delivered to the Bank all financing statements, instruments and other documents requested by the Bank in connection with such change or relocation. The Transferor shall at all times maintain its chief executive office within a jurisdiction in the United 47 States and in which Article 9 of the Relevant UCC is in effect and in the event it moves its chief executive office to a location which may charge taxes, fees, costs, expenses or other charges to perfect the interests of the Bank in the Receivables, it shall pay all taxes, fees, costs, expenses and other charges associated with perfecting interests of the Bank in the Receivables and any other costs and expenses incurred in order to maintain the enforceability of this Agreement and the interest of the Bank in the Receivables. (b) TRANSFERS, LIENS, ETC. Except for the Adverse Claims of the Bank created by this Agreement, the Transferor shall not transfer, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim (including, without limitation, the filing of any financing statement) upon or with respect to any Receivable, related Contract, Related Security, Collections, Permitted Lockbox or Lockbox Account, or upon or with respect to any account to which any Collections of any Receivable are sent, or assign any right to receive income in respect thereto. (c) CAPITAL STOCK. The Transferor shall not issue any capital stock except to AAFC or create any Subsidiary. The Transferor shall not pay any dividends to AAFC if such payment would be prohibited under the General Corporation Law of the State of Delaware. (d) STATEMENT FOR AND TREATMENT OF SALES. Subject to Section 9.8, the Transferor shall not prepare any financial statements for financial accounting or reporting purposes which shall account for the transactions contemplated herein in any manner other than as a sale of the Transferred Interest to the Bank unless such sale or treatment is prohibited by GAAP or sale treatment is recharacterized by the Securities and Exchange Commission. (e) NO RESCISSIONS OR MODIFICATIONS. The Transferor shall not reduce, rescind or cancel any Receivable or related Contract or modify any terms or provisions thereof, except in accordance with the Credit and Collection Policy or otherwise with the prior written consent of the Bank. (f) CONSOLIDATIONS MERGERS AND SALES OF ASSETS. The Transferor shall not (i) consolidate or merge with or into any other Person or (ii) sell, lease or otherwise transfer all or substantially all of its assets to any other Person; PROVIDED that the Transferor may merge with another Person if (A) the Transferor is the corporation surviving such merger and (B) immediately after and giving effect to such merger, no Termination Event or Potential Termination Event shall have occurred and be continuing. (g) NO CHANGES. The Transferor shall not (i) make any change in the character of its business or in the Credit and Collection Policy, which change would, in either case, impair the 48 collectibility of any material amount of the Receivables or make any material change in the Credit and Collection Policy or in its current payment terms with respect to Receivables without prior written notification to and consent of the Bank; provided, however, that the Bank shall be deemed to have approved any such change unless it shall have disapproved of such change within ten (10) Business Days of its receipt of such notice and (ii) change, terminate or waive or consent to any such change, termination or waiver of any provision of the Custodial Agreement without the prior written consent of the Bank; provided, however, that the Bank shall be deemed to have consented to any such change, termination or waiver unless it shall have disapproved such change, termination or waiver within ten (10) Business Days of receipt of notice thereof. (h) SEPARATE BUSINESS. Except for amounts in the Lockbox Accounts which are collections on all AAFC Portfolio Receivables, the Transferor shall not permit its assets to be commingled with those of AAFC or any Affiliate of AAFC. The Transferor shall maintain separate corporate records and books of account from those of AAFC and its Affiliates, and the Transferor shall conduct its business from an office separate from that of AAFC. The Transferor will conduct its business solely in its own name and will cause AAFC and its Affiliates to conduct their business solely in their own names so as not to mislead others as to the identity of the entity with which those others are concerned. The Transferor will provide for its own operating expenses and liabilities from its own funds, except that the organizational expenses of the Transferor may be paid by AAFC. The Transferor will not hold itself out, or permit itself to be held out, as having agreed to pay, or as being liable for, the debts of AAFC or any of its Affiliates, and the Transferor shall cause AAFC and its Affiliate not to hold themselves out, or permit themselves to be held out, as having agreed to pay, or as being liable for, the debts of the Transferor. The Transferor will maintain an arm's length relationship with AAFC and its Affiliates with respect to any transactions between the Transferor, on the one hand, and AAFC or its Affiliates on the other. (i) CERTIFICATE OF INCORPORATION. The Transferor will not amend or repeal any provision of the Third, Fifth, Seventh, Tenth, Eleventh or Twelfth Articles of its Certificate of Incorporation without the consent of the Bank. SECTION 5.3. COVENANTS OF THE SERVICER. At all times from the date hereof to the date on which the Aggregate Unpaids shall be equal to zero, unless the Bank shall otherwise consent in writing: (a) NOTICE OF TERMINATION EVENTS, POTENTIAL TERMINATION EVENTS OR SERVICER DEFAULTS. As soon as possible, and in any event within five (5) days after the Servicer obtains knowledge of the occurrence of each Termination Event, Potential Termination Event or Servicer Default, the Servicer will furnish 49 to the Bank a statement of the chief financial officer or chief accounting officer of the Transferor setting forth details of such Termination Event or Potential Termination Event or Servicer Default, and the action which the Transferor proposes to take with respect thereto. (b) CONDUCT OF BUSINESS. The Servicer will do all things necessary to remain duly incorporated, validly existing and in good standing as a domestic corporation in its jurisdiction of incorporation and will maintain all requisite authority to conduct its business in each jurisdiction in which its business requires such authority. (c) COMPLIANCE WITH LAWS. The Servicer will comply in all material respects with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject and which are applicable to the Receivables. (d) NOTICE OF MATERIAL ADVERSE CHANGE. As soon as any responsible officer of the Servicer becomes aware thereof, the Servicer shall give the Bank notice of any event which may have a Material Adverse Effect. (e) COPIES OF REPORTS, FILINGS, ETC. The Servicer shall furnish to the Bank, as soon as practicable after the issuance, sending or filing thereof, copies of all proxy statements, financial statements, reports and other communications which the Servicer sends to its security holders generally, and, if the Servicer is required to file reports with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, copies of all regular, periodic and special reports which the Servicer files with the Securities and Exchange Commission or with any securities exchange on Forms 10-K, 10-Q, 8-K or any successor forms thereto. (f) LITIGATION. As soon as possible, and in any event within ten Business Days of the knowledge of any responsible officer thereof, the Servicer shall give the Bank notice of (i) any litigation, investigation or proceeding against the Servicer which may exist at any time which, in the reasonable judgment of the Servicer, could reasonably be expected to have a material adverse effect and (ii) any material adverse development in any such previously disclosed litigation. (g) FURNISHING OF INFORMATION AND INSPECTION OF RECORDS. The Servicer will furnish to the Bank, within ten (10) Business Days after receiving a request therefor, such information with respect to the Receivables as the Bank may reasonably request, including, without limitation, listings identifying the Principal Balance for each Receivable. The Servicer will from time to time on a reasonable basis during regular business hours with prior written notice permit the Bank, or its agents or representatives, (i) to examine and make copies of and abstracts from all Records and (ii) to visit the offices and properties of the Servicer for the purpose of examining such 50 Records, and to discuss matters relating to Receivables or the Servicer's performance hereunder with any of the officers, directors, employees or independent public accountants of the Servicer having knowledge of such matters, which examinations and visits shall be at the expense of the Bank unless a Servicer Default, Termination Event or Potential Termination Event shall have occurred. Nothing in this Section 5.3(g) shall affect the obligation of the Servicer to observe any applicable law prohibiting the disclosure of information regarding the Obligors, and the failure of the Servicer to provide access to information as a result of this obligation shall not constitute a breach of this Section 5.3(g). (h) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Servicer will maintain and implement administrative and operating procedures, including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain, or obtain, as and when required, all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the daily identification of all Collections of and adjustments to each existing Receivable). The Servicer will give the Bank prompt notice of any material change in the administrative and operating procedures referred to in the previous sentence, to the extent such change is likely to have a Material Adverse Effect. (i) FULFILLMENT OF OBLIGATIONS. The Servicer will duly observe and perform, or cause to be observed or performed, all material obligations and undertakings on its part to be observed and performed under or in connection with this Agreement, the Purchase Agreement and the Receivables, will duly observe and perform all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables, will do nothing to materially impair the rights, title and interest of the Bank in and to the Transferred Interest and will pay when due any taxes, including without limitation any sales tax, excise tax or other similar tax or charge, payable in connection with the Receivables and their creation and satisfaction. (j) CUSTOMER LIST. The Servicer shall at all times maintain a current list (which may be stored on magnetic tapes or disks) of all Obligors under Contracts related to Receivables, including the name, address, telephone number and account number of each such Obligor. The Servicer shall deliver or cause to be delivered a copy of such list to the Bank as soon as practicable following the Bank's request. (k) TOTAL SYSTEMS FAILURE. The Servicer shall promptly notify the Bank of any total systems failure and shall advise the Bank of the estimated time required to remedy such total systems failure and of the estimated date on which a Monthly Report can be delivered. Until a total systems failure 51 is remedied, the Servicer shall (i) furnish to the Bank such periodic status reports and other information relating to such total systems failure as the Bank may reasonably request and (ii) promptly notify the Bank if the Servicer believes that such total systems failure cannot be remedied by the estimated date, which notice shall include a description of the circumstances which gave rise to such delay, the action proposed to be taken in response thereto, and a revised estimate of the date on which a Monthly Report can be delivered. The Servicer shall promptly notify the Bank when a total systems failure has been remedied. (l) FURTHER INFORMATION. The Servicer shall furnish or cause to be furnished to the Bank such other information as promptly as practicable, and in such form and detail, as the Bank may reasonably request. (m) ADMINISTRATIVE AND OPERATING PROCEDURES. The Servicer shall maintain and implement administrative and operating procedures adequate to permit the identification of the Receivables and all collections and adjustments attributable thereto and shall comply in all material respects with the Credit and Collection Policy in regard to each Receivable and related Contract. (n) INSURANCE. The Servicer shall keep insured by financially sound and reputable insurers all property of a character usually insured by corporations engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such corporations and carry such other insurance as is usually carried by such corporations. (o) MODIFICATION OF SYSTEMS. The Servicer agrees, promptly after the replacement or any material modification of any computer, automation or other operating systems (in respect of hardware or software) used to perform its services as Servicer or to make any calculations or reports hereunder, to give notice of any such replacement or modification to the Bank. (p) FEES, TAXES AND EXPENSES. The Servicer shall pay all filing fees, stamp taxes, other taxes (other than taxes imposed directly on the overall net income of the Bank) and expenses, including the fees and expenses set forth in Sections 2.15 and 8.4 hereof, if any, which may be incurred on account of or arise out of this Agreement and the documents and transactions entered into pursuant to this Agreement. (q) COLLECTIONS. The Servicer shall instruct all Obligors to cause all Collections to be mailed to or otherwise deposited in a Permitted Lockbox. (r) PERFORMANCE AND COMPLIANCE WITH CONTRACTS. The Servicer shall, or if AAFC is no longer the Servicer, AAFC shall, timely and fully perform and comply with all material provisions, 52 covenants and other promises required to be observed by it under the Contracts related to the Receivables. (s) ERISA EVENTS. As long as AAFC is the Servicer, (i) Promptly upon becoming aware of the occurrence of any Event of Termination which together with all other Events of Termination occurring within the prior 12 months involve a payment of money by or a potential aggregate liability of the Servicer or any ERISA Affiliate or any combination of such entities in excess of $5,000,000, the Servicer shall give the Bank a written notice specifying the nature thereof, what action the Servicer or any ERISA Affiliate has taken and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto. (ii) Promptly upon receipt thereof, the Servicer shall furnish to the Bank copies of (i) all notices received by the Servicer or any ERISA Affiliate of the PBGC's intent to terminate any Plan or to have a trustee appointed to administer any Plan; (ii) all notices received by the Servicer or any ERISA Affiliate from the sponsor of a Multiemployer Plan pursuant to Section 4202 of ERISA involving a withdrawal liability in excess of $5,000,000; and (iii) all funding waiver requests filed by the Servicer or any ERISA Affiliate with the Internal Revenue Service with respect to any Plan, the accrued benefits of which exceed the present value of the plan assets as of the date the waiver request is filed by more than $5,000,000, and all communications received by the Servicer or any ERISA Affiliate from the Internal Revenue Service with respect to any such funding waiver request. (t) SEPARATE IDENTITY. As long as AAFC is the Servicer, AAFC shall take all actions required to maintain the Transferor's status as a separate legal entity, including, without limitation, (i) not holding the Transferor out to third parties as other than an entity with assets and liabilities distinct from AAFC and AAFC's other Subsidiaries; (ii) not holding itself out to be responsible for the debts of the Transferor or, other than by reason of owning capital stock of the Transferor, for any decisions or actions relating to the Transferor; (iii) cause any financial statements consolidated with those of the Transferor to state that the Transferor is a separate corporate entity with its own separate creditors who, in any liquidation of the Transferor, will be entitled to be satisfied out of the Transferor's assets prior to any value in the Transferor becoming available to the Transferor's equity holders; (iv) taking such other actions as are necessary on its part to ensure that all corporate procedures required by its and the Transferor's respective certificates of incorporation and by-laws are duly and validly taken; (v) keeping correct and complete records and books of account and corporate minutes; and (vi) not 53 acting in any other manner that could foreseeably mislead others with respect to the Transferor's separate identity. (u) SOFTWARE. The Servicer shall use its reasonable efforts to enable each of the Transferor, any agent of the Bank and any successor Servicer (whether by license, sublicense, assignment or otherwise) to use all of the computer software used to account for the Receivables to the extent necessary to administer the Receivables. (v) MAINTENANCE OF VSI POLICY. As long as AAFC is the Servicer, the Servicer shall maintain in effect the VSI Policy or other similar insurance policy reasonably acceptable to the Bank with respect to all Receivables transferred under this Agreement. (w) CUSTODIAN CONFIRMATION. With respect to each Additional Receivable designated as such on an Addition Date, the Servicer shall cause the Custodian to deliver to the Bank a Custodian Confirmation within two (2) Business Days of the related Addition Date. SECTION 5.4. NEGATIVE COVENANTS OF THE SERVICER. During the term of this Agreement, and until the Aggregate Unpaids shall be equal to zero, unless the Bank shall otherwise consent in writing: (a) NAME CHANGE, OFFICES, RECORDS AND BOOKS OF ACCOUNTS. The Servicer shall not change its name, identity or corporate structure (within the meaning of Section 9-402(7) of the Relevant UCC) nor relocate its chief executive office or any office where Records are kept unless it shall have: (i) given the Bank at least fifteen (15) days, prior written notice thereof and (ii) delivered to the Bank all financing statements, instruments and other documents requested by the Bank in connection with such change or location. The Servicer shall at all times maintain its chief executive offices within a jurisdiction in the United States and in which Article 9 of the Relevant UCC is in effect and in the event it moves its chief executive office to a location which may charge taxes, fees, costs, expenses or other charges to perfect the interests of the Bank in the Receivables, it shall pay all taxes, fees, costs, expenses and other charges associated with perfecting interests of the Bank in Receivables and any other costs and expenses incurred in order to maintain the enforceability of this Agreement and the interest of the Bank in the Receivables. (b) TRANSFERS, LIENS, ETC. Except for the Adverse Claims of the Bank created by this Agreement and except as provided in the Lockbox Agreement, the Servicer shall not transfer, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim (including, without limitation, the filing of any financing statement) upon or with respect to any Receivable, related Contract, Related Security, Collections, Permitted Lockbox or Lockbox Account, or upon or with respect to any account to which 54 any Collections of any Receivable are sent, or assign any right to receive income in respect thereto. (c) RESCISSION, EXTENSION OR AMENDMENT OF RECEIVABLES. The Servicer shall not extend, amend or otherwise modify the terms of any Receivable, or rescind, amend, modify or waive any term or condition of any Contract related thereto, other than in accordance with the Credit and Collection Policy. (d) CHANGE IN BUSINESS OR CREDIT AND COLLECTION POLICY. The Servicer shall not make any change in the character of its business that would be reasonably likely to result in a Material Adverse Effect. (e) CHANGE IN PAYMENT INSTRUCTIONS TO OBLIGORS. The Servicer shall not make any change in its instructions to Obligors regarding payments to be made to it (other than changes with respect to the mailing addresses for remittances) unless the Bank shall have received, at least ten (10) Business Days before the proposed effective date therefor, written notice of such change. (f) CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. The Servicer shall not (i) consolidate or merge with or into any other Person or (ii) sell, lease or otherwise transfer all or substantially all of its assets to any other Person; PROVIDED that the Servicer may merge with another Person if (A)(i) the Servicer is the corporation surviving such merger or (ii) the Person with whom the Servicer is merged into or consolidated with is an Affiliate and the surviving corporation assumes in writing all duties and liabilities of the Servicer hereunder and (B) immediately after and giving effect to such merger, no Termination Event or Potential Termination Event shall have occurred and be continuing. (g) NO CHANGES. The Servicer shall not make any change in the character of its business or in the Credit and Collection Policy, which change would, in either case, impair the collectibility of any material amount of the Receivables or make any material change in the Credit and Collection Policy without prior written notification to and consent of the Bank; provided, however, that the Bank shall be deemed to have approved any such change unless it shall have disapproved of such change within ten (10) Business Days of its receipt of such notice. (h) CHANGE IN PAYMENTS OR DEPOSITS OF PAYMENTS. Except with the prior written notice to the Bank, the Servicer shall not add or terminate any Person as a Permitted Lockbox Bank from those Persons listed in Exhibit G hereto, make or permit any change in the location of any Permitted Lockbox or the location or account number of any Lockbox Account, or make any change in the instructions to its Obligors regarding payments to be made to the Transferor or Servicer or payments to be made to any Permitted Lockbox. 55 (i) ERISA MATTERS. As long as AAFC is the Servicer, the Servicer shall not permit any event or condition which is described in any of clauses (i) through (vi), clause (viii) or clause (x) of the definition of Event of Termination to occur or exist with respect to any Plan or Multiemployer Plan if such event or condition, together with all other events or conditions described in the definition of Event of Termination occurring within the prior 12 months involve the payment of money by or an incurrence of liability of AAFC or any ERISA Affiliate in an amount in excess or $10,000,000. ARTICLE VI PROTECTION OF THE BANK; ADMINISTRATION AND COLLECTIONS SECTION 6.1. MAINTENANCE OF INFORMATION AND COMPUTER RECORDS. The Transferor will, or will cause the Servicer to, hold in trust and keep safely for the Bank all evidence of the Bank's right, title and interest in and to the Transferred Interest in the Receivables. The Transferor will, or will cause the Servicer to, place an appropriate code or notation in its Records to indicate that the Bank has a fractional undivided interest in each and every Receivable. SECTION 6.2. PROTECTION OF THE INTERESTS OF THE BANK. (a) The Transferor and the Servicer shall, from time to time and at Transferor's sole expense, do and perform any and all necessary acts and execute any and all necessary documents including, without limitation, the obtaining of additional search reports, the delivery of further opinions of counsel, the execution, amendment or supplementation of any financing statements, continuation statements and other instruments and documents for filing under the provisions of the Relevant UCC of any applicable jurisdiction, the execution, amendment or supplementation of any instrument of transfer and the making of notations on the Records of the Transferor or AAFC as may be requested by the Bank in order to effect the purposes of this Agreement and the sale of Transferred Interest hereunder, to protect or perfect the Bank's right, title and interest in the Transferred Interest (other than a Receivable which has been repurchased pursuant to Section 2.12 or 2.13 or repaid in full pursuant to Section 2.16), together with Related Security and all Collections with respect thereto, against all Persons whomsoever or to enable the Bank to exercise or enforce any of their respective rights hereunder; PROVIDED, HOWEVER, that the Bank's right to request changes in the lockbox arrangements will be subject to the provisions of the Lockbox Agreements and prior to a Termination Event, the Bank will not request that title to the Financed Vehicles be transferred to the Bank. (b) To the fullest extent permitted by applicable law, the Transferor hereby irrevocably grants to the Bank an 56 irrevocable power of attorney, with full power of substitution, coupled with an interest, to sign and file in the name of the Transferor, or in its own name, such financing statements and continuation statements and amendments thereto or assignments thereof as the Bank deems necessary to protect or perfect the Transferred Interest; PROVIDED, HOWEVER, that such power of attorney may only be exercised if (i) the Servicer fails to perform any act required hereunder after receiving written notice of such failure from the Bank or (ii)(A) a Servicer Default or (B) a Termination Event shall have occurred and be continuing. (c) Twice during each calendar year, at such times as are reasonably convenient to the Transferor or the Servicer, as the case may be, at the Transferor's expense, and upon reasonable request and written notice by the Bank to the Transferor or the Servicer, as the case may be, the Transferor or the Servicer, as the case may be, shall permit such Person as the Bank may designate to conduct audits or visit and inspect any of the properties of the Transferor or the Servicer where Records are located, as the case may be, to examine the Records, internal controls and procedures maintained by the Transferor or Servicer, as the case may be, and take copies and extracts therefrom, and to discuss the Transferor's or the Servicer's, as the case may be, affairs with its officers and employees and, upon written notice to the Transferor, independent accountants; PROVIDED, HOWEVER, that after the occurrence and continuation of a Servicer Default, a Potential Termination Event or a Termination Event, the Bank, or such Person as they may designate, shall be permitted to take the forgoing actions without being subject to any limitation on the number of audits, visits or inspections which may be conducted during a calendar year. The Transferor or the Servicer, as the case may be, hereby authorizes such officers, employees and independent accountants to discuss with the Bank the affairs of the Transferor or the Servicer, as the case may be. The Transferor shall reimburse the Bank for all reasonable fees, costs and expenses incurred by or on behalf of the Bank in connection with the foregoing actions promptly upon receipt of a written invoice therefor. Any audit provided for herein shall be conducted in accordance with Transferor's or the Servicer's, as the case may be, rules respecting safety and security on its premises and without materially disrupting operations. (d) Subject to the limitations set forth herein, the Bank shall have the right to do all such acts and things as it may deem reasonably necessary to protect the interests of the Bank, including, without limitation, confirmation and verification of the existence, amount and status of the Receivables; PROVIDED, HOWEVER, that prior to the occurrence and continuation of a Servicer Default, a Potential Termination Event or a Termination Event the Bank will not, without consent of the Transferor, which consent shall not be unreasonably withheld, contact an Obligor. 57 SECTION 6.3. MAINTENANCE OF CONTRACT FILES, WRITINGS AND RECORDS; RELEASE OF RECEIVABLES. (a) With respect to each Receivable in which the Bank owns a fractional undivided interest, the Transferor will cause the Custodian to keep at its chief executive office designated in advance to the Bank, the Contract Files with respect to the Receivables. (b) The Transferor will at all times until completion of a Complete Servicing Transfer keep or cause to be kept at its or the Servicer's chief executive office, each writing or Record which evidences, and which is necessary or desirable to establish or protect, including such books of account and other Records as will enable the Bank or its designee to determine at any time the status of, the interest of the Bank in each Receivable. AAFC shall at its own expense prepare and maintain the Records in electronically readable form in such format as AAFC customarily maintains its records; PROVIDED, HOWEVER, that upon a Complete Servicing Transfer, AAFC shall within 15 days of such Complete Servicing Transfer prepare such Records in such format as may be required to permit or facilitate the transfer of such Records to the successor Servicer. (c) In the event that any Receivable is to be paid or prepaid in full, the Transferor shall cause the Custodian to release the corresponding Contract and Title to the Servicer for further delivery to the Obligor under such Receivable; PROVIDED, HOWEVER, that the Servicer hereby agrees (i) to hold any such Contract and Title in trust for the benefit of the Bank and to segregate such Contract and Title from any other property belonging to the Servicer until such Receivable has been paid or prepaid in full and such payment has been deposited in a Lockbox Account or into the Collection Account; and (ii) to return such Contract and Title to the Custodian within twenty (20) days of the Custodian's release thereof if such Receivable has not been paid or prepaid by such time. (d) In the event that the Transferor requests of the Bank and the Custodian that any Contracts which are to be canceled in connection with a foreclosure, deed in lieu of foreclosure or other similar proceeding, be delivered to the Servicer prior to such event, the Custodian shall release such Contracts and all related documents to the Servicer; PROVIDED, HOWEVER, that the Servicer hereby agrees to segregate and hold such Contracts and Related Security in trust for the benefit of the Bank. (e) In connection with any repurchase or repayment by the Transferor or Servicer of any Receivable pursuant to this Agreement, the Bank shall release its Lien in such Receivable and the related Contract and Title upon the terms and subject to the conditions set forth herein. 58 SECTION 6.4. INFORMATION. AAFC will furnish or cause to be furnished to the Bank such additional information with respect to the Receivables (including but not limited to AAFC's procedures for selecting Receivables for sale and AAFC's standards and procedures for granting credit) as the Bank may reasonably request. AAFC will also furnish to the Bank all modifications, adjustments or supplements to the Credit and Collection Policy; PROVIDED, HOWEVER, the Transferor shall not, without the Bank's prior written consent, alter the Credit and Collection Policy as in effect from time to time unless such alteration is in compliance with Section 5.4(g) hereof. SECTION 6.5. PERFORMANCE OF UNDERTAKINGS UNDER THE RECEIVABLES. The Servicer will at all times observe and perform, or cause to be observed and performed, all material obligations and undertakings to the Obligors arising in connection with each Receivable or related Contract and will not take any action or cause any action to be taken to materially impair the rights of the Bank to its Transferred Interest. SECTION 6.6. ADMINISTRATION AND COLLECTIONS. (a) GENERAL. Until a Complete Servicing Transfer shall have occurred, AAFC will be responsible for the administration, servicing and collection of the Receivables; PROVIDED, HOWEVER, that upon written approval by the Bank such duties may be delegated by AAFC to any of AAFC's Affiliates or a third party (without material impairment of AAFC's obligations as Servicer). AAFC agrees to exercise or cause such Affiliate or third party to exercise the same degree of skill and care and apply the same standards, policies, procedures and diligence that it applies to the performance of the same functions with respect to accounts owned by AAFC. (b) ADMINISTRATION. The Servicer shall, to the full extent permitted by law, have the power and authority, on behalf of the Bank, to take such action in respect of any Receivable as the Servicer may deem advisable, including the resale of any repossessed, returned or rejected Receivables or the Financed Vehicles related thereto and any actions in connection with agreements with Dealers and Insurance Policies; PROVIDED, HOWEVER, that the Servicer may not under any circumstances compromise, rescind, cancel, adjust or modify (including by extension of time for payment or granting any discounts, allowances or credits) the Principal Balance of the related Contract for any Receivable (other than a Receivable which has been repurchased pursuant to Section 2.12 or 2.13 or repaid in full pursuant to Section 2.16), except in accordance with the Credit and Collection Policy or otherwise with the prior written consent of the Bank. (c) COLLECTION ACCOUNT. The Servicer shall establish and maintain the Collection Account for the purpose of receiving and disbursing all Collections on the Receivables, all payments of Discount made by the Transferor pursuant to this Agreement, 59 all Advances made by the Servicer pursuant to this Agreement, all Interest Rate Cap Payments and all other payments to be made into the Collection Account. The Servicer shall advise the Bank in writing of the location of the Collection Account. The Collection Account will be an Eligible Account maintained in the name of AAFC, as servicer, for the benefit of the Bank, and shall be used only for the collection of the amounts and for application of such amounts as described in Section 2.8 of this Agreement. In the event there shall have been deposited in the Collection Account any amount not required to be deposited therein and so identified to the Bank, such amount shall be withdrawn from the Account, any provision herein to the contrary notwithstanding, and any such amounts shall not be deemed to be a part of the Collection Account. If the Collection Account ceases to be an Eligible Account, the Servicer shall within ten days of receipt of notice of such change in eligibility transfer the Collection Account to an account meeting the requirements of an Eligible Account. The Servicer may invest (or cause the investment of) the funds in the Collection Account in Eligible Investments, held in the name of the Bank, which shall mature no later than the Business Day preceding the date on which such amounts are required to be distributed to the Bank. As long as no Termination Event shall have occurred and be continuing, any income or other gain from such Eligible Investments shall be paid to the Servicer as an addition to the Servicing Fee. The Servicer and the Transferor agree to take all actions reasonably necessary, including the filing of appropriate financing statements and the giving of proper registration instructions relating to any investments, to protect the Bank's interest in the Collection Account and any Eligible Investments acquired with moneys therein. (d) ENFORCEMENT PROCEEDINGS. In the event of a default under any Receivable before a Termination Event, the Servicer shall, at the Transferor's sole expense, to the full extent permitted by law, have the power and authority, on behalf of the Bank, to take or cause to be taken any action in respect of any such Receivable as the Servicer may deem advisable; PROVIDED, HOWEVER, that the Servicer or the Transferor, as the case may be, shall take no enforcement action (judicial or otherwise) with respect to such Receivable (other than a Receivable which has been repurchased or repaid pursuant to Section 2.12, 2.13, 2.16 or 3.2 (the last paragraph thereof)), except in accordance with the Credit and Collection Policy or otherwise with the written consent of the Bank. The Servicer or the Transferor, as the case may be, will apply or will cause to be applied at all times before a Termination Event the same standards and follow the same procedures with respect to deciding to commence, and in prosecuting, litigation on such Receivable as is applied and followed with respect to like accounts not owned by the Bank. In no event shall the Servicer or the Transferor, as the case may be, be entitled to make or authorize any Person 60 to make the Bank a party to any litigation without the Bank's express prior written consent. (e) OBLIGATIONS OF THE BANK. Following the occurrence and continuation of a Servicer Default, a Potential Termination Event or a Termination Event, the Bank may, but shall have no obligation to, take any action or commence any proceeding to realize upon any Receivable, any such action or commencement of proceeding to be at the sole expense of the Transferor. At such time as the Servicer or the Transferor, as the case may be, has any obligation to pursue the collection of Receivables and the Bank possesses any documents necessary therefor, the Bank agrees to furnish such documents to the Servicer or the Transferor, as the case may be, to the extent and for the period necessary for the Servicer or the Transferor, as the case may be, to comply with its obligations hereunder. SECTION 6.7. COMPLETE SERVICING TRANSFER. (a) GENERAL. If at any time a Servicer Default shall have occurred and be continuing, the Bank may by notice in writing to AAFC, terminate AAFC's capacity as Servicer in respect of the Receivables (such termination referred to herein as a "COMPLETE SERVICING TRANSFER"). After a Complete Servicing Transfer, the Bank may administer, service and collect the Receivables itself, and in such event, may retain the Servicing Fee for its own account, in any manner it sees fit, including, without limitation, by compromise, extension or settlement of such Receivables. Alternatively, the Bank may engage affiliated or unaffiliated contractors to perform all or any part of the administration, servicing and collection of the Receivables and require the Transferor to pay to such contractors all or a portion of the Servicing Fee in consideration thereof. (b) TRANSITION. AAFC, within ten (10) Business Days after receiving a notice pursuant to Section 6.7(a) hereof, shall, at AAFC's sole expense, (x) deliver to the Bank or its designated agent (i) a schedule of the Receivables in which the Bank has a Transferred Interest indicating as to each such Receivable information as to the related Obligor, the Principal Balance as of such date of the related Contract and the location of the evidences of such Receivable and related Contract, together with such other information as the Bank may reasonably request and (ii) all evidence of such Receivables and related Contracts and such other Records related thereto (including, without limitation, true copies of any computer tapes and data in computer memories), (y) permit the Bank access to AAFC's files and other Records in order to effect an orderly transfer, and (z) take all reasonable actions as are necessary to sublicense to, or purchase a license for, the Bank or its designated agent, at AAFC's expense, any software (which software may be different from that used by AAFC) that relates to, and is necessary for the servicing of, the Receivables, in each case as the Bank may reasonably deem necessary to enable it to protect and enforce its rights and the rights of the Bank to the Transferred Interest. 61 After any such delivery, AAFC will not hold or retain any executed counterpart or any document evidencing such Receivables or related Contracts without clearly marking the same to indicate conspicuously that the same is not the original and that transfer thereof does not transfer any rights against the related Obligor or any other Person. (c) COLLECTIONS. If at any time there shall be a Complete Servicing Transfer, AAFC will cause to be transmitted and delivered directly to the Bank or its designated agent forthwith upon receipt and in the exact form received, all Collections (properly endorsed, where required, so that such items may be collected by the Bank) on account of their Transferred Interest in any Receivables. All such Collections consisting of cash shall not be commingled with other items or monies of AAFC for a period longer than two Business Days. If the Bank or its designated agent receives items or monies that are not payments on account of the Bank's interest in any Receivables, such items or monies shall be held in trust by the Bank for the Transferor's benefit and delivered promptly to AAFC after being so identified by the Bank or its designated agent. AAFC hereby irrevocably grants during the term of this Agreement the Bank or its designated agent, if any, an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of AAFC all steps and actions permitted to be taken under this Agreement with respect to any Receivable which the Bank, in its reasonable discretion, may deem necessary or advisable to negotiate or otherwise realize on any right of any kind held or owned by AAFC or transmitted to or received by the Bank or its designated agent (whether or not from the Transferor or any Obligor) in connection with the Bank's Transferred Interest; PROVIDED, HOWEVER, that such power of attorney may not be exercised without the prior written consent of AAFC, unless (A)(i) a Servicer Default or (ii) a Termination Event shall have occurred and be continuing or (B) the Servicer fails to perform any act required hereunder after receiving written notice of such failure from the Bank. The Bank will provide such periodic accountings and other information related to the disposition of funds so collected as AAFC may reasonably request. (d) COLLECTION AND ADMINISTRATION AT EXPENSE OF THE TRANSFEROR. Each of the Transferor and AAFC agrees that in the event of a Complete Servicing Transfer, it will reimburse the Bank for all reasonable out-of-pocket expenses (including, without limitation, attorneys' and accountants' and other third parties' fees and expenses, expenses incurred by the Bank, expenses of litigation or preparation therefor, and expenses of audits and visits to the offices of the Transferor and AAFC) incurred by the Bank in connection with and following the transfer of functions following a Complete Servicing Transfer. (e) PAYMENTS BY OBLIGORS. At any time, and from time to time following a Complete Servicing Transfer, or if a Termination Event shall have occurred and be continuing, AAFC 61 shall permit during business hours such Persons as the Bank may designate to open and inspect all mail received by AAFC at any of its offices reasonably expected to contain Collections or other information related to the Receivables, and to remove therefrom any and all Collections or other correspondence from Obligors or the Servicer in respect of Receivables. The Bank shall be entitled to notify the Obligors of Receivables to make payments directly to the Bank of amounts due thereunder at any time and from time to time following the occurrence of (i) a Termination Event or (ii) a Complete Servicing Transfer. SECTION 6.8. LOCKBOXES. AAFC hereby agrees (i) to instruct all Obligors to cause all Collections on account of Receivables to be mailed directly to a Permitted Lockbox; (ii) to use its best effort not to suffer or permit any funds other than such Collections and collections on all AAFC Portfolio Receivables to be mailed to Permitted Lockboxes or deposited into related Lockbox Accounts; (iii) to make the necessary bookkeeping entries to reflect such Collections on the Records pertaining to such Receivables; (iv) to apply all such Collections as provided in this Agreement; (v) not to amend or modify any term of any Lockbox Agreement without the prior written notice to the Bank to such amendment or modification; and (vi) not to amend or modify any term, with respect to the disposition of such Collections or any other amounts received by the Servicer or any Permitted Lockbox Bank, of this Agreement (other than any Lockbox Agreement) without the prior written notice to the Bank to such amendment or modification. The Servicer further represents and warrants and covenants and agrees as follows: each Lockbox Account shall be maintained with a Permitted Lockbox Bank; each Lockbox Account shall be a segregated account and the funds deposited in such Lockbox Account from time to time shall not be commingled with any other funds of AAFC or the Transferor (other than funds related to AAFC Portfolio Receivables); the location of each Permitted Lockbox and each related Lockbox Account shall not be changed without prior notice to the Bank; funds deposited in each Lockbox Account and attributable to the Receivables shall be transferred to the Collection Account not later than the second Business Day after such funds are deposited in each such Lockbox Account; each Lockbox Account shall be insured by the Federal Deposit Insurance Corporation to the full extent permitted by law. AAFC shall not enter into any Lockbox Agreement or other lockbox servicing agreement which does not contain the foregoing provisions and terms, unless such deviation is consented to by the Bank. SECTION 6.9. SERVICER DEFAULT. A "SERVICER DEFAULT" shall mean the occurrence and continuance of one or more of the following events or conditions: (a) the Servicer shall fail to remit or fail to cause to be remitted to the Bank on any day any Collections or Discount required to be remitted to the Bank on such day, and such failure shall continue for three (3) Business Days; or 63 (b) the Servicer shall fail to deposit, or pay or fail to cause to be deposited or paid when due any other amount due hereunder, and any such failure shall continue for three (3) Business Days after written notice thereof by the Bank to the Servicer; or (c) any representation, warranty, certification or statement made by the Servicer under this Agreement or in any agreement, certificate, report, appendix, schedule or document furnished by the Servicer to the Bank pursuant to or in connection with this Agreement shall prove to have been false or misleading in any respect material to this Agreement or the transactions contemplated hereby as of the time made (including by omission of material information necessary to make such representation, warranty, certification or statement not misleading), and shall, at the time of such determination, continue to have a material adverse effect on this Agreement or the Servicer's ability to perform its obligations under this Agreement; or (d) the Servicer (if not the Bank) shall fail to perform or observe any other term, covenant, agreement or undertaking applicable to it contained herein and such failure shall continue for fifteen (15) Business Days after either (i) any responsible officer of the Servicer becomes aware thereof or (ii) written notice thereof to the Servicer by the Bank; or (e) there shall be pending any litigation, arbitration, investigation or proceeding, or any material adverse development in any such litigation shall have occurred, which is likely to materially adversely affect the financial position or results of operations of the Servicer or impair the ability of the Servicer to perform its obligations under this Agreement; or (f) there shall have occurred any event which materially adversely affects the ability of the Servicer to service and collect Receivables or the ability of the Servicer to perform hereunder; or (g)(i) the Servicer or any of its Subsidiaries shall generally not pay its debts as such debts become due or shall admit in writing its inability to pay its debts generally or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Servicer or any of its Subsidiaries seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or any substantial part of its property, or (ii) the Servicer or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth in clause (i) above in this subsection (g); 64 (h) the entry of any judgment or decree against the Servicer if the aggregate amount of all judgments and decrees then outstanding against it for which insurance is not available and the collection of which has not been stayed, exceeds $1,000,000; or (i) as long as AAFC is the Servicer, AAFC or any of its Subsidiaries shall fail to pay any debt in excess of $5,000,000 of AAFC or any of its Subsidiaries, as the case may be, or any interest or premium on such debt, in either case, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such debt; or any other default under any agreement or instrument relating to any such debt or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such debt; or any such debt shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof. SECTION 6.10. SERVICER INDEMNIFICATION OF AFFECTED PARTIES. The Servicer shall indemnify and hold harmless the Bank and its assigns (and its directors, officers, employees and agents), from and against any loss, liability, expense, damage or injury suffered or sustained by reason of any breach by the Servicer of any of its representations, warranties or covenants contained in this Agreement, including any judgment, award, settlement, reasonable attorneys fees and other costs or expenses incurred in connection with the defense of any actual action, proceeding or claim; PROVIDED, HOWEVER, that the Servicer shall not indemnify the Bank and its assigns if such acts or omissions were attributable to fraud, gross negligence, breach of fiduciary duty or willful misconduct by the Bank. Any indemnification pursuant to this Section shall be had only from the assets of the Servicer. The provisions of this Section shall survive the termination of this Agreement. SECTION 6.11. AAFC NOT TO RESIGN AS SERVICER. AAFC shall not resign from the obligations and duties hereby imposed on it as Servicer under this Agreement except upon determination that the performance of its duties under this Agreement shall no longer be permissible under applicable law. Notice of any such determination permitting the resignation of AAFC shall be communicated to the Bank at the earliest practicable time (and, if such communication is not in writing, shall be confirmed in writing at the earliest practicable time) and any such determination shall be evidenced by an opinion of counsel to such effect delivered to the Bank concurrently with or promptly after such notice. No such resignation shall become effective until the Bank or a successor Servicer shall (i) have taken the actions required by Section 6.7 to effect the termination of the 65 responsibilities and rights of the predecessor Servicer under the Agreement, including the transfer to the successor Servicer for administration by it of all cash amounts that shall at the time be held by the predecessor Servicer for deposit, or shall thereafter be received with respect to a Receivable and the delivery of the files relating to the Receivables, and the related accounts and records maintained by the Servicer, and (ii) have assumed the responsibilities and obligations of AAFC hereunder in writing. ARTICLE VII TERMINATION EVENTS SECTION 7.1. TERMINATION EVENTS. The occurrence of any one or more of the following events shall constitute a Termination Event: (a) the Transferor shall fail to perform or observe any term, covenant, agreement or undertaking hereunder (other than as referred to in clause (c) below) and such failure shall remain unremedied for fifteen (15) Business Days after written notice thereof has been given to the Transferor by the Bank; or (b) any representation, warranty, certification or statement made by the Transferor in this Agreement or in any other document delivered pursuant hereto or contemplated herein shall prove to have been incorrect in any material respect when made or deemed made; or (c) the Transferor or AAFC shall fail to make or shall fail to cause to be paid to the Bank any Collections or Discount required to be made by it hereunder when due and, in the case of Discount, such failure shall continue for three (3) Business Days; or (d) The Transferor or AAFC shall fail to pay or fail to cause to be paid when due any other amount due hereunder and such failure shall continue unremedied for three (3) Business Days, or the Transferor or AAFC shall fail to obtain an Eligible Interest Cap Agreement when required; or (e)(i) the Transferor shall fail to pay any indebtedness when due which would be reasonably likely to have a Material Adverse Effect; or (ii) any indebtedness, the acceleration of which would be reasonably likely to have a Material Adverse Effect, shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the date of maturity thereof other than any acceleration arising out of a good faith dispute; PROVIDED, HOWEVER, that in all instances the Transferor shall have the opportunity to cure any such event leading to acceleration within fifteen (15) days of receipt of notice of such acceleration; or 66 (f)(i) the Transferor or AAFC shall generally not pay its debts as such debts become due or shall admit in writing its inability to pay its debts generally or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Transferor seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or any substantial part of its property, or (ii) the Transferor shall take any corporate action to authorize any of the actions set forth in clause (i) above in this subsection (f); or (g) a Servicer Default shall have occurred and be continuing; or (h) the institution of any litigation, arbitration proceedings or governmental proceeding involving the Transferor or the Receivables which may have a Material Adverse Effect on the condition (financial or otherwise) of the Transferor; or (i) the entry of any judgment or decree against the Transferor for which insurance or uncontested indemnification is not available and the collection of which has not been stayed; or (j) the Excess Spread Percentage for any calendar month shall be 2.0% or less; or (k) the annualized average of the Portfolio Loss Ratios for any three (3) consecutive calendar months shall exceed 4.0%; or (l) the Delinquency Ratio, computed for the immediately preceding Collection Period, shall exceed 2.75%; or (m) a change in the ownership of the voting stock of the Transferor or 50% of the voting stock of AAFC shall have occurred; or (n) the Adjusted Pool Balance shall at any time be less than the sum of the Aggregate Net Investment and the Maximum Subordinated Amount at such time and continues to be so for three (3) Business Days following either (i) the Transferor's becoming aware thereof or (ii) the Transferor's being notified thereof by the Bank; or (o) there shall have occurred a Material Adverse Effect; or (p) the Available Subordinated Amount shall be less than the Maximum Subordinated Amount on such date; or 67 (q) there shall have occurred an Event of Termination; or (r) there shall have occurred and be continuing a "Termination Event" under the Purchase Agreement or a default or event of default under any of the other Facility Documents. SECTION 7.2. REMEDIES UPON THE OCCURRENCE OF A TERMINATION EVENT. (a) If a Termination Event occurs, (i) the Bank may, by notice to the Transferor, terminate its obligation to purchase any interest in Receivables and declare all outstanding Tranche Periods to be ended and designate the Tranche Rate applicable to the Aggregate Net Investment plus all accrued and unpaid Discounts, and (ii) if the Transferor is AAFC or any Affiliate thereof at such time, the Bank may terminate AAFC or any Affiliate thereof as Servicer hereunder; PROVIDED that, in the case of a Termination Event under Section 7.1(f), such obligations of the Bank hereunder shall be automatically terminated without any action on the part of the Bank and all Tranche Periods shall be ended. (b) Upon any termination of the Bank's obligations pursuant to this Section 7.2, the Bank shall have, in addition to all rights and remedies under this Agreement or otherwise, all other rights and remedies provided under the UCC of the applicable jurisdiction and under other applicable laws, which rights shall be cumulative. (c) The parties hereto acknowledge that this Agreement is, and is intended to be, a contract to extend financial accommodations to the Transferor within the meaning of Section 365(e)(2)(B) of the Federal Bankruptcy Code (11 U.S.C. Section 365(e)(2)(B)) (or any amended or successor provision thereof or any amended or successor code). ARTICLE VIII INDEMNIFICATION SECTION 8.1. INDEMNIFICATION. Without limiting any other rights which the Bank may have hereunder or under applicable law, the Transferor hereby agrees to indemnify the Bank and its officers, directors, agents and employees from and against any and all damages, losses, claims, liabilities, costs and expenses (other than in respect of taxes, which shall be governed by Section 8.2), including reasonable attorneys, fees and disbursements (all of the foregoing being collectively referred to as "INDEMNIFIED AMOUNTS") awarded against or incurred by any of them arising out of or as a result of any of the circumstances described below; PROVIDED, HOWEVER, that in no event shall the Transferor indemnify the Bank and its officers, directors, agents and employees for (i) Indemnified Amounts resulting from the gross negligence or willful misconduct on the part of the Bank or (ii) recourse for uncollectible Receivables. 68 The Transferor shall indemnify the Bank and its officers, directors, agents and employees for Indemnified Amounts relating to or resulting from: (a) reliance on any representation or warranty made by the Transferor or AAFC (or any officers of the Transferor or AAFC) under or in connection with this Agreement, any Facility Document or any other information or report delivered by the Transferor or AAFC pursuant hereto, which shall have been false or incorrect in any material respect when made or deemed made; (b) the failure by the Transferor or AAFC to comply in all material respects with any applicable law, rule or regulation with respect to any Receivable or the related Contract, or the nonconformity of any Receivable or the related Contract with any such applicable law, rule or regulation; (c) the failure as a result of acts or failures to act on the part of the Transferor, AAFC or the Servicer, to vest and maintain vested in the Bank, the Transferred Interest in the Receivables free and clear of any Adverse Claim; (d) the failure to file, or delay in filing, financing statements or other similar instruments or documents under the Relevant UCC or other applicable laws with respect to any Receivable; (e) any dispute, claim, offset or defense (which dispute, claim, offset or defense is made in "good faith") (other than discharge in bankruptcy of an Obligor) of an Obligor to the payment of any Receivable (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of merchandise or services related to such Receivable or the furnishing or failure to furnish such merchandise or services. For the purposes of this subsection, the term "good faith" shall mean a dispute, claim, offset or defense that is based on reasonable factual allegations which are likely to survive a motion to dismiss or which are not interposed for the purposes of hindering or delaying an Obligor's payment of the Receivable or which is not based principally on procedural or technical grounds (including, without limitation, improper service of process, statute of limitations, etc.); (f) any failure of the Transferor or AAFC to perform their respective duties or obligations in accordance with the provisions of this Agreement or any Facility Document; or (g) any products liability claim or personal injury or property damage suit arising out of or in connection with merchandise or services which are the subject of any Receivable. SECTION 8.2. TAX INDEMNIFICATION. 69 The Transferor hereby agrees to pay, and to indemnify the Bank from and against, any taxes which may at any time be asserted in respect of this transaction or the subject matter hereof (including, without limitation, any sales, gross receipts, general corporation, personal property, privilege or license taxes, but not including any federal or (except as provided below) other income or franchise taxes imposed upon the Bank, with respect to its net income or profits arising out of the transactions contemplated hereby (all such excluded taxes, the "Excluded Taxes")), whether arising by reason of the acts to be performed by the Transferor or AAFC hereunder or imposed against the Transferor or AAFC or the Bank, the property involved or otherwise. If any tax, fee or similar charge is imposed or with respect to any payment for the account of the Bank provided for in this Agreement by any State or political subdivision thereof (other than Excluded Taxes), the Transferor will, upon demand by the Bank, pay an amount necessary to make the Bank whole, taking into account any tax consequences to the Bank of the payment of such tax and the receipt of the indemnity provided for by this Section 8.2, including the effect of such tax or refund on the amount of tax measured by net income or profits which is or was payable by the Bank in the jurisdiction in which its principal executive office is located. SECTION 8.3. ADDITIONAL COSTS. (a) The Transferor shall pay to the Bank, from time to time on demand of the Bank, such amounts as the Bank may reasonably determine to be necessary to compensate it for any increase in costs which any such party determines are attributable to its acquiring the Transferred Interest or maintaining any Tranche under this Agreement, or any reduction in any amount receivable by the Bank hereunder in respect of any such Tranche or such obligation (such increases in costs, payments and reductions in amounts receivable being herein called "ADDITIONAL COSTS") resulting from any Regulatory Change which (i) changes the method or basis of taxation of any amounts payable to the Bank under this Agreement in respect of any such Tranche or (ii) imposes any other condition affecting this Agreement (or any of such extensions of credit or liabilities). The Bank will notify the Transferor of any event that will entitle such Person to compensation pursuant to this Section 8.3(a) no later than fifteen (15) Business Days after it obtains knowledge thereof. (b) Determinations and allocations by the Bank for purposes of this Section 8.3 shall be conclusive, provided that such determinations and allocations are made in good faith and on a reasonable basis, reasonable evidence (including an explanation of the applicable Regulatory Change and an accounting for any amounts demanded) of which shall be provided to the Transferor upon request. (c) The Bank agrees to promptly notify the Transferor if the Bank receives notice of any potential tax assessment by 70 any federal, state or local tax authority for which the Transferor may be liable pursuant to Sections 8.2 or 8.3 hereof. The Bank further agrees that the Transferor shall bear no cost (including costs relating to penalties and interest) relating to the failure of the Bank to file in a timely manner any tax returns required to be filed by the Bank in accordance with applicable statutes and regulations. SECTION 8.4. OTHER COSTS AND EXPENSES. The Transferor shall pay on demand all costs and expenses in connection with the preparation, execution, delivery and administration of this Agreement, the Purchase Agreement and any other documents to be delivered hereunder, including, without limitation, reasonable fees and out-of-pocket expenses of legal counsel for the Bank (which such counsel may be employees of the Bank) with respect thereto and with respect to advising the Bank as to its rights and remedies under this Agreement or the Purchase Agreement, and all costs and expenses, if any, including reasonable counsel fees and expenses in connection with the enforcement or amendment of this Agreement and the other documents delivered hereunder. The Transferor shall reimburse the Bank on demand for all other costs and expenses incurred by the Bank or any shareholder of the Bank ("OTHER COSTS"); including, without limitation, the cost of the Bank's auditors auditing the Transferor's or AAFC's books, records and procedures, and the reasonable fees and out-of-pocket expenses of counsel for the Bank or any counsel for any shareholder of the Bank with respect to advising the Bank or such shareholder as to matters relating to the Bank's operation. ARTICLE IX MISCELLANEOUS SECTION 9.1. TERM OF AGREEMENT. This Agreement shall terminate following the Termination Date when the Aggregate Net Investment has been reduced to zero, all accrued Discount has been paid in full and all other Aggregate Unpaids have been paid in full; PROVIDED, HOWEVER, that the indemnification and payment provisions of Article VIII and Section 6.10 shall be continuing and shall survive any termination of this Agreement, subject to applicable statutes of limitation; PROVIDED FURTHER, HOWEVER, that any such indemnification or payment claim must be presented to the Transferor or AAFC within ten (10) Business Days after the Bank receives notice or otherwise becomes aware of such claim. SECTION 9.2. WAIVERS; AMENDMENTS. No failure or delay on the part of the Bank in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other further exercise thereof or the exercise of any other power, right or remedy. The rights and remedies herein provided shall be cumulative and nonexclusive of any rights or remedies provided by law. Any provision of this Agreement may be 71 amended if, but only if, such amendment is in writing and is signed by the parties hereto. SECTION 9.3. NOTICES. Except as provided below, all communications and notices provided for hereunder shall be in writing (including bank wire, telecopy or electronic facsimile transmission or similar writing) and shall be given to the other party at its address or telecopy number set forth hereunder or at such other address or telecopy number as such party may hereafter specify for the purposes of notice to such party. Each such notice or other communication shall be effective if given by facsimile, when such facsimile is transmitted to the facsimile number specified in this Section 9.3 and the appropriate written confirmation is received or, if given by any other means, when received at the address specified in this Section 9.3. However, anything in this Section 9.3 to the contrary notwithstanding, the Transferor hereby authorizes the Bank to effect any Tranche Period and Tranche Rate selections based on telephonic notices made by any Person which the Transferor has indicated in writing from time to time as an authorized agent of the Transferor for such purpose, which Person the Bank in good faith believes is such an authorized person. The Transferor further agrees to deliver promptly to the Bank a written confirmation of each telephonic notice signed by an authorized officer of the Transferor. However, the absence of such confirmation shall not affect the validity of such notice. If the written confirmation differs in any material respect from the action taken by the Bank, the records of the Bank shall govern absent manifest error. IF TO THE BANK: MORGAN GUARANTY TRUST COMPANY OF NEW YORK 500 Stanton Christiana Road Newark, Delaware 19713-2107 Telephone: (302) 634-5493 Telecopy: (302) 634-5490 Attention: Asset Finance Group IF TO THE TRANSFEROR: ATLANTIC AUTO SECOND FUNDING CORPORATION P.O. Box 1502 800 Perinton Hills Office Park Fairport, New York 14450 Telephone: (716) 421-2982 Telecopy: (716) 421-1954 Attention: President 72 IF TO AAFC: ATLANTIC AUTO FINANCE CORPORATION P.O. Box 1502 800 Perinton Hills Office Park Fairport, New York 14450 Telephone: (716) 421-2985 Telecopy: (716) 421-1954 Attention: President SECTION 9.4. GOVERNING LAW; SUBMISSION TO JURISDICTION; INTEGRATION. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. The Transferor hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State Court sitting in New York, New York for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Transferor and AAFC hereby irrevocably waive, to the fullest extent they may effectively do so, any objection which they may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Nothing in this Section 9.4 shall affect the right of the Bank to bring any action or proceeding against the Transferor or AAFC or their respective properties in the courts of other jurisdictions. This Agreement contains the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire understanding among the parties hereto with respect to the subject matter hereof superseding all prior oral or written understandings. SECTION 9.5. SEVERABILITY; COUNTERPARTS, WAIVER OF SETOFF. This Agreement may be executed in any number.of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. The Transferor and AAFC hereby agree to waive any right of setoff which it may have or to which it may be entitled against the Bank and its assets. SECTION 9.6. ASSIGNMENTS. (a) This Agreement shall be binding on the parties hereto and their respective successors and assigns; PROVIDED, HOWEVER, that the Transferor may not assign any of its rights or delegate any of its duties hereunder without the prior written 73 consent of the Bank. No provision of this Agreement shall in any manner restrict the ability of the Bank to assign, participate, grant security interests in, or otherwise transfer any portion of the Transferred Interest. Any transfer in contravention of this Section 9.6(a) shall be null and void and shall not confer upon the transferee thereof any of the rights under this Agreement. (b) The Bank may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more Persons (each a "PARTICIPANT"), without the consent of the Transferor, participating interests in its Transferred Interest, its obligation to purchase fractional undivided ownership interests in the Receivables or any other interest of the Bank hereunder. Notwithstanding any such sale by the Bank of a participating interest to a Participant, the Bank's rights and obligations under this Agreement shall remain unchanged, the Bank shall remain solely responsible for the performance of its obligations hereunder, and the Transferor, AAFC and the Servicer (to the extent provided herein) shall continue to deal solely and directly with the Bank in connection with the Bank's rights and obligations under this Agreement. The Bank agrees that any agreement between the Bank and any such Participant in respect of such participating interest shall not restrict the Bank's right to agree to any amendment, supplement, waiver or modification to this Agreement. SECTION 9.7. WAIVER OF CONFIDENTIALITY. The Bank, the Transferor and AAFC shall hold all non-public information obtained pursuant to this Agreement and the transactions contemplated hereby or effected in connection herewith in accordance with customary procedures for handling confidential information of this nature and in any event may make disclosure (a) reasonably required by a bona fide transferee, including without limitation any Participant, (b) necessary in order to obtain any consents, approvals, waivers or other arrangements required to permit the execution, delivery and performance by the Transferor and AAFC of the Facility Documents, or (c) as required or requested by any governmental body, agency or instrumentality, regulatory authority, court, tribunal or arbitrator or pursuant to legal process or required by applicable law. SECTION 9.8. CHARACTERIZATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. The Transferor, AAFC and the Bank agree to treat the transactions contemplated by this Agreement as a financing for tax purposes and as a sale for accounting purposes and further agree to file on a timely basis all federal and other tax returns consistent with such treatment. SECTION 9.9. NO PETITION. The Bank agrees that, prior to the date which is one year and one day after the date upon which all obligations of the Transferor to the Bank hereunder are paid in full, it will not institute against, or join any other Person in instituting against, the Transferor any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding 74 or other similar proceeding under the laws of the United States or any state of the United States. 75 IN WITNESS WHEREOF, the parties hereto have caused this Transfer and Administration Agreement to be executed and delivered by their duly authorized officers as of the date hereof. ATLANTIC AUTO SECOND FUNDING CORPORATION, as Transferor By: /s/ Suzanne A. O'Connor ------------------------ Name: Title: ATLANTIC AUTO FINANCE CORPORATION, as Servicer By: /s/ Richard J. Harrison ------------------------- Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK as Bank By: /s/ Richard A. Burke ------------------------- Name: Richard A. Burke Title: Associate 76 EX-10.3-7 25 EXHIBIT 10.3.7 POOLING AND SERVICING AGREEMENT RELATING TO ATLANTIC AUTO GRANTOR TRUST 1996-A among ATLANTIC AUTO THIRD FUNDING CORPORATION as Seller ATLANTIC AUTO FINANCE CORPORATION as Servicer and THE CHASE MANHATTAN BANK as Trustee, Backup Servicer and Collateral Agent _____________________ Dated as of June 20, 1996 ____________________ TABLE OF CONTENTS PAGE ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . 1 Section 1.2. Usage of Terms. . . . . . . . . . . . . . . . . . . .19 Section 1.3. Calculations. . . . . . . . . . . . . . . . . . . . .19 Section 1.4. Section References. . . . . . . . . . . . . . . . . .19 Section 1.5. Action by or Consent of Certificateholders. . . . . .19 Section 1.6. No Recourse . . . . . . . . . . . . . . . . . . . . .19 Section 1.7. Material Adverse Effect . . . . . . . . . . . . . . .19 ARTICLE II CREATION OF TRUST. . . . . . . . . . . . . . . . . . . . .20 Section 2.1. Creation of Trust . . . . . . . . . . . . . . . . . .20 ARTICLE III CONVEYANCE OF RECEIVABLES; ACCEPTANCE BY TRUSTEE; ORIGINAL ISSUANCE OF CERTIFICATES.. . . . . . . . . . . . . . . . .20 Section 3.1. Conveyance of Receivables . . . . . . . . . . . . . .20 Section 3.2. Custody of Receivable Files . . . . . . . . . . . . .21 Section 3.3. Conditions to Acceptance by Trustee . . . . . . . . .23 Section 3.4. Representations and Warranties of Seller. . . . . . .24 Section 3.5. RESERVED. . . . . . . . . . . . . . . . . . . . . . .30 Section 3.6. Repurchase of Receivables Upon Breach of Representation and Warranty . . . . . . . . . . . . .30 Section 3.7. Nonpetition Covenant. . . . . . . . . . . . . . . . .31 Section 3.8. Collecting Lien Certificates Not Delivered on the Closing Date. . . . . . . . . . . . . . . . . . . . .31 ARTICLE IV ADMINISTRATION AND SERVICING OF RECEIVABLES. . . . . . . .31 Section 4.1. Duties of the Servicer. . . . . . . . . . . . . . . .31 Section 4.2. Collection of Receivable Payments; Modification and . . Amendment of Receivables; Lockbox Agreements. . . . .33 Section 4.3. Realization on Defaulted Receivables. . . . . . . . .35 Section 4.4. Insurance . . . . . . . . . . . . . . . . . . . . . .36 Section 4.5. Maintenance of Security Interests in Vehicles . . . .37 Section 4.6. Covenants, Representations and Warranties of Servicer. . . . . . . . . . . . . . . . . . . . . . .38 Section 4.7. Purchase of Receivables Upon Breach of Covenant or . . Representation and Warranty . . . . . . . . . . . . .40 -i- PAGE Section 4.8. Total Servicing Fee; Payment of Certain Expenses by Servicer . . . . . . . . . . . . . . . . . . . . .40 Section 4.9. Servicer's Certificate. . . . . . . . . . . . . . . .41 Section 4.10. Annual Statement as to Compliance; Notice of Servicer Termination Event. . . . . . . . . . . . . . . . . .42 Section 4.11. Annual Independent Accountants' Report. . . . . . . .42 Section 4.12. Access to Certain Documentation and Information Regarding Receivables . . . . . . . . . . . . . . . .43 Section 4.13. Monthly Tape. . . . . . . . . . . . . . . . . . . . .43 Section 4.14. Retention and Termination of Servicer . . . . . . . .44 Section 4.15. Fidelity Bond . . . . . . . . . . . . . . . . . . . .45 ARTICLE V DISTRIBUTIONS; STATEMENTS TO CERTIFICATEHOLDERS. . . . . .45 Section 5.1. Accounts. . . . . . . . . . . . . . . . . . . . . . .45 Section 5.2. Collections . . . . . . . . . . . . . . . . . . . . .46 Section 5.3. Application of Collections. . . . . . . . . . . . . .47 Section 5.4. Additional Deposits . . . . . . . . . . . . . . . . .47 Section 5.5. Distributions . . . . . . . . . . . . . . . . . . . .47 Section 5.6. Net Deposits. . . . . . . . . . . . . . . . . . . . .50 Section 5.7. Statements to Certificateholders. . . . . . . . . . .50 Section 5.8. Optional Deposits by the Certificate Insurer. . . . .52 ARTICLE VI THE SPREAD ACCOUNT AND THE POLICY. . . . . . . . . . . . .52 Section 6.1. Spread Account. . . . . . . . . . . . . . . . . . . .52 Section 6.2. Policy. . . . . . . . . . . . . . . . . . . . . . . .52 Section 6.3. Withdrawals from Spread Account . . . . . . . . . . .52 Section 6.4. Claims Under Policy . . . . . . . . . . . . . . . . .53 Section 6.5. Preference Claims; Direction of Proceedings . . . . .54 Section 6.6. Surrender of Policy . . . . . . . . . . . . . . . . .55 ARTICLE VII THE CERTIFICATES . . . . . . . . . . . . . . . . . . . . .55 Section 7.1. The Certificates. . . . . . . . . . . . . . . . . . .55 Section 7.2. Authentication of Certificates. . . . . . . . . . . .55 Section 7.3. Registration of Transfer and Exchange of Certificates. . . . . . . . . . . . . . . . . . . . .55 Section 7.4. Mutilated, Destroyed, Lost or Stolen Certificates . .60 Section 7.5. Persons Deemed Owners . . . . . . . . . . . . . . . .61 Section 7.6. Access to List of Certificateholders' Names and Addresses . . . . . . . . . . . . . . . . . . . .61 Section 7.7. Maintenance of Office or Agency . . . . . . . . . . .61 -ii- PAGE ARTICLE VIII THE SELLER . . . . . . . . . . . . . . . . . . . . . . . .62 Section 8.1. Liability of Seller . . . . . . . . . . . . . . . . .62 Section 8.2. Merger or Consolidation of, or Assumption of the Obligations of Seller; Amendment of Certificate of Incorporation. . . . . . . . . . . . . . . . . . .62 Section 8.3. Limitation on Liability of Seller and Others. . . . .63 Section 8.4. Seller May Own Certificates . . . . . . . . . . . . .63 Section 8.5. Seller Not to Incur Debt. . . . . . . . . . . . . . .64 ARTICLE IX THE SERVICER . . . . . . . . . . . . . . . . . . . . . . .64 Section 9.1. Liability of Servicer; Indemnities. . . . . . . . . .64 Section 9.2. Merger or Consolidation of, or Assumption of the Obligations of, the Servicer or Backup Servicer . . .65 Section 9.3. Limitation on Liability of Servicer, Backup Servicer and Others. . . . . . . . . . . . . . . . . . . . . .66 Section 9.4. Delegation of Duties. . . . . . . . . . . . . . . . .67 Section 9.5. Servicer and Backup Servicer Not to Resign. . . . . .67 ARTICLE X SERVICER TERMINATION EVENTS. . . . . . . . . . . . . . . .68 Section 10.1. Servicer Termination Event. . . . . . . . . . . . . .68 Section 10.2. Consequences of a Servicer Termination Event. . . . .70 Section 10.3. Appointment of Successor. . . . . . . . . . . . . . .71 Section 10.4. Notification to Certificateholders. . . . . . . . . .72 Section 10.5. Waiver of Past Defaults . . . . . . . . . . . . . . .72 ARTICLE XI THE TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . .72 Section 11.1. Duties of Trustee . . . . . . . . . . . . . . . . . .72 Section 11.2. Trustee's Assignment of Administrative Receivables and Warranty Receivables. . . . . . . . . . . . . . .74 Section 11.3. Certain Matters Affecting the Trustee . . . . . . . .74 Section 11.4. Trustee Not Liable for Certificates or Receivables. .75 Section 11.5. Trustee May Own Certificates. . . . . . . . . . . . .76 Section 11.6. Trustee's Fees and Expenses; Indemnification. . . . .76 Section 11.7. Eligibility Requirements for Trustee. . . . . . . . .77 Section 11.8. Resignation or Removal of Trustee . . . . . . . . . .77 Section 11.9. Successor Trustee . . . . . . . . . . . . . . . . . .78 Section 11.10. Merger or Consolidation of Trustee. . . . . . . . . .79 Section 11.11. Appointment of Co-Trustee or Separate Trustee . . . .79 Section 11.12. Representations and Warranties of Trustee . . . . . .80 Section 11.13. Tax Returns . . . . . . . . . . . . . . . . . . . . .81 Section 11.14. Trustee May Enforce Claims Without Possession of Certificates. . . . . . . . . . . . . . . . . . . . .81 -iii- PAGE Section 11.15. Suit for Enforcement. . . . . . . . . . . . . . . . .81 Section 11.16. Rights to Direct Trustee. . . . . . . . . . . . . . .82 ARTICLE XII TERMINATION. . . . . . . . . . . . . . . . . . . . . . . .82 Section 12.1. Termination of the Trust. . . . . . . . . . . . . . .82 Section 12.2. Optional Purchase of All Receivables. . . . . . . . .83 ARTICLE XIII MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . .83 Section 13.1. Amendment . . . . . . . . . . . . . . . . . . . . . .83 Section 13.2. Protection of Title to Trust. . . . . . . . . . . . .85 Section 13.3. Limitation on Rights of Certificateholders. . . . . .86 Section 13.4. Governing Law . . . . . . . . . . . . . . . . . . . .88 Section 13.5. Severability of Provisions. . . . . . . . . . . . . .88 Section 13.6. Assignment. . . . . . . . . . . . . . . . . . . . . .88 Section 13.7. Certificates Nonassessable and Fully Paid . . . . . .88 Section 13.8. Third-Party Beneficiaries . . . . . . . . . . . . . .88 Section 13.9. Financial Security as Controlling Party . . . . . . .88 Section 13.10. Counterparts. . . . . . . . . . . . . . . . . . . . .89 Section 13.11. Notices . . . . . . . . . . . . . . . . . . . . . . .89 Section 13.12. Successors and Assigns. . . . . . . . . . . . . . . .89 -iv- SCHEDULES Schedule A -- Schedule of Receivables EXHIBITS Exhibit A -- Form of Class A Certificate Exhibit B -- Form of Class B Certificate Exhibit C -- Form of Lockbox Agreement Exhibit D -- Form of Spread Account Agreement Exhibit E -- Form of Servicer's Certificate Exhibit F -- Form of Policy Exhibit G -- Form of Representation Letter Exhibit H -- Receivables Purchase Agreement and Assignment Exhibit I -- Lockbox Agreement Exhibit J -- Servicer's Request for Release -v- THIS POOLING AND SERVICING AGREEMENT (this "AGREEMENT"), dated as of June 20, 1996, is made with respect to the formation of the Atlantic Auto Grantor Trust 1996-A, among Atlantic Auto Third Funding Corporation, a Delaware corporation, as Seller (the "SELLER"), Atlantic Auto Finance Corporation, a Delaware corporation ("ATLANTIC" and, in its capacity as Servicer, the "SERVICER") and The Chase Manhattan Bank, a New York banking corporation, as Trustee ("CHASE," and in such capacity, the "TRUSTEE"), as Backup Servicer (in such capacity, the "BACKUP SERVICER") and as Collateral Agent (in such capacity, the "COLLATERAL AGENT"). WHEREAS, the Seller wishes to establish a trust and provide for the allocation and sale of the beneficial interests therein and the maintenance and distribution of the trust estate; WHEREAS, the Servicer has agreed to service the Receivables, which constitute the principal assets of the trust estate; WHEREAS, all things necessary to make the Certificates, when executed and authenticated by the Trustee, valid instruments, and to make this Agreement a valid agreement, in accordance with their and its terms, have been done; and WHEREAS, Chase is willing to serve in the capacity of Trustee and Backup Servicer hereunder. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the Seller, the Servicer, the Trustee and the Backup Servicer hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1. DEFINITIONS. All terms defined in the Spread Account Agreement (as defined below) shall have the same meaning in this Agreement. Whenever capitalized and used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings: AAFC: Atlantic Auto Funding Corporation, a wholly-owned subsidiary of Atlantic. AAFC ASSIGNMENT: The AAFC Assignment dated July 19, 1996, by AAFC in favor of Atlantic. ACCOUNTANTS' REPORT: The report of a firm of nationally recognized independent accountants described in Section 4.11. ADMINISTRATIVE RECEIVABLE: With respect to any Monthly Period, a Receivable which the Servicer is required to purchase pursuant to Section 4.7. ADJUSTED COMPENSATING INTEREST: Shall have the meaning set forth in Section 4.8(b). AFFILIATE: With respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person, means the power to direct the management and voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. AGGREGATE PRINCIPAL BALANCE: With respect to any Determination Date, the sum of the Principal Balances (computed as of the related Record Date) for all Receivables (other than (i) any Receivable that became a Liquidated Receivable during the related Monthly Period and (ii) any Receivable that became a Purchased Receivable on the immediately preceding Deposit Date). AMOUNT AVAILABLE: With respect to any Distribution Date, the sum of (i) the Available Funds for the immediately preceding Determination Date, plus (ii) the Deficiency Claim Amount, if any, received by the Trustee from the Collateral Agent with respect to such Distribution Date, plus (iii) the Policy Claim Amount, if any, received by the Trustee from the Certificate Insurer with respect to such Distribution Date. AMOUNT FINANCED: With respect to a Receivable, the aggregate amount advanced under such Receivable toward the purchase price of the Financed Vehicle and related costs, including amounts advanced in respect of accessories, insurance premiums, service and warranty contracts, other items customarily financed as part of retail automobile installment sale contracts or promissory notes, and related costs. ANNUAL PERCENTAGE RATE OR APR: With respect to a Receivable, the rate per annum of finance charges stated in such Receivable as the "annual percentage rate" (within the meaning of the Federal Truth-in-Lending Act). If after the Closing Date, the rate per annum with respect to a Receivable as of the Closing Date is reduced as a result of (i) an insolvency proceeding involving the Obligor or (ii) pursuant to the Soldiers' and Sailors' Civil Relief Act of 1940, Annual Percentage Rate or APR shall refer to such reduced rate. ANNUAL TRUSTEE'S FEE: Shall have the meaning set forth in Section 11.6. ATLANTIC: shall have the meaning set forth in the first paragraph of this Agreement. AVAILABLE FUNDS: With respect to any Determination Date, the sum of (i) the Collected Funds for such Determination Date; (ii) all Purchase Amounts deposited in the Collection Account on the related Deposit Date and (iii) any Adjusted Compensating Interest actually deposited by the Servicer into the Collection Account on such Determination Date. -2- AVERAGE DEFAULT RATE: With respect to any Determination Date, the arithmetic average of the Default Rate for such Determination Date and the Default Rates for the two immediately preceding Determination Dates. AVERAGE DELINQUENCY RATIO: With respect to any Determination Date, the arithmetic average of the Delinquency Ratio for such Determination Date and the Delinquency Ratios for the two immediately preceding Determination Dates. AVERAGE NET LOSS RATE: With respect to any Determination Date, the arithmetic average of the Net Loss Rate for the related Monthly Period and the Net Loss Rates for the two immediately preceding Monthly Periods. BACKUP SERVICER: Shall have the meaning set forth in the first paragraph of this Agreement. BUSINESS DAY: Any day other than a Saturday, Sunday, legal holiday or other day on which banking institutions in New York, New York or any other location of any Servicer, Trustee or Collateral Agent are authorized or obligated by law, executive order or governmental decree to be closed. CALENDAR QUARTER: The three-month period ending on the last day of March, June, September or December. CERTIFICATE: Any one of the Class A Certificates or Class B Certificates executed by the Trustee on behalf of the Trust in substantially the form set forth in Exhibit A or B, respectively. CERTIFICATE INSURER: Financial Security Assurance Inc., a monoline insurance company incorporated under the laws of the State of New York, or any successor thereto, as issuer of the Policy. CERTIFICATE MAJORITY: As of any date of determination, Holders of Class A Certificates and Class B Certificates representing a majority of the sum of the Class A Certificate Balance and the Class B Certificate Balance, or if there are no Class A Certificates outstanding, holders of Class B Certificates representing a majority of the Class B Certificate Balance as of such date. CERTIFICATEHOLDER OR HOLDER: The Person in whose name a Certificate is registered in the Certificate Register. CERTIFICATE REGISTER AND CERTIFICATE REGISTRAR: The register maintained and the registrar appointed pursuant to Section 7.3. CLASS: A class of Certificates. CLASS A CERTIFICATE: Any one of the Certificates executed by the Trust and authenticated by the Trustee in substantially the form set forth in Exhibit A hereto. -3- CLASS A CERTIFICATE BALANCE: Initially, $45,837,000 and, thereafter, the initial Class A Certificate Balance reduced by all amounts distributed to the Class A Certificateholders and allocable to principal. CLASS A CERTIFICATE FACTOR: As of any Distribution Date, a six-digit decimal figure equal to the Class A Certificate Balance as of the close of business on such Distribution Date divided by the initial Class A Certificate Balance as of the Cut-off Date. CLASS A DISTRIBUTABLE AMOUNT: On any Distribution Date, the sum of the Class A Principal Distributable Amount and the Class A Interest Distributable Amount. CLASS A INTEREST CARRYOVER SHORTFALL: As of the close of business on any Distribution Date, the excess of the Class A Interest Distributable Amount for such Distribution Date plus (without duplication) any outstanding Class A Interest Carryover Shortfall from the preceding Distribution Date plus interest on such outstanding Class A Interest Carryover Shortfall, to the extent permitted by law, at the Class A Pass-Through Rate from such preceding Distribution Date through the current Distribution Date, over the amount of interest that the holders of the Class A Certificates actually received on such current Distribution Date. CLASS A INTEREST DISTRIBUTABLE AMOUNT: With respect to any Distribution Date, the sum of (i) for the initial Distribution Date, twenty-six (26) days of interest and for any Distribution Date thereafter, thirty (30) days of interest, in any case calculated on the basis of a 360-day year consisting of twelve 30-day months, at the Class A Pass-Through Rate on the Class A Certificate Balance as of the close of business on the last day of the preceding Monthly Period and (ii) any outstanding Class A Interest Carryover Shortfall. CLASS A PASS-THROUGH RATE: 6.70% per annum, calculated on the basis of a 360-day year consisting of twelve 30-day months. CLASS A PERCENTAGE: 97%. CLASS A PRINCIPAL CARRYOVER SHORTFALL: As of the close of business on any Distribution Date, the excess of the Class A Principal Distributable Amount plus any outstanding Class A Principal Carryover Shortfall from the preceding Distribution Date over the amount of principal that the holders of the Class A Certificates actually received on such current Distribution Date. CLASS A PRINCIPAL DISTRIBUTABLE AMOUNT: With respect to any Distribution Date, without duplication, the sum of the Class A Percentage of (i) the principal portion of all Collected Funds received during the immediately preceding Monthly Period (other than Liquidated Receivables and Purchased Receivables) including the principal portion of all prepayments, (ii) the Principal Balance of all Receivables that became Liquidated Receivables during the related Monthly Period (other than Purchased Receivables), (iii) the principal portion of the Purchase Amount of all Receivables that became Purchased Receivables as of the immediately preceding Record Date, plus, in the sole discretion of the Certificate Insurer, -4- the principal portion of the Purchase Amount as of the immediately preceding Record Date of all the Receivables that were required to be purchased pursuant to Sections 3.6 and 4.7 as of the immediately preceding Record Date but were not so purchased and (iv) the aggregate amount of Cram Down Losses that shall have occurred during the related Monthly Period. With respect to the Final Distribution Date, the amount described in the preceding paragraph or, if greater, the amount necessary to reduce the Class A Certificate Balance to zero on such Final Distribution Date. CLASS B CERTIFICATE: Any one of the Certificates executed by the Trust and authenticated by the Trustee in substantially the form set forth in Exhibit B hereto. CLASS B CERTIFICATE BALANCE: Initially, $1,417,958.27 and, thereafter, the initial Class B Certificate Balance, reduced by (x) all amounts distributed to Class B Certificateholders and allocable to principal and (y) on any Distribution Date on which (i) the sum of the Class A Certificate Balance and the Class B Certificate Balance as of such Distribution Date, after taking into account all distributions to be made on such Distribution Date, exceeds (ii) the Pool Balance with respect to the immediately preceding Monthly Period, the amount of such excess. CLASS B CERTIFICATE FACTOR: As of any Distribution Date, a six-digit decimal figure equal to the Class B Certificate Balance as of the close of business on such Distribution Date divided by the initial Class B Certificate Balance. CLASS B DISTRIBUTABLE AMOUNT: On any Distribution Date, the sum of the Class B Principal Distributable Amount and the Class B Interest Distributable Amount. CLASS B INTEREST CARRYOVER SHORTFALL: As of the close of business on any Distribution Date, the excess of the Class B Interest Distributable Amount for such Distribution Date plus (without duplication) any outstanding Class B Interest Carryover Shortfall from the preceding Distribution Date plus interest on such outstanding Class B Interest Carryover Shortfall, to the extent permitted by law, at the Class B Pass-Through Rate from such preceding Distribution Date through the current Distribution Date, over the amount of interest that the holders of the Class B Certificates actually received or was deposited in the Class B Sub-account on such current Distribution Date. CLASS B INTEREST DISTRIBUTABLE AMOUNT: With respect to any Distribution Date, the sum of (i) for the initial Distribution Date, twenty-six (26) days of interest and for any Distribution Date thereafter, thirty (30) days of interest, in any case calculated on the basis of a 360-day year consisting of twelve 30-day months, at the Class B Pass-Through Rate on the Class B Certificate Balance as of the close of business on the last day of the preceding Monthly Period LESS the portion thereof, if any, deposited in the Class B Sub-account pursuant to Section 5.5(a)(vii) on such Distribution Date and (ii) any outstanding Class B Interest Carryover Shortfall. CLASS B PASS-THROUGH RATE: 9.20% per annum, calculated on the basis of a 360-day year consisting of twelve 30-day months. -5- CLASS B PERCENTAGE: 3%. CLASS B PRINCIPAL CARRYOVER SHORTFALL: As of the close of business on any Distribution Date, the excess of the Class B Principal Distributable Amount plus any outstanding Class B Principal Carryover Shortfall from the preceding Distribution Date over the amount of principal that the holders of the Class B Certificates actually received or that was deposited in the Class B Sub-account on such current Distribution Date. CLASS B PRINCIPAL DISTRIBUTABLE AMOUNT: With respect to any Distribution Date, without duplication, the Class B Percentage of: the sum of (a) (i) the principal portion of all Collected Funds received during the immediately preceding Monthly Period (other than Liquidated Receivables and Purchased Receivables) including the principal portion of all prepayments, (ii) the Principal Balance of all Receivables that became Liquidated Receivables during the related Monthly Period (other than Purchased Receivables), (iii) the principal portion of the Purchase Amount of all Receivables that became Purchased Receivables as of the immediately preceding Record Date, and (iv) the aggregate amount of Cram Down Losses that shall have occurred during the related Monthly Period LESS (b) the portion thereof, if any, deposited in the Class B Sub-account pursuant to Section 5.5(a)(vii) on such Distribution Date. CLASS B SUB-ACCOUNT: The Class B Sub-account of the Spread Account. CLEARING AGENCY: An organization registered as a "clearing agency" pursuant to Section 17A of the Securities Exchange Act of 1934. CLOSING DATE: July 19, 1996. COLLATERAL AGENT: The Collateral Agent named in the Spread Account Agreement, and any successor thereto pursuant to the terms of the Spread Account Agreement. COLLATERAL INSURANCE: Shall have the meaning set forth in Section 4.4(b). COLLECTED FUNDS: With respect to any Determination Date, the amount of funds in the Collection Account representing collections on the Receivables during the related Monthly Period, including all Liquidation Proceeds collected during the related Monthly Period (but excluding any Purchase Amounts). COLLECTION ACCOUNT: The account designated as the Collection Account in, and which is established and maintained pursuant to, Section 5.1. COLLECTION RECORDS: All manually prepared or computer generated records relating to collection efforts or payment histories with respect to the Receivables. COMPENSATING INTEREST: With respect to all Receivables for which the Scheduled Payment for any Monthly Period is received prior to the date on which such Scheduled Payment is due or for which any prepayment is otherwise received, an amount equal to the aggregate of the positive differences, if any, with respect to each such Receivable between (x) -6- the sum of (a) 30 days' interest at an interest rate equal to the weighted average of the Class A Pass-Through Rate and the Class B Pass-Through Rate (weighted by relative Class A Certificate Principal Balance and Class B Certificate Principal Balance) on the Principal Balance of each such Receivable as of the first day of the related Monthly Period and (b) the product of (i) one twelfth of (A) the sum of the Servicing Fee Rate and (B) the per annum rate at which the Premium (as such term is defined in the Insurance Agreement) is calculated pursuant to the Premium Letter and (ii) the Principal Balance of such Receivable as of the first day of the related Monthly Period and (y) the product of (i) the interest actually paid by the related Obligor with respect to such Receivable with respect to such Monthly Period and (ii) a fraction, the numerator of which is the sum of (a) such weighted average of the Class A Pass-Through Rate and the Class B Pass-Through Rate referred to in (x)(a) above, (b) the Servicing Fee Rate and (c) the per annum rate at which the Premium (as such term is defined in the Insurance Agreement) is calculated pursuant to the Premium Letter, and the denominator of which is the APR of such Receivable. COMPUTER TAPE OR LISTING: The computer tape or listing generated on behalf of the Seller which provides information relating to the Receivables and which was used by the Seller and Atlantic in selecting the Receivables conveyed to the Trust hereunder. CORPORATE TRUST OFFICE: The principal office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at the Closing Date is located at 4 Chase Metrotech Center - 3rd Floor, Brooklyn, New York 11245. The telecopy number for the Corporate Trust Office on the Closing Date is (718) 242-3529. CRAM DOWN LOSS: With respect to a Receivable, if a court of appropriate jurisdiction in an insolvency proceeding shall have issued an order reducing the amount owed on a Receivable or otherwise modifying or restructuring the scheduled payments to be made on a Receivable, an amount equal to the excess of the principal balance of such Receivable immediately prior to such order over the principal balance of such Receivable as so reduced or the net present value (using as the discount rate the higher of the APR on such Receivable or the rate of interest, if any, specified by the court in such order) of the scheduled payments as so modified or restructured. A "Cram Down Loss" shall be deemed to have occurred on the date of issuance of such order. CUSTODIAN: Initially Safesite Records Management Corporation, as Custodian on behalf of the Trustee pursuant to the Custodial Agreement or any successor thereto. CUSTODIAL AGREEMENT: The Custodial Agreement dated as of June 20, 1996, among the Custodian, the Seller, the Trustee and the Servicer, and acknowledged by the Certificate Insurer. CUSTODIAL RECEIVABLE FILES: Shall have the meaning set forth in Section 3.2(a). CUT-OFF DATE: The close of business on June 20, 1996. CUT-OFF DATE PRINCIPAL BALANCE: $47,254,958.27. -7- CXC: CXC Incorporated, a Delaware corporation. CXC ASSIGNMENT: That certain Assignment dated July 19, 1996, by CXC, in favor of Atlantic. DEALER: A seller of new or used automobiles or light trucks that originated one or more of the Receivables and sold the respective Receivable, directly or indirectly, to Atlantic. DEALER AGREEMENT: An agreement by and among Atlantic and a Dealer relating to the sale of retail installment sale contracts and installment notes to Atlantic and all documents and instruments relating thereto. DEALER ASSIGNMENT: With respect to a Receivable, the executed assignment executed by a Dealer conveying such Receivable to Atlantic. DEALER UNDERWRITING GUIDE: Means the underwriting manual used by Atlantic in the purchase of Receivables as amended from time to time. DEFAULT RATE: With respect to any Determination Date and based on such information provided in the Servicer's Certificate under Section 4.9(b), the product of (x) twelve and (y) a fraction (i) the numerator of which is the sum of (a) the aggregate Principal Balances (as of the related Record Date) of all Receivables which became Defaulted Receivables during the related Monthly Period and (b) the aggregate Principal Balances (as of the related repurchase date) of Receivables that became Purchased Receivables during the related Monthly Period that were more than 30 days delinquent with respect to $25.00 or more of a Scheduled Payment at the time of such repurchase hereunder and (ii) the denominator of which is a fraction (a) the numerator of which is the sum of (l) the aggregate Principal Balances of the Receivables as of the first day of the related Monthly Period and (2) the aggregate Principal Balances of the Receivables as of the Record Date and (b) the denominator of which is two. DEFAULTED RECEIVABLE: With respect to any Determination Date, a Receivable with respect to which: (i) $25.00 or more of a Scheduled Payment is more than 90 days delinquent, (ii) the Servicer has repossessed the related Financed Vehicle (and any applicable redemption period has expired) or (iii) such Receivable is in default and the Servicer has determined in good faith that payments thereunder are not likely to be resumed; PROVIDED, HOWEVER, that a Receivable shall not be a Defaulted Receivable if the Servicer has determined in good faith that insurance proceeds with respect to such Receivable are likely to be paid. DEFICIENCY CLAIM AMOUNT: Shall have the meaning set forth in Section 6.3(a). DEFICIENCY CLAIM DATE: With respect to any Distribution Date, the fourth Business Day immediately preceding such Distribution Date. DEFICIENCY NOTICE: Shall have the meaning set forth in Section 6.3(a). -8- DELINQUENCY RATIO: With respect to any Determination Date, a fraction (a) the numerator of which is equal to the aggregate Principal Balances (as of the related Record Date) of all Receivables that were more than 30 days delinquent with respect to $25.00 or more of a Scheduled Payment and (b) the denominator of which is equal to the aggregate Principal Balances of the Receivables as of the related Record Date. DEPOSIT DATE: With respect to any Monthly Period, the Business Day immediately preceding the related Determination Date. DEPOSITORY: The depository designated for the book-entry Certificates or a nominee thereof. DETERMINATION DATE: With respect to a Monthly Period, the sixth Business Day prior to the related Distribution Date. DISTRIBUTION AMOUNT: With respect to a Distribution Date, the sum of (i) the Available Funds for such Distribution Date, plus (ii) the Deficiency Claim Amount, if any, received by the Trustee with respect to such Distribution Date. DISTRIBUTION DATE: With respect to a Monthly Period, the 15th day of the next succeeding calendar month, or if such 15th day is not a Business Day, the next succeeding Business Day, commencing August 15, 1996. DRAW DATE: With respect to any Distribution Date, the third Business Day (as defined in the Policy) immediately preceding such Distribution Date. ELECTRONIC LEDGER: The electronic master record of the retail installment sales contracts or installment loans of the Servicer. ELIGIBLE ACCOUNT: (i) A segregated trust account that is maintained with a depository institution acceptable to the Certificate Insurer (so long as an Insurer Default shall not have occurred and be continuing), or (ii) a segregated direct deposit account maintained with a depository institution or trust company organized under the laws of the United States of America, or any of the States thereof, or the District of Columbia, having a certificate of deposit, short-term deposit or commercial paper rating of at least A-1+ by Standard & Poor's and P-1 by Moody's and (so long as an Insurer Default shall not have occurred and be continuing) acceptable to the Certificate Insurer. In either case, such depository institution or trust company shall have been approved by the Controlling Party (as defined in the Spread Account Agreement), acting in its discretion, by written notice to the Collateral Agent. ELIGIBLE INVESTMENTS: Any one or more of the following types of investments: (i) direct interest-bearing obligations of, and interest-bearing obligations guaranteed as to timely payment of principal and interest by, the United States or any agency or instrumentality of the United States the obligations of which are backed by the full faith and credit of the United States; -9- (ii) demand or time deposits in, certificates of deposit of, or bankers' acceptances issued by any depository institution or trust company organized under the laws of the United States or any State and subject to supervision and examination by federal and/or state banking authorities (including, if applicable, the Trustee or any agent of the Trustee acting in their respective commercial capacities); PROVIDED that the short-term unsecured debt obligations of such depository institution or trust company at the time of such investment, or contractual commitment providing for such investment, are rated AAA by Standard & Poor's and Aaa by Moody's; (iii) repurchase obligations pursuant to a written agreement (1) with respect to any obligation described in clause (i) above, where the Trustee has taken actual or constructive delivery of such obligation in accordance with Section 5.1, and (2) entered into with a depository institution or trust company organized under the laws of the United States or any State thereof, the deposits of which are insured by the Federal Deposit Insurance Corporation and the short-term unsecured debt obligations of which are rated "A-1+" by Standard & Poor's and "P-1" by Moody's (including, if applicable, the Trustee or any agent of the Trustee acting in their respective commercial capacities); (iv) securities bearing interest or sold at a discount issued by any corporation incorporated under the laws of the United States or any State whose long-term unsecured debt obligations are rated AAA by Standard & Poor's and Aaa by Moody's at the time of such investment or contractual commitment providing for such investment; PROVIDED, HOWEVER, that securities issued by any particular corporation will not be Eligible Investments to the extent that an investment therein will cause the then outstanding principal amount of securities issued by such corporation and held as part of the Collection Account to exceed 10% of the Eligible Investments held in the Collection Account (with Eligible Investments held in the Collection Account valued at par); (v) commercial paper that (1) is payable in United States dollars and (2) is rated A-1+ by Standard & Poor's and Prime-1 by Moody's; (vi) subject to the prior written consent of the Certificate Insurer, money market mutual funds registered under the Investment Company Act of 1940, as amended, having a rating, at the time of such investment, from each of the Rating Agencies in the highest investment category granted thereby; and (vii) any other demand or time deposit, obligation, security or investment as may be acceptable to the Certificate Insurer, as evidenced by the prior written consent of the Certificate Insurer, as may from time to time be confirmed in writing to the Trustee by the Certificate Insurer upon notification to each of Moody's and Standard and Poor's. ELIGIBLE SERVICER: Atlantic, the Backup Servicer or another Person which at the time of its appointment as Servicer, in the opinion of the Certificate Insurer, (i) is servicing -10- a portfolio of motor vehicle retail installment sales contracts and/or motor vehicle installment loans, (ii) is legally qualified and has the capacity to service the Receivables, (iii) has demonstrated the ability professionally and competently to service a portfolio of motor vehicle retail installment sales contracts and/or motor vehicle installment loans similar to the Receivables with reasonable skill and care, and (iv) is qualified and entitled to use, pursuant to a license or other written agreement, and agrees to maintain the confidentiality of, the software which the Servicer uses in connection with performing its duties and responsibilities under this Agreement or otherwise has available software which is adequate to perform its duties and responsibilities under this Agreement. FINAL DISTRIBUTION DATE: The Distribution Date in September 2002. FINANCED VEHICLE: A new or used automobile or light truck, van or mini-van together with all accessories thereto, securing or purporting to secure an Obligor's indebtedness under a Receivable. FRACTIONAL UNDIVIDED INTEREST: The fractional undivided interest in the Trust that is evidenced by a Certificate. GUARANTEED DISTRIBUTIONS: Shall have the meaning set forth in the Policy. INDEMNIFICATION AGREEMENT: The Indemnification Agreement, dated as of June 20, 1996, among the Certificate Insurer, the Seller and Donaldson, Lufkin & Jenrette Securities Corporation. INDEPENDENT ACCOUNTANTS: Shall have the meaning set forth in Section 4.11(a). INITIAL PURCHASER AGREEMENT: The Purchase Agreement, dated as of July 19, 1996, between the Seller and the initial purchaser of the Class A Certificates. INSURANCE AGREEMENT: The Insurance and Indemnity Agreement, dated as of June 20, 1996, among the Certificate Insurer, the Seller and Atlantic. INSURANCE AGREEMENT EVENT OF DEFAULT: An "Event of Default" as defined in the related Insurance Agreement. INSURANCE POLICY: With respect to a Receivable, any insurance policy (including the insurance policies described in Section 3.4(a)(xxiii)) benefiting the holder of the Receivable providing loss or physical damage, credit life, credit disability, theft, mechanical breakdown or similar coverage with respect to the Financed Vehicle or the Obligor. INSURER DEFAULT: The occurrence and continuance of any of the following events: (a) The Certificate Insurer shall have failed to make a payment required under the Policy in accordance with its terms; -11- (b) The Certificate Insurer shall have (i) filed a petition or commenced any case or proceeding under any provision or chapter of the United States Bankruptcy Code or any other similar federal or state law relating to insolvency, bankruptcy, rehabilitation, liquidation or reorganization, (ii) made a general assignment for the benefit of its creditors, or (iii) had an order for relief entered against it under the United States Bankruptcy Code or any other similar federal or state law relating to insolvency, bankruptcy, rehabilitation, liquidation or reorganization which is final and nonappealable; or (c) A court of competent jurisdiction, the New York Department of Insurance or other competent regulatory authority shall have entered a final and nonappealable order, judgment or decree (i) appointing a custodian, trustee, agent or receiver for the Certificate Insurer or for all or any material portion of its property or (ii) authorizing the taking of possession by a custodian, trustee, agent or receiver of the Certificate Insurer (or the taking of possession of all or any material portion of the property of the Certificate Insurer). LIEN: Any security interest, lien, charge, pledge, preference, equity or encumbrance of any kind, including tax liens, mechanics' liens and any liens that attach by operation of law. LIEN CERTIFICATE: With respect to a Financed Vehicle, an original certificate of title, certificate of lien or other notification issued by the Registrar of Titles of the applicable state to a secured party which indicates that the lien of the secured party on the Financed Vehicle is recorded on the original certificate of title. In any jurisdiction in which the original certificate of title is required to be given to the Obligor, the term "Lien Certificate" shall mean only a certificate or notification issued to a secured party. LIQUIDATED RECEIVABLE: With respect to any Monthly Period, a Receivable as to which (i) more than 60 days have elapsed since the Servicer repossessed the Financed Vehicle, (ii) the Servicer has determined in good faith that all amounts it expects to recover have been received, (iii) $25.00 or more of a Scheduled Payment shall have become more than 120 days delinquent, or in the case of an Obligor who is subject to bankruptcy proceedings, more than 210 days delinquent or (iv) the Financed Vehicle has been sold and the proceeds received. Any Receivable that becomes a Purchased Receivable on or before the related Deposit Date shall not be a Liquidated Receivable. LIQUIDATION PROCEEDS: With respect to a Liquidated Receivable, all amounts realized with respect to such Receivable (other than amounts withdrawn from the Spread Account and drawings under the Policy) net of amounts that are required to be refunded to the Obligor on such Receivable; PROVIDED, HOWEVER, that the Liquidation Proceeds with respect to any Receivable shall in no event be less than zero. LOCKBOX ACCOUNT: An account maintained by the Lockbox Bank pursuant to Section 4.2(d). -12- LOCKBOX AGREEMENT: The Amended and Restated Lockbox Agreement, dated as of June 14, 1996, among Atlantic, AAFC, Atlantic Auto Second Funding Corporation, Citicorp North America Inc., Morgan Guaranty Trust Company of New York and the Lockbox Bank, as supplemented by the Assignment thereto dated July 19, 1996 among Atlantic, the Seller, the Lockbox Bank, the Trustee and the Certificate Insurer, each in the form attached as Exhibit C hereto, or any other agreement, in form and substance acceptable to the Certificate Insurer, or if an Insurer Default shall have occurred and be continuing, to a Certificate Majority. LOCKBOX BANK: Marine Midland Bank or any other depository institution named by the Servicer and, so long as an Insurer Default shall not have occurred and be continuing, acceptable to the Certificate Insurer, or, if an Insurer Default shall have occurred and be continuing, to a Certificate Majority. MONTHLY PERIOD: A calendar month. With respect to a Determination Date or a Distribution Date, the calendar month preceding the month in which such Determination Date or Distribution Date occurs (such calendar month being referred to as the "related" Monthly Period with respect to such Determination Date or Distribution Date). Any amount stated "as of the close of business of the last day of a Monthly Period" shall give effect to the following calculations as determined as of the end of the day on such last day: (i) all applications of collections, and (ii) all distributions. MONTHLY RECORDS: All records and data maintained by the Servicer with respect to the Receivables, including the following with respect to each Receivable: the account number; the originating Dealer; Obligor name; Obligor address; Obligor home phone number; Obligor business phone number; original Principal Balance; original term; Annual Percentage Rate; current Principal Balance; current remaining term; origination date; first payment date; final scheduled payment date; next payment due date; date of most recent payment; new/used classification; collateral description; days currently delinquent; number of contract extensions (months) to date; amount of Scheduled Payment; current Insurance Policy expiration date; and past due late charges. MOODY'S: Moody's Investors Service, Inc., or any successor thereto. NET LOSS RATE: For any Monthly Period, the product, expressed as a percentage, of twelve multiplied by a fraction, the numerator of which is equal to (i) the sum of (a) the aggregate of the Principal Balances as of the related Record Date of all Receivables that became Liquidated Receivables during the related Monthly Period and (b) the amount of any Cram Down Losses during such Monthly Period less (ii) the Liquidation Proceeds received by the Trust with respect to Receivables which became Liquidated Receivables in prior Monthly Periods, and the denominator of which is equal to the average of the Aggregate Principal Balance as of the related Record Date and the Aggregate Principal Balance as of the first day of the related Monthly Period. NOTICE OF CLAIM: A written or telecopied notice from the Trustee to the Certificate Insurer, substantially in the form of Exhibit A to the Policy. -13- OBLIGOR: The purchaser or the co-purchasers of the Financed Vehicle and any other Person or Persons who are primarily or secondarily obligated to make payments under a Receivable. OFFERING MEMORANDUM: The Offering Memorandum, dated July 12, 1996 relating to the Class A Certificates. OFFICER'S CERTIFICATE: A certificate signed by the chairman of the board, the vice chairman, the president, the chief financial officer or any executive vice president. OPINION OF COUNSEL: A written opinion of counsel reasonably acceptable to the Certificate Insurer, which opinion is acceptable in form and substance to the Trustee and, if such opinion or a copy thereof is required by the provisions of this Agreement to be delivered to the Certificate Insurer, to the Certificate Insurer. OUTSTANDING AMOUNT: The sum of the Class A Certificate Balance and the Class B Certificate Balance. PARTICIPANT: A broker, dealer, bank or other financial institution or other Person for whom from time to time a Depository effects book-entry transfers and pledges of securities deposited with the Depository. PERSON: Any legal person, including any individual, corporation, partnership, joint venture, estate, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof, or any other entity. POLICY: The financial guaranty insurance policy number 50489N issued by the Certificate Insurer to the Trustee for the benefit of the Class A Certificateholders, including any endorsements thereto. POLICY CLAIM AMOUNT: Shall have the meaning set forth in Section 6.4(a). POLICY PAYMENTS ACCOUNT: The account designated as the Policy Payments Account in, and which is established and maintained pursuant to, Section 5.1. POOL BALANCE: As of the close of business on the last day of a Monthly Period, the aggregate Principal Balance of the Receivables (excluding Purchased Receivables and Liquidated Receivables). POOL FACTOR: With respect to any Distribution Date, a six digit decimal figure equal to, as applicable, the Class A Certificate Balance as of such Distribution Date (after giving effect to distributions of principal on such date) divided by the Class A Certificate Balance as of the Closing Date, or the Class B Certificate Balance as of such Distribution Date (after giving effect to distributions of principal on such date) divided by the Class B Certificate Balance as of the Closing Date. PREFERENCE CLAIM: Shall have the meaning set forth in Section 6.5(b). -14- PREMIUM LETTER: The premium letter, dated the Closing Date among the Certificate Insurer, Atlantic, the Seller and the Trustee relating to the payment of certain fees and expenses of the Certificate Insurer. PRINCIPAL BALANCE: With respect to any Receivable, as of any date, the Amount Financed minus (i) that portion of all amounts received on or prior to such date and allocable to principal in accordance with the terms of the Receivable, and (ii) any Cram Down Loss in respect of such Receivable. PURCHASE AMOUNT: With respect to a Receivable, the Principal Balance and all accrued and unpaid interest on the Receivable as of the date of purchase. PURCHASED RECEIVABLE: As of any Record Date, any Receivable that became a Warranty Receivable or Administrative Receivable as of such Record Date (or which the Seller or the Servicer has elected to purchase as of an earlier Record Date, as permitted hereunder) and as to which the Purchase Amount has been deposited in the Collection Account by the Seller, Atlantic or the Servicer, as applicable, on or before the related Deposit Date. RATING AGENCY: Each of Moody's and Standard & Poor's, so long as such Persons maintain a rating on the Certificates; and if either Moody's or Standard & Poor's no longer maintains a rating on the Certificates, such other nationally recognized statistical rating organization selected by the Seller and (so long as an Insurer Default shall not have occurred and be continuing) acceptable to the Certificate Insurer. RECEIVABLE: A retail installment sale contract or promissory note (and related security agreement) for a new or used automobile, light-duty truck, van or mini-van (and all accessories thereto) that is included in the Schedule of Receivables, and all rights and obligations under such contract, but not including (i) any Liquidated Receivable (other than for purposes of calculating, as applicable, the Class A Principal Distributable Amount and the Class B Principal Distributable Amount hereunder), or (ii) any Purchased Receivable on or after the Record Date immediately preceding the Deposit Date on which payment of the Purchase Amount is made in connection therewith pursuant to Section 5.4. RECEIVABLE FILE: The documents, electronic entries, instruments and writings listed in Section 3.2 pertaining to a particular Receivable. RECEIVABLES PURCHASE AGREEMENT: The Receivables Purchase Agreement and Assignment, dated as of June 20, 1996, between Atlantic and the Seller relating to the purchase by the Seller from Atlantic of the Receivables as set forth in Exhibit I. RECORD DATE: With respect to any Determination Date or Distribution Date, the last day of the immediately preceding calendar month. REGISTRAR OF TITLES: With respect to any state, the governmental agency or body responsible for the registration of, and the issuance of certificates of title relating to, motor vehicles and liens thereon. -15- RELATED DOCUMENTS: The Certificates, the Receivables Purchase Agreement, the Indemnification Agreement, the Spread Account Agreement, the Insurance Agreement, the AAFC Assignment, the CXC Assignment, the Lockbox Agreement, the Premium Letter and the Custodial Agreement. The Related Documents to be executed by any party are referred to herein as "such party's Related Documents," "its Related Documents" or by a similar expression. REPURCHASE EVENTS: The occurrence of a breach of any of the Seller's or the Servicer's representations and warranties in this Agreement which requires the repurchase of a Receivable by the Seller or the Servicer pursuant hereto or Atlantic pursuant to the Receivables Purchase Agreement. REQUIRED DEPOSIT RATING: A rating on short-term unsecured debt obligations of "P-1" by Moody's and at least "A-1+" by Standard & Poor's (or such other rating as may be acceptable to the Rating Agencies and, so long as an Insurer Default shall not have occurred and be continuing, the Certificate Insurer) so as to not affect the rating on the Certificates. REQUISITE AMOUNT: Shall have the meaning set forth in the Spread Account Agreement. RESPONSIBLE OFFICER: When used with respect to the Trustee, any officer of the Trustee assigned by the Trustee to administer its corporate trust affairs relating to the Trust. When used with respect to any other Person that is not an individual, the President, any Vice-President or Assistant Vice-President or the Controller of such Person, or any other officer or employee having similar functions. SCHEDULE OF RECEIVABLES: The schedule of all retail installment sales contracts and promissory notes originally held as part of the Trust which is attached as Schedule A. SCHEDULED PAYMENT: With respect to any Monthly Period for any Receivable, the amount set forth in such Receivable as required to be paid by the Obligor in such Monthly Period. If after the Closing Date, the Obligor's obligation under a Receivable with respect to a Monthly Period has been modified so as to differ from the amount specified in such Receivable as a result of (i) the order of a court in an insolvency proceeding involving the Obligor, (ii) pursuant to the Soldiers' and Sailors' Civil Relief Act of 1940 or (iii) modifications or extensions of the Receivable permitted by Section 4.2(b), the Scheduled Payment with respect to such Monthly Period shall refer to the Obligor's payment obligation with respect to such Monthly Period as so modified. SELLER: Shall have the meaning set forth in the first paragraph of this Agreement. SELLER SUB-ACCOUNT: The Seller Sub-account of the Spread Account. SELLER SUB-ACCOUNT SPREAD DEPOSIT AMOUNT: Means as of any Distribution Date the lesser of (i) the positive difference if any between (a) the Requisite Amount as of the related Determination Date and (b) the amount on deposit in the Seller Sub-account of the -16- Spread Account (after giving effect to any withdrawals from the Seller Sub-account on such Distribution Date); and (ii) the positive difference, if any, between (a) Available Funds (after giving effect to any distributions pursuant to Section 5.5(a) (i) through (v)) and (b) the sum of the Class B Interest Distributable Amount, the Class B Principal Distributable Amount and the Class B Principal Carryover Shortfall, if any, in each case for such Distribution Date. SERIES: The Certificates issued pursuant to this Agreement. SERVICER: Shall have the meaning set forth in the first paragraph of this Agreement. SERVICER EXTENSION NOTICE: The notice delivered pursuant to Section 4.14. SERVICER RECEIVABLE FILES: Shall have the meaning set forth in Section 3.2(b). SERVICER'S CERTIFICATE: With respect to each Determination Date, a certificate, completed by and executed on behalf of the Servicer, in accordance with Section 4.9, substantially in the form attached hereto as Exhibit E. SERVICER TERMINATION EVENT: An event described in Section 10.1. SERVICING FEE: With respect to any Monthly Period, the fee payable to the Servicer for services rendered during such Monthly Period, which shall be equal to one-twelfth of the Servicing Fee Rate multiplied by the Aggregate Principal Balance as of the last day of the immediately proceeding Monthly Period. SERVICING FEE RATE: 1% per annum, payable monthly at one-twelfth of the annual rate. SERVICING PROCEDURES MANUAL: Means the servicing manual used by Atlantic in the servicing of the Receivables as amended from time to time. SIMPLE INTEREST METHOD: The method of allocating a fixed level payment on an obligation between principal and interest, pursuant to which the portion of such payment that is allocated to interest is equal to the product of the fixed rate of interest on such obligation multiplied by the period of time (expressed as a fraction of a year, based on a 30 day month and 360 days in the calendar year) elapsed since the preceding payment under the obligation was made. SIMPLE INTEREST RECEIVABLE: A Receivable under which the portion of the payment allocable to interest and the portion allocable to principal is determined in accordance with the Simple Interest Method. SPREAD ACCOUNT: The Spread Account established and maintained pursuant to the Spread Account Agreement. The Spread Account shall in no event be deemed part of the Trust Property. The Spread Account will be pledged by the Seller to the Trustee, in its -17- capacity as Seller and as agent of the Class B Certificateholders to the extent they have an interest therein. SPREAD ACCOUNT AGREEMENT: The Master Spread Account Agreement, dated as of June 20, 1996, among the Seller, the Certificate Insurer, the Collateral Agent and the Trustee substantially in the form attached hereto as Exhibit D, as the same may be amended, supplemented or otherwise modified in accordance with the terms thereof. STANDARD & POOR'S: Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, or any successor thereto. SUPPLEMENTAL SERVICING FEE: With respect to any Monthly Period, (i) all administrative fees, expenses and charges paid by or on behalf of Obligors, including late fees, prepayment fees and liquidation fees collected on the Receivables during such Monthly Period and (ii) the net realized earnings on all investments of funds deposited in the Collection Account. THIS AGREEMENT: Shall have the meaning set forth in the first paragraph of this Agreement. TOTAL SERVICING FEE: The sum of the Servicing Fee and the Supplemental Servicing Fee. TRIGGER EVENT: Shall have the meaning set forth in the Spread Account Agreement. TRUST: Shall have the meaning set forth in Section 2.1. TRUST PROPERTY: The property and proceeds of every description conveyed pursuant to Section 3.1, together with certain moneys paid after the Cut-off Date through the Closing Date, the Policy, the Collection Account (including all Eligible Investments therein and all proceeds therefrom), the Lockbox Account and certain other rights under this Agreement. Although the Seller, on behalf of itself in respect of the Seller Sub-account and on behalf of the Class B Certificateholders in respect of the Class B Sub-account, has pledged the Spread Account to the Trustee and the Certificate Insurer pursuant to the Spread Account Agreement, the Spread Account shall not under any circumstances be deemed to be a part of or otherwise includable in the Trust or the Trust Property. TRUSTEE: Shall have the meaning set forth in the first paragraph of this Agreement. UCC: The Uniform Commercial Code as in effect in the relevant jurisdiction. WARRANTY RECEIVABLE: With respect to any Monthly Period, a Receivable which the Seller has become obligated to repurchase pursuant to Section 3.6 or 3.2. -18- Section 1.2. USAGE OF TERMS. With respect to all terms used in this Agreement, the singular includes the plural and the plural the singular; words importing any gender include the other genders; references to "writing" include printing, typing, lithography, and other means of reproducing words in a visible form; references to agreements and other contractual instruments include all subsequent amendments thereto or changes therein entered into in accordance with their respective terms and not prohibited by this Agreement; references to Persons include their permitted successors and assigns; and the terms "include" or "including" mean "include without limitation" or "including without limitation." Section 1.3. CALCULATIONS. All calculations of the amount of interest accrued on the Certificates and all calculations of the amount of the Servicing Fee shall be made on the basis of a 360-day year consisting of twelve 30-day months. All references to the Principal Balance of a Receivable as of a Record Date shall refer to the close of business on such day. Section 1.4. SECTION REFERENCES. All references to Articles, Sections, paragraphs, subsections, exhibits and schedules shall be to such portions of this Agreement unless otherwise specified. Section 1.5. ACTION BY OR CONSENT OF CERTIFICATEHOLDERS. Whenever any provision of this Agreement refers to action to be taken, or consented to, by Certificateholders, such provision shall be deemed to refer to Certificateholders of record as of the Record Date immediately preceding the date on which such action is to be taken, or consent given, by Certificateholders. Solely for the purposes of any action to be taken, or consented to, by Certificateholders, any Certificate registered in the name of the Seller, Atlantic or any Affiliate thereof shall be deemed not to be outstanding and the Fractional Undivided Interest evidenced thereby shall not be taken into account in determining whether the requisite Fractional Undivided Interest necessary to effect any such action or consent has been obtained; PROVIDED, HOWEVER, that, solely for the purpose of determining whether the Trustee is entitled to rely upon any such action or consent, only Certificates which the Trustee actually knows to be so owned shall be so disregarded. Section 1.6. NO RECOURSE. No recourse may be taken, directly or indirectly, under this Agreement or any certificate or other writing delivered in connection herewith or therewith, against any stockholder, officer, or director, as such, of the Seller, Atlantic, the Servicer or the Trustee or of any predecessor or successor of the Seller, Atlantic, the Servicer or the Trustee. Section 1.7. MATERIAL ADVERSE EFFECT. Whenever a determination is to be made under this Agreement as to whether a given event, action, course of conduct or set of facts or circumstances could or would have a material adverse effect on the Trust or the Certificateholders (or any similar or analogous determination), such determination shall be made without taking into account the insurance provided by the Policy. Whenever a determination is to be made under this Agreement whether a breach of a representation, warranty or covenant has or could have a material adverse effect on a Receivable or the interest therein of the Trust, the Certificateholders or the Certificate Insurer (or any similar or -19- analogous determination), such determination shall be made by the Certificate Insurer in its sole discretion, or, if an Insurer Default shall have occurred and be continuing, by a Certificate Majority. ARTICLE II CREATION OF TRUST Section 2.1. CREATION OF TRUST. The Seller does hereby create and establish, pursuant to the laws of the State of New York and this Agreement a trust (the "TRUST"), which for convenience shall be known as "Atlantic Auto Grantor Trust 1996-A." ARTICLE III CONVEYANCE OF RECEIVABLES; ACCEPTANCE BY TRUSTEE; ORIGINAL ISSUANCE OF CERTIFICATES Section 3.1. CONVEYANCE OF RECEIVABLES. (a) Subject to the terms and conditions of this Agreement, the Seller hereby sells, transfers, assigns, and otherwise conveys to the Trustee, in trust for the benefit of the Certificateholders, without recourse (but without limitation of its obligations in this Agreement), all of the right, title and interest of the Seller in and to the Receivables, all moneys at any time paid or payable thereon or in respect thereof after the Cut-off Date (including amounts due on or before the Cut-off Date but received by Atlantic or the Seller after the Cut-off Date), an assignment of security interests of Atlantic in the Financed Vehicles, the Insurance Policies and any proceeds from any Insurance Policies relating to the Receivables, the Obligors or the Financed Vehicles, including rebates of premiums, all Collateral Insurance relating to the Receivables, rights of Atlantic against Dealers with respect to the Receivables under the Dealer Agreements and the Dealer Assignments, all items contained in the Receivable Files, any and all other documents that Atlantic keeps on file in accordance with its customary procedures relating to the Receivables, the Obligors or the Financed Vehicles, property (including the right to receive future Liquidation Proceeds) that secures a Receivable and that has been acquired by or on behalf of the Trust pursuant to liquidation of such Receivable, all of which have been conveyed to the Seller pursuant to the Receivables Purchase Agreement, together with all rights of the Seller under the Receivables Purchase Agreement and all proceeds of the foregoing. It is the intention of the Seller that the transfer and assignment contemplated by this Agreement shall constitute a sale of the Receivables and other Trust Property from the Seller to the Trust and the beneficial interest in and title to the Receivables and the other Trust Property shall not be part of the Seller's estate in the event of the filing of a bankruptcy petition by or against the Seller under any bankruptcy law. In the event that, notwithstanding the intent of the Seller, the transfer and assignment contemplated hereby is held not to be a sale, this Agreement shall constitute a grant of a security interest in the property referred to in this Section 3.1 for the benefit of the Certificateholders. The execution and delivery of this Agreement shall constitute an acknowledgment by the Seller that it intends to establish (for Federal tax -20- purposes) a trust, rather than an association taxable as a corporation. The powers granted and obligations undertaken in this Agreement shall be construed so as to further such intent. (b) The Seller hereby directs the Trustee to, and the Trustee does hereby, accept the Trust Property conveyed by the Seller pursuant to this Section 3.1. The Trustee declares that the Trustee shall hold such Trust Property upon the trusts herein set forth for the benefit of all present and future Certificateholders, subject to the terms and provisions of this Agreement. Section 3.2. CUSTODY OF RECEIVABLE FILES. (a) In connection with the sale, transfer and assignment of the Receivables and the other Trust Property to the Trust pursuant to this Agreement, the Seller shall deliver to the Custodian, on behalf of the Trustee, the following documents or instruments in its possession which shall be delivered to the Custodian on or before the Closing Date with respect to each Receivable (the "Custodial Receivable Files"): (i) the fully executed original of the Receivable (together with any agreements modifying the Receivable, including without limitation any extension agreements) : (a) without any stamp or endorsement; or (b) in the case of any Receivable previously endorsed to any party other than the Trust or the Trustee, the Receivable shall be endorsed by the Custodian, "Pay to the order of The Chase Manhattan Bank, as Trustee under the Pooling and Servicing Agreement, dated as of June 20, 1996, among Atlantic Auto Finance Corporation, as Servicer, Atlantic Auto Third Funding Corporation, as Seller and The Chase Manhattan Bank, as Trustee" and signed in the name of Atlantic; or (c) in the case of any Receivable endorsed on an allonge to any party other than the Trust or the Trustee, the allonge shall be removed; and (ii) the Lien Certificate, or, if not yet received, a copy of an application therefor or a written representation from the Dealer certifying as to the application therefor, showing Atlantic as secured party and such documents, if any, that Atlantic keeps on file in accordance with its customary procedures indicating that the Financed Vehicle is owned by the Obligor and subject to the interest of Atlantic as first lien holder or secured party. (b) In connection with the sale, transfer and assignment of the Receivables and other Trust Property to the Trust pursuant to this Agreement, the Servicer shall retain, on behalf of the Trustee, the following documents or instruments in its possession with respect to -21- each Receivable (the "Servicer Receivables Files" and, collectively with the Custodial Receivables Files, the "Receivables Files"): (i) documents evidencing or relating to any Insurance Policy; and (ii) the original credit application of each Obligor, on Atlantic's customary form, or on a form approved by Atlantic for such Application. The Servicer agrees that it shall duly discharge its duties of receiving and holding the Servicer Receivable Files in accordance with this Agreement. As to any matters not expressly provided for by this Agreement with respect to the Servicer Receivable Files, the Servicer shall be required to act or to refrain from acting (and shall be fully protected in so acting) upon the written instructions of the Trustee, provided that the Trustee shall only deliver such written instructions following its receipt of the prior written consent of the Certificate Insurer with respect to such instructions. The Servicer acknowledges that with respect to each Receivable identified in the Schedule of Receivables (i) it has possession of the applicable Servicer Receivables File and (ii) such Servicer Receivables File contains the documents referred to in this Section 3.2(b). The Servicer declares that it holds and will continue to hold such files and any amendments, replacements or supplements thereto as Servicer on behalf of the Trustee in trust for the use and benefit of all present and future Certificateholders and the Certificate Insurer, as their interests may appear. If at a later date the Servicer is unable to locate a file for a Receivable, or finds that a file is unrelated to the Receivables identified in the Schedule of Receivables or that any of the documents referred to in this Section 3.2(b) are not contained in a Servicer Receivable File, the Servicer shall inform the Seller, the Trustee and the Certificate Insurer promptly, in writing, of the failure to locate a file with respect to such Receivable (or of the failure of any of the aforementioned documents to be included in the Servicer Receivable File) or shall return to the Seller any file unrelated to a Receivable identified in the Schedule of Receivables (it being understood that the Servicer's obligation to review the contents of any Servicer Receivable File shall be limited as set forth in the preceding sentence). Unless such defect with respect to such Servicer Receivable File shall have been cured by the 30th day following discovery thereof by the Servicer, the Seller shall repurchase any such Receivable as of such 30th day. In consideration of the purchase of the Receivable, the Seller shall remit the Purchase Amount, in the manner specified in Section 5.4. The sole remedy of the Trustee, the Trust, or the Certificateholders with respect to a breach pursuant to this Section 3.2(b) shall be to require the Seller to purchase the Receivable. Upon receipt of the Purchase Amount and written instructions from the Servicer, the Servicer shall release to the Seller or its designee the related Servicer Receivable File and shall execute and deliver all reasonable instruments to transfer or assign, without recourse, as are prepared by the Seller and delivered to the Trustee and are necessary to vest in the Seller or such designee as directed by the Seller, title to the Receivable. Without in any way limiting the respective rights of the Trustee, the Certificate Insurer and the Backup Servicer under Section 4.12 or otherwise set forth in this Agreement, at any time and from time to time upon the giving of twenty-four (24) hours' notice, during -22- normal business hours, the Trustee, the Certificate Insurer and the Backup Servicer and any of their respective agents, employees or representatives (including, without limitation, an independent accounting firm performing an audit of the Servicer), shall have the right (i) to visit the office of the Servicer where the Servicer Receivable Files are kept, (ii) to examine the facilities for the storage and safekeeping thereof, (iii) to review the procedures with which such documents are stored and catalogued, (iv) to examine and make copies of and abstracts from such documents, and (v) to discuss matters relating to the Servicer Receivable Files and the Servicer's performance hereunder with any of the officers or employees of the Servicer having knowledge of such matters. (c) Upon payment in full of any Receivable, the Servicer will notify the Custodian and the Trustee by an Officer's Certificate (which certification shall include a statement to the effect that all amounts received in connection with such payments which are required to be deposited in the Collection Account pursuant to Section 3.1 have been so deposited) and shall request delivery by the Custodian of the Receivable and Custodial Receivable File to the Servicer. From time to time as appropriate for servicing and enforcing any Receivable, the Servicer shall, upon written notice and delivery to the Trustee of a receipt signed by an employee of the Servicer (authorized under the Custodial Agreement) in the form of Exhibit J attached hereto, direct the Custodial Receivable File to be released by the Custodian to the Servicer. The Custodian may rely and shall be protected when acting or refraining from acting upon any certificate, request or receipt under this Section. The Servicer's receipt of a Receivable and/or Custodial Receivable File shall obligate the Servicer to return the original Receivable and the related Custodial Receivable File to the Custodian when its need by the Servicer has ceased unless the Receivable shall be liquidated or repurchased as described in Section 3.6 or 4.7. Section 3.3. CONDITIONS TO ACCEPTANCE BY TRUSTEE. As conditions to the execution and delivery of the Certificates by the Trustee on the Closing Date, the Trustee shall have received the following on or before the Closing Date: (a) the Schedule of Receivables certified by the President, Controller or Treasurer of the Seller; (b) copies of resolutions of the Board of Directors of the Seller approving the execution, delivery and performance of this Agreement and the transactions contemplated hereby, certified by a Secretary or an Assistant Secretary of the Seller; (c) copies of resolutions of the Board of Directors of the Servicer approving the execution, delivery and performance of this Agreement and the transactions contemplated hereby, certified by a Secretary or an Assistant Secretary of the Servicer; (d) evidence that all filings (including, without limitation, UCC filings) required to be made by any Person and actions required to be taken or performed by any Person in any jurisdiction to give the Trustee a first priority perfected lien on, or ownership interest in, the Receivables and the other Trust Property have been made, taken or performed; and -23- (e) an executed copy of the Policy and Spread Account Agreement. Section 3.4. REPRESENTATIONS AND WARRANTIES OF SELLER. The Seller hereby makes the following representations and warranties to the other parties hereto and the Certificate Insurer on which the Trustee relies in accepting the Receivables and the other Trust Property in trust and issuing the Certificates and upon which the Certificate Insurer relies in issuing the Policy. Unless otherwise specified, such representations and warranties are made as of the Closing Date, but shall survive the sale, transfer, and assignment of the respective Receivables to the Trustee. (a)(i) CHARACTERISTICS OF RECEIVABLES. Each Receivable (A) was originated by a Dealer for the retail sale of a Financed Vehicle in the ordinary course of such Dealer's business and, such Dealer had all necessary licenses and permits to originate Receivables in the state where such Dealer was located, was fully and properly executed by the parties thereto, was purchased by Atlantic from such Dealer under an existing Dealer Agreement with Atlantic and was validly assigned by such Dealer to Atlantic, (B) contains customary and enforceable provisions such as to render the rights and remedies of the holder thereof adequate for realization against the collateral security, and (C) is a fully amortizing Simple Interest Receivable which provides for level monthly payments (provided that the payment in the first Monthly Period and the final Monthly Period of the life of the Receivable may be minimally different from the level payment) which, if made when due, shall fully amortize the Amount Financed over the original term. (ii) NO FRAUD OR MISREPRESENTATION. Each Receivable was originated by a Dealer to an Obligor and was sold by the Dealer to Atlantic without any fraud or material misrepresentation on the part of such Dealer in either case or on the part of the Obligor. (iii) COMPLIANCE WITH LAW. All requirements of applicable federal, state and local laws, and regulations thereunder (including, without limitation, usury laws, the Federal Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Federal Trade Commission Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations "B" and "Z", the Soldiers' and Sailors' Civil Relief Act of 1940, the New York Motor Vehicle Retail Installment Sales Act, and state adaptations of the National Consumer Act and of the Uniform Consumer Credit Code and other consumer credit laws and equal credit opportunity and disclosure laws) in respect of all of the Receivables, each and every sale of Financed Vehicles and the sale of any physical damage, credit life and credit accident and health insurance and any extended service contracts, have been complied with in all material respects, and each Receivable and the sale of the Financed Vehicle evidenced by each Receivable and the sale of any physical damage, credit life and credit accident and health insurance and any extended service contracts complied at the time it was originated or made and now complies in all material respects with all applicable legal requirements. -24- (iv) ORIGINATION. Each Receivable was originated in the United States and, at the time of origination materially conformed to all requirements of the Dealer Underwriting Guide applicable to such Receivable. (v) BINDING OBLIGATION. Each Receivable represents the genuine, legal, valid and binding payment obligation of the Obligor thereon, enforceable by the holder thereof in accordance with its terms, except (A) as enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting the enforcement of creditors' rights generally and by equitable limitations on the availability of specific remedies, regardless of whether such enforceability is considered in a proceeding in equity or at law and (B) as such Receivable may be modified by the application after the Cut-off Date of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended; and all parties to each Receivable had full legal capacity to execute and deliver such Receivable and all other documents related thereto and to grant the security interest purported to be granted thereby. (vi) NO GOVERNMENT OR EMPLOYEE OBLIGORS. None of the Receivables shall be due from (i) the United States of America or any State or from any agency, department, subdivision or instrumentality thereof or (ii) any employee of Atlantic or any employee of any Affiliate of Atlantic. (vii) OBLIGOR BANKRUPTCY. At the Cut-off Date, no Obligor had been identified on the records of Atlantic as being the subject of a current bankruptcy proceeding. (viii) SCHEDULE OF RECEIVABLES. The information pertaining to each Receivable set forth in the Schedule of Receivables and in the Offering Memorandum was true and correct in all material respects as of the close of business on the Cut-off Date and at the Closing Date. (ix) MARKED RECORDS. By the Closing Date, Atlantic will have caused the portions of Atlantic's servicing records relating to the Receivables to be clearly and unambiguously marked to show that the Receivables constitute part of the Trust Property and are owned by the Trust in accordance with the terms of the Agreement. (x) COMPUTER TAPE OR LISTING. The Computer Tape or Listing made available by Atlantic to the Trustee on the Closing Date was complete and accurate as of the Cut-off Date and includes a description of the same Receivables that are described in the Schedule of Receivables. (xi) CHATTEL PAPER. Each Receivable constitutes chattel paper within the meaning of the UCC. (xii) ONE ORIGINAL. There is only one original executed copy of each Receivable. -25- (xiii) RECEIVABLE FILES COMPLETE. There exists a Receivable File pertaining to each Receivable and such Receivable File contains, without limitation, (a) a fully executed original of the Receivable, (b) a certificate of insurance, application form for insurance signed by the Obligor, or a signed representation letter from the Obligor named in the Receivable pursuant to which the Obligor has agreed to obtain physical damage insurance for the related Financed Vehicle, (c) the original Lien Certificate or, for a period of up to 180 days following the Closing Date, a copy of an application therefor or a representation from the Dealer certifying as to the application therefor, together with an assignment of the Lien Certificate executed by Atlantic to the Seller and a further assignment of the Lien Certificate executed by the Seller to the Trustee (which assignments may be in blanket form) and (d) an original credit application signed by the Obligor. Each of such documents which is required to be signed by the Obligor has been signed by the Obligor in the appropriate spaces, PROVIDED, HOWEVER, with respect to clause (d) above, the original signature may appear on an accompanying credit application form of Atlantic. All blanks on any form described in clause (a), (b), (c) and (d) above have been properly filled in and each form has otherwise been correctly prepared. Notwithstanding the above, a copy of the complete Receivable File for each Receivable, which fulfills the documentation requirements of the Dealer Underwriting Guide as in effect at the time of purchase is in the possession of the Servicer. (xiv) RECEIVABLES IN FORCE. No Receivable has been satisfied, subordinated or rescinded, and the Financed Vehicle securing each such Receivable has not been released from the lien of the related Receivable in whole or in part. No provisions of any Receivable have been waived, altered or modified in any respect since its origination, except by instruments or documents identified in the Receivable File held by the Custodian. No Receivable has been modified as a result of application of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended. (xv) LAWFUL ASSIGNMENT. No Receivable was originated in, or is subject to the laws of, any jurisdiction the laws of which would make unlawful, void or voidable the sale, transfer and assignment of such Receivable under this Agreement or pursuant to transfers of the Certificates. The Seller has not entered into any agreement with any account debtor that prohibits, restricts or conditions the assignment of any portion of the Receivables. (xvi) GOOD TITLE. No Receivable has been sold, transferred, assigned or pledged by the Seller to any Person other than the Trustee; immediately prior to the conveyance of the Receivables to the Trust pursuant to this Agreement, the Seller was the sole owner thereof and had good and indefeasible title thereto, free of any Lien and, upon execution and delivery of this Agreement by the Seller, the Trustee shall have good and indefeasible title to and will be the sole owner of such Receivables, free of any Lien. No Dealer has a participation in, or other right to receive, proceeds of any Receivable. None of Atlantic, AAFC or the Seller has taken any action to convey any right to any Person that would result in such Person having a right to payments -26- received under the related Insurance Policies or the related Dealer Agreements or Dealer Assignments or to payments due under such Receivables. (xvii) SECURITY INTEREST IN FINANCED VEHICLE. Each Receivable created or shall create a valid, binding and enforceable first priority security interest in favor of Atlantic in the Financed Vehicle. The Lien Certificate for each Financed Vehicle shows, or if a new or replacement Lien Certificate is being applied for with respect to such Financed Vehicle the Lien Certificate will be received within 180 days of the Closing Date and will show, Atlantic named as the original secured party under each Receivable as the holder of a first priority security interest in such Financed Vehicle. With respect to each Receivable for which the Lien Certificate has not yet been returned from the Registrar of Titles, Atlantic has received written evidence from the related Dealer that such Lien Certificate showing Atlantic as first lien holder has been applied for. If the Receivable was originated in a state in which a filing or recording is required of the secured party to perfect a security interest in motor vehicles, such filings or recordings have been duly made to show Atlantic named as the original secured party under the related Receivable. Atlantic's security interest has been validly assigned by Atlantic to the Seller pursuant to the Receivables Purchase Agreement and by the Seller to the Trustee pursuant to this Agreement. Immediately after the sale, transfer and assignment thereof to the Trustee for the benefit of the Trust, each Receivable will be secured by an enforceable and perfected first priority security interest in the Financed Vehicle in favor of the Trust as secured party, which security interest is prior to all other liens upon and security interests in such Financed Vehicle which now exist or may hereafter arise or be created (except, as to priority, for any lien for taxes, labor or materials affecting a Financed Vehicle). As of the Cut-off Date there were no Liens or claims for taxes, work, labor or materials affecting a Financed Vehicle which are or may be Liens prior or equal to the lien of the related Receivable. (xviii) ALL FILINGS MADE. All filings (including, without limitation, UCC filings) required to be made by any Person and actions required to be taken or performed by any Person in any jurisdiction to give the Trustee a first priority perfected lien on, or ownership interest in, the Receivables and the proceeds thereof and the other Trust Property have been made, taken or performed. (xix) NO IMPAIRMENT. None of Atlantic, AAFC or the Seller has done anything to convey any right to any Person that would result in such Person having a right to payments due under the Receivable or otherwise to impair the rights of the Trust and the Certificateholders in any Receivable or the proceeds thereof. (xx) RECEIVABLE NOT ASSUMABLE. No Receivable is assumable by another Person in a manner which would release the Obligor thereof from such Obligor's obligations to the Seller with respect to such Receivable. (xxi) NO DEFENSES. No Receivable is subject to any right of rescission, set off, counterclaim or defense and no such right has been asserted or threatened with respect to any Receivable. -27- (xxii) NO DEFAULT. There has been no default, breach, violation or event permitting acceleration under the terms of any Receivable (other than payment delinquencies of not more than 30 days) and no condition exists or event has occurred and is continuing that with notice, the lapse of time or both would constitute a default, breach, violation or event permitting acceleration under the terms of any Receivable, and there has been no waiver of any of the foregoing. As of the Cut-off Date, no Financed Vehicle had been repossessed. (xxiii) INSURANCE. At the time of the origination of each Receivable, the related Financed Vehicle was covered by a comprehensive and collision insurance policy as evidenced pursuant to clause (xiii) above (i) in an amount at least equal to the lesser of (a) its maximum insurable value or (b) the principal amount due from the Obligor under the related Receivable, (ii) naming Atlantic and its successors and assigns as loss payee and (iii) insuring against loss and damage due to fire, theft, transportation, collision and other risks generally covered by comprehensive and collision coverage. Each Receivable requires the Obligor to maintain physical loss and damage insurance, naming Atlantic and its successors and assigns as additional insured parties, and each Receivable permits the holder thereof to obtain physical loss and damage insurance at the expense of the Obligor if the Obligor fails to do so. (xxiv) RECEIVABLES. (i) Each Receivable had a remaining maturity, as of the Cut-off Date, of at least 5 months but not more than 66 months; (ii) each Receivable had an original maturity of at least 11 months but not more than 66 months; (iii) each Receivable had an original principal balance of at least $1,881.00 and not more than $58,190.32; (iv) each Receivable had a Principal Balance as of the Cut-off Date of at least $763.69 and not more than $56,500.77; (v) each Receivable has an Annual Percentage Rate of at least 8.50% and not more than 19.99%; (vi) no Receivable was more than 30 days past due as of the Cut-off Date; (vii) no funds have been advanced by the Seller, the Servicer, any Dealer, or anyone acting on behalf of any of them in order to cause any Receivable to qualify under subclause (vi) of this clause (xxiv); (viii) no Receivable has a final scheduled payment date before November 24, 1996 or after January 2, 2002; (ix) the Principal Balance of each Receivable set forth in Schedule of Receivables is true and accurate in all material respects as of the Cut-off Date; and (x) as of the Cut-off Date, 48.23% of the aggregate Principal Balance for all the Receivables is attributable to loans for the purchase of new Financed Vehicles, and 51.77% of the aggregate Principal Balance for all the Receivables is attributable to loans for the purchase of used Financed Vehicles. (xxv) NO ADVERSE SELECTION. No selection procedures adverse to the Certificateholders or to the Certificate Insurer have been utilized in selecting such Receivable from all other similar Receivables originated by Atlantic. (b) ORGANIZATION AND GOOD STANDING. The Seller has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware, with power and authority to own its properties and to conduct its business as such properties are currently owned and such business is currently conducted, and had -28- at all relevant times, and now has, power, authority and legal right to acquire, own and sell the Receivables and the other property transferred to the Trust. (c) DUE QUALIFICATION. The Seller is duly qualified to do business as a foreign corporation in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of its property or the conduct of its business requires such qualification. (d) POWER AND AUTHORITY. The Seller has the power and authority to execute and deliver this Agreement and the Related Documents to which it is a party and to carry out its terms and their terms, respectively; the Seller has full power and authority to sell and assign the Trust Property to be sold and assigned to and deposited with the Trustee by it and has duly authorized such sale and assignment to the Trustee by all necessary corporate action; and the execution, delivery and performance of this Agreement and the Related Documents to which it is a party have been duly authorized by the Seller by all necessary corporate action. (e) VALID SALE; BINDING OBLIGATIONS. This Agreement, when duly executed and delivered, shall effect a valid sale, transfer and assignment of the Receivables and the other Trust Property, enforceable against the Seller and creditors of and purchasers from the Seller; and this Agreement and the Related Documents to which it is a party, when duly executed and delivered, shall constitute legal, valid and binding obligations of the Seller enforceable in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by equitable limitations on the availability of specific remedies, regardless of whether such enforceability is considered in a proceeding in equity or at law. (f) NO VIOLATION. The consummation of the transactions contemplated by this Agreement and the Related Documents to which it is a party and the fulfillment of the terms of this Agreement and the Related Documents to which it is a party shall not conflict with, result in any breach of any of the terms and provisions of or constitute (with or without notice, lapse of time or both) a default under, the certificate of incorporation or by-laws of the Seller, or any indenture, agreement, mortgage, deed of trust or other instrument to which the Seller is a party or by which it is bound, or result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture, agreement, mortgage, deed of trust or other instrument, other than this Agreement, or violate any law, order, rule or regulation applicable to the Seller of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Seller or any of its properties. (g) NO PROCEEDINGS. There are no material proceedings or investigations pending or, to the Seller's knowledge, threatened against the Seller, AAFC or Atlantic, before any court, regulatory body, administrative agency or other tribunal or governmental instrumentality having jurisdiction over the Seller, AAFC or Atlantic or -29- its properties (i) asserting the invalidity of this Agreement or any of the Related Documents, (ii) seeking to prevent the issuance of the Certificates or the consummation of any of the transactions contemplated by this Agreement or any of the Related Documents, (iii) seeking any determination or ruling that might materially and adversely affect the performance by the Seller or Atlantic of its respective obligations under, or the validity or enforceability of, this Agreement or any of the Related Documents, (iv) involving the Seller, AAFC or Atlantic and which might adversely affect the federal income tax or other federal, state or local tax attributes of the Certificates, or (v) that could have a material adverse effect on the Receivables. (h) APPROVALS. All approvals, authorizations, consents, orders or other actions of any person, corporation or other organization, or of any court, governmental agency or body or official, required in connection with the execution and delivery by the Seller of this Agreement and the consummation of the transactions contemplated hereby have been or will be taken or obtained on or prior to the Closing Date. (i) CHIEF EXECUTIVE OFFICE. The chief executive office of the Seller is at 800 Perinton Hills Office Park, Fairport, New York 14450. Section 3.5. RESERVED Section 3.6. REPURCHASE OF RECEIVABLES UPON BREACH OF REPRESENTATION AND WARRANTY. The Seller, the Servicer or the Trustee, as the case may be, shall inform the other parties to this Agreement and the Certificate Insurer promptly, in writing, upon the discovery of any breach of the Seller's representations and warranties pursuant to Section 3.4(a); PROVIDED, HOWEVER, that the failure to give any such notice shall not derogate from any obligation of the Seller; PROVIDED, FURTHER, that, the Trustee and the Backup Servicer shall have no duty to inquire into or to investigate the breach of any such representations and warranties. Unless the breach shall have been cured by the last day of the first full calendar month following the discovery by or notice to the Seller of the breach, the Seller shall have an obligation, and the Trustee shall (provided that it either has made such discovery or has received such notice thereof) enforce such obligation of the Seller, and, if necessary, to the extent that the Seller fails to effect its repurchase obligation, the obligation of Atlantic under the Receivables Purchase Agreement (the right to enforce such obligation has been transferred to the Trustee hereunder), to repurchase any such Receivable with respect to which such breach has a material adverse effect on such Receivable or the interest therein of the Trust, the Certificateholders or the Certificate Insurer. Such repurchase shall be made by the last day of the first full calendar month following the discovery by or notice to the Seller of the breach. The Trustee shall promptly notify the Certificate Insurer in writing of any failure by the Seller or Atlantic to so repurchase any Receivable. In consideration of the purchase of the Receivable, the Seller shall remit, or the Seller shall cause Atlantic to remit, the Purchase Amount, in the manner specified in Section 5.4. The sole remedy of the Trustee, the Trust, or the Certificateholders with respect to a breach of the Seller's representations and warranties pursuant to Section 3.4(a) shall be to require the Seller to repurchase Receivables pursuant to this Section 3.6 or, to enforce the obligation of Atlantic to the Seller to repurchase such Receivables pursuant to the Receivables Purchase Agreement. -30- In addition to the foregoing and notwithstanding whether the related Receivable shall have been purchased by the Seller or Atlantic, the Seller shall indemnify the Trustee, the Backup Servicer, the Collateral Agent, the Certificate Insurer, the Trust and the Certificateholders against all costs, expenses, losses, damages, claims and liabilities, including reasonable fees and expenses of counsel, which may be asserted against or incurred by any of them as a result of third-party claims arising out of the events or facts giving rise to a breach of the representations and warranties set forth in Section 3.4(a). Section 3.7. NONPETITION COVENANT. Until one year plus one day shall have elapsed since the termination of Trust in accordance with Section 12.1, none of the Seller, the Servicer, the Trustee, nor Atlantic shall petition or otherwise invoke the process of any court or government authority for the purpose of commencing or sustaining a case against the Seller or the Trust under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Seller or the Trust or any substantial part of its property, or ordering the winding up or liquidation of the affairs of the Seller or the Trust. Section 3.8. COLLECTING LIEN CERTIFICATES NOT DELIVERED ON THE CLOSING DATE. In the case of any Receivable in respect of which written evidence from the Dealer selling the related Financed Vehicle that the Lien Certificate for such Financed Vehicle showing Atlantic as first lienholder has been applied for from the Registrar of Titles and such evidence was delivered to the Custodian on the Closing Date in lieu of a Lien Certificate, the Servicer shall use its best efforts to collect such Lien Certificate from the Registrar of Titles as promptly as practicable. If such Lien Certificate showing Atlantic as first lienholder is not received by the Custodian within 180 days after the Closing Date and, notwithstanding the Servicer's continued efforts to obtain such Lien Certificate, a loss occurs as a result of the failure to receive the Lien Certificate within 180 days, then the representation and warranty in Section 3.4(a)(xvii) in respect of such Receivable shall be deemed to have been incorrect in a manner that materially and adversely affects such Receivable, the Certificateholders, the Certificate Insurer and the Trust. ARTICLE IV ADMINISTRATION AND SERVICING OF RECEIVABLES Section 4.1. DUTIES OF THE SERVICER. (a) The Servicer is hereby authorized to act as agent for the Trust and in such capacity shall manage, service, administer and make collections on the Receivables, and perform the other actions required by the Servicer under this Agreement. The Servicer agrees that its servicing of the Receivables shall be carried out in accordance with customary and usual procedures of institutions which service motor vehicle retail installment sales contracts and, to the extent more exacting, the degree of skill and attention that the Servicer exercises from time to time with respect to all comparable motor vehicle receivables that it services for itself or others in accordance with Atlantic's Servicing Procedures Manual as in effect at the current time for servicing all its other comparable motor vehicle receivables. The Servicer's duties shall include, without limitation, collection and -31- posting of all payments, responding to inquiries of Obligors on the Receivables, investigating delinquencies, sending payment statements to Obligors, reporting any required tax information to Obligors, policing the collateral, complying with the terms of the Lockbox Agreement, accounting for collections and furnishing monthly and annual statements to the Trustee and the Certificate Insurer with respect to distributions, and performing the other duties specified herein. The Servicer shall also administer and enforce all rights and responsibilities of the holder of the Receivables provided for in the Dealer Agreements (and shall maintain possession of the Dealer Agreements, to the extent it is necessary to do so), the Dealer Assignments and the Insurance Policies, to the extent that such Dealer Agreements, Dealer Assignments and Insurance Policies relate to the Receivables, the Financed Vehicles or the Obligors. To the extent consistent with the standards, policies and procedures otherwise required hereby, the Servicer shall follow its customary standards, policies, and procedures and shall have full power and authority, acting alone, to do any and all things in connection with such managing, servicing, administration and collection that it may deem necessary or desirable. Without limiting the generality of the foregoing, the Servicer is hereby authorized and empowered by the Trustee to execute and deliver, on behalf of the Certificateholders and the Trustee or any of them, any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, and all other comparable instruments, with respect to the Receivables and with respect to the Financed Vehicles; PROVIDED, HOWEVER, that notwithstanding the foregoing, the Servicer shall not, except pursuant to an order from a court of competent jurisdiction, release an Obligor from payment of any unpaid amount under any Receivable or waive the right to collect the unpaid balance of any Receivable from the Obligor, except that the Servicer may forego collection efforts if the amount subject to collection is DE MINIMIS and if it would forego collection in accordance with its customary procedures. The Servicer is hereby authorized to commence, in its own name or in the name of the Trustee (provided the Servicer has obtained the Trustee's consent, which consent shall not be unreasonably withheld), a legal proceeding to enforce a Receivable pursuant to Section 4.3 or to commence or participate in any other legal proceeding (including, without limitation, a bankruptcy proceeding) relating to or involving a Receivable, an Obligor or a Financed Vehicle. If the Servicer commences or participates in such a legal proceeding in its own name, the Trustee shall thereupon be deemed to have automatically assigned such Receivable to the Servicer solely for purposes of commencing or participating in any such proceeding as a party or claimant, and the Servicer is authorized and empowered by the Trustee to execute and deliver in the Servicer's name any notices, demands, claims, complaints, responses, affidavits or other documents or instruments in connection with any such proceeding. The Trustee shall furnish the Servicer with any powers of attorney and other documents which the Servicer may reasonably request in writing and which the Servicer deems necessary or appropriate and take any other steps which the Servicer may deem necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties under this Agreement. The Servicer hereby makes, constitutes, and appoints, the Trustee acting through its duly appointed officers or any of them, its true and lawful attorney, for it and in its name and on its behalf, for the sole and exclusive purpose of authorizing said attorney to execute and deliver as attorney-in-fact or otherwise, any and all documents and other instruments and to do or accomplish all other acts or things necessary or appropriate to show the Trustee as lienholder or secured party on the related Lien Certificates relating to a Financed Vehicle. -32- Section 4.2. COLLECTION OF RECEIVABLE PAYMENTS; MODIFICATION AND AMENDMENT OF RECEIVABLES; LOCKBOX AGREEMENTS. (a) Consistent with the standards, policies and procedures required by this Agreement, the Servicer shall make reasonable efforts to collect all payments called for under the terms and provisions of the Receivables as and when the same shall become due, and shall follow such collection procedures as it follows with respect to all comparable automobile receivables that it services for itself or others and otherwise act with respect to the Receivables, the Dealer Agreements, the Dealer Assignments, the Insurance Policies and the other Trust Property in such manner as will, in the reasonable judgment of the Servicer, maximize the amount to be received by the Trust with respect thereto. The Servicer is authorized in its discretion to waive any prepayment charge, late payment charge or any other similar fees that may be collected in the ordinary course of servicing any Receivable. (b) The Servicer may at any time agree to a modification or amendment of a Receivable in order to change the Obligor's regular due date to a date within 30 days in which such due date occurs. (c) The Servicer may grant payment extensions on, or other modifications or amendments to, a Receivable (including those modifications permitted by Section 4.2(b)) in accordance with its customary procedures if the Servicer believes in good faith that such extension, modification or amendment is necessary to avoid a default on such Receivable, will maximize the amount to be received by the Trust with respect to such Receivable, and is otherwise in the best interests of the Trust; PROVIDED, HOWEVER, that unless, as to clauses (i), (ii), (iii) and (iv) below (so long as no Insurer Default shall have occurred and be continuing) it is otherwise agreed in writing by the Certificate Insurer: (i) the aggregate period of all extensions on a Receivable shall not exceed six months, and in no event may any Receivable be extended more than three months in any twelve-month period; (ii) in no event may a Receivable be extended by the Servicer beyond the Monthly Period immediately preceding the Final Distribution Date; (iii) so long as an Insurer Default shall not have occurred and be continuing, the Servicer shall not amend or modify a Receivable (except as provided in Section 4.2(b) and this Section 4.2(c)) without the written consent of the Certificate Insurer; (iv) as of any Record Date the number of Receivables the term of which have been extended during the preceding 12-month period shall not exceed 3.0% of the number of Receivables which comprise the pool of Receivables underlying the Class A Certificate Balance and the Class B Certificate Balance at the beginning of the preceding 12-month period; (v) no such extension, modification or amendment shall be granted more than 90 days after the Closing Date if such action would have the effect of -33- causing such Receivable to be deemed to have been exchanged for another Receivable within the meaning of Section 1001 of the Internal Revenue Code of 1986, as amended, or any proposed, temporary or final Treasury Regulations issued thereunder; and (vi) if an Insurer Default shall have occurred and be continuing, the Servicer may not extend or modify any Receivable (other than as permitted by Section 4.2(b)). (d) The Servicer shall use its best efforts to cause Obligors to make all payments on the Receivables, whether by check or by direct debit of the Obligor's bank account, to be made directly to the Lockbox Bank pursuant to the Lockbox Agreement. Amounts received by a Lockbox Bank in respect of the Receivables may initially be deposited into a demand deposit account maintained by the Lockbox Bank as agent for the Trust and for other owners of automobile receivables serviced by the Servicer. The Servicer shall use its best efforts to cause the Lockbox Bank to deposit all payments on the Receivables in the Lockbox Account no later than the Business Day after receipt, and to cause all amounts credited to the Lockbox Account on account of such payments to be transferred to the Collection Account, no later than the second Business Day after receipt of such payments. The Lockbox Account shall be a demand deposit account held by the Lockbox Bank, or at the request of the Certificate Insurer (unless an Insurer Default shall have occurred and be continuing) an Eligible Account satisfying clause (i) of the definition thereof. Any payments on the Receivables inadvertently received by the Servicer shall be deposited directly into the Lockbox Account and the Servicer shall cause the Lockbox Bank to deposit all such payments on the Receivables into the Collection Account no later than the second Business Day after receipt of such payments by the Servicer. Prior to the Closing Date, the Servicer shall have notified each Obligor that makes its payments on the Receivables by check to make such payments thereafter directly to the Lockbox Bank (except in the case of Obligors that have already been making such payments to the Lockbox Bank). Notwithstanding any Lockbox Agreement, or any of the provisions of this Agreement relating to the Lockbox Agreement, the Servicer shall remain obligated and liable to the Trustee and Certificateholders for servicing and administering the Receivables and the other Trust Property in accordance with the provisions of this Agreement without diminution of such obligation or liability by virtue thereof. In the event the Servicer shall for any reason no longer be acting as such, the Backup Servicer or successor Servicer shall thereupon assume all of the rights and, from the date of assumption, all of the obligations of the outgoing Servicer under the Lockbox Agreement. The Backup Servicer or any other successor Servicer shall not be liable for any acts, omissions or obligations of the Servicer prior to such succession. In such event, the successor Servicer shall be deemed to have assumed all of the outgoing Servicer's interest therein and to have replaced the outgoing Servicer as a party to each such Lockbox Agreement to the same extent as if such Lockbox Agreement had been assigned to the successor Servicer, except that the outgoing Servicer shall not thereby be relieved of any liability, or obligations -34- on the part of the outgoing Servicer to the Lockbox Bank under such Lockbox Agreement. The outgoing Servicer shall, upon request of the Trustee, but at the expense of the outgoing Servicer, deliver to the successor Servicer all documents and records relating to each such Agreement and an accounting of amounts collected and held by the Lockbox Bank and otherwise use its best efforts to effect the orderly and efficient transfer of any Lockbox Agreement to the successor Servicer. In the event that the Certificate Insurer (so long as an Insurer Default shall not have occurred and be continuing) or a Certificate Majority (if an Insurer Default shall have occurred and be continuing) elects to change the identity of the Lockbox Bank, the Servicer, at its expense, shall cause the Lockbox Bank to deliver, at the direction of the Certificate Insurer (so long as an Insurer Default shall not have occurred and be continuing) or a Certificate Majority (if an Insurer Default shall have occurred and be continuing) to the Trustee or a successor Lockbox Bank, all documents and records relating to the Receivables and all amounts held (or thereafter received) by the Lockbox Bank (together with an accounting of such amounts) and shall otherwise use its best efforts to effect the orderly and efficient transfer of the lock box arrangements and the Servicer shall notify the Obligors to make payments to the Lockbox established by the successor. Section 4.3. REALIZATION ON DEFAULTED RECEIVABLES. (a) Consistent with the standards, policies and procedures required by this Agreement, the Servicer shall use reasonable efforts consistent with its customary servicing procedures to repossess (or otherwise comparably convert the ownership of) and liquidate any Financed Vehicle securing a Receivable with respect to which the Servicer has determined that payments thereunder are not likely to be resumed, as soon as is practicable after default on such Receivable but in no event shall the repossession be commenced later than the date on which $25.00 or more of a Scheduled Payment has become more than 120 days delinquent, and the Servicer shall use reasonable efforts consistent with its customary servicing procedures to liquidate such Financed Vehicle within 60 days of the date of repossession. The Servicer is authorized to follow such customary practices and procedures as it shall deem necessary or advisable, consistent with the standard of care required by Section 4.1, which practices and procedures may include reasonable efforts to realize upon any recourse to Dealers, selling the related Financed Vehicle at public or private sale, the submission of claims under an Insurance Policy and other actions by the Servicer in order to realize upon such a Receivable. The foregoing is subject to the provision that, in any case in which the Financed Vehicle shall have suffered damage, the Servicer shall not expend funds in connection with any repair or towards the repossession of such Financed Vehicle unless it shall determine in its discretion that such repair and/or repossession shall increase the proceeds of liquidation of the related Receivable by an amount greater than the amount of such expenses. All amounts received upon liquidation of a Financed Vehicle shall be remitted directly by the Servicer into the Lockbox Account and the Servicer shall cause the Lockbox Bank to deposit all such payments on the Receivables into the Collection Account no later than the second Business Day after receipt thereof by the Servicer. The Servicer shall be entitled to recover all reasonable expenses incurred by it in the course of repossessing and liquidating a Financed Vehicle, but only out of the cash proceeds of such Financed Vehicle, any deficiency obtained from the Obligor or any amounts received from the related Dealer, which amounts may be retained by the Servicer (and shall not be required to be deposited in the Collection Account) to the extent of such -35- expenses. The Servicer shall recover such reasonable expenses based on the information contained in the Servicer's Certificate delivered on the related Determination Date. The Servicer shall pay on behalf of the Trust any personal property taxes assessed on repossessed Financed Vehicles; the Servicer shall be entitled to reimbursement of any such tax from Liquidation Proceeds with respect to such Receivable. (b) If the Servicer elects to commence a legal proceeding to enforce a Dealer Agreement or Dealer Assignment, the act of commencement shall be deemed to be an automatic assignment from the Trustee to the Servicer of the rights under such Dealer Agreement and Dealer Assignment for purposes of collection only. If, however, in any enforcement suit or legal proceeding, it is held that the Servicer may not enforce a Dealer Agreement or Dealer Assignment on the grounds that it is not a real party in interest or a Person entitled to enforce the Dealer Agreement or Dealer Assignment, the Trustee, at the Servicer's expense, or the Seller, at the Seller's expense, shall take such steps as the Servicer deems necessary to enforce the Dealer Agreement or Dealer Assignment, including bringing suit in its name or the name of the Seller or of the Trustee for the benefit of the Certificateholders. All amounts recovered shall be remitted directly by the Servicer into the Lockbox Account and the Servicer shall cause the Lockbox Bank to deposit all such payments on the Receivables into the Collection Account no later than the second Business Day after receipt thereof by the Servicer. Section 4.4. INSURANCE. (a) The Servicer may sue to enforce or collect upon the Insurance Policies, in its own name, if possible, or as agent of the Trust. If the Servicer elects to commence a legal proceeding to enforce an Insurance Policy, the act of commencement shall be deemed to be an automatic assignment of the rights of the Trust under such Insurance Policy to the Servicer for purposes of collection only. If, however, in any enforcement suit or legal proceeding it is held that the Servicer may not enforce an Insurance Policy on the grounds that it is not a real party in interest or a holder entitled to enforce the Insurance Policy, the Trustee, on behalf of the Trust, at the Servicer's expense, or the Seller, at the Seller's expense, shall take such steps as the Servicer deems necessary to enforce such Insurance Policy, including bringing suit in its name or the name of the Trustee for the benefit of the Certificateholders. (b) The Servicer shall maintain a vendor's single interest or other collateral protection insurance policy with respect to all Financed Vehicles ("COLLATERAL INSURANCE") which policy by its terms insures against physical damage in the event any Obligor fails to maintain physical damage insurance with respect to the related Financed Vehicle. Atlantic will be named insured under all policies of Collateral Insurance and Atlantic will be named as the loss payee. Each Financed Vehicle was covered by Collateral Insurance providing coverage upon repossession of such Financed Vehicle. The Servicer shall maintain Collateral Insurance at all times unless, so long as no Insurer Default shall have occurred and be continuing, the Certificate Insurer otherwise consents in writing. (c) Costs incurred by the Servicer in maintaining such Collateral Insurance shall be paid by the Servicer. The Servicer will cause Atlantic to be named as named insured and Atlantic to be named as loss payee under all policies of Collateral Insurance. -36- Section 4.5. MAINTENANCE OF SECURITY INTERESTS IN VEHICLES. (a) Consistent with the policies and procedures required by this Agreement, the Servicer shall take such steps as are necessary to maintain perfection of the security interest created by each Receivable in the related Financed Vehicle on behalf of the Trust, including but not limited to obtaining the execution by the Obligors and the recording, registering, filing, re-recording, re-filing, and re-registering of all security agreements, financing statements and continuation statements as are necessary to maintain the first priority security interest granted by the Obligors under the respective Receivables to Atlantic. The Trustee hereby authorizes the Servicer, and the Servicer agrees, to take any and all steps necessary to re-perfect such security interest on behalf of the Trust as necessary because of the relocation of a Financed Vehicle or for any other reason. In the event that the assignment of a Receivable to the Trustee on behalf of the Trust is insufficient, without a notation on the related Financed Vehicle's certificate of title, or without fulfilling any additional administrative requirements under the laws of the state in which the Financed Vehicle is located, to perfect a security interest in the related Financed Vehicle in favor of the Trust, the parties hereto agree that Atlantic's designation as the secured party on the certificate of title is in its capacity as agent of the Trust. (b) So long as an Insurer Default shall not have occurred and be continuing, upon the occurrence of an Insurance Agreement Event of Default, the Certificate Insurer may instruct the Trustee and the Servicer to take or cause to be taken such action as may, in the opinion of counsel to the Certificate Insurer, be necessary or desirable to perfect or re-perfect the security interests in the Financed Vehicles securing the Receivables in the name of the Trustee on behalf of the Trust by amending the title documents of such Financed Vehicles or by such other reasonable means as may, in the opinion of counsel to the Certificate Insurer, be necessary or prudent. If an Insurer Default shall have occurred and be continuing, upon the occurrence of a Servicer Termination Event, the Trustee and the Servicer shall take or cause to be taken such action as may, in the opinion of counsel to the Trustee, be necessary to perfect or reperfect the security interests in the Financed Vehicles securing the Receivables in the name of the Trustee on behalf of the Trust by amending the title documents of such Financed Vehicles or by such other reasonable means as may, in the opinion of counsel to the Trustee, be necessary or prudent. Atlantic hereby agrees to pay all expenses related to such perfection or re-perfection and to take all action necessary therefor. In addition, prior to the occurrence of an Insurance Agreement Event of Default, the Certificate Insurer may (unless an Insurer Default shall have occurred and be continuing) instruct the Trustee and the Servicer to take or cause to be taken such action as may, in the opinion of counsel to the Certificate Insurer, be necessary to perfect or re-perfect the security interest in the Financed Vehicles underlying the Receivables in the name of the Trustee, including by amending the title documents of such Financed Vehicles or by such other reasonable means as may, in the opinion of counsel to the Certificate Insurer, be necessary or prudent; PROVIDED, HOWEVER, that (unless an Insurer Default shall have occurred and be continuing) if the Certificate Insurer requests that the title documents be amended prior to the occurrence of an Insurance Agreement Event of Default, the out-of-pocket expenses of the Servicer or the Trustee in connection with such action shall be reimbursed to the Servicer or the Trustee, as applicable, by the Certificate Insurer. -37- Section 4.6. COVENANTS, REPRESENTATIONS AND WARRANTIES OF SERVICER. The Servicer hereby makes the following representations, warranties and covenants to the other parties hereto and the Certificate Insurer on which the Trustee shall rely in accepting the Receivables in trust and issuing the Certificates and on which the Certificate Insurer shall rely in issuing the Policy. (a) The Servicer covenants to the Trustee, the Certificate Insurer and the Certificateholders as follows: (i) LIENS IN FORCE. The Financed Vehicle securing each Receivable shall not be released in whole or in part from the security interest granted by the Receivable, except upon payment in full of the Receivable or as otherwise contemplated herein. (ii) NO IMPAIRMENT. The Servicer shall do nothing to impair the rights of the Trust or the Certificateholders in the Receivables, the Dealer Agreements, the Dealer Assignments, the Insurance Policies or the other Trust Property. (iii) NO AMENDMENTS. The Servicer shall not extend or otherwise amend the terms of any Receivable, except in accordance with Section 4.2. (iv) SERVICING OF RECEIVABLES. The Servicer shall service the Receivables as required by the terms of this Agreement and in material compliance with the current Servicing Procedures Manual for servicing all its other comparable motor vehicle receivables. (b) The Servicer represents and warrants to the Trustee, the Certificate Insurer and the Certificateholders as of the Closing Date as to itself: (i) ORGANIZATION AND GOOD STANDING. The Servicer has been duly organized and is validly existing and in good standing under the laws of its jurisdiction of organization, with power, authority and legal right to own its properties and to conduct its business as such properties are currently owned and such business is currently conducted, and had at all relevant times, and now has, power, authority and legal right to enter into and perform its obligations under this Agreement. (ii) DUE QUALIFICATION. The Servicer is duly qualified to do business as a foreign corporation in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business (involving the servicing of the Receivables as required by this Agreement) requires or shall require such qualification. (iii) POWER AND AUTHORITY. The Servicer has the power and authority to execute and deliver this Agreement and its Related Documents and to carry out its terms and their terms, respectively, and the execution, delivery and performance of this Agreement and the Servicer's Related Documents have been duly authorized by the Servicer by all necessary corporate action. -38- (iv) BINDING OBLIGATION. This Agreement and the Servicer's Related Documents shall constitute legal, valid and binding obligations of the Servicer enforceable in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditors' rights generally and by equitable limitations on the availability of specific remedies, regardless of whether such enforceability is considered in a proceeding in equity or at law. (v) NO VIOLATION. The consummation of the transactions contemplated by this Agreement and the Servicer's Related Documents, and the fulfillment of the terms of this Agreement and the Servicer's Related Documents, shall not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, the articles of incorporation or bylaws of the Servicer, or any indenture, agreement, mortgage, deed of trust or other instrument to which the Servicer is a party or by which it is bound or any of its properties are subject, or result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture, agreement, mortgage, deed of trust or other instrument, other than this Agreement, or violate any law, order, rule or regulation applicable to the Servicer of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Servicer or any of its properties, or in any way materially adversely affect the interest of the Certificateholders or the Trust in any Receivable, or affect the Servicer's ability to perform its obligations under this Agreement. (vi) NO PROCEEDINGS. There are no proceedings or investigations pending or, to the Servicer's knowledge, threatened against the Servicer, before any court, regulatory body, administrative agency or other tribunal or governmental instrumentality having jurisdiction over the Servicer or its properties (A) asserting the invalidity of this Agreement or any of the Related Documents, (B) seeking to prevent the issuance of the Certificates or the consummation of any of the transactions contemplated by this Agreement or any of the Related Documents, (C) seeking any determination or ruling that might materially and adversely affect the performance by the Servicer of its obligations under, or the validity or enforceability of, this Agreement or any of the Related Documents, (D) involving the Servicer and which might adversely affect the federal income tax or other federal, state or local tax attributes of the Certificates, or (E) that could have a material adverse effect on the Receivables. (vii) APPROVALS. All approvals, authorizations, consents, orders or other actions of any person, corporation or other organization, or of any court, governmental agency or body or official, required in connection with the execution and delivery by the Servicer of this Agreement and the consummation of the transactions contemplated hereby have been or will be taken or obtained on or prior to the Closing Date. -39- (viii)NO CONSENTS. The Servicer is not required to obtain the consent of any other party or any consent, license, approval or authorization, or registration or declaration with, any governmental authority, bureau or agency in connection with the execution, delivery, performance, validity or enforceability of this Agreement. (ix) COLLATERAL INSURANCE. As of the Closing Date, the Servicer maintained Collateral Insurance which policy by its terms insured against physical damage in the event any Obligor fails to maintain physical damage insurance with respect to the related Financed Vehicle. Atlantic is named as named insured under all policies of Collateral Insurance and Atlantic is named as loss payee. As of the Closing Date, each Financed Vehicle was covered by Collateral Insurance providing coverage upon repossession of such Financed Vehicle. (x) CHIEF EXECUTIVE OFFICE. The chief executive office of Atlantic is located at 800 Perinton Hills Office Park, Fairport, New York, 14450. Section 4.7. PURCHASE OF RECEIVABLES UPON BREACH OF COVENANT OR REPRESENTATION AND WARRANTY. The Seller, the Servicer or the Trustee, as the case may be, shall inform the other parties to this Agreement and the Certificate Insurer promptly, in writing, upon the discovery of any breach of the Servicer's covenants pursuant to Section 4.5(a) or 4.6(a); PROVIDED, HOWEVER, that the failure to give any such notice shall not derogate from any obligation of the Servicer hereunder to repurchase any Receivable; PROVIDED, FURTHER, that, the Trustee and the Backup Servicer shall have no duty to inquire into or to investigate the breach of any such representations and warranties. Unless the breach shall have been cured by the last day of the first full calendar month following the discovery by or notice to the Servicer of the breach, the Servicer shall have an obligation, and the Trustee shall (provided that it either has made such discovery or has received such notice thereof) enforce such obligation of the Servicer, to repurchase any Receivable with respect to which such breach has a material adverse effect (as determined pursuant to Section 1.7 hereof) on such Receivable or the interest therein of the Trust, the Certificateholders or the Certificate Insurer. The Trustee shall notify the Certificate Insurer promptly, in writing, of any failure by the Servicer to so repurchase any Receivable. In consideration of the purchase of the Receivable, the Servicer shall remit the Purchase Amount in the manner specified in Section 5.4. In addition to the foregoing and notwithstanding whether the related Receivable shall have been purchased by the Servicer, the Servicer shall indemnify the Seller, the Trustee, the Backup Servicer, the Collateral Agent, the Certificate Insurer, the Trust and the Certificateholders against all costs, expenses, losses, damages, claims and liabilities, including reasonable fees and expenses of counsel, which may be asserted against or incurred by any of them as a result of third party claims arising out of the events or facts giving rise to a breach of the covenants or representations and warranties set forth in Section 4.5(a) or 4.6. Section 4.8. TOTAL SERVICING FEE; PAYMENT OF CERTAIN EXPENSES BY SERVICER. (a) On each Distribution Date, the Servicer shall be entitled to receive out of the Collection Account the Servicing Fee and any Supplemental Servicing Fee for the related Monthly Period pursuant to Section 5.5. Except as specifically provided in this Agreement, the Servicer shall -40- be required to pay all expenses incurred by it in connection with its activities under this Agreement (including taxes imposed on the Servicer, expenses incurred in connection with distributions and reports to Certificateholders and the Certificate Insurer and all other fees and expenses of the Trust including taxes levied or assessed against the Trust, and claims against the Trust in respect of indemnification not expressly stated under this Agreement to be for the account of the Trust). The Servicer shall be liable for the fees and expenses of the Trustee, the Backup Servicer, the Collateral Agent, the Lockbox Bank (and any fees under the Lockbox Agreement) and the Independent Accountants. (b) On or prior to each Determination Date, the Servicer shall deposit into the Collection Account, out of its own funds without any right of reimbursement therefor, an amount (the "Adjusted Compensating Interest") equal to the positive difference, if any, between (i) Compensating Interest for the prior Monthly Period and (ii) the sum of (x) the amount on deposit in the Seller Sub-account Account on such Determination Date and (y) to the extent that the Seller or an Affiliate thereof is the registered owner of the Class B Certificates, the amount on deposit in the Class B Sub-account. Section 4.9. SERVICER'S CERTIFICATE. (a) No later than 10:00 a.m. New York City time on each Determination Date, the Servicer shall deliver to the Trustee, the Backup Servicer, the Certificate Insurer, the Collateral Agent and each Rating Agency a Servicer's Certificate executed by a Responsible Officer of the Servicer containing, among other things, (i) all information necessary to enable the Trustee to make any withdrawal and deposit required by Section 6.3, to give any notice required by Sections 6.3 or 6.4 and make the distributions required by Section 5.5, (ii) all information necessary to enable the Trustee to send the statements to Certificateholders and the Certificate Insurer required by Section 5.7, (iii) a listing of all Warranty Receivables and Administrative Receivables purchased as of the related Deposit Date, identifying the Receivables so purchased, and (iv) all information necessary to enable the Trustee to reconcile all deposits to, and withdrawals from, the Collection Account for the related Monthly Period and Distribution Date, including the accounting required by Section 5.6. Receivables purchased by the Servicer or by the Seller or Atlantic on the related Deposit Date and each Receivable which became a Liquidated Receivable or which was paid in full during the related Monthly Period shall be identified by account number (as set forth in the Schedule of Receivables). A copy of such certificate may be obtained by any Certificateholder by a request in writing to the Trustee addressed to the Corporate Trust Office. (b) In addition to the information required by Section 4.10(a), the Servicer shall include in the copy of the Servicer's Certificate delivered to the Certificate Insurer (i) the Delinquency Ratio, Average Delinquency Ratio, Default Rate, Average Default Rate, Net Loss Rate and Average Net Loss Rate for such Determination Date, (ii) whether any Trigger Event has occurred as of such Determination Date, (iii) whether any Trigger Event that may have occurred as of a prior Determination Date is Deemed Cured as of such Determination Date, and (iv) whether to the knowledge of the Servicer an Insurance Agreement Event of Default has occurred. -41- Section 4.10. ANNUAL STATEMENT AS TO COMPLIANCE; NOTICE OF SERVICER TERMINATION EVENT. (a) The Servicer shall deliver to the Trustee, the Backup Servicer, the Certificate Insurer, the Certificateholders and each Rating Agency, on or before March 31 (or 90 days after the end of the Servicer's fiscal year, if other than December 31) of each year, beginning on the first March 31 (or other applicable date) next following the date that is six months after the Closing Date, an Officer's Certificate, dated as of December 31 (or other applicable date) of the prior year, stating that (i) a review of the activities of the Servicer during the preceding 12-month period (or such other period as shall have elapsed from the Closing Date to the date of the first such certificate) and of its performance under this Agreement has been made under such officer's supervision, and (ii) to such officer's knowledge, based on such review, the Servicer has fulfilled all its obligations under this Agreement throughout such period, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to such officer and the nature and status thereof. (b) The Servicer shall deliver to the Trustee, the Backup Servicer, the Certificate Insurer, the Collateral Agent, the Certificateholders and each Rating Agency, promptly after having obtained knowledge thereof, but in no event later than two Business Days thereafter, written notice in an Officer's Certificate of any event which with the giving of notice or lapse of time, or both, would become a Servicer Termination Event under Section 10.1(a). The Seller or the Servicer shall deliver to the Trustee, the Backup Servicer, the Certificate Insurer, the Collateral Agent, the Servicer or the Seller (as applicable), the Certificateholders and each Rating Agency promptly after having obtained knowledge thereof, but in no event later than two Business Days thereafter, written notice in an Officer's Certificate of any event which with the giving of notice or lapse of time, or both, would become a Servicer Termination Event under any other clause of Section 10.1. Section 4.11. ANNUAL INDEPENDENT ACCOUNTANTS' REPORT. (a) The Servicer shall, at its expense, cause a firm of nationally recognized independent certified public accountants (the "Independent Accountants"), who may also render other services to the Servicer or to the Seller, to deliver to the Trustee, the Backup Servicer, the Certificate Insurer, the Certificateholders and each Rating Agency, on or before March 31 (or 90 days after the end of the Servicer's fiscal year, if other than December 31) of each year, beginning on the first March 31 (or other applicable date) after the date that is six months after the Closing Date (but in no event later than December 31, 1997), with respect to the twelve months ended the immediately preceding December 31 (or other applicable date) (or such other period as shall have elapsed from the Closing Date to the date of such certificate), a statement (the "Accountant's Report") addressed to the Board of Directors of the Servicer, to the Trustee, the Backup Servicer and to the Certificate Insurer, to the effect that such firm has audited the financial statements of the Servicer and issued its report thereon and that such audit (1) was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as such firm considered necessary in the circumstances; (2) included an examination of documents and records relating to the servicing of automobile installment sales contracts under this Agreement and under pooling and servicing -42- agreements covered thereby, including this Agreement); (3) included an examination of the delinquency and loss statistics relating to the Servicer's portfolio of automobile installment sales contracts; and (4) except as described in the statement, disclosed no exceptions or errors in the records relating to such serviced automobile and light truck loans that, in the firm's opinion, generally accepted auditing standards requires such firm to report. The Accountants' Report shall further state that (1) a review in accordance with agreed upon procedures was made of three randomly selected Servicer's Certificates for the Trust; (2) except as disclosed in the Report, no exceptions or errors in the Servicer's Certificates so examined were found; and (3) the delinquency and loss information relating to the Receivables contained in the Servicer Certificates were found to be accurate. (b) The Accountants' Report shall also indicate that the firm is independent of the Seller and the Servicer within the meaning of the Code of Professional Ethics of the American Institute of Certified Public Accountants. (c) A copy of the Accountants' Report may be obtained by any Certificateholder by a request in writing to the Trustee addressed to the Corporate Trust Office. Section 4.12. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING RECEIVABLES. The Servicer shall provide to representatives of the Trustee, the Backup Servicer and the Certificate Insurer reasonable access to the documentation regarding the Receivables. Each of the Seller and Servicer will permit any authorized representative or agent designated by the Trustee or the Certificate Insurer to visit and inspect any of the properties of the Seller or Servicer, as the case may be, to examine the corporate books and financial records of the Seller or Servicer, as the case may be, its records relating to the Receivables, and make copies thereof or extracts therefrom and to discuss the affairs, finances, and accounts of the Seller or Servicer, as the case may be, with its principal officers, as applicable, and its independent accountants. Any expense incident to the exercise by the Trustee or the Certificate Insurer of any right under this Section 4.12 shall be borne by Atlantic, so long as Atlantic is the Servicer. The Servicer shall provide such access to any Certificateholder only in such cases where the Servicer is required by applicable statutes or regulations (whether applicable to the Servicer or to such Certificateholder) to permit such Certificateholder to review such documentation. In each case, such access shall be afforded without charge but only upon reasonable request and during normal business hours. Nothing in this Section 4.12 shall derogate from the obligation of the Servicer to observe any applicable law prohibiting disclosure of information regarding the Obligors, and the failure of the Servicer to provide access as provided in this Section 4.12 as a result of such obligation shall not constitute a breach of this Section 4.12. Any Certificateholder, by its acceptance of a Certificate (or by acquisition of its beneficial interest therein), shall be deemed to have agreed to keep confidential and not to use for its own benefit any information obtained by it pursuant to this Section 4.12, except as may be required by applicable law. Section 4.13. MONTHLY TAPE. On or before the fourth Business Day, but in no event later than the fifth calendar day, of each month, the Servicer will deliver to the Trustee, and the Backup Servicer a computer tape or a diskette (or any other electronic transmission acceptable to the Trustee and the Backup Servicer) in a format acceptable to the Trustee and -43- the Backup Servicer containing information with respect to the Receivables as of the preceding Record Date necessary for preparation of the Servicer's Certificate relating to the immediately succeeding Determination Date. The Backup Servicer shall use such tape or diskette (or other electronic transmission acceptable to the Trustee and the Backup Servicer), along with certain other information available to the Trustee and Backup Servicer, to verify the information on the Servicer's Certificate (other than certain information related to the allocation of amounts collected during the related Monthly Period) delivered by the Servicer, and the Backup Servicer shall certify to the Certificate Insurer that it has verified the Servicer's Certificate in accordance with this Section 4.13 and shall notify the Servicer and the Certificate Insurer of any discrepancies, in each case, on or before the second Business Day following the Determination Date. In the event that the Backup Servicer reports any discrepancies, the Servicer and the Backup Servicer shall attempt to reconcile such discrepancies prior to the related Deficiency Claim Date, but in the absence of a reconciliation, the Servicer's Certificate shall control for the purpose of calculations and distributions with respect to the related Distribution Date. In the event that the Backup Servicer and the Servicer are unable to reconcile discrepancies with respect to a Servicer's Certificate by the related Distribution Date, the Servicer shall cause the Independent Accountants, at the Servicer's expense, to audit the Servicer's Certificate and, prior to the fourth Business Day, but in no event later than the fifth calendar day, of the following month, reconcile the discrepancies. The effect, if any, of such reconciliation shall be reflected in the Servicer's Certificate for such next succeeding Determination Date. In addition, the Servicer shall, if so requested by the Certificate Insurer (unless an Insurer Default shall have occurred and be continuing, in which case, by the Certificate Majority) deliver to the Backup Servicer its Collection Records and its Monthly Records within one Business Day of demand therefor and a computer tape containing as of the close of business on the date of demand all of the data maintained by the Servicer in computer format in connection with servicing the Receivables. Other than the duties specifically set forth in this Agreement, the Backup Servicer shall have no obligations hereunder, including, without limitation, to supervise, verify, monitor or administer the performance of the Servicer. The Backup Servicer shall have no liability for any actions taken or omitted by the Servicer. The duties and obligations of the Backup Servicer shall be determined solely by the express provisions of this Agreement and no implied covenants or obligations shall be read into this Agreement against the Backup Servicer. Section 4.14. RETENTION AND TERMINATION OF SERVICER. The Servicer hereby covenants and agrees to act as such under this Agreement for an initial term, commencing on the Closing Date and ending on September 30, 1996, which term shall be extendible by the Certificate Insurer for successive quarterly terms ending on each successive December 31, March 31, June 30 and September 30 (or, pursuant to revocable written standing instructions from time to time to the Servicer and the Trustee, for any specified number of terms greater than one), until the termination of the Trust. Each such notice (including each notice pursuant to standing instructions, which shall be deemed delivered at the end of successive quarterly terms for so long as such instructions are in effect) (a "SERVICER EXTENSION NOTICE") shall be -44- delivered by the Certificate Insurer to the Trustee and the Servicer. The Servicer hereby agrees that, as of the date hereof and upon its receipt of any such Servicer Extension Notice, the Servicer shall become bound, for the initial term beginning on the date hereof and for the duration of the term covered by such Notice, to continue as the Servicer subject to and in accordance with the other provisions of this Agreement. Until such time as an Insurer Default shall have occurred and be continuing, the Trustee agrees that if as of the fifteenth day prior to the last day of any term of the Servicer the Trustee shall not have received any Servicer Extension Notice from the Certificate Insurer, the Trustee will, within five days thereafter, give written notice of such non-receipt to the Certificate Insurer, the Backup Servicer (or any alternate successor servicer appointed by the Certificate Insurer pursuant to Section 10.3(b)) and the Servicer and the Servicer's term shall not be extended unless a Servicer Extension Notice is received on or before the last day of such term. Section 4.15. FIDELITY BOND. The Servicer shall maintain a fidelity bond in such form and amount as is customary for entities acting as custodian of funds and documents in respect of consumer contracts on behalf of institutional investors. ARTICLE V DISTRIBUTIONS; STATEMENTS TO CERTIFICATEHOLDERS Section 5.1. ACCOUNTS. The Servicer shall establish the Collection Account in the name of the Trustee for the benefit of the Certificateholders and the Policy Payments Account in the name of the Trustee for the benefit of the Class A Certificateholders and the Certificate Insurer. Each of the Collection Account and the Policy Payments Account shall be an Eligible Account and initially shall be a segregated trust account established with the Trustee and maintained with the Trustee. All amounts held in the Collection Account shall, to the extent permitted by applicable laws, rules and regulations, be invested, as directed in writing by the Servicer, in Eligible Investments that mature not later than one Business Day prior to the Distribution Date for the Monthly Period to which such amounts relate. Any such written direction shall certify that any such investment is authorized by this Section 5.1. Investments in Eligible Investments shall be made in the name of the Trustee on behalf of the Trust, and such investments shall not be sold or disposed of prior to their maturity. The Trustee may trade with itself or an Affiliate in the purchase or sale of Eligible Investments. Any investment of funds in the Collection Account shall be made in Eligible Investments held by a financial institution with respect to which (a) such institution has noted the Trustee's interest therein by book entry or otherwise and (b) a confirmation of the Trustee's interest has been sent to the Trustee by such institution, provided that such Eligible Investments are (i) specific certificated securities (as such term is used in the New York UCC) and (ii) either (A) in the possession of such institution or (B) in the possession of a clearing corporation as such term is used in the New York UCC, registered in the name of such clearing corporation, not endorsed for collection or surrender or any other purpose not involving transfer, not containing any evidence of a right or interest inconsistent with the Trustee's security interest therein, and held by such clearing corporation in an account of such institution. Subject to the other provisions hereof, the Trustee shall have sole control over each such investment and the -45- income thereon, and any certificate or other instrument evidencing any such investment, if any, shall be delivered directly to the Trustee or its agent, together with each document of transfer, if any, necessary to transfer title to such investment to the Trustee in a manner which complies with this Section 5.1. All interest, dividends, gains upon sale and other income from, or earnings on, investments of funds in the Collection Account, shall be deposited in the Collection Account, and, in the case of the Collection Account, distributed on the next Distribution Date pursuant to Section 5.5. The Seller shall deposit in the Collection Account, an amount equal to any net loss on such investments immediately as realized. Amounts in Policy Payments Account shall not be invested. Section 5.2. COLLECTIONS. (a) Pursuant to the Lockbox Agreement, the Lockbox Bank shall remit to the Collection Account within two Business Days of receipt thereof (i) all payments by or on behalf of the Obligors and (ii) all Liquidation Proceeds, both as collected during the Monthly Period. In addition, the Servicer shall remit all payments by or on behalf of the Obligors received by the Servicer with respect to the Receivables (other than Purchased Receivables), and all Liquidation Proceeds, no later than the Business Day following receipt directly (without deposit into any intervening account) into the Lockbox Account and the Servicer shall cause the Lockbox Bank to deposit all such payments on the Receivables into the Collection Account no later than the second Business Day after receipt of such payments. Within one Business Day of the initial issuance of the Certificates, the Lockbox Bank shall deposit into the Collection Account the foregoing amounts received during the current Monthly Period through such date of issuance, to the extent not deposited into the Collection Account pursuant to the last sentence of this Section 5.2. On the Closing Date, the Seller or Servicer shall deposit into the Collection Account all proceeds received from the sale of the Class A Certificates in excess of all amounts required to release the Receivables from the existing financing arrangements and to pay certain transaction fees and expenses and make the Initial Spread Account Deposit. Within one Business Day after the Closing Date, the Servicer or the Seller shall compute all payments by or on behalf of the Obligors on the Receivables and any Liquidation Proceeds and proceeds of Insurance Policies realized in respect of a Financed Vehicle and received by Atlantic, the Seller or the Servicer in the Lockbox or otherwise after the Cut-off Date and on or prior to the Closing Date and shall instruct the Trustee to release to the Seller any excess of proceeds deposited into the Collection Account on the Closing Date over the computed amount, or, in the case of a shortfall, deposit the amount of such shortfall into the Collection Account. (b) The Servicer will be entitled to be reimbursed from amounts on deposit in the Collection Account with respect to a Monthly Period for amounts previously deposited in the Collection Account but later determined by the Servicer or the Lockbox Bank to have resulted from mistaken deposits or postings or checks returned for insufficient funds. The amount to be reimbursed hereunder shall be paid to the Servicer on the related Distribution Date pursuant to Section 5.5(a)(i) upon certification by the Servicer of such amounts and the provision of such information to the Trustee and the Certificate Insurer as may be necessary in the opinion of the Trustee and the Certificate Insurer to verify the accuracy of such certification. In the event that the Certificate Insurer has not received evidence satisfactory to it of the Servicer's entitlement to reimbursement pursuant to this Section 5.2(b), the Certificate Insurer shall (unless an Insurer Default shall have occurred and be continuing) give -46- the Trustee notice to such effect, following receipt of which the Trustee shall not make a distribution to the Servicer in respect of such amount pursuant to Section 5.5, or if the Servicer prior thereto has been reimbursed pursuant to Section 5.5 or Section 5.6, the Trustee shall withhold such amounts from amounts otherwise distributable to the Servicer on the next succeeding Distribution Date. Section 5.3. APPLICATION OF COLLECTIONS. For the purposes of this Agreement, all collections for a Monthly Period shall be applied by the Servicer as follows: (a) With respect to each Receivable (other than a Purchased Receivable), payments by or on behalf of the Obligor (other than of Supplemental Servicing Fees with respect to such Receivable, to the extent collected) shall be applied to interest and principal in accordance with the Simple Interest Method. Any prepayment of principal during each Monthly Period shall be immediately applied to reduce the principal balance of the Receivable during such Monthly Period. (b) With respect to each Receivable that has become a Purchased Receivable on any Deposit Date, the Purchase Amount shall be applied, for purposes of this Agreement only, to interest and principal on the Receivable in accordance with the terms of the Receivable as if the Purchase Amount had been paid by the Obligor on the Record Date. The Servicer shall not be entitled to any Supplemental Servicing Fees with respect to such a Receivable. Nothing contained herein shall relieve any Obligor of any obligation relating to any Receivable. (c) All amounts collected that are payable to the Servicer as Supplemental Servicing Fees hereunder shall be deposited in the Collection Account and paid to the Servicer in accordance with Section 5.5(a)(i). (d) All payments by or on behalf of an Obligor received with respect to any Purchased Receivable after the Record Date immediately preceding the Deposit Date on which the Purchase Amount was paid by the Seller, Atlantic or the Servicer shall be paid to the Seller, Atlantic or the Servicer, respectively, and shall not be included in the Available Funds. Section 5.4. ADDITIONAL DEPOSITS. On or before each Deposit Date, the Servicer, the Seller or Atlantic shall deposit into the Collection Account the aggregate Purchase Amounts with respect to Administrative Receivables and Warranty Receivables, respectively. All such deposits of Purchase Amounts shall be made in immediately available funds. On or before each Draw Date, the Trustee shall remit to the Collection Account any amounts delivered to the Trustee by the Collateral Agent. Section 5.5. DISTRIBUTIONS. (a) On each Distribution Date, the Trustee shall (x) distribute all amounts deposited by the Certificate Insurer under Section 5.8 as directed by the Certificate Insurer, and (y) (based solely on the information contained in the Servicer's Certificate delivered with respect to the related Determination Date) distribute the following amounts and in the following order of priority: -47- (i) first, from the Distribution Amount, to the Servicer, the Servicing Fee for the related Monthly Period, any Supplemental Servicing Fees for the related Monthly Period, and any amounts specified in Section 5.2(b), to the extent the Servicer has not reimbursed itself in respect of such amounts pursuant to Section 5.6; (ii) second, from the Distribution Amount, to any Lockbox Bank, Trustee, Backup Servicer or Collateral Agent, any accrued and unpaid fees (in each case, to the extent such Person has not previously received such amount from the Servicer or Atlantic); (iii) third, from the Amount Available, to the Class A Certificateholders, the Class A Interest Distributable Amount for such Distribution Date; (iv) fourth, from the Amount Available, to the Class A Certificateholders, the sum of (x) the Class A Principal Distributable Amount for such Distribution Date and (y) the Class A Principal Carryover Shortfall, if any, for such Distribution Date; (v) fifth, from the Distribution Amount, to the Certificate Insurer, to the extent of any amounts owing to the Certificate Insurer under the Insurance Agreement and not paid, whether or not Atlantic is also obligated to pay such amounts; (vi) sixth, from Available Funds, to the Collateral Agent for deposit in the Seller Sub-account, the Seller Sub-account Spread Deposit Amount; (vii) seventh, from Available Funds, to the Collateral Agent for deposit in the Class B Sub-account, the amount, if any, by which the Requisite Amount with respect to the related Determination Date exceeds the sum of amounts on deposit in the Seller Sub-account and the Class B Sub-account of the Spread Account (after giving effect to all deposits and withdrawals from the Spread Account with respect to such Distribution Date); (viii) eighth, from Available Funds, to the Class B Certificateholders, the Class B Interest Distributable Amount for such Distribution Date; (ix) ninth, from Available Funds, to the Class B Certificateholders, the sum of (x) the Class B Principal Distributable Amount for such Distribution Date and (y) the Class B Principal Carryover Shortfall, if any, for such Distribution Date; (x) tenth, to the Seller Sub-account, to the extent of any remaining Available Funds; (xi) eleventh, to the Class B Certificateholders (A) from the Class B Sub-account, any amounts released pursuant to priority first of priority SEVENTH of section 3.03(b) of the Spread Account Agreement and (B) from the Seller Sub-account, any amounts released pursuant to priority second of priority SEVENTH of Section 3.03(b) of the Spread Account Agreement to the extent of any prior withdrawals from -48- the Class B Sub-account previously distributed to any other person other than the Class B Certificateholders; and (xii) twelfth, from the Seller Sub-account, from amounts released under priority second of priority SEVENTH of Section 3.03(b) of the Spread Account Agreement after distribution of all amounts pursuant to clause (xi) above, to the Seller any remaining amount after the payment of any amounts payable to the Trustee pursuant to Section 11.3(d) hereof and not previously reimbursed pursuant to such provision. (b) Subject to Section 12.1 respecting the final payment upon retirement of each Certificate, and provided that the Trustee has received the applicable Servicer's Certificate, on each Distribution Date the Trustee shall distribute to each Certificateholder of record on the preceding Record Date either (i) by wire transfer, in immediately available funds to the account of such holder at a bank or other entity having appropriate facilities therefor, if such Certificateholder holds Certificates representing at least $[5] million in Class A Certificate Balance or Class B Certificate Balance as of the Closing Date, and if such Certificateholder shall have provided to the Trustee appropriate instructions not later than [15] days prior to such Distribution Date, (ii) by check mailed to such Certificateholder at the address of such Holder appearing in the Certificate Register, or (iii) if the registered Certificateholder is the nominee of a Depositor, by wire transfer in immediately available funds to the account designated by such Certificateholder, such Holder's Fractional Undivided Interest of either the Class A Distributable Amount or the Class B Distributable Amount, as applicable, to the extent funds therefore are distributed under Section 5.5(a). Notwithstanding the foregoing, any Class B Certificateholder may direct the Trustee, in writing, to deposit any or all distributions to which such Class B Certificateholder would otherwise be entitled to receive pursuant to clause (viii) or (ix) above into the Class B Sub-account of the Spread Account. (c) Each Certificateholder, by its acceptance of its Certificate, will be deemed to have consented to the provisions of paragraph (a) above relating to the priority of distributions, and will be further deemed to have acknowledged that no property rights in any amount or the proceeds of any such amount shall vest in such Certificateholder until such amounts have been distributed to such Certificateholder pursuant to such provisions. In furtherance of and not in limitation of the foregoing, each Class B Certificateholder by acceptance of its Class B Certificate, specifically acknowledges that no amounts shall be received by it, nor shall it have any right to receive any amounts unless and until such amounts have been released pursuant to Section 3.03(b) of the Spread Account Agreement or are otherwise available from remaining Available Funds, for distribution to such Class B Certificateholder, pursuant to paragraph (a) above. Each Class B Certificateholder, by its acceptance of its Class B Certificate, further specifically acknowledges that it has no right to or interest in any moneys at any time held pursuant to the Spread Account Agreement or pursuant hereto prior to the release of such moneys as aforesaid, such moneys being held in trust for the benefit of the Class A Certificateholders and -49- the Certificate Insurer, as their interests may appear prior to such release. Notwithstanding the foregoing, in the event that it is ever determined that the moneys held in the Spread Account constitute a pledge of collateral, then the provisions of this Agreement and the Spread Account Agreement shall be considered to constitute a security agreement and the Seller and the Class B Certificateholders hereby grant to the Collateral Agent a first priority perfected security interest in such amounts, to be applied as set forth in Section 3.03(b) of the Spread Account Agreement in the case of Spread Account moneys. In addition, each Class B Certificateholder, by acceptance of its Class B Certificate, hereby appoints the Seller as its agent to pledge a first priority perfected security interest in the Class B Sub-account and any amounts held therein from time to time to the Collateral Agent for the benefit of the Trustee and the Certificate Insurer pursuant to the Spread Account Agreement and agree to execute and deliver such instruments of conveyance, assignment, grant, confirmation, etc., as well as any financing statements, in each case as the Certificate Insurer shall consider reasonably necessary in order to perfect the Collateral Agent's Security Interest in the Collateral (as such terms are defined in the Spread Account Agreement). Section 5.6. NET DEPOSITS. The Servicer may make the remittances to be made by it pursuant to Sections 5.2 and 5.4 net of amounts (which amounts may be netted prior to any such remittance for a Monthly Period) to be distributed to it pursuant to Sections 4.8 and 5.2(b) and (subject to payment by the Servicer of amounts otherwise payable pursuant to Section 5.5(a)(ii)) 5.5(a)(i), for so long as no Servicer Termination Event has occurred and is continuing; PROVIDED, HOWEVER, that the Servicer shall account for all of such amounts in the related Servicer's Certificate as if such amounts were deposited and distributed separately; and, PROVIDED, FURTHER, that if an error is made by the Servicer in calculating the amount to be deposited or retained by it, with the result that an amount less than required is deposited in the Collection Account, the Servicer shall make a payment of the deficiency to the Collection Account, immediately upon becoming aware, or receiving notice from the Trustee, of such error. Section 5.7. STATEMENTS TO CERTIFICATEHOLDERS. (a) On each Distribution Date, the Trustee shall include with each distribution to each Certificateholder, a statement (which statement shall also be provided to the Certificate Insurer and to each Rating Agency) based on information in the Servicer's Certificate delivered on the related Determination Date pursuant to Section 4.9, setting forth for the Monthly Period relating to such Distribution Date the following information: (i) in the case of the Class A and Class B Certificateholders, the amount of such distribution allocable to principal and in the case of the Class B Certificates, the amount deposited in the Class B Sub-account with respect to principal; (ii) in the case of the Class A and Class B Certificateholders, the amount of such distribution allocable to interest and in the case of the Class B Certificates, the amount deposited in Class B Sub-account with respect to interest; (iii) the amount of such distribution payable out of amounts withdrawn from the Spread Account or pursuant to a claim on the Policy; -50- (iv) the Class A Certificate Balance and the Class B Certificate Balance, as applicable (after giving effect to distributions made on such Distribution Date); (v) the amount of fees paid by the Trust with respect to such Monthly Period; (vi) the amount of the Class A Interest Carryover Shortfall, Class A Principal Carryover Shortfall, Class B Interest Carryover Shortfall Class B Principal Carryover Shortfall, if any, on such Distribution Date and the change in such amounts from those of the prior Distribution Date; (vii) the Class A Certificate Factor, Class A Certificate Balance, Class B Certificate Factor and Class B Certificate Balance as of such Distribution Date; (viii)the Delinquency Ratio, Average Delinquency Ratio, Default Rate, Average Default Rate, Net Loss Rate and Average Net Loss Rate for such Determination Date; (ix) whether any Trigger Event has occurred as of such Determination Date; (x) whether any Trigger Event that may have occurred as of a prior Determination Date is Deemed Cured (as defined in the Spread Account Agreement), as of such Determination Date; (xi) whether an Insurance Agreement Event of Default has occurred; and (xii) the Pool Factor (after giving effect to distributions made on such Distribution Date). Each amount set forth pursuant to subclauses (i) (such amounts broken down by Class of Certificate), (ii) (such amounts broken down by Class of Certificate), (v) and (vi) above shall be expressed as a dollar amount per $1,000 of original principal balance of a Certificate of the related Class. (b) Within the prescribed period of time for tax reporting purposes after the end of each calendar year during the term of this Agreement, the Trustee shall mail, to each Person who at any time during such calendar year shall have been a Holder of a Certificate, a statement containing the sum of the amounts set forth in clauses (i), (ii), and (v) (separately indicating amounts in respect of the Class A Certificates and the Class B Certificates) and such other information, requested in writing by the Servicer, if any, as the Servicer determines is necessary to permit the Certificateholder to ascertain its share of the gross income and deductions of the Trust (exclusive of the Supplemental Servicing Fee), for such calendar year or, in the event such Person shall have been a Holder of a Certificate during a portion of such calendar year, for the applicable portion of such year, for the purposes of such Certificateholder's preparation of federal income tax returns. The Trustee shall furnish such statements to the Internal Revenue Service annexed to Form 1041 in the manner and at the time provided by the Code and applicable Regulations thereunder. -51- Section 5.8. OPTIONAL DEPOSITS BY THE CERTIFICATE INSURER. The Certificate Insurer shall at any time, and from time to time, with respect to a Distribution Date, have the option (but shall not be required, except as provided in Section 6.4 and in accordance with the terms of the Policy) to deliver amounts to the Trustee for deposit into the Collection Account for any of the following purposes: (i) to provide funds in respect of the payment of fees or expenses of any provider of services to the Trust with respect to such Distribution Date, (ii) to distribute as a component of the Class A Principal Distributable Amount to the extent that the Class A Certificate Balance as of the Determination Date preceding such Distribution Date exceeds the Class A Percentage of the Aggregate Principal Balance as of such Determination Date, or (iii) to include such amount as part of the Class A Distributable Amount for such Distribution Date to the extent that without such amount a draw would be required to be made on the Policy. ARTICLE VI THE SPREAD ACCOUNT AND THE POLICY Section 6.1. SPREAD ACCOUNT. The Seller agrees, simultaneously with the execution and delivery of this Agreement, to execute and deliver the Spread Account Agreement and, pursuant to the terms thereof, to deposit $472,549.58 in the Seller Sub-account of the Spread Account. Although the Seller, on behalf of itself and the Class B Certificateholders, has pledged the Spread Account to the Collateral Agent and the Certificate Insurer pursuant to the Spread Account Agreement, the Spread Account shall not under any circumstances be deemed to be part of or otherwise includable in the Trust or the Trust Property. Section 6.2. POLICY. Atlantic, the Servicer, and the Seller agree, simultaneously with the execution and delivery of this Agreement, to cause the Certificate Insurer to issue the Policy for the benefit of the Trust in accordance with the terms thereof. Section 6.3. WITHDRAWALS FROM SPREAD ACCOUNT. (a) in the event that the Servicer's Certificate with respect to any Determination Date shall state that the amount of the Available Funds with respect to such Determination Date is less than the sum of the amounts payable on the related Distribution Date pursuant to clauses (i) through (v) of Subsection 5.5(a) (such deficiency being a "DEFICIENCY CLAIM AMOUNT") then on the Deficiency Claim Date immediately preceding such Distribution Date, the Trustee shall deliver to the Collateral Agent, the Certificate Insurer, the Fiscal Agent, if any, and the Servicer, by hand delivery, telex or facsimile transmission, a written notice (a "DEFICIENCY NOTICE") specifying the Deficiency Claim Amount for such Distribution Date. Such Deficiency Notice shall direct the Collateral Agent to remit such Deficiency Claim Amount (to the extent of the funds available to be distributed pursuant to the Spread Account Agreement) to the Trustee for deposit in the Collection Account. (b) Any Deficiency Notice shall be delivered by 10:00 a.m., New York City time, on the fourth Business Day preceding such Distribution Date. The amounts distributed -52- by the Collateral Agent to the Trustee pursuant to a Deficiency Notice shall be deposited by the Trustee into the Collection Account pursuant to Section 5.4. Section 6.4. CLAIMS UNDER POLICY. (a) In the event that the Trustee has delivered a Deficiency Notice with respect to any Determination Date, the Trustee shall determine on the related Draw Date whether the sum of (i) the amount of Available Funds with respect to such Determination Date (as stated in the Servicer's Certificate with respect to such Determination Date) plus (ii) the amount of the Deficiency Claim Amount, if any, to be delivered by the Collateral Agent to the Trustee pursuant to a Deficiency Notice delivered with respect to such Distribution Date (as stated in the certificate delivered on the immediately preceding Deficiency Claim Date by the Collateral Agent pursuant to Section 3.03(a) of the Spread Account Agreement) would be insufficient, after giving effect to the distributions required by Section 5.5(a)(i)-(ii), to pay the Guaranteed Distributions for the related Distribution Date, then in such event the Trustee shall furnish to the Certificate Insurer no later than 12:00 noon New York City time on the related Draw Date a completed Notice of Claim in the amount of the shortfall in amounts so available to pay the Guaranteed Distributions with respect to such Distribution Date (the amount of any such shortfall being hereinafter referred to as the "POLICY CLAIM AMOUNT"). Amounts paid by the Certificate Insurer under the Policy shall be deposited by the Trustee into the Policy Payments Account and thereafter into the Collection Account for payment to Class A Certificateholders on the related Distribution Date (or promptly following payment on a later date as set forth in the Policy). (b) Any notice delivered by the Trustee to the Certificate Insurer pursuant to subsection 6.4(a) shall specify the Policy Claim Amount claimed under the Policy and shall constitute a "Notice of Claim" under the Policy. In accordance with the provisions of the Policy, the Certificate Insurer is required to pay to the Trustee the Policy Claim Amount properly claimed thereunder by 12:00 noon, New York City time, on the later of (i) the third Business Day (as defined in the Policy) following receipt on a Business Day (as defined in the Policy) of the Notice of Claim, and (ii) the applicable Distribution Date. Any payment made by the Certificate Insurer under the Policy shall be applied solely to the payment of the Class A Certificates, and for no other purpose. (c) The Trustee shall (i) receive as attorney-in-fact of each Certificateholder any Policy Claim Amount from the Certificate Insurer and (ii) deposit the same in the Policy Payments Account and thereafter into the Collection Account for disbursement to the Class A Certificateholders as set forth in clauses (iii) and (iv) of subsection 5.5(a). Any and all Policy Claim Amounts disbursed by the Trustee from claims made under the Policy shall not be considered payment by the Trust or from the Spread Account with respect to such Class A Certificates, and shall not discharge the obligations of the Trust with respect thereto. The Certificate Insurer shall, to the extent it makes any payment with respect to the Class A Certificates, become subrogated to the rights of the recipients of such payments to the extent of such payments. Subject to and conditioned upon any payment with respect to the Class A Certificates by or on behalf of the Certificate Insurer, the Trustee shall assign to the Certificate Insurer all rights to the payment of interest or principal with respect to the Class A Certificates which are then due for payment to the extent of all payments made by the -53- Certificate Insurer and the Certificate Insurer may exercise any option, vote, right, power or the like with respect to the Class A Certificates to the extent that it has made payment pursuant to the Policy. To evidence such subrogation, the Certificate Registrar shall note the Certificate Insurer's rights as subrogee upon the register of Class A Certificateholders upon receipt from the Certificate Insurer of proof of payment by the Certificate Insurer of any Guaranteed Distributions. (d) The Trustee shall be entitled to enforce on behalf of the Class A Certificateholders the obligations of the Certificate Insurer under the Policy. Notwithstanding any other provision of this Agreement, the Class A Certificateholders are not entitled to institute proceedings directly against the Certificate Insurer. Section 6.5. PREFERENCE CLAIMS; DIRECTION OF PROCEEDINGS. (a) In the event that the Trustee has received a certified copy of an order of the appropriate court that any Guaranteed Distribution paid on a Class A Certificate has been avoided in whole or in part as a preference payment under applicable bankruptcy law, the Trustee shall so notify the Certificate Insurer, shall comply with the provisions of the Policy to obtain payment by the Certificate Insurer of such avoided payment, and shall, at the time it provides notice to the Certificate Insurer, notify Holders of the Class A Certificates by mail that, in the event that any Class A Certificateholder's payment is so recoverable, such Class A Certificateholder will be entitled to payment pursuant to the terms of the Policy. Pursuant to the terms of the Policy, the Certificate Insurer will make such payment on behalf of the Class A Certificateholder to the receiver, conservator, debtor-in-possession or trustee in bankruptcy named in the Order (as defined in the Policy) and not to the Trustee or any Class A Certificateholder directly (unless a Class A Certificateholder has previously paid such payment to the receiver, conservator, debtor-in-possession or trustee in bankruptcy, in which case the Certificate Insurer will make such payment to the Trustee for distribution to such Class A Certificateholder upon proof of such payment reasonably satisfactory to the Certificate Insurer). (b) The Trustee shall promptly notify the Certificate Insurer of any proceeding or the institution of any action (of which the Trustee has actual knowledge) seeking the avoidance as a preferential transfer under applicable bankruptcy, insolvency, receivership, rehabilitation or similar law (a "PREFERENCE CLAIM") of any distribution made with respect to the Class A Certificates. Each Holder, by its purchase of Class A Certificates, and the Trustee hereby agree that so long as an Insurer Default shall not have occurred and be continuing, the Certificate Insurer may at any time during the continuation of any proceeding relating to a Preference Claim direct all matters relating to such Preference Claim including, without limitation, (i) the direction of any appeal of any order relating to any Preference Claim and (ii) the posting of any surety, supersedeas or performance bond pending any such appeal at the expense of the Certificate Insurer, but subject to reimbursement as provided in the Insurance Agreement. In addition, and without limitation of the foregoing, as set forth in Section 6.4(c), the Certificate Insurer shall be subrogated to, and each Class A Certificateholder and the Trustee hereby delegate and assign, to the fullest extent permitted by law, the rights of the Trustee and each Class A Certificateholder in the conduct of any proceeding with respect to a Preference Claim, including, without limitation, all rights of any -54- party to an adversary proceeding action with respect to any court order issued in connection with any such Preference Claim. Section 6.6. SURRENDER OF POLICY. The Trustee shall surrender the Policy to the Certificate Insurer for cancellation upon its expiration in accordance with the terms thereof. ARTICLE VII THE CERTIFICATES Section 7.1. THE CERTIFICATES. (a) The Class A Certificates and the Class B Certificates shall be issued in denominations of $1,000 initial principal amount and integral multiples of $1,000 thereof, except that one Class B Certificate shall be issued in a denomination that includes any residual amount. The Certificates shall be executed on behalf of the Trustee by manual or facsimile signature of any Responsible Officer of the Trustee having such authority under the Trustee's seal imprinted or otherwise affixed thereon and authenticated on behalf of the Trustee by the manual or facsimile signature of any other Responsible Officer of the Trustee. Certificates bearing the manual or facsimile signatures of individuals who were, at the time when such signatures were affixed, authorized to sign on behalf of the Trustee shall be valid and binding obligations of the Trust, notwithstanding that such individuals or any of them have ceased to be so authorized prior to the authentication and delivery of such Certificates. Section 7.2. AUTHENTICATION OF CERTIFICATES. The Trustee shall cause the Certificates to be authenticated on behalf of the Trust, authenticated, and delivered to or upon the order of the Seller, signed by its chairman of the board, its vice chairman, its chief financial officer, its president, any vice president, its treasurer, or any assistant treasurer, its secretary or any assistant secretary, without further corporate action by the Seller, in exchange for the Receivables and the other Trust Property, simultaneously with the sale, assignment and transfer to the Trustee of the Receivables, and the delivery to the Custodian on behalf of the Trustee of the Receivable Files and the other Trust Property. Such Certificates shall be duly executed by the Trustee, in authorized denominations equaling in the aggregate the Cut-off Date Principal Balance and evidencing the entire ownership of the Trust. No Certificate shall entitle its holder to any benefit under the Agreement, or shall be valid for any purpose, unless there shall appear on such Certificate a certificate of authentication substantially in the form set forth in Exhibit A or Exhibit B hereto executed by the Trustee by manual signature of an authorized signatory; such authentication shall constitute conclusive evidence that such Certificate shall have been duly authenticated and delivered hereunder. All Certificates shall be dated the date of their authentication and shall be numbered in the manner determined by the Trustee. Section 7.3. REGISTRATION OF TRANSFER AND EXCHANGE OF CERTIFICATES. (a) The Certificate Registrar shall keep or cause to be kept, at the office or agency maintained pursuant to Section 7.7, a Certificate Register in which, subject to such reasonable regulations as it may prescribe, the Trustee shall provide for the registration of Certificates and of -55- transfers and exchanges of Certificates as herein provided. The Trustee shall be the initial Certificate Registrar. In the event that, subsequent to the Cut-off Date, the Trustee notifies the Servicer that it is unable to act as Certificate Registrar, the Servicer shall appoint another bank or trust company, having an office or agency located in New York, New York, agreeing to act in accordance with the provisions of this Agreement applicable to it, and otherwise acceptable to the Trustee, to act as successor Certificate Registrar under this Agreement. The Certificates have not been registered under the Securities Act or any state securities law. The Certificate Registrar shall not register the transfer of any Class A Certificate or Class B Certificate unless such resale or transfer is pursuant to an effective registration statement under the Securities Act (as certified to the Trustee by the Seller) or is to the Seller or unless it shall have received (i) a representation letter substantially in the form of Exhibit G hereto or (ii) such other representations (or an Opinion of Counsel) satisfactory to the Seller or the Certificate Registrar to the effect that such resale or transfer is made (A) to a person who the seller reasonably believes is a qualified institutional buyer in a transaction meeting the requirements of Rule 144A, in a transaction meeting the requirements of Rule 144 under the Securities Act, or in accordance with another exemption from registration requirements of the Securities Act (and based upon an opinion of counsel if the Issuer or the Seller so requests) or (B) pursuant to an effective registration statement, and in each case, in accordance with any applicable securities laws of any State of the United States or any other applicable jurisdiction, and the purchaser will, and each subsequent holder is required to, notify any subsequent purchaser from it of the resale restrictions set forth above. Until the earlier of (i) such time as the Certificates shall be registered pursuant to a registration statement filed under the Securities Act and (ii) the date three years from the later of the date of the original authentication and delivery of the Certificates and the date any Certificate was acquired from the Seller or any affiliate of the Seller, the Certificates shall bear a legend as follows: THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED STATES TO A PERSON WHO THE SELLER -56- REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 OR (c) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE CERTIFICATE REGISTRAR OR SELLER SO REQUESTS), (2) TO THE SELLER OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAW OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY TO THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. The Certificate Registrar shall not register the initial purchase of the Certificates unless it shall have received a Purchaser Representation Letter in the form of Exhibit G. Neither the Seller, the Servicer, the Trust, Atlantic nor the Trustee is obligated to register the Certificates of any Class under the Securities Act or to take any other action not otherwise required under the Agreement to permit the transfer of Certificates without registration. So long as the Certificates are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, the Servicer will provide to each holder of such restricted securities and to each prospective purchaser (as designated by such holder) of such restricted securities, upon the request of such holder or prospective purchaser, any information required to be provided by Rule 144A(d)(4) under the Securities Act. Notwithstanding anything to the contrary herein, the Certificate Registrar shall not register the transfer of any Certificate unless it shall have received either (a) a representation letter substantially in the form of Exhibit G hereto or (b) an Opinion of Counsel from the prospective transferee of such Certificate, acceptable to, and in form and substance satisfactory to, the Seller, to the effect that (i) such transferee will not acquire such Certificate with the assets of any "employee benefit plan" as defined in Section 3(3) of ERISA, (ii) no "prohibited transaction" under ERISA or the Code will occur in connection with such prospective transferee's acquisition of the Certificate or (iii) the acquisition of the Certificate is subject to a statutory or administrative exemption, specified in such letter or opinion, from the "prohibited transaction" provisions of ERISA and the Code. (b) Upon surrender for registration of transfer of any Certificate at the Corporate Trust Office, the Trustee shall, subject to Section 7.3(a), execute, authenticate, and -57- deliver, in the name of the designated transferee or transferees, one or more new Certificates in authorized denominations of a like aggregate amount dated the date of authentication by the Trustee. At the option of a Holder, Certificates may be exchanged for other Certificates of authorized denominations of a like Class or dollar aggregate amount upon surrender of the Certificates to be exchanged at the Corporate Trust Office. (c) Every Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by the holder or his attorney duly authorized in writing. Each Certificate surrendered for registration of transfer or exchange shall be cancelled and subsequently disposed of by the Trustee. (d) The Class A Certificates shall be issued in the form of one or more type- written Class A Certificates representing book-entry Class A Certificates, to be delivered to the Trustee as custodian for the Depository, which is acting as the initial Clearing Agency. The provisions of this Section 7.3(d) shall control the registration and transfer of Class A Certificates in book-entry form notwithstanding any other provisions of this Agreement. The Class A Certificates shall initially be registered on the Certificate Register in the name of Cede & Co., the nominee of the Depository, and no Class A Certificateholder will receive a physical Class A Certificate representing such Class A Certificateholder's interest in the Class A Certificates, except as provided in this Section: (i) the rights of beneficial owners will be exercised only through the Depository and will be limited to those established by law and agreements between such beneficial owners and the Depository and/or the Participants. (ii) If at any time the Depository for the book-entry Class A Certificates notifies the Trustee that it is unwilling or unable to continue as Depository for the book-entry Class A Certificates, or if at any time the Depository for the book-entry Class A Certificates shall give notice to the Trustee that such Depository has ceased to be a Clearing Agency, after prompt written notice to the Certificate Insurer, the Trustee with the prior written consent of the Certificate Issuer shall appoint a successor Depository with respect to the book-entry Class A Certificates. If a successor Depository for the book-entry Class A Certificates is not appointed by the Trustee within 90 days after the Trustee receives such notice or becomes aware of such ineligibility, representation of a portion or all of the Class A Certificates, as the case may be, by the book-entry Class A Certificates shall no longer be effective and, in exchange for the book-entry Class A Certificates, the Trustee shall give written notice to the Certificate Insurer and shall execute and deliver to such Persons as are designated by the Depository, physical Class A Certificates in authorized denominations, registered in such names as the Depository shall designate, with the legend (or such legends as may be applicable thereto in accordance with Section 7.3 hereof), in an aggregate principal balance equal to the principal balance of the book-entry Class A Certificates. -58- (iii) If at any time the Trustee has, pursuant to this Agreement, instituted or joined in or has been directed to institute or join in any judicial proceeding in a court to enforce the rights of the Certificate Insurer or the Class A Certificateholders, and the Trustee has been advised by legal counsel that in connection with such proceeding it is necessary or appropriate for the Trustee to obtain possession of the Class A Certificates, the Trustee may, in its sole discretion, determine that the Class A Certificates represented by the book-entry Class A Certificates shall no longer be represented by such book-entry Class A Certificates. In such event, the Trustee shall execute and deliver to such Persons as are designated by the Depository, in exchange for the book-entry Class A Certificates, physical Class A Certificates, in authorized denominations, registered in such names as the Depository shall designate, in an aggregate principal balance equal to the principal balance of the book-entry Class A Certificates. (iv) Every Class A Certificate delivered upon registration of transfer of, or in exchange for or in lieu of, a book-entry Class A Certificates or any portion thereof, whether pursuant to this Section or otherwise, shall be delivered in the form of, and shall be, a book-entry Class A Certificates in accordance with the rules of the Depository and no further certification shall be required, unless such Class A Certificate is registered in the name of a Person other than the Depository for such book-entry Class A Certificates or a nominee thereof. (v) the Certificate Registrar and the Trustee will be entitled to deal with the Clearing Agency for all purposes of this Agreement (including the payment of principal of and interest on the Class A Certificates and the giving of instructions or directions hereunder) as the sole holder of the Class A Certificates, and shall have o obligation to the beneficial owners. (vi) whenever this Agreement requires or permits actions to be taken subsequent to the occurrence and continuance of an Insurer Default based upon instructions or directions of Certificateholders of Class A Certificates evidencing a specified percentage of the Outstanding Amount of the Class A Certificates, the Clearing Agency will be deemed to represent such percentage only to the extent that it has received instructions to such effect from beneficial owners and/or Clearing Agency Participants owning or representing, respectively, such required percentage of the beneficial interest in the Class A Certificates and has delivered such instructions to the Trustee. (vii) without the prior written consent of the Seller, the Certificate Insurer and the Trustee, no such Class A Certificate may be transferred by the Depository except to a successor Depository that agrees to hold such Class A Certificate for the account of the beneficial owners or except upon the election of the Beneficial Owner thereof or a subsequent transferee to hold such Class A Certificate in physical form in accordance with Section 7.3 hereof. -59- Neither the Trustee nor the Certificate Registrar shall have any responsibility to monitor or restrict the transfer of beneficial ownership in any Class A Certificate an interest in which is transferable through the facilities of the Depository. (e) All Certificates issued upon any registration of transfer or exchange of Certificates shall be the valid obligations of the Trust, evidencing the same rights, and entitled to the same benefits under this Agreement, as the Certificates surrendered upon such registration of transfer or exchange. (f) Every Certificate presented or surrendered for registration of transfer or exchange shall be duly endorsed by, or be accompanied by a written instrument of transfer in form satisfactory to the Trustee duly executed by, the Certificateholder thereof or such Certificateholder's attorney duly authorized in writing, with such signature guaranteed by an "eligible guarantor institution" meeting the requirements of the Certificate Registrar, which requirements include membership or participation in the Securities Transfer Agent's Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Certificate Registrar in addition to, or in substitution for, STAMP, all in accordance with the Exchange Act. (g) No service charge shall be made to a Certificateholder for any registration of transfer or exchange of Certificates, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Certificates. (h) The preceding provisions of this Section notwithstanding, the Trustee shall not be required to make, and the Certificate Registrar need not register, transfers or exchanges of Certificates selected for redemption or of any Certificate for a period of 15 days preceding the due date for any payment with respect to the Certificate. (i) The Certificates and this Agreement may be amended or supplemented from time to time without the consent of any of the Certificateholders but with the prior written consent of the Certificate Insurer (unless an Insurer Default shall have occurred and be continuing) to modify restrictions on and procedures for resale and other transfers of the Certificates of any class to reflect any change in applicable law or regulations (or the interpretation thereof) or practices relating to the resale or transfer of restricted securities generally. (j) There shall be only one legal or beneficial owner of the Class B Certificates at any time unless the transferor thereof has provided an Opinion of Counsel to the Certificate Registrar and the Certificate Insurer that the holding of the Class B Certificates by more than one legal or beneficial owner will not cause the Trust to fail to qualify as a grantor trust or the owners of the Class B Certificates to be treated as owners of a separate association taxable as a corporation. Section 7.4. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. If (a) any mutilated Certificate is surrendered to the Certificate Registrar, or the Certificate Registrar -60- receives evidence to its satisfaction of the destruction, loss or theft of any Certificate, and (b) there is delivered to the Certificate Registrar, the Trustee and (unless an Insurer Default shall have occurred and be continuing) the Certificate Insurer such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Certificate Registrar or the Trustee that such Certificate has been acquired by a bona fide purchaser, the Trustee on behalf of the Trust shall execute and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like tenor and Fractional Undivided Interest. In connection with the issuance of any new Certificate under this Section 7.4, the Trustee may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee and the Certificate Registrar) connected therewith. Any duplicate Certificate issued pursuant to this Section 7.4 shall constitute complete and indefeasible evidence of ownership in the Trust, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. Section 7.5. PERSONS DEEMED OWNERS. Prior to due presentation of a Certificate for registration of transfer, the Trustee, the Certificate Registrar and any agent of the Trustee or the Certificate Registrar may treat the Person in whose name any Certificate is registered as the owner of such Certificate for the purpose of receiving distributions pursuant to Section 5.5 and for all other purposes whatsoever, and neither the Trustee, the Certificate Registrar, the Certificate Insurer nor any agent of the Trustee, the Certificate Registrar or the Certificate Insurer shall be affected by any notice to the contrary. Section 7.6. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND ADDRESSES. The Trustee shall furnish or cause to be furnished to the Servicer or (unless an Insurer Default shall have occurred and be continuing) the Certificate Insurer, within 10 days after receipt by the Trustee of a written request therefor from such party, a list, in such form as such party may reasonably require, of the names and addresses of the Certificateholders as of the most recent Record Date for payment of distributions to Certificateholders. If three or more Certificateholders, or one or more Certificateholders evidencing not less than 25% of the Class A Certificate Balance and the Class B Certificate Balance (hereinafter referred to as "APPLICANTS"), apply in writing to the Trustee, and such application states that the Applicants desire to communicate with other Certificateholders of such Class with respect to their rights under this Agreement or under the Certificates and is accompanied by a copy of the communication that such Applicants propose to transmit, then the Trustee shall, within five Business Days after the receipt of such application, afford such Applicants access, during normal business hours, to the current list of Certificateholders. Every Certificateholder, by receiving and holding a Certificate, agrees with the Servicer and the Trustee that neither the Servicer nor the Trustee shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Certificateholders under this Agreement, regardless of the source from which such information was derived. Section 7.7. MAINTENANCE OF OFFICE OR AGENCY. The Trustee shall maintain in New York, New York, an office or offices or agency or agencies where Certificates may be surrendered for registration of transfer or exchange and an office in New York, New York where notices and demands to or upon the Trustee in respect of the Certificates and this -61- Agreement may be served. The Trustee initially designates the Corporate Trust Office as specified in this Agreement as its office for such purposes. The Trustee shall give prompt written notice to the Servicer and to Certificateholders of any change in the location of the Certificate Register or any such office or agency. ARTICLE VIII THE SELLER Section 8.1. LIABILITY OF SELLER. The Seller shall be liable hereunder only to the extent of the obligations in this Agreement specifically undertaken by the Seller and the representations made by the Seller. The Seller shall indemnify, defend, and hold harmless the Trustee from and against any loss, liability or reasonable expense incurred by reason of (a) the Seller's willful misfeasance, bad faith, or negligence in the performance of its duties under this Agreement, or by reason of reckless disregard of its obligations and duties under this Agreement or (b) the Seller's violation of Federal or State securities laws in connection with the sale of the Certificates. Indemnification under this Section 8.1 shall include, without limitation, reasonable fees and expenses of counsel and expenses of litigation. If the Seller shall have made any indemnity payments to the Trustee pursuant to this Section 8.1 and the Trustee thereafter shall collect any of such amounts from others, the Trustee shall repay such amounts to the Seller, without interest. Section 8.2. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE OBLIGATIONS OF SELLER; AMENDMENT OF CERTIFICATE OF INCORPORATION. (a) The Seller shall not merge or consolidate with any other Person or permit any other Person to become the successor to the Seller's business without (so long as an Insurer Default shall not have occurred and be continuing) the prior written consent of the Certificate Insurer and if an Insurer Default has occurred and is continuing, the Certificate Majority. Any Person (i) into which the Seller may be merged or consolidated, (ii) which may result from any merger or consolidation to which the Seller shall be a party, or (iii) which may succeed to the properties and assets of the Seller substantially as a whole, which Person in any of the foregoing cases (x) has a certificate of incorporation containing provisions relating to limitations on business and other matters substantively identical to those contained in the Seller's certificate of incorporation, and (y) executes an agreement of assumption to perform every obligation of the Seller under this Agreement, shall be the successor to the Seller under this Agreement without the execution or filing of any document or any further act on the part of any of the parties to this Agreement. The Seller shall provide prompt notice of any merger, consolidation or succession pursuant to this Section 8.2 to the Trustee, the Certificate Insurer, the Certificateholders and each Rating Agency. Notwithstanding the foregoing, as a condition to the consummation of the transactions referred to in clauses (i), (ii) and (iii) above, (w) immediately after giving effect to such transaction, no representation or warranty made pursuant to Section 3.4 shall have been breached (for purposes hereof, such representations and warranties shall speak as of the date of the consummation of such transaction) and no event that, after notice or lapse of time, -62- or both, would become a Servicer Termination Event shall have occurred and be continuing, (x) the Seller shall have delivered to the Trustee and the Certificate Insurer an Officer's Certificate and an Opinion of Counsel each stating that such consolidation, merger or succession and such agreement of assumption comply with this Section 8.2 and that all conditions precedent, if any, provided for in this Agreement relating to such transaction have been complied with, (y) the Seller shall have delivered to the Certificate Insurer and the Trustee an Opinion of Counsel, stating, in the opinion of such counsel, either (A) all financing statements and continuation statements and amendments thereto have been executed and filed that are necessary to preserve and protect the interest of the Trustee in the Trust Property and reciting the details of the filings or (B) no such action shall be necessary to preserve and protect such interest, and (z) immediately after giving effect to such transaction, no Insurance Agreement Event of Default and no event that, after notice or lapse of time, or both, would become an Insurance Agreement Event of Default shall have occurred and be continuing. The Seller shall provide notice of any merger, consolidation or succession pursuant to this Section 8.2 to each Rating Agency and shall have received confirmation from each Rating Agency that the then current rating of the Certificates will not be downgraded as a result of such merger, consolidation or succession. Notwithstanding anything herein to the contrary, the execution of the foregoing agreement of assumption and compliance with clauses (w), (x), (y) and (z) above shall be conditions to the consummation of the transactions referred to in clause (i), (ii) or (iii) above. (b) The Seller hereby agrees that it shall not (i) take any action prohibited by Article III of its certificate of incorporation or (ii) without the prior written consent of the Trustee and (so long as an Insurer Default shall not have occurred and be continuing) the Certificate Insurer and without giving prior written notice to the Rating Agencies, amend Article III, V, VI, VII, IX, X, XI or XII of its certificate of incorporation. Section 8.3. LIMITATION ON LIABILITY OF SELLER AND OTHERS. The Seller and any director or officer or employee or agent of the Seller may rely in good faith on the written advice of counsel or on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising under this Agreement. The Seller shall not be under any obligation to appear in, prosecute or defend any legal action that is not incidental to its obligations as Seller of the Receivables under this Agreement and that in its opinion may involve it in any expense or liability. Section 8.4. SELLER MAY OWN CERTIFICATES. Each of the Seller and any Affiliate of the Seller may in its individual or any other capacity become the owner or pledgee of Certificates with the same rights as it would have if it were not the Seller or an Affiliate thereof except as otherwise specifically provided herein. Certificates so owned by or pledged to the Seller or such Affiliate shall have an equal and proportionate benefit under the provisions of this Agreement, without preference, priority, or distinction as among all of the Certificates; PROVIDED, HOWEVER, that any Certificates owned by the Seller or any Affiliate thereof, during the time such Certificates are owned by them, shall be without voting rights for any purpose set forth in this Agreement and will not be entitled to the benefits of the Policy. The Seller shall notify the Trustee and the Certificate Insurer promptly after it or any of its Affiliates become the owner or pledgee of a Certificate. -63- Section 8.5. SELLER NOT TO INCUR DEBT. The Seller shall not incur any debt under Article III or Article X of its certificate of incorporation in a manner which would result in the withdrawal of or reduction of the then current rating of the Class A Certificates by either of the Rating Agencies. ARTICLE IX THE SERVICER Section 9.1. LIABILITY OF SERVICER; INDEMNITIES. (a) The Servicer shall be liable hereunder only to the extent of the obligations in this Agreement specifically undertaken by the Servicer and the representations made by the Servicer and to the extent not covered in Section 3.04 of the Insurance Agreement. (b) The Servicer shall defend, indemnify and hold harmless the Trustee, the Backup Servicer, the Collateral Agent, the Certificate Insurer, their respective officers, directors, agents and employees, the Trust, and the Certificateholders from and against any and all costs, expenses, losses, damages, claims and liabilities, including reasonable fees and expenses of counsel and expenses of litigation arising out of or resulting from the use, ownership or operation by the Servicer or any Affiliate thereof of any Financed Vehicle. (c) The Servicer shall defend, indemnify and hold harmless the Trust, the Trustee, the Backup Servicer, the Collateral Agent, the Certificate Insurer, their respective officers, directors, agents and employees, and the Certificateholders from and against any taxes that may at any time be asserted against the Trust, the Trustee or the Certificateholders with respect to the transactions contemplated in this Agreement, including, without limitation, any sales, gross receipts, general corporation, tangible personal property, privilege or license taxes (but not including any taxes asserted with respect to, and as of the date of, the sale of the Receivables and the other Trust Property to the Trustee or the issuance and original sale of the Certificates, or asserted with respect to ownership of the Receivables, or federal or other income taxes arising out of distributions on the Certificates) and costs and expenses in defending against the same. (d) The Servicer shall indemnify, defend and hold harmless the Trust, the Trustee, the Backup Servicer, the Certificate Insurer, the Collateral Agent, their respective officers, directors, agents and employees and the Certificateholders from and against any and all costs, expenses, losses, claims, damages, and liabilities to the extent that such cost, expense, loss, claim, damage, or liability arose out of, or was imposed upon the Trustee, the Trust, the Certificate Insurer or the Certificateholders through the breach of this Agreement, the negligence, willful misfeasance, or bad faith of the Servicer in the performance of its duties under this Agreement or by reason of reckless disregard of its obligations and duties under this Agreement. (e) The Servicer shall indemnify, defend, and hold harmless the Trustee, its officers, directors, agents and employees, from and against all costs, taxes (other than income -64- taxes on fees and expenses payable to the Trustee), expenses, losses, claims, damages and liabilities arising out of or incurred in connection with the acceptance or performance of the trusts and duties contained in this Agreement, except to the extent that such cost, taxes (other than income taxes), expense, loss, claim, damage or liability (A) is due to the willful misfeasance, bad faith or gross negligence of the Trustee, or (B) arises from the Trustee's breach of any of its representations or warranties set forth in Section 11.12; PROVIDED, HOWEVER, that amounts payable under this paragraph shall be increased by the amount of income taxes actually paid by the Trustee in respect of any indemnity payment unless the Trustee received or can reasonably be expected to receive a tax deduction for the related loss or cost. (f) For purposes of this Section 9.1, in the event of the termination of the rights and obligations of the Servicer (or any successor thereto pursuant to Section 9.2) as Servicer pursuant to Section 10.1, or a resignation by such Servicer pursuant to this Agreement, such Servicer shall be deemed to be the Servicer pending appointment of a successor Servicer pursuant to Section 10.3. The provisions of this Section 9.1(f) shall in no way affect the survival pursuant to Section 9.1(g) of the indemnification by the Servicer provided by Sections 9.1(b) through 9.1(e). (g) Indemnification under this Article shall survive the termination of this Agreement and shall include reasonable fees and expenses of counsel and expenses of litigation. If the Servicer shall have made any indemnity payments pursuant to this Article and the recipient thereafter collects any of such amounts from others, the recipient shall promptly repay such amounts collected to the Servicer, without interest. Notwithstanding any other provision of this Agreement, the obligations of the Servicer described in this Section shall not terminate or be deemed released upon the resignation or termination of Atlantic as the Servicer and shall survive any termination of this Agreement. Section 9.2. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE OBLIGATIONS OF, THE SERVICER OR BACKUP SERVICER. (a) The Servicer shall not merge or consolidate with any other Person, convey, transfer or lease substantially all its assets as an entirety to another Person, or permit any other Person to become the successor to the Servicer's business unless, after the merger, consolidation, conveyance, transfer, lease or succession, the successor or surviving entity shall be an Eligible Servicer and shall be capable of fulfilling the duties of the Servicer contained in this Agreement. Any Person (i) into which the Servicer may be merged or consolidated, (ii) resulting from any merger or consolidation to which the Servicer shall be a party, (iii) which acquires by conveyance, transfer, or lease substantially all of the assets of the Servicer, or (iv) succeeding to the business of the Servicer, in any of the foregoing cases shall execute an agreement of assumption to perform every obligation of the Servicer under this Agreement and, whether or not such assumption agreement is executed, shall be the successor to the Servicer under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties to this Agreement, anything in this Agreement to the contrary notwithstanding; PROVIDED, HOWEVER, that nothing contained herein shall be deemed to release the Servicer from any obligation. The Servicer shall provide prior written notice of any merger, consolidation or succession pursuant to this Section 9.2(a) to the Seller, the Trustee, the Certificate Insurer, the Certificateholders and each Rating Agency. -65- Notwithstanding the foregoing, as a condition to the consummation of the transactions referred to in clauses (i), (ii) and (iii) above, (x) immediately after giving effect to such transaction, no representation or warranty made pursuant to Section 4.6 shall have been breached (for purposes hereof, such representations and warranties shall speak as of the date of the consummation of such transaction) and no event that, after notice or lapse of time, or both, would become an Insurance Agreement Event of Default, shall have occurred and be continuing, (y) the Servicer shall have delivered to the Trustee and the Certificate Insurer an Officer's Certificate and an Opinion of Counsel each stating that such consolidation, merger or succession and such agreement of assumption comply with this Section 9.2(a) and that all conditions precedent, if any, provided for in this Agreement relating to such transaction have been complied with, and (z) the Servicer shall have delivered to the Trustee and the Certificate Insurer an Opinion of Counsel, stating, in the opinion of such counsel, either (A) all financing statements and continuation statements and amendments thereto have been executed and filed that are necessary to preserve and protect the interest of the Trustee in the Trust Property and reciting the details of the filings or (B) no such action shall be necessary to preserve and protect such interest. (b) Any Person (i) into which the Backup Servicer may be merged or consolidated, (ii) resulting from any merger or consolidation to which the Backup Servicer shall be a party, (iii) which acquires by conveyance, transfer or lease substantially all of the assets of the Backup Servicer, or (iv) succeeding to the business of the Backup Servicer, in any of the foregoing cases shall execute an agreement of assumption to perform every obligation of the Backup Servicer under this Agreement and, whether or not such assumption agreement is executed, shall be the successor to the Backup Servicer under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties to this Agreement, anything in this Agreement to the contrary notwithstanding; PROVIDED, HOWEVER, that nothing contained herein shall be deemed to release the Backup Servicer from any obligation. Section 9.3. LIMITATION ON LIABILITY OF SERVICER, BACKUP SERVICER AND OTHERS. Neither the Servicer, the Backup Servicer nor any of the directors or officers or employees or agents of the Servicer or Backup Servicer shall be under any liability to Atlantic, the Trust or the Certificateholders, except as provided in this Agreement, for any action taken or for refraining from the taking of any action pursuant to this Agreement; PROVIDED, HOWEVER, that this provision shall not protect the Servicer, the Backup Servicer or any such Person against any liability that would otherwise be imposed by reason of a breach of this Agreement or willful misfeasance, bad faith or negligence (excluding errors in judgment) in the performance of duties (including negligence with respect to the Servicer's indemnification obligations hereunder), by reason of reckless disregard of obligations and duties under this Agreement or any violation of law by the Servicer, Backup Servicer or such Person, as the case may be; FURTHER PROVIDED, that this provision shall not affect any liability to indemnify the Trustee for costs, taxes, expenses, claims, liabilities, losses or damages paid by the Trustee in its individual capacity. The Servicer, the Backup Servicer and any director, officer, employee or agent of the Servicer or Backup Servicer may rely in good faith on the advice of counsel or on any document of any kind PRIMA FACIE properly executed and submitted by any Person respecting any matters arising under this Agreement. The Backup Servicer shall not be -66- required to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if the repayment of such funds or adequate written indemnity against such risk or liability is not reasonably assured to it in writing prior to the expenditure or risk of such funds or unicorns of financial liability. Section 9.4. DELEGATION OF DUTIES. (a) So long as Atlantic is the Servicer, the Servicer may delegate duties under this Agreement to any sub-servicer willing to such accept such delegation and to perform such duties (including any Affiliate of the Servicer) in accordance with the customary procedures of the Servicer; PROVIDED, HOWEVER, that after the date of this Agreement the Servicer shall not delegate any material duties currently performed by Alltel Information Services, Inc. or Atlantic to any sub-servicer, without the prior written consent of the Certificate Insurer, the Trustee and the Backup Servicer. Any such delegation or subcontracting by the Servicer shall not relieve the Servicer of its liability and responsibility with respect to such duties and shall not constitute a resignation within the meaning of Section 9.5 hereof. So long as no Insurer Default shall have occurred and be continuing, neither Atlantic nor any other party acting as Servicer hereunder shall appoint any sub-servicer hereunder without the prior written consent of the Certificate Insurer, the Trustee and the Backup Servicer. (b) Any such delegation or subcontracting by the Servicer shall be deemed to be between the Servicer and the sub-servicer alone. The Trustee, the Trust, the Certificate Insurer and the Certificateholders shall not be deemed parties thereto and shall have no claims, rights, obligations, duties or liabilities with respect to such delegation or subcontracting. Section 9.5. SERVICER AND BACKUP SERVICER NOT TO RESIGN. Subject to the provisions of Section 9.2, neither the Servicer nor the Backup Servicer shall resign from the obligations and duties imposed on it by this Agreement as Servicer or Backup Servicer except upon a determination that by reason of a change in legal requirements the performance of its duties under this Agreement would cause it to be in violation of such legal requirements in a manner which would result in a material adverse effect on the Servicer or the Backup Servicer, as the case may be, and the Certificate Insurer (so long as an Insurer Default shall not have occurred and be continuing) or a Certificate Majority (if an Insurer Default shall have occurred and be continuing) does not elect to waive the obligations of the Servicer or the Backup Servicer, as the case may be, to perform the duties which render it legally unable to act or to delegate those duties to another Person. Any such determination permitting the resignation of the Servicer or Backup Servicer shall be evidenced by an Opinion of Counsel to such effect delivered and acceptable to the Trustee and the Certificate Insurer (unless an Insurer Default shall have occurred and be continuing). No resignation of the Servicer shall become effective until, so long as no Insurer Default shall have occurred and be continuing, the Backup Servicer or an entity acceptable to the Certificate Insurer shall have assumed the responsibilities and obligations of the Servicer or, if an Insurer Default shall have occurred and be continuing, the Backup Servicer or a successor Servicer that is an Eligible Servicer shall have assumed the responsibilities and obligations of the Servicer. No resignation of the Backup Servicer shall become effective until, so long as no Insurer Default shall have occurred and be continuing, an entity acceptable to the Certificate Insurer shall have assumed -67- the responsibilities and obligations of the Backup Servicer or, if an Insurer Default shall have occurred and be continuing, a Person that is an Eligible Servicer shall have assumed the responsibilities and obligations of the Backup Servicer; PROVIDED, HOWEVER, that in the event a successor Backup Servicer is not appointed within 60 days after the Backup Servicer has given notice of its resignation as permitted by this Section 9.5, the Backup Servicer may petition a court for its removal. ARTICLE X SERVICER TERMINATION EVENTS Section 10.1. SERVICER TERMINATION EVENT. For purposes of this Agreement, each of the following shall constitute a "SERVICER TERMINATION EVENT": (a) any failure by the Servicer or, so long as Atlantic or an Affiliate of Atlantic is the Servicer, the Seller to deliver to the Trustee for distribution to Certificateholders or deposit in the Spread Account any proceeds or payment required to be so delivered under the terms of the Certificates or this Agreement (including deposits of the Purchase Amount pursuant to Section 3.6 or Section 4.7) that continues unremedied for a period of two Business Days (one Business Day with respect to payment of Purchase Amounts) after written notice is received by the Servicer from the Trustee or (unless an Insurer Default shall have occurred and be continuing) the Certificate Insurer or after discovery of such failure by a Responsible Officer of the Servicer (but in no event later than five Business Days after the Servicer is required to make such delivery or deposit); (b) failure by the Servicer to deliver to the Trustee and (so long as an Insurer Default shall not have occurred and be continuing) to the Certificate Insurer the Servicer's Certificate required by Section 4.9 within one (1) Business Day after the date such certificate is required to be delivered; (c) failure on the part of the Servicer to observe its covenants and agreements set forth in Section 9.2(a); (d) failure on the part of the Servicer or, so long as Atlantic or an Affiliate of Atlantic is the Servicer, the Seller, duly to observe or perform in any material respect any other covenants or agreements of the Servicer or, so long as Atlantic or an Affiliate of Atlantic is the Servicer, the Seller, as the case may be, set forth in the Certificates or in this Agreement, (or, as to Atlantic, if Atlantic or an Affiliate of Atlantic is the Servicer, the Receivables Purchase Agreement) which failure continues unremedied for a period of 30 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Servicer by the Trustee or the Certificate Insurer (or, if an Insurer Default shall have occurred and be continuing, any Certificateholder); -68- (e) the entry of a decree or order for relief by a court or regulatory authority having jurisdiction in respect of the Servicer (or, if Atlantic or an Affiliate of Atlantic is the Servicer, the Seller) in an involuntary case under the federal bankruptcy laws, as now or hereafter in effect, or another present or future, federal or state, bankruptcy, insolvency or similar law, or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Servicer (or, if Atlantic or an Affiliate of Atlantic is the Servicer, the Seller) or of any substantial part of their respective properties or ordering the winding up or liquidation of the affairs of the Servicer (or, if Atlantic or an Affiliate of Atlantic is the Servicer, the Seller) or the commencement of an involuntary case under the federal bankruptcy laws, as now or hereinafter in effect, or another present or future federal or state bankruptcy, insolvency or similar law and such case is not dismissed within 60 days; (f) the commencement by the Servicer (or, if Atlantic or an Affiliate of Atlantic is the Servicer, the Seller) of a voluntary case under the federal bankruptcy laws, as now or hereafter in effect, or any other present or future, federal or state, bankruptcy, insolvency or similar law, or the consent by the Servicer (or, if Atlantic or an Affiliate of Atlantic is the Servicer, the Seller) to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Servicer (or, if Atlantic or an Affiliate of Atlantic is the Servicer, the Seller) or of any substantial part of its property or the making by the Servicer (or, if Atlantic or an Affiliate of Atlantic is the Servicer, the Seller) of an assignment for the benefit of creditors or the failure by the Servicer (or, if Atlantic or an Affiliate of Atlantic is the Servicer, the Seller) generally to pay its debts as such debts become due or the taking of corporate action by the Servicer (or, if Atlantic or an Affiliate of Atlantic is the Servicer, the Seller) in furtherance of any of the foregoing; (g) any representation, warranty or statement of the Servicer (or, if Atlantic or an Affiliate of Atlantic is the Servicer, the Seller) made in this Agreement or any certificate, report or other writing delivered pursuant hereto shall prove to be incorrect in any material respect as of the time when the same shall have been made (excluding, however, any representation or warranty set forth in Section 3.4(a)), and the incorrectness of such representation, warranty or statement has a material adverse effect on the Trust and, within 30 days after written notice thereof shall have been given to the Servicer (or, if Atlantic or an Affiliate of Atlantic is the Servicer, the Seller) by the Trustee or the Certificate Insurer (or, if an Insurer Default shall have occurred and be continuing, a Certificateholder), the circumstances or condition in respect of which such representation, warranty or statement was incorrect shall not have been eliminated or otherwise cured; (h) so long as an Insurer Default shall not have occurred and be continuing, the Certificate Insurer shall not have delivered a Servicer Extension Notice pursuant to Section 4.14; (i) so long as an Insurer Default shall not have occurred and be continuing, (x) an Insurance Agreement Event of Default shall have occurred or (y) an Insurance -69- Agreement Event of Default with respect to another Series (as defined in the Insurance Agreement) shall have occurred; (j) if the Certificate Insurer shall request that the Servicer terminate the Lockbox Agreement and establish a new Lockbox Agreement and the Servicer fails to promptly expedite such new Lockbox Agreement and within 30 days after written notice thereof shall have been given to the Servicer by the Certificate Insurer, the new Lockbox Agreement shall not have been established; or (k) a claim is made under the Policy. Section 10.2. CONSEQUENCES OF A SERVICER TERMINATION EVENT. If a Servicer Termination Event shall occur and be continuing, so long as no Insurer Default shall have occurred and be continuing, the Certificate Insurer (or, if an Insurer Default shall have occurred and be continuing, any of the Trustee or the Holders of Certificates evidencing not less than a Certificate Majority), by notice given in writing to the Servicer (and to the Trustee if given by the Certificate Insurer or the Certificateholders) may terminate all of the rights and obligations of the Servicer under this Agreement. On or after the receipt by the Servicer of such written notice, or, if the Certificate Insurer shall not have delivered a Servicer Extension Notice pursuant to Section 4.14, all authority, power, obligations and responsibilities of the Servicer under this Agreement, whether with respect to the Certificates or the Trust Property or otherwise, automatically shall pass to, be vested in and become obligations and responsibilities of the Backup Servicer or such other successor servicer selected by the Certificate Insurer pursuant to Section 10.3(b); PROVIDED, HOWEVER, that the Backup Servicer or any other successor servicer shall have no liability with respect to any obligation which was required to be performed by the prior Servicer prior to the date that the Backup Servicer or any other successor servicer becomes the Servicer or any claim of a third party based on any alleged action or inaction of the prior Servicer. Each successor servicer is authorized and empowered by this Agreement to execute and deliver, on behalf, and at the expense of, of the prior Servicer, as attorney-in-fact or otherwise, any and all documents and other instruments and to do or accomplish all other acts or things necessary or appropriate to effect the purposes of such notice of termination, whether to complete the transfer and endorsement of the Receivables and the other Trust Property and related documents to show the Trustee as lien holder or secured party on the related Lien Certificates, or otherwise. The prior Servicer agrees to cooperate with the Backup Servicer or any other successor servicer in effecting the termination of the responsibilities and rights of the prior Servicer under this Agreement, including, without limitation, the transfer to the Backup Servicer or any other successor servicer for administration by it of all cash amounts that shall at the time be held by the prior Servicer for deposit, or have been deposited by the prior Servicer, in the Collection Account or thereafter received with respect to the Receivables and the delivery to the Backup Servicer or any other successor servicer of all Receivable Files, Monthly Records and Collection Records and a computer tape in readable form containing all information necessary to enable the Backup Servicer or a successor Servicer to service the Receivables and the other Trust Property. If requested by the Certificate Insurer (unless an Insurer Default shall have occurred and be continuing), the Backup Servicer or successor Servicer shall terminate the Lockbox Agreement and direct the Obligors to make all payments under the Receivables -70- directly to the Servicer (in which event the Servicer shall process such payments in accordance with Section 4.2(e)), or to a lock box established by the Servicer at the direction of the Certificate Insurer (unless an Insurer Default shall have occurred and be continuing), at the Servicer's expense. The Trustee and the Backup Servicer may set off and deduct any amounts owed by the terminated Servicer from any amounts payable to the terminated Servicer pursuant to the preceding sentence. The terminated Servicer shall grant the Trustee, the Backup Servicer and the Certificate Insurer reasonable access to the terminated Servicer's premises at the Servicer's expense. Section 10.3. APPOINTMENT OF SUCCESSOR. (a) On and after (i) the time the Servicer receives a notice of termination pursuant to Section 10.2 or (ii) upon the resignation of the Servicer pursuant to Section 9.5 or (iii) the receipt by the Backup Servicer (or any alternate successor Servicer appointed by the Certificate Insurer pursuant to Section 10.3(b)), of written notice from the Certificate Insurer that the Certificate Insurer is not extending the Servicer's term pursuant to Section 4.14, the Backup Servicer shall be the successor in all respects to the Servicer in its capacity as servicer under this Agreement and the transactions set forth or provided for in this Agreement, and shall be subject to all the responsibilities, restrictions, duties, liabilities and termination provisions relating thereto placed on the Servicer by the terms and provisions of this Agreement; PROVIDED, HOWEVER that the Backup Servicer shall not be liable for any acts, omissions or obligations of the Servicer prior to such succession or for any breach by the Servicer of any of its representations and warranties contained in this Agreement or in any related document or agreement. The Trustee and such successor shall take such action, consistent with this Agreement, as shall be necessary to effectuate any such succession. If a successor Servicer is acting as Servicer hereunder, it shall be subject to termination under Section 10.2 upon the occurrence of any Servicer Termination Event applicable to it as Servicer. (b) The Certificate Insurer may (so long as an Insurer Default shall not have occurred and be continuing) exercise at any time its right to appoint as Backup Servicer or as successor to the Servicer, a Person other than the Person serving as Backup Servicer at the time, and (without limiting its obligations under the Policy) shall have no liability to the Trustee, Atlantic, the Seller, the Person then serving as Backup Servicer, any Certificateholder or any other Person if it does so. Notwithstanding the above, if the Backup Servicer shall be legally unable or unwilling to act as Servicer and an Insurer Default shall have occurred and be continuing, the Backup Servicer, the Trustee or a Certificate Majority may petition a court of competent jurisdiction to appoint any Eligible Servicer as the successor to the Servicer. Pending such appointment, the Backup Servicer shall act as successor Servicer unless it is legally unable to do so, in which event the outgoing Servicer shall continue to act as Servicer until a successor has been appointed and accepted such appointment. Subject to Section 9.5, no provision of this Agreement shall be construed as relieving the Backup Servicer of its obligation to succeed as successor Servicer upon the termination of the Servicer pursuant to Section 10.2 or the resignation of the Servicer pursuant to Section 9.5. If upon the termination of the Servicer pursuant to Section 10.2 or the resignation of the Servicer pursuant to Section 9.5, the Certificate Insurer appoints a successor Servicer other than the Backup Servicer, the Backup Servicer shall not be relieved of its duties as Backup Servicer hereunder. -71- (c) Any successor Servicer shall be entitled to such compensation (whether payable out of the Collection Account or otherwise) as the Servicer would have been entitled to under the Agreement if the Servicer had not resigned or been terminated hereunder. If any successor Servicer is appointed for any reason, the Certificate Insurer and such successor Servicer may agree on additional compensation to be paid to such successor Servicer, which additional compensation shall be payable out of funds on deposit in the Spread Account. In addition, any successor Servicer shall be entitled, out of funds in the Spread Account, to reasonable transition expenses incurred in acting as successor Servicer. Section 10.4. NOTIFICATION TO CERTIFICATEHOLDERS. Upon any termination of, or appointment of a successor to, the Servicer pursuant to this Article X, the Trustee shall give prompt written notice thereof to Certificateholders at their respective addresses appearing in the Certificate Register and to each Rating Agency. Section 10.5. WAIVER OF PAST DEFAULTS. So long as no Insurer Default shall have occurred and be continuing, the Certificate Insurer (or, if an Insurer Default shall have occurred and be continuing, a Certificate Majority) may, on behalf of all Holders of Certificates, waive any default by the Servicer in the performance of its obligations hereunder and its consequences. Upon any such waiver of a past default, such default shall cease to exist, and any Servicer Termination Event arising therefrom shall be deemed to have been remedied for every purpose of this Agreement. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon. ARTICLE XI THE TRUSTEE Section 11.1. DUTIES OF TRUSTEE. (a) Subject to paragraph (c) of this Section 11.1, the Trustee, both prior to and after the occurrence of a Servicer Termination Event, undertakes to perform as Trustee such duties and only such duties as are specifically set forth in this Agreement. (b) The Trustee, upon receipt of any resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Trustee that are specifically required to be furnished pursuant to any provisions of this Agreement, shall examine them to determine whether they conform to the requirements of this Agreement. (c) No provision of this Agreement shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act (other than errors in judgment) or its own bad faith or willful misfeasance; PROVIDED, HOWEVER, that: (i) the duties and obligations of the Trustee shall be determined solely by the express provisions of this Agreement, the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Agreement, no implied covenants or obligations shall be read into this Agreement -72- against the Trustee and, in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Agreement; (ii) the Trustee shall not be liable for an error of judgment made in good faith by a Responsible Officer of the Trustee, unless it shall be proven that the Trustee was negligent in performing its duties in accordance with the terms of this Agreement; (iii) the Trustee shall not be liable for any action taken, suffered or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement; and (iv) the Trustee shall not be liable for any action it takes or omits to take in good faith at the direction of the Certificate Insurer (or, after an Insurer Default shall have occurred and be continuing, a Certificate Majority); PROVIDED THAT the Trustee shall not be authorized hereunder to comply with any direction which is not authorized by the terms of this Agreement. (d) Notwithstanding any other provision of this Agreement, the Trustee shall not be required to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties under this Agreement, or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it, and none of the provisions contained in this Agreement shall in any event require the Trustee to perform, or be responsible for the manner of performance of, any of the obligations of the Servicer under this Agreement except during such time, if any, as the Backup Servicer shall be the successor to, and be vested with the rights, duties, powers and privileges of, the Servicer in accordance with the terms of this Agreement. (e) The Trustee shall not be charged with knowledge of any failure by the Servicer to comply with the obligations of the Servicer referred to in this Agreement, or of any failure by the Seller to comply with the obligations of the Seller referred to in this Agreement, unless a Trustee officer obtains actual knowledge of such failure (it being understood that knowledge of the Servicer is not attributable to the Trustee unless the Trustee has become the successor servicer) or the Trustee receives written notice of such failure from the Servicer or the Seller, as the case may be, or the Certificate Insurer (or, if an Insurer Default shall have occurred and be continuing, the Holders of Certificates evidencing not less than 25% of the sum of the Class A Certificate Balance and the Class B Certificate Balance, or, if there are no Class A Certificates then outstanding, by Holders of Class B Certificates evidencing not less than 25% of the Class B Certificate Balance). (f) Except for actions expressly authorized by this Agreement, the Trustee shall take no action reasonably likely to impair the security interests created or existing under any Receivable or Financed Vehicle or to impair the value of any Receivable or Financed Vehicle. -73- Section 11.2. TRUSTEE'S ASSIGNMENT OF ADMINISTRATIVE RECEIVABLES AND WARRANTY RECEIVABLES. With respect to all Administrative Receivables and all Warranty Receivables purchased by the Servicer, the Seller or Atlantic, the Trustee shall take any and all actions reasonably requested by the Seller, Atlantic or Servicer, at the expense of the Person whose obligation was to repurchase the Administrative Receivable or Warranty Receivables, as the case may be, to assign, without recourse, representation or warranty, to the Seller, Atlantic or the Servicer, as applicable, including, without limitation, all the items conveyed to the Trustee pursuant to Section 3.1(a) with respect to such purchased Receivable, all moneys due thereon, the security interests in the related Financed Vehicles, proceeds from any Insurance Policies, proceeds from recourse against Dealers on such Receivables and the interests of the Trust in certain rebates of premiums and other amounts relating to the Insurance Policies and any documents relating thereto, such assignment being an assignment outright and not for security; and the Seller, Atlantic or the Servicer, as applicable, shall thereupon own such Receivable, and all such security and documents, free of any further obligation to the Trustee or the Certificateholders with respect thereto. Each of the Servicer, the Trustee and the Seller shall cooperate with respect to the orderly transfer of the servicing to the party purchasing the Administrative Receivable or Warranty Receivable, as the case may be, hereunder, and each of the Servicer, the Trustee and the Seller shall cooperate with such party to ensure that the purchasing party is subrogated to the rights of each such Person with respect to such Receivable. Section 11.3. CERTAIN MATTERS AFFECTING THE TRUSTEE. Except as otherwise provided in Section 11.1(c): (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, Officer's Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) the Trustee may consult with counsel and any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it under this Agreement in good faith and in accordance with such Opinion of Counsel; (c) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement, or to institute, conduct or defend any litigation under this Agreement or in relation to this Agreement, at the request, order or direction of any of the Certificateholders or the Certificate Insurer, pursuant to the provisions of this Agreement, unless such Certificateholders or the Certificate Insurer shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that may be incurred therein or thereby; PROVIDED, HOWEVER, that the Trustee shall, upon the occurrence of a Servicer Termination Event (that has not been cured), exercise the rights and powers vested in it by this Agreement with reasonable care and skill; -74- (d) the Trustee shall not be bound to make any investigation into the facts of matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or document, unless requested in writing to do so by the Certificate Insurer or (if an Insurer Event of Default shall have occurred and be continuing) by Holders of Certificates evidencing not less than 25% of the sum of the Class A Certificate Balance and the Class B Certificate Balance, or, if there are no Class A Certificates then outstanding, by Holders of Class B Certificates evidencing not less than 25% of the Class B Certificate Balance; PROVIDED, HOWEVER, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Agreement, the Trustee may require reasonable indemnity against such cost, expense or liability as a condition to so proceeding; the reasonable expense of every such examination shall be paid by the Person making such request or, if paid by the Trustee, shall be reimbursed by the Person making such request upon demand; (e) the Trustee may execute any of the trusts or powers under this Agreement or perform any duties under this Agreement ether directly or by or through agents or attorneys or custodians. The Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by the Trustee. The Trustee shall not be responsible for any misconduct or negligence attributable to the acts or omissions of the Servicer; (f) the Trustee may rely, as to factual matters relating to the Seller or the Servicer, on an Officer's Certificate of a Responsible Officer of the Seller or Servicer, respectively; and (g) the Trustee shall not be required to take any action or refrain from taking any action under this Agreement, or any Related Document referred to herein, nor shall any provision of this Agreement, or any such Related Document be deemed to impose a duty on the Trustee to take action, if the Trustee shall have been advised by counsel that such action is contrary to the terms of this Agreement, or any Related Document or is contrary to law. Section 11.4. TRUSTEE NOT LIABLE FOR CERTIFICATES OR RECEIVABLES. The Trustee makes no representations as to the validity or sufficiency of this Agreement or of the Certificates (other than the authentication of the Certificates) or of any Receivable or Related Document, except to the extent otherwise expressly provided herein. The Trustee shall at no time (except during such time, if any, as it is acting as successor Servicer) have any responsibility or liability for or with respect to the legality, validity and enforceability of any security interest in any Financed Vehicle or any Receivable, or the perfection and priority of such a security interest or the maintenance of any such perfection and priority, or for or with respect to the efficiency of the Trust or its ability to generate the payments to be distributed to Certificateholders under this Agreement, including, without limitation, the existence, condition, location and ownership of any Financed Vehicle; the existence and enforceability of -75- any insurance thereon; the existence of any Receivable or any computer or other record thereof (it being understood that the Trustee has not reviewed and does not intend to review such matters, the sole responsibility for such review being vested in the Seller and the Servicer as applicable); the completeness of any Receivable; the receipt by the Servicer of any Receivable; the performance or enforcement of any Receivable; the compliance by the Seller and the Servicer with any covenant or the breach by the Seller and the Servicer of any warranty or representation made under this Agreement or in any related document and the accuracy of any such warranty or representation prior to the Trustee's receipt of notice or other discovery of any noncompliance therewith or any breach thereof, any investment of moneys by or at the direction of the Servicer or any loss resulting therefrom (it being understood, however, that the Trustee shall remain responsible for any Trust Property that it may hold directly); the acts or omissions of the Seller, the Servicer or any Obligor; any action of the Servicer taken in the name of the Trustee; the accuracy, content or completeness of any offering documents used in connection with the sale of the Certificates or any action by the Trustee taken at the instruction of the Servicer, the Seller, the Certificate Insurer or the Certificateholders holding the requisite percentage of Certificates; PROVIDED, HOWEVER, that the foregoing shall not relieve the Trustee of its obligation to perform its duties under this Agreement, whether as Trustee or as Backup Servicer. The Trustee shall not be accountable for the use or application by the Seller of any of the Certificates or of the proceeds of such Certificates, or for the use or application of any funds paid to the Servicer in respect of the Receivables prior to the time such funds are deposited in the Collection Account. Section 11.5. TRUSTEE MAY OWN CERTIFICATES. The Trustee in its individual or any other capacity may become the owner or pledgee of Certificates with the same rights as it would have if it were not Trustee and may deal with the Seller and the Servicer in banking transactions with the same rights as it would have if it were not Trustee. Section 11.6. TRUSTEE'S FEES AND EXPENSES; INDEMNIFICATION. The Servicer in a separate agreement (the "FEE LETTER") has covenanted and agreed to pay to the Trustee, and the Trustee shall be entitled to, certain annual and activity fees (the "ANNUAL TRUSTEE'S FEE") (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) for all services, including services as Backup Servicer, rendered by it in the execution of the trusts created by this Agreement and in the exercise and performance of any of the powers and duties under this Agreement of the Trustee. To the extent not covered by Article IX, the Seller and the Servicer shall indemnify, defend, and hold harmless the Trustee and the Backup Servicer from and against all costs, expenses, losses, claims, damages and liabilities arising out of or incurred in connection with the acceptance of the performance of the trusts and duties contained in this Agreement, except to the extent that such cost, expense, loss, claim, damage or liability is due to the bad faith or gross negligence (except for errors in judgment) of the Trustee or the Backup Servicer, respectively. In addition, the Servicer in Section 9.1 has agreed to indemnify the Trustee with respect to certain matters, and the Certificateholders in their individual capacity under Section 11.3(c) or (d) may agree to indemnify the Trustee under certain circumstances. The provisions of this Section 11.6 shall (i) not be in limitation of the Fee Letter entered into in connection with this Agreement between the Servicer and the Trustee, (ii) shall not terminate or be deemed released upon the -76- resignation or termination of Atlantic as the Servicer and (iii) shall survive any termination of this Agreement. Section 11.7. ELIGIBILITY REQUIREMENTS FOR TRUSTEE. The Trustee under this Agreement shall at all times be a corporation duly organized and validly existing under the laws of its jurisdiction of incorporation authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal or state authority, and (so long as an Insurer Default shall not have occurred and be continuing) satisfactory to the Certificate Insurer, and at all times (if each of Moody's and Standard & Poor's then has a rating outstanding on the Certificates) with a long-term debt rating from Moody's of "Baa3" or higher or otherwise acceptable to Moody's and a long-term debt rating from Standard & Poor's of "BBB" or higher or otherwise acceptable to Standard & Poor's. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purpose of this Section 11.7, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 11.7, the Trustee shall resign immediately in the manner and with the effect specified in Section 11.8. Section 11.8. RESIGNATION OR REMOVAL OF TRUSTEE. (a) Subject to the provisions of subsection (c) of this Section 11.8, the Trustee may at any time resign and be discharged from the trusts created by this Agreement by giving written notice thereof to the Servicer. Upon receiving such notice of resignation, the Servicer, with the consent of the Certificate Insurer (unless an Insurer Default shall have occurred and be continuing), shall promptly appoint a successor Trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor Trustee. If no successor Trustee shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the Certificate Insurer may appoint a successor Trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee. If no successor Trustee shall have been so appointed and have accepted appointment within 60 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (b) If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 11.8 and shall fail to resign after written request therefor by the Servicer, or if at any time the Trustee shall be legally unable to act, or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then the Servicer or (so long as an Insurer Default shall not have occurred and be continuing) the Certificate Insurer may remove the Trustee. If the Trustee is removed under the authority of the immediately preceding sentence, the Servicer or the Certificate Insurer, as the case may be, shall promptly appoint a successor Trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee. The Servicer shall -77- also pay all fees due and owing to the outgoing Trustee. Any successor trustee shall (so long as an Insurer Default shall not have occurred and be continuing) be acceptable to the Certificate Insurer. (c) Any resignation or removal of the Trustee and appointment of a successor Trustee pursuant to any of the provisions of this Section 11.8 shall not become effective until acceptance of appointment by the successor Trustee as provided in Section 11.9. (d) If the Trustee and the Backup Servicer shall be the same Person and the rights and obligations of the Backup Servicer shall have been terminated pursuant to Section 10.2, then the Certificate Insurer (or, if an Insurer Default shall have occurred and be continuing, a Certificate Majority) shall have the option, by 60 days' prior notice in writing to the Seller, the Servicer and the Trustee, to remove the Trustee, and the Certificate Insurer shall not have any liability to the Trustee, Atlantic, the Seller, the Servicer or any Certificateholder in connection with such removal. Section 11.9. SUCCESSOR TRUSTEE. (a) Any successor Trustee appointed as provided in Section 11.8 shall execute, acknowledge and deliver to the Servicer and the Certificate Insurer, and to its predecessor Trustee an instrument accepting such appointment under this Agreement, and thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor trustee, without any further act, deed or conveyance (except as provided below), shall become fully vested with all the rights, powers, duties and obligations of its predecessor under this Agreement, with like effect as if originally named as Trustee; but, on request of the Servicer and the Certificate Insurer, or the successor trustee, such predecessor Trustee shall, upon payment of its charges then unpaid, execute and deliver an instrument transferring to such successor trustee all of the rights, powers and trusts of the Trustee so ceasing to act, and shall duly assign, transfer and deliver to such successor trustee all property and money held by such trustee so ceasing to act hereunder. Upon request of any such successor trustee, the Seller, on behalf of the Trust, shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor trustee all such rights, powers and trusts. The predecessor Trustee shall deliver to the successor Trustee all documents and statements held by it under this Agreement or any Related Document; and the predecessor Trustee and the other parties to the Related Documents shall amend any Related Document to make the successor Trustee the successor to the predecessor Trustee thereunder; and the Servicer and the predecessor Trustee shall execute and deliver such instruments and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor Trustee all such rights, powers, duties and obligations. No successor Trustee shall accept appointment as provided in this Section 11.9 unless at the time of such acceptance such successor Trustee shall be eligible under the provisions of Section 11.7. Upon acceptance of appointment by a successor Trustee as provided in this Section 11.9, the Seller shall mail notice by first-class mail of the successor of such Trustee and the address of the successor Trustee's corporate trust office under this Agreement to each Rating Agency, the Certificate Insurer and all Holders of Certificates at their addresses as shown in the Certificate Register. If the Seller fails to mail such notice within 10 days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the Seller. -78- Section 11.10. MERGER OR CONSOLIDATION OF TRUSTEE. Any corporation into which the Trustee may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Trustee shall be a party, or any corporation succeeding to the business of the Trustee, shall be the successor of the Trustee under this Agreement, provided such corporation shall be eligible under the provisions of Section 11.7, without the execution or filing of any instrument or any further act on the part of any of the parties to this Agreement, anything in this Agreement to the contrary notwithstanding. The Trustee or its successor hereunder shall provide the Servicer and the Certificate Insurer with prompt notice of any such transaction. Section 11.11. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE. (a) Notwithstanding any other provisions of this Agreement, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust Property or any Financed Vehicle may at the time be located, the Trustee, with the consent of the Servicer not to be unreasonably withheld, and (so long as an Insurer Default shall not have occurred and be continuing) the Certificate Insurer, shall have the power and may execute and deliver all instruments to appoint one or more Persons approved by the Trustee to act as co-trustee or co-trustees, jointly with the Trustee, or separate trustee or separate trustees, of all or any part of the Trust Property, and to vest in such Person or Persons, in such capacity and for the benefit of the Certificateholders, such title to the Trust Property, or any part thereof, and, subject to the other provisions of this Section 11.11, such powers, duties, obligations, rights and trusts as the Servicer, the Trustee and (so long as an Insurer Default shall not have occurred and be continuing) the Certificate Insurer may consider necessary or desirable. If the Servicer shall not have consented to such appointment within 15 days after the receipt by it of a request to do so, or if a Servicer Termination Event shall have occurred and be continuing, the consent of the Servicer shall not be required. No co-trustee or separate trustee under this Agreement shall be required to meet the terms of eligibility as a successor trustee under Section 11.7 and no notice to Certificateholders of the appointment of any co-trustee or separate trustee shall be required under Section 11.9. Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) all rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed upon and exercised or performed by the Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Trustee joining in such act), except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed by the Trustee, the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Trust Property or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Trustee; (ii) no trustee under this Agreement shall be personally liable by reason of any act or omission of any other trustee under this Agreement; and -79- (iii) the Servicer, the Trustee and, provided no Insurer Default shall have occurred and be continuing, the Certificate Insurer acting jointly may at any time accept the resignation of or remove any separate trustee or co-trustee. (b) Any notice, request or other writing given to the Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Agreement and the conditions of this Article XI. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Trustee or separately, as may be provided therein, subject to all the provisions of this Agreement, specifically including every provision of this Agreement relating to the conduct of, affecting the liability of, or affording protection to, the Trustee. Every such instrument shall be filed with the Trustee and a copy thereof given to the Servicer. (c) Any separate trustee or co-trustee may at any time constitute the Trustee, its agent or attorney-in-fact, with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Agreement on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. Section 11.12. REPRESENTATIONS AND WARRANTIES OF TRUSTEE. Each of the Trustee and Backup Servicer represents and warrants as of the date of this Agreement that: (a) it is either (i) a banking corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation or (ii) a national banking association duly organized, validly existing and in good standing under the laws of the United States of America; (b) it has full power, authority and legal right to execute, deliver and perform this Agreement, and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement; (c) the execution, delivery and performance by it of this Agreement (i) do not violate any provision of any law or regulation governing the banking and trust powers of it or any order, writ, judgment, or decree of any court, arbitrator, or governmental authority applicable to it or any of its assets, (ii) do not violate any provision of its corporate charter or by-laws, or (iii) to the best of its knowledge do not violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of any lien on any of the Trust Property pursuant to the provisions of any mortgage, indenture, contract, agreement or other undertaking other than this Agreement to which it is a party; -80- (d) the execution, delivery and performance by it of this Agreement do not require the authorization, consent or approval of, the giving of notice to, the filing or registration with, or the taking of any other action in respect of, any governmental authority or agency regulating its banking and corporate trust activities; (e) this Agreement has been duly executed and delivered by it and constitutes the legal, valid and binding agreement of it, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of rights of creditors of federally-insured depository institutions and by equitable limitations on the availability of specific remedies, regardless of whether such enforceability is considered in a proceeding in equity or at law; (f) Trustee does not have actual knowledge that any Receivable is subject to a security interest; and (g) Trustee hereby covenants and agrees to obtain the prior written consent of the Certificate Insurer before taking any action under the Custody Agreement. Section 11.13. TAX RETURNS. In the event the Trust shall be required to file tax returns, the Servicer shall prepare or shall cause to be prepared any tax returns required to be filed by the Trust and shall remit such returns to the Trustee for signature at least five Business Days before such returns are due to be filed. The Trustee, upon request, shall furnish the Servicer with all such information known to the Trustee as may be reasonably required in connection with the preparation of all tax returns of the Trust, and shall execute such returns and cause such returns to be filed on or prior to the date on which such returns are due. Section 11.14. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF CERTIFICATES. All rights of action and claims under this Agreement or the Certificates may be prosecuted and enforced by the Trustee without the possession of any of the Certificates or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee. Any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Certificateholders in respect of which such judgment has been obtained. Section 11.15. SUIT FOR ENFORCEMENT. If a Servicer Termination Event shall occur and be continuing, the Trustee, in its discretion may (but shall have no duty or obligation so to proceed), subject to the provisions of Section 11.1, proceed to protect and enforce its rights and the rights of the Certificateholders under this Agreement by a suit, action or proceeding in equity or at law or otherwise, whether for the specific performance of any covenant or agreement contained in this Agreement or in aid of the execution of any power granted in this Agreement or for the enforcement of any other legal, equitable or other remedy as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce any of the rights of the Trustee or the Certificateholders. -81- Section 11.16. RIGHTS TO DIRECT TRUSTEE. Subject to Section 11.3(c), the Certificate Insurer (or, if an Insurer Default shall have occurred and be continuing, a Certificate Majority) shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee; PROVIDED, HOWEVER, that subject to Section 11.1, the Trustee shall have the right to decline to follow any such direction if the Trustee being advised by counsel determines that the action so directed may not lawfully be taken, or if the Trustee in good faith shall, by a Responsible Officer, determine that the proceedings so directed would be in violation of this Agreement or any of the Related Documents or would subject it to personal liability against which it has not been provided reasonable indemnity or (in the case of directions provided by a Certificate Majority) be unduly prejudicial to the rights of Certificateholders not parties to such direction; and provided further that nothing in this Agreement shall impair the right of the Trustee to take any action deemed proper by the Trustee and which is not inconsistent with such direction by the Certificate Insurer or the Certificateholders. ARTICLE XII TERMINATION Section 12.1. TERMINATION OF THE TRUST. (a) The respective obligations and responsibilities of the Seller, the Servicer and the Trustee created by this Agreement and the Trust created by this Agreement shall terminate upon the latest of (i) the maturity or other liquidation of the last Receivable (including the purchase as of any Record Date by the Seller or the Servicer at its option of the corpus of the Trust as described in Section 12.2) and the subsequent distribution to Certificateholders pursuant to Section 5.5 of the amount required to be deposited pursuant to Section 12.2 or (ii) the payment to Certificateholders of all amounts required to be paid to them pursuant to this Agreement and the payment to the Certificate Insurer of all amounts payable or reimbursable to it pursuant to this Agreement and the Insurance Agreement. In either case, there shall be delivered to the Trustee and the Certificate Insurer an Opinion of Counsel that all applicable preference periods under federal, state and local bankruptcy insolvency and similar laws have expired with respect to the payments pursuant to clause (ii); PROVIDED, HOWEVER, that in no event shall the trust created by this Agreement continue beyond the expiration of 21 years from the death of the last survivor of the descendants living on the date of this Agreement of Rose Kennedy of the Commonwealth of Massachusetts; and provided, further, that the rights to indemnification under Sections 9.1 and 11.6 shall survive the termination of the Trust. The Servicer shall promptly notify the Trustee and the Certificate Insurer of any prospective termination pursuant to this Section 12.1. (b) Notice of any final distribution, specifying the Distribution Date upon which the Certificateholders may surrender their Certificates to the Trustee for payment of the final distribution and retirement of the Certificates, shall be given promptly by the Trustee by letter to Certificateholders mailed not earlier than the 1st day and not later than the 10th day of the month of such final distribution specifying (i) the Distribution Date upon which final -82- payment of the Certificates shall be made upon presentation and surrender of Certificates at the office of the Trustee therein specified, (ii) the amount of any such final payment, and (iii) that the Record Date otherwise applicable to such Distribution Date is not applicable, payments being made only upon presentation and surrender of the Certificates at the office of the Trustee therein specified. The Trustee shall give such notice to the Certificate Registrar and a copy of such notice to the Certificate Insurer at the time such notice is given to Certificateholders. In the event such notice is given, the Servicer or the Trustee, as the case may be, shall make deposits into the Collection Account in accordance with Section 5.4, or, in the case of an optional purchase of Receivables pursuant to Section 12.2, shall deposit the amount specified in Section 12.2. Upon presentation and surrender of the Certificates, the Trustee shall cause to be distributed to Certificateholders amounts distributable on such Distribution Date pursuant to Section 5.5. (c) In the event that all of the Certificateholders shall not surrender their Certificates for retirement within six months after the date specified in the above mentioned written notice, the Trustee shall have a second written notice to the remaining Certificateholders to surrender their Certificates for retirement and receive the final distribution with respect thereto. If within one year after the second notice all the Certificates shall not have been surrendered for retirement, the Trustee may take appropriate steps, or may appoint an agent to take appropriate steps, to contact the remaining Certificateholders concerning surrender of their Certificates, and the cost thereof shall be paid out of the funds and other assets that remain subject to this Agreement. As soon as practicable after the termination of the Trust, the Trustee shall surrender the Policy to the Certificate Insurer for cancellation. Section 12.2. OPTIONAL PURCHASE OF ALL RECEIVABLES. On each Determination Date as of which the Aggregate Principal Balance is less than 10% of the Aggregate Principal Balance as of the Cut-off Date, the Servicer and the Seller each shall have the option to purchase the corpus of the Trust (with the consent of the Certificate Insurer, if such purchase would result in a claim on the Policy or would result in any amount owing to the Certificate Insurer remaining unpaid). To exercise such option, the Servicer or the Seller, as the case may be, shall pay the aggregate Purchase Amounts for the Receivables, plus the appraised value of any other property (including the right to receive any future recoveries) held as part of the Trust, such appraisal to be conducted by an appraiser mutually agreed upon by the Servicer or the Seller, as the case may be, and the Certificate Insurer (or the Trustee, if an Insurer Default shall have occurred and be continuing), and shall succeed to all interests in and to the Trust Property. The fees and expenses related to such appraisal shall be paid by the party exercising the option to purchase. ARTICLE XIII MISCELLANEOUS PROVISIONS Section 13.1. AMENDMENT. (a) This Agreement may be amended by the Seller, the Servicer and the Trustee, with the prior written consent of the Certificate Insurer (so long -83- as an Insurer Default shall not have occurred and be continuing) but without the consent of any of the Certificateholders, (i) to cure any ambiguity or (ii) to correct or supplement any provisions in this Agreement; PROVIDED, HOWEVER, that such action shall not, as evidenced by an Opinion of Counsel, adversely affect in any material respect the interests of the Certificateholders; PROVIDED, FURTHER, that if an Insurer Default has occurred and is continuing, such action shall not amend, modify or limit the Certificate Insurer's rights under (i) Section 5.5(a), (ii) any rights to indemnification to which the Certificate Insurer is entitled hereunder or (iii) any defined terms used in preceding clause (i) or (ii). (b) This Agreement may also be amended from time to time by the Seller, the Servicer and the Trustee with the prior written consent of the Certificate Insurer (so long as an Insurer Default shall not have occurred and be continuing) and with the consent of a Certificate Majority (which consent of any Holder of a Certificate given pursuant to this Section 13.1(b) or pursuant to any other provision of this Agreement shall be conclusive and binding on such Holder and on all future Holders of such Certificate and of any Certificate issued upon the transfer thereof or in exchange thereof or in lieu thereof whether or not notation of such consent is made upon the Certificate) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement, or of modifying in any manner the rights of the Holders of Certificates; PROVIDED, HOWEVER, that no such amendment shall (a) increase or reduce in any manner the amount of, or accelerate or delay the timing of, collections of payments on Receivables or distributions that shall be required to be made on any Certificate or the Class A Pass-Through Rate or the Class B Pass-Through Rate or (b) reduce the aforesaid percentage required to consent to any such amendment or any waiver hereunder, without the consent of the Holders of all Certificates then outstanding, PROVIDED, FURTHER, that if an Insurer Default has occurred and is continuing, such action shall not amend, modify or limit the Certificate Insurer's rights under (i) Section 5.5(a), (ii) any rights to indemnification to which the Certificate Insurer is entitled hereunder or (iii) any defined terms used in preceding clause (i) or (ii). (c) Prior to the execution of any such amendment or consent, the Trustee shall furnish written notification of the substance of such amendment or consent to each Rating Agency. (d) Promptly after the execution of any such amendment or consent, the Trustee shall furnish written notification of the substance of such amendment or consent to each Certificateholder. (e) It shall not be necessary for the consent of Certificateholders pursuant to Section 13.1(b) to approve the particular form of any proposed amendment or consent, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents (and any other consents of Certificateholders provided for in this Agreement) and of evidencing the authorization of the execution thereof by Certificateholders shall be subject to such reasonable requirements as the Trustee may prescribe, including the establishment of record dates. -84- (f) Prior to the execution of any amendment to this Agreement, the Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating that the execution of such amendment is authorized or permitted by this Agreement, in addition to the Opinion of Counsel referred to in Section 13.2(i). The Trustee may, but shall not be obligated to, enter into any such amendment which affects the Trustee's own rights, duties or immunities under this Agreement or otherwise. Section 13.2. PROTECTION OF TITLE TO TRUST. (a) The Seller or the Servicer or both shall execute and file such financing statements and cause to be executed and filed such continuation and other statements, all in such manner and in such places as may be required by law fully to preserve, maintain and protect the interest of the Trust, the Trustee and the Certificate Insurer under this Agreement in the Trust Property and in the proceeds thereof. The Seller or the Servicer or both shall deliver (or cause to be delivered) to the Trustee and the Certificate Insurer file-stamped copies of, or filing receipts for, any document filed as provided above, as soon as available following such filing. (b) Neither the Seller nor the Servicer shall change its name, identity or corporate structure in any manner that would, could or might make any financing statement or continuation statement filed by the Seller in accordance with paragraph (a) above seriously misleading within the meaning of Section 9-402(7) of the UCC, unless it shall have given the Trustee and the Certificate Insurer (so long as an Insurer Default shall not have occurred and be continuing) at least 60 days prior written notice thereof, and shall promptly file appropriate amendments to all previously filed financing statements and continuation statements. (c) Each of the Seller and the Servicer shall give the Trustee and the Certificate Insurer at least 60 days prior written notice of any relocation of its principal executive office if, as a result of such relocation, the applicable provisions of the UCC would require the filing of any amendment of any previously filed financing or continuation statement or of any new financing statement. The Servicer shall at all times maintain each office from which it services Receivables and its principal executive office within the United States of America. (d) The Servicer shall maintain accounts and records as to each Receivable accurately and in sufficient detail to permit (i) the reader thereof to know at any time the status of such Receivable, including payments and recoveries made and payments owing (and the nature of each) and (ii) reconciliation between payments or recoveries on (or with respect to) each Receivable and the amounts from time to time deposited in the Collection Account in respect of such Receivable. (e) The Servicer shall maintain its computer systems so that, from and after the time of sale under this Agreement of the Receivables to the Trustee, the Servicer's master computer records (including any backup archives) that refer to any Receivable indicate clearly (with reference to the particular grantor trust) that the Receivable is owned by the Trust. Indication of the Trust's ownership of a Receivable shall be deleted from or modified on the Servicer's computer systems when, and only when, the Receivable has been paid in full or repurchased by Atlantic, the Seller or the Servicer. -85- (f) If at any time the Seller or the Servicer proposes to sell, grant a security interest in, or otherwise transfer any interest in automotive receivables to any prospective purchaser, lender or other transferee, the Servicer shall give to such prospective purchaser, lender or other transferee computer tapes, records or printouts (including any restored from backup archives) that, if they refer in any manner whatsoever to any Receivable, indicate clearly that such Receivable has been sold and is owned by the Trust unless such Receivable has been paid in full or repurchased by Atlantic, the Seller or the Servicer. (g) The Servicer shall permit the Trustee, the Backup Servicer, the Certificate Insurer, the Seller and their respective agents, at any time to inspect, audit and make copies of and abstracts from the Servicer's records regarding any Receivables or any other portion of the Trust Property. (h) The Servicer shall furnish to the Trustee, the Backup Servicer, the Seller and the Certificate Insurer at any time upon request a list of all Receivables then held as part of the Trust, together with a reconciliation of such list to the Schedule of Receivables and to each of the Servicer's Certificates furnished before such request indicating removal of Receivables from the Trust. The Trustee shall hold any such list and Schedule of Receivables for examination by interested parties during normal business hours at the Corporate Trust Office upon reasonable notice by such Persons of their desire to conduct an examination. (i) The Seller and the Servicer shall deliver to the Trustee and the Certificate Insurer simultaneously with the execution and delivery of this Agreement and of each amendment thereto and upon the occurrence of the events giving rise to an obligation to give notice pursuant to Section 13.2(b) or (c), an Opinion of Counsel (a) stating that, in the opinion of such Counsel, all financing statements and continuation statements have been executed and filed that are necessary fully to preserve and protect the interest of the Trustee in the Receivables and the other Trust Property, and reciting the details of such filing or referring to prior Opinions of Counsel in which such details are given, (b) stating that, in the opinion of such counsel, no such action is necessary to preserve and protect such interest, or (c) stating in the opinion of such counsel, any action which is necessary to preserve and protect such interest during the following 12-month period. (j) The Servicer shall deliver to the Trustee and the Certificate Insurer, within 90 days after the beginning of each calendar year beginning with the first calendar year beginning more than three months after the Closing Date, an Opinion of Counsel, either (a) stating that, in the opinion of such counsel, all financing statements and continuation statements have been executed and filed that are necessary fully to preserve and protect the interest of the Trustee in the Receivables, and reciting the details of such filings or referring to prior Opinions of Counsel in which such details are given, or (b) stating that, in the opinion of such counsel, no action shall be necessary to preserve and protect such interest. Section 13.3. LIMITATION ON RIGHTS OF CERTIFICATEHOLDERS. (a) The death or incapacity of any Certificateholder shall not operate to terminate this Agreement or the Trust, nor entitle such Certificateholder's legal representatives or heirs to claim an accounting or to take any action or commence any proceeding in any court for a partition or winding up of the -86- Trust, nor otherwise affect the rights, obligations and liabilities of the parties to this Agreement or any of them. (b) No Certificateholder shall have any right to vote (except as provided in this Section 13.3 or Section 10.2, 10.5 or 13.1) or in any manner otherwise control the operation and management of the Trust, or the obligations of the parties to this Agreement, nor shall anything set forth in this Agreement, or contained in the terms of the Certificates, be construed so as to constitute the Certificateholders from time to time as partners or members of an association; nor shall any Certificateholder be under any liability to any third person by reason of any action taken by the parties to this Agreement pursuant to any provision of this Agreement or any Related Document. (c) So long as no Insurer Default has occurred and is continuing, except as otherwise specifically provided herein, whenever Class A Certificateholder action, consent or approval is required under this Agreement, such action, consent or approval shall be deemed to have been taken or given on behalf of, and shall be binding upon, all Class A Certificateholders if the Certificate Insurer agrees to take such action or give such consent or approval. If an Insurer Default shall have occurred and is continuing, no Certificateholder shall have any right by virtue or by availing itself of any provisions of this Agreement to institute any suit, action, or proceeding in equity or at law upon or under or with respect to this Agreement, unless such Holder previously shall have given to the Trustee a written notice of default and of the continuance thereof, as provided in this Agreement and unless also the Holders of Certificates evidencing not less than 25% of the sum of the Class A Certificate Balance and the Class B Certificate Balance, or, if there are no Class A Certificates then outstanding, by Holders of Class B Certificates evidencing not less than 25% of the Class B Certificate Balance shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee under this Agreement and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 30 days after its receipt of such notice, request, and offer of indemnity, shall have neglected or refused to institute any such action, suit, or proceeding and during such 30-day period, no request or waiver inconsistent with such written request has been given to the Trustee pursuant to and in compliance with this Section 13.3 or Section 10.5; it being understood and intended, and being expressly covenanted by each Certificateholder with every other Certificateholder and the Trustee, that no one or more Holders of Certificates shall have any right in any manner whatever by virtue or by availing itself or themselves of any provisions of this Agreement to affect, disturb, or prejudice the rights of the Holders of any other of the Certificates, or to obtain or seek to obtain priority over or preference to any other such Holder, or to enforce any right under this Agreement, except in the manner provided in this Agreement and for the equal, ratable, and common benefit of all Certificateholders. For the protection and enforcement of the provisions of this Section 13.3, each and every Certificateholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Nothing in this Agreement shall be construed as giving the Certificateholders any right to make a claim under the Policy. -87- Section 13.4. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES UNDER THIS AGREEMENT SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. Section 13.5. SEVERABILITY OF PROVISIONS. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be for any reason whatsoever held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement or of the Certificates or the rights of the Holders thereof. Section 13.6. ASSIGNMENT. Notwithstanding anything to the contrary contained in this Agreement, except as provided in Section 8.2 or Section 9.2 and as provided in the provisions of the Agreement concerning the resignation of the Servicer and the Backup Servicer, this Agreement may not be assigned by Atlantic, the Seller or the Servicer without the prior written consent of the Trustee and the Certificate Insurer (or, if an Insurer Default shall have occurred and be continuing the Trustee and a Certificate Majority). Section 13.7. CERTIFICATES NONASSESSABLE AND FULLY PAID. Certificateholders shall not be personally liable for obligations of the Trust, the Fractional Undivided Interests represented by the Certificates shall be non-assessable for any losses or expenses of the Trust or for any reason whatsoever, and Certificates upon authentication thereof by the Trustee pursuant to Section 7.2 are and shall be deemed fully paid. Section 13.8. THIRD-PARTY BENEFICIARIES. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Except as otherwise provided in this Article XIII, no other Person shall have any right or obligation hereunder. The Certificate Insurer and its successors and assigns shall be a third-party beneficiary to the provisions of this Agreement, and shall be entitled to rely upon and directly enforce such provisions of this Agreement so long as no Insurer Default shall have occurred and be continuing. Except as expressly stated otherwise herein or in the Related Documents, any right of the Certificate Insurer to direct, appoint, consent to, approve of, or take any action under this Agreement, shall be a right exercised by the Certificate Insurer in its sole and absolute discretion. The Certificate Insurer may disclaim any of its rights and powers under this Agreement (but not its duties and obligations under the Policy) upon delivery of a written notice to the Trustee. Section 13.9. FINANCIAL SECURITY AS CONTROLLING PARTY. Each Certificateholder by purchase of the Certificates held by it acknowledges that the Trustee on behalf of the Trust, as partial consideration of the issuance of the Policy, has agreed that the Certificate Insurer shall have certain rights hereunder for so long as no Insurer Default shall have occurred and be continuing. So long as an Insurer Default has occurred and is continuing, any provision giving the Certificate Insurer the right to direct, appoint or consent to, approve of, or take any -88- action under this Agreement shall be inoperative during the period of such Insurer Default and such right shall instead vest in the Certificate Majority. The Certificate Insurer may disclaim any of its rights and powers under this Agreement (but not its duties and obligations under the Policy) upon delivery of a written notice to the Trustee. The Certificate Insurer may give or withhold any consent hereunder in its sole and absolute discretion. Section 13.10. COUNTERPARTS. This Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and all of which counterparts shall constitute but one and the same instrument. Section 13.11. NOTICES. All demands, notices and communications under this Agreement shall be in writing, personally delivered or mailed by certified mail-return receipt requested, and shall be deemed to have been duly given upon receipt (a) in the case of Atlantic, the Seller and for so long as Atlantic is the Servicer, the Servicer, at the following address: Atlantic Auto Finance Corporation, 800 Perinton Hills Office Park, Fairport, New York, 14450 (b) in the case of the Trustee, and, for so long as the Trustee is the Backup Servicer, the Backup Servicer, at the Corporate Trust Office, (c) in the case of each Rating Agency, 99 Church Street, New York, New York 10007 (for Moody's) and 26 Broadway, New York, New York 10004 (for Standard & Poor's), and (d) in the case of the Certificate Insurer, Financial Security Assurance, Inc., 350 Park Avenue, New York, New York 10022, Attention: Surveillance Department, Re: Atlantic Auto Grantor Trust 1996-A, or at such other address as shall be designated by any such party in a written notice to the other parties. Any notice required or permitted to be mailed to a Certificateholder shall be given by first class mail, postage prepaid, at the address of such Holder as shown in the Certificate Register, and any notice so mailed within the time prescribed in this Agreement shall be conclusively presumed to have been duly given, whether or not the Certificateholder receives such notice. Section 13.12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the parties hereof and their respective successors and assigns, and shall inure to the benefit of and be enforceable by the parties hereof and their respective successors and assigns permitted hereunder. All covenants and agreements contained herein shall be binding upon, and inure to the benefit of, the Trustee, and the Certificateholders and their respective permitted successors and assigns, if any. Any request, notice, direction, consent, waiver or other instrument or action by any Certificateholder shall bind its successors and assigns. -89- IN WITNESS WHEREOF, the Seller, the Servicer and the Trustee have caused this Pooling and Servicing Agreement to be duly executed by their respective officers, effective as of the day and year first above written. ATLANTIC AUTO THIRD FUNDING CORPORATION, as Seller By /s/ Richard Harrison --------------------------------- Name: Richard Harrison Title: President ATLANTIC AUTO FINANCE CORPORATION, as Servicer By /s/ Richard Harrison --------------------------------- Name: Richard Harrison Title: President THE CHASE MANHATTAN BANK as Trustee as Backup Servicer and Collateral Agent By /s/ John Mynttinen --------------------------------- Name: John Mynttinen Title: Second Vice President -90- EX-10.3-8 26 EXHIBIT 10.3.8 EXECUTION COPY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INSURANCE AND INDEMNITY AGREEMENT among FINANCIAL SECURITY ASSURANCE INC., ATLANTIC AUTO THIRD FUNDING CORPORATION and ATLANTIC AUTO FINANCE CORPORATION Dated as of June 20, 1996 Atlantic Auto Grantor Trust 1996-A 6.70% Asset Backed Certificates, Class A $45,837,000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ARTICLE I. DEFINITIONS Section 1.01. Definitions. . . . . . . . . . . . . . . . . 2 ARTICLE II. REPRESENTATIONS, WARRANTIES AND COVENANTS Section 2.01. Representations and Warranties of Atlantic and the Seller . . . . . . . . . . . . . . 2 Section 2.02. Affirmative Covenants of Atlantic and the Seller . . . . . . . . . . . . . . . . . . 10 Section 2.03. Negative Covenants of Atlantic and the Seller. . . . . . . . . . . . . . . . . . . 17 ARTICLE III. THE POLICY; REIMBURSEMENT; INDEMNIFICATION Section 3.01. Issuance of the Policy . . . . . . . . . . . 20 Section 3.02. Payment of Fees and Premium. . . . . . . . . 21 Section 3.03. Reimbursement Obligation . . . . . . . . . . 22 Section 3.04. Indemnification. . . . . . . . . . . . . . . 23 Section 3.05. Subrogation. . . . . . . . . . . . . . . . . 25 ARTICLE IV. FURTHER AGREEMENTS Section 4.01. Effective Date; Term of Agreement. . . . . . 26 Section 4.02. Obligation Absolute. . . . . . . . . . . . . 26 Section 4.03. Assignments; Reinsurance; Third-Party Rights . . . . . . . . . . . . . . . . . . 27 Section 4.04. Liability of Financial Security. . . . . . . 28 ARTICLE V. EVENTS OF DEFAULT; REMEDIES Section 5.01. Events of Default. . . . . . . . . . . . . . 29 Section 5.02. Remedies; Waivers. . . . . . . . . . . . . . 30 -i- PAGE ARTICLE VI. MISCELLANEOUS Section 6.01. Amendments, Etc. . . . . . . . . . . . . . . 32 Section 6.02. Notices. . . . . . . . . . . . . . . . . . . 32 Section 6.03. Payment Procedure. . . . . . . . . . . . . . 33 Section 6.04. Severability . . . . . . . . . . . . . . . . 33 Section 6.05. Governing Law. . . . . . . . . . . . . . . . 34 Section 6.06. Consent to Jurisdiction. . . . . . . . . . . 34 Section 6.07. Consent of Financial Security. . . . . . . . 35 Section 6.08. Counterparts . . . . . . . . . . . . . . . . 35 Section 6.09. Trial by Jury Waived . . . . . . . . . . . . 35 Section 6.10. Limited Liability. . . . . . . . . . . . . . 35 Section 6.11. Entire Agreement . . . . . . . . . . . . . . 35 Section 6.12 Non-petition Covenant. . . . . . . . . . . . 36 Appendix I - Definitions Annex I - Form of Financial Guaranty Insurance Policy Appendix II - Conditions Precedent to Issuance of the Policy Appendix A - Opinions of Counsel -ii- INSURANCE AND INDEMNITY AGREEMENT INSURANCE AND INDEMNITY AGREEMENT dated as of June 20, 1996, by and among FINANCIAL SECURITY ASSURANCE INC. ("FINANCIAL SECURITY"), ATLANTIC AUTO THIRD FUNDING CORPORATION (the "SELLER") and ATLANTIC AUTO FINANCE CORPORATION ("ATLANTIC"). INTRODUCTORY STATEMENTS A. On the Closing Date, (i) CXC will convey certain of the Receivables and certain other property related thereto to AAFC pursuant to the CXC Assignment, (ii) AAFC will simultaneously sell all of its right, title and interest in and to the Receivables and certain other property related thereto to Atlantic pursuant to the AAFC Assignment, (iii) Atlantic will simultaneously sell all of its right, title and interest in and to the Receivables and such other property related thereto to the Seller pursuant to the Receivables Purchase Agreement, (iv) the Seller will simultaneously sell to the Trust all of its right, title and interest in and to the Receivables and such other property related thereto pursuant to the Pooling and Servicing Agreement and (v) CNAI and CXC will simultaneously release their respective liens on certain of the Receivables and certain other property related thereto pursuant to the Loan and Security Agreement, the Intercreditor Agreement and the CXC Receivables Purchase Agreement. B. The Securities will evidence in the aggregate an undivided ownership interest of 97% of the Trust. The Seller has requested that Financial Security issue a financial guaranty insurance policy guarantying certain distributions of the principal of and interest on the Securities (including any such distributions subsequently avoided as a preference under applicable bankruptcy law) upon the terms and subject to the conditions provided herein. C. It is contemplated that Atlantic and/or the Seller or any other Affiliate of Atlantic may in the future enter into one or more additional pooling and servicing agreements, sale and servicing agreements, indentures, receivables purchase agreements or other financing documents (each, a "Securitization Agreement") pursuant to which Atlantic, the Seller or such other Affiliate of Atlantic will sell or pledge all or a portion of its right, title and interest in and to pools of Receivables and/or other financial assets or property to a trust or other Person and in connection therewith Financial Security in its discretion may issue additional policies with respect to certain guaranteed distributions or scheduled payments with respect to the corresponding additional securities, certificates, notes or other obligations issued or arising under a Securitization Agreement. D. The parties hereto desire to specify the conditions precedent to the issuance of the Policy, the terms of payment of premium in respect of the Policy, the indemnity and reimbursement to be provided to Financial Security in respect of amounts paid by Financial Security under the Policy or otherwise and certain other matters. In consideration of the premises and of the agreements herein contained, Financial Security, Atlantic and the Seller hereby agree as follows: ARTICLE I. DEFINITIONS Section 1.01. DEFINITIONS. All terms defined in the Pooling and Servicing Agreement or in the Spread Account Agreement shall have the same meanings in this Agreement. Unless otherwise specified, if a word or phrase defined in the Pooling and Servicing Agreement or in the Spread Account Agreement can be applied with respect to one or more Series, such a word or phrase shall be used herein as applied to Series 1996-A. In addition, capitalized terms used herein shall have the meanings provided in Appendix I hereto unless the context otherwise requires. ARTICLE II. REPRESENTATIONS, WARRANTIES AND COVENANTS Section 2.01. REPRESENTATIONS AND WARRANTIES OF ATLANTIC AND THE SELLER. Atlantic represents, warrants and covenants, as of the date hereof and the Date of Issuance, with respect to itself, with respect to the Seller, and otherwise as follows, and the Seller represents, warrants and covenants, as of the date hereof and the Date of Issuance, with respect to itself and otherwise, as follows: (a) DUE ORGANIZATION AND QUALIFICATION. Each of Atlantic and the Seller is a Delaware corporation, duly organized, validly existing and in good standing under the laws of Delaware. Each of Atlantic and the Seller is duly qualified to do business, is in good standing and has obtained all necessary licenses, permits, charters, registrations and approvals (together, "APPROVALS") necessary for the conduct of its business as currently conducted and as described in the Offering Document and the performance of its obligations under -2- the Transaction Documents to which it is party, in each jurisdiction in which the failure to be so qualified or to obtain such approvals would render any Receivable unenforceable in any respect or would otherwise have a material adverse effect upon the Transaction. (b) POWER AND AUTHORITY. Each of Atlantic and the Seller has all necessary power and authority to conduct its business as currently conducted and as described in the Offering Document, to execute, deliver and perform its obligations under the Transaction Documents to which it is party and to consummate the Transaction. (c) DUE AUTHORIZATION. The execution, delivery and performance of the Transaction Documents by each of Atlantic and the Seller have been duly authorized by all necessary action and do not require any additional approvals or consents or other action by or any notice to or filing with any Person. (d) NONCONTRAVENTION. None of the execution and delivery of the Transaction Documents by the Seller or by Atlantic, the consummation of the transactions contemplated thereby or the satisfaction of the terms and conditions of the Transaction Documents, (i) conflicts with or results in any breach or violation of any provision of the Certificate of Incorporation or the Bylaws of the Seller or of Atlantic, respectively, or any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award currently in effect having applicability to the Seller or Atlantic, as the case may be, or any of their respective properties, including regulations issued by an administrative agency or other governmental authority having supervisory powers over the Seller or Atlantic, as the case may be, (ii) constitutes a default by the Seller or Atlantic, as the case may be, under or a breach of any provision of any loan agreement, mortgage, indenture or other agreement or instrument to which the Seller or Atlantic, as the case may be, or any of their respective Subsidiaries or Affiliates is a party or by which it or any of its or their properties is or may be bound or affected, or (iii) results in or requires the creation of any Lien upon or in respect of any of the assets of the Seller or Atlantic or any of their respective Subsidiaries or Affiliates except as otherwise expressly contemplated by the Transaction Documents. -3- (e) LEGAL PROCEEDINGS. There is no action, proceeding or investigation, by or before any court, governmental or administrative agency or arbitrator against or affecting all or any of the Receivables, Atlantic, the Seller or any of their respective Subsidiaries or Affiliates, or any properties or rights of Atlantic, the Seller, or any of their respective Subsidiaries or Affiliates, pending or threatened, which, in any case, if decided adversely, could result in a Material Adverse Change with respect to Atlantic, the Seller, or any Receivable. (f) VALID AND BINDING OBLIGATIONS. Each of the Transaction Documents to which Atlantic or the Seller is a party when executed and delivered by Atlantic or by the Seller, as the case may be, will constitute the legal, valid and binding obligations of such Person, enforceable in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and general equitable principles. The Securities, when executed, authenticated and delivered in accordance with the Pooling and Servicing Agreement, will be validly issued and outstanding and entitled to the benefits of the Pooling and Servicing Agreement and, together with the Class B Certificates will evidence the entire beneficial ownership interest in the Trust. (g) FINANCIAL STATEMENTS. The Financial Statements of each of Atlantic and UAG, copies of which have been furnished to Financial Security, (i) are, as of the dates and for the periods referred to therein, complete and correct in all material respects, (ii) present fairly the financial condition and results of operations of Atlantic and UAG, respectively, as of the dates and for the periods indicated and (iii) have been prepared in accordance with generally accepted accounting principles consistently applied, except as noted therein (subject as to interim statements to normal year-end adjustments). Since the date of the most recent Financial Statements, there has been no material adverse change in such financial condition or results of operations. Except as disclosed in the Financial Statements, neither Atlantic nor UAG is subject to any contingent liabilities or commitments that, individually or in the aggregate, have a material possibility of causing a Material Adverse Change in respect of Atlantic or UAG, as the case may be. (h) ERISA. No Accumulated Funding Deficiency, whether or not waived, has occurred with respect to any Plan. No Plan has been terminated, and no Commonly Controlled Entity has withdrawn from any Multiemployer Plan which could result in any liability under ERISA of a Commonly Controlled Entity. No Reportable Event or other event or condition has occurred which could result in the termination of any Plan by the PBGC. No Plan has an Underfunding greater than $100,000. The aggregate amount -4- of Underfunding for all Underfunded Plans does not exceed $100,000. The liability to which the Commonly Controlled Entities would become subject under ERISA if they were to withdraw completely from all Multiemployer Plans as of the most recent valuation date is not in excess of $100,000. The Multiemployer Plans are neither in Reorganization (as defined in Section 4241 of ERISA) nor Insolvent (as defined in Section 4245 of ERISA). Each of the Seller and Atlantic is in compliance with ERISA and has not incurred and does not reasonably expect to incur any liabilities to the PBGC (other than premiums due to the PBGC) in connection with any Plan or Multiemployer Plan. n (i) ACCURACY OF INFORMATION. None of the Provided Documents contain any statement of a material fact with respect to Atlantic, the Seller or the Transaction that was untrue or misleading in any material respect when made (except insofar as any Provided Document was corrected or superseded by a subsequent Provided Document and Financial Security has not detrimentally relied on the original thereof). Since the furnishing of the Provided Documents, there has been no change, nor any development or event involving a prospective change known to Atlantic or to the Seller, that would render any of the Provided Documents untrue or misleading in any material respect. There is no fact known to Atlantic or to the Seller which has a material possibility of causing a Material Adverse Change with respect to Atlantic, the Seller or the Receivables. (j) COMPLIANCE WITH SECURITIES LAWS. The offer and sale of the Securities comply in all material respects with all requirements of law, including all applicable registration requirements of securities laws. Without limitation of the foregoing, the Offering Document does not contain any untrue statement of a material fact and does not omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading; PROVIDED that no representation is made with respect to information included in an Offering Document and furnished by Financial Security in writing expressly for use therein (all such information so furnished being referred to herein as "FINANCIAL SECURITY INFORMATION"), it being understood that, in respect of the initial Offering Document, the Financial Security Information is limited to the information included under the caption "THE CERTIFICATE INSURER" and the financial statements of Financial Security appended thereto. Neither the Trust nor the Trust Property is to be registered as an "investment company" under the Investment Company Act. The Pooling and Servicing Agreement is not required to be qualified under the Trust Indenture Act. (k) TRANSACTION DOCUMENTS. Each of the representations and warranties of Atlantic or of the Seller -5- contained in the Transaction Documents is true and correct in all material respects and each of Atlantic and the Seller hereby makes each such representation and warranty made by it to, and for the benefit of, Financial Security as if the same were set forth in full herein. (l) NO CONSENTS. No consent, license, approval or authorization from, or registration, filing or declaration with, any regulatory body, administrative agency, or other governmental instrumentality, nor any consent, approval, waiver or notification of any creditor, lessor or other nongovernmental person, is required in connection with the execution, delivery and performance by Atlantic or by the Seller of this Agreement or by Atlantic or the Seller of any other Transaction Document to which such Person is a party, except (in each case) such as have been obtained and are in full force and effect. (m) COMPLIANCE WITH LAW, ETC. No practice, procedure or policy employed or proposed to be employed by Atlantic or by the Seller in the conduct of their respective businesses violates any law, regulation, judgment, agreement, order or decree applicable to it which, if enforced, would result in a Material Adverse Change with respect to such Person. (n) SPECIAL PURPOSE ENTITY. (i) The capital of the Seller is adequate for the business and undertakings of the Seller. (ii) Other than with respect to the ownership by Atlantic of the stock of the Seller and the transactions as provided in the Receivables Purchase Agreement, the Pooling and Servicing Agreement, the Premium Letter, and the Spread Account Agreement, the Seller is not engaged in any business transactions with Atlantic or any of its Affiliates. (iii) At least one director of the Seller shall be a person who is not, and will not be, a director, officer, employee or holder of any equity securities of Atlantic or any of its Affiliates. (iv) The Seller's funds and assets are not, and will not be, commingled with the funds of any other Person except as explicitly permitted under the Transaction Documents. (v) The articles of incorporation and/or bylaws of the Seller require it to maintain (A) correct and complete minute books and records of account, and (B) minutes of the meetings and other proceedings of its shareholders and board of directors. -6- (o) SOLVENCY; FRAUDULENT CONVEYANCE. Each of Atlantic and the Seller is solvent and will not be rendered insolvent by the Transaction and, after giving effect to such Transaction, neither Atlantic nor the Seller will be left with an unreasonably small amount of capital with which to engage in its business. Neither Atlantic nor the Seller intends to incur, or believes that it has incurred, debts beyond its ability to pay such debts as they mature. Neither Atlantic nor the Seller is contemplating the commencement of insolvency, bankruptcy, liquidation or consolidation proceedings or the appointment of a receiver, liquidator, conservator, trustee or similar official in respect of Atlantic or the Seller, as the case may be, or any of their respective assets. The amount of consideration being received by the Seller upon the sale of the Securities constitutes reasonably equivalent value and fair consideration for the interest in the portion of the Trust Property evidenced by the Securities. The amount of consideration being received by the Seller upon the sale of the Receivables and the Other Trust Property to the Trust constitutes reasonably equivalent value and fair consideration for such Receivables and Other Trust Property. The amount of consideration being received by Atlantic upon the sale of the Receivables and Other Conveyed Property (as such term is defined in the Receivables Purchase Agreement) by Atlantic to the Seller constitutes reasonably equivalent value and fair consideration to Atlantic for the Receivables. Atlantic is not transferring the Receivables and Other Conveyed Property (as such term is defined in the Receivables Purchase Agreement) to the Seller, as provided in the Transaction Documents, with any intent to hinder, delay or defraud any of the creditors of Atlantic. The Seller is not transferring the Receivables and the Other Trust Property to the Trust or selling the Securities, as provided in the Transaction Documents, with any intent to hinder, delay or defraud any of the Seller's creditors. (p) INVESTMENT COMPANY ACT COMPLIANCE. Neither Atlantic nor the Seller is required to be registered as an "investment company" under the Investment Company Act. Neither Atlantic nor the Seller is subject to the information reporting requirements of the Securities Exchange Act. (q) GOOD TITLE; VALID TRANSFER; ABSENCE OF LIENS; SECURITY INTEREST. (i) Immediately prior to the sale of the Receivables and certain related property by AAFC to Atlantic pursuant to the AAFC Assignment on the Closing Date, AAFC was the owner of, and had good and marketable title to, such Receivables and related property free and clear of all Liens and Restrictions on Transferability, and had full right, power and lawful authority to assign, transfer and pledge such Receivables and related property pursuant to the terms -7- of the AAFC Assignment. The AAFC Assignment constitutes a valid sale, transfer and assignment of such Receivables and related property to Atlantic, enforceable against the creditors of and purchasers of AAFC. In the event that, in contravention of the intention of the parties, the transfer by AAFC of such Receivables and related property to Atlantic is characterized as other than a sale, such transfer shall be characterized as a secured financing, and Atlantic shall have a valid and perfected first priority security interest in such Receivables and related property free and clear of all Liens and Restrictions on Transferability. (ii) Immediately prior to the sale of the Receivables and Other Conveyed Property (as such term is defined in the Receivables Purchase Agreement) by Atlantic to the Seller pursuant to the Receivables Purchase Agreement on the Closing Date, Atlantic was the owner of, and had good and marketable title to, such Receivables and Other Conveyed Property free and clear of all Liens and Restrictions on Transferability, and had full right, power and lawful authority to assign, transfer and pledge such Receivables and Other Conveyed Property pursuant to the terms of the Receivables Purchase Agreement. The Receivables Purchase Agreement constitutes a valid sale, transfer and assignment of such Receivables and Other Conveyed Property to the Seller, enforceable against the creditors of and purchasers of Atlantic. In the event that, in contravention of the intention of the parties, the transfer by Atlantic of such Receivables and Other Conveyed Property to the Seller is characterized as other than a sale, such transfer shall be characterized as a secured financing, and the Seller shall have a valid and perfected first priority security interest in such Receivables and Other Conveyed Property free and clear of all Liens and Restrictions on Transferability. (iii) Immediately prior to the sale of the Receivables and the Other Trust Property to the Trust pursuant to the Pooling and Servicing Agreement on the Closing Date, the Seller was the owner of, and had good and marketable title to, such Receivables and Other Trust Property free and clear of all Liens and Restrictions on Transferability, and had full right, power and lawful authority to assign, transfer and pledge such Receivables and the Other Trust Property. The Pooling and Servicing Agreement constitutes a valid sale, transfer and assignment of the Receivables and Other Trust Property to the Trust, enforceable against creditors of and purchasers of the Seller. In the event that, in contravention of the intention of the parties, the transfer of the Receivables and the Other Trust Property by the Seller to the Trust is characterized as other than a sale, such transfer shall be -8- characterized as a secured financing, and the Trust shall have a valid and perfected first priority security interest in the Receivables and Other Trust Property free and clear of all Liens and Restrictions on Transferability. (r) PERFECTION OF LIENS AND SECURITY INTEREST. On the Closing Date, the assignment to, or Lien and security interest in favor of, (i) the Seller with respect to the Receivables and the Other Conveyed Property (as such term is defined in the Receivables Purchase Agreement) will be perfected by the delivery of the Receivable Files for the Receivables to the Seller (for immediate delivery of the Custodial Receivable Files to the Custodian), the filing of financing statements on Form UCC-1 in each jurisdiction where such recording or filing is necessary for the perfection thereof and delivery to the Seller of the CXC Assignment by CXC, the AAFC Assignment by AAFC and a release letter of CNAI effecting the release of the Lien and security interest and/or ownership interest of each of CXC, AAFC and CNAI in the Receivables and such Other Conveyed Property, and (ii) the Trustee with respect to the Receivables and the Other Trust Property will be perfected by the delivery of the Custodial Receivables Files for the Receivables to the Custodian, the filing of financing statements on Form UCC-1 in each jurisdiction where such recording or filing is necessary for the perfection thereof, the delivery to the Trustee of the CXC Assignment by CXC, the AAFC Assignment by AAFC and a release letter of CNAI effecting the release of the Lien and security interest and/or ownership interest of each of CXC, AAFC and CNAI in the Receivables and Other Trust Property and the establishment of the Collection Account and the Lockbox Account in accordance with the provisions of the Transaction Documents, and no other filings in any jurisdiction or any other actions (except as expressly provided herein) are necessary to perfect the Seller's first priority Lien on and security interest in the Receivables and such Other Conveyed Property as against any third parties or the Trustee's first priority Lien on and security interest in the Receivables and Other Trust Property as against any third parties. (s) SECURITY INTEREST IN FUNDS AND INVESTMENTS. Assuming the retention of funds in the Trust Accounts and the acquisition of Eligible Investments in accordance with the Transaction Documents, such funds and Eligible Investments will be subject to a valid and perfected, first priority security interest in favor of the Trustee. Assuming the retention of funds in the Spread Account and the acquisition of Eligible Investments in accordance with the Spread Account Agreement, such funds and Eligible Investments will be subject to a valid and -9- perfected, first priority security interest in favor of the Collateral Agent on behalf of Financial Security. (t) TAXES. Each of Atlantic and the Seller, and each of their respective Subsidiaries, has filed all federal and state tax returns which are required to be filed and paid all taxes, including any assessments received by it, to the extent that such taxes have become due. Any taxes, fees and other governmental charges payable by the Seller or Atlantic in connection with the Transaction, the execution and delivery of the Transaction Documents and the issuance of the Securities have been paid or shall have been paid at or prior to the Date of Issuance. (u) SELLER STOCK. The shares of stock of the Seller which have been pledged pursuant to the Stock Pledge Agreement constitute all of the issued and outstanding shares of the Seller. Section 2.02. AFFIRMATIVE COVENANTS OF ATLANTIC AND THE SELLER. Atlantic hereby agrees with respect to itself and with respect to the Seller, and the Seller hereby agrees with respect to itself, that during the Term of the Agreement, unless Financial Security shall otherwise expressly consent in writing: (a) COMPLIANCE WITH AGREEMENTS AND APPLICABLE LAWS. Each of the Seller and Atlantic shall perform each of its respective obligations under the Transaction Documents and shall comply with all material requirements of, and the Securities shall be offered and sold in accordance with, any law, rule or regulation applicable to it or thereto, or that are required in connection with its performance under any of the Transaction Documents. (b) FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER INFORMATION. Each of Atlantic and the Seller shall keep or cause to be kept in reasonable detail books and records of account of its assets and business and, (i) in the case of Atlantic, shall clearly reflect therein the transfer of the Receivables to the Seller, and (ii) in the case of the Seller, shall clearly reflect therein the transfer of the Receivables to the Trust. Each of Atlantic and the Seller shall furnish or cause to be furnished to Financial Security: (i) ANNUAL FINANCIAL STATEMENTS. As soon as available, and in any event within 90 days after the close of each fiscal year of UAG, Atlantic and the Seller, the audited balance sheets of UAG, Atlantic and the Seller, as of the end of such fiscal year and the audited statements of income, changes in equity and cash flows of UAG, Atlantic and the Seller, for such fiscal year, all in reasonable detail and stating in comparative form the respective -10- figures for the corresponding date and period in the preceding fiscal year, prepared in accordance with generally accepted accounting principles, consistently applied, and accompanied by the certificate of UAG's, Atlantic's and the Seller's independent accountants (who shall be, in each case, a nationally recognized firm or otherwise acceptable to Financial Security) and by the certificate specified in Section 2.02(c) hereof. (ii) QUARTERLY FINANCIAL STATEMENTS. As soon as available, and in any event within 45 days after the close of each of the first three quarters of each fiscal year of UAG, Atlantic and the Seller, the unaudited balance sheets of UAG, Atlantic and the Seller, as of the end of such quarter and the unaudited statements of income, changes in equity and cash flows of UAG, Atlantic and the Seller, for the portion of the fiscal year then ended, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the preceding fiscal year, prepared in accordance with generally accepted accounting principles, consistently applied (subject to normal year-end adjustments), and accompanied by the certificate specified in Section 2.02(c) hereof if such certificate is required to be provided pursuant to such Section. (iii) ACCOUNTANTS' REPORTS. If a Special Event has occurred, copies of any reports submitted to UAG, Atlantic and the Seller by their respective independent accountants in connection with any examination of the financial statements of UAG, Atlantic or the Seller, promptly upon receipt thereof. (iv) OTHER INFORMATION. Promptly upon receipt thereof, copies of all reports, statements, certifications, schedules, or other similar items delivered to or by Atlantic or the Seller pursuant to the terms of the Transaction Documents and, promptly upon request, such other data as Financial Security may reasonably request; PROVIDED, HOWEVER, that neither Atlantic nor the Seller shall be required to deliver any such items if provision by some other party to Financial Security is required under the Transaction Documents unless such other party fails to deliver such item and notice of such failure is given to Atlantic or the Seller, as the case may be. Atlantic and the Seller shall, upon the request of Financial Security, permit Financial Security or its authorized agents (A) to inspect the books and records of Atlantic and the Seller as they may relate to the Securities, the Receivables and the Other Trust Property, the obligations of Atlantic or of the Seller under the Transaction Documents, the Transaction and, -11- but only following the occurrence of a Special Event, Atlantic's business; (B) to discuss the affairs, finances and accounts of Atlantic or the Seller with its respective Chief Operating Officer and Chief Financial Officer (or a Responsible Officer with responsibilities and functions equivalent thereto), no more frequently than annually, unless a Special Event has occurred; and (C) to discuss the affairs, finances and accounts of Atlantic or the Seller with its independent accountants, PROVIDED that an officer of Atlantic or the Seller, as the case may be, shall have the right to be present during such discussions. Such inspections and discussions shall be conducted during normal business hours and shall not unreasonably disrupt the business of Atlantic or the Seller, as the case may be. In addition, Atlantic shall promptly (but in no case more than 30 days following issuance or receipt by a Commonly Controlled Entity) provide to Financial Security a copy of all correspondence between a Commonly Controlled Entity and the PBGC, IRS, Department of Labor or the administrators of a Multiemployer Plan relating to any Reportable Event or the underfunded status, termination or possible termination of a Plan or a Multiemployer Plan. The books and records of Atlantic and the Seller will be maintained at the respective addresses designated herein for receipt of notices, unless Atlantic or the Seller shall otherwise advise the parties hereto in writing. (v) Atlantic shall provide or cause to be provided to Financial Security an executed original copy of each document executed in connection with the Transaction within 10 days after the date of closing. (vi) Subject to clause (l) of this Section 2.02, promptly after the filing or sending thereof, copies of all proxy statements, financial statements, reports and registration statements which Atlantic or the Seller files, or delivers to, the IRS, the Commission, or any other federal, state or foreign government agency, authority or body which supervises the issuance of securities by Atlantic and the Seller or any national securities exchange. (c) COMPLIANCE CERTIFICATE. Each of UAG, Atlantic and the Seller shall deliver to Financial Security concurrently with the delivery of the financial statements required pursuant to Section 2.02(b)(i) hereof and concurrently with the delivery of the financial statements required pursuant to Section 2.02(b)(ii) hereof, a certificate signed by the Chief Financial Officer (or a Responsible Officer with responsibilities and functions equivalent thereto) of each of UAG (with respect to (iii) below only), Atlantic and the Seller stating that: -12- (i) a review of Atlantic's and the Seller's respective performance under the Transaction Documents during such period has been made under such officer's supervision; (ii) to the best of such individual's knowledge, no Special Event, Default or Event of Default has occurred, or if a Special Event, Default or Event of Default has occurred, specifying the nature thereof and, if Atlantic or the Seller has a right to cure any such Default or Event of Default pursuant to Section 5.01, stating in reasonable detail the steps, if any, being taken by Atlantic or the Seller, as the case may be, to cure such Default or Event of Default or to otherwise comply with the terms of the agreement to which such Default or Event of Default relates; and (iii) the attached financial reports submitted in accordance with Section 2.02(b)(i) or (ii) hereof, as applicable, are complete and correct in all material respects and present fairly the financial condition and results of operations of UAG, Atlantic and the Seller, as the case may be, as of the dates and for the periods indicated, in accordance with generally accepted accounting principles consistently applied (subject as to interim statements to normal year-end adjustments). (d) NOTICE OF MATERIAL EVENTS. Each of Atlantic and the Seller shall promptly inform Financial Security in writing of the occurrence of any of the following: (i) the submission of any claim or the initiation of any legal process, litigation or administrative or judicial investigation (A) against Atlantic or the Seller pertaining to the Receivables in general, (B) with respect to a material portion of the Receivables or (C) in which a request has been made for certification as a class action (or equivalent relief) that would involve a material portion of the Receivables; (ii) any change in the location of Atlantic's or the Seller's principal office or any change in the location of Atlantic's or the Seller's books and records; (iii) the occurrence of any Default, Event of Default or Special Event; or (iv) any other event, circumstance or condition that has resulted, or has a material possibility of resulting, in a Material Adverse Change in respect of Atlantic or the Seller. -13- (e) FURTHER ASSURANCES. Each of Atlantic and the Seller will file or cause to be filed all necessary financing statements, assignments or other instruments, and any amendments or continuation statements relating thereto, necessary to be kept and filed in such manner and in such places as may be required by law to preserve and protect fully the Lien on and first priority security interest in, and all rights of the Trustee for the benefit of the Certificateholders and Financial Security with respect to the Receivables and the Other Trust Property, under the Pooling and Servicing Agreement. In addition, each of Atlantic and the Seller shall, upon the request of Financial Security, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, within ten (10) days of such request, such amendments hereto and such further instruments and take such further action as may be reasonably necessary to effectuate the intention, performance and provisions of the Transaction Documents or to protect the interest of the Trustee, for the benefit of the Certificateholders and Financial Security, in the Receivables and the Other Trust Property, free and clear of all Liens and Restrictions on Transferability except the Lien in favor of the Trustee, for the benefit of the Certificateholders and Financial Security, and the Restrictions on Transferability imposed by the Pooling and Servicing Agreement. In addition, each of Atlantic and the Seller agrees to cooperate with S&P and Moody's in connection with any review of the Transaction which may be undertaken by S&P and Moody's after the date hereof. (f) RETIREMENT OF SECURITIES. Atlantic or the Seller shall cause the Trustee, upon retirement of the Securities pursuant to the Pooling and Servicing Agreement or otherwise, to furnish to Financial Security a notice of such retirement, and, upon retirement of the Securities and the expiration of the term of the Policy, to surrender the Policy to Financial Security for cancellation. (g) THIRD-PARTY BENEFICIARY. Each of Atlantic and the Seller agrees that Financial Security shall have all rights of a third-party beneficiary in respect of the Pooling and Servicing Agreement and the Receivables Purchase Agreement and hereby incorporates and restates its respective representations, warranties and covenants as set forth therein for the benefit of Financial Security. (h) CORPORATE EXISTENCE. Each of Atlantic and the Seller shall maintain its respective corporate existence and shall at all times continue to be duly organized under the laws of its jurisdiction of incorporation or organization and continue to be duly qualified and duly authorized (as described in Sections 2.01(a), (b) and (c) hereof) and shall conduct its business in accordance with the terms of its respective -14- certificate of incorporation and bylaws or other applicable governing documents. (i) DISCLOSURE DOCUMENT. (1) Each Offering Document delivered with respect to the Securities shall clearly disclose that the Policy is not covered by the property/casualty insurance security fund specified in Article 76 of the New York Insurance Law. In addition, each Offering Document delivered with respect to the Securities which includes financial statements of Financial Security prepared in accordance with generally accepted accounting principles shall include the following statement immediately preceding such financial statements: The New York State Insurance Department recognizes only statutory accounting practices for determining and reporting the financial condition and results of operations of an insurance company, for determining its solvency under the New York Insurance Law, and for determining whether its financial condition warrants the payment of a dividend to its stockholders. No consideration is given by the New York State Insurance Department to financial statements prepared in accordance with generally accepted accounting principles in making such determinations. (2) Each Offering Document delivered with respect to the Securities subsequent to the Date of Issuance shall be in form and substance satisfactory to Financial Security in its sole discretion as evidenced by Financial Security's prior written consent to the use thereof. (j) SPECIAL PURPOSE ENTITY. (i) The Seller shall conduct its business solely in its own name through its duly authorized officers or agents so as not to mislead others as to the identity of the entity with which those officers are concerned, and particularly will avoid the appearance of conducting business on behalf of Atlantic or any Affiliate thereof or that the assets of the Seller are available to pay the creditors of Atlantic or any Affiliate thereof. Without limiting the generality of the foregoing, all oral and written communications, including, without limitation, letters, invoices, purchase orders, contracts, statements and loan applications, will be made solely in the name of the Seller. -15- (ii) The Seller shall maintain corporate records and books of account separate from those of Atlantic and the Affiliates thereof. The Seller's books and records shall clearly reflect the transfer of the Receivables to the Trust and the sale of the Securities each as a sale of the Seller's interest in the Receivables. The books of account and corporate records of the Seller will be separate from those of Atlantic and its Affiliates and will be maintained at the address designated herein for receipt of notices, unless the Seller shall otherwise advise the parties hereto in writing. (iii) The Seller shall obtain proper authorization from its board of directors of all corporate actions requiring such authorization. Meetings of the board of directors will be held at least once per annum and copies of the minutes of each such board meeting shall be delivered to Financial Security within two weeks of such meeting. (iv) The Seller shall obtain proper authorization from its shareholders of all corporate action requiring shareholder approval. Meetings of the shareholders of the Seller shall be held not less frequently than one time per annum and copies of each such authorization and the minutes of each such shareholder meeting shall be delivered to Financial Security within two weeks of such authorization or meeting, as the case may be. (v) Although the organizational expenses of the Seller have been paid by Atlantic, operating expenses and liabilities of the Seller shall be paid from its own funds. (vi) The annual financial statements of the Seller shall disclose the effects of the Seller's transactions in accordance with generally accepted accounting principles and shall disclose that the assets of the Seller are not available to pay creditors of Atlantic or any Affiliate thereof. (vii) The resolutions, agreements and other instruments of the Seller underlying the transactions described in this Agreement and the other Transaction Documents shall be continuously maintained by the Seller as official records of the Seller separately identified and held apart from the records of Atlantic and each Affiliate thereof. (viii) The Seller shall maintain an arm's-length relationship with Atlantic and the Affiliates thereof and will not hold itself out as being liable for the debts of Atlantic or any Affiliate thereof. -16- (ix) The Seller shall keep its assets and its liabilities wholly separate from those of all other entities, including, but not limited to Atlantic and the Affiliates thereof. (k) MAINTENANCE OF LICENSES. Atlantic and the Seller shall each maintain all licenses, permits, charters and registrations which are material to the performance by Atlantic and the Seller, as the case may be, of its business or of its respective obligations under this Agreement and each other Transaction Document. (l) REGISTRATION STATEMENTS FOR THE SECURITIES. Each of Atlantic and the Seller shall (i) provide Financial Security with written notice at least 30 days prior to the filing of any registration statement relating to the Securities, (ii) provide Financial Security with a copy of such registration statement to be filed at least 15 days prior to such filing, (iii) prior to such filing, obtain the written consent of Financial Security with respect to the filing of such registration statement and (iv) provide Financial Security with any opinions of counsel as Financial Security may request in connection with the registration of the Securities under the Securities Act, which opinions shall be addressed to Financial Security and shall be in form and substance satisfactory to Financial Security. Section 2.03. NEGATIVE COVENANTS OF ATLANTIC AND THE SELLER. Atlantic hereby agrees with respect to itself and with respect to the Seller (provided, that in the case of subparagraph (j) below, Atlantic covenants with respect to the Seller solely in its capacity as sole shareholder of the Seller and not on behalf of the Seller), and the Seller hereby agrees with respect to itself that during the Term of the Agreement, unless Financial Security shall otherwise expressly consent in writing: (a) RESTRICTIONS ON LIENS. Neither Atlantic nor the Seller shall (i) create, incur or suffer to exist, or agree to create, incur or suffer to exist, or consent to cause or permit in the future (upon the happening of a contingency or otherwise) the creation, incurrence or existence of any Lien or Restriction on Transferability on the Receivables or the Other Trust Property except for the Lien in favor of the Trustee, for the benefit of the Certificateholders and Financial Security, and the Restrictions on Transferability imposed by the Pooling and Servicing Agreement or (ii) with respect to the Receivables and the Other Trust Property, sign or file under the Uniform Commercial Code of any jurisdiction any financing statement which names either Atlantic or the Seller as a debtor, or sign any security agreement authorizing any secured party thereunder to file such financing statement, except in each case any such instrument solely securing the rights and preserving the Lien of -17- the Trustee, for the benefit of the Certificateholders and Financial Security. (b) IMPAIRMENT OF RIGHTS. Neither Atlantic nor the Seller shall take any action, or fail to take any action, if such action or failure to take action may (i) interfere with the enforcement of any rights under the Transaction Documents that are material to the rights, benefits or obligations of the Trustee, the Certificateholders or Financial Security, (ii) result in a Material Adverse Change in respect of the Receivables or (iii) impair the ability of Atlantic or the Seller to perform its obligations under the Transaction Documents, including any consolidation or merger with any Person or any transfer of all or any material amount of Atlantic's or the Seller's assets to any other Person if such consolidation, merger or transfer would materially impair the net worth of Atlantic or the Seller or any successor Person obligated, after such event, to perform Atlantic's or the Seller's obligations under the Transaction Documents. (c) WAIVER, AMENDMENTS, ETC. Neither Atlantic nor the Seller shall waive, modify or amend, or consent to any waiver, modification or amendment of, any of the provisions of any of the Transaction Documents or, if applicable, the Seller's certificate of incorporation or bylaws unless Financial Security shall have consented thereto in writing and such amendment, modification or waiver shall not, as evidenced by an opinion of counsel addressed to Financial Security, have a material adverse effect on the interests of any Certificateholder or Financial Security. (d) SUCCESSORS. Neither Atlantic nor the Seller shall terminate or designate, or consent to the termination or designation of, the Servicer, the Backup Servicer, the Trustee or Collateral Agent or any successor thereto without the prior written approval of Financial Security. (e) CREATION OF INDEBTEDNESS; GUARANTEES. The Seller shall not create, incur, assume or suffer to exist any indebtedness other than indebtedness guaranteed or approved in writing by Financial Security. Without the prior written consent of Financial Security, the Seller shall not assume, guarantee, endorse or otherwise be or become directly or contingently liable for the obligations of any Person by, among other things, agreeing to purchase any obligation of another Person, agreeing to advance funds to such Person or causing or assisting such Person to maintain any amount of capital. (f) SUBSIDIARIES. The Seller shall not form, or cause to be formed, any Subsidiaries. -18- (g) ISSUANCE OF STOCK. The Seller shall not issue or allow the issuance of any shares of its capital stock or rights, warrants or options in respect of its capital stock, other than the shares of common stock which have been pledged to Financial Security under the Stock Pledge Agreement. (h) NO MERGERS. (a) The Seller shall not consolidate with or merge into any Person or transfer all or any material portion of its assets to any Person or liquidate or dissolve; and (b) Atlantic shall not consolidate with or merge into any Person or transfer all or any material portion of its assets to any Person or liquidate or dissolve except, in each case, as permitted by and in accordance with the terms of Section 9.2 of the Pooling and Servicing Agreement. (i) OTHER ACTIVITIES. The Seller shall not: (i) sell, transfer, exchange or otherwise dispose of any of its assets except as permitted under the Transaction Documents and under the Seller's certificate of incorporation; or (ii) engage in any business or activity other than as contemplated by the Transaction Documents and as permitted under and in accordance with the Seller's certificate of incorporation. (j) INSOLVENCY. Neither Atlantic nor the Seller shall commence with respect to the Seller any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to the bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, corporation or other relief with respect to it or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or make a general assignment for the benefit of its creditors. Neither Atlantic nor the Seller shall take any action in furtherance of, or indicating the consent to, approval of, or acquiescence in any of the acts set forth above. The Seller shall not admit in writing its inability to pay its debts. (k) ERISA. The Seller shall not contribute or incur any obligation to contribute to, or incur any liability in respect of, any Plan or Multiemployer Plan. (l) DIVIDENDS. The Seller shall not declare or make payment of (i) any dividend or other distribution on or in respect of any shares of its capital stock, or (ii) any payment on account of the purchase, redemption, retirement or acquisition -19- of any option, warrant or other right to acquire shares of its capital stock unless (in each case) at the time of such declaration or payment (and after giving effect thereto) no amount payable by the Seller under any Transaction Document with respect to any Series is then due and owing but unpaid. (m) TRANSFER OF SUBORDINATE CERTIFICATES. The Seller shall not sell, transfer, assign, convey or pledge any Class B Certificate at any time subsequent to the Date of Issuance to any Person that is an Affiliate of the Seller, unless, prior to such sale, transfer, assignment, conveyance or pledge, the Seller delivers to Financial Security an Opinion of Counsel substantially similar in form and substance to the Opinion of Counsel delivered on the Date of Issuance as to non-consolidation of the assets and liabilities of (x) the Seller and Atlantic and (y) the Seller and any such Affiliate (other than Atlantic); PROVIDED, HOWEVER, that the Seller shall not sell, transfer, assign, convey or pledge any Class B Certificate at any time subsequent to the Date of Issuance to any Person that is not an Affiliate of the Seller unless, (i) prior to such sale, transfer, assignment, conveyance or pledge, such Person delivers to Financial Security (A) its agreement in writing to the effect that so long as it has any interest in any Class B Certificate such Person shall not become an Affiliate of the Seller and (B) its agreement in writing substantially similar in form and substance to the nonpetition covenant that appears as Section 3.7 of the Pooling and Servicing Agreement with respect to the Seller, and (ii) the obligations of the Seller to such Person in connection with such sale, transfer, assignment, conveyance or pledge shall be recourse only to the extent of amounts received by the Seller pursuant to Section 3.03(b) of the Spread Account Agreement. (n) RELEASE OF LIENS. Each of Atlantic and the Seller shall duly file on behalf of CXC and CNAI and other relevant parties, in either case no later than the second Business Day immediately following the Closing Date, the amendments to, and/or terminations of, UCC financing statements evidencing the release by CXC, CNAI and other relevant parties of any Liens on the Receivables and the Other Trust Property that are referred to in clause (m) of Appendix II hereof. ARTICLE III. THE POLICY; REIMBURSEMENT; INDEMNIFICATION Section 3.01. ISSUANCE OF THE POLICY. Financial Security agrees to issue the Policy subject to satisfaction of the conditions precedent set forth in Appendix II hereto. -20- Section 3.02. PAYMENT OF FEES AND PREMIUM. (a) LEGAL FEES. Promptly after the Date of Issuance, Atlantic shall pay or cause to be paid legal fees and disbursements incurred by Financial Security in connection with the issuance of the Policy. (b) RATING AGENCY FEES. The initial fees of S&P and Moody's with respect to the Securities and the transactions contemplated hereby shall be paid by Atlantic in full on the Date of Issuance, or otherwise provided for to the satisfaction of Financial Security. All periodic and subsequent fees of S&P or Moody's with respect to, and directly allocable to, the Securities shall be for the account of, and shall be billed to, Atlantic. The fees for any other rating agency shall be paid by the party requesting such other agency's rating, unless such other agency is a substitute for S&P or Moody's in the event that S&P or Moody's is no longer rating the Securities, in which case the cost for such agency shall be paid by Atlantic. (c) AUDITORS' FEES. Atlantic shall pay on demand any additional fees of Financial Security's auditors payable in respect of any Offering Document that are incurred after the Date of Issuance. It is understood that Financial Security's auditors shall not incur any additional fees in respect of future Offering Documents except at the request of or with the consent of Atlantic. (d) PREMIUM. In consideration of the issuance by Financial Security of the Policy, Financial Security shall be entitled to receive the Premium as and when due in accordance with the terms of the Premium Letter (i) in the case of Premium due on or before the Date of Issuance, directly from Atlantic and (ii) in the case of Premium due after the Date of Issuance, FIRST, from monies available for such payment in accordance with Section 5.5(a) of the Pooling and Servicing Agreement and SECOND, to the extent that such monies are insufficient, from Atlantic. The Premium paid hereunder or under the Pooling and Servicing Agreement shall be nonrefundable without regard to whether Financial Security makes any payment under the Policy or any other circumstances relating to the Securities or provision being made for payment of the Securities prior to maturity. Although the Premium is fully earned by Financial Security as of the Closing Date, the Premium shall be payable in periodic installments as provided in the Premium Letter. Anything herein or in any of the Transaction Documents notwithstanding, upon the occurrence of an Event of Default, the entire outstanding balance of further installments of the Premium shall be immediately due and payable. All payments of Premium shall be made by wire transfer to an account designated from time to time by Financial Security by written notice to the Seller and Atlantic. -21- Section 3.03. REIMBURSEMENT OBLIGATION. Notwithstanding any of the following provisions of this Section 3.03 to the contrary, the payment obligations set forth in Sections 3.03(a), (b), (c) and (d)(v) (to the extent of advances to the Trust in respect of distributions on the Securities) shall be non-recourse obligations with respect to Atlantic and shall be payable only from monies available for such payment in accordance with Section 5.5(a) of the Pooling and Servicing Agreement (except to the extent that any such payment obligation arises from a failure to perform or default of Atlantic, the Seller or any Affiliate thereof under any Transaction Document or by reason of negligence, willful misconduct or bad faith on the part of Atlantic or the Seller in the performance of its duties and obligation thereunder or reckless disregard by Atlantic or the Seller of it duties and obligations thereunder). Atlantic and the Seller agree to pay to Financial Security the following amounts as and when incurred: (a) a sum equal to the total of all amounts paid by Financial Security under the Policy; (b) interest on any and all amounts described in this Section 3.03 or Section 3.02(d) from the date due to Financial Security pursuant to the provisions hereof until payment thereof in full, payable to Financial Security at the Late Payment Rate per annum; (c) any payments made by Financial Security on behalf of, or advanced to, Atlantic, in its capacity as Servicer, the Trust or the Trustee, including, without limitation, any amounts payable by Atlantic, in its capacity as Servicer, the Trust or the Trustee pursuant to the Securities or any other Transaction Documents; and any payments made by Financial Security as, or in lieu of, any servicing, management, trustee, custodial or administrative fees payable, in the sole discretion of Financial Security to third parties in connection with the Transaction; and (d) any and all out-of-pocket charges, fees, costs and expenses which Financial Security may reasonably pay or incur, including, but not limited to, attorneys' and accountants' fees and expenses, in connection with (i) in the event of payments under the Policy, any accounts established to facilitate payments under the Policy, to the extent Financial Security has not been immediately reimbursed on the date that any amount is paid by Financial Security under the Policy, or other administrative expenses relating to such payments under the Policy, (ii) the administration, enforcement, defense or preservation of any rights in respect of any of the Transaction Documents, including defending, monitoring or participating in any litigation or proceeding (including any insolvency or bankruptcy proceeding in respect of any Transaction participant or any affiliate thereof) -22- relating to any of the Transaction Documents, any party to any of the Transaction Documents or the Transaction, (iii) any amendment, waiver or other action with respect to, or related to, any Transaction Document whether or not executed or completed, (iv) any review or investigation made by Financial Security in those circumstances where its approval or consent is sought under any of the Transaction Documents, (v) the foreclosure against, sale or other disposition of any collateral securing any obligations under any of the Transaction Documents or otherwise in the discretion of Financial Security, or pursuit of any other remedies under any of the Transaction Documents, to the extent such costs and expenses are not recovered from such foreclosure, sale or other disposition, (vi) preparation of bound volumes of the Transaction Documents, and (vii) any federal, state or local tax (other than taxes payable in respect of the gross income of Financial Security) or other governmental charge imposed in connection with the issuance of the Policy. Financial Security reserves the right to charge a reasonable fee as a condition to executing any amendment, waiver or consent proposed in respect of any of the Transaction Documents. Section 3.04. INDEMNIFICATION. (a) INDEMNIFICATION BY ATLANTIC AND THE SELLER. In addition to any and all rights of reimbursement, indemnification, subrogation and any other rights pursuant hereto or under law or in equity, each of Atlantic and the Seller, jointly and severally, agrees to pay, and to protect, indemnify and save harmless, Financial Security and its officers, directors, shareholders, employees, agents and each Person, if any, who controls Financial Security within the meaning of either Section 15 of the Securities Act or Section 20 of the Securities Exchange Act from and against any and all claims, losses, liabilities (including penalties), actions, suits, judgments, demands, damages, costs or expenses (including, without limitation, fees and expenses of attorneys, consultants and auditors and reasonable costs of investigations) of any nature arising out of or relating to the transactions contemplated by the Transaction Documents by reason of: (i) any statement, omission or action (other than of or by Financial Security) in connection with the offering, issuance, sale, remarketing or delivery of the Securities or the Class B Certificates; (ii) the negligence, bad faith, willful misconduct, misfeasance, malfeasance or theft committed by any director, officer, employee or agent of the Seller or Atlantic, as the case may be; -23- (iii) the breach by the Seller or Atlantic, as the case may be, of any representation, warranty or covenant under any of the Transaction Documents or the occurrence, in respect of the Seller or Atlantic, as the case may be, under any of the Transaction Documents of any "event of default" or any event which, with the giving of notice or the lapse of time or both, would constitute any "event of default"; (iv) the violation by the Seller or Atlantic of any federal, state or foreign law, rule or regulation, or any judgment, order or decree applicable to it; or (v) any untrue statement or alleged untrue statement of a material fact contained in any Offering Document or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such claims arise out of or are based upon any untrue statement or omission in the Financial Security Information, it being understood that in respect of the initial Offering Document, the Financial Security Information is limited to information included under the caption "THE CERTIFICATE INSURER" and the financial statements of Financial Security appended thereto. (b) CONDUCT OF ACTIONS OR PROCEEDINGS. If any action or proceeding (including any governmental investigation) shall be brought or asserted against Financial Security, any officer, director, shareholder, employee or agent of Financial Security or any Person controlling Financial Security (individually, an "INDEMNIFIED PARTY" and, collectively, the "INDEMNIFIED PARTIES") in respect of which indemnity may be sought from the Seller and Atlantic (the "INDEMNIFYING PARTY") hereunder, Financial Security shall promptly notify the Indemnifying Party in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel satisfactory to Financial Security and the payment of all expenses. An Indemnified Party shall have the right to employ separate counsel in any such action and to participate in the defense thereof at the expense of the Indemnified Party; PROVIDED, HOWEVER, that the fees and expenses of such separate counsel shall be at the expense of the Indemnifying Party if (i) the Indemnifying Party has agreed to pay such fees and expenses, (ii) the Indemnifying Party shall have failed to assume the defense of such action or proceeding and employ counsel satisfactory to Financial Security in any such action or proceeding or (iii) the named parties to any such action or proceeding (including any impleaded parties) include both the Indemnified Party and the Indemnifying Party, and the Indemnified Party shall have been advised by counsel that (A) there may be one or more legal defenses available to it which are different from or additional to those available to the -24- Indemnifying Party and (B) the representation of the Indemnifying Party and the Indemnified Party by the same counsel would be inappropriate or contrary to prudent practice (in which case, if the Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense of such action or proceeding on behalf of such Indemnified Party, it being understood, however, that the Indemnifying Party shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for the Indemnified Parties, which firm shall be designated in writing by Financial Security). The Indemnifying Party shall not be liable for any settlement of any such action or proceeding effected without its written consent to the extent that any such settlement shall be prejudicial to the Indemnifying Party but, if settled with its written consent, or if there be a final judgment for the plaintiff in any such action or proceeding with respect to which the Indemnifying Party shall have received notice in accordance with this subsection (b), the Indemnifying Party agrees to indemnify and hold the Indemnified Parties harmless from and against any loss or liability by reason of such settlement or judgment. (c) CONTRIBUTION. To provide for just and equitable contribution if the indemnification provided by the Indemnifying Party is determined to be unavailable for any Indemnified Party (other than due to application of this Section), the Indemnifying Party shall contribute to the losses incurred by the Indemnified Party on the basis of the relative fault of the Indemnifying Party, on the one hand, and the Indemnified Party, on the other hand. Section 1.035. SUBROGATION. Subject only to the priority of payment provisions of the Pooling and Servicing Agreement, each of the Seller and Atlantic acknowledges that, to the extent of any payment made by Financial Security pursuant to the Policy, Financial Security is to be fully subrogated to the extent of such payment and any additional interest due on any late payment, to the rights of the Certificateholders to any moneys paid or payable in respect of the Securities under the Transaction Documents or otherwise. Each of the Seller and Atlantic agrees to such subrogation and, further, agrees to execute such instruments and to take such actions as, in the sole judgment of Financial Security, are necessary to evidence such subrogation and to perfect the rights of Financial Security to receive any moneys paid or payable in respect of the Securities under the Transaction Documents or otherwise. -25- ARTICLE IV. FURTHER AGREEMENTS Section 4.01. EFFECTIVE DATE; TERM OF AGREEMENT. This Agreement shall take effect on the Date of Issuance and shall remain in effect until the later of (a) such time as Financial Security is no longer subject to a claim under the Policy and the Policy shall have been surrendered to Financial Security for cancellation and (b) all amounts payable to Financial Security and the Certificateholders under the Transaction Documents and under the Securities have been paid in full; PROVIDED, HOWEVER, that the provisions of Sections 3.02, 3.03 and 3.04 hereof shall survive any termination of this Agreement. Section 4.02. OBLIGATION ABSOLUTE. (a) The payment obligations of the Seller and Atlantic hereunder shall be absolute and unconditional, and shall be paid strictly in accordance with this Agreement under all circumstances irrespective of the following: (i) any lack of validity or enforceability of, or any amendment or other modifications of, or waiver with respect to, any of the Transaction Documents, the Securities or the Policy; (ii) any exchange or release of any other obligations hereunder; (iii) the existence of any claim, setoff, defense, reduction, abatement or other right which the Seller or Atlantic may have at any time against Financial Security or any other Person; (iv) any document presented in connection with the Policy proving to be forged, fraudulent, invalid or insufficient in any respect, including any failure to strictly comply with the terms of the Policy, or any statement therein being untrue or inaccurate in any respect; (v) any failure of the Seller to receive the proceeds from the sale of the Securities; (vi) any breach by the Seller or Atlantic of any representation, warranty or covenant contained in any of the Transaction Documents; or (vii) any other circumstances, other than payment in full, which might otherwise constitute a defense -26- available to, or discharge of the Seller or Atlantic in respect of any Transaction Document. (b) The Seller and Atlantic and any and all others who are now or may become liable for all or part of the obligations of the Seller or Atlantic under this Agreement agree to be bound by this Agreement and (i) to the extent permitted by law, waive and renounce any and all redemption and exemption rights and the benefit of all valuation and appraisement privileges against the indebtedness, if any, and obligations evidenced by any Transaction Document or by any extension or renewal thereof; (ii) waive presentment and demand for payment, notices of nonpayment and of dishonor, protest of dishonor and notice of protest; (iii) waive all notices in connection with the delivery and acceptance hereof and all other notices in connection with the performance, default or enforcement of any payment hereunder except as required by the Transaction Documents; (iv) waive all rights of abatement, diminution, postponement or deduction, or to any defense other than payment, or to any right of setoff or recoupment arising out of any breach under any of the Transaction Documents, by any party thereto or any beneficiary thereof, or out of any obligation at any time owing to the Seller or Atlantic; (v) agree that any consent, waiver or forbearance hereunder with respect to an event shall operate only for such event and not for any subsequent event; (vi) consent to any and all extensions of time that may be granted by Financial Security with respect to any payment hereunder or other provisions hereof and to the release of any security at any time given for any payment hereunder, or any part thereof, with or without substitution, and to the release of any Person or entity liable for any such payment; and (vii) consent to the addition of any and all other makers, endorsers, guarantors and other obligors for any payment hereunder, and to the acceptance of any and all other security for any payment hereunder, and agree that the addition of any such obligors or security shall not affect the liability of the parties hereto for any payment hereunder. (c) Nothing herein shall be construed as prohibiting Atlantic or the Seller from pursuing any rights or remedies it may have against any Person other than Financial Security in a separate legal proceeding. Section 4.03. ASSIGNMENTS; REINSURANCE; THIRD-PARTY RIGHTS. (a) This Agreement shall be a continuing obligation of the parties hereto and shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither the Seller nor Atlantic may assign its rights under this Agreement, or delegate any of its duties hereunder, without the prior written consent of Financial -27- Security. Any assignment made in violation of this Agreement shall be null and void. (b) Financial Security shall have the right to give participations in its rights under this Agreement and to enter into contracts of reinsurance with respect to the Policy upon such terms and conditions as Financial Security may in its discretion determine; PROVIDED, HOWEVER, that no such participation or reinsurance agreement or arrangement shall relieve Financial Security of any of its obligations hereunder or under the Policy. (c) In addition, Financial Security shall be entitled to assign or pledge to any bank or other lender providing liquidity or credit with respect to the Transaction or the obligations of Financial Security in connection therewith any rights of Financial Security under the Transaction Documents, or with respect to any real or personal property or other interests pledged to Financial Security, or in which Financial Security has a security interest, in connection with the Transaction. (d) Except as provided herein with respect to participants and reinsurers, nothing in this Agreement shall confer any right, remedy or claim, express or implied, upon any Person, including, particularly, any Certificateholder, other than Financial Security, against the Seller or Atlantic, and all the terms, covenants, conditions, promises and agreements contained herein shall be for the sole and exclusive benefit of the parties hereto and their successors and permitted assigns. Neither the Trustee nor any Certificateholder shall have any right to payment from any premiums paid or payable hereunder or from any other amounts paid by Atlantic or the Seller pursuant to Section 3.02, 3.03 or 3.04 hereof. Section 4.04. LIABILITY OF FINANCIAL SECURITY. Neither Financial Security nor any of its officers, directors or employees shall be liable or responsible for: (a) the use which may be made of the Policy by the Trustee or for any acts or omissions of the Trustee in connection therewith or (b) the validity, sufficiency, accuracy or genuineness of documents delivered to Financial Security (or its Fiscal Agent) in connection with any claim under the Policy, or of any signatures thereon, even if such documents or signatures should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged (unless Financial Security had actual knowledge thereof). In furtherance and not in limitation of the foregoing, Financial Security (or its Fiscal Agent) may accept documents that appear on their face to be in order, without responsibility for further investigation. -28- ARTICLE V. EVENTS OF DEFAULT; REMEDIES Section 5.01. EVENTS OF DEFAULT. The occurrence of any of the following events shall constitute an Event of Default hereunder: (a) any demand for payment shall be made under the Policy; (b) any representation or warranty made by the Seller, the Servicer or Atlantic under any of the Transaction Documents, or in any certificate or report furnished under any of the Transaction Documents, shall prove to be untrue or incorrect in any material respect; PROVIDED, HOWEVER, that if the Seller, the Servicer or Atlantic effectively cures any such defect in any representation or warranty under any Transaction Document or in any certificate or report furnished under any Transaction Document within 30 days after such defect arose, such defect shall not in and of itself constitute an Event of Default hereunder; (c) (i) the Seller, the Servicer or Atlantic shall fail to pay when due any amount payable by the Seller, the Servicer or Atlantic under any of the Transaction Documents; (ii) the Seller, the Servicer or Atlantic shall have asserted that any of the Transaction Documents to which it is a party is not valid and binding on the parties thereto; or (iii) any court, governmental authority or agency having jurisdiction over any of the parties to any of the Transaction Documents or any property thereof shall find or rule that any material provision of any of the Transaction Documents is not valid and binding on the parties thereto; (d) the Seller, the Servicer or Atlantic shall fail to perform or observe any other covenant or agreement contained in any of the Transaction Documents (except for the obligations described under clause (c) above or clause (l) below) and such failure shall continue for a period of 30 days after written notice given to the Seller, the Servicer or Atlantic, as the case may be; (e) Atlantic, the Servicer or the Seller shall fail to pay its debts generally as they come due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors, or shall institute any proceeding seeking to adjudicate it insolvent or seeking a liquidation, or shall take advantage of any insolvency act, or shall commence a case or other proceeding naming it as debtor under the United States Bankruptcy Code or similar law, -29- domestic or foreign, or a case or other proceeding shall be commenced against any of Atlantic, the Servicer or the Seller under the United States Bankruptcy Code or similar law, domestic or foreign, or any proceeding shall be instituted against any of Atlantic, the Servicer or the Seller seeking liquidation of its assets and such Person shall fail to take appropriate action resulting in the withdrawal or dismissal of such proceeding within 30 days or there shall be appointed or any of Atlantic, the Servicer or the Seller shall consent to, or acquiesce in, the appointment of a receiver, liquidator, conservator, trustee or similar official in respect of such Person or the whole or any substantial part of its properties or assets or such Person shall take any corporate action in furtherance of any of the foregoing; (f) the Average Delinquency Ratio as of any Determination Date shall have been equal to or greater than 5.0%; (g) the Average Default Rate with respect to any Determination Date shall have been equal to or greater than 10.0%; (h) the Average Net Loss Rate with respect to any Determination Date shall have been equal to or greater than 5.0%; (i) the occurrence of a Servicer Termination Event under the Pooling and Servicing Agreement; (j) the occurrence of an "Event of Default" under and as defined in any Insurance and Indemnity Agreement or similar agreement among Atlantic and/or the Seller and/or any Affiliate of Atlantic and Financial Security entered into with respect to another Series; (k) a notice of termination with respect to the Lockbox Agreement shall have been delivered and a replacement Lockbox Bank acceptable to Financial Security shall not have executed a Lockbox Agreement in form and substance satisfactory to Financial Security within 30 days of such notice; and (l) the failure of Atlantic or the Seller to comply with Section 2.03(n) of this Insurance Agreement. Section 5.02. REMEDIES; WAIVERS. (a) Upon the occurrence of an Event of Default, Financial Security may exercise any one or more of the rights and remedies set forth below: (i) declare the Premium Supplement to be immediately due and payable, and the same shall thereupon be immediately due and payable, whether or not Financial Security shall have declared an "Event of Default" or shall -30- have exercised, or be entitled to exercise, any other rights or remedies hereunder; (ii) exercise any rights and remedies available under the Transaction Documents in its own capacity or in its capacity as the Person entitled to exercise the rights of the Certificateholders in respect of the Securities; or (iii) take whatever action at law or in equity may appear necessary or desirable in its judgment to enforce performance of any obligation of the Seller or Atlantic under the Transaction Documents. (b) Unless otherwise expressly provided, no remedy herein conferred upon or reserved is intended to be exclusive of any other available remedy, but each remedy shall be cumulative and shall be in addition to other remedies given under the Transaction Documents or existing at law or in equity. No delay or failure to exercise any right or power accruing under any Transaction Document upon the occurrence of any Event of Default or otherwise shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle Financial Security to exercise any remedy reserved to Financial Security in this Article, it shall not be necessary to give any notice, other than such notice as may be expressly required in this Article. (c) If any proceeding has been commenced to enforce any right or remedy under this Agreement and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to Financial Security, then and in every such case the parties hereto shall, subject to any determination in such proceeding, be restored to their respective former positions hereunder, and, thereafter, all rights and remedies of Financial Security shall continue as though no such proceeding had been instituted. (d) Financial Security shall have the right, to be exercised in its complete discretion, to waive any covenant, Default or Event of Default by a writing setting forth the terms, conditions and extent of such waiver signed by Financial Security and delivered to the Seller and Atlantic. Any such waiver may only be effected in writing duly executed by Financial Security, and no other course of conduct shall constitute a waiver of any provision hereof. Unless such writing expressly provides to the contrary, any waiver so granted shall extend only to the specific event or occurrence so waived and not to any other similar event or occurrence. -31- ARTICLE VI. MISCELLANEOUS Section 6.01. AMENDMENTS, ETC. This Agreement may be amended, modified or terminated only by written instrument or written instruments signed by the parties hereto. No act or course of dealing shall be deemed to constitute an amendment, modification or termination hereof. Section 6.02. NOTICES. All demands, notices and other communications to be given hereunder shall be in writing (except as otherwise specifically provided herein) and shall be mailed by registered mail or personally delivered or telecopied to the recipient as follows: (a) To Financial Security: Financial Security Assurance Inc. 350 Park Avenue New York, New York 10022 Attention: Surveillance Department Re: Atlantic Auto Grantor Trust 1996-A 6.70% Asset Backed Certificates, Class A Confirmation: (212) 826-0100 Telecopy Nos.: (212) 339-3518, (212) 339-3529 (in each case in which notice or other communication to Financial Security refers to an Event of Default, a claim on the Policy or with respect to which failure on the part of Financial Security to respond shall be deemed to constitute consent or acceptance, then a copy of such notice or other communication should also be sent to the attention of each of the General Counsel and the Head-Financial Guaranty Group and shall be marked to indicate "URGENT MATERIAL ENCLOSED.") -32- (b) To the Seller: Atlantic Auto Third Funding Corporation c/o Atlantic Auto Finance Corporation (for so long 800 Perinton Hills Office Park as Atlantic is the P.O. Box 1502 Servicer) Fairport, New York 14450 Telecopy No: (716) 421-1954 Confirmation: (716) 421-1955 (c) To Atlantic: Atlantic Auto Finance Corporation 800 Perinton Hills Office Park P.O. Box 1502 Fairport, New York 14450 Telecopy No: (716) 421-1954 Confirmation: (716) 421-1955 A party may specify an additional or different address or addresses by writing mailed or delivered to the other party as aforesaid. All such notices and other communications shall be effective upon receipt. Section 6.03. PAYMENT PROCEDURE. In the event of any payment by Financial Security for which it is entitled to be reimbursed or indemnified as provided above, each of the Seller and Atlantic agrees to accept the voucher or other evidence of payment as PRIMA FACIE evidence of the propriety thereof and the liability therefor to Financial Security. All payments to be made to Financial Security under this Agreement shall be made to Financial Security in lawful currency of the United States of America in immediately available funds to the account number provided in the Premium Letter before 1:00 p.m. (New York, New York time) on the date when due or as Financial Security shall otherwise direct by written notice to the Seller and Atlantic. In the event that the date of any payment to Financial Security or the expiration of any time period hereunder occurs on a day which is not a Business Day, then such payment or expiration of time period shall be made or occur on the next succeeding Business Day with the same force and effect as if such payment was made or time period expired on the scheduled date of payment or expiration date. Payments to be made to Financial Security under this Agreement shall bear interest at the Late Payment Rate from the date due to the date paid. Section 6.04. SEVERABILITY. In the event that any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, the parties hereto agree that such holding shall not invalidate or render unenforceable any other provision hereof. The parties hereto -33- further agree that the holding by any court of competent jurisdiction that any remedy pursued by any party hereto is unavailable or unenforceable shall not affect in any way the ability of such party to pursue any other remedy available to it. Section 6.05. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Section 6.06. CONSENT TO JURISDICTION. (a) THE PARTIES HERETO HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND ANY COURT IN THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND TO OR IN CONNECTION WITH ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREUNDER OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD OR DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. THE PARTIES HERETO AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THE TRANSACTION DOCUMENTS OR THE SUBJECT MATTER THEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS. (b) To the extent permitted by applicable law, the parties hereto shall not seek and hereby waive the right to any review of the judgment of any such court by any court of any other nation or jurisdiction which may be called upon to grant an enforcement of such judgment. (c) Each of the Seller and Atlantic hereby irrevocably appoints and designates CT Corporation System, whose address is 1633 Broadway, New York, New York 10019, as its true and lawful attorney and duly authorized agent for acceptance of service of legal process. Each of the Seller and Atlantic agrees that service of such process upon such Person shall constitute personal service of such process upon it. (d) Nothing contained in the Agreement shall limit or affect Financial Security's right to serve process in any other manner permitted by law or to start legal proceedings relating to -34- any of the Transaction Documents against the Seller or Atlantic or its respective property in the courts of any jurisdiction. Section 6.07. CONSENT OF FINANCIAL SECURITY. In the event that Financial Security's consent is required under any of the Transaction Documents, the determination whether to grant or withhold such consent shall be made by Financial Security in its sole discretion without any implied duty towards any other Person, except as otherwise expressly provided therein. Section 6.08. COUNTERPARTS. This Agreement may be executed in counterparts by the parties hereto, and all such counterparts shall constitute one and the same instrument. Section 6.09. TRIAL BY JURY WAIVED. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING DIRECTLY OR INDIRECTLY OUT OF, UNDER OR IN CONNECTION WITH ANY OF THE TRANSACTION DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREUNDER. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THE TRANSACTION DOCUMENTS TO WHICH IT IS A PARTY BY, AMONG OTHER THINGS, THIS WAIVER. Section 6.10. LIMITED LIABILITY. No recourse under any Transaction Document shall be had against, and no personal liability shall attach to, any officer, employee, director, affiliate or shareholder of any party hereto, as such, by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute or otherwise in respect of any of the Transaction Documents, the Securities or the Policy, it being expressly agreed and understood that each Transaction Document is solely a corporate obligation of each party hereto, and that any and all personal liability, either at common law or in equity, or by statute or constitution, of every such officer, employee, director, affiliate or shareholder for breaches by any party hereto of any obligations under any Transaction Document is hereby expressly waived as a condition of and in consideration for the execution and delivery of this Agreement. Section 6.11. ENTIRE AGREEMENT. This Agreement, the Premium Letter and the Policy set forth the entire agreement between the parties with respect to the subject matter thereof, and this Agreement supersedes and replaces any agreement or understanding that may have existed between the parties prior to the date hereof in respect of such subject matter. -35- Section 6.12 NON-PETITION COVENANT. Until one year plus one day shall have elapsed since the termination of the Trust in accordance with Section 12.1 of the Pooling and Servicing Agreement, Financial Security shall not petition or otherwise invoke the process of any court or governmental authority for the purpose of commencing or sustaining a case against the Seller or the Trust under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Seller or the Trust or any substantial part of its property, or ordering the winding up or liquidation of the affairs of the Seller or the Trust. -36- IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement, all as of the day and year first above written. FINANCIAL SECURITY ASSURANCE INC. By: /s/ Claire M. Robinson ------------------------------------ Name: Claire M. Robinson Title: Managing Director ATLANTIC AUTO FINANCE CORPORATION By: /s/ Richard J. Harrison ------------------------------------ Name: Richard J. Harrison Title: President ATLANTIC AUTO THIRD FUNDING CORPORATION By: /s/ Richard J. Harrison ------------------------------------ Name: Richard J. Harrison Title: President APPENDIX I DEFINITIONS "AAFC" means Atlantic Auto Funding Corporation, a Delaware corporation and a wholly owned subsidiary of Atlantic. "AAFC ASSIGNMENT" means that certain Assignment dated as of July 19, 1996, by AAFC for the benefit of Atlantic, pursuant to which AAFC transfers all its rights to the Receivables and other related property to Atlantic. "ACCUMULATED FUNDING DEFICIENCY" shall have the meaning provided in Section 412 of the Code and Section 302 of ERISA, whether or not waived. "BUSINESS DAY" means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the City of New York are authorized or obligated by law or executive order to be closed. "CERTIFICATEHOLDERS" means registered holders of the Securities. "CLASS B CERTIFICATES" means the $1,417,958.27 Asset Backed Certificates, Class B, issued and executed by the Trust and authenticated by the Trustee, in substantially the form set forth in Exhibit B to the Pooling and Servicing Agreement. "CNAI" means Citibank North America, Inc., a Delaware corporation. "CODE" means the Internal Revenue Code of 1986, including, unless the context otherwise requires, the rules and regulations thereunder, as amended from time to time. "COMMISSION" means the Securities and Exchange Commission. "COMMONLY CONTROLLED ENTITY" means the Seller or Atlantic and each entity, whether or not incorporated, which is affiliated with the Seller or Atlantic pursuant to Section 414(b), (c), (m) or (o) of the Code. "CUSTODIAL AGREEMENT" means the Custodial Agreement dated as of June 20, 1996, among the Custodian, the Trustee and Atlantic, as such agreement may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof. "CUSTODIAL RECEIVABLES FILES" shall have the meaning set forth in Section 3.2(a) of the Pooling and Servicing Agreement. Appendix I ---------- 1 "CXC" means CXC Incorporated, a Delaware corporation. "CXC ASSIGNMENT" means that certain Assignment dated as of July 19, 1996, by CXC for the benefit of AAFC, pursuant to which CXC transfers all its rights to the Receivables and other related property to AAFC. "CXC RECEIVABLES PURCHASE AGREEMENT" means the Receivables Purchase Agreement dated as of August 11, 1995, among AAFC, Atlantic, CXC and Citicorp, North America, Inc. as agent thereunder. "DATE OF ISSUANCE" means the date on which the Policy is issued as specified therein. "DEFAULT" means any event which results, or which with the giving of notice or the lapse of time or both would result, in an Event of Default. "ERISA" means the Employee Retirement Income Security Act of 1974, including, unless the context otherwise requires, the rules and regulations thereunder, as amended from time to time. "EVENT OF DEFAULT" means any event of default specified in Section 5.01 of this Agreement. "EXPIRATION DATE" means the final date of the Term of the Policy, as specified in the Policy. "FINANCIAL SECURITY" means Financial Security Assurance Inc., a New York stock insurance company, its successors and assigns. "FINANCIAL SECURITY INFORMATION" has the meaning provided in Section 2.01(j) of this Agreement. "FINANCIAL STATEMENTS" means, with respect to Atlantic and UAG, as the case may be, its balance sheet as of December 31, 1995 and its statements of income, retained earnings and cash flows for the 12-month period then ended and the notes thereto and its balance sheet as of March 31, 1996 and its statements of income, retained earnings and cash flows for the three months then ended and the notes thereto, if applicable. "FISCAL AGENT" means the Fiscal Agent, if any, designated pursuant to the terms of the Policy. "INDEMNIFICATION AGREEMENT" means the Indemnification Agreement dated as of June 20, 1996 among Financial Security, the Seller and the Initial Purchaser, as the same may be amended, Appendix I ---------- 2 supplemented or otherwise modified from time to time in accordance with the terms thereof. "INITIAL PURCHASER" means Donaldson, Lufkin & Jenrette Securities Corporation. "INITIAL PURCHASER AGREEMENT" means the Purchase Agreement dated July 19, 1996, between the Initial Purchaser and the Seller with respect to the purchase and sale of the Securities, as the same may be amended, Supplemented or otherwise modified from time to time. "INSURANCE AGREEMENT" means this Insurance and Indemnity Agreement, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof. "INTERCREDITOR AGREEMENT" means the Intercreditor Agreement dated as of August 11, 1995 by and among CNAI, AAFC and certain other parties named therein. "INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, including, unless the context otherwise requires, the rules and regulations thereunder, as amended from time to time. "IRS" means the Internal Revenue Service. "LATE PAYMENT RATE" means the lesser of (a) the greater of (i) the per annum rate of interest, publicly announced from time to time by The Chase Manhattan Bank at its principal office in the City of New York, as its prime or base lending rate (any change in such rate of interest to be effective on the date such change is announced by Chemical Bank) plus 3%, and (ii) the then applicable highest rate of interest on the Securities and (b) the maximum rate permissible under applicable usury or similar laws limiting interest rates. The Late Payment Rate shall be computed on the basis of the actual number of days elapsed over 360 days. "LIEN" means, as applied to the property or assets (or the income or profits therefrom) of any Person, in each case whether the same is consensual or nonconsensual or arises by contract, operation of law, legal process or otherwise: (a) any mortgage, lien, pledge, attachment, charge, lease, conditional sale or other title retention agreement, or other security interest or encumbrance of any kind or (b) any arrangement, express or implied, under which such property or assets are transferred, sequestered or otherwise identified for the purpose of subjecting or making available the same for the payment of debt or performance of any other obligation in priority to the payment of the general, unsecured creditors of such Person. Appendix I ---------- 3 "LOAN AND SECURITY AGREEMENT" means the Loan and Security Agreement dated as of June 28, 1995 among AAFC, Atlantic and CNAI. "MATERIAL ADVERSE CHANGE" means, (a) in respect of any Person, a material adverse change in (i) the business, financial condition, results of operations or properties of such Person or any of its Subsidiaries or Affiliates, or (ii) the ability of such Person to perform its obligations under any of the Transaction Documents to which it is a party and (b) in respect of any Receivable, a material adverse change in (i) the value or marketability of such Receivable, or (ii) the probability that amounts now or hereafter due in respect of such Receivable will be collected on a timely basis. "MOODY'S" means Moody's Investors Service, Inc., a Delaware corporation, and any successor thereto, and, if such corporation shall for any reason no longer perform the functions of a securities rating agency, "Moody's" shall be deemed to refer to any other nationally recognized rating agency designated by Financial Security. "MULTIEMPLOYER PLAN" means a multiemployer plan (within the meaning of Section 4001(a)(3) of ERISA) in respect of which a Commonly Controlled Entity makes contributions or has liability. "NOTICE OF CLAIM" means a Notice of Claim and Certificate in the form attached as Exhibit A to Endorsement No. 1 to the Policy. "OFFERING DOCUMENT" means the Confidential Preliminary Offering Memorandum dated July 8, 1996 and the Confidential Offering Memorandum dated July 12, 1996, in each case, of the Seller in respect of the Securities and any amendment or supplement thereto and any other offering document of the Seller or an Affiliate thereof in respect of the Securities that makes reference to the Policy. "OTHER TRUST PROPERTY" means the Trust Property exclusive of the Policy. "PBGC" means the Pension Benefit Guaranty Corporation or any successor agency, corporation or instrumentality of the United States to which the duties and powers of the Pension Benefit Guaranty Corporation are transferred. "PERSON" means an individual, joint stock company, trust, unincorporated association, joint venture, corporation, business or owner trust, partnership or other organization or entity (whether governmental or private). Appendix I ---------- 4 "PLAN" means any pension plan (other than a Multiemployer Plan) covered by Title IV of ERISA, which is maintained by a Commonly Controlled Entity or in respect of which a Commonly Controlled Entity has liability. "POLICY" means the financial guaranty insurance policy, including any endorsements thereto, issued by Financial Security with respect to the Securities, substantially in the form attached as Annex I to this Agreement. "POOLING AND SERVICING AGREEMENT" means the Pooling and Servicing Agreement dated as of June 20, 1996 among the Seller, Atlantic, as Servicer, and the Trustee on behalf of the Certificateholders, pursuant to which the Securities are to be issued and the Receivables are to be serviced and administered, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof. "PREMIUM" means the premium payable in accordance with Section 3.02 of the Insurance Agreement and the Premium Supplement, if any. "PREMIUM LETTER" means the side letter among Financial Security, Atlantic, the Seller and the Trustee dated July 19, 1996 in respect of the premium payable in consideration of the issuance of the Policy. "PREMIUM SUPPLEMENT" means a non-refundable premium, in addition to the premium payable in accordance with Section 3.02 of this Agreement, payable to Financial Security in monthly installments commencing on the Premium Supplement Commencement Date and on each monthly anniversary thereof in accordance with the terms set forth in the Premium Letter. "PREMIUM SUPPLEMENT COMMENCEMENT DATE" means the date of occurrence of the Event of Default in respect of which the Premium Supplement shall have been declared due and payable in accordance with Section 5.02 of this Agreement. "PROVIDED DOCUMENTS" means the Transaction Documents and any documents, agreements, instruments, schedules, certificates, statements, cash flow schedules, number runs or other writings or data furnished to Financial Security by or on behalf of the Seller, Atlantic or AAFC with respect to itself, its Subsidiaries or Affiliates or the Transaction. "RECEIVABLE" has the meaning provided in the Pooling and Servicing Agreement. Appendix I ---------- 5 "RECEIVABLES PURCHASE AGREEMENT" means the Receivables Purchase Agreement and Assignment dated as of June 20, 1996 between Atlantic and the Seller. "REPORTABLE EVENT" means any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder. "RESTRICTIONS ON TRANSFERABILITY" means, as applied to the property or assets (or the income or profits therefrom) of any Person, in each case whether the same is consensual or nonconsensual or arises by contract, operation of law, legal process or otherwise, any material condition to, or restriction on, the ability of such Person or any transferee therefrom to sell, assign, transfer or otherwise liquidate such property or assets in a commercially reasonable time and manner or which would otherwise materially deprive such Person or any transferee therefrom of the benefits of ownership of such property or assets. "SECURITIES" means the $45,837,000 of Atlantic Auto Grantor Trust 1996-A, 6.70% Asset Backed Certificates, Class A issued pursuant to the Pooling and Servicing Agreement. "SECURITIES ACT" means the Securities Act of 1933, including, unless the context otherwise requires, the rules and regulations thereunder, as amended from time to time. "SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, including, unless the context otherwise requires, the rules and regulations thereunder, as amended from time to time. "SERIES 1996-A" or "SERIES 1996-A CERTIFICATES" means the Series of Certificates issued on the date hereof pursuant to the Pooling and Servicing Agreement. "SERIES OF CERTIFICATES" or "SERIES" means the Series 1996-A Certificates or any, or as the context may require, all, additional series of securities, certificates, notes or other obligations issued or arising as described in paragraph C of the Introductory Statements hereto. "SERVICER RECEIVABLES FILES" shall have the meaning set forth in Section 3.2(b) of the Pooling and Servicing Agreement. "SERVICER TERMINATION SIDE LETTER" means the letter from Financial Security to the Servicer, Trustee and Atlantic dated as of July 19, 1996, with regard to the renewal term of the Servicer. "S&P" means Standard & Poor's Ratings Group, division of McGraw Hill, Inc., and any successor thereto, and, if such entity Appendix I ---------- 6 shall for any reason no longer perform the functions of a securities rating agency, "S&P" shall be deemed to refer to any other nationally recognized rating agency designated by Financial Security. "SPECIAL EVENT" means the occurrence of any one of the following: (a) an Event of Default under the Insurance Agreement has occurred and is continuing, (b) a Trigger Event has occurred and is continuing, (c) any legal proceeding or binding arbitration is instituted with respect to the Transaction or (d) any governmental or administrative investigation, action or proceeding is instituted that would, if adversely decided, result in a Material Adverse Change in respect of Atlantic, the Seller or the Receivables. "SPREAD ACCOUNT AGREEMENT" means the Master Spread Account Agreement, dated as of June 20, 1996 among the Seller, the Collateral Agent, the Trustee and Financial Security, and as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof. "STOCK PLEDGE AGREEMENT" means the Stock Pledge and Collateral Agency Agreement dated as of June 20, 1996, among Financial Security, Atlantic and the Collateral Agent, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof. "SUBSIDIARY" means, with respect to any Person (herein referred to as the "parent"), any corporation, partnership, association or other business entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partnership interests are, at the time any determination is being made, owned, controlled or held by the parent or (b) that is, at the time any determination is being made, otherwise controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "TERM OF THE AGREEMENT" shall be determined as provided in Section 4.01 of this Agreement. "TERM OF THE POLICY" has the meaning provided in the Policy. "TRANSACTION" means the transactions contemplated by the Transaction Documents, including the transactions described in the Offering Document. "TRANSACTION DOCUMENTS" means this Agreement, the Indemnification Agreement, the Custodial Agreement, the Pooling and Servicing Agreement, the Premium Letter, the Lockbox Appendix I ---------- 7 Agreement, the Stock Pledge Agreement, the Receivables Purchase Agreement, the AAFC Assignment, the CXC Assignment, the Servicer Termination Side Letter and the Spread Account Agreement. "TRUST" means the trust created under the Pooling and Servicing Agreement. "TRUST ACCOUNTS" means the Collection Account, the Policy Payments Account, and the Lockbox Account. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, including, unless the context otherwise requires, the rules and regulations thereunder, as amended from time to time. "TRUSTEE" means The Chase Manhattan Bank, as trustee under the Pooling and Servicing Agreement, and any successor thereto as trustee under the Pooling and Servicing Agreement. "UAG" means United Auto Group, Inc. "UNDERFUNDED PLAN" means any Plan that has an Underfunding. "UNDERFUNDING" means, with respect to any Plan, the excess, if any, of (a) the present value of all benefits under the Plan (based on the assumptions used to fund the Plan pursuant to Section 412 of the Code) as of the most recent valuation date over (b) the fair market value of the assets of such Plan as of such valuation date. Appendix I ---------- 8 APPENDIX II TO INSURANCE AND INDEMNITY AGREEMENT CONDITIONS PRECEDENT TO ISSUANCE OF THE POLICY (a) PAYMENT OF INITIAL PREMIUM AND EXPENSES; PREMIUM LETTER. Financial Security shall have been paid, by or on behalf of Atlantic, a nonrefundable Premium and shall have been reimbursed, by or on behalf of Atlantic, for other fees and expenses identified in Section 3.02 of the Insurance Agreement as payable at closing and Financial Security shall have received a fully executed copy of the Premium Letter. (b) TRANSACTION DOCUMENTS. Financial Security shall have received a copy of each of the Transaction Documents, in form and substance satisfactory to Financial Security, duly authorized, executed and delivered by each party thereto. Without limiting the foregoing, the provisions of the Pooling and Servicing Agreement relating to the payment to Financial Security of Premium due on the Policy and the reimbursement to Financial Security of amounts paid under the Policy shall be in form and substance acceptable to Financial Security in its sole discretion. (c) CERTIFIED DOCUMENTS AND RESOLUTIONS. Financial Security shall have received a copy of (i) the certificate of incorporation and bylaws for each of the Seller, Atlantic and AAFC and (ii) the resolutions of the board of directors of each of the Seller, Atlantic and AAFC authorizing the issuance of the Securities (in the case of Atlantic and the Seller only) and the execution, delivery and performance by the Seller, Atlantic and AAFC of the Transaction Documents to which it is a party and the transactions contemplated thereby, certified by a Secretary or Assistant Secretary of the Seller, Atlantic or AAFC respectively (which certificate shall state that such certificate of incorporation and bylaws are in full force and effect without modification on the Date of Issuance). (d) INCUMBENCY CERTIFICATE. Financial Security shall have received a certificate of a Secretary or Assistant Secretary of the Seller, Atlantic and AAFC respectively, certifying the name and signatures of the officers of the Seller, Atlantic and AAFC, as the case may be, authorized to execute and deliver the Transaction Documents to which it is a party, respectively, and that all consents necessary to execute and deliver such documents have been obtained. (e) REPRESENTATIONS AND WARRANTIES; CERTIFICATE. The representations and warranties of the Seller and Atlantic, as the case may be, in the Insurance Agreement shall be true and correct Appendix II ---------- 1 as of the Date of Issuance with respect to such Person as if made on the Date of Issuance and Financial Security shall have received a certificate of an appropriate officer of the Seller and Atlantic, as the case may be, to that effect. (f) OPINIONS OF COUNSEL. Financial Security shall have received opinions of counsel addressed to Financial Security, Moody's and S&P in respect of the Seller, Atlantic, AAFC, the other parties to the Transaction Documents and the Transaction in form and substance satisfactory to Financial Security, addressing such matters as Financial Security may reasonably request, including without limitation, the items set forth in Appendix A hereto, and the counsel providing each such opinion shall have been instructed by its client to deliver such opinion to the addressees thereof. (g) APPROVALS, ETC. Financial Security shall have received true and correct copies of all approvals, licenses and consents, if any, required in connection with the Transaction. (h) NO LITIGATION, ETC. No suit, action or other proceeding, investigation, or injunction or final judgment relating thereto, shall be pending or threatened before any court or governmental agency in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with any of the Transaction Documents or the consummation of the Transaction. (i) LEGALITY. No statute, rule, regulation or order shall have been enacted, entered or deemed applicable by any government or governmental or administrative agency or court which would make the transactions contemplated by any of the Transaction Documents, illegal or otherwise prevent the consummation thereof. (j) SATISFACTION OF CONDITIONS OF THE INITIAL PURCHASER AGREEMENT. All conditions in the Initial Purchaser Agreement to the Initial Purchaser's obligation to purchase the Securities shall have been satisfied. (k) ISSUANCE OF RATINGS. Financial Security shall have received confirmation that the risk secured by the Policy constitutes an investment grade risk by S&P and an insurable risk by Moody's and that the Securities, when issued, will be rated "AAA" by S&P and "Aaa" by Moody's. (l) MAINTENANCE OF RECEIVABLES FILES; FILINGS AND RECORDINGS. Financial Security shall have received evidence satisfactory to it that: (i) the Custodial Receivables Files are being maintained by and held in the custody of the Custodian pursuant to the Custodial Agreement; (ii) the Servicer Receivables Files are being maintained by the Servicer pursuant Appendix II ---------- 2 to the Pooling and Servicing Agreement; (iii) all filings necessary to perfect the interest of the Trust in the Receivables and the Other Trust Property have been made; and (iv) all taxes, fees and other changes payable in connection with such filings shall have been paid. (m) Financial Security shall have received the CXC Assignment, the AAFC Assignment, a release letter by CNAI and such other documents as are requested by Financial Security in connection with (i) the assignment by CXC to AAFC of certain of the Receivables and certain other property related thereto pursuant to the CXC Assignment and the release by CXC of its Lien on such property, (ii) the assignment by AAFC to Atlantic of the Receivables and certain other property related thereto pursuant to the AAFC Assignment and the release by AAFC of its Lien on such property and (iii) the repayment by AAFC of certain indebtedness owed by AAFC to CNAI under the Loan and Security Agreement and the release by CNAI of its Lien on certain of the Receivables and certain other property related thereto pursuant to the Loan and Security Agreement and the Intercreditor Agreement, in each case in form and substance satisfactory to Financial Security in its sole discretion, including, without limitation, delivery to the Trustee for filing of amendments to, and/or terminations of, UCC financing statements to be filed in such locations as are required to evidence the release of any Liens of CXC, AAFC, CNAI and other relevant parties, as the case may be, on the Receivables and the Other Trust Property. (n) NO DEFAULT. No Default or Event of Default shall have occurred. (o) ADDITIONAL ITEMS. Financial Security shall have received such other documents instruments, approvals or opinions requested by Financial Security as may be reasonably necessary to effect the Transaction, including but not limited to evidence satisfactory to Financial Security that all conditions precedent, if any, in the Transaction Documents have been satisfied. Appendix II ---------- 3 EX-10.3-9 27 EXHIBIT 10.3.9 EXECUTION COPY MASTER SPREAD ACCOUNT AGREEMENT, dated as of June 20, 1996 among ATLANTIC AUTO THIRD FUNDING CORPORATION, FINANCIAL SECURITY ASSURANCE INC. and THE CHASE MANHATTAN BANK, as Trustee and as Collateral Agent TABLE OF CONTENTS Page ---- ARTICLE I. DEFINITIONS Section 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.02. Rules of Interpretation. . . . . . . . . . . . . . . . . . 12 ARTICLE II. REVERSIONARY HOLDERS; SERIES SUPPLEMENTS; THE COLLATERAL Section 2.01. Reversionary Holders.. . . . . . . . . . . . . . . . . . . 12 Section 2.02. Series Supplements.. . . . . . . . . . . . . . . . . . . . 13 Section 2.03. Creation and Grant of Security Interest by the Seller.. . . . . . . . . . . . . . . . . . . . . . . 14 Section 2.04. Priority.. . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 2.05. Seller Remains Liable. . . . . . . . . . . . . . . . . . . 15 Section 2.06. Maintenance of Collateral. . . . . . . . . . . . . . . . . 16 Section 2.07. Termination and Release of Rights. . . . . . . . . . . . . 16 Section 2.08. Non-Recourse Obligations of Seller and the Reversionary Holders.. . . . . . . . . . . . . . . . . . 18 ARTICLE III. SPREAD ACCOUNTS Section 3.01. Establishment of Spread Accounts; Initial Deposits into Spread Accounts. . . . . . . . . . . . . . 18 Section 3.02. Investments. . . . . . . . . . . . . . . . . . . . . . . . 19 Section 3.03. Distributions; Priority of Payments. . . . . . . . . . . . 20 Section 3.04. General Provisions Regarding Spread Accounts.. . . . . . . . . . . . . . . . . . . . . . . . 24 Section 3.05. Reports by the Collateral Agent. . . . . . . . . . . . . . 25 ARTICLE IV. THE COLLATERAL AGENT Section 4.01. Appointment and Powers.. . . . . . . . . . . . . . . . . . 25 Section 4.02. Performance of Duties. . . . . . . . . . . . . . . . . . . 26 Section 4.03. Limitation on Liability. . . . . . . . . . . . . . . . . . 26 Section 4.04. Reliance upon Documents. . . . . . . . . . . . . . . . . . 27 Section 4.05. Successor Collateral Agent.. . . . . . . . . . . . . . . . 27 Section 4.06. Indemnification. . . . . . . . . . . . . . . . . . . . . . 29 Section 4.07. Compensation and Reimbursement.. . . . . . . . . . . . . . 30 Section 4.08. Representations and Warranties of the Collateral Agent.. . . . . . . . . . . . . . . . . . . . 30 Section 4.09. Waiver of Setoffs. . . . . . . . . . . . . . . . . . . . . 31 Section 4.10. Control by the Controlling Party.. . . . . . . . . . . . . 31 ARTICLE V. COVENANTS OF THE SELLER Section 5.01. Preservation of Collateral.. . . . . . . . . . . . . . . . 31 Section 5.02. Opinions as to Collateral. . . . . . . . . . . . . . . . . 32 Section 5.03. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 5.04. Waiver of Stay or Extension Laws; Marshalling of Assets. . . . . . . . . . . . . . . . . . . . . . . . 33 Section 5.05. Noninterference, etc.. . . . . . . . . . . . . . . . . . . 33 Section 5.06. Seller Changes.. . . . . . . . . . . . . . . . . . . . . . 34 ARTICLE VI. CONTROLLING PARTY; INTERCREDITOR PROVISIONS Section 6.01. Appointment of Controlling Party.. . . . . . . . . . . . . 34 Section 6.02. Controlling Party's Authority. . . . . . . . . . . . . . . 35 Section 6.03. Rights of Secured Parties. . . . . . . . . . . . . . . . . 36 Section 6.04. Degree of Care.. . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE VII. REMEDIES UPON DEFAULT Section 7.01. Remedies upon a Default. . . . . . . . . . . . . . . . . . 37 Section 7.02. Waiver of Default. . . . . . . . . . . . . . . . . . . . . 37 Section 7.03. Restoration of Rights and Remedies.. . . . . . . . . . . . 37 Section 7.04. No Remedy Exclusive. . . . . . . . . . . . . . . . . . . . 37 ARTICLE VIII. MISCELLANEOUS Section 8.01. Further Assurances.. . . . . . . . . . . . . . . . . . . . 38 Section 8.02. Waiver.. . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 8.03. Amendments, Waivers. . . . . . . . . . . . . . . . . . . . 38 Section 8.04. Severability.. . . . . . . . . . . . . . . . . . . . . . . 39 Section 8.05. Nonpetition Covenant.. . . . . . . . . . . . . . . . . . . 39 Section 8.06. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 8.07. Term of this Agreement.. . . . . . . . . . . . . . . . . . 41 Section 8.08. Assignments, Third-Party Rights; Reinsurance. . . . . . . . . . . . . . . . . . . . . . . 42 Section 8.09. Consent of Controlling Party.. . . . . . . . . . . . . . . 42 Section 8.10. Trial by Jury Waived . . . . . . . . . . . . . . . . . . . 42 Section 8.11. Governing Law. . . . . . . . . . . . . . . . . . . . . . . 43 Section 8.12. Consents to Jurisdiction.. . . . . . . . . . . . . . . . . 43 Section 8.13. Limitation of Liability. . . . . . . . . . . . . . . . . . 44 Section 8.14. Determination of Adverse Effect. . . . . . . . . . . . . . 44 Section 8.15. Counterparts.. . . . . . . . . . . . . . . . . . . . . . . 44 Section 8.16. Headings.. . . . . . . . . . . . . . . . . . . . . . . . . 44 MASTER SPREAD ACCOUNT AGREEMENT MASTER SPREAD ACCOUNT AGREEMENT, dated as of June 20, 1996 (the "Agreement"), by and among ATLANTIC AUTO THIRD FUNDING CORPORATION, a Delaware corporation (the "Seller"), FINANCIAL SECURITY ASSURANCE INC., a New York stock insurance company ("Financial Security") and THE CHASE MANHATTAN BANK, a New York banking corporation, in its capacities as Trustee under each Securitization Agreement referred to below, in such capacity as agent for the Certificateholders and Financial Security with respect to the related Series (the "Trustee") and as Collateral Agent (as defined below). RECITALS 1. Atlantic Auto Grantor Trust 1996-A (the "Series 1996-A Trust") was formed pursuant to a Pooling and Servicing Agreement dated as of June 20, 1996, as such agreement may be supplemented, amended or modified from time to time (the "Series 1996-A Securitization Agreement") among the Seller, Atlantic Auto Finance Corporation, a Delaware corporation ("Atlantic"), in its capacity as Servicer (the "Servicer"), and the Trustee, in its capacities as Trustee, Backup Servicer and Collateral Agent. 2. Pursuant to the Series 1996-A Securitization Agreement, the Seller assigned to the Trustee all of its right, title and interest in and to the Receivables and certain other property of the Series 1996-A Trust Estate. 3. The Seller requested that Financial Security issue the Series 1996-A Policy to the Trustee to guarantee payment of the Guaranteed Distributions (as defined in such Policy) on each Distribution Date in respect of the Series 1996- A Certificates. 4. In partial consideration of the issuance of the Series 1996-A Policy, the Seller has agreed that Financial Security shall have certain rights as Controlling Party, to the extent set forth herein with respect to the Receivables and the Series 1996-A Trust Estate. 5. In order to secure the performance of the Secured Obligations, the Seller, in its capacity as the agent of the Reversionary Holders, has agreed to pledge the Collateral to the Collateral Agent for the benefit of Financial Security and for the benefit of the Trustees on behalf of the Trusts, upon the terms and conditions set forth herein. 6. It is contemplated that Atlantic and/or the Seller or any other Affiliate of Atlantic may in the future enter into one or more additional Securitization Agreements pursuant to which the Seller, Atlantic or such other Affiliate of Atlantic will sell or pledge all or a portion of its right, title and interest in and to pools of Receivables and/or other financial assets or property to a Trust or other Person and in connection therewith Financial Security in its discretion may issue additional Policies with respect to certain guaranteed distributions or scheduled payments with respect to the corresponding additional Series. In connection with any such issuance of additional Policies, it is contemplated that Financial Security will obtain certain Controlling Party rights with respect to the related Series, and that, in connection with each such additional Series, the parties hereto will enter into a Series Supplement hereto pursuant to which Atlantic and/or the Seller will assign, or cause to be assigned, additional Collateral pursuant to the terms hereof. AGREEMENTS In consideration of the premises, and for other good and valuable consideration, the adequacy, receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I. DEFINITIONS Section 1.01. DEFINITIONS. Unless defined in this Agreement, capitalized terms used in this Agreement shall have the meaning given such terms in the applicable Securitization Agreement or Series Supplement, as identifiable from the context in which such term is used. The following terms shall have the following respective meanings: "AGREEMENT" means this Master Spread Account Agreement, as amended, supplemented as otherwise modified from time to time in accordance with the terms hereof. "ATLANTIC" means Atlantic Auto Finance Corporation, a Delaware corporation. "AUTHORIZED OFFICER" means, (i) with respect to Financial Security, the Chairman of the Board, the President, the Executive Vice President or any Managing Director of Financial Security, (ii) with respect to the Trustees or the Collateral Agent, any Vice President, Second Vice President or Trust Officer thereof, and (iii) with respect to the Seller, the President, any Vice President or the Controller or any other officer or employee having similar functions. -2- "CERTIFICATEHOLDERS" means the holders of the Certificates of a Series as more particularly described in the Securitization Agreement with respect to such Series. "CERTIFICATES" means the "certificates", "notes" or other obligations issued or arising under a Securitization Agreement. "CHASE MANHATTAN BANK" means The Chase Manhattan Bank, a New York banking corporation. "COLLATERAL" means the Series 1996-A Collateral, and with respect to any other Series, all collateral delivered hereunder with respect to each of such Series, as specified in the related Series Supplement. "COLLATERAL AGENT" means, initially, Chase Manhattan Bank, in its capacity as collateral agent on behalf of the Secured Parties, including its successors in interest, until a successor Person shall have become the Collateral Agent pursuant to Section 4.05 hereof, and thereafter "Collateral Agent" shall mean such successor Person. "COLLATERAL AGENT FEE" means, with respect to the Series 1996-A Certificates, the annual fee payable to the Collateral Agent for services rendered as the Collateral Agent, which Collateral Agent Fee is included in the fees paid to Chase Manhattan Bank pursuant to the Series 1996-A Pooling and Servicing Agreement. "COLLECTION ACCOUNT" means the Collection Account applicable to any Series, as specified in the related Securitization Agreement. "CONTROLLING PARTY" means, with respect to a Series, at any time, the Person designated as the Controlling Party at such time pursuant to Section 6.01 hereof. "DEEMED CURED" means, as of a Determination Date, with respect to a Trigger Event that has occurred with respect to a Series, that no Trigger Event with respect to such Series shall have occurred as of such Determination Date or as of any of the two consecutively preceding Determination Dates. "DEFAULT" means with respect to any Series, at any time, (i) if Financial Security is then the Controlling Party with respect to such Series, any Insurance Agreement Event of Default with respect to such Series, and (ii) if the Trustee is then the Controlling Party with respect to such Series, any Servicer Termination Event with respect to such Series. -3- "DEFICIENCY CLAIM DATE" means, with respect to any Distribution Date, the fourth Business Day preceding such Distribution Date. "DELIVERY" means with respect to the Collateral: (a) with respect to bankers' acceptances, commercial paper, negotiable certificates of deposit and other obligations that constitute "instruments" within the meaning of Section 9-105(l)(i) of the UCC (other than certificated securities) and are susceptible of physical delivery, transfer thereof to the Collateral Agent by physical delivery to the Collateral Agent, indorsed to, or registered in the name of, the Collateral Agent or its nominee or indorsed in blank and such additional or alternative procedures as may hereafter become appropriate to effect the complete transfer of ownership of any such Collateral to the Collateral Agent free and clear of any adverse claims, consistent with changes in applicable law or regulations or the interpretation thereof; (b) with respect to a "certificated security" (as defined in Section 8-102(1)(a) of the UCC), transfer thereof: (i) by physical delivery of such certificated security to the Collateral Agent, provided that if the certificated security is in registered form, it shall be indorsed to, or registered in the name of, the Collateral Agent or indorsed in blank; (ii) by physical delivery of such certificated security to a "financial intermediary" (as defined in Section 8-313(4) of the UCC) of the Collateral Agent specially indorsed to or issued in the name of the Collateral Agent; (iii) by the sending by a financial intermediary, not a "clearing corporation" (as defined in Section 8-102(3) of the UCC), of a confirmation of the purchase and the making by such financial intermediary of entries on its books and records identifying as belonging to the Collateral Agent of (A) a specific certificated security in the financial intermediary's possession, (B) a quantity of securities that constitute or are part of a fungible bulk of certificated securities in the financial intermediary's possession, or (C) a quantity of securities that constitute or are part of a fungible bulk of securities shown on the account of the financial intermediary on the books of another financial intermediary; or -4- (iv) by the making by a clearing corporation of appropriate entries on its books reducing the appropriate securities account of the transferor and increasing the appropriate securities account of the Collateral Agent or a Person designated by the Collateral Agent by the amount of such certificated security, provided that in each case: (A) the clearing corporation identifies such certificated security for the sole and exclusive account of the Collateral Agent or the Person designated by the Collateral Agent, (B) such certificated security shall be subject to the clearing corporation's exclusive control, (C) such certificated security is in bearer form or indorsed in blank or registered in the name of the clearing corporation or custodian bank or a nominee or either of them, (D) custody of such certificated security shall be maintained by such clearing corporation or a "custodian bank" (as defined in Section 8-102(4) of the UCC) or the nominee of either subject to the control of the clearing corporation and (E) such certificated security is shown on the account of the transferor thereof on the books of the clearing corporation prior to the making of such entries; and such additional or alternative procedures as may hereafter become appropriate to effect the complete transfer of ownership of any such Collateral to the Collateral Agent free and clear of any adverse claims, consistent with changes in applicable law or regulations or the interpretation thereof; (c) with respect to any security issued by the U.S. Treasury, the Federal Home Loan Mortgage Corporation or by the Federal National Mortgage Association that is a book-entry security held through the Federal Reserve System pursuant to Federal book entry regulations, the following procedures, all in accordance with applicable law, including applicable federal regulations and Articles 8 and 9 of the UCC: book-entry registration of such property to an appropriate book-entry account maintained with a Federal Reserve Bank by a financial intermediary which is also a "depositary" pursuant to applicable federal regulations and issuance by such financial intermediary of a deposit advice or other written confirmation of such book-entry registration to the Collateral Agent of the purchase by the financial intermediary on behalf of the Collateral Agent of such book-entry security; the making by such financial intermediary of entries in its books and records identifying such book-entry security held through the Federal Reserve System pursuant to Federal book-entry regulations as belonging to the Collateral Agent and indicating that such financial intermediary holds such book-entry security solely -5- an agent for the Collateral Agent; and such additional or alternative procedures as may hereafter become appropriate to effect complete transfer of ownership of any such Collateral to the Collateral Agent free of any adverse claims, consistent with changes in applicable law or regulations or the interpretation thereof; (d) with respect to any item of Collateral that is an "uncertificated security" (as defined in Section 8-102(1)(b) of the UCC) and that is not governed by clause (c) above, transfer thereof: (i) by registration of the transfer thereof to the Collateral Agent, on the books and records of the issuer thereof; (ii) by the sending of a confirmation by a financial intermediary of the purchase, and the making by such financial intermediary of entries on its books and records identifying as belonging to the Collateral Agent (A) a quantity of securities which constitute or are part of a fungible bulk of uncertificated securities registered in the name of the financial intermediary or (B) a quantity of securities which constitute or are part of a fungible bulk of securities shown on the account of the financial intermediary on the books of another financial intermediary; or (iii) by the making by a clearing corporation of appropriate entries on its books reducing the appropriate account of the transferor and increasing the account of the Collateral Agent or a person designated by the Collateral Agent by the amount of such uncertificated security, provided that in each case: (A) the clearing corporation identifies such uncertificated security for the sole and exclusive use of the Collateral Agent or the Person designated by the Collateral Agent, (B) such uncertificated security is registered in the name of the clearing corporation or a custodian bank or a nominee of either, and (C) such uncertificated security is shown on the account of the transferor on the books of the clearing corporation prior to the making of such entries; and (e) in each case of delivery contemplated herein, the Collateral Agent shall make appropriate notations on its records, and shall cause same to be made of the records of -6- its nominees, indicating that such securities are held in trust pursuant to and as provided in this Agreement. "FINAL TERMINATION DATE" means, with respect to a Series, the date that is the later of (i) the Insurer Termination Date with respect to such Series and (ii) the Trustee Termination Date with respect to such Series. "FINANCIAL SECURITY DEFAULT" means, with respect to any Series, any one of the following events shall have occurred and be continuing: (a) Financial Security shall have failed to make a payment required under the related Policy; (b) Financial Security shall have (i) filed a petition or commenced any case or proceeding under any provision or chapter of the United States Bankruptcy Code or any other similar federal or state law relating to insolvency, bankruptcy, rehabilitation, liquidation or reorganization, (ii) made a general assignment for the benefit of its creditors, or (iii) had an order for relief entered against it under the United States Bankruptcy Code or any other similar federal or state law relating to insolvency, bankruptcy, rehabilitation, liquidation or reorganization which is final and nonappealable; or (c) a court of competent jurisdiction, the New York Department of Insurance or other competent regulatory authority shall have entered a final and nonappealable order, judgment or decree (i) appointing a custodian, trustee, agent or receiver for Financial Security or for all or any material portion of its property or (ii) authorizing the taking of possession by a custodian, trustee, agent or receiver of Financial Security (or the taking of possession of all or any material portion of the property of Financial Security). "GUARANTEED DISTRIBUTIONS" shall have the meaning set forth in the related Policy. "INITIAL SPREAD ACCOUNT DEPOSIT" means, with respect to the Series 1996-A Certificates, an amount equal to 1% of the Series 1996-A Initial Balance or $472,549.58. "INSURANCE AGREEMENT" means, with respect to any Series, the Insurance and Indemnity Agreement among Financial Security and/or Atlantic and/or the Seller and such other parties as may be named therein, pursuant to which Financial Security issued a Policy to the Trustee. -7- "INSURER SECURED OBLIGATIONS" means, with respect to a Series, all amounts and obligations which may at any time be owed to or on behalf of Financial Security (or any agents, accountants or attorneys for Financial Security) under the Insurance Agreement related to such Series or under any Transaction Document in respect of such Series, regardless of whether such amounts are owed now or in the future, whether liquidated or unliquidated, contingent or noncontingent. "INSURER TERMINATION DATE" means, with respect to any Series, the date which is the latest of (i) the date of the expiration of all Policies issued in respect of such Series, (ii) the date on which Financial Security shall have received payment and performance in full of all Insurer Secured Obligations with respect to such Series and (iii) the latest date any payment referred to above could be avoided as a preference or otherwise under the United States Bankruptcy Code or any other similar federal or state law relating to insolvency, bankruptcy, rehabilitation, liquidation or reorganization, as specified in an Opinion of Counsel delivered to the Collateral Agent and the Trustee. "LIEN" means any security interest, lien, change, pledge, preference, equity or encumbrance of any kind, including tax liens, mechanics' liens and any liens that attach by operation of the law. "MONTHLY PERIOD" means, with respect to a Determination Date or a Distribution Date, the calendar month immediately preceding the month in which such Determination Date or Distribution Date occurs (such calendar month being referred to as the "related" Monthly Period with respect to such Determination Date or Distribution Date). "NON-CONTROLLING PARTY" means with respect to a Series at any time, the Secured Party that is not the Controlling Party at such time. "OPINION OF COUNSEL" means a written opinion of counsel acceptable, as to form, substance and issuing counsel, to the Controlling Party. "POLICY" means the Series 1996-A Policy and any insurance policy subsequently issued by Financial Security with respect to a Series. "REQUISITE AMOUNT" means, with respect to Series 1996-A, as of any Determination Date after giving effect to any distributions of principal on the Series 1996-A Class A Certificates to be made on the related Distribution Date, the greater of (a) the lesser of (i) 1.5% of the Series 1996-A -8- Initial Balance and (ii) the greater of (A) the Series 1996-A Balance as of such Determination Date and (B) $100,000, and (b) (i) if no Trigger Event shall have occurred as of such Determination Date and all previous Trigger Events have been Deemed Cured, and no Insurance Agreement Event of Default shall have occurred as of such Determination Date, 6% of the Series 1996-A Balance as of such Determination Date; (ii) if a Trigger Event shall have occurred as of such Determination Date (and until such Trigger Event is Deemed Cured) and no Insurance Agreement Event of Default shall have occurred as of such Determination Date, 12% of the Series 1996-A Balance as of such Determination Date; or (iii) if an Insurance Agreement Event of Default shall have occurred as of such Determination Date, an unlimited amount. "REVERSIONARY HOLDER" has the meaning specified in Section 2.01 hereof. "SCHEDULED PAYMENTS" shall have the meaning set forth in the related Policy. "SECURED OBLIGATIONS" means, with respect to each Series the Insurer Secured Obligations with respect to such Series and the Trustee Secured Obligations with respect to such Series. "SECURED PARTIES" means Financial Security and the Trustee. "SECURITIZATION AGREEMENT" means, with respect to the Series 1996-A Certificates, the Series 1996-A Securitization Agreement and, for each other Series created pursuant to a Securitization Agreement, the "Pooling and Servicing Agreement", "Sale and Servicing Agreement", "Indenture", "Receivables Purchase Agreement" or any other financing document related to such Series. "SECURITY INTERESTS" means, with respect to the Series 1996-A Certificates, the security interests and Liens in the Series 1996-A Collateral granted pursuant to Section 2.03 hereof, and, with respect to any other Series, the security interests and Liens in the related Collateral granted pursuant to the related Series Supplement. "SERIES 1996-A BALANCE" means with respect to any Determination Date, the sum of the Class A Certificate Balance and the Class B Certificate Balance as of the related Distribution Date, after giving effect to any distributions of principal to be made on the Class A Certificates and Class B Certificates on such Distribution Date. "SERIES 1996-A CERTIFICATES" means the Series of Certificates issued pursuant to the Series 1996-A Securitization -9- Agreement (any such class of such Series of Certificates referred to herein as "Series 1996-A Class A Certificates," or "Series 1996-A Class B Certificates"). "SERIES 1996-A CLASS B SUB-ACCOUNT" means the sub-account of the Series 1996-A Spread Account established pursuant to Section 3.01(a) hereof. "SERIES 1996-A COLLATERAL" has the meaning specified in Section 2.03(a) hereof. "SERIES 1996-A INITIAL BALANCE" means $47,254,958.27. "SERIES 1996-A INSURANCE AGREEMENT" means the Insurance Agreement related to the Series 1996-A Certificates. "SERIES 1996-A INSURER SECURED OBLIGATIONS" means the Insurer Secured Obligations with respect to the Series 1996-A Certificates. "SERIES 1996-A POLICY" means the Policy issued with respect to the Series 1996-A Class A Certificates. "SERIES 1996-A REVERSIONARY HOLDERS" has the meaning specified in Section 2.01 hereof. "SERIES 1996-A SECURED OBLIGATIONS" means the Secured Obligations related to the Series 1996-A Certificates. "SERIES 1996-A SECURITIZATION AGREEMENT" has the meaning set forth in the first recital to this Agreement. "SERIES 1996-A SELLER SUB-ACCOUNT" means the sub-account of the Series 1996-A Spread Account established pursuant to Section 3.01(a) hereof. "SERIES 1996-A SPREAD ACCOUNT" has the meaning specified in Section 3.01(a) hereof. "SERIES 1996-A TRUST" has the meaning provided in the first recital to this Agreement. "SERIES OF CERTIFICATES" or "SERIES" means the Series 1996-A Certificates or, as the context may require, any other series of Certificates issued or arising as described in Section 2.02 hereof, or collectively, all such series. "SERIES SUPPLEMENT" means a supplement hereto executed by the parties hereto in accordance with Section 2.02 hereof. -10- "SERVICER TERMINATION SIDE LETTER" shall have the meaning set forth in the Insurance Agreement. "SPREAD ACCOUNT" has the meaning specified in Section 3.01(a) hereof. "SPREAD ACCOUNT ELIGIBLE INVESTMENTS" means Eligible Investments held by the Collateral Agent in a Spread Account and with respect to which the Collateral Agent has taken Delivery. "SPREAD ACCOUNT SHORTFALL" means, with respect to any Series and any Distribution Date, the excess, if any, of (a) the Requisite Amount for such Series as of the related Determination Date over (b) the amount on deposit in the related Spread Account after making any withdrawals therefrom required by priorities FIRST, SECOND, and THIRD of Section 3.03(b) hereof. "TRANSACTION DOCUMENTS" means, with respect to a Series, this Agreement, each of the applicable Securitization Agreement, the Insurance Agreement, the Indemnification Agreement, the Receivables Purchase Agreement, the Lockbox Agreement, the Premium Letter, the Servicer Termination Side Letter, the Custodial Agreement, the Initial Purchaser Agreement (as defined in the Insurance Agreement) the Stock Pledge Agreement (as defined in the Insurance Agreement) and any other financing document related to such Series. "TRIGGER EVENT" means, with respect to Series 1996-A, that any one of the following events shall have occurred and shall not have terminated: (a) the Average Delinquency Ratio as of any Determination Date is equal to or greater than 4.0%; or (b) the Average Default Rate with respect to a Determination Date is equal to or greater than 7.0%; or (c) the Average Net Loss Rate as of any Determination Date is equal to or greater than 3.5%. "TRUST" means a trust formed pursuant to a Securitization Agreement. "TRUST ESTATE" with respect to any Series means the property assigned to the Trustee or other Person or held in the estate of the Trust, in each case pursuant to the related Securitization Agreement. "TRUSTEE" means with respect to any Series, the Trustee named in the related Securitization Agreement. "TRUSTEE SECURED OBLIGATIONS" means, with respect to a Series, all amounts and obligations which Atlantic or the Seller may at any time owe to or on behalf of the Trustee, the Trust or the Certificateholders under the Securitization Agreement with respect to such Series. -11- "TRUSTEE TERMINATION DATE" means, with respect to any Series, the date which is the latest of (i) the date on which the Trustee shall have received, as Trustee for the holders of the Certificates of such Series, payment and performance in full of all Trustee Secured Obligations arising out of or relating to such Series and (ii) the date on which all payments in respect of the Certificates shall have been made and the related Trust shall have been terminated pursuant to the terms of the related Securitization Agreement and (iii) the latest date any payment referred to above could be avoided as a preference or otherwise under the United States Bankruptcy Code or any other similar federal or state law relating to insolvency, bankruptcy, rehabilitation, liquidation or reorganization, as specified in an Opinion of Counsel delivered to the Collateral Agent and the Trustee. "UNIFORM COMMERCIAL CODE" or "UCC" means the Uniform Commercial Code in effect in the relevant jurisdiction, as the same may be amended from time to time. "UNREIMBURSED AMOUNTS" has the meaning specified in Section 3.03(b) hereof. Section 1.02. RULES OF INTERPRETATION. The terms "hereof," "herein" or "hereunder," unless otherwise modified by more specific reference, shall refer to this Agreement in its entirety. Unless otherwise indicated in context, the terms "Article," "Section," "Appendix," "Exhibit" or "Annex" shall refer to an Article or Section of, or Appendix, Exhibit or Annex to, this Agreement. The definition of a term shall include the singular, the plural, the past, the present, the future, the active and the passive forms of such term. A term defined herein and used herein preceded by a Series designation, shall mean such term as it relates to the Series designated. ARTICLE II. REVERSIONARY HOLDERS; SERIES SUPPLEMENTS; THE COLLATERAL Section 2.01. REVERSIONARY HOLDERS. It is anticipated that each Securitization Agreement will require that certain amounts be deposited into a Spread Account. With respect to any Series, the Person or Persons who will ultimately be entitled to receive distributions of amounts released from the related Spread Account are the "REVERSIONARY HOLDERS" with respect to such Spread Account and Series and may be classified into different classes of Reversionary Holders pursuant to the applicable Securitization Agreement and Section 3.03 hereof. With respect to the Series 1996-A Certificates, the Reversionary Holders (the "Series 1996-A Reversionary Holders") shall be the Seller and the Class B Certificateholders. -12- It is intended by the parties hereto that the Collateral shall constitute property held in trust by the Collateral Agent, to provide for the payment of the Secured Obligations, and that such Collateral and any property rights appurtenant thereto shall vest in the related Reversionary Holders only when such Collateral is released to such Reversionary Holders in accordance with Section 3.03(b) hereof. Notwithstanding the foregoing, each Reversionary Holder may treat the deposit of the related Collateral into the related Spread Account as the receipt by such Reversionary Holder of such Collateral for federal and state income taxes, as may be required by law. With respect to the Series 1996-A Collateral, (i) the Seller shall only treat the deposit of such Collateral into the Series 1996-A Seller Sub-account of the Series 1996-A Spread Account as the receipt by the Seller of such Collateral for federal and state income taxes, and (ii) the Class B Certificateholders shall only treat the deposit of such Collateral into the Series 1996-A Class B Sub-account of the Series 1996-A Spread Account as the receipt by the Class B Certificateholders of such Collateral for federal and state income taxes. The Series 1996-A Securitization Agreement and each other Securitization Agreement in which the Seller is not itself the sole Reversionary Holder shall provide that the Seller shall be deemed to be the agent of the related Reversionary Holders for the purpose of perfecting the Collateral Agent's Security Interest in the related Collateral. Each Securitization Agreement shall additionally provide that the Reversionary Holders agree to execute and deliver such instruments of conveyance, assignment, grant, confirmation, etc., as well as any financing statements, in each case, as the Controlling Party shall consider reasonably necessary in order to perfect the Collateral Agent's Security Interest in the related Collateral. Section 2.02. SERIES SUPPLEMENTS. The parties hereto agree that the Seller will have the option to enter into a Series Supplement hereto with respect to each Series, the Secured Obligations with respect to which are to be secured by Collateral held pursuant to the provisions of this Agreement. The parties will enter into a Series Supplement only if the following conditions shall have been satisfied: (i) The Seller shall have sold or pledged all or a portion of its right, title and interest in and to a pool of Receivables and/or other financial assets or property to a Trust or other Person pursuant to a Securitization Agreement; -13- (ii) Financial Security shall have issued a Policy in respect of the Guaranteed Distributions or Scheduled Payments, as the case may be, with respect to the senior class of the Series issued or arising pursuant to such Securitization Agreement; and (iii) Pursuant to the related Series Supplement the related Collateral specified herein shall be administered by the Collateral Agent substantially on the terms set forth in Section 2.03 hereof. Section 2.03. CREATION AND GRANT OF SECURITY INTEREST BY THE SELLER. (a) To secure the performance of the Series 1996-A Secured Obligations and the Secured Obligations with respect to each other Series to the extent provided herein, the Seller, including in its capacity as agent on behalf of the Reversionary Holders, hereby pledges, assigns, grants, transfers and conveys to the Collateral Agent, on behalf of and for the benefit of the Secured Parties, a lien on and security interest in (which lien and security interest is intended to be prior to all other Liens), all of its right, title and interest in and to the following (all being collectively referred to herein as the "Series 1996-A Collateral" and constituting Collateral hereunder): (i) the amounts distributed to the Series 1996-A Spread Account pursuant to Sections 5.5(a)(vi), 5.5(a)(vii) and 5.5(a)(x) of the Series 1996-A Securitization Agreement and all rights and remedies that the Reversionary Holders may have to enforce such distributions, whether under the Series 1996-A Securitization Agreement or otherwise; (ii) the Series 1996-A Spread Account established pursuant to Section 3.01 hereof, and each other account established by the Seller and maintained by the Collateral Agent (including, without limitation, the Initial Spread Account Deposit related thereto and all additional monies, checks, securities, investments and other documents from time to time held in or evidencing any such accounts); (iii) all of the Seller's right, title and interest in its capacity as a Series 1996-A Reversionary Holder and as agent for all other Series 1996-A Reversionary Holders, in and to investments made with proceeds of the property described in clauses (i) and (ii) above or made with amounts on deposit in the Series 1996-A Spread Account; and (iv) all distributions, revenues, products, substitutions, benefits, profits and proceeds, in whatever form, of any of the foregoing. -14- (b) To effectuate the provisions and purposes of this Agreement, including for the purpose of perfecting the security interests granted hereunder, the Seller represents and warrants that it has, prior to the execution of this Agreement, executed and delivered for filing Series 1996-A on the Series 1996-A Closing Date an appropriate Uniform Commercial Code financing statement in form sufficient to assure that upon the filing of such financial statement the Collateral Agent, as agent for the Secured Parties, will have a first priority perfected security interest in all Series 1996-A Collateral which can be perfected by the filing of a financing statement. The Seller shall cause such financing statement to be filed in New York no later than one Business Day subsequent to the Series 1996-A Closing Date. Section 2.04. PRIORITY. The Seller intends the security interests in favor of the Collateral Agent, for the benefit of the Secured Parties, to be prior to all other Liens in respect of the Collateral, and the Seller shall take all actions necessary to obtain and maintain, in favor of the Collateral Agent, for the benefit of the Secured Parties, a first lien on and a first priority perfected security interest in the Collateral. Subject to the provisions hereof specifying the rights and powers of the Controlling Party from time to time to control certain specified matters relating to the Collateral, each Secured Party shall have all of the rights, remedies and recourse with respect to the Collateral afforded a secured party under the Uniform Commercial Code, and all other applicable law in addition to, and not in limitation of, the other rights, remedies and recourse granted to such Secured Parties by this Agreement or any other law relating to the creation and perfection of liens on, and security interests in, the Collateral. Section 2.05. SELLER REMAINS LIABLE. The Security Interests are granted as security only and shall not (i) transfer or in any way affect or modify, or relieve the Seller from, any obligation to perform or satisfy, any term, covenant, condition or agreement to be performed or satisfied by the Seller under or in connection with this Agreement, the Insurance Agreement or any other Transaction Document to which it is a party or (ii) impose any obligation on any of the Secured Parties or the Collateral Agent to perform or observe any such term, covenant, condition or agreement or impose any liability on any of the Secured Parties or the Collateral Agent for any act or omission on its part relative thereto or for any breach of any representation or warranty on its part contained therein or made in connection therewith, except, in each case, to the extent provided herein and in the other Transaction Documents. -15- Section 2.06. MAINTENANCE OF COLLATERAL. (a) SAFEKEEPING. The Collateral Agent agrees to (i) maintain the Collateral (other than Spread Account Eligible Investments) received by it and all records and documents relating thereto at the office of the Collateral Agent specified in Section 8.06 hereof or such other address within the State of New York (unless all filings have been made to continue the perfection of the security interest in the Collateral to the extent such security interest can be perfected by filing a financing statement, as evidenced by an Opinion of Counsel delivered by the Seller to the Controlling Party), as may be approved by the Controlling Party and (ii) take Delivery of and maintain the Spread Account Eligible Investments and all records and documents relating thereto at its offices within the State of New York. The Collateral Agent shall keep all Collateral and related documentation in its possession separate and apart from all other property that it is holding in its possession and from its own general assets and shall maintain accurate records pertaining to the Spread Account Eligible Investments and Spread Accounts included in the Collateral in such a manner as shall enable the Collateral Agent and the Secured Parties to verify the accuracy of such record-keeping. The Collateral Agent's books and records shall at all times show that the Collateral is held by the Collateral Agent as agent of the Secured Parties and is not the property of the Collateral Agent. The Collateral Agent will promptly report to each Secured Party and the Seller any failure on its part to hold the Collateral as provided in this Section 2.06(a) and will promptly take appropriate action to remedy any such failure. (b) ACCESS. The Collateral Agent shall permit each of the Secured Parties, the Reversionary Holders or their respective duly authorized representatives, attorneys, auditors or designees, to inspect the Collateral in the possession of or otherwise under the control of the Collateral Agent pursuant hereto at such reasonable times during normal business hours as any such Secured Party or Reversionary Holder may reasonably request upon not less than two Business Days' prior written notice. The costs and expenses associated with any such inspection will be paid by the party making such inspection. Section 2.07. TERMINATION AND RELEASE OF RIGHTS. (a) On the Insurer Termination Date relating to a Series, the rights, remedies, powers, duties, authority and obligations conferred upon Financial Security pursuant to this Agreement in respect of the Collateral related to such Series (and, to the extent provided herein, in respect of Collateral related to other Series) shall terminate and be of no further force and effect and all rights, remedies, powers, duties, authority and obligations -16- of Financial Security with respect to such Collateral shall be automatically released; PROVIDED that any indemnity provided to or by Financial Security herein shall survive such Insurer Termination Date. If Financial Security is acting as Controlling Party with respect to a Series on the related Insurer Termination Date, Financial Security agrees, at the expense of the Seller, to execute and deliver such instruments as the successor Controlling Party may reasonably request to effect such release, and any such instruments so executed and delivered shall be fully binding on Financial Security and any Person claiming by, through or under Financial Security. (b) On the Trustee Termination Date related to a Series, the rights, remedies, powers, duties, authority and obligations, if any, conferred upon the Trustee pursuant to this Agreement in respect of the Collateral related to such Series (and, to the extent provided herein, in respect of Collateral related to other Series) shall terminate and be of no further force and effect and all such rights, remedies, powers, duties, authority and obligations of the Trustee with respect to such Collateral shall be automatically released; PROVIDED that any indemnity provided to the Trustee herein shall survive such Trustee Termination Date. If the Trustee is acting as Controlling Party with respect to a Series on the related Trustee Termination Date, the Trustee agrees, at the expense of the Seller, to execute and deliver such instruments as the Seller may reasonably request to effectuate such release, and any such instruments so executed and delivered shall be fully binding on the Trustee. (c) On the Final Termination Date with respect to a Series, the rights, remedies, powers, duties, authority and obligations conferred upon the Collateral Agent and each Secured Party pursuant to this Agreement shall terminate and be of no further force and effect and all rights, remedies, powers, duties, authority and obligations of the Collateral Agent and each Secured Party with respect to the Collateral related to such Series (and, to the extent provided herein, in respect of Collateral related to other Series) shall be automatically released, subject to the application of such amounts for indemnity payments and all other amounts due and payable hereunder. On the Final Termination Date with respect to a Series, the Collateral Agent agrees, and each Secured Party agrees, at the expense of the Seller, to execute such instruments of release, in recordable form if necessary, in favor of the Seller as the Seller may reasonably request, to deliver any Collateral related to such Series in its possession to the Seller or as otherwise provided in the related Securitization Agreement, and to otherwise release the lien of this Agreement and release and deliver to the Seller or as otherwise provided in the related Securitization Agreement the Collateral related to such Series. -17- Section 2.08. NON-RECOURSE OBLIGATIONS OF SELLER AND THE REVERSIONARY HOLDERS. Notwithstanding anything herein or in the other Transaction Documents to the contrary, the parties hereto agree that the obligations of the Seller and the Reversionary Holders hereunder shall be recourse only to the extent of amounts deposited in the Spread Accounts. The Seller agrees that it shall not declare or make payment of (i) any dividend or other distribution on or in respect of any of its common stock or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (x) any common stock of the Seller or (y) any option, warrant or other right to acquire any common stock of the Seller, unless (in each case) at the time of such declaration or payment (and after giving effect thereto) no amount payable by Seller or any Reversionary Holder under any Transaction Document is then due and owing but unpaid. ARTICLE III. SPREAD ACCOUNTS Section 3.01. ESTABLISHMENT OF SPREAD ACCOUNTS; INITIAL DEPOSITS INTO SPREAD ACCOUNTS. (a) On or prior to the Closing Date relating to Series 1996-A, the Collateral Agent shall establish with respect to such Series, at its office or at another depository institution or trust company an Eligible Account, designated, "Spread Account - Atlantic Auto Grantor Trust Series 1996-A - The Chase Manhattan Bank, as Collateral Agent for Financial Security Assurance Inc. and another Secured Party" (the "Spread Account", and, with respect to the Series 1996-A Certificates, the "Series 1996-A Spread Account"). The Series 1996-A Spread Account shall include two separate sub-accounts, which shall be the Series 1996-A Seller Sub-account and the Series 1996-A Class B Sub-account. All Spread Accounts established under this Agreement from time to time shall be maintained at the same depository institution (which depository institution may be changed from time to time in accordance with this Agreement). If any Spread Account maintained or established with respect to a Series ceases to be an Eligible Account, the Collateral Agent shall, within five Business Days, establish a new Eligible Account for such Series. (b) No withdrawals may be made of funds in any Spread Account except as provided in Section 3.03 of this Agreement. Except as specifically provided in this Agreement, funds in a Spread Account established with respect to a Series shall not be commingled with funds in a Spread Account established with respect to another Series or with any other moneys. All moneys deposited from time to time in such Spread Account and all -18- investments made with such moneys shall be held by the Collateral Agent as part of the Collateral with respect to such Series. (c) On the Closing Date with respect to a Series, the Collateral Agent shall deposit the Initial Spread Account Deposit with respect to such Series, if any, received from the Seller into the related Spread Account, which with respect to the Series 1996-A Spread Account shall be deposited into the Series 1996-A Seller Sub-account. (d) Each Spread Account shall be separate from each Trust, and amounts on deposit therein will not constitute a part of the Trust Estate of any Trust. Each Spread Account shall be maintained by the Collateral Agent at all times separate and apart from any other account of the Seller, the Servicer or the Trust. All income or loss on investments of funds in any Spread Account shall be reported by the applicable Reversionary Holder as taxable income or loss of such Reversionary Holder, provided that with respect to the Series 1996-A Spread Account, (i) all income or loss on investments of funds in the Series 1996-A Seller Sub-account shall be reported by the Seller as taxable income or loss of the Seller, and (ii) all income or loss on investments of funds in the Series 1996-A Class B Sub-account shall be reported by the Class B Certificateholders as taxable income or loss of the Class B Certificateholders. Section 3.02. INVESTMENTS. (a) Funds which may at any time be held in the Spread Account established with respect to a Series shall be invested and reinvested by the Collateral Agent, at the written direction (including, subject to the provisions hereof, general standing instructions) of the Seller (unless a Default actually known to a Authorized Officer of the Collateral Agent shall have occurred and be continuing, in which case at the written direction of the Controlling Party) or its designee received by the Collateral Agent by 1:00 P.M. New York City time on the Business Day prior to the date on which such investment shall be made, in one or more Spread Account Eligible Investments in the manner specified in Section 3.02(c) hereof. If no written direction with respect to any portion of such Spread Account is received by the Collateral Agent, the Collateral Agent shall invest such funds overnight in such Eligible Investments as the Collateral Agent may select, provided that the Collateral Agent shall not be liable for any loss or absence of income resulting from such investments or for investments made pursuant to written instructions received in accordance with this Section 3.02(a). (b) Each investment made pursuant to this Section 3.02 on any date shall mature not later than the Business Day immediately preceding the Distribution Date next succeeding the day such -19- investment is made, except that any investment made on the day preceding a Distribution Date shall mature on such Distribution Date; PROVIDED that any investment of funds in any Spread Account maintained with the Collateral Agent (which shall be qualified as a Spread Account Eligible Investment) in any investment as to which the Collateral Agent is the obligor, if otherwise qualified as an Eligible Investment (including any repurchase agreement on which the Collateral Agent in its commercial capacity is liable as principal) may mature on the Distribution Date next succeeding the date of such investment. (c) Subject to the other provisions hereof, the Collateral Agent shall have sole control over each such investment and the income thereon, and any certificate or other instrument evidencing any such investment, if any, shall be delivered directly to the Collateral Agent or its agent, together with each document of transfer, if any, necessary to transfer title to such investment to the Collateral Agent in a manner complying with Section 2.06 hereof and the requirements of the definition of "Spread Account Eligible Investments." (d) If amounts on deposit in any Spread Account are at any time invested in a Spread Account Eligible Investment payable on demand, the Collateral Agent shall (i) consistent with any notice required to be given thereunder, demand that payment thereon be made on the last day such Spread Account Eligible Investment is permitted to mature under the provisions hereof and (ii) demand payment of all amounts due thereunder promptly upon receipt of written notice from the Controlling Party to the effect that such investment does not constitute a Spread Account Eligible Investment. (e) All moneys on deposit in a Spread Account together with any deposits or securities in which such moneys may be invested or reinvested, and any gains from such investments, shall constitute Collateral hereunder with respect to the related Series subject to the Security Interests of the Secured Parties. (f) Subject to Section 4.03 hereof, the Collateral Agent shall not be liable by reason of any insufficiency in any Spread Account resulting from any loss on any Eligible Investment included therein except for losses attributable to the Collateral Agent's failure to make payments on Eligible Investments as to which the Collateral Agent, in its commercial capacity, is obligated to make. Section 3.03. DISTRIBUTIONS; PRIORITY OF PAYMENTS. (a) On or before each Deficiency Claim Date with respect to any Series, the Collateral Agent will make the following calculations on the basis of information (including, without -20- limitation, the amount of any Deficiency Claim Amount with respect to any Series) received pursuant to Section 4.9 of the applicable Securitization Agreement (or other section referenced in the related Series Supplement), with respect to each such Series from the Servicer thereunder; PROVIDED, HOWEVER, that if the Collateral Agent receives notice from Financial Security of the occurrence of an Insurance Agreement Event of Default with respect to any Series, such notice shall be determinative for the purposes of determining the Requisite Amount for such Series: FIRST, determine the amounts to be on deposit in the respective Spread Accounts (taking into account amounts to be deposited into the related Spread Accounts) on the next succeeding Distribution Date which will be available to satisfy any Deficiency Claim Amount, provided that with respect to the Series 1996-A Spread Account, such amounts shall be determined separately for the Series 1996-A Seller Sub-account and the Series 1996-A Class B Sub-account. SECOND, determine (i) the amounts, if any, to be distributed from each Spread Account related to each Series with respect to which there exists a Deficiency Claim Amount, provided that with respect to the Series 1996-A Spread Account, such amounts shall be determined separately for the Series 1996-A Seller Sub-account and the Series 1996-A Class B Sub-account, and (ii) whether, following distribution from the related Spread Accounts to the respective Trustees for deposit into the respective Collection Account with respect to which there exists a Deficiency Claim Amount, a Deficiency Claim Amount will continue to exist with respect to one or more Series. THIRD, if a Deficiency Claim Amount will continue to exist with respect to one or more Series other than the Series 1996-A Certificates following the distributions from the related Spread Accounts contemplated by paragraph SECOND above, determine the amount, if any, to be distributed to the Trustee with respect to each Series from unrelated Spread Accounts other than the Series 1996-A Spread Account in respect of such Deficiency Claim Amount(s). This determination shall be made in accordance with the distribution priority scheme set forth in Section 3.03(b) below. On such Deficiency Claim Date related to a Series, the Collateral Agent shall deliver a certificate to each Trustee in respect of which the Collateral Agent has received a Deficiency Notice stating the amount, if any, to be distributed to such Trustee on the next Distribution Date in respect of such Deficiency Claim Amount. -21- (b) On each Distribution Date, following the deposit into the respective Spread Accounts (or sub-accounts thereof as specified in the related Securitization Agreement) of the amounts required to be deposited therein pursuant to the respective Securitization Agreements and if the Trustee has received a Deficiency Notice with respect to one or more such Series, or with respect to priority SIXTH below to the extent the amount referred to therein is due and owing, the Collateral Agent shall make the following distributions in the following order of priority: FIRST, if with respect to any Series there exists a Deficiency Claim Amount, from the Spread Account related to such Series (which with respect to the Series 1996-A Spread Account shall be FIRST, from the Series 1996-A Seller Sub-account and SECOND, from the Series 1996-A Class B Sub-account), to the Trustee for deposit in the related Collection Account the amount of such Deficiency Claim Amount. SECOND, if with respect to any Series other than the Series 1996-A Certificates there continues to exist a Deficiency Claim Amount after deposit into the Collection Account of amounts distributed pursuant to priority FIRST of this Section 3.03(b), from amounts, if any, on deposit in each unrelated Spread Account other than the Series 1996-A Spread Account in excess of the related Requisite Amount, an amount in the aggregate up to the aggregate of the Deficiency Claim Amounts for all Series other than the Series 1996-A Certificates, for deposit in the respective Collection Accounts PRO RATA in accordance with the respective Deficiency Claim Amounts. THIRD, if with respect to any Series other than the Series 1996-A Certificates there continues to exist a Deficiency Claim Amount after deposit into the Collection Account of amounts distributed pursuant to priority FIRST and SECOND of this Section 3.03(b), from each unrelated Spread Account other than the Series 1996-A Spread Account PRO RATA in accordance with amounts on deposit therein, an amount up to the aggregate of the remaining Deficiency Claim Amounts for all Series other than the Series 1996-A Certificates, to the respective Trustees for deposit in the respective Collection Accounts PRO RATA in accordance with the respective Deficiency Claim Amounts. FOURTH, if with respect to one or more Series other than the Series 1996-A Certificates there exists a Spread Account Shortfall, from amounts, if any, (1) on deposit in each Spread Account other than the Series 1996-A Spread Account in excess of the related Requisite Amount or (2) on -22- deposit in any Spread Account other than the Series 1996-A Spread Account with respect to which the Final Termination Date shall have occurred on such Distribution Date or a prior Distribution Date, an amount in the aggregate up to the aggregate of the Spread Account Shortfalls for all Series other than the Series 1996-A Certificates for deposit into each Spread Account other than the Series 1996-A Spread Account PRO RATA in accordance with the respective Spread Account Shortfalls. FIFTH, if with respect to one or more Series, amounts have been withdrawn from the related Spread Account pursuant to priority THIRD of this Section 3.03(b) on such Distribution Date and/or prior Distribution Dates and such amounts have not been redeposited in full into such Spread Account pursuant to this priority FIFTH (such amounts in the aggregate for a Series "Unreimbursed Amounts"), from amounts, if any, (1) on deposit in each Spread Account other than the Series 1996-A Spread Account in excess of the related Requisite Amount; or (2) on deposit in any Spread Account other than the Series 1996-A Spread Account with respect to which the Final Termination Date shall have occurred on such Distribution Date or a prior Distribution Date, an amount up to the aggregate of the Unreimbursed Amounts for all such Series for deposit into each Spread Account other than the Series 1996-A Spread Account with respect to which there exist Unreimbursed Amounts PRO RATA in accordance with the respective Unreimbursed Amounts. SIXTH, if any amounts are owed to the Trustee, Collateral Agent or Backup Servicer for reasonable out-of-pocket expenses in connection with the administration of the Trust, including the expenses incurred in the transition to a successor Servicer and such amounts have not been paid, then from amounts (if any) on deposit in the related Spread Account (which with respect to the Series 1996-A Spread Account shall be first from the Series 1996-A Seller Sub-account and then from the Series 1996-A Class B Sub-account), an amount up to the amount so owed, to be paid to the Trustee, the Collateral Agent and the Backup Servicer. SEVENTH, any funds in a Spread Account in excess of the applicable Requisite Amount and any funds in a Spread Account with respect to a Series for which the Final Termination Date shall have occurred after distribution pursuant to priorities FIRST through SIXTH will be released to the Reversionary Holders as provided in the related Securitization Agreement (or, if the related Securitization Agreement does not so provide, to the Seller); PROVIDED, HOWEVER, with respect to the Series 1996-A Spread Account, funds to be released pursuant to this priority SEVENTH shall -23- be released FIRST, from the Series 1996-A Class B Sub-account to the extent of funds on deposit therein for distribution to the Class B Certificateholders pursuant to Section 5.5(xi)(A) of the Series 1996-A Securitization Agreement and SECOND, from the Series 1996-A Seller Sub- account for distribution in the following priority: (i) to the Class B Certificateholders as required by Section 5.5(xi)(B) of the Series 1996-A Securitization Agreement; and (ii) to the Seller pursuant to Section 5.5(xii) of the Series 1996-A Securitization Agreement, in each case, free and clear of the Lien established hereunder. Section 3.04. GENERAL PROVISIONS REGARDING SPREAD ACCOUNTS. (a) Promptly upon the establishment (initially or upon any relocation) of a Spread Account hereunder, the Collateral Agent shall advise the Seller and each Secured Party in writing of the name and address of the depository institution or trust company where such Spread Account has been established (if not Chase Manhattan Bank or any successor Collateral Agent in its commercial banking capacity), the name of the officer of the depository institution responsible for overseeing such Spread Account, the account number and the individuals whose names appear on the signature cards for such Spread Account. The Seller shall cause each such depository institution or trust company to execute a written agreement, in form and substance satisfactory to the Controlling Party, waiving, and the Collateral Agent by its execution of this Agreement hereby waives (except to the extent expressly provided herein), in each case to the extent permitted under applicable law, (i) any banker's or other statutory or similar Lien, and (ii) any right of set-off or other similar right under applicable law with respect to such Spread Account, and any other Spread Account, and agreeing, and the Collateral Agent by its execution of this Agreement hereby agrees, to notify the Seller, the Collateral Agent, and each Secured Party of any charge or claim against or with respect to such Spread Account. The Collateral Agent shall give the Seller and each Secured Party at least ten (10) Business Days' prior written notice of any change in the location of such Spread Account or in any related account information. If the Collateral Agent changes the location of any Spread Account, it shall change the location of the other Spread Accounts, so that all Spread Accounts shall at all times be located at the same depository institution. Anything herein to the contrary notwithstanding, unless otherwise consented to by the Controlling Party in writing, the Collateral Agent shall have no right to change the location of any Spread Account. (b) Upon the written request of the Controlling Party, the Seller, or any Reversionary Holder, the Collateral Agent shall cause, at the expense of the Seller, the depository institution -24- at which any Spread Account is located to forward to the requesting party copies of all monthly account statements for such Spread Account. (c) If at any time any Spread Account ceases to be an Eligible Account, the Collateral Agent shall notify the Controlling Party of such fact and shall establish within five (5) Business Days of such determination in accordance with paragraph (a) of this Section, a successor Spread Account thereto, which shall be an Eligible Account, at another depository institution or trust company acceptable to the Controlling Party and shall establish successor Spread Accounts with respect to all other Spread Accounts, each of which shall be an Eligible Account, at the same depository institution. The Seller shall cause such depository institution to execute a written agreement under terms provided for in paragraph (a) of this Section. (d) No passbook, certificate of deposit or other similar instrument evidencing a Spread Account shall be issued, and all contracts, receipts and other papers, if any, governing or evidencing a Spread Account shall be held by the Collateral Agent. Section 3.05. REPORTS BY THE COLLATERAL AGENT. The Collateral Agent shall report to the Seller, Financial Security, the Trustee and the Servicer on a monthly basis no later than each Distribution Date with respect to the amount on deposit in each Spread Account and the identity of the investments included therein as of the last day of the related Monthly Period (all of which with respect to the Series 1996-A Spread Account shall be reported separately for the Series 1996-A Seller Sub-account and the Series 1996-A Class B Sub-account), and shall provide accountings of deposits into and withdrawals from the Spread Accounts, and of the investments made therein, upon the request of the Seller, Financial Security or the Servicer (all of which with respect to the Series 1996-A Spread Account shall be reported separately for the Series 1996-A Seller Sub-account and the Series 1996-A Class B Sub-account). ARTICLE IV. THE COLLATERAL AGENT Section 4.01. APPOINTMENT AND POWERS. Subject to the terms and conditions hereof, each of the Secured Parties hereby appoints Chase Manhattan Bank as the Collateral Agent with respect to the Series 1996-A Collateral and the related Collateral subsequently specified in a Series Supplement, and Chase Manhattan Bank hereby accepts such appointment and agrees -25- to act as Collateral Agent with respect to the Series 1996-A Collateral, and upon execution of any Series Supplement, shall be deemed to accept such appointment, and agree to act as Collateral Agent with respect to such Collateral, in each case, for the Secured Parties, to maintain custody and possession of such Collateral (except as otherwise provided hereunder) and to perform the other duties of the Collateral Agent in accordance with the provisions of this Agreement. Each Secured Party hereby authorizes the Collateral Agent to take such action on its behalf, and to exercise such rights, remedies, powers and privileges hereunder, as the Controlling Party may direct and as are specifically authorized to be exercised by the Collateral Agent by the terms hereof, together with such actions, rights, remedies, powers and privileges as are reasonably incidental thereto. The Collateral Agent shall act upon and in compliance with the written instructions of the Controlling Party delivered pursuant to this Agreement promptly following receipt of such written instructions; PROVIDED, HOWEVER, that the Collateral Agent shall not act in accordance with any instructions (i) which are not authorized by, or in violation of the provisions of, this Agreement, (ii) which are in violation of any applicable law, rule or regulation or (iii) for which the Collateral Agent has not received reasonable indemnity. Receipt of such instructions shall not be a condition to the exercise by the Collateral Agent of its express duties hereunder, except where this Agreement provides that the Collateral Agent is permitted to act only following and in accordance with such instructions. Section 4.02. PERFORMANCE OF DUTIES. The Collateral Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and the other Transaction Documents to which the Collateral Agent is a party as Collateral Agent or as directed by the Controlling Party in accordance with this Agreement. The Collateral Agent shall not be required to take any discretionary actions hereunder except at the written direction and with the indemnification of the Controlling Party. Section 4.03. LIMITATION ON LIABILITY. Neither the Collateral Agent nor any of its directors, officers or employees, shall be liable for any action taken or omitted to be taken by it or them hereunder, or in connection herewith, except that the Collateral Agent shall be liable for its negligence, bad faith or willful misconduct; nor shall the Collateral Agent be responsible for the validity, effectiveness, value, sufficiency or enforceability against the Seller of this Agreement or any of the Collateral (or any part thereof). Notwithstanding any term or provision of this Agreement, the Collateral Agent shall incur no liability to the Seller or the Secured Parties for any action taken or omitted by the Collateral Agent in connection with the Collateral, except for the negligence, bad faith or willful misconduct on the part of the Collateral Agent, and, further, -26- shall incur no liability to the Secured Parties except for negligence, bad faith or willful misconduct in carrying out its duties to the Secured Parties. Subject to Section 4.04 hereof, the Collateral Agent shall be protected and shall incur no liability to any such party in relying upon the accuracy, acting in reliance upon the contents, and assuming the genuineness of any notice, demand, certificate, signature, instrument or other document reasonably believed by the Collateral Agent to be genuine and to have been duly executed by the appropriate signatory, and (absent any knowledge to the contrary) the Collateral Agent shall not be required to make any independent investigation with respect thereto. The Collateral Agent shall at all times be free independently to establish to its reasonable satisfaction, but shall have no duty to independently verify, the existence or nonexistence of facts that are a condition to the exercise or enforcement of any right or remedy hereunder or under any of the Transaction Documents. The Collateral Agent may consult with counsel, and shall not be liable for any action taken or omitted to be taken by it hereunder in good faith and in accordance with the written advice of such counsel. The Collateral Agent shall not be under any obligation to exercise any of the remedial rights or powers vested in it by this Agreement or to follow any direction from the Controlling Party unless it shall have received reasonable security or indemnity satisfactory to the Collateral Agent against the costs, expenses and liabilities which might be incurred by it in the exercise thereof. Section 4.04. RELIANCE UPON DOCUMENTS. In the absence of negligence, bad faith or willful misconduct on its part, the Collateral Agent shall be entitled to conclusively rely on any communication, instrument, paper or other document reasonably believed by it to be genuine and correct and to have been signed or sent by the proper Person or Persons and shall have no liability in acting, or omitting to act, where such action or omission to act is in reliance upon any statement or opinion contained in any such document or instrument. Section 4.05. SUCCESSOR COLLATERAL AGENT. (a) MERGER. Any Person into which the Collateral Agent may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its trust business and assets as a whole or substantially as a whole, or any Person resulting from any such conversion, merger, consolidation, sale or transfer to which the Collateral Agent is a party, shall (provided it is otherwise qualified to serve as the Collateral Agent hereunder) be and become a successor Collateral Agent hereunder and be vested with all of the title to and interest in the Collateral and all of the trusts, powers, discretions, immunities, privileges and other matters as was its predecessor without the -27- execution or filing of any instrument or any further act, deed or conveyance on the part of any of the parties hereto, anything herein to the contrary notwithstanding, except to the extent, if any, that any such action is necessary to perfect, or continue the perfection of, the security interest of the Secured Parties in the Collateral. (b) RESIGNATION. The Collateral Agent and any successor Collateral Agent may resign only (i) upon a determination that by reason of a change in legal requirements, the performance of its duties under this Agreement would cause it to be in violation of such legal requirements in a manner which would result in a material adverse effect on the Collateral Agent, and the Controlling Party does not elect to waive the Collateral Agent's obligation to perform those duties which render it legally unable to act or elect to delegate those duties to another Person, or (ii) with the prior written consent of the Controlling Party. The Collateral Agent shall give not less than 60 days' prior written notice of any such permitted resignation by registered or certified mail to the other Secured Party and the Seller; PROVIDED, that such resignation shall take effect only upon the date which is the latest of (i) the effective date of the appointment of a successor Collateral Agent and the acceptance in writing by such successor Collateral Agent of such appointment and of its obligation to perform its duties hereunder in accordance with the provisions hereof, (ii) delivery of the Collateral to such successor to be held in accordance with the procedures specified in Article II hereof, and (iii) receipt by the Controlling Party of an Opinion of Counsel to the effect described in Section 5.02 hereof. Notwithstanding the preceding sentence, if, by the contemplated date of resignation specified in the written notice of resignation delivered as described above, no successor Collateral Agent or temporary successor Collateral Agent has been appointed Collateral Agent or becomes the Collateral Agent pursuant to subsection (d) hereof, the resigning Collateral Agent may petition a court of competent jurisdiction in New York, New York for the appointment of a successor. (c) REMOVAL. The Collateral Agent may be removed by the Controlling Party at any time, with or without cause, by an instrument or concurrent instruments in writing delivered to the Collateral Agent, the other Secured Party and the Seller. A temporary successor may be removed at any time to allow a successor Collateral Agent to be appointed pursuant to subsection (d) below. Any removal pursuant to the provisions of this subsection (c) shall take effect only upon the date which is the latest of (i) the effective date of the appointment of a successor Collateral Agent and the acceptance in writing by such successor Collateral Agent of such appointment and of its obligation to perform its duties hereunder in accordance with the -28- provisions hereof, (ii) delivery of the Collateral to such successor to be held in accordance with the procedures specified in Article II hereof and (iii) receipt by the Controlling Party of an Opinion of Counsel to the effect described in Section 5.02 hereof. (d) ACCEPTANCE BY SUCCESSOR. The Controlling Party shall have the sole right to appoint each successor Collateral Agent. Every temporary or permanent successor Collateral Agent appointed hereunder shall execute, acknowledge and deliver to its predecessor and to each Secured Party and the Seller an instrument in writing accepting such appointment hereunder and the relevant predecessor shall execute, acknowledge and deliver such other documents and instruments as will effectuate the delivery of all Collateral to the successor Collateral Agent to be held in accordance with the procedures specified in Article II hereof, whereupon such successor, without any further act, deed or conveyance, shall become fully vested with all the estates, properties, rights, powers, duties and obligations of its predecessor. Such predecessor shall, nevertheless, on the written request of either Secured Party or the Seller, execute and deliver an instrument transferring to such successor all the estates, properties, rights and powers of such predecessor hereunder. In the event that any instrument in writing from the Seller or a Secured Party is reasonably required by a successor Collateral Agent to more fully and certainly vest in such successor the estates, properties, rights, powers, duties and obligations vested or intended to be vested hereunder in the Collateral Agent, any and all such written instruments shall, at the request of the temporary or permanent successor Collateral Agent, be forthwith executed, acknowledged and delivered by the Seller. The designation of any successor Collateral Agent and the instrument or instruments removing any Collateral Agent and appointing a successor hereunder, together with all other instruments provided for herein, shall be maintained with the records relating to the Collateral and, to the extent required by applicable law, filed or recorded by the successor Collateral Agent in each place where such filing or recording is necessary to effect the transfer of the Collateral to the successor Collateral Agent or to protect or continue the perfection of the security interests granted hereunder. (e) Any resignation or removal of a Collateral Agent and appointment of a successor Collateral Agent shall be effected with respect to this Agreement and all Series Supplements simultaneously, so that at no time is there more than one Collateral Agent acting hereunder and under all Series Supplements. Section 4.06. INDEMNIFICATION. The Seller shall indemnify the Collateral Agent, its directors, officers, employees and -29- agents for, and hold the Collateral Agent, its directors, officers, employees and agents harmless against, any loss, liability or expense (including the costs and expenses of defending against any claim of liability) arising out of or in connection with the Collateral Agent's acting as Collateral Agent hereunder, except such loss, liability or expense as shall result from the negligence, bad faith or willful misconduct of the Collateral Agent or its officers or agents. The obligation of the Seller under this Section shall survive the termination of this Agreement and the resignation or removal of the Collateral Agent. The Collateral Agent covenants and agrees that the obligations of the Seller hereunder and under Section 4.07 hereof shall be limited to the extent provided in Section 2.08 hereof, and further covenants not to take any action to enforce its rights to indemnification hereunder with respect to the Seller and to payment under Section 4.07 hereof except in accordance with the provisions of Section 8.05 hereof, or otherwise to assert any Lien or take any other action in respect of the Collateral or the Trust Estate of a Series until the applicable Final Termination Date. Section 4.07. COMPENSATION AND REIMBURSEMENT. The Seller agrees for the benefit of the Secured Parties and as part of the Secured Obligations (a) to pay to the Collateral Agent, on each Distribution Date, the Collateral Agent Fee for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a collateral trustee); and (b) to reimburse the Collateral Agent upon its request for all reasonable expenses, disbursements and advances incurred or made by the Collateral Agent in accordance with any provision of, or carrying out its duties and obligations under, this Agreement (including the reasonable compensation and fees and the expenses and disbursements of its agents, any independent certified public accountants and independent counsel), except any expense, disbursement or advances as may be attributable to negligence, bad faith or willful misconduct on the part of the Collateral Agent. Section 4.08. REPRESENTATIONS AND WARRANTIES OF THE COLLATERAL AGENT. The Collateral Agent represents and warrants to the Seller and to each Secured Party as follows: (a) DUE ORGANIZATION. The Collateral Agent is a banking corporation, duly organized, validly existing and in good standing under the laws of the State of New York, and is duly authorized and licensed under applicable law to conduct its business as presently conducted. (b) CORPORATE POWER. The Collateral Agent has all requisite right, power and authority to execute and deliver this -30- Agreement and to perform all of its duties as Collateral Agent hereunder. (c) DUE AUTHORIZATION. The execution and delivery by the Collateral Agent of this Agreement and the other Transaction Documents to which it is a party, and the performance by the Collateral Agent of its duties hereunder and thereunder, have been duly authorized by all necessary corporate proceedings and no further approvals or filings, including any governmental approvals, are required for the valid execution and delivery by the Collateral Agent, or the performance by the Collateral Agent, of this Agreement and such other Transaction Documents. (d) VALID AND BINDING AGREEMENT. The Collateral Agent has duly executed and delivered this Agreement and each other Transaction Document to which it is a party, and each of this Agreement and each such other Transaction Document constitutes the legal, valid and binding obligation of the Collateral Agent, enforceable against the Collateral Agent in accordance with its terms, except as (i) such enforceability may be limited by bankruptcy, insolvency, reorganization and similar laws relating to or affecting the enforcement of the rights of creditors of federally insured depository institutions, rights generally and (ii) the availability of equitable remedies may be limited by equitable principles of general applicability. Section 4.09. WAIVER OF SETOFFS. The Collateral Agent hereby expressly waives any and all rights of setoff that the Collateral Agent may otherwise at any time have under applicable law with respect to any Spread Account and agrees that amounts in the Spread Accounts shall at all times be held and applied solely in accordance with the provisions hereof. Section 4.10. CONTROL BY THE CONTROLLING PARTY. The Collateral Agent shall comply with notices and instructions given by the Seller only if accompanied by the written consent of the Controlling Party, except that if any Default shall have occurred and be continuing, the Collateral Agent shall act upon and comply with notices and instructions given by the Controlling Party alone in the place and stead of the Seller. ARTICLE V. COVENANTS OF THE SELLER Section 5.01. PRESERVATION OF COLLATERAL. Subject to the rights, powers and authorities granted to the Collateral Agent and the Controlling Party in this Agreement, the Seller, on behalf of itself and as the agent of the Reversionary Holders, shall take such action as is necessary and proper with respect to the Collateral in order to preserve and maintain such Collateral and to cause (subject to the rights of the Secured Parties) the Collateral Agent to perform its obligations with respect to -31- such Collateral as provided herein. The Seller will do, execute, acknowledge and deliver, or cause to be done by the Reversionary Holders, or others, executed, acknowledged and delivered, such instruments of transfer or take such other steps or actions as may be necessary, or required by the Controlling Party, to perfect the Security Interests granted hereunder in the Collateral, to ensure that such Security Interests rank prior to all other Liens and to preserve the priority of such Security Interests and the validity and enforceability thereof. Upon any delivery or substitution of Collateral, the Seller, on behalf of itself and as the agent of the Reversionary Holders, shall be obligated to execute such documents and perform such actions (or cause the Reversionary Holders to so execute and perform) as are necessary to create in the Collateral Agent for the benefit of the Secured Parties a valid first priority Lien on, and valid and perfected, first priority security interest in, the Collateral so delivered and to deliver such Collateral to the Collateral Agent, free and clear of any other Lien, together with satisfactory assurances thereof, and to pay any reasonable costs incurred by any of the Secured Parties or the Collateral Agent (including its agents) or otherwise in connection with such delivery. Section 5.02. OPINIONS AS TO COLLATERAL. Not more than 90 days nor less than 30 days prior to (i) each anniversary of the date hereof during the term of this Agreement and (ii) each date on which the Seller proposes to take any action contemplated by Section 5.06 hereof, the Seller shall, at its own cost and expense, furnish to each Secured Party and the Collateral Agent an Opinion of Counsel with respect to each Series either (a) stating that, in the opinion of such counsel, such action has been taken with respect to the execution and filing of any financing statements and continuation statements and other actions as are necessary to perfect, maintain and protect the lien and security interest of the Collateral Agent (and the priority thereof), on behalf of the Secured Parties, with respect to such Collateral against all creditors of, and purchasers from, the Seller and the Reversionary Holders and reciting the details of such action, or (b) stating that, in the opinion of such counsel, no such action is necessary to maintain such perfected lien and security interest. Such Opinion of Counsel shall further describe each execution and filing of any financing statements and continuation statements and such other actions as will, in the opinion of such counsel, be required to perfect, maintain and protect the lien and security interest of the Collateral Agent, on behalf of the Secured Parties, with respect to such Collateral against all creditors of, and purchasers from, the Seller and the Reversionary Holders for a period, specified -32- in such Opinion, continuing until a date not earlier than eighteen months from the date of such Opinion. Section 5.03. NOTICES. In the event that the Seller acquires knowledge of the occurrence and continuance of any Insurance Agreement Event of Default or Servicer Termination Event or of any event of default or like event, howsoever described or called, under any of the Transaction Documents, the Seller shall immediately give notice thereof to the Collateral Agent and each Secured Party. Section 5.04. WAIVER OF STAY OR EXTENSION LAWS; MARSHALLING OF ASSETS. The Seller, on behalf of itself and as agent for the Reversionary Holders, covenants, to the fullest extent permitted by applicable law, that neither it nor any Reversionary Holder will at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any appraisement, valuation, stay, extension or redemption law wherever enacted, now or at any time hereafter in force, in order to prevent or hinder the enforcement of this Agreement or any absolute sale of the Collateral or any part thereof, or the possession thereof by any purchaser at any sale under Article VII of this Agreement; and the Seller, on behalf of itself and as agent for the Reversionary Holders, to the fullest extent permitted by applicable law, for itself, each Reversionary Holder, and all who may claim under it or them, hereby waives the benefit of all such laws, and covenants that neither it nor any Reversionary Holder will hinder, delay or impede the execution of any power herein granted to the Collateral Agent, but will suffer and permit the execution of every such power as though no such law had been enacted. The Seller, for itself, each Reversionary Holder, and all who may claim under it or them, waives, to the fullest extent permitted by applicable law, all right to have the Collateral marshalled upon any foreclosure or other disposition thereof. Section 5.05. NONINTERFERENCE, ETC. The Seller, on behalf of itself and as agent for the Reversionary Holders, agrees that neither the Seller nor any Reversionary Holder shall (i) waive or alter any of its rights under the Collateral (or any agreement or instrument relating thereto) without the prior written consent of the Controlling Party; or (ii) fail to pay any tax, assessment, charge or fee levied or assessed against the Collateral, or to defend any action, if such failure to pay or defend may adversely affect the priority or enforceability of the Seller's or any Reversionary Holder's right, title or interest in and to the Collateral or the Collateral Agent's lien on, and security interest in, the Collateral for the benefit of the Secured Parties; or (iii) take any action, or fail to take any action, if such action or failure to take action would interfere with the enforcement of any rights under the Transaction Documents. -33- Section 5.06. SELLER CHANGES. (a) CHANGE IN NAME, STRUCTURE, ETC. The Seller shall not change its name, identity or corporate structure unless it shall have given each Secured Party and the Collateral Agent at least 60 days' prior written notice thereof, shall have effected any necessary or appropriate assignments or amendments thereto and filings of financing statements or amendments thereto, and shall have delivered to the Collateral Agent and each Secured Party an Opinion of Counsel of the type described in Section 5.02 hereof. (b) RELOCATION OF THE SELLER. Neither Atlantic nor the Seller shall change its principal executive office unless it gives each Secured Party and the Collateral Agent at least 90 days' prior written notice of any relocation of its principal executive office. If the Seller relocates its principal executive office or principal place of business from New York, the Seller shall give prior notice thereof to the Controlling Party and the Collateral Agent and shall effect whatever appropriate recordations and filings as are necessary and shall provide an Opinion of Counsel to the Controlling Party and the Collateral Agent, to the effect that, upon the recording of any necessary assignments or amendments to previously-recorded assignments and filing of any necessary amendments to the previously filed financing or continuation statements or upon the filing of one or more specified new financing statements, and the taking of such other actions as may be specified in such opinion, the security interests in the Collateral shall remain, after such relocation, valid and perfected and first in priority. ARTICLE VI. CONTROLLING PARTY; INTERCREDITOR PROVISIONS Section 6.01. APPOINTMENT OF CONTROLLING PARTY. From and after the Closing Date of a Series until the Insurer Termination Date related to such Series, Financial Security shall be the Controlling Party with respect to such Series and shall be entitled to exercise all the rights given the Controlling Party hereunder with respect to such Series. From and after the Insurer Termination Date related to such Series until the Trustee Termination Date related to such Series, the Trustee shall be the Controlling Party with respect to such Series. Notwithstanding the foregoing, in the event that a Financial Security Default shall have occurred and be continuing, the Trustee shall be the Controlling Party with respect to such Series until the applicable Trustee Termination Date. If prior to an Insurer Termination Date, the Trustee shall have become the Controlling Party with respect to a Series as a result of the occurrence of a Financial Security Default and either such Financial Security -34- Default is cured or for any other reason ceases to exist or the Trustee Termination Date with respect to a Series occurs, then upon such cure or other cessation or on such Trustee Termination Date, as the case may be, Financial Security shall, upon notice thereof being duly given to the Collateral Agent, again be the Controlling Party with respect to such Series. Section 6.02. CONTROLLING PARTY'S AUTHORITY. (a) The Seller hereby irrevocably appoints the Controlling Party, and any successor to the Controlling Party appointed pursuant to Section 6.01 hereof, its true and lawful attorney, with full power of substitution, in the name of the Seller, the Secured Parties or otherwise, at the expense of the Seller, to the extent permitted by law to exercise, at any time and from time to time while any Insurance Agreement Event of Default has occurred and is continuing, any or all of the following powers with respect to all or any of the Collateral related to the relevant Series: (i) to demand, sue for, collect, receive and give acquittance for any and all monies due or to become due upon or by virtue thereof, (ii) to settle, compromise, compound, prosecute or defend any action or proceeding with respect thereto, (iii) to direct the Collateral Agent to sell, transfer, assign or otherwise deal with the same or the proceeds thereof as fully and effectively as if the Collateral Agent were the absolute owner thereof, and (iv) to extend the time of payment of any or all thereof and to make any allowance or other adjustments with respect thereto. (b) With respect to each Series and the related Collateral, each Secured Party hereby irrevocably and unconditionally constitutes and appoints the Controlling Party with respect to such Series, and any successor to such Controlling Party appointed pursuant to Section 6.01 hereof from time to time, as the true and lawful attorney-in-fact of such Secured Party for so long as such Secured Party is the Non-Controlling Party, with full power of substitution, to execute, acknowledge and deliver any notice, document, certificate, paper, pleading or instrument and to do in the name of the Controlling Party as well as in the name, place and stead of such Secured Party such acts, things and deeds for and on behalf of and in the name of such Secured Party under this Agreement with respect to such Series which such Secured Party could or might do or which may be necessary, desirable or convenient in such Controlling Party's sole discretion to effect the purposes contemplated hereunder and, without limitation, exercise full right, power and authority to take, or defer from taking, any and all acts with respect to the administration of the Collateral related to such Series, and the enforcement of the rights of the Secured Parties hereunder with respect to such Series, on behalf of and for the benefit of such -35- Controlling Party and such Non-Controlling Party, as their interests may appear. Section 6.03. RIGHTS OF SECURED PARTIES. With respect to each Series of Certificates and the related Collateral, the Non-Controlling Party at any time expressly agrees that it shall not assert any rights that it may otherwise have, as a Secured Party with respect to the Collateral, to direct the maintenance, sale or other disposition of the Collateral or any portion thereof, notwithstanding the occurrence and continuance of any Insurance Agreement Event of Default or Servicer Termination Event with respect to such Series or any non- performance by the Seller or any Reversionary Holder of any obligation owed to such Secured Party hereunder or under any other Transaction Document, and each party hereto agrees that the Controlling Party shall be the only Person entitled to assert and exercise such rights. Section 6.04. DEGREE OF CARE. (a) CONTROLLING PARTY. Notwithstanding any term or provision of this Agreement, the Controlling Party shall incur no liability to the Seller or any Reversionary Holder for any action taken or omitted by the Controlling Party in connection with the Collateral, except for any gross negligence, bad faith or willful misconduct on the part of the Controlling Party and, further, shall incur no liability to the Non-Controlling Party except for a breach of the terms of this Agreement or for gross negligence, bad faith or willful misconduct in carrying out its duties, if any, to the Non-Controlling Party. The Controlling Party shall be protected and shall incur no liability to any such party in relying upon the accuracy, acting in reliance upon the contents and assuming the genuineness of any notice, demand, certificate, signature, instrument or other document believed by the Controlling Party to be genuine and to have been duly executed by the appropriate signatory, and (absent manifest error or actual knowledge to the contrary) the Controlling Party shall not be required to make any independent investigation with respect thereto. The Controlling Party shall, at all times, be free independently to establish to its reasonable satisfaction the existence or nonexistence, as the case may be, of any fact the existence or nonexistence of which shall be a condition to the exercise or enforcement of any right or remedy under this Agreement or any of the Transaction Documents. (b) THE NON-CONTROLLING PARTY. The Non-Controlling Party shall not be liable to the Seller or any Reversionary Holder for any action or failure to act by the Controlling Party or the Collateral Agent in exercising, or failing to exercise, any rights or remedies hereunder. -36- ARTICLE VII. REMEDIES UPON DEFAULT Section 7.01. REMEDIES UPON A DEFAULT. If a Default with respect to a Series has occurred and is continuing, the Collateral Agent shall, at the written direction of the Controlling Party, take whatever action at law or in equity as may appear necessary or desirable in the judgment of the Controlling Party to collect and satisfy all Secured Obligations, including, but not limited to, foreclosure upon the Collateral and all other rights available to secured parties under applicable law or to enforce performance and observance of any obligation, agreement or covenant under any of the Transaction Documents related to such Series. Section 7.02. WAIVER OF DEFAULT. The Controlling Party shall have the sole right, to be exercised in its complete discretion, to waive any Default by a writing setting forth the terms, conditions and extent of such waiver signed by the Controlling Party and delivered to the Collateral Agent, the other Secured Party and the Seller. Any such waiver shall be binding upon the Non- Controlling Party and the Collateral Agent. Unless such writing expressly provides to the contrary, any waiver so granted shall extend only to the specific event or occurrence which gave rise to the Default so waived and not to any other similar event or occurrence occurring subsequent to the date of such waiver. Section 7.03. RESTORATION OF RIGHTS AND REMEDIES. If the Collateral Agent has instituted any proceeding to enforce any right or remedy under this Agreement, and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to such Collateral Agent, then and in every such case the Seller, the Collateral Agent and each of the Secured Parties and each Reversionary Holder shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Secured Parties shall continue as though no such proceeding had been instituted. Section 7.04. NO REMEDY EXCLUSIVE. No right or remedy herein conferred upon or reserved to the Collateral Agent, the Controlling Party or either of the Secured Parties is intended to be exclusive of any other right or remedy, and every right or remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law, in equity or otherwise (but, in each case, shall be subject to the provisions of this Agreement limiting such remedies), and each and every right, power and remedy whether specifically herein given or otherwise existing -37- may be exercised from time to time and as often and in such order as may be deemed expedient by the Controlling Party, and the exercise of or the beginning of the exercise of any right or power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any other right, power or remedy. ARTICLE VIII. MISCELLANEOUS Section 8.01. FURTHER ASSURANCES. Each party hereto shall take such action and deliver such instruments to any other party hereto, in addition to the actions and instruments specifically provided for herein, as may be reasonably requested or required to effectuate the purpose or provisions of this Agreement or to confirm or perfect any transaction described or contemplated herein. Section 8.02. WAIVER. Any waiver by any party of any provision of this Agreement or any right, remedy or option hereunder shall only prevent and estop such party from thereafter enforcing such provision, right, remedy or option if such waiver is given in writing and only as to the specific instance and for the specific purpose for which such waiver was given. The failure or refusal of any party hereto to insist in any one or more instances, or in a course of dealing, upon the strict performance of any of the terms or provisions of this Agreement by any party hereto or the partial exercise of any right, remedy or option hereunder shall not be construed as a waiver or relinquishment of any such term or provision, but the same shall continue in full force and effect. Section 8.03. AMENDMENTS, WAIVERS. No amendment, modification, waiver or supplement to this Agreement or any provision of this Agreement shall in any event be effective unless the same shall have been made or consented to in writing by each of the parties hereto and each Rating Agency shall have confirmed in writing that such amendment will not cause a reduction or withdrawal of a rating on any Series; PROVIDED, HOWEVER, that, for so long as Financial Security shall be the Controlling Party with respect to a Series, amendments, modifications, waivers or supplements hereto relating to such Series, the related Collateral or Spread Account or any requirement hereunder to deposit or retain any amounts in such Spread Account or to distribute any amounts therein as provided in Section 3.03 hereof shall be effective if made or consented to in writing by Financial Security, the Seller and the Collateral Agent (the consent of which shall not be withheld or delayed with respect to any amendment that does not adversely affect the -38- Collateral Agent) but shall in no circumstances require the consent of the Trustee or the Certificateholders related to such Series or any other Series or any Reversionary Holder. Section 8.04. SEVERABILITY. In the event that any provision of this Agreement or the application thereof to any party hereto or to any circumstance or in any jurisdiction governing this Agreement shall, to any extent, be invalid or unenforceable under any applicable statute, regulation or rule of law, then such provision shall be deemed inoperative to the extent that it is invalid or unenforceable, and the remainder of this Agreement, and the application of any such invalid or unenforceable provision to the parties, jurisdictions or circumstances other than to whom or to which it is held invalid or unenforceable, shall not be affected thereby nor shall the same affect the validity or enforceability of any other provision of this Agreement. The parties hereto further agree that the holding by any court of competent jurisdiction that any remedy pursued by the Collateral Agent, or any of the Secured Parties, hereunder is unavailable or unenforceable shall not affect in any way the ability of the Collateral Agent or any of the Secured Parties to pursue any other remedy available to it or them (subject, however, to the provisions of this Agreement limiting such remedies). Section 8.05. NONPETITION COVENANT. Notwithstanding any prior termination of this Agreement, each of the parties hereto agrees that it shall not, prior to one year and one day after the Final Distribution Date with respect to each Series, acquiesce, petition or otherwise invoke or cause the Seller or the Trust to invoke the process of the United States of America, any State or other political subdivision thereof or any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government for the purpose of commencing or sustaining a case by or against the Seller or the Trust under a Federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Seller or the Trust or all or any part of its property or assets or ordering the winding up or liquidation of the affairs of the Seller or the Trust. The parties agree that damages will be an inadequate remedy for breach of this covenant and that this covenant may be specifically enforced. Section 8.06. NOTICES. All notices, demands, certificates, requests and communications hereunder ("notices") shall be in writing and shall be effective (a) upon receipt when sent through the U.S. mails, registered or certified mail, return receipt requested, postage prepaid, with such receipt to be effective the date of delivery indicated on the return receipt, or (b) one Business Day after delivery to an overnight courier, or (c) on -39- the date personally delivered to an Authorized Officer of the party to which sent, or (d) on the date transmitted by legible telecopier transmission with a confirmation of receipt, in all cases addressed to the recipient as follows: (i) If to the Seller (for so long as Atlantic is the Servicer): Atlantic Auto Third Funding Corporation 800 Perinton Hills Office Park P.O. Box 1502 Fairport, New York 14450 Telecopier No.: (716) 421-1954 Confirmation: (716) 421-1955 (ii) If to Financial Security: Financial Security Assurance Inc. 350 Park Avenue New York, New York 10022 Attention: Surveillance Department Re: Atlantic Grantor Trust 1996-A 6.70% Asset Backed Certificates, Class A Telecopier No.: (212) 339-3518 (212) 339-3529 Confirmation: (212) 826-0100 (in each case in which notice or other communication to Financial Security refers to a Default or a claim on the Policy or in which failure on the part of Financial Security to respond shall be deemed to constitute consent or acceptance, then with a copy to the attention of the Senior Vice President Surveillance) (iii) If to the Trustee: The Chase Manhattan Bank 4 Chase Metrotech Center - 3rd Floor Brooklyn, NY 11245 Attention: John Mynttinen Telecopier No.: (718) 242-3529 Confirmation: (718) 242-5854 -40- (iv) If to the Collateral Agent: The Chase Manhattan Bank 4 Chase Metrotech Center - 3rd Floor Brooklyn, NY 11245 Attention: John Mynttinen Telecopier No.: (718) 242-3529 Confirmation: (718) 242-5854 (v) If to Moody's: Moody's Investors Service, Inc. 99 Church Street New York, New York 10007 Telecopier No.: (212) 553-0344 (vi) If to Standard & Poor's: Standard & Poor's Ratings Group 26 Broadway New York, New York 10004 Telecopier No.: (212) 208-1582 A copy of each notice given hereunder to any party hereto shall also be given to (without duplication) Financial Security, the Seller, the Trustee and the Collateral Agent. Each party hereto may, by notice given in accordance herewith to each of the other parties hereto, designate any further or different address to which subsequent notices shall be sent. Section 8.07. TERM OF THIS AGREEMENT. This Agreement shall take effect on the Closing Date of the Series 1996-A Certificates and shall continue in effect until the last Final Termination Date to occur with respect to each Series. On such Final Termination Date, this Agreement shall terminate, all obligations of the parties hereunder shall cease and terminate and the Collateral, if any, held hereunder and not to be used or applied in discharge of any obligations of the Seller or Atlantic in respect of the Secured Obligations or otherwise under this Agreement, shall be released to and in favor of the related Reversionary Holders, or, if not otherwise identified, to the Seller, provided that the provisions of Sections 4.06, 4.07 and 8.05 hereof shall survive any termination of this Agreement and the release of any Collateral upon such termination. -41- Section 8.08. ASSIGNMENTS, THIRD-PARTY RIGHTS; REINSURANCE. (a) This Agreement shall be a continuing obligation of the parties hereto and shall (i) be binding upon the parties and their respective successors and assigns, and (ii) inure to the benefit of and be enforceable by each Secured Party and the Collateral Agent, and by their respective successors, transferees and assigns. The Seller may not assign this Agreement, or delegate any of its duties hereunder, without the prior written consent of the Controlling Party. (b) Financial Security shall have the right (unless a Financial Security Default shall have occurred and be continuing) to give participations in its rights under this Agreement and to enter into contracts of reinsurance with respect to any Policy issued in connection with a Series of Certificates and each such participant or reinsurer shall be entitled to the benefit of any representation, warranty, covenant and obligation of each party (other than Financial Security) hereunder as if such participant or reinsurer was a party hereto and, subject only to such agreement regarding such reinsurance or participation, shall have the right to enforce the obligations of each such other party directly hereunder; PROVIDED, HOWEVER, that no such reinsurance or participation agreement or arrangement shall relieve Financial Security of its obligations hereunder, under the Transaction Documents to which it is a party or under any such Policy, or shall change the status of Financial Security as a "Controlling Party". In addition, nothing contained herein shall restrict Financial Security from assigning to any Person pursuant to any liquidity facility or credit facility any rights of Financial Security under this Agreement or with respect to any real or personal property or other interests pledged to Financial Security, or in which Financial Security has a security interest, in connection with the transactions contemplated hereby. The terms of any such assignment or participation shall contain an express acknowledgment by such Person of the condition of this Section and the limitations of the rights of Financial Security hereunder. Section 8.09. CONSENT OF CONTROLLING PARTY. In the event that the Controlling Party's consent is required under the terms hereof or under the terms of any Transaction Document, it is understood and agreed that, except as otherwise provided expressly herein, the determination whether to grant or withhold such consent shall be made solely by the Controlling Party in its sole discretion. Section 8.10. TRIAL BY JURY WAIVED. Each of the parties hereto waives, to the fullest extent permitted by law, any right it may have to a trial by jury in respect of any litigation arising directly or indirectly out of, under or in connection -42- with this Agreement, any of the other Transaction Documents or any of the transactions contemplated hereunder or thereunder. Each of the parties hereto (a) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it has been induced to enter into this Agreement and the other Transaction Documents to which it is a party, by among other things, this waiver. Section 8.11. GOVERNING LAW. This Agreement shall be governed by and construed, and the obligations, rights and remedies of the parties hereunder shall be determined, in accordance with the laws of the State of New York. Section 8.12. CONSENTS TO JURISDICTION. Each of the parties hereto irrevocably submits to the jurisdiction of the United States District Court for the Southern District of New York, any court in the state of New York located in the city and county of New York, and any appellate court from any thereof, in any action, suit or proceeding brought against it and related to or in connection with this Agreement, the other Transaction Documents or the transactions contemplated hereunder or thereunder or for recognition or enforcement of any judgment and each of the parties hereto irrevocably and unconditionally agrees that all claims in respect of any such suit or action or proceeding may be heard or determined in such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action, suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. To the extent permitted by applicable law, each of the parties hereby waives and agrees not to assert by way of motion, as a defense or otherwise in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such courts, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or any of the other Transaction Documents or the subject matter hereof or thereof may not be litigated in or by such courts. The Seller hereby irrevocably appoints and designates Chase Manhattan Bank as its true and lawful attorney and duly authorized agent for acceptance of service of legal process. The Seller agrees that service of such process upon such Person shall constitute personal service of such process upon it. Subject to Section 8.05 hereof, nothing contained in this Agreement shall limit or affect the rights of any party hereto to serve process in any other manner permitted by law or to start legal proceedings relating to any of the Transaction Documents against Atlantic or the Seller or their respective property in the courts of any jurisdiction. -43- Section 8.13. LIMITATION OF LIABILITY. It is expressly understood and agreed by the parties hereto that (a) Chase Manhattan Bank is executing this Agreement not in its individual capacity but solely in its capacities as collateral agent and trustee of the Trusts pursuant to the Securitization Agreements and (b) in no case whatsoever shall Chase Manhattan Bank be personally or corporately liable on, or for any loss in respect of, any of the statements, representations, warranties, covenants, agreements or obligations of the Trust hereunder, all such liability, if any, being expressly waived by the parties hereto. Section 8.14. DETERMINATION OF ADVERSE EFFECT. Any determination of an adverse effect on the interest of the Secured Parties or the Certificateholders shall be made without consideration of the availability of funds under the Policies. Section 8.15. COUNTERPARTS. This Agreement may be executed in two or more counterparts by the parties hereto, and each such counterpart shall be considered an original and all such counterparts shall constitute one and the same instrument. Section 8.16. HEADINGS. The headings of sections and paragraphs and the Table of Contents contained in this Agreement are provided for convenience only. They form no part of this Agreement and shall not affect its construction or interpretation. -44- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth on the first page hereof. ATLANTIC AUTO THIRD FUNDING CORPORATION By /s/ Richard Harrison ----------------------------------------------- Name: Richard Harrison Title: President FINANCIAL SECURITY ASSURANCE INC. By /s/ Richard Harrison ----------------------------------------------- Name: Richard Harrison Title: President THE CHASE MANHATTAN BANK as Trustee By /s/ John Mynttiner ----------------------------------------------- Name: John Mynttiner Title: Second Vice President THE CHASE MANHATTAN BANK as Collateral Agent By /s/ John Mynttiner ----------------------------------------------- Name: John Mynttiner Title: Second Vice President EX-10.3-10 28 EXHIBIT 10.3.10 PERINTON HILLS OFFICE PARK Standard Lease Agreement This Lease made as of the 18TH day of MARCH, 1994, between PERINTON HILLS, a New York Limited Partnership, having an office for the transaction of business at 250 WillowBrook Office Park, Fairport, New York, 14450, hereinafter called "Landlord", and EMCO MOTOR HOLDINGS, INC., a Delaware Corporation, having an office at 153 East 53rd Suite, New York, New York 10022 hereinafter called "Tenant". W I T N E S S E T H : ARTICLE 1 PREMISES AND TERM SECTION 1.01 Landlord hereby leases to Tenant, and Tenant hereby hires and takes from the Landlord the following described premises (sometimes herein referred to as the "Demised Premises") located in the Perinton Hills Office Park (the "Park") in the Town of Perinton, County of Monroe, in Building 800 No. 800 (the "Demised Premises"),* as shown on Exhibit A attached hereto and made a part hereof, together with the right in common with other Tenants to use parking areas and common areas contiguous to or a part of the Building of which the Demised Premises form a part, (the "Building") to be constructed as set forth herein and to be used and occupied by the Tenant for offices and for no other purpose.** [*to consist of 6839 rentable square feet at the commencement of the demised term] [**Landlord represents that to the best of its knowledge and belief, the Building and the Demised Premises are now and will be at the time of the commencement of the demised term in compliance with all applicable New York State and Town of Perinton building codes and ordinances, is in substantial compliance with the Americans with Disabilities Act and that neither the Building nor the Demised Premises contain any toxic or "Hazardous Wastes".] SECTION 1.02 The Demised Premises shall include the area bounded by: the center line of any walls common to adjacent tenants, the Building Common Area side of any wall adjoining Building Common Areas (but not the surface thereof), the line established by the exterior face of the exterior walls of the Building (but not the surface thereof), the concrete floor surface and the lower surface of the next higher floor (or roof). Landlord reserves unto itself, its successors and assigns, the right to install, maintain, use, repair and replace pipes, ducts, conduits, wires and structural elements leading through the Demised Premises in locations which will not materially interfere with Tenant's use of the Demised Premises.*** No right to use any part of the exterior of the Building and no easement for light or air are included in the Lease of the Demised Premises hereby made. [***Landlord agrees, in making any said repairs, replacements, etc., to cause as little disruption or inconvenience to Tenant as possible.] SECTION 1.03 "Building Common Areas" shall be defined to mean all areas, space, equipment, signs and special services provided by Landlord specifically for the Building or for the -2- common or joint use and benefit of all the tenants in the Building, their employees, agents, customers, visitors and other invitees, including without limitation hallways, corridors, trash rooms, mechanical and electrical rooms, storage rooms, stairways, entrances, elevators, rest rooms, lobbies, stairs, loading docks, pedestrian walks, roofs and basements, janitor's and storage closets within the Building and all other common rooms and common facilities within the Building. SECTION 1.04 Landlord shall, at its cost and expense (except as otherwise specified), construct the Demised Premises for Tenant's use and occupancy in accordance with the terms and provisions of Exhibit B which is attached hereto and made a part hereof. Any work in addition to any of the items specifically enumerated in said Exhibit B shall be performed by Tenant at its own cost and expense, or if Landlord installs or constructs any of such additional work in the Demised Premises at Tenant's request, it shall be paid for by Tenant within fifteen (15) days after receipt of a bill therefor at cost, plus twenty percent (20%). SECTION 1.05 To have and to hold the Demised Premises for a term of five (5)* lease years, or until such term shall sooner cease and terminate, as hereinafter provided, said term to commence* on the 1st day of May, 1994, and to end on the 30th day of April, 1999. In the event the Lease term commences on a date other than May 1, 1994, then the Lease term will expire five (5) years from the last day of the first full month after the term -3- commences. [* Notwithstanding the foregoing, Tenant shall not be required to pay rental prior to the commencement of the demised term and the demised term shall not commence until the Demised Premises are ready for occupancy (as defined in Paragraph 5 of Rider 1).] ARTICLE 2 RENT SECTION 2.01 Tenant covenants to pay an annual rent as follows: A. For the period May 1, 1994, through December 31, 1994, the sum of $5207.41 per month; B. For the period January 1, 1995, through April 30, 1995, the sum of $6924.14 per month; C. For the period May 1, 1995, through April 30, 1996, the annual rent of $86,509.20 payable in equal monthly installments of $7209.10; D. For the period May 1, 1996, through April 30, 1997, the annual rent of $89,928.72 payable in equal monthly installments of $7494.06 and E. For the period May 1, 1997, through the end of the demised term, the annual rent of $107,026.20 payable in equal monthly installments of $8,918.85. Said rent shall be payable in advance on the first day of each and every calendar month during the term hereof; except that the rent for the first month of the term and for any period prior to the first complete calendar month shall be payable upon execution of this Lease. The last monthly installment payment shall include rent for the last calendar month plus rent for the remaining days to the end of the term. Rent for any period of -4- less than one (1) month shall equal 1/30th of the monthly rental for each day of such period. SECTION 2.02 The Tenant will pay said rent, in U.S. legal tender, in advance without setoff, deduction or demand to Landlord at 250 WillowBrook Office Park, Fairport, New York, 14450, or to such other person or to such other place as Landlord shall designate in writing. ARTICLE 3 CARE AND SURRENDER OF PREMISES SECTION 3.01 The Tenant will take good care of the Demised Premises, fixtures and appurtenances, and all alterations, additions and improvements to either; will repair all damage to the same resulting from the negligence or willful acts of the Tenant, its employees, agents or visitors; will suffer no waste or injury; will execute and comply* with all laws, rules, orders, ordinances and regulations at any time issued or enforced by any lawful authority, applicable to the Tenant's use or occupancy of the Demised Premises; will repair, at or before the end of the term, all injury done by the installation or removal of furniture and property and at the end of the term will quit and surrender the Demised Premises in good order and condition, subject to normal wear and tear or damage by casualty or the elements. [* Notwithstanding the foregoing, Tenant, in so complying, shall not be required to make structural repairs to the Building or the Demised Premises unless caused by Tenant's SPECIFIC use (i.e. -5- unique to Tenant and not reasonably anticipated for a "normal" corporate use).] ARTICLE 4 ASSIGNMENT, SUBLETTING AND RECAPTURE SECTION 4.01 The Tenant will not sell, assign, mortgage or transfer this Lease, or sublet or rent the premises or any part thereof, or permit the same or any part thereof to be used or occupied by anybody other than the Tenant or the Tenant's employees, without the prior written consent of the Landlord, which Landlord agrees not to unreasonably withhold, and the Tenant will not vacate or abandon the Demised Premises. Any sale, assignment, mortgage, transfer or subletting of this Lease which is not in compliance with the provisions of this paragraph and the following paragraphs shall be of no effect and void. If Tenant shall desire to sublet the Demised Premises, Tenant shall give written notice thereof to Landlord requesting Landlord's consent thereto which notice shall set forth a proposed commencement date ("Proposed Effective Date") of the sublease term, which is not less than 15 nor more than 90 days after the sending of said notice and attached to said notice shall be a copy of the proposed sublease agreement and of all agreements collateral thereto. The form of said sublease agreement shall be subject to Landlord's reasonable approval and, among other things, the subtenant shall agree to be bound by all of the terms and provisions contained in this Lease Agreement. Landlord, within 10 business days after receipt of said notice -6- shall give Tenant written notice of Landlord's consent or lack of consent to Tenant's said request. If Landlord so withholds said consent by notice thereof** (or if said sublet shall occur by order of any court), Landlord may, in the same notice, within 10 business days of Tenant's written notice to sublet, recapture the space described in the sublease. If such recapture notice is given, it shall serve to cancel and terminate this lease with respect to the proposed sublease space, or, if the proposed sublease space covers all the Demised Premises, it shall serve to cancel and terminate the entire term of this lease, in either case, as of the Proposed Effective Date as fully and completely as if that date had been definitely fixed for the expiration of the term of this Lease; provided, however, that no termination of this Lease with respect to part or all the Demised Premises shall become effective without the prior written consent, where necessary, of the holder of each mortgage* to which this Lease is then subject. If this Lease be terminated pursuant to the foregoing with respect to less than the entire Demised Premises, the rent, additional rent and the escalation percentage provisions of this Lease shall be adjusted on the basis of the proportion of rentable square feet retained by Tenant to the rentable square feet originally demised and this Lease as so amended shall continue thereafter in full force and effect. [* When said consent is required by the mortgage documents.] [**In which case Landlord shall be required to give in said notice the reasons for not so consenting. If Landlord fails to respond to Tenant's said notice within five (5) -7- business days of Landlord's receipt of said notice then Landlord shall be deemed to have consented.] In the event of any sublease of all or any portion of the Demised Premises where the rental reserved in the sublease exceeds the rental or pro rata portion of the rental, as the case may be, for such space reserved in the Lease, Tenant shall pay the Landlord monthly, as additional rent, at the same time as the monthly installments of rent hereunder, the excess*** of the rental reserved in the sublease over the rental reserved in this Lease applicable to the subleased space. [***After deducting Tenant's reasonable costs incurred in said subletting (but said costs shall not include fees, etc., paid to Tenant, Tenant's employees or entities in which Tenant or Tenant's employees have an ownership interest).] If this Lease be assigned, sublet or transferred in any manner whatsoever, such assignment or transfer shall be upon and subject to all of the covenants, provisions and conditions contained in this Lease and, notwithstanding any consent by the Landlord to any such assignment or transfer or any subletting by the Tenant, the Tenant shall continue to be and remain the primary obligaor hereunder. Any consent by the Landlord to any such assignment, transfer, subletting or other matter or thing contained in this paragraph shall not in any way be construed to relieve the Tenant from obtaining the prior consent of the Landlord to any other or further such assignment, transfer, subletting, matter or thing. -8- ARTICLE 5 ALTERATIONS, ADDITIONS, ETC. SECTION 5.01 The Tenant will not make or permit anyone to make any alterations, improvements or additions in or to the Demised Premises,* or install any equipment of any kind that will require any alteration or addition to, or the use of, the water, heating, air conditioning or electrical or other building systems or equipment, without the prior written consent** of the Landlord and then only by contractors approved by Landlord which approval Landlord agrees not to unreasonably withhold or delay. Further, a condition precedent to any contractor performing work, labor or services on or about the Building or the Demised Premises shall be the receipt by Landlord of a Certificate of Insurance evidencing that the contractor is appropriately insured in accordance with the regulations of the Landlord and that the Landlord and such other parties as Landlord has designated as having an insurable interest have been named as additional insureds. [*Provided Tenant is not in default herein, Tenant may make said alterations, improvements and additions without Landlord's consent provided the aggregate cost of same, in any one lease year, does not exceed $1,000.00.] [**which consent will not be unreasonably withheld or delayed.] SECTION 5.02 If Landlord shall grant its consent, prior to the commencement of any said alterations, additions or improvements, Tenant shall provide Landlord Certificates evidencing the insurance coverage and limits required by Exhibit -9- B for all contractor and/or subcontractors working in or about the Building or the Demised Premises. SECTION 5.03 For any said alterations, additions or improvements which exceed $5,000 in cost, Landlord, as a condition of granting its said consent, may require that Tenant deliver to Landlord a payment bond which will be in sufficient amount and issued by a reputable bonding company to guarantee payment of the cost of said alterations, additions or improvements. If any such alterations or improvements are made without such consent, the Landlord may correct or remove them, and the Tenant shall be liable for any and all expense incurred by the Landlord in the performance of this work. Any such alterations, additions or improvements to the Demised Premises which are made with the Landlord's prior written consent shall immediately become the property of the Landlord and shall remain upon and be surrendered with the premises as a part thereof at the end of the term. The Landlord may however, at or prior to the end of the term by written notice to such effect, require the Tenant to remove all or any part of such alterations, additions, or improvements, and in such event the tenant shall promptly remove the same at its expense and shall, at or prior to the end of the term, repair all damage to the premises caused by such removal and return the Demised Premises, at Landlord's option, to the same condition they were in prior to said alterations, additions, or improvements. Tenant, at the time requesting Landlord's said -10- consent to any said alteration or repair may, in said consent, require Landlord to then elect whether or not Tenant shall be responsible for so removing said alterations, additions, or improvements.* [*Tenant shall not be required to remove any leasehold improvements installed by Landlord, at Landlord's expense, at or before the commencement of the lease term.] ARTICLE 6 SIGNS SECTION 6.01 The Tenant will not premit or suffer any signs, advertisements or notices to be displayed, inscribed upon or affixed on any part of the outside or inside of the Demised Premises, or in the Building, except on the directory board to be provided by the Landlord and on the entrance doors of the Demised Premises, and then only of such size, color and style as the Landlord may approve. Tenant agrees to reimburse Landlord for the cost of said signs but said amount shall not exceed Three Hundred-fifty Dollars ($350.00). ARTICLE 7 SERVICES SECTION 7.01 The Demised Premises shall be furnished with a reasonable amount of electricity for lighting and ORDINARY business applicances (as herein defined) and, subject to the following, and to any laws, statutes, ordinances or regulations having jurisdiction thereof, such heat and air conditioning as may be required for the reasonably comfortable occupation of the -11- premises (7:30 a.m. to 6:00 p.m. each Monday through Friday and from 7:30 a.m. to 1:00 p.m. each Saturday, excluding holidays) and domestic water for a drinking fountain in the common area of the Building. "Ordinary business appliances" shall be defined to include only equipment which (i) are maintained in an "on" or operating mode only during the hours of 7:30 a.m. to 6:00 p.m., Monday through Friday and Saturday 7:30 a.m. to 1:00 p.m. and (ii) do not require more than a 20 amp electrical circuit and (iii) do not consume more than 100 watts when idle or 200 watts when operating. Further, notwithstanding the provisions of the preceding sentence, Landlord shall not be responsible for providing air conditioning required due to Tenant having or using within the Demised Premises any said equipment, heat producing machine or equipment or to provide air conditioning required due to heat produced by Tenant occupying the premises with a density exceeding one person for every 150 square feet of rentable space. Landlord shall not be responsible for any affect and/or disruption in the heating or air conditioning system serving the Demised Premises because of the presence of said machines, equipment or said density of occupation exceeding one person per 150 square feet of rentable space. Notwithstanding the foregoing but subject to the terms therein contained, Tenant may have within the Demised Premises word processors, personal computers, printers, computer terminals, copy machines and a refrigerator. If any said equipment or "supplemental" air conditioning as hereinafter referred to, the installation which Landlord hereby -12- consents to, consumes electricity greater than the said 100 watts when idle or 200 watts when operating, Landlord may require Tenant, at Tenant's sole cost and expense to install a separate electrical meter and to pay for the electrical consumption to operate said equipment and if said equipment produces such heat so that "supplemental" air conditioning would be reasonably necessary, then Tenant, at Tenant's sole cost and expense, shall supply and install such "supplemental" air conditioning the electrical consumption for which shall also be separately metered and paid for by Tenant as aforesaid. Landlord shall not be liable for failure to furnish any of the foregoing when such failure is caused by accidents or conditions beyond the control of Landlord, or by repairs, labor disputes or labor disturbances, of any character, whether resulting from or caused by acts of Landlord or otherwise; nor shall Landlord be liable under any circumstances for loss of or injury to property, however occurring, through or inconnection with or incidental to the furnishing of any of the foregoing, nor shall any such failure relieve Tenant from the duty to pay the full amount of rent herein reserved, or constitute or be construed as a constructive or other eviction of Tenant.* ** *** [* Notwithstanding the foregoing, Tenant shall have access to the Demised Premises, 24 hours a day, 7 days a week.] [** See Rider 1, Paragraph 3.] [*** Tenant will not be charged by Landlord for after hours air conditioning use.] -13- ARTICLE 8 LANDLORD'S REPAIR SECTION 8.01 Subject to any other provision or term herein to contrary, Landlord shall maintain in good repair the (a) structural parts of the Building; (b) electrical, plumbing and sewerage systems serving the Building (except to the extent there is or will exist within the Demised Premises, running water, sinks, plumbing, lines and connections, disposal(s), refrigerators, freezer(s), Tenant agrees to maintain and keep in repair the same at its sole cost and expense but, if said equipment was supplied by Landlord, Landlord agrees to make available to Tenant, all manufacturer's warranties applicable to said items); (c) subject to the provisions of Article 7 above, the heating, ventilating and air conditioning supplied by Landlord serving the Demised Premises (Tenant, at its sole cost and expense, shall service and repair any supplemental air conditioning, heating and ventilating equipment required by Tenant); (d) ceiling and Landlord supplied lighting in the Demised Premises except Landlord shall be responsible for supplying and installing bulbs within the Demised Premises only for the 2'x4' parabolic recessed fluorescent light fixtures referred to herein; (e) the Building, its common areas, landscaping and snowplowing its parking facilities and exterior, and all of the Building systems in a manner commensurate with a "Class A" office building; except Tenant shall be responsible for and pay for any repairs required due to the negligence, misuse, -14- or willful misconduct of Tenant, Tenant's employees, agents, representatives, contractors, visitors _____________. Landlord shall not be responsible for the repair or maintenance of any Tenant supplied or Tenant paid for item or equipment. ARTICLE 9 NOTICES SECTION 9.01 In every case, when under the provisions of this Lease, it shall be necessary or desirable for the Landlord to serve any notice or demand on the Tenant, such notice or demand shall be served personally or by Certified Mail, Return Receipt Requested, addressed to the Tenant at the Demised Premises, and any such notice or demand to be given to the Landlord shall be delivered personally and by Certified Mail, Return Receipt Requested addressed to the Landlord at 250 Willow-Brook Office Park, Fairport, New York, 14450; or such other address as either may designate in writing. ARTICLE 10 INSPECTION AND SHOWING OF PREMISES SECTION 10.01 The Landlord shall have the right at all reasonable times during the term of this Lease to enter the Demised Premises for the purpose of examining or inspecting the same, providing services or maintenance, or making such repairs or alterations therein and the Landlord may exhibit the Demised Premises to prospective new tenants. In exercising its rights under this paragraph, Landlord agrees, as much as reasonably -15- possible, to cause Tenant as little inconvenience as possible and if reasonable, and unless otherwise directed by Tenant, to conduct such examination, showing or inspection, during Tenant's normal business hours. See Rider 1, Paragraph 4. ARTICLE 11 INSURANCE SECTION 11.01 The Tenant agrees to maintain in full force throughout the demised term, at its own cost and expense, one or more policies of public liability and property damage insurance having a combined single limit of One Million Dollars ($1,000,000.00) which, up to the maximum liability amounts thereof, insure the Tenant and the Landlord (and such other person(s) designated by the Landlord having an insurable interest) against liability for injury to persons occurring (or death) and/or property of any person or persons in the Demised Premises. The insurance required by this Section shall be primary insurance and the insurer shall be liable for the full amount of the loss up to and including the total limit of liability as set forth in the declarations without the right of contribution from any other insurance coverage held by Tenant. SECTION 11.02 During the lease term Tenant shall maintain in full force on all its fixtures and equipment in the Demised Premises a policy or policies of fire insurance insuring Landlord and Tenant with standard extended coverage endorsements to the extent of at least eighty percent (80%) of their insurable value -16- containing the proper co-insurance provisions to prevent Tenant from being a co- insurer. SECTION 11.03 All insurance required to be secured by the Tenant in accordance with this Article 11 shall be obtained from insurance companies licensed to do business in the State of New York and Certificates of said insurance shall be furnished by the Tenant to the Landlord each of which policies shall be endorsed to provide that thirty (30) days notice of cancellation or amendment will be given to the Landlord. Upon Tenant's failure to procure such insurance or to cause Tenant's vendors/contractors to procure said insurance as required in Section 11.07 below, as the case may be, and deliver the policy or policies or certificates therefor to the Landlord prior to the commencement of the term hereunder or, in the case of any said vendors/contractors, prior to the commencement of any said work, labor or services, or thirty (30) days before the expiration of any policy delivered to the Landlord, the Landlord may, at its option, obtain such insurance or any of same and the premium therefor shall be deemed to be and be paid as additional rent at the next rent payment day. SECTION 11.04 Landlord shall keep the Building containing the Demised Premises insured against loss or damage by fire with extended coverage endorsement in an amount not less than eighty (80%) of the full insurable value thereof. SECTION 11.05 Tenant shall not do or permit to be done any act or thing in or upon the Demised Premises which will -17- invalidate or be in conflict with the certificate of occupancy or the terms of the New York State standard form of fire, boiler, sprinkler, water damage or other insurance policies covering the building and/or the fixtures, equipment and property therein. Tenant shall, at its own expense, comply* with all rules, orders, regulations or requirements of the New York Board of Fire Underwriters or any other similar body having jurisdiction provided same relate to its use or occupancy of the Demised Premises and shall not knowingly do or permit anything to be done in or upon the Demised Premises or bring or keep anything therein or use the Demised Premises in a manner which increases the rate of insurance upon the Building or any property or equipment located therein over the rate in effect at the commencement of the term of this Lease. [* Notwithstanding the foregoing, Tenant, in so complying, shall not be required to make structural repairs to the Building or to the Demised Premises unless caused by Tenant's SPECIFIC use (i.e. unique to Tenant and not reasonably anticipated for a "normal" corporate use).] SECTION 11.06 If because of anything done, caused or permitted to be done or omitted by Tenant the rate of liability, fire, boiler, sprinkler, water damage or other insurance with all extended coverage on the Building or on the property and equipment of Landlord or any other tenant or subtenant in the Building shall be higher than it otherwise would be, Tenant shall reimburse Landlord and the other tenants and subtenants in the Building for the additional insurance premiums thereafter paid by Landlord or by other tenants and subtenants in the Building which -18- shall have been charged because of the aforesaid reasons and Tenant shall make the reimbursement on the first day of the month following such payment by Landlord or such other tenants or subtenants. SECTION 11.07 Tenant agrees to cause any vendors*/contractors doing work, labor or services, on or behalf of Tenant, in or about the Demised Premises to maintain while performing said work, labor or services, at their own cost and expense, one or more policies of public liability and property damage insurance having a combined single limit of One Million Dollars ($1,000,000.00) which, up to the maximum liability amounts thereof, insure the said vendor/contractor, Tenant and the Landlord (and such other person(s) designated by the Landlord having an insurable interest) against liability for injury to persons occurring (or death) and/or property of any person or persons in or about the Demised Premises. The insurance required by this Section shall be primary insurance and the insurer shall be liable for the full amount of the loss up to and including the total limit of liability as set forth in the declarations without the right of contribution from any other insurance coverage held by Tenant. [* Except for moving contractors or construction contractors, etc., said insurance shall be required only of contractors/vendors who perform services, in any one lease year, that exceed, or will reasonably exceed, $500 in value.] -19- ARTICLE 12 RULES AND REGULATIONS SECTION 12.01 The Tenant shall observe faithfully and comply strictly with, the reasonable rules and regulations reasonable promulgated from time to time by the Landlord, as in the Landlord's reasonable judgment are necessary for the safety, care and cleanliness of the Building or for the preservation of good order therein but such rules and regulations shall not affect the substance of this agreement (as distinguished from the procedural and administrative considerations of the operation of the Demised Premises, the Building and the Park). The Landlord shall not be liable to the Tenant for violation of such rules and regulations by any other Tenant, its servants, employees, agents, visitors or licensees. The current Rules and Regulations* are attached hereto and made a part hereof. Landlord shall not be responsible for the non- observance by any other Tenant of any said Rules and Regulations, or the covenants or agreements contained in any other lease, by any other Tenant of the Building, or its agents or employees. [* Which shall be uniform in their application by Landlord to all Tenants of the Building. Nothing herein shall be deemed to obligate Landlord to commence a legal action or proceedings against a Tenant of the Building either to enforce any said Rule or Regulation or to enjoin their violation.] -20- ARTICLE 13 SUBORDINATION SECTION 13.01 This Lease shall be subordinate and subject at all times to all ground or underlying leases and to any mortgage covering the Building or which at any time hereafter shall be made, and to all advances made, or hereafter to be made, upon the security of any such mortgagee. See Rider 1, Paragraph 6. ARTICLE 14 DEFAULT SECTION 14.01 If the Tenant shall at any time be in default continuing after fifteen days written notice thereof in the payment of any rent or any additional rent or any other payments required of Tenant hereunder, or any part thereof, without demand therefor, or if Tenant, after fifteen days written notice by Landlord to Tenant, shall be in default in any of the other covenants and conditions of this Lease to be kept, observed and performed by Tenant, or if Tenant shall vacate or abandon the premises during the term hereof, or if this leasehold interest shall be levied on or taken or attempted to be taken by execution, attachment, or other process of law, or if any execution or attachment shall be issued against Tenant, or any of Tenant's property in the Demised Premises, whereby the Demised Premises shall be taken or occupied or attempted to be taken or occupied by someone other than Tenant, or if a receiver, assignee -21- or trustee shall be appointed for Tenant or Tenant's property, or if this Lease shall by operation of law devolve upon or pass to any person or persons other than the Tenant, then in any of said cases, and subject to the provisions in Section 14.02 below, the Landlord may: A. [intentionally deleted] B. enter* into the Demised Premises, remove* Tenant's property and effects as elsewhere in the Lease provided, take* and hold* possession thereof, without such entry and possession terminating this Lease or releasing Tenant in whole or in part from Tenant's obligations to pay rent and all its other obligations hereunder for the full term. Relet the Demised Premises or any part or parts thereof, either in the name of or for the account of Landlord or Tenant, for such rent and for such term and terms as Landlord may see fit, which term may, at Landlord's option, extend beyond the balance of the term of this Lease. Landlord shall not be required to accept any tenant offered by Tenant or to observe any instructions given by Tenant about such reletting. In any such case Landlord may make such repairs, alterations** and additions** in or to the Demised Premises and redecorate** the same as it sees fit. Tenant shall pay Landlord any deficiency between the rent hereby reserved and covenanted to be paid and the net amount of the rents collected on such reletting, for the balance of the term of this Lease, as well as any expenses incurred by Landlord in such reletting, including, but not limited to reasonable attorneys' fees ("reasonableness" shall be based upon the amount of time and -22- effort expended by the attorneys without regard to the amount in controversy), brokers' fees, the expense or repairing, altering** and adding to** and redecorating** the premises, and otherwise preparing the same for re-rental. All such costs, other than the rental, shall be paid by Tenant upon demand by Landlord. Any deficiency in rental shall be paid in monthly installments, upon statements rendered by Landlord to Tenant, unless Landlord has declared the entire rental for the balance of the term due, as elsewhere in this Lease provided. Any suit brought to collect the amount of the deficiency for any one or more months shall not preclude any subsequent suit or suits to collect the deficiency for any subsequent months; [*Only in accordance with New York State statutory law.] [**Notwithstanding the foregoing, said costs shall not exceed $25,000.00.] C. require that upon any termination of this Lease, whether by lapse of time, the exercise of any option by Landlord to terminate the same, or in any other manner whatsoever, or upon any termination of this Lease, the Tenant shall at once surrender possession of the Demised Premises to the Landlord and immediately vacate the same, and remove all effects therefrom, except such as may not be removed under other provisions of this Lease. If Tenant fails to do so Landlord may forthwith re-enter said the Demised Premises, with or without process of law, and repossess itself thereof as in its former estate and expel and remove Tenant and any other persons and property therefrom, using such force as may be necessary, without being deemed guilty of trespass, eviction or forcible entry, without thereby waiving -23- Landlord's rights to rent or any other rights given Landlord under this Lease or at law or in the equity; D. if the Tenant shall not remove all effects from the Demised Premises as in this Lease provided, at Landlord's option, Landlord may remove any or all of said effects in any manner that Landlord shall choose and store the same without liability for loss thereof and Tenant will pay the Landlord, on demand, any and all expenses incurred in such removal and also storage of said effects for any length of time during which the same shall be in Landlord's possession or in storage; or Landlord may, at its option, without notice, sell any or all of said effects in such manner and for such price as the Landlord may deem best and apply the proceeds of such sale upon any amounts due under this Lease from the Tenant to the Landlord, including the expenses of removal and sale; E. [intentionally deleted] F. in the event of a breach, or threatened breach, by Tenant of any of the covenants or provisions of this Lease, have the right to enjoin any such breach or threatened breach; and G. declare the entire rental for the balance of the term or the entire term immediately due and payable at once. SECTION 14.02 Except for the nonpayment of rent, additional rent or any other charges or payment the responsibility of Tenant to make hereunder, Tenant shall not be in default upon the occurrence of any of the events referred to in Section 14.01 above (except for the nonpayment of rent, additional rent or any other charge or payment the responsibility of Tenant to make -24- hereunder) if, during the the said fifteen day notice period, Tenant cures said default. If, however, the said default shall be of such a nature that the same cannot be completely cured or remedied within said fifteen day period, then Tenant shall not be in default if, during the said fifteen day period Tenant shall have commenced to cure said default and thereafter continuously and diligently takes such action and actions as are necessary to cure said default at the earliest possible time but in no event, however, shall the time within which Tenant shall have to cure said default be extended beyond sixty (60) days from the giving of the said fifteen days notice. SECTION 14.03 Except for the fifteen days notice referred to in Section 14.01 above, Tenant expressly waives the service of any demand for payment of rent. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws, in the event of eviction or dispossession of Tenant by Landlord under any provisions of this Lease. No receipt of monies by the Landlord from or for the account of Tenant or from anyone in possession or occupancy of the Demised Premises after the termination in any way of this Lease or after the giving of any notice, shall reinstate, continue or extend the term of this Lease or affect any notice given to the Tenant prior to the receipt of such money, it being agreed that after final judgment for possession of the Demised Premises, the Landlord may receive and collect any rent or other amounts due Landlord and such payment shall not waive or affect said notice, said suit or said judgment. -25- SECTION 14.04 The Tenant waives a trial by jury of any or all issues arising in any action or proceeding between the parties hereto, or their successors, arising out of or in any way connected with this Lease, or any of its provisions, the Tenant's use or occupancy of the Demised Premises and/or any claim of injury or damage. SECTION 14.05 Any and all rights and remedies which Landlord may have under this Lease and at law or in equity, shall be cumulative and shall not be deemed inconsistent with each other, and any two or more or all of said rights and remedies may be exercised at the same time or at different times and from time to time. SECTION 14.06 The Tenant covenants and agrees to pay on demand Landlord's expenses, including reasonable attorneys' fees ("reasonableness shall be based upon the amount of time and effort expended by the attorneys without regard to the amount in controversy), incurred in enforcing any obligation of the Tenant under the Lease or in curing any default by Tenant under this Lease. SECTION 14.07 If any of the aforesaid provisions or any other provision of this Lease shall be unenforceable or void, said provisions(s) shall be deemed eliminated and of no force and effect and the balance of this Lease shall continue in full force and effect. If any notice is required by law to be given, such notice shall be given. -26- SECTION 14.08 The Landlord shall have the first lien on Tenant's interest in this Lease to secure the payment and performance of Tenant's obligation hereunder, prior and preferable to all other liens. SECTION 14.09 The Tenant shall not permit any mechanics' or materialmen's liens to be filed against the fee of the real property of which the Demised Premises from a part nor against the Tenant's leasehold interest in the Demised Premises. The Landlord shall have the right at all reasonable times to post and keep posted on the Demised Premises any notice which it deems necessary for protection from such liens. If any such liens are so filed, the Landlord, at its election, may pay and satisfy the same and in such event the sums so paid by the Landlord with maximum permissible interest from the date of payment, but not to exceed 12% per annum, shall be deemed to be additional rent due and payable by the Tenant at once without notice or demand. ARTICLE 15 OCCUPANCY AFTER TERM EXPIRATION SECTION 15.01 If the Tenant shall continue to occupy the Demised Premises after the expiration of the said term, with the consent of the Landlord, such tenancy shall be from month to month, and in no event from year to year, upon the same terms and conditions, except the monthly rental shall be increased to 125% of the monthly rental for the last month of the demised term. -27- ARTICLE 16 EMINENT DOMAIN SECTION 16.01 If the whole or any part of the Demised Premises or the Building shall be taken or condemned by any competent authority under power of eminent domain for a public or quasi public use or purpose, then, at the option of either party, to be exercised by written notice to the other, the term hereby granted shall cease from the time when possession of the part so taken shall be required for such public or quasi public use or purpose, and without an apportionment of the award, the Tenant hereby assigning to the Landlord all right and claim to the award. The current rent, however, in such case shall be apportioned. Landlord's said notice, to be effective, must be given to Tenant no later than thirty (30) days after Landlord's receipt of the "Notice of Taking". Tenant's said notice, to be effective, must be given to Landlord no later than thirty (30) days after Landlord gives Tenant notice of Landlord's receipt of the "Notice of Taking". ARTICLE 17 FIRE, CASUALTY, ETC. SECTION 17.01 In the event that the Building be damaged or destroyed by fire, the elements or casualty, this Lease shall continue in full force and effect, but the Landlord, subject to there being adequate insurance proceeds available to Landlord for the full loss thereof, shall forthwith repair such damage or -28- destruction, provided such repairs can be made under the laws and regulations of State, County, Federal or Municipal authorities; except that if said building is so damaged or destroyed to the extent of not less than one-third (1/3) of the replacement cost thereof, or if said insurance proceeds to Landlord are not so adequate, as determined by the Landlord, the Landlord, at its option (to be exercised within ninety (90) days from the date of such damage or destruction), may terminate this Lease. The Tenant shall be entitled to a proportionate reduction of rent while such repairs are being made only if the Demised Premises are untenantable, such proportionate reduction to be based upon the extent that the Demised Premises, or part thereof, may be untenantable and for the period that said premises, or part thereof, may be untenantable and no such rent reduction shall be allowed by reason of inconvenience, annoyance or injury to the Tenant's business because of such damage or destruction, or the necessity of repairing any portion of the Building, or the making of such repairs, and the Landlord shall not be liable to the Tenant because of such inconvenience, annoyance or injury. Tenant hereby expressly waives the provisions of Section 227 of the Real Property Law and agrees that the foregoing provisions shall govern and control in lieu thereof. SECTION 17.02 Landlord shall not be responsible to Tenant for any loss or theft of property in or from the Demised Premises, or for any loss or theft or damage of or to any property left with any employee of Landlord, however occurring. Landlord shall not be liable for any damage caused by water, -29- rain, snow or ice, or by breakage, stoppage or leakage of water, gas, heating, air-conditioning, sewer or other pipes or conduits, or arising from any other cause, in, upon, about or adjacent to the Demised Premises, or the Building. ARTICLE 18 ESCALATIONS SECTION 18.01 The Tenant hereby agrees to pay, as additional rent, a pro rata portion of the amount by which any of each of the yearly "building operating costs" incurred by the Landlord during each year occurring during the term of this Lease, commencing January 1, 1994, exceed the cost of each said respective building operating cost incurred by the Landlord during the period January 1, 1993, through December 31, 1993, (the "Operating Year"). The Tenant's pro rata portion of said amount shall equal the percentage which the rentable area (as herein defined) of the Demised Premises bears to the rentable area of the Building or, if applicable, buildings in the Park (said allocation of costs to be fair and equitable, in accordance with and in proportion to the gross square footage of the Building so that each building in the Park bears, in proportion to its respective size, its proportionate share of said cost(s),** as determined in good faith by the Landlord's architect. A "Building operation cost"***, **** shall be defined to include the cost to the Landlord of all utilities, fuel, janitorial services for common areas, janitorial services for the Demised Premises ("interior cleaning"), lighting of common areas, -30- insurance, snow plowing, security, landscaping, repairs to the heating, ventilating and air conditioning system servicing the Demised Premises and the Building, elevator maintenance, refuse removal, recycling costs, roof repairs, * maintenance and service (including but not limited to service contracts) of security/safety equipment and automatic/electronic and/or magnetic exterior entrance door locking devices and real estate taxes and other municipal services rendered by the appropriate municipal authorities or quasi- governmental authorities payable by the Landlord and allocable to the buildings and the land on which the buildings stand and adjacent land owned by the Landlord which is part of the Park. The Landlord, in good faith, shall conclusively determine the amount of each such yearly building operating cost(s) and once each year during the term, commencing on January, 1996 shall notify the Tenant, in writing, of additional rent payable on account of its pro rata portion of any such increases of each said building operating cost(s) from the preceding operating year, together with an itemized statement thereof. For a period of one year after said notification, Tenant shall have the right to inspect the Landlord's cost records at the office of the Landlord. Thus, in January ___, 1996, the Landlord shall notify the Tenant of additional rent payable on account of its pro rata portion of the increase, if any, of any such costs for the preceding operating year over the year January 1, 1994, through December 31, 1994. The portion of such additional rent allocable to the months of the then current -31- calendar year (including the month in which such notice is received) which have then elapsed (computed on the basis of one-twelfth of the Tenant's pro rata portion of such increase for each elapsed month) shall be due and payable to the Landlord forthwith; thereafter, the Tenant shall pay, without invoice, on the first day of each succeeding month one-twelfth of its pro rata portion of such increase until the expiration of the term. In each of the next following years, if the Landlord notifies the Tenant of further additional rent payable on account of its pro rata portion of any further increase of any such costs during the prior calendar year, such further additional rent shall be payable in like manner; namely, the Tenant's pro rata portion of such further increase allocable to the elapsed months of the then current year shall be payable forthwith by the Tenant, and one-twelfth of the Tenant's pro rata portion of such further increase shall be payable on the first day of each succeeding month until the expiration of the term. [*"Roof repairs" shall apply only to reasonable repair and expense expenditures reasonably a part of ongoing maintenance and shall not apply to roof "replacement" or other such items.] [**based upon 90% occupancy of the Building] [***Said "Building operating costs" shall be reasonable and, to the extent performed by Landlord, shall be at costs which will not exceed what would be charged by third party vendors/contractors for similar services.] [****"Building operating cost" will include items capitalized by Landlord but such repairs shall apply only to reasonable repair -32- and expense expenditures reasonably a part of ongoing maintenance and shall not apply to replacement or such other items. Provided, however, "capitalized items" shall not be deemed to include (and therefore shall be part of building operating costs) HVAC compressors, condensing units, fan motors, accumulators or dryers.] Computations relating to the increases in real estate taxes shall be computed on and as if the Building is fully assessed as a completed building at 90% occupancy prior to or at the commencement of the Operating Year and in such event it is agreed that during any such lease year when the Building is less than fully assessed as a completed building, for the purpose of calculating real estate tax escalation charges, the tax RATE(S) existing during the Operating Year shall be applied to the final assessment AS IF the Building had been fully assessed during the Operating Year. The resulting amount(s) shall be used for calculating real estate tax escalations pursuant to this Article. SECTION 18.02 For purposes of the Lease, real estate taxes shall be defined as follows: (i) all real estate taxes, including but not limited to town, county and school taxes payable (adjusted after protest or litigation, if any) for any part of the term of this Lease, including any extension period hereof, but exclusive of penalties or discounts, on the Building or the Park to the extent reasonably allocable to the Building; (ii) any taxes which shall be levied in lieu of the taxes described in (i) above; (iii) Pure Waters charges, sewer district charges and any assessments (special or otherwise) made against -33- the Building and/or the Park which shall be required to be paid during the calendar year or fiscal year in respect to which they are being determined, (iv) any water pollution charges, (v) and any other governmental real estate taxes, levies, impositions or charges of a similar or dissimilar nature, whether general, special, ordinary, extraordinary, foreseen or unforeseen which may be assessed, levied or imposed upon all or any part of the Building and/or the Park, and (vi) the reasonable expense of contesting the amount or validity of any such taxes, charges or assessments, such expense (including reasonable attorneys' fees) to be applicable to the period of the item contested. SECTION 18.03 Tenant shall pay prior to delinquency all taxes assessed against or levied upon its occupancy of the Demised Premises, or upon the fixtures, furnishings, equipment and all other personal property of Tenant located in the Demised Premises other than those furnished and paid for by Landlord, if nonpayment thereof shall give rise to a lien on the real estate, and when possible Tenant shall cause said fixtures, furnishings, equipment and other personal property to be assessed and billed separately from the property of Landlord. In the event any or all of Tenant's fixtures, furnishings, equipment and other personal property, or upon Tenant's occupancy of the Demised Premises, shall be assessed and taxed with the property of Landlord, Tenant shall pay to Landlord its share of such taxes within ten (10) days after delivery to Tenant by Landlord of a statement in writing setting forth the furnishings, equipment or personal property. -34- SECTION 18.04 Should any governmental taxing authority acting under any present or future law, ordinance or regulation, levy, assess or impose a tax, excise, surcharge and/or assessment (other than a tax on net rental income or franchise tax) upon or against the rents payable by Tenant to Landlord, or upon or against the Building, the Building Common Areas, either by way of substitution for or in addition to any existing tax on land or buildings or otherwise, Tenant shall be responsible for and shall pay Tenant's pro rata of such tax, excise, surcharge and/or assessment. SECTION 18.05 Should any alteration or improvement performed by Tenant, during the term of this Lease, cause an increase in assessment, Tenant shall pay to Landlord the cost of all taxes resulting from such increase in assessment. Any amount paid separately hereunder by Tenant to Landlord shall be in addition to any amounts paid by Tenant pursuant to Section 18.02 above. SECTION 18.06 Nothing herein contained shall require Tenant to pay municipal, state or federal income taxes assessed against Landlord, municipal, state, or federal, estate, succession, inheritance or transfer taxes of Landlord, or corporation franchise taxes imposed upon any corporate owner of the fee of the Demised Premises'; provided, however, that if at any time during the term of this Lease or any renewal thereof there shall be levied, assessed and imposed, (i) a municipal, state or federal tax, assessment, levy, imposition or charge, wholly or partially as a capital levy, sales tax, use tax, excise tax or -35- other tax or charge, on the rents received by Landlord from the Demised Premises, or (ii) a license fee measured by the rent payable by Tenant under this Lease, then all such taxes, assessments, levies, impositions or charges or the part thereof so measured or based (to the extent that such tax, assessment, levy, imposition or charge would be payable if the Demised Premises were the only property of Landlord subject to such taxes, assessments, levies, impositions or charges) shall be paid by Tenant within ten (10) days after receipt of an invoice therefor from Landlord. ARTICLE 19 PURE WATERS, POLLUTION AND SEWERAGE SECTION 19.01 Tenant shall be responsible for and pay upon being billed therefor by Landlord with Landlord, upon Tenant's written request, exhibiting receipted bills for the charges, Tenant's pro rata share defined for the purpose of this paragraph to be that proportion that Tenant's rentable area (which shall include Tenant's pro rata share of the INTERIOR hallways, if any, but which shall not be deemed to include the entrance lobby) bears to the total rentable area of the Building, of all water, Pure Waters District charges, pollution charges and sewerage charges assessed against the Building for water and sewerage consumed in, about or for the benefit of the Building including the land immediately surrounding the Building. -36- ARTICLE 20 SURVIVAL OF TENANT'S OBLIGATIONS SECTION 20.01 The obligation of Tenant to pay the charges referred to in Article 18 and 19 of this Lease that accrue during the term of this Lease shall survive the expiration or early termination of this Lease. ARTICLE 21 ENTIRE AGREEMENT, TIME OF THE ESSENCE AND NONWAIVER SECTION 21.01 This Lease contains all the agreements of the parties. There have been no representations made by the Landlord or understandings made between the parties other than those set forth in this Lease. This Lease may not be modified except by written instrument duly executed by the parties hereto. Receipt of rent with knowledge of a default by the Tenant will not condone, forgive or waive such default. Failure by the Landlord to enforce any of the provisions hereof for any length of time shall not be deemed a waiver of its rights set forth in this Lease, but such waiver may only be made by instrument in writing and signed by the Landlord. Time is of the essence with respect to all payments and performances required of the Tenant by the provisions of this Lease. -37- ARTICLE 22 INDEMNIFICATION OF LANDLORD SECTION 22.01 Tenant shall indemnify, defend and save Landlord harmless from and against any and all loss, liability, damage or expense including reasonable attorneys' fees ("reasonableness shall be based upon the amount of time and effort expended by the attorneys without regard to the amount in controversy) suffered or incurred by Landlord because of (i) the negligence of Tenant, or Tenants' agents, contractors and employees, (ii) any act or occurrence in the Demised Premises, unless caused by the negligence of Landlord, its agents, contractors or employees, or the intentional act of Landlord (iii) judgments, citations, fines or other penalties rendered or assessed against Landlord (with the exception of any claims under any worker's compensation laws) as a result of Tenant's failure to abide by and to undertake the duty of compliance on behalf of Landlord with all federal, state and local laws, safety and health regulations relating to the interior and other portions of the Demised Premises which Tenant has assumed the duty to maintain pursuant to this Lease, provided that Landlord agrees to give Tenant prompt notice of any such violation asserted by any government agency, and (iv) any and all claims and liabilities which may arise out of or be connected with any improvements, alterations and additions undertaken by Tenant with regard to the Demised Premises including any liens for labor and material arising from such work. -38- SECTION 22.02 (a) Except as provided in Section 22.02(b) hereof, Landlord shall indemnify Tenant against loss, liability or damages to third parties as a result of any personal injury, death, or property damage that occurs in the Common Area solely as a result of the negligence of the Landlord, its agents, servants or employees. (b) The indemnity shall not apply to loss, liability or damages with respect to vehicles except for vehicles owned or operated by Landlord, Landlord's employees, or Landlord's agents; to loss, liability or damages with respect to arrests or apprehensions in the Common Area; to loss, liability or damages with respect to products; claims under Workers' Compensation laws; or loss, liability or damages caused by the negligence of Tenant or its agents, servants or employees. (c) Landlord shall have the sole right to and shall defend any lawsuits with respect to claims for loss, liability or damage against which the indemnity provided in Section 22.02(a) applies and pay any judgments which result from the lawsuits. "Lawsuits" include arbitration proceedings and administrative proceedings and all other governmental and quasi-governmental proceedings. "Liabilities" include the fees and disbursements of attorneys and witnesses. ARTICLE 23 NONDELIVERY OF PREMISES SECTION 23.01 In the event of the failure of the Landlord to deliver possession of the Demised Premises at the time of the -39- commencement of the term of this Lease, neither the Landlord nor its agents shall be liable for any damage caused thereby, nor shall this Lease thereby become void or voidable, but in such event the Tenant shall not be liable for any rent until such time as the Landlord can deliver possession. See Rider 1, Paragraph 5 ARTICLE 24 SECURITY DEPOSIT* [*See page 26A attached hereto and made a part hereof.] SECTION 24.01 Tenant has deposited with Landlord the sum of $8,000.00 as security for the faithful performance and observance by Tenant of the terms, provisions and conditions of this Lease; it is agreed that in the event Tenant defaults in respect of any of the terms, provisions and conditions of this Lease, including but not limited to the payment of rent, Landlord may, at its option, use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any rent or any sum as to which Tenant is in default or for any sum which Landlord may expend by reason of Tenant's default in respect of any of the terms, covenants and conditions of this Lease, including but not limited to, any damages or deficiency in the reletting of the Demised Premises, whether such damages or deficiency accrued before or after summary proceedings or other re-entry by Landlord. In the event that Tenant shall fully and faithfully comply with all of the terms, provisions, covenants and conditions of this Lease, the security shall be returned, without interest to Tenant after the date fixed as the end of the -40- Lease and within a reasonable time after delivery of entire possession of the Demised Premises to Landlord. In the event of a sale of the land and/or Building or leasing of the Building, of which the Demised Premises form a part, Landlord shall have the right to transfer the security to the vendee or lessee, and Landlord shall thereupon be released by Tenant from all liability for the return of such security; and Tenant agrees to look to the new Landlord solely for the return of said security; and it is agreed that the provisions hereof shall apply to every transfer or assignment made of the security to a new Landlord. Tenant further covenants that it will not assign or encumber or attempt to assign or encumber the monies deposited herein as security and that neither Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. Notwithstanding the terms and provisions of Article 24 above, Tenant shall not be required to deposit the said security deposit referred to therein unless the Demised Premises, or a portion thereof, have been sublet or this Lease has been assigned. Notwithstanding anything herein to the contrary, no such sublet or assignment shall be effective until and unless Landlord has received the said security deposit. ARTICLE 25 WAIVER OF SUBROGATION SECTION 25.01 Notwithstanding anything in this Lease contained to the contrary: -41- Landlord shall insure the Building and Tenant shall insure the Demised Premises and its fixtures and contents, against fire and other cases included in standard extended coverage by policies which shall include a waiver by the insurer of all right of subrogation against Landlord or Tenant, their officers, directors, employees, invitees, and in case of Tenant, its subtenants, in connection with any loss or damage thereby insured against. Neither party, nor its officers, directors, employees, agents or invitees, nor, in case of Tenant, its subtenants (if Tenant shall have sublet in accordance with the terms herein), shall be liable to the other for loss or damage caused by any risk covered by such insurance. If the release of either Landlord or Tenant, as set forth in this paragraph, shall contravene any law with respect to exculpatory agreements, the liability of the party in question shall be deemed not released but shall be secondary to the other's insurer. ARTICLE 26 BROKERAGE SECTION 26.01 Tenant and Landlord represent and warrant that they have dealt with no broker, agent or other real estate sales person in connection with this Lease other than Re/Max Commercial Properties, David Wallace, Broker, the commission to which shall be paid by Landlord, and that, other than as herein expressly set forth, no broker, agent or such other person brought about this transaction. Tenant and Landlord agree to indemnify and hold each other harmless from and against any -42- claims by any other broker, agent or other real estate sales person claiming a commission or other form of compensation by virtue of this Lease or of having dealt with Tenant or Landlord with regard to this leasing transaction and should a claim for such commission or other compensation be made it shall be promptly paid or bonded by the party who has dealt with the person or entity making such claim. The provisions of this Article shall survive the termination of this Lease. ARTICLE 27 FORCE MAJEURE SECTION 27.01 Except as otherwise provided in this Lease and except as to the payment of rent or other monies due under this Lease neither party shall be responsible for delays or inability to perform its obligations hereunder for causes beyond the control of such party including acts of other tenants, governmental restriction, regulation or control, labor dispute, accident, mechanical breakdown, shortages or inability to obtain labor, fuel, steam, water, electricity or materials, acts of God, enemy action, civil commotion, or fire or other casualty. ARTICLE 28 MISCELLANEOUS PROVISIONS SECTION 28.01 No receipt of money by Landlord from Tenant after the termination of this Lease or after the service of any notice or after the commencement of any suit or after final judgment for possession of the Demised Premises shall reinstate, -43- continue or extend the term of this Lease or affect any such notice, demand or suit or imply consent for any action for which Landlord's consent is required. SECTION 28.02 No waiver of any default of Tenant or of Landlord hereunder shall be implied from any omission by Landlord or Tenant, as the case may be, to take any action on account of such default if such default persists or be repeated, and no express waiver shall affect any default other than the default specified in the express waiver and that only for the time and to the extent therein stated. SECTION 28.03 The term "Landlord" as used in this Lease, so far as covenants or agreements on the part of Landlord are concerned, shall be limited to mean and include only the owner or owners of Landlord's interest in this Lease at the time in question, and in the event of any transfer or transfers of such interest, Landlord herein named (and in case of any subsequent transfer, the then transferor) shall be automatically freed and relieved from and after the date of such transfer of all personal liability from events which occur after the date of transfer. Any such release of Landlord under this paragraph shall become effective only at such time Landlord's transferee is deemed to be bound to the terms and provisions of this Lease. It is agreed, however, that Landlord shall reimburse Tenant for any overpayments of rent made by Tenant prior to the assignment and any prepayment of rent for months subsequent to the assignment. -44- ARTICLE 29 ESTOPPEL CERTIFICATES SECTION 29.01 Landlord and Tenant agree that from time to time upon not less than five (5) days prior request of the other, to deliver to the party making the request a statement in writing (the "Certificate") certifying (a) that this Lease is unmodified and in full force and effect (or if there have been modifications that the same is in full force and effect and modified and identifying the modifications), (b) the dates to which the rent and other charges have been paid, and (c) that, so far as the person making the certificate knows, the other party is not in default under any provision of this Lease, or if such were not to be the fact, then certifying such default of which person making the certificate may have knowledge. It is agreed that the certificate may be relied upon by the party requesting it or by any other person to which it may be exhibited or delivered. The contents of the certificate shall be binding on the party on behalf of which it shall have been executed. ARTICLE 30 QUIET ENJOYMENT SECTION 30.01 The Landlord covenants and agrees that the Tenant on paying said rent and performing the covenants aforesaid shall and may peaceably and quietly hold and enjoy the said Demised Premises for the term aforesaid. -45- ARTICLE 31 EXECUTION SECTION 31.01 This Lease shall not be binding and in effect until a counterpart hereof has been executed and delivered by the parties each to the other. ARTICLE 32 PROVISIONS BINDING, ETC. SECTION 32.01 This Lease shall bind and inure to the benefit of the parties hereto and their respective heirs, representatives, successors and assigns (provided that this Lease shall not inure to the benefit of any assignee pursuant to an assignment which is not in compliance with the terms of this Lease). ARTICLE 33 INVALID PROVISIONS SEVERABLE SECTION 33.01 If any term or provision of this Lease or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. -46- ARTICLE 34 RENTABLE AREA DEFINED SECTION 34.01 "Rentable area", as referred to herein, shall be defined as follows: a. If the Demised Premises consist of the entire Building (single Tenant building), then the rentable area shall be calculated by measuring from the outside face of the exterior walls of the said Building; or b. If the Demised Premises consist of less than an entire Building (multi-tenant building), then the rentable area shall be calculated by measuring from the outside face of all perimeter exterior walls to the center line of Tenant separating walls, shall include the area of the "vestibule" entrance area to the Demised Premises, and include a proportionate share of the common halls, lobbies, public bathrooms, stairwells and elevator core (if any) of the Building; but said proportionate share shall not increase the rentable square footage calculated as aforesaid by an amount greater than 10%. ARTICLE 35 PRONOUNS INTERCHANGEABLE SECTION 35.01 Feminine, neuter and masculine pronouns, the plural and the singular, shall be construed to be and shall be interchangeable, in any place or places herein in which the context may require such interchange. -47- ARTICLE 36 RIDER SECTION 36.01 In the event there are Riders and/or Exhibits attached hereto they shall be deemed a part hereof and in any case where the provisions of any said Rider and/or Exhibits shall conflict with or be contrary to the provisions contained in this, the main portion of this Lease Agreement, the provision of said Rider(s) and/or Exhibits shall control. ARTICLE 37 LATE CHARGE: ADDITIONAL RENT SECTION 37.01 All rental payments, any additional rent herein and any and all payments due under the provisions of this Lease Agreement from Tenant, unless herein otherwise specifically referred to, shall be received by Landlord no later than 4:00 p.m. on the 1st day of each month (in the case of rent and additional rent) or within fifteen (15) days of being invoiced therefor, whichever is applicable, after which there shall be a 5% late charge calculated on the amount then due. In the event, however, that said late charge were to exceed that permitted by law, the said charge due hereunder shall immediately and automatically be reduced to the maximum then permitted by law. Any charges or payments due to Landlord from Tenant arising out of the terms and provisions of this Lease or as the result of Tenant's occupation of the Demised Premises, including but not limited to services, labor or materials furnished or performed at Tenant's request; shall be deemed additional rent hereunder and -48- shall be deemed due and payable within fifteen (15) days after a statement is rendered therefor. ARTICLE 38 ARTICLE TITLES SECTION 38.01 The Article titles are inserted as a matter of convenience and for reference and in no way define, limit or describe the scope or intent of this Lease nor in any way affect this Lease. ARTICLE 39 INTERIOR CLEANING SECTION 39.01 Landlord agrees to provide cleaning services ("interior cleaning")* for the cleaning of the interior of the Demised Premises in accordance with Exhibit C which is attached hereto and made a part thereof. [*included as part of "rent" in Section 2.01 above (subject to increase in accordance with the provisions of Article 18 above).] ARTICLE 40 MISCELLANEOUS SECTION 40.01 This Lease Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York and without the aid of any canon, custom or rule of law requiring construction against the draftsman. Landlord and Tenant hereby submit to personal jurisdiction in the courts of the State of New York for the enforcement of their respective obligations hereunder, and Landlord and Tenant each waives any -49- and all personal rights under the law of any other state or country to object to jurisdiction within the State of New York for the purposes of an action to enforce such obligations and the venue for any such actions shall be in Monroe County, New York. ARTICLE 41 PROVISIONS, BINDING, ETC. SECTION 41.01 The conditions, covenants and agreements in this Lease contained to be kept and performed by the parties hereto shall be binding upon and inure to the benefit of said respective parties, their legal representatives, successors and assigns. This Section shall not be construed to permit any assignment or subletting, unless otherwise permitted in this Lease, without Landlord's consent. The term "Landlord" as used in this Lease means only the owner for the time being of the land and building (or the owner of a Lease of the building) of which the Demised Premises form a part, so that in the event of any sale or sales of said land and building or of said Lease, or in the event of a Lease of said, the said Landlord shall be and hereby is entirely freed and relieved of all covenants and obligations of Landlord hereunder and it shall be deemed and construed without further agreement between the parities or their successors in interest, or between the parties and the purchaser, at any such sale, or the said Tenant of the building, provided that the purchaser or tenant of the building as of the date of such purchase or lease has assumed and agreed to carry out any and all covenants and obligations of Landlord hereunder. -50- ARTICLE 42 CORPORATE TENANT SECTION 42.01 If Tenant is a corporation, the persons executing this Lease on behalf of Tenant hereby covenant, represent and warrant that Tenant is a duly incorporated or duly qualified (if foreign) corporation and is authorized to do business in the State of New York (a copy of evidence thereof to be supplied to Landlord upon request); and that the person or persons executing this Lease on behalf of Tenant is an officer or are officers of such Tenant, and that he or they as such officers are duly authorized to execute, acknowledge and deliver this Lease to Landlord (a copy of a resolution to that effect to be supplied to Landlord upon request). ARTICLE 43 LANDLORD'S CONSENT SECTION 43.01 If at any time during the term of this Lease or any renewal thereof, Landlord is requested to give its consent and Landlord delays in granting its consent or determines to withhold such consent, the sole remedy of Tenant shall be equitable action to compel Landlord to give its consent. Landlord shall not be liable for any loss, liability, damage or expense, including attorney's fees that Tenant may suffer or incur as a result of Landlord's delay in granting such consent or in the event a court subsequently determines that such consent was unreasonably withheld, or as a result of or in connection with Tenant's action to compel Landlord to give its consent as -51- herein provided.* [*In the event the Landlord withholds its said consent and there is disagreement between Landlord and tenant as to whether or not Landlord's said refusal is reasonable, then the matter of Landlord's reasonableness in so refusing shall be submitted to binding arbitration in accordance with the Rules of the American Arbitration Association.] -52- IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals as of the date first above written. PERINTON HILLS By: /S/ Charles N. Mills ----------------------------- Charles N. Mills, General Partner EMCO MOTOR HOLDINGS, INC. Date: 4-13-94 By: /S/ E.P. Mager ----------------------------- (Name and Title) -53- STATE OF NEW YORK ) ) SS: COUNTY OF MONROE ) On the 13th day of April, 1994, before me personally came CHARLES N. MILLS, to me known, who being by me duly sworn, did depose and say that he resides at Rochester, New York; that he is the General Partner of PERINTON HILLS, the Limited Partnership described in and which executed the foregoing instrument. /s/ Debra Ann Motabito ----------------------------- STATE OF NEW JERSEY ) ) SS: COUNTY OF HUDSON ) On the 11th day of April, 1994, before me personally came EZRA P. MAGER to me known, who, being by me duly sworn, did depose and say that he resides at 585 Route 440, Jersey City, NJ 07304 that he is the President of EMCO MOTOR HOLDINGS, INC. the corporation described in, and which executed the foregoing instrument; that he knows the seal of said corporation; that the0 seal affixed to said instrument is such corporate seal; that it was so affixed by order of the board of directors of said corporation; and that he signed his name thereto by like order. /S/ Ellen K. Shyne ----------------------------- -54- STATE OF ) ) SS: COUNTY OF ) On the ______ day of ________, 19___, before me personally came _______________________________________________________ to me known and known to me to be the individual described in and who executed the foregoing instrument and duly acknowledged to me that he executed the same. ______________________ -55- EXHIBIT B TO LEASE AGREEMENT BETWEEN PERINTON HILLS AND EMCO MOTOR HOLDINGS, INC. The Demised Premises shall be completed by Landlord or Tenant, as the case may be, as hereinafter designated: A. Work to be completed by the Landlord at Landlord's sole cost and expense ("Landlord's Work"): 1. Interior finish of walls shall be gypsum wallboard taped and finished with two (2) coats flat wall paint with one color through-out; 2. All floors shall be carpeted with standard 26 oz. carpet. Color to be chosen by Tenant from Landlord available colors. Matching 4" vinyl base; 3. Ceiling shall be 2'x2' tegular tile, glacial finish lay-in panels in exposed metal tee grid; 4. Interior partitioning* shall be as shown on Exhibit A which will be attached hereto and made a part hereof;** [*Landlord, at its sole cost and expense, will provide 1/2 inch soundboard (and "friction fit" cavity insulation) on three offices and a conference room. The offices are to be selected in writing within three (3) days of the execution hereof by Tenant. Further, Landlord shall supply, at its expense, a refrigerator (with a freezer compartment), sink with hot and cold running water and a microwave oven.] [**which Tenant agrees to supply utilizing Landlord's architect at Landlord's expense.] Partitions shall be 2"x3-5/8" studs 24 o.c. with 1/2" gypsum wallboard, both sides, taped and finished. Partitions shall be complete with flush wood, solid core oak veneer doors, frames, trim and Schlage (or equal) hardware; 5. Heating and air conditioning - Subject to Article 7 in the main body of this Lease Agreement, Landlord shall provide air conditioning and heating of the Tenant space; 6. Electrical: -Lighting - Subject to any applicable law, statute, ordinance or regulation, Landlord shall provide recessed flourescent light providing an average of 60 foot candles. Light fixtures shall be 2'x4' 3-tube, "deep cell" parabolic fixtures; -Outlets - Up to 69 wall-mounted 110 volt 20 amp duplex convenience outlets (non-dedicated). There shall be 12 outlets per circuit. 7. Landlord shall supply a sink with hot and cold running water and a base cabinet. B. "Tenant's Work" shall supplement that work to be performed by Landlord (herein referred to as "Landlord's Work") as set forth in Subparagraph A above of this Exhibit B. Any alterations, additions or improvements which are in 2 addition to said Landlord's work which Tenant desires to make in the Demised Premises either before or after the commencement date of this Lease, shall be performed by Tenant at its sole cost and expense, shall require written approval from Landlord and shall be herein defined as "Tenant's Work". Tenant, at its sole cost and expense, shall perform all labor, services and management and furnish all labor, material, plans and equipment necessary to complete, in a good, substantial and approved manner, the work herein described and shall bring the Demised Premises to a finished condition for the conduct of Tenant's business therein. All of Tenant's work, even if such work is performed prior to the commencement of the term of this Lease, shall be performed subject to and in accordance with all of the terms and provisions of the Lease including but not limited to the terms and provisions of Article 5, Article 11, Article 12, Section 14.09 and Section 22.01 and, additionally, shall include the following work, labor, services and material and, as the case may be, shall be subject to the following general conditions: 1. All additional interior partitions, door bucks, doors and finish hardware; 2. All architectural millwork including cabinets, counters, vanities, shelving, paneling and decorative millwork required; 3. Any ventilating work required (other than noted in "A.5" above); 3 4. All electrical work required (other than noted in "A.6" above) and all telephones and installation of equipment; 5. Interior furniture, furnishings, office equipment, etc.; 6. Interior Signs - All interior signs shall be installed at the sole cost of Tenant with only one interior sign being permitted on the entrance doorway, which sign shall be furnished and installed by Landlord in accordance with the specifications furnished by Landlord at the expense of Tenant not to exceed $350.00; 7. All other work not listed under subparagraph A above; 8. All foregoing work shall be in accordance with local building codes and regulations; 9. Tenant shall, at its own expense, comply with all applicable statutes, ordinances, rules, orders, laws, regulations and recommendations of any governmental or quasi-governmental bureau, agency, board or department and their authorized agents which have jurisdiction over Tenant's Work, and, with respect to the prevention of fire and the exposure to liability risks, of the Board of Fire Underwriters, Rating Board and Landlord's and Tenant's insurance companies. Tenant shall apply for, pay all fees for, and obtain all necessary permits, licenses and certificates required by Tenant's Work. A copy of same shall be delivered to Landlord and shall be posted in a 4 prominent place within the Demised Premises before Tenant commences its work; 10. Tenant shall perform its work so as to cause no interference with the completion of Landlord's Work or other tenants' work; 11. All materials furnished or incorporated in Tenant's Work shall be new, unused, and of the quality and characteristics customarily used in first class work of similar nature and character; 12. In fulfillment of its obligations pursuant to Article 11, and in addition, to the insurance coverage required by Article 11 of this Lease and the provisions of this Exhibit B, Tenant shall carry and cause its contractors, subcontractors, etc. to carry in the course of and in connection with "Tenant's Work", at its/their own expense, and shall name Landlord and such other entities and persons designated by Landlord as additional insured, the following insurance coverages in the following amounts: a. Comprehensive General Liability including completed operations, explosions, collapse and underground operations, if any; broad form property damage including completed operations, protective liability, contractual liability and indemnity: $1,000,000 (single limit) - Bodily Injury and Property Damage 5 b. Personal Injury (with employment exclusion deleted and contractual exclusion deleted): $1,000,000 - Occ________ [Illegible] and A________ [Illegible] c. Auto Liability (including non-owned and hired vehicles): $500,000 (single limit) - Bodily Injury $250,000 - Property Damage d. Statutory Worker's Compensation, Employer's Liability and Disability Benefits: Unlimited Excess Liability, Umbrella Form: $5,000,000 and any other special insurance as required by Landlord so as to fully protected Landlord against loss or damage throughout the period during which the Tenant's work is being performed. e. All of such insurance shall be written by a casualty insurance company authorized under the laws of New York State, and satisfactory to the Landlord. Tenant and said contractors shall furnish Landlord, prior to commencement of Tenant's Work, certificates and certified copies of such policies showing that the said insurance will not be cancelled or changed until after at least thirty (30) days' written notice to Landlord. In the event of the failure of Tenant and/or 6 said contractors, to furnish and maintain such insurance, Landlord shall have the right to procure and maintain the said insurance for and in the name of the Tenant and/or said contractors, and Tenant agrees to pay the cost thereof and to furnish all necessary information to permit Landlord to procure and maintain such insurance for the account of the Tenant and/or said contractors. The cost of such policies shall be paid by Tenant to Landlord as additional rent upon demand. Compliance by Tenant with the foregoing requirements to carry insurance and furnish certificates shall not relieve Tenant from liability under any provisions of this Lease. 13. Tenant shall submit complete drawings and specifications for all work to be performed by Tenant for Landlord's approval, prior to the start of such work. 7 RIDER 1 TO LEASE AGREEMENT BETWEEN PERINTON HILLS and EMCO MOTOR HOLDINGS, INC. 1. Provided Tenant shall have given Landlord not less than six (6) months' prior written notice thereof, and further provided Tenant is not in default* in any of the terms and provisions herein, Tenant shall have an option to terminate this lease effective April 30, 1997. [* material] 2. The annual rental referred to in Section 2.01 above shall include an allowance for electric and gas consumption (heat, light, air conditioning and power for the Demised Premises and Tenant's pro rata share of the common areas of the Building and the parking lot serving the Building) in the amount of $4,103.04 per year ($.60 x 6839 r.s.f. = $4,103.04). Tenant's said pro rata share shall be determined by multiplying the cost thereof by a fraction - the numerator of which shall be its rentable square foot area (6839 r.s.f. at the commencement of the demised term) and the denominator of which shall be the total rentable square footage of the Building (15,583.77 r.s.f.). Tenant, at its cost and expense, shall install a separate electric and, if applicable, gas meter, to meter the electrical (and gas, etc.) consumption of the Demised Premises. 3. Unless caused by the negligence of Tenant, Tenant's employees, contractors, representatives or agents, in the event Landlord fails to deliver the services referred to in Article 7 above and in the event said failure to deliver said services to the Demised Premises is of such an extent that it is unreasonable for Tenant to conduct its business and if such condition continues for a period of twenty-one (21) consecutive days from the date of said interruption, then, in that event, Tenant shall have the option of terminating this Lease Agreement by giving ten (10) days written notice thereof to Landlord. In the event said interruption of service is cured prior to the end of said ten (10) day period, Tenant's said notice shall be deemed null and void and of no force or effect. In the event the said interruption of service is not so cured prior to the end of the said ten (10) day period, the demised term will expire at the end of the said ten (10) day period as if the said date were the original expiration date herein referred to. 4. Except in cases of emergency, notwithstanding the terms and provisions of Section 10.01 above, Landlord shall not enter the Demised Premises without having first given Tenant reasonable advance oral notice thereof. An emergency shall be defined to be when Landlord or Landlord's employees reasonably believe that damage to person or property may result unless such entry is made. 5. A. Subject to events beyond Landlord's control or for delays caused by the action or inaction of Tenant, Tenant's employees, agents, contractors or representatives, in which event the date referred to below of May 16, 1994 shall be extended one day for each day said condition continues, in the event the Demised Premises are not "ready for occupancy" by June 1, 1994 Tenant may terminate this Lease by giving Landlord ten (10) day's written notice thereof. If, however, the Demised Premises are "ready for occupancy" prior to the end of the said ten (10) day period, the said notice shall be null and void and of no force or effect. Notwithstanding the foregoing, unless delayed by the action or inaction of Tenants, employees, representatives, contractors, etc., in the event the Demised Premises are not "ready for occupancy" by July 1, 1994, Tenant may terminate this Lease by giving Landlord written notice thereof on or before July 5, 1994. Upon said notice, neither party shall have any further obligation to the other. B. The term "ready for occupancy" shall be defined to mean that the Demised Premises have received valid certificates of occupancy; that the Demised Premises have been professionally cleaned and are free of trash or debris; and that the Demised Premises have been finished in accordance with the provisions of the Lease, subject only to minor "punch list" items which do not separately or in the aggregate materially affect Tenant's use and occupancy of the Demised Premises. Notwithstanding the foregoing, the term "ready for occupancy" shall refer only to Landlord's work and if no certificate of occupancy has been issued as the result of the action or inaction of Tenant, its representatives, agents, employees or contractors than the requirement of the issuance of a certificate of occupancy as herein referred to shall be deemed waived. 6. In reference to the terms and provisions of Article 13 of the Lease, Landlord agrees to use its best efforts to secure on agreement from the mortgagee (and any future lenders) of the Building of which the Demised Premises form a part which provides that in the event of a foreclosure by the lender of any said mortgage, Tenant's possession of the Demised Premises will not be disturbed provided Tenant is then and continuously thereafter is in full compliance with all of the terms, covenants and conditions herein contained. Tenant shall be responsible for the payment of any fee charged by said lender for the said agreement. PERINTON HILLS By /s/ Charles N. Mills ----------------------------- Charles N. Mills, General Partner EMCO MOTOR HOLDINGS, INC. By /s/ ----------------------------- RULES AND REGULATIONS 1. WINDOW COVERINGS No window coverings will be installed except "free hanging" (i.e. no "ties", "tie backs", etc.) draperies in white or LIGHT beige and fully lined in white. In addition Tenant may have horizontal, narrow slat "Levolor" blinds in the color "alabaster" and installed inside the window frame. 2. CARPET PROTECTORS Carpet protectors must be used beneath all "swivel" type chairs. 3. GARBAGE AND TRASH REMOVAL All garbage and trash must be removed on a daily basis. It may be placed in the dumpsters provided by Landlord for that purpose. Landlord will not be responsible for or accepting unusual amounts of rubbish not associated with normal daily trash/rubbish requirements of a typical corporate office. All boxes, etc. shall be "broken down" by Tenant before removal. 4. LIGHTS, ETC. All lights, typewriters, coffee makers, etc., must be turned off when the Demised Premises are not in use. 5. "AFTER HOURS" USE When using the Demised Premises after normal working hours or on weekends, Tenant, if the last one leaving the building, shall not leave the building without first locking the entrance doors and, during said times, IF PRACTICAL will keep the said doors locked while inside the Demised Premises. 6. COMMON AREAS The sidewalks, entrances, passages, vestibules, stairways, corridors and public parts of the Building of which the Demised Premises form a part shall not be obstructed or encumbered by Tenant or used by Tenant for any purpose other than ingress and egress to and from the Demised Premises. 7. MOVE-IN All moving of furniture and/or equipment, files, etc. from or to the Demised Premises shall be coordinated with Landlord. All carpets shall be protected with a hard surface (e.g. plywood, masonite, etc.) throughout the entire area of the move including all lobby carpets and all carpets within the Demised Premises. Tenant shall use only movers who are insured in accordance with Landlord established regulations (not less than $1,000,000 single limit for liability and property damage) and, Landlord and such other 2 entities as Landlord designates shall be named as additional insured and appropriate certificates evidencing said insurance shall be furnished to Landlord prior to any said moving. Tenant/mover shall protect ALL door openings, etc. with appropriate coverings to prevent damage and Landlord shall be given adequate notice to allow Landlord to install "pads" in the elevator, if applicable. All said moves shall be Monday through Friday between the hours of 9:00 a.m. and 4:30 p.m. but not on recognized national holidays. 8. SIGNS No sign or lettering shall be affixed by Tenant on any part of the outside of the Demised Premises (including but not limited to the entrance door and glass sidelight) or any part of the inside of the Demised Premises so as to be clearly visible from the outside of the Demised Premises. However, Tenant shall be permitted to have the identification signs on the entrance door, lobby directory and outside directory in a style and color permitted by Landlord at Landlord's sole discretion. 9. WINDOWS Except for the "window coverings" referred to in Paragraph 1 above, the windows in the Demised Premises shall not be covered or obstructed by Tenant nor shall any bottles, parcels or other articles be placed on the windowsills. 3 10. NOISE Tenant shall not make or permit to be made, any unseemly or disturbing noises or interfere with other tenants or those having business with them. 11. LOCKS AND KEYS No additional locks or bolts of any kind shall be placed upon any of the doors by Tenant and Tenant shall, upon the termination of this tenancy, deliver to Landlord all keys to any space within the Building either furnished to or otherwise procured by Tenant. If more than two (2) keys for one lock are desired, Landlord will provide the same upon payment by Tenant. 12. HEAVY EQUIPMENT Landlord reserves the right to prescribe the weight and position of all safes and other heavy equipment so as to distribute properly the weight thereof to prevent any unusual condition from arising. Business machines and other equipment shall be placed and maintained by Tenant at Tenant's expense in settings sufficient in Landlord's reasonable judgment to absorb and prevent unreasonable vibration, noise and annoyance. 4 13. HEATERS/EXTENSION CORDS Tenant shall not use ANY electrical extension cords or space heaters. 14. PARKING All parking areas in or about the Building provided by Landlord shall be subject to the exclusive control and management of Landlord. Tenants, their employees, agents and visitors shall park only in areas designated by Landlord from time to time. No overnight parking is allowed in any of the parking lots without the prior written consent of Landlord which Landlord may withhold in its sole discretion. In the event Landlord permits overnight parking, Tenant shall be responsible for moving said vehicle every 24 hours if requested by Landlord and Landlord shall not be responsible for the accumulation of snow around said vehicle as the result of snowplowing occurring after normal business hours. 15. NON-SMOKING BUILDING In accordance with the applicable Monroe County ordinances and Landlord established regulations, there shall be no smoking in the Demised Premises or the Building. 5 Exhibit C INTERIOR CLEANING SPECIFICATIONS DAILY Dusting: All horizontal surfaces, including desks and other personal areas when cleared of papers, personal effects, etc. Vacuuming: Common areas and offices. Refuse: Empty all containers, urns and ashtrays. Glass: Clean all doors inside and out. Remove smudges and fingerprints from interior glass. Cobwebs: Remove. WEEKLY Vacuuming: Thoroughly do all offices. Smudges: Remove, if reasonably possible, from doors, switchplates, etc. Refuse: Change liners as needed. Remove properly separated recyclables from a central location, as needed. The cleaning specification shall not include the removal or disposal of "medical" wastes, hazardous or toxic wastes or any other wastes which require any kind of special or unique handling disposal or treatment - all of which will be the responsibility of Tenant. GUARANTY OF LEASE GUARANTY OF LEASE dated this 13th day of April, 1994, given by ATLANTIC AUTO FINANCE CORPORATION, a Delaware Corporation, with an office for the transaction of business at 44 Souther Parkway, Rochester, New York, 14610 (hereinafter called "Guarantor") given to PERINTON HILLS having an address 250 WillowBrook Office Park, Fairport, New York 14450 (hereinafter referred to as "Landlord"). W I T N E S S E T H: WHEREAS, simultaneously with the delivery of this Guaranty, Landlord is leasing to EMCO MOTOR HOLDINGS, INC. A Delaware corporation (hereinafter referred to as "Tenant"), by a Lease Agreement dated as of March 18, 1994 (hereinafter referred to as the "Lease") premises situate in Building 800, Perinton Hills Office Park, Fairport, New York, more particularly described in the Lease; and WHEREAS, Landlord is unwilling to enter into the Lease unless Guarantor(s) execute(s) and deliver(s) to Landlord this Guaranty; and WHEREAS, the execution and delivery hereof and the assumption of liability hereunder have been in all respects authorized and approved by proper corporate action on the part of Guarantor (if Guarantor is a corporation), and Guarantor has full authority and power to execute this Guaranty. NOW, THEREFORE, in order to induce Landlord to enter into the Lease, as aforesaid, and, further, in consideration of One Dollar ($1.00) and other good and valuable consideration paid by Landlord to Guarantor(s), receipt of which is hereby acknowledged, Guarantor(s) hereby convenant(s), guarantee(s) and agree(s) as follows: 1. Guarantor(s) jointly and severally, hereby unconditionally and irrevocably guarantee(s) to Landlord the prompt and timely performance and observance by Tenant of all of the terms, covenants, conditions and agreements to be performed or observed by Tenant under the Lease throughout the term of the Lease, including any extension and/or renewal thereof, including, but not limited to the payment of rent and additional rent by Tenant at the times and in the manner provided in the Lease. 2. Guarantor(s) hereby agree(s) and covenant(s) to Landlord, jointly and severally, that, if at any time during the term of the Lease or any extension and/or renewal thereof, Tenant shall default in the due and prompt performance of any of the covenants, terms, conditions and agreements contained in the Lease on the part of Tenant to be performed, Guarantor(s) shall perform such obligation and shall pay the sums to be paid thereunder in the manner and at the times therein specified and shall pay all damages that may arise as a consequence of such breach or nonperformance of any such covenant, term, condition and agreement of the Lease. 3. Any modification of the Lease, or waiver of the performance thereunder, or the giving by Landlord of any extensions of time for the performance of any of the obligations of Tenant, or any acceptance of rent after any default of Tenant or any forbearance of the part of Landlord, or any failure by Landlord to enforce any of its rights under the Lease, or any assignment of the Lease, shall not in any way release Guarantor(s) from liability hereunder, or terminate, affect or diminish the validity of this Guaranty. Notice to Guarantor(s) of acceptance of this Guaranty, or any such modification, assignment, waiver, extension, forbearance or failure or of any default by Tenant is hereby expressly waived. 4. In the event of any bankruptcy, reorganization, winding up or similar proceedings with respect to Tenant no limitation of Tenant's liability under the Lease which may now or hereafter by imposed by any federal, state or other statute, law or regulation applicable to such proceedings, shall in any way limit the obligation of Guarantor(s) hereunder, which obligation is coextensive with Tenant's liability as set forth in the Lease without regard to any such statutory or legal limitation. Guarantor(s) further agree(s) that the validity of this Guaranty and the obligations of Guarantor(s) hereunder shall in no way be terminated, affected or impaired by reason of the adjudication in bankruptcy of any person or entity obligated under the Lease, the filing of a petition for any relief under the Bankruptcy Act, or the death or incapacity of any of the persons constituting Guarantor(s). 5. Guarantor(s) hereby agree(s) and covenant(s) to Landlord, that if there by any default in the performance of any of the obligations of Tenant under the Lease, upon the happening of such default or at any time thereafter, Landlord may have and maintain an action upon this Guaranty against Guarantor(s) and in like manner may have and maintain successive actions upon this Guaranty for each and every other default. Guarantor(s) expressly agree(s) that its their obligations hereunder shall not be exhausted by any such action or by any number of such successive actions until and unless each of Tenant's agreements contained in the Lease shall have been fully performed. 6. Guarantor(s) hereby waive(s) notice of the acceptance hereof presentment, demand for payment, protest, notice of protest and any and all notices of non-payment, non-performance, or non-observance, or other proof or notice of demand. 7. Words of any gender used in the Guaranty shall be held to include any other gender and words in the singular number shall be held to include the plural where the tense requires. 8. Guarantor(s) agree, jointly and severally, to pay on demand Landlord's reasonable expenses, including reasonable attorneys' fees ("reasonableness shall be based upon the amount of time and effort expanded by the attorneys without regard to the amount in controversy"), incurred in enforcing any obligation of Guarantor(s) pursuant to this agreement of Guaranty. 9. This Guaranty shall bind Guarantor(s), its their heirs, legal representatives, executors, administrators, successors and assigns, as the case may be, and shall inure to the benefit of Landlord and its successors and assign. ATLANTIC AUTO FINANCE CORPORATION By: /s/ Richard J. Harrison ---------------------------- Richard J. Harrison President STATE OF NEW YORK ) SS: COUNTY OF MONROE ) On the 13th day of April, 1994, before me personally came RICHARD HARRISON, to me known, who, being by me duly sworn, did depose and say that he resides at 44 Southern Parkway, Rochester, New York, that he is the President of ATLANTIC AUTO FINANCE CORPORATION, the corporation described in and which executed the foregoing instrument; that he signed the foregoing by order of the Board of Directors of said corporation. /s/ Debra Ann Motabito ---------------------------- EX-10.4-1 29 EXHIBIT 10.4.1 AMENDED AND RESTATED STOCK PURCHASE AGREEMENT DATED AS OF JULY 1, 1995 AMONG UNITED AUTO GROUP, INC., LANDERS AUTO SALES, INC., STEVE LANDERS, JOHN LANDERS AND BOB LANDERS TABLE OF CONTENTS Page ---- ARTICLE 1 PURCHASE AND SALE OF SHARES 1.1 Purchase and Sale of the Shares............................... 2 1.2 Net Worth Adjustment.......................................... 4 1.3 Additional Payments........................................... 6 1.4 Contingent Payment............................................ 8 1.5 Two-Year Payment.............................................. 9 ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS 2.1 Organization and Good Standing................................ 10 2.2 Subsidiaries.................................................. 11 2.3 Capitalization................................................ 11 2.4 Authority; Approvals and Consents............................. 11 2.5 Financial Statements.......................................... 13 2.6 Absence of Undisclosed Liabilities............................ 14 2.7 Absence of Material Adverse Effect; Conduct of Business................................................... 14 2.8 Taxes......................................................... 15 2.9 Legal Matters................................................. 16 2.10 Property...................................................... 17 2.11 Environmental Matters......................................... 18 2.12 Inventories................................................... 21 2.13 Accounts Receivable........................................... 21 2.14 Insurance..................................................... 21 2.15 Contracts; Etc................................................ 22 2.16 Labor Relations............................................... 22 2.17 Employee Benefit Plans........................................ 23 2.18 Other Benefit and Compensation Plans or Arrangements.................................................. 26 2.19 Transactions with Insiders.................................... 27 2.20 Propriety of Past Payments.................................... 28 2.21 Interest in Competitors....................................... 28 2.22 Brokers....................................................... 29 2.23 Accounts...................................................... 29 2.24 Net Worth of the Companies.................................... 29 2.25 Disclosure.................................................... 29 (i) ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS Page ---- 3.1 Ownership of Shares; Title.................................... 29 3.2 Authority..................................................... 30 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF UAG 4.1 Organization and Good Standing................................ 30 4.2 Subsidiaries.................................................. 31 4.3 Capitalization................................................ 32 4.4 Authority; Approvals and Consents............................. 32 4.5 Financial Statements.......................................... 33 4.6 Absence of Undisclosed Liabilities............................ 34 4.7 Absence of Material Adverse Effect; Conduct of Business................................................... 34 4.8 Taxes......................................................... 35 4.9 Legal Matters................................................. 36 4.10 Property...................................................... 37 4.11 Environmental Matters......................................... 37 4.12 Inventories................................................... 39 4.13 Accounts Receivable........................................... 40 4.14 Insurance..................................................... 40 4.15 Contracts; Etc................................................ 40 4.16 Labor Relations............................................... 41 4.17 Employee Benefit Plans........................................ 42 4.18 Other Benefit and Compensation Plans or Arrangements.................................................. 42 4.19 Transactions with Insiders.................................... 42 4.20 Propriety of Past Payments.................................... 43 4.21 Brokers....................................................... 43 4.22 Acquisition of the Shares for Investment...................... 43 4.23 Disclosure.................................................... 43 ARTICLE 5 COVENANTS AND ADDITIONAL AGREEMENTS 5.1 Access; Confidentiality....................................... 44 5.2 Furnishing Information; Announcements......................... 44 5.3 Antitrust Improvements Act Compliance......................... 45 5.4 Certain Changes and Conduct of Business....................... 45 (ii) Page ---- 5.5 Contribution or Loan; No Intercompany Payables or Receivables................................................ 48 5.6 Negotiations.................................................. 49 5.7 Consents; Cooperation......................................... 49 5.8 Additional Agreements......................................... 50 5.9 Interim Financial Statements.................................. 50 5.10 Notification of Certain Matters............................... 50 5.11 Additional Capital Contributions.............................. 51 5.12 Purchase of Chevrolet Dealership.............................. 51 5.13 Observer Rights............................................... 52 5.14 Release of Guarantees......................................... 52 5.15 Key Man Life Insurance........................................ 52 5.16 Assurance by the Stockholders................................. 52 ARTICLE 6 CONDITIONS TO THE OBLIGATIONS OF UAG TO EFFECT THE CLOSING 6.1 Representations and Warranties; Agreements; Covenants..................................................... 53 6.2 Authorization; Consents....................................... 53 6.3 Opinions of the Company's and the Stockholders' Counsel....................................................... 53 6.4 Absence of Litigation......................................... 54 6.5 No Material Adverse Effect.................................... 54 6.6 Working Capital Requirements.................................. 54 6.7 Completion of Due Diligence................................... 55 6.8 Employment Agreements......................................... 55 6.9 Leases........................................................ 55 6.10 Shareholders Agreement........................................ 55 6.11 Registration Rights Agreement................................. 55 6.12 Board Approval................................................ 55 6.13 Certificates.................................................. 55 6.14 Legal Matters................................................. 55 ARTICLE 7 CONDITIONS TO THE OBLIGATIONS OF THE STOCKHOLDERS TO EFFECT THE CLOSING 7.1 Representations and Warranties; Agreements.................... 56 7.2 Authorization of the Agreement, Consents...................... 56 7.3 Opinions of UAG's Counsel..................................... 56 7.4 Absence of Litigation......................................... 57 7.5 Employment Agreement.......................................... 57 7.6 Leases........................................................ 57 (iii) Page ---- 7.7 Shareholders Agreement........................................ 57 7.8 Registration Rights Agreement................................. 57 7.9 Certificates.................................................. 57 7.10 Legal Matters................................................. 57 ARTICLE 8 TERMINATION 8.1 Termination................................................... 58 8.2 Effect of Termination......................................... 59 ARTICLE 9 INDEMNIFICATION 9.1 Indemnification by the Stockholders........................... 59 9.2 Indemnification by UAG........................................ 59 9.3 Procedures.................................................... 60 9.5 Offset........................................................ 62 9.6 Remedies...................................................... 63 9.7 Definitions................................................... 63 9.8 Indemnifying Stockholders..................................... 63 ARTICLE 10 MISCELLANEOUS 10.1 Survival of Provisions........................................ 64 10.2 Fees and Expenses............................................. 64 10.3 Headings...................................................... 65 10.4 Notices....................................................... 65 10.5 Assignment.................................................... 67 10.6 Entire Agreement.............................................. 67 10.7 Waiver and Amendments......................................... 67 10.8 Counterparts.................................................. 68 10.9 GOVERNING LAW................................................. 68 10.10 Accounting Terms............................................. 68 10.11 Certain Definitions.......................................... 68 10.12 Schedules.................................................... 69 10.13 Severability................................................. 69 10.14 Remedies..................................................... 69 10.15 The Company.................................................. 69 (iv) SCHEDULES --------- Schedule 1.2(a) Accounting Principles Schedule 2.1 Company Foreign Qualifications and Assumed Names Schedule 2.3 Company Capitalization Schedule 2.4 Company Agreement Conflicts Schedule 2.5 Company Financial Statements Schedule 2.6 Company Liabilities Schedule 2.7(a) Company Material Adverse Effects Schedule 2.7(b) Company Conduct of Business Schedule 2.8 Company Taxes Schedule 2.9(a) Company Litigation Schedule 2.9(b) Company Compliance with Legal Requirements and Permits Schedule 2.10 Company Real Property Schedule 2.11(a) Company Environmental Compliance Schedule 2.11(c) Company Environmental Matters Schedule 2.11(d) Company Environmental Substances Schedule 2.11(e) Company Environmental Litigation Schedule 2.14 Company Insurance Policies Schedule 2.15 Company Agreements Schedule 2.16(b) Company Employment and Labor Agreements Schedule 2.16(c) Company Labor Matters Schedule 2.17(a) Company ERISA Plans Schedule 2.17(b) Company Multiemployer Plans Schedule 2.17(e) Company Pension Benefit Plans Schedule 2.17(g) Company Multiemployer Plan Withdrawal Liability Amounts Schedule 2.17(h) Company Welfare Benefit Plan Liability Amounts Schedule 2.18(a) Company Compensation Commitments Schedule 2.19 Company Transactions with Insiders Schedule 2.20 Company Past Payments Schedule 2.23 Company Bank Accounts Schedule 4.1 UAG Foreign Qualifications and Assumed Names Schedule 4.2 UAG Subsidiaries Schedule 4.3 UAG Capitalization Schedule 4.4 UAG Agreement Conflicts Schedule 4.5 UAG Financial Statements Schedule 4.6 UAG Liabilities Schedule 4.7(a) UAG Material Adverse Effects Schedule 4.7(b) UAG Conduct of Business Schedule 4.8 UAG Taxes Schedule 4.9(a) UAG Litigation Schedule 4.9(b) UAG Compliance with Legal Requirements and Permits Schedule 4.11(a) UAG Environmental Compliance Schedule 4.11(c) UAG Environmental Matters (v) Schedule 4.11(d) UAG Environmental Substances Schedule 4.11(e) UAG Environmental Litigation Schedule 4.15 UAG Agreements Schedule 4.16(b) UAG Labor Matters Schedule 4.17 UAG ERISA Plans Schedule 4.18(a) UAG Compensation Commitments Schedule 4.19 UAG Transactions with Insiders Schedule 4.20 UAG Past Payments Schedule 5.14 Stockholder Personal Guarantees Schedule 6.6 Minimum Working Capital Amount Exhibit A -- Form of UAG Note I Exhibit A-1 -- Form of UAG Note II Exhibit A-2 -- Form of Working Capital Note Exhibit B -- Form of UAG Guaranty Exhibit C -- Form of Steve Landers Employment Agreement Exhibit D -- Form of John Landers Employment Agreement Exhibit E -- Form of Lease Exhibit F -- Form of Shareholders Agreement Exhibit G -- Form of Registration Rights Agreement (vi) INDEX OF DEFINED TERMS Page ---- Accounting Principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 accumulated funding deficiency . . . . . . . . . . . . . . . . . . . . . . . 25 cquired Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Acquired Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Acquired Entity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Acquired Entity's Pro Rata Earnings. . . . . . . . . . . . . . . . . . . . . .8 Actual Working Capital Amount. . . . . . . . . . . . . . . . . . . . . . . . 54 Additional Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Additional Payment Deficiency. . . . . . . . . . . . . . . . . . . . . . . . .7 Additional Payment Surplus . . . . . . . . . . . . . . . . . . . . . . . . . .7 Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Annual Pre-Tax Earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Associate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Base Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Basket . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 best efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Closing Date Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . .4 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Company Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Company Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Company Factory Statement. . . . . . . . . . . . . . . . . . . . . . . . . . 13 Company Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 13 Compensation Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . 27 complete withdrawal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Contingent Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Contingent Payment Deficiency. . . . . . . . . . . . . . . . . . . . . . . . .9 Contingent Payment Surplus . . . . . . . . . . . . . . . . . . . . . . . .9, 10 Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Earnings Adjustment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Employment and Labor Agreements. . . . . . . . . . . . . . . . . . . . . . . 23 Environmental Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Environmental Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ERFA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 ERISA Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Estimated Additional Payment . . . . . . . . . . . . . . . . . . . . . . . . .7 (vii) Estimated Closing Date Balance Sheet . . . . . . . . . . . . . . . . . . . . 54 Estimated Contingent Payment . . . . . . . . . . . . . . . . . . . . . . . . .9 Event of Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Everett Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . .3 Final Net Worth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 H-S-R Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Hazardous Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 37 Hazardous substance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 HMTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Indemnified Party. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Indemnifying Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Initial Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Insider. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ISRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 John Landers Employment Agreement. . . . . . . . . . . . . . . . . . . . . . .3 Judgments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Landers Auto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Landers Indemnified Party. . . . . . . . . . . . . . . . . . . . . . . . . . 60 Landers Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Landers Third Party Claim. . . . . . . . . . . . . . . . . . . . . . . . . . 59 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Legal Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Mass layoff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Minimum Working Capital Amount . . . . . . . . . . . . . . . . . . . . . . . 54 Multi-employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Multiemployer Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Net Worth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Net Worth Deficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 NLRB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Observance Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Observer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 OSHA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 partial withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 PBGC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 PCB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Pension Benefit Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Plant closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 RATFA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 RCRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 (viii) Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Registration Rights Agreement. . . . . . . . . . . . . . . . . . . . . . . . .4 Relative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Remedial Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Reviewed Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Reviewer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Shareholders Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Special wastes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Spivey Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Steven Landers Employment Agreement. . . . . . . . . . . . . . . . . . . . . .3 Stockholder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Supplemental Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Third Party Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Total Pre-Tax Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Two-Year Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Two-Year Payment Deficiency. . . . . . . . . . . . . . . . . . . . . . . . . 10 Two-Year Payment Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . 10 UAG. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 UAG Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 UAG Compensation Commitments . . . . . . . . . . . . . . . . . . . . . . . . 42 UAG Employment and Labor Agreements. . . . . . . . . . . . . . . . . . . . . 41 UAG Environmental Permits. . . . . . . . . . . . . . . . . . . . . . . . . . 37 UAG ERISA Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 UAG Event of Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 UAG Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 33 UAG Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 UAG Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 UAG Indemnified Party. . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 UAG Insider. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 UAG Note I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 UAG Note II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 UAG Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 UAG Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 UAG Third Party Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 UAG Working Capital Note . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Ultimate parent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Welfare Benefit Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Year 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Year 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Year 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 (ix) This AMENDED AND RESTATED STOCK PURCHASE AGREEMENT, dated as of July 1, 1995, among United Auto Group, Inc., a Delaware corporation ("UAG"), Landers Auto Sales, Inc., an Arkansas corporation (the "Company"), and Steve Landers, John Landers and Bob Landers (each a "Stockholder" and, collectively, the "Stockholders"), amending and restating the Stock Purchase Agreement, dated as of January 30, 1995, among UAG, the Company and the Stockholders. W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company operates franchise automobile dealerships and related businesses; WHEREAS, the Stockholders own all of the issued and outstanding shares of common stock, no par value, of the Company (the "Common Stock"); and WHEREAS, UAG desires to purchase 3.33 shares of Common Stock from Bob Landers and 2.335 shares of Common Stock from each of Steve Landers and John Landers (such shares being collectively referred to herein as the "Shares"), and the Stockholders desire to sell the Shares to UAG (in each case upon the terms and subject to the conditions set forth in this Agreement), such that immediately after giving effect to such purchase and sale, UAG, Steve Landers and John Landers will own eighty percent (80%), ten percent (10%) and ten percent (10%), respectively, of all of the issued and outstanding shares of Common Stock, on a fully diluted basis; NOW, THEREFORE, in consideration of the mutual terms, conditions and other agreements set forth herein, the parties hereto hereby agree as follows: ARTICLE 1 PURCHASE AND SALE OF SHARES 1.1 PURCHASE AND SALE OF THE SHARES. (a) PURCHASE AND SALE. Upon the terms and subject to the conditions set forth in this Agreement, the Stockholders shall sell to UAG, and UAG shall purchase from the Stockholders, the Shares for an aggregate purchase price (the "Purchase Price") equal to (i) $18,053,000 less the amount of the Earnings Adjustment (as determined in accordance with SECTION 1.1(b) below), if any (the "Base Price") (the Base Price shall be allocated among the Stockholders as they so determine in their sole discretion), which Base Price is subject to adjustment after Closing as provided in SECTION 1.2 below (as adjusted, the "Initial Payment"), (ii) the Additional Payments (if any) made pursuant to SECTION 1.3 below, (iii) the Contingent Payment (if any) made pursuant to SECTION 1.4 below, (iv) the Two-Year Payment (if any) made pursuant to SECTION 1.5 below, (v) a promissory note issued by UAG in the principal amount of $3,287,896 bearing interest at the rate of 8% per annum and maturing on the fifth anniversary of the Closing, such promissory note being substantially in the form of EXHIBIT A hereto (the "UAG Note I"), (vi) a promissory note issued by UAG in the principal amount of $726,619 bearing interest at the rate of 8% per annum and maturing on the third anniversary of the Closing, such promissory note being substantially in the form of EXHIBIT A-1 hereto (the "UAG Note II"), and (vii) if UAG so elects in accordance with SECTION 6.6 hereof, a promissory note issued by the Company in the principal amount determined in accordance with SECTION 6.6 hereof bearing interest at the prime rate set by Citibank, N.A. on the date of such promissory note and maturing on the first anniversary of such date, such promissory note being substantially in the form of EXHIBIT A-2 hereto (the "Working Capital Note"). At the Closing referred to in SECTION 1.1(c) hereof: (i) The Stockholders shall sell, assign, transfer and deliver to UAG the Shares representing 80% of the outstanding Common Stock and deliver the certificates representing such Shares accompanied by stock powers duly executed in blank; and (ii) UAG shall accept and purchase the Shares from the Stockholders and in payment therefor shall deliver to the Stockholders (A) immediately available funds in an aggregate amount equal to the Base Price by wire transfer to an account designated in writing by the Stockholders and (B) the UAG Note I and the UAG Note II. -2- (b) EARNINGS ADJUSTMENT. In the event that the Annual Pre-Tax Earnings (as defined in SECTION 1.3 hereof) for calendar year 1994 are less than $7,500,000 (before taking into account any year-end tax adjustments), then the "Earnings Adjustment" shall be an amount equal to (A) $7,500,000 less the amount of the Annual Pre-Tax Earnings for calendar year 1994 multiplied by (B) three (3). (c) CLOSING. Subject to the conditions set forth in this Agreement, the purchase and sale of the Shares pursuant to this Agreement (the "Closing") shall take place at the offices of Willkie Farr & Gallagher, 153 East 53rd Street, New York, New York 10022, or such other location as the parties shall agree upon, at 10:00 a.m. as soon as practicable following the date on which all conditions to the obligations of the parties hereunder (other than those requiring an exchange of certificates, opinions or other documents, or the taking of other action, at the Closing) have been satisfied or waived. The date on which the Closing is to occur is herein referred to as the "Closing Date." The Closing shall be deemed to be effective as of August 1, 1995. (d) DELIVERIES AT THE CLOSING. Subject to the conditions set forth in this Agreement, at the Closing: (i) The Stockholders shall deliver to UAG (A) certificates representing the Shares bearing the restrictive legend customarily placed on securities that have not been registered under applicable federal and state securities laws and accompanied by stock powers as required by SECTION 1.1(a)(i) hereof, and any other documents that are necessary to transfer to UAG good title to all the Shares, and (B) all opinions, certificates and other instruments and documents required to be delivered by the Stockholders at or prior to the Closing or otherwise required in connection herewith; (ii) UAG shall pay and deliver to the Stockholders (A) funds as required by SECTION 1.1(a)(ii) hereof, (B) a guaranty substantially in the form of EXHIBIT B hereto (the "UAG Guaranty"), (C) the UAG Note I, (D) the UAG Note II, and (E) all opinions, certificates and other instruments and documents required to be delivered by UAG at or prior to the Closing or otherwise required in connection herewith; (iii) The Company shall enter into an Employment Agreement with each of Steve Landers and John Landers (the "Steve Landers Employment Agreement" and the "John Landers Employment Agreement," respectively) substantially in the form of EXHIBIT C and EXHIBIT D hereto, respectively, and Dwight Everett (the "Everett Employment Agreement") -3- containing such terms and conditions as shall be agreed upon by the Company and Dwight Everett. (iv) The Stockholders, UAG and the Company shall enter into leases for the real property used in the business of the Company substantially in the form of EXHIBIT E hereto (collectively, the "Leases"); (v) UAG, the Company, Steve Landers and John Landers shall enter into a Shareholders' Agreement substantially in the form of EXHIBIT F hereto (the "Shareholders Agreement"); and (vi) Steve Landers and John Landers shall have become a party to the Registration Rights Agreement among UAG and certain other parties named therein (the "Registration Rights Agreement"), substantially in the form of EXHIBIT G hereto. 1.2 NET WORTH ADJUSTMENT. (a) On or as soon as practicable after the Closing Date, the Stockholders shall deliver to UAG a consolidated balance sheet of the Company dated as of the last day of the month immediately preceding the Closing Date (such balance sheet so delivered is referred to herein as the "Closing Date Balance Sheet"). The Closing Date Balance Sheet shall be prepared in good faith on the same basis and in accordance with the accounting principles, methods and practices used in preparing the Company Financial Statements (as defined in SECTION 2.5 hereof), subject to the modifications, adjustments and exceptions to such accounting principles, methods and practices as shall be agreed upon by UAG and the Stockholders within thirty (30) days (or such other number of days as the parties shall agree upon) of the date hereof and set forth on SCHEDULE 1.2(a) hereto, and shall also include mutually agreed upon procedures to adjust for any earnings and/or distributions of the Company between the date of the Closing Date Balance Sheet and the Closing Date (such accounting principles, methods and practices as so modified and adjusted, and such procedures, are referred to herein as the "Accounting Principles"). In connection with the preparation of the Closing Date Balance Sheet, the Stockholders and the Company shall permit the Reviewer (as defined below) and other representatives of UAG to conduct a physical inventory at each location where inventory is held by the Company. From the results of such inventory and prior to the Closing Date, UAG and the Stockholders (or the respective representatives thereof) will prepare a schedule, which shall be signed by each of UAG and the Stockholders, setting forth the nature and quality of such inventory and such other items as shall be agreed upon by UAG and the Stockholders. -4- (b) Within thirty (30) days after delivery of the Closing Date Balance Sheet, (i) Coopers & Lybrand or such other accounting firm (the "Reviewer") selected by UAG shall audit or otherwise review the Closing Date Balance Sheet in such manner as UAG and the Reviewer deem appropriate, and (ii) UAG shall deliver such reviewed balance sheet (the "Reviewed Balance Sheet"), together with the Reviewer's report thereon, to the Stockholders. The Reviewed Balance Sheet (i) shall be prepared on the same basis and in accordance with the Accounting Principles and (ii) shall include a schedule showing the computation of the Final Net Worth (as defined in SECTION 1.2(g)(i) hereof), computed in accordance with the definition of Net Worth set forth in SECTION 1.2(g)(ii) hereof. UAG and the Reviewer shall have the opportunity to consult with the Stockholders, the Company and each of the accountants and other representatives of the Stockholders and the Company and examine the work papers, schedules and other documents prepared by the Stockholders, the Company and each of such accountants and other representatives during the preparation of the Closing Date Balance Sheet. The Stockholders and the Stockholders' independent public accountants shall have the opportunity to consult with the Reviewer and examine the work papers, schedules and other documents prepared by UAG and the Reviewer during the preparation of the Reviewed Balance Sheet. (c) The Stockholders shall have a period of forty five (45) days after delivery of the Reviewed Balance Sheet to present in writing to UAG all objections the Stockholders may have to any of the matters set forth or reflected therein, which objections shall be set forth in reasonable detail. If no objections are raised within such 45-day period, the Reviewed Balance Sheet shall be deemed accepted and approved by the Stockholders and a supplemental closing (the "Supplemental Closing") shall take place within five (5) Business Days following the expiration of such 45-day period, or on such other date as may be mutually agreed upon in writing by UAG and the Stockholders. (d) If the Stockholders shall raise any objection within the 45- day period, UAG and the Stockholders shall attempt to resolve the matter or matters in dispute and, if resolved, the Supplemental Closing shall take place within five (5) Business Days following such resolution. (e) If such dispute cannot be resolved by UAG and the Stockholders within sixty (60) days after the delivery of the Reviewed Balance Sheet, then the specific matters in dispute shall be submitted to a firm of independent public accountants mutually acceptable to UAG and the Stockholders, which firm shall make a final and binding determination as to such matter or matters. Such accounting firm shall send its written -5- determination to UAG and the Stockholders and the Supplemental Closing, if any, shall take place five (5) Business Days following the receipt of such determination by UAG and the Stockholders. The fees and expenses of the accounting firm referred to in this SECTION 1.2(e) shall be paid one half by UAG and one half by the Stockholders. (f) UAG and the Stockholders agree to cooperate with each other and each other's authorized representatives and with any accounting firm selected by UAG and the Stockholders pursuant to SECTION 1.2(e) hereof in order that any and all matters in dispute shall be resolved as soon as practicable. (g) (i) If the Net Worth as shown on the Reviewed Balance Sheet as finally determined through the operation of SECTIONS 1.2(a) THROUGH (e) hereof (such amount being referred to herein as the "Final Net Worth") shall be less than $7,500,000 (the amount of any such deficiency being referred to herein as the "Net Worth Deficiency"), the Stockholders shall pay to UAG at the Supplemental Closing, by wire transfer of immediately available funds to an account designated in writing by UAG within two (2) Business Days of the date of the Supplemental Closing, an amount equal to the Net Worth Deficiency, together with interest on such amount from the Closing Date to the date of the Supplemental Closing at the prime rate or its equivalent (as announced from time to time by Citibank, N.A.). (ii) "Net Worth" computed in connection with the Estimated Closing Date Balance Sheet, the Closing Date Balance Sheet and the Reviewed Balance Sheet shall mean the amount by which the total assets (not including intangible assets) exceed the total liabilities reflected, in each case, on the balance sheet of Company comprising the Closing Date Balance Sheet or the Reviewed Balance Sheet, as the case may be. "Net Worth" shall in no event include the consolidated net earnings of the Company for the period commencing immediately after the date of the Closing Date Balance Sheet and ending on the Closing Date. 1.3 ADDITIONAL PAYMENTS. (a) If the Company, on a combined basis, achieves Annual Pre-Tax Earnings (as defined below) of at least $8,800,000 in any of the three (3) successive twelve (12) month periods beginning on the first day of the calendar month immediately following the Closing Date (such twelve month periods being referred to herein as "Year 1," "Year 2," and "Year 3," respectively), then, in consideration for the sale of the Shares by the Stockholders to UAG, the Company will make an additional payment to the Stockholders in the aggregate amounts set forth below (each such payment being referred to herein as an "Additional Payment"), which Additional Payments shall be -6- allocated among the Stockholders as they so determine in their sole discretion: Additional Payment (% of Annual Annual Pre-Tax Earnings Pre-Tax Earnings) ----------------------- ----------------- $ 8,800,000 - $10,799,999 6% $10,800,000 - $11,799,999 7% $11,800,000 - $12,799,999 8% $12,800,000 and over 9% (b) In the event that the Company is required to make an Additional Payment in either Year 1, Year 2 or Year 3, then the Company shall pay to the Stockholders an aggregate amount equal to eighty percent (80%) of UAG's estimate of such Additional Payment (the "Estimated Additional Payment") within thirty (30) days after the completion of such Year. Within sixty (60) days after the completion of the review by the Company's certified public accountants of the financial statements prepared in accordance with SECTION 1.3(c) hereof covering the entire Year for which an Additional Payment must be paid, (i) if the amount of the Additional Payment shall exceed the amount of the Estimated Additional Payment (the amount of any such excess being referred to herein as the "Additional Payment Deficiency"), the Company shall pay to the Stockholders, by wire transfer of immediately available funds to an account designated in writing by the Stockholders, an aggregate amount equal to the Additional Payment Deficiency, and (ii) if the amount of the Additional Payment shall be less than the amount of the Estimated Additional Payment (the amount of any such deficiency being referred to herein as the "Additional Payment Surplus"), the Stockholders shall pay to the Company, by wire transfer of immediately available funds to an account designated in writing by UAG, an aggregate amount equal to the Additional Payment Surplus. (c) For purposes of this ARTICLE I, "Annual Pre-Tax Earnings" for each of Year 1, Year 2 and Year 3 shall mean the consolidated net earnings (or losses), before taxes, of the Company, computed in accordance with the Accounting Principles and reflected on financial statements prepared in accordance with the Accounting Principles and reviewed by the certified public accountants of the Company; PROVIDED, HOWEVER, that for purposes of SECTION 1.3 and SECTION 1.4, but not for purposes of SECTION 1.5, Annual Pre-Tax Earnings shall be calculated giving effect in each Year to the consolidated net earnings (or losses) (the "Acquired Earnings") derived from the entity or entities (each, an "Acquired Entity" and, collectively, the "Acquired Entities") acquired pursuant to SECTION 5.11 hereof, provided that (i) if -7- the consideration paid by UAG (or an Affiliate thereof) in the acquisition pursuant to which UAG contributes $5,000,000 exceeds $5,000,000, then the Acquired Earnings included in Annual Pre-Tax Earnings shall be equal to an amount obtained by multiplying the consolidated net earnings (or losses) of the Acquired Entity obtained in such acquisition by a fraction, the numerator of which is equal to $5,000,000 and the denominator of which is equal to the consideration paid in such acquisition, or (ii) if there is more than one acquisition pursuant to SECTION 5.11 hereof within nine (9) months of the Closing Date pursuant to which UAG has contributed an aggregate of $5,000,000, and the total consideration paid by UAG (or an Affiliate thereof) in such acquisitions exceeds $5,000,000, then the Acquired Earnings included in the Annual Pre-Tax Earnings with respect to all of the Acquired Entities shall be an amount equal to the product of (A) the sum of each Acquired Entity's Pro Rata Earnings (as defined below) and (B) a fraction, the numerator of which is equal to $5,000,000 and the denominator of which is equal to the total consideration paid for all of the Acquired Entities. For purposes of this Agreement, the term "Acquired Entity's Pro Rata Earnings" shall mean, with respect to an Acquired Entity, an amount equal to the product of (i) the consolidated net earnings (or losses) of such Acquired Entity and (ii) a fraction, the numerator of which is equal to the consideration paid for such Acquired Entity and the denominator of which is equal to the total consideration paid for all Acquired Entities. Notwithstanding the foregoing, (i) if there is more than one acquisition pursuant to SECTION 5.11 hereof pursuant to which the total consideration paid by UAG (or an Affiliate thereof) exceeds $5,000,000 and (ii) the acquisition in which UAG's aggregate capital contribution equalled $5,000,000 occurred more than nine (9) months after the Closing Date, then UAG and the Stockholders will mutually agree on an appropriate allocation of the Acquired Earnings for purposes of calculating Annual Pre-Tax Earnings in any Year. 1.4 CONTINGENT PAYMENT. (a) If the total of the Annual Pre-Tax Earnings for Year 1, Year 2 and Year 3 (the "Total Pre-Tax Earnings") exceeds $29,400,000, then, in consideration for the sale of the Shares by the Stockholders to UAG, UAG will make an additional payment to the Stockholders in the amount set forth below (such payment being referred to herein as the "Contingent Payment"), which Contingent Payment shall be allocated among the Stockholders as they so determine in their sole discretion: -8- Total Pre-Tax Earnings (TE) Contingent Payment - -------------------------------- ------------------------------ $29,400,000 - $32,399,999 $1,000,000 + [$2,000,000 x [(TE - $29,400,000) DIVIDED BY $3,000,000]] $32,400,000 - $38,399,999 $3,000,000 + [.20 x (TE - $32,400,000)] $38,400,000 and over $4,200,000 + [.33 x (TE - $38,400,000)] For purposes of illustration: If the Total Pre-Tax Earnings are $30,900,000, then the Contingent Payment would equal $2,000,000 (i.e., $1,000,000 + 50% of $2,000,000); if the Total Pre-Tax Earnings are $32,400,000, then the Contingent Payment would equal $3,000,000; if the Total Pre-Tax Earnings are $38,400,000, then the Contingent Payment would equal $4,200,000 (i.e., $3,000,000 + 20% of $6,000,000); and if the Total Pre-Tax Earnings are $41,400,000, then the Contingent Payment would equal $5,200,000 (i.e., $4,200,000 + 33% of $3,000,000). (b) In the event that UAG is required to make a Contingent Payment, then UAG shall pay to the Stockholders an amount equal to eighty percent (80%) of UAG's estimate of the Contingent Payment (the "Estimated Contingent Payment") within sixty (60) days after the completion of Year 3. Within thirty (30) days after the completion of the review by the Companies' certified public accountants of the financial statements prepared in accordance with SECTION 1.3(c) hereof covering Year 3, (i) if the amount of the Contingent Payment shall exceed the amount of the Estimated Contingent Payment (the amount of any such excess being referred to herein as the "Contingent Payment Deficiency"), UAG shall pay to the Stockholders, by wire transfer of immediately available funds to an account designated in writing by the Stockholders, an amount equal to the Contingent Payment Deficiency, and (ii) if the amount of the Contingent Payment shall be less than the amount of the Estimated Contingent Payment (the amount of any such deficiency being referred to herein as the "Contingent Payment Surplus"), the Stockholders shall pay to UAG, by wire transfer of immediately available funds to an account designated in writing by UAG, an amount equal to the Contingent Payment Surplus. 1.5 TWO-YEAR PAYMENT. (a) If the total of the Annual Pre-Tax Earnings for Year 1 and Year 2 (the "Total Two-Year Pre-Tax Earnings") exceeds $21,600,000, then, in consideration for the sale of the Shares by the Stockholders to UAG, UAG will make an additional payment to -9- the Stockholders equal to $1,000,000 plus an amount, not to exceed $1,000,000, equal to fifty percent (50%) multiplied by the Total Two-Year Pre-Tax Earnings less $21,600,000 (such payment being referred to herein as the "Two-Year Payment"), which Two-Year Payment shall be allocated among the Stockholders as they so determine in their sole discretion. For purposes of illustration: If the Total Pre-Tax Earnings are $21,600,000, then the Two-Year Payment would equal $1,000,000; if the Total Pre-Tax Earnings are $22,600,000, then the Two- Year Payment would equal $1,500,000; if the Total Pre-Tax Earnings are $23,600,000, then the Two-Year Payment would equal $2,000,000; and if the Total Two-Year Pre-Tax Earnings are $24,500,000, then the Two-Year Payment would equal $2,000,000. (b) In the event that UAG is required to make a Two-Year Payment, then UAG shall pay to the Stockholders an amount equal to eighty percent (80%) of UAG's estimate of the Two-Year Payment (the "Estimated Two-Year Payment") within sixty (60) days after the completion of Year 2. Within thirty (30) days after the completion of the review by the Companies' certified public accountants of the financial statements prepared in accordance with SECTION 1.3(c) hereof covering Year 2, (i) if the amount of the Two-Year Payment shall exceed the amount of the Estimated Two-Year Payment (the amount of any such excess being referred to herein as the "Two-Year Payment Deficiency"), UAG shall pay to the Stockholders, by wire transfer of immediately available funds to an account designated in writing by the Stockholders, an amount equal to the Two- Year Payment Deficiency, and (ii) if the amount of the Two-Year Payment shall be less than the amount of the Estimated Two-Year Payment (the amount of any such deficiency being referred to herein as the "Two-Year Payment Surplus"), the Stockholders shall pay to UAG, by wire transfer of immediately available funds to an account designated in writing by UAG, an amount equal to the Two-Year Payment Surplus. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS The Company and the Stockholders hereby jointly and severally represent and warrant to UAG as follows: 2.1 ORGANIZATION AND GOOD STANDING. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Arkansas and has the corporate power and authority to own, lease and operate the properties used in its business and to carry on its business as now being conducted. The Company is duly qualified to do business and is in good standing as a foreign corporation in each state and juris- -10- diction where qualification as a foreign corporation is required, except for such failures to be qualified and in good standing, if any, which when taken together with all other such failures of the Company would not, or could not reasonably be expected to, in the aggregate have a Material Adverse Effect (as defined in SECTION 10.11 hereof). SCHEDULE 2.1 hereto lists (i) the states and other jurisdictions where the Company is so qualified and (ii) the assumed names under which the Company conducts business. The Company has previously delivered to UAG complete and correct copies of its charter and by-laws (including comparable governing instruments with different names), as amended and presently in effect. 2.2 SUBSIDIARIES. The Company does not have any interest or investment in any person (as defined in SECTION 10.11 hereof). 2.3 CAPITALIZATION. The authorized stock of the Company and the number of shares of capital stock which are issued and outstanding are set forth on SCHEDULE 2.3 hereto. The shares listed on SCHEDULE 2.3 hereto constitute all the issued and outstanding shares of capital stock of the Company and have been validly authorized and issued, are fully paid and nonassessable, have not been issued in violation of any preemptive rights or of any federal or state securities law and no personal liability attaches to the ownership thereof. There is no security, option, warrant, right, call, subscription, agreement, commitment or understanding of any nature whatsoever, fixed or contingent, that directly or indirectly (i) calls for the issuance, sale, pledge or other disposition of any shares of capital stock of the Company or any securities convertible into, or other rights to acquire, any shares of capital stock of the Company, or (ii) obligates the Company to grant, offer or enter into any of the foregoing, or (iii) relates to the voting or control of such capital stock, securities or rights, except as set forth on SCHEDULE 2.3 hereto. The Company has not agreed to register any securities under the Securities Act of 1933, as amended (the "Securities Act"). 2.4 AUTHORITY; APPROVALS AND CONSENTS. The Company has the corporate power and authority to enter into this Agreement and the Documents (as defined in SECTION 10.11 hereof) to which it is a party and to perform its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and the Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized and approved by the Board of Directors of the Company and no other corporate proceedings on the part of the Company are necessary to authorize and approve this Agreement and the Documents and the transactions contemplated hereby and thereby. This Agreement has been, and on the Closing Date the Documents will be, duly executed and delivered by, and constitute a valid -11- and binding obligation of, the Company, enforceable against the Company in accordance with their respective terms. The execution, delivery and performance by the Company and each Stockholder of this Agreement and the Documents to which it or he is a party and the consummation of the transactions contemplated hereby and thereby do not and will not: (i) contravene any provisions of the Certificate of Incorporation or By-Laws (including any comparable governing instrument with a different name) of any Company; (ii) (after notice or lapse of time or both) conflict with, result in a breach of any provision of, constitute a default under, result in the modification or cancellation of, or give rise to any right of termination or acceleration in respect of, any Company Agreement (as defined in SECTION 2.15 hereof) or, except as set forth on SCHEDULE 2.4 hereto, require any consent or waiver of any party to any Company Agreement; (iii) result in the creation of any Security Interest upon, or any person obtaining any right to acquire, any properties, assets or rights of the Company (other than the rights of UAG to acquire the Shares pursuant to this Agreement); (iv) violate or conflict with any Legal Requirements (as defined in SECTION 2.9 hereof) applicable to the Company or any of their respective businesses or properties; or (v) require any authorization, consent, order, permit or approval of, or notice to, or filing, registration or qualification with, any governmental, administrative or judicial authority, except in connection with or in compliance with the provisions of the H-S-R Act (as defined in SECTION 5.3 hereof) and the Arkansas Securities Act. Except as set forth or referred to above, no authorization, consent, order, permit or approval of, or notice to, or filing, registration or qualification with, any governmental administrative or judicial authority is necessary to be obtained or made by the Company to enable the Company to continue to conduct its business and operations and use its properties after the Closing in a manner which is in all material respects consistent with that in which they are presently conducted. -12- 2.5 FINANCIAL STATEMENTS. Except as otherwise indicated below, attached as SCHEDULE 2.5 are true and complete copies of: (i) (A) the audited consolidated balance sheet of the Company as of December 31, 1994 (the "Company Balance Sheet"), and the related consolidated statements of income, stockholders' equity and cash flow for the fiscal year ended December 31, 1994, together with the notes thereto, in each case examined by and accompanied by the report of O'Conner & Drew, independent certified public accountants, and (B) the consolidated balance sheet of the Company as of December 31, 1993, and the related consolidated statements of income, stockholders' equity and cash flow for the fiscal year ended December 31, 1993, together with the notes thereto, in each case prepared in accordance with the agreed upon procedures set forth in the letter dated January 18, 1995, from O'Conner & Drew to the Company and examined by and accompanied by the report of O'Conner & Drew; and (ii) the most recent monthly and year-to-date financial statements provided to each franchisor of the Company (each, a "Company Factory Statement" and, collectively, the "Company Factory Statements"); (all the foregoing financial statements (except for the financial statements referred to in clause (ii) above), including the notes thereto, being referred to herein collectively as the "Company Financial Statements"). The Company Financial Statements are in accordance with the books and records of the Company, fairly present the consolidated financial position, results of operations, stockholders' equity and changes in financial position of the Company as of the dates and for the periods indicated, in the case of the financial statements referred to in clause (i) above in conformity with GAAP consistently applied (except as otherwise indicated in such statements) during such periods, and can be legitimately reconciled with the financial statements and the financial records maintained and the accounting methods applied by the Company for federal income tax purposes, and the unaudited financial statements included in the Company Financial Statements indicate all adjustments, which consist of only normal recurring accruals, necessary for such fair presentations. The statements of income included in the Company Financial Statements do not contain any items of special or nonrecurring income except as expressly specified therein, and the balance sheets included in the Company Financial Statements do not reflect any write-up or revaluation increasing the book value of any assets. The books and accounts of the Company are complete and correct in all material respects and fairly reflect all of the transactions, items of income and expense and all assets and liabilities of the businesses of the Company consistent with prior practices of the Company. -13- 2.6 ABSENCE OF UNDISCLOSED LIABILITIES. The Company does not have any liability of any nature whatsoever (whether known or unknown, due or to become due, accrued, absolute, contingent or otherwise), including, without limitation, any unfunded obligation under employee benefit plans or arrangements as described in SECTION 2.18 AND 2.19 hereof or liabilities for Taxes (as defined in SECTION 2.8 hereof), except for (i) liabilities reflected or reserved against the most recent Company Financial Statement, (ii) current liabilities incurred in the ordinary course of business and consistent with past practice after the date of the Company Balance Sheet which, individually and in the aggregate, do not have, and cannot reasonably be expected to have, a Material Adverse Effect, and (iii) liabilities disclosed on SCHEDULE 2.6 hereto. The Company is not a party to any Company Agreement, or subject to any charter or by-law provision, any other corporate limitation or any Legal Requirement, which has, or can reasonably be expected to have, a Material Adverse Effect. 2.7 ABSENCE OF MATERIAL ADVERSE EFFECT; CONDUCT OF BUSINESS. (a) Since December 31, 1993, the Company has operated in the ordinary course of business consistent with past practice, except as set forth on SCHEDULE 2.7(a) hereto, and there has not been: (i) any material adverse change in the assets, properties, business, operations, prospects, net income or financial condition of the Company, and no factor, event, condition, circumstance or prospective development exists which threatens or may threaten to have a Material Adverse Effect; (ii) any material loss, damage, destruction or other casualty to the property or other assets of the Company, whether or not covered by insurance; (iii) any change in any method of accounting or accounting practice of the Company; or (iv) any loss of the employment, services or benefits of any key employee of the Company. (b) Since December 31, 1993, except as set forth in SCHEDULE 2.7(b) hereto, the Company has not: (i) incurred any material obligation or liability (whether absolute, accrued, contingent or otherwise), except in the ordinary course of business consistent with past practice; -14- (ii) failed to discharge or satisfy any lien or pay or satisfy any obligation or liability (whether absolute, accrued, contingent or otherwise), other than liabilities being contested in good faith and for which adequate reserves have been provided; (iii) mortgaged, pledged or subjected to any lien any of its property or other assets, except for mechanics' liens and liens for taxes not yet due and payable; (iv) sold or transferred any assets or cancelled any debts or claims or waived any rights, except in the ordinary course of business consistent with past practice; (v) defaulted on any material obligation; (vi) entered into any material transaction, except in the ordinary course of business consistent with past practice; (vii) written down the value of any inventory or written off as uncollectible any accounts receivable or any portion thereof not reflected in the Company Financial Statements; (viii) granted any increase in the compensation or benefits of employees other than increases in accordance with past practice not exceeding 10% or entered into any employment or severance agreement or arrangement with any of them; (ix) made any individual capital expenditure in excess of $75,000, or aggregate capital expenditures in excess of $200,000, or additions to property, plant and equipment other than ordinary repairs and maintenance; (x) discontinued any franchise or the sale of any products or product line or program; (xi) incurred any obligation or liability for the payment of severance benefits; or (xii) entered into any agreement or made any commitment to do any of the foregoing. 2.8 TAXES. The Company and, for any period during all or part of which the tax liability of any other corporation was determined on a combined or consolidated basis with the Company any such other corporation, have filed timely all federal, state, local and foreign tax returns, reports and declarations required to be filed (or have obtained or timely applied for an extension -15- with respect to such filing) correctly reflecting the Taxes (as defined below) and all other information required to be reported thereon and have paid, or made adequate provision for the payment of, all Taxes which are due pursuant to such returns or pursuant to any assessment received by the Company or any such other corporation. As used herein, "Taxes" shall mean all taxes, fees, levies or other assessments, including but not limited to income, excise, property, sales, franchise, withholding, social security and unemployment taxes imposed by the United States, any state, county, local or foreign government, or any subdivision or agency thereof or taxing authority therein, and any interest, penalties or additions to tax relating to such taxes, charges, fees, levies or other assessments. Copies of all tax returns for the fiscal years ended since December 31, 1986 have been furnished to UAG or its representatives and such copies are accurate and complete as of the date hereof. The Company has also furnished to UAG correct and complete copies of all notices and correspondence sent or received since December 31, 1986 by the Company to or from any federal, state or local tax authorities. The Company has adequately reserved for the payment of all Taxes with respect to periods ended on, prior to or through the Closing Date for which tax returns have not yet been filed. In the ordinary course, the Company makes adequate provision on its books for the payment of all Taxes (including for the current fiscal period) owed by the Company. Except to the extent reserves therefor are reflected on the Company Balance Sheet, the Company is not liable, or will not become liable, for any Taxes for any period ending on, prior to or through the Closing Date. Except as set forth on SCHEDULE 2.8 hereto, the Company has not been subject to a federal or state tax audit of any kind, and no adjustment has been proposed by the Internal Revenue Service ("IRS") with respect to any return for any subsequent year. With respect to the audits referred to on SCHEDULE 2.8 hereto, no such audit has resulted in an adjustment in excess of $50,000. Neither the Company nor any Stockholder knows of any basis for an assertion of a deficiency for Taxes against the Company. The Stockholders will cooperate, and will cause their Affiliates to cooperate, with the Company in the filing of any returns and in any audit or refund claim proceedings involving Taxes for which the Company may be liable or with respect to which the Company may be entitled to a refund. 2.9 LEGAL MATTERS. (a) Except as set forth on SCHEDULE 2.9(a) hereto, (i) there is no claim, action, suit, litigation, investigation, inquiry, review or proceeding (collectively, "Claims") pending against, or, to the knowledge of the Company or any Stockholder, threatened against or affecting, the Company, any of its officers, directors, employees, agents or Affiliates involving, affecting or relating to any assets, properties or operations of -16- the Company, any ERISA Plan (as defined in SECTION 2.18(a) hereof) or any of their respective properties or rights before or by any court, arbitrator, panel, agency or other governmental, administrative or judicial entity, domestic or foreign, nor is any basis known to any Stockholder, the Company or any of its directors, officers, employees or agents for any such Claims, and (ii) the Company is not subject to any judgment, decree, writ, injunction, ruling or order (collectively, "Judgments") of any governmental, administrative or judicial authority, domestic or foreign. SCHEDULE 2.9(a) hereto identifies each Claim and Judgment disclosed thereon which is fully covered by an insurance policy. (b) The businesses of the Company are being conducted in compliance with all laws, ordinances, codes, rules, regulations, standards, judgments and other requirements of all governmental, administrative or judicial entities (collectively, "Legal Requirements") applicable to the Company or any of its respective businesses or properties, except where the failure to be in such compliance could not have a Material Adverse Effect. The Company holds, and is in compliance with, all franchises, licenses, permits, registrations, certificates, consents, approvals or authorizations (collectively, "Permits") required by all applicable Legal Requirements and where the failure to hold or be in compliance with such Permits could have a Material Adverse Effect. A list of all such Permits is set forth on SCHEDULE 2.9(b) hereto. (c) The Company owns or holds all Permits material to the conduct of its business. No event has occurred and is continuing which permits, or after notice or lapse of time or both would permit, any modification or termination of any Permit. 2.10 PROPERTY. The properties and assets owned by or leased to the Company are adequate for the conduct of the respective businesses of the Company as presently conducted. Set forth on SCHEDULE 2.10 hereto is a list of all interests in real property owned by or leased to the Company (including all interests in real property owned or leased by any Stockholder used in the businesses of the Company) and of all options or other contracts to acquire any such interest (collectively, the "Real Property"). All improvements to the Real Property ("Improvements") and all machinery, equipment and other tangible property owned or used by or leased to the Company are in good operating condition and in good repair, ordinary wear and tear excepted. Such tangible properties and all Improvements owned or leased by the Company conform in all material respects with all applicable laws, ordinances, rules and regulations and other Legal Requirements and such Improvements do not encroach in any respect on property of others. -17- 2.11 ENVIRONMENTAL MATTERS. (a) Except as set forth on SCHEDULE 2.11(a) hereto, (i) the Company, the Real Property, the Improvements and any property formerly owned, occupied or leased as part of the business of the Company are in full compliance with all Environmental Laws (as defined below), (ii) the Company has obtained all Environmental Permits (as defined below), (iii) such Environmental Permits are in full force and effect, and (iv) the Company is in full compliance with all terms and conditions of such Environmental Permits. As used herein, "Environmental Laws" shall mean all applicable requirements of environmental, public or employee health and safety, public or community right-to-know, ecological or natural resource laws or regulations or controls, including all applicable requirements imposed by any law (including without limitation common law), rule, order, or regulations of any federal, state, or local executive, legislative, judicial, regulatory, or administrative agency, board, or authority, or any applicable private agreement (such as covenants, conditions and restrictions), which relate to, (i) noise, (ii) pollution or protection of the air, surface water, groundwater, or soil, (iii) solid, gaseous, or liquid waste generation, treatment, storage, disposal or transportation, (iv) exposure to Hazardous Materials (as defined below), or (v) regulation of the manufacture, processing, distribution and commerce, use, or storage of Hazardous Materials. As used herein, "Environmental Permits" shall mean all permits, licenses, approvals, authorizations, consents or registrations required under applicable Environmental Law in connection with the ownership, use and/or operation of the Company or the Real Property and Improvements of the Company. As used in this SECTION 2.11, "Hazardous Materials" shall mean, collectively, (i) those substances included within the definitions of or identified as "hazardous chemicals," "hazardous waste," "hazardous substances," "hazardous materials," "toxic substances" or similar terms in or pursuant to, without limitation, the Comprehensive Environmental Response Compensation and Liability Act of 1980 (42 U.S.C. Section 9601 et seq.) ("CERCLA"), as amended by Superfund Amendments and Reauthorization Act of 1986 (Pub. L. 99-499, 100 State, 1613), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.) ("RCRA"), the Occupational Safety and Health Act of 1970 (29 U.S.C. Section 651 et seq.) ("OSHA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq. ("HMTA"), the Arkansas Remedial Action Trust Fund Act ("RATFA"), Ark. Code Ann. Sections 8-7-501 et seq., the Arkansas Emergency Response Fund Act ("ERFA"), Ark. Code Ann. Sections 8-7-408 et seq., the Asbestos Law, Ark. Code Ann. Sections 20-27-1003 et seq., the Lead Law, Ark. Code Ann. Sections 20-27-601 et seq., the Storage Tank Law, Ark. Code Ann. Sections 8-7-802 et seq., and in the regulations promulgated pursuant to such laws, all as amended, -18- (ii) those substances listed in the United States Department of Transportation Table (49 CFR 172.101 and amendments thereto) or by the Environmental Protection Agency (or any successor agency) as hazardous substances (40 CFR part 302 and amendments thereto), (iii) any material, waste or substance which is or contains (A) petroleum, including crude oil or any fraction thereof, natural gas, or synthetic gas usable for fuel or any mixture thereof, (B) asbestos, (C) polychlorinated biphenyls, (D) designated as a "hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. Section 1251 et seq. (33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. Section 1317), (E) flammable explosives, (F) radioactive materials, and (iv) such other substances, materials and wastes which are or become regulated or classified as hazardous, toxic or as "special wastes" under any Environmental Laws. (b) The Company and the Stockholders have not violated, done or suffered any act which could give rise to liability under, and are not otherwise exposed to liability under, any Environmental Law. No event has occurred with respect to the Real Property, the Improvements, any property formerly owned, occupied or leased as part of the business of the Company, or the Company which, with the passage of time or the giving of notice, or both, would constitute a violation of or non-compliance with any applicable Environmental Law. The Company has no contingent liability under any Environmental Law. There are no liens under any Environmental Law on the Real Property. (c) Except as set forth on SCHEDULE 2.11(c) hereto, (i) neither the Company, the Real Property or any portion thereof, the Improvements or any property formerly owned, occupied or leased as part of the business of the Company, nor, to the knowledge of the Stockholders, any property adjacent to the Real Property is being used or has been used for the treatment, generation, transportation, processing, handling, production or disposal of any Hazardous Materials or as a landfill or other waste disposal site, (ii) none of the Real Property or portion thereof, the Improvements or any property formerly owned, occupied or leased as part of the business of the Company has been subject to investigation by any governmental authority evaluating the need to investigate or undertake Remedial Action (as defined below) at such property, and (iii) none of the Real Property, the Improvements or any property formerly owned, occupied or leased as part of the business of the Company, or any site or location where the Company sent waste of any kind, is identified on the current or proposed (A) National Priorities List under 40 C.F.R. 300 Appendix B, (B) Comprehensive Environmental Response Compensation and Liability Inventory System list, or (C) any list arising from any statute analogous to CERCLA. As used herein, "Remedial Action" shall mean any -19- action required to (i) clean up, remove or treat Hazardous Materials, (ii) prevent a release or threat of release of any Hazardous Material, (iii) perform pre-remedial studies, investigations or post-remedial monitoring and care, (iv) cure a violation of Environmental Law or (v) take corrective action under sections 3004(u), 3004(v) or 3008(h) of RCRA or analogous state law. (d) Except as set forth on SCHEDULE 2.11(d) hereto, there have been and are no (i) aboveground or underground storage tanks, subsurface disposal systems, or wastes, drums or containers disposed of or buried on, in or under the ground or any surface waters, (ii) asbestos, asbestos containing materials or radon gas, (iii) polychlorinated biphenyls ("PCB") or PCB-containing equipment, including transformers, or (iv) wetlands (as defined under any Environmental Law) located within any portion of the Real Property, nor have any liens been placed upon any portion of the Real Property, the Improvements or any property formerly owned, occupied or leased as part of the business of the Company in connection with any actual or alleged liability under any Environmental Law. (e) Except as set forth on SCHEDULE 2.11(e) hereto, (i) there is no pending or threatened claim, litigation, or administrative proceeding, or known prior claim, litigation or administrative proceeding, arising under any Environmental Law involving any of the Company, the Real Property, the Improvements, any property formerly owned, leased or occupied as part of the business of the Company, any offsite contamination affecting the business of the Company or any operations conducted at the Real Property, (ii) there are no ongoing negotiations with or agreements with any governmental authority relating to any Remedial Action or other environmentally-related claim, (iii) the Company has not submitted notice pursuant to Section 103 of CERCLA or analogous statute or notice under any other applicable Environmental Law reporting a release of a Hazardous Material into the environment, and (iv) the Company has not received any notice, claim, demand, suit or request for information from any governmental or private entity with respect to any liability or alleged liability under any Environmental Law, nor to knowledge of the Stockholders, the Company, has any other entity whose liability therefor, in whole or in part, may be attributed to the Company, received such notice, claim, demand, suit or request for information. (f) The Stockholders or the Company have provided to UAG all environmental studies and reports pertaining to the Real Property, the Improvements, the Company and any property formerly owned, occupied or leased as part of the businesses of the Company, and has permitted (or will have permitted as of the Closing Date), the testing of the soil, groundwater, building -20- components, tanks, containers and equipment on the Real Property, the Improvements, any property formerly owned, occupied or leased as part of the businesses of the Company by UAG or UAG's agents or experts as they have or shall have deemed necessary or appropriate to confirm the condition of such properties. 2.12 INVENTORIES. The values at which inventories are carried on the Company Balance Sheet and Company Factory Statement of the Company reflect the normal inventory valuation policies of the Company, and, in the case of the Company Balance Sheet, such values are in conformity with GAAP consistently applied. All inventories reflected on the Company Balance Sheet and Company Factory Statement of the Company or arising since the date thereof are currently marketable and can reasonably be anticipated to be sold at normal mark-ups within 120 days after the date hereof in the ordinary course of business (subject to the reserve for obsolete, off-grade or slow-moving items that is set forth on the Company Balance Sheet), except for spare parts inventory which inventory is good and usable. 2.13 ACCOUNTS RECEIVABLE. All accounts receivable reflected on the Company Balance Sheet and Company Factory Statement of the Company or arising since the date thereof (subject to the reserve for bad debts reflected on such Company Balance Sheet and Company Factory Statement) are good and have been collected or are collectible, without resort to litigation or extraordinary collection activity, within 90 days of the Closing Date, and are subject to no defenses, set-offs or counterclaims other than normal cash discounts accrued in the ordinary course of business of the Company. 2.14 INSURANCE. All properties and assets of the Company which are of an insurable character are insured against loss or damage by fire and other risks to the extent and in the manner reasonable in light of the risks attendant to the businesses and activities in which the Company are or have been engaged and customary for companies engaged in similar businesses or owning similar assets. Set forth on SCHEDULE 2.14 hereto is a list and brief description (including the name of the insurer, the type of coverage provided, the amount of the annual premium for the current policy period, the amount of remaining coverage and deductibles and the coverage period) of all policies for such insurance and the Company previously has furnished to UAG true and complete copies of all such policies. All such policies are in full force and effect, underwritten by financially sound and reputable insurers, sufficient for all applicable requirements of law and will not in any way be effected by or terminated or lapsed by reason of the consummation of the transactions contemplated by this Agreement and the Documents. No notice of cancellation or non-renewal with respect to, or disallowance of -21- any claim under, any such policy has been received by the Company. 2.15 CONTRACTS; ETC. As used in this Agreement, the term "Company Agreements" shall mean all mortgages, indenture notes, agreements, contracts, leases, licenses, franchises, obligations, instruments or other commitments, arrangements or understandings of any kind, whether written or oral, binding or non-binding, (including all leases and other agreements referred to on SCHEDULE 2.10 hereto) to which the Company is a party or by which the Company or any of their respective properties may be bound or affected, including all amendments, modifications, extensions or renewals of any of the foregoing. Set forth on SCHEDULE 2.15 hereto is a complete and accurate list of each Company Agreement which is material to the businesses, operations, assets, condition (financial or otherwise) or prospects of the Companies. True and complete copies of all written Company Agreements referred to on SCHEDULE 2.15 and SCHEDULE 2.10 hereto have heretofore been delivered or made available to UAG, and the Company has provided UAG with accurate and complete written summaries of all such Company Agreements which are unwritten. The Company is not, nor, to the knowledge of the Company and the Stockholders, any other party thereto, is in breach of or default under any Company Agreement, and no event has occurred which (after notice or lapse of time or both) would become a breach or default under, or would permit modification, cancellation, acceleration or termination of, any Company Agreement or result in the creation of any Security Interest upon, or any person obtaining any right to acquire, any properties, assets or rights of the Company in any such case where such breach, default or other event would have, or could reasonably be expected to have, a Material Adverse Effect. There are no material unresolved disputes involving any Company under the Company Agreement. 2.16 LABOR RELATIONS. (a) The Company has paid or made provision for the payment of all salaries and accrued wages and has complied in all material respects with all applicable laws, rules and regulations relating to the employment of labor, including those relating to wages, hours, collective bargaining and the payment and withholding of taxes, and has withheld and paid to the appropriate governmental authority, or is holding for payment not yet due to such authority, all amounts required by law or agreement to be withheld from the wages or salaries of its employees. (b) Except as set forth on SCHEDULE 2.16(b) hereto, the Company is not a party to any (i) outstanding employment agreements or contracts with officers or employees that are not terminable at will, or that provide for the payment of any bonus -22- or commission, (ii) agreement, policy or practice that requires it to pay termination or severance pay to salaried, non-exempt or hourly employees (other than as required by law), (iii) collective bargaining agreement or other labor union contract applicable to persons employed by the Company, nor do the Stockholders, any Company know of any activities or proceedings of any labor union to organize any such employees. The Company has furnished to UAG complete and correct copies of all such agreements ("Employment and Labor Agreements"). The Company has not breached or otherwise failed to comply with any provisions of any Employment or Labor Agreement, and there are no grievances outstanding thereunder. (c) Except as set forth in SCHEDULE 2.16(c) hereto, (i) there is no unfair labor practice charge or complaint pending before the National Labor Relations Board ("NLRB"), (ii) there is no labor strike, material slowdown or material work stoppage or lockout actually pending or, to the Stockholders' or the Company's knowledge, threatened, against or affecting the Company, and the Company has not experienced any strike, material slow down or material work stoppage, lockout or other collective labor action by or with respect to employees of the Company, (iii) there is no representation claim or petition pending before the NLRB or any similar foreign agency and no question concerning representation exists relating to the employees of the Company, (iv) there are no charges with respect to or relating to any Company pending before the Equal Employment Opportunity Commission or any state, local or foreign agency responsible for the prevention of unlawful employment practices, (v) the Company has not received formal notice from any federal, state, local or foreign agency responsible for the enforcement of labor or employment laws of an intention to conduct an investigation of the Company and no such investigation is in progress and (vi) the consents of the unions that are parties to any Employment and Labor Agreements are not required to complete the transactions contemplated by this Agreement and the Documents. (d) The Company has never caused any "plant closing" or "mass layoff" as such actions are defined in the Worker Adjustment and Retraining Notification Act, as codified at 29 U.S.C. Sections 2101-2109, and the regulations promulgated therein. 2.17 EMPLOYEE BENEFIT PLANS. (a) Set forth on SCHEDULE 2.17(a) hereto is a true and complete list of: (i) each employee pension benefit plan, as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974 ("ERISA"), maintained by the Company or -23- to which the Company is required to make contributions ("Pension Benefit Plan"); and (ii) each employee welfare benefit plan, as defined in Section 3(1) of ERISA, maintained by the Company or to which the Company is required to make contributions ("Welfare Benefit Plan"). True and complete copies of all Pension Benefit Plans and Welfare Benefit Plans (collectively, "ERISA Plans") have been delivered to UAG together with, as applicable with respect to each such ERISA Plan, trust agreements, summary plan descriptions, all IRS determination letters or applications therefor with respect to any Pension Benefit Plan intended to be qualified pursuant to Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and valuation or actuarial reports, accountant's opinions, financial statements, IRS Form 5500s (or 5500-C or 5500-R) and summary annual reports for the last three years. (b) With respect to the ERISA Plans: (i) there is no ERISA Plan which is a "multi-employer" plan as that term is defined in Section 3(37) of ERISA ("Multiemployer Plan") other than those listed as such on SCHEDULE 2.17(b); (ii) no event has occurred or (to the knowledge of the Company or any Stockholder) is threatened or about to occur which would constitute a prohibited transaction under Section 406 of ERISA or under Section 4975 of the Code; (iii) each ERISA Plan has operated since its inception in accordance with the reporting and disclosure requirements imposed under ERISA and the Code and has timely filed Form 5500e (or 5500-C or 5S00-R) and predecessors thereof; and (iv) no ERISA Plan is liable for any federal, state, local or foreign Taxes. (c) Each Pension Benefit Plan intended to be qualified under Section 401(a) of the Code: (i) has been qualified, from its inception, under Section 401(a) of the Code, and the trust established thereunder has been exempt from taxation under Section 501(a) of the Code and is currently in compliance with applicable federal laws; -24- (ii) has been operated, since its inception, in accordance with its terms and there exists no fact which would adversely affect its qualified status; and (iii) is not currently under investigation, audit or review by the IRS or (to the knowledge of the Company or any Stockholder) no such action is contemplated or under consideration and the IRS has not asserted that any Pension Benefit Plan is not qualified under Section 401(a) of the Code or that any trust established under a Pension Benefit Plan is not exempt under Section 501(a) of the Code. (d) With respect to each Pension Benefit Plan which is a defined benefit plan under Section 414(j) and, for the purpose solely of SECTION 2.17(d)(iv) hereof, each defined contribution plan under Section 414(i) of the Code: (i) no liability to the Pension Benefit Guaranty Corporation ("PBGC") under Sections 4062-4064 of ERISA has been incurred by the Company since the effective date of ERISA and all premiums due and owing to the PBGC have been timely paid; (ii) the PBGC has not notified the Company or any Pension Benefit Plan of the commencement of proceedings under Section 4042 of ERISA to terminate any such plan; (iii) no event has occurred since the inception of any Pension Benefit Plan or (to the knowledge of the Company or any Stockholder) is threatened or about to occur which would constitute a reportable event within the meaning of Section 4043(b) of ERISA; (iv) no Pension Benefit Plan ever has incurred any "accumulated funding deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code); and (v) if any of such Pension Benefit Plans were to be terminated on the Closing Date (A) no liability under Title IV of ERISA would be incurred by any Company and (B) all benefits accrued to the day prior to the Closing Date (whether or not vested) would be fully funded in accordance with the actuarial assumptions and method utilized by such plan for valuation purposes. (e) With respect to each Pension Benefit Plan, SCHEDULE 2.17(e) contains a list of all Pension Benefit Plans to which ERISA has applied which have been or are being terminated, or for which a termination is contemplated, and a description of the actions taken by the PBGC and the IRS with respect thereto. -25- (f) The aggregate of the amounts of contributions by the Company to be paid or accrued under ERISA Plans is not expected to exceed approximately $250,000 for the current fiscal year. To the extent required in accordance with GAAP, the Company Balance Sheet reflects in the aggregate an accrual of all amounts of employer contributions accrued but unpaid by the Company under the ERISA Plans as of the date of the Company Balance Sheet. (g) With respect to any Multiemployer Plan (1) the Company has not, since December 31, 1986, made or suffered a "complete withdrawal" or "partial withdrawal" as such terms are respectively defined in Sections 4203 and S205 of ERISA; (2) there is no withdrawal liability of the Company under any Multiemployer Plan, computed as if a "complete withdrawal" by the Company had occurred under each such Plan as of December 31, 1994; and (3) the Company has not received notice to the effect that any Multiemployer Plan is either in reorganization (as defined in Section 4241 of ERISA) or insolvent (as defined in Section 4245 of ERISA). (h) With respect to the Welfare Benefit Plans: (i) There are no liabilities of the Company under Welfare Benefit Plans with respect to any condition which relates to a claim filed on or before the Closing Date. (ii) No claims for benefits are in dispute or litigation. 2.18 OTHER BENEFIT AND COMPENSATION PLANS OR ARRANGEMENTS. (a) Set forth on SCHEDULE 2.18(a) hereto is a true and complete list of: (i) each employee stock purchase, employee stock option, employee stock ownership, deferred compensation, performance, bonus, incentive, vacation pay, holiday pay, insurance, severance, retirement, excess benefit or other plan, trust or arrangement which is not an ERISA Plan, whether written or oral, which any Company maintains or is required to make contributions to; (ii) each other agreement, arrangement, commitment and understanding of any kind, whether written or oral, with any current or former officer, director, employee or consultant of the Company pursuant to which payments may be required to be made at any time following the date hereof (including, without limitation, any employment, deferred -26- compensation, severance, supplemental pension, termination or consulting agreement or arrangement); and (iii) each employee of the Company whose aggregate compensation for the fiscal year ended December 31, 1993 exceeded $50,000. True and complete copies of all of the written plans, arrangements and agreements referred to on SCHEDULE 2.18(a) ("Compensation Commitments") have been provided to UAG together with, where prepared by or for the Company, any valuation, actuarial or accountant's opinion or other financial reports with respect to each Compensation Commitment for the last three years. An accurate and complete written summary has been provided to UAG with respect to any Compensation Commitment which is unwritten. (b) Each Compensation Commitment: (i) since its inception, has been operated in all material respects in accordance with its terms; (ii) is not currently under investigation, audit or review by the IRS or any other federal or state agency and (to the knowledge of any Company or any Stockholder) no such action is contemplated or under consideration; (iii) has no liability for any federal, state, local or foreign Taxes; (iv) has no claims subject to dispute or litigation; (v) has met all applicable requirements, if any, of the Code; and (vi) has operated since its inception in material compliance with the reporting and disclosure requirements imposed under ERISA and the Code. 2.19 TRANSACTIONS WITH INSIDERS. Set forth on SCHEDULE 2.19 hereto is a complete and accurate description of all material transactions between the Company or any ERISA Plan, on the one hand, and any Insider, on the other hand, that have occurred since January 1, 1987. For purposes of this Agreement: (i) the term "Insider" shall mean the Stockholders, any director, officer, key employee of the Company, and any Affiliate, Associate or Relative of any of the foregoing persons; -27- (ii) the term "Associate" used to indicate a relationship with any person means (A) any corporation, partnership, joint venture or other entity of which such person is an officer or partner or is, directly or indirectly, through one or more intermediaries, the beneficial owner of 10% or more of (1) any class or type of equity securities or other profits interest or (2) the combined voting power of interests ordinarily entitled to vote for management or otherwise, and (B) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; and (iii) a "Relative" of a person shall mean such person's spouse, such person's parents, sisters, brothers, children and the spouses of the foregoing, and any member of the immediate household of such person. 2.20 PROPRIETY OF PAST PAYMENTS. Except as set forth in SCHEDULE 2.20 hereto, no funds or assets of the Company have been used for illegal purposes; no unrecorded funds or assets of the Company have been established for any purpose; no accumulation or use of the Company's corporate funds or assets has been made without being properly accounted for in the respective books and records of the Company; all payments by or on behalf of the Company have been duly and properly recorded and accounted for in their respective books and records; no false or artificial entry has been made in the books and records of the Company for any reason; no payment has been made by or on behalf of the Company with the understanding that any part of such payment is to be used for any purpose other than that described in the documents supporting such payment; and the Company has not made, directly or indirectly, any illegal contributions to any political party or candidate, either domestic or foreign. Neither the IRS nor any other federal, state, local or foreign government agency or entity has initiated or threatened any investigation of any payment made by the Company of, or alleged to be of, the type described in this SECTION 2.20. 2.21 INTEREST IN COMPETITORS. Neither the Company nor any Stockholder, nor any of their officers, directors or key employees or Affiliates, has any interest, either by way of contract or by way of investment (other than as holder of not more than 2% of the outstanding capital stock of a publicly traded person, so long as such holder has no other connection or relationship with such person) or otherwise, directly or indirectly, in any person other than the Company that provides any services or designs, produces or sells any product or product lines or engages in any activity similar to or competitive with any activity currently proposed to be conducted by the Company. -28- 2.22 BROKERS. Except for Geneva Capital Markets, Inc. and John Dorey, neither the Company, nor any director, officer or employee thereof, nor any Stockholder or any representative of any Stockholder, has employed any broker or finder or has incurred or will incur any broker's, finder's or similar fees, commissions or expenses, in each case in connection with the transactions contemplated by this Agreement or the Documents. 2.23 ACCOUNTS. SCHEDULE 2.23 hereof correctly identifies each bank account maintained by or on behalf or for the benefit of the Company and the name of each person with any power or authority to act with respect thereto. 2.24 NET WORTH OF THE COMPANIES. The Net Worth of the Company, as determined in accordance with the Accounting Principles, will exceed $8,000,000 on the Closing Date. 2.25 DISCLOSURE. Neither the Company nor any Stockholder has made any material misrepresentation to UAG relating to this Agreement or the Shares and neither the Company nor any Stockholder has omitted to state to UAG any material fact relating to this Agreement or the Shares which is necessary in order to make the information given by or on behalf of the Company or any Stockholder to UAG or their representatives at or prior to Closing not misleading or which if disclosed would reasonably affect the decision of a person considering an acquisition of the Shares. No fact, event, condition or contingency exists or has occurred which has, or in the future can reasonably be expected to have, a Material Adverse Effect, which has not been disclosed in the Company Financial Statements or the Schedules to this Agreement. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS Each Stockholder hereby jointly and severally further represents and warrants to UAG as follows: 3.1 OWNERSHIP OF SHARES; TITLE. Each Stockholder is the owner of record and beneficially of the Shares set forth on SCHEDULE 3.1 hereto and has, and shall transfer to UAG at the Closing, good and marketable title to the Shares owned by him, free and clear of any and all Security Interests, proxies and voting or other agreements except as contemplated by the Shareholders Agreement and restrictions on transfer imposed by applicable securities laws. -29- 3.2 AUTHORITY. Each Stockholder has all requisite power and authority and has full legal capacity and is competent to execute, deliver and perform this Agreement and the Documents to which he is a party and to consummate the transactions contemplated hereby and thereby (including the disposition of the Shares to UAG as contemplated by this Agreement). This Agreement has been duly executed and delivered by each Stockholder and constitutes, and the Documents when executed and delivered by each Stockholder will constitute, a valid and binding obligation of each Stockholder, enforceable against each Stockholder in accordance with its terms. The execution, delivery and performance of this Agreement and the Documents by each Stockholder and the consummation of the transactions contemplated hereby and thereby do not and will not: (i) (after notice or lapse of time or both) conflict with, result in a breach of any provision of, constitute a default under, result in the modification or cancellation of, or give rise to any right of termination or acceleration in respect of, any material contract, agreement, commitment, understanding, arrangement or restriction to which each Stockholder is a party to or which each Stockholder or any of such Stockholder's property is subject; (ii) violate or conflict with any Legal Requirements applicable to each Stockholder or any of such Stockholder's businesses or properties; or (iii) require any authorization, consent, order, permit or approval of, or notice to, or filing, registration or qualification with, any governmental, administrative or judicial authority, except in connection with or in compliance with the provisions of the H-S-R Act. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF UAG UAG hereby represents and warrants to the Company and the Stockholders as follows: 4.1 ORGANIZATION AND GOOD STANDING. UAG is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to own, lease and operate the properties used in its business and to carry on its business as now being conducted. UAG is duly qualified to do business and is in good standing as a foreign corporation in each state and jurisdiction where -30- qualification as a foreign corporation is required, except for such failures to be qualified and in good standing, if any, which when taken together with all other such failures of UAG and the UAG Subsidiaries (as defined below) would not, or could not reasonably be expected to, in the aggregate have a material adverse effect on UAG and the UAG Subsidiaries, taken as a whole. SCHEDULE 4.1 hereto lists (i) the states and other jurisdictions where UAG is so qualified and (ii) the assumed names under which UAG conducts business. UAG has previously delivered to Landers Auto complete and correct copies of its charter and by-laws (including comparable governing instruments with different names), as amended and presently in effect. 4.2 SUBSIDIARIES. Set forth on SCHEDULE 4.2 hereto is a true and complete list of all UAG Subsidiaries (as defined below) stating, with respect to each UAG Subsidiary, its jurisdiction of incorporation, capitalization, equity ownership and jurisdictions in which it is qualified to do business. As used in this Agreement, the term "UAG Subsidiary" shall mean any corporation or other entity in which UAG, directly or indirectly, owns beneficially securities representing 50% or more of (i) the aggregate equity or profit interests or (ii) the combined voting power of voting interests ordinarily entitled to vote for management or otherwise. Each of the UAG Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own, lease and operate the properties and assets used in its business and to carry on its business as now being conducted, and is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction where qualification as a foreign corporation is required, except for such failures to be qualified and in good standing, if any, which when taken together with all other such failures of UAG and the UAG Subsidiaries would not, or could not reasonably be expected to, in the aggregate have a material adverse effect on UAG and the UAG Subsidiaries, taken as a whole. All of the outstanding shares of capital stock of the UAG Subsidiaries have been validly authorized and issued, are fully paid and non-assessable, have not been issued in violation of any preemptive rights or of any federal or state securities law, and, except as set forth on SCHEDULE 4.2 hereto, are owned by UAG or a wholly owned UAG Subsidiary of record and beneficially free and clear of any Security Interest. Except as set forth on SCHEDULE 4.2 hereto, UAG does not own, directly or indirectly, any ownership, equity, profits or voting interest in any corporation, partnership, joint venture or other person, nor has any right, agreement or commitment to purchase any such interest. UAG has previously delivered to Landers Auto complete and correct copies of the charter and by-laws (including comparable governing instruments with different names) of each of the UAG Subsidiaries, as amended and presently in effect. -31- 4.3 CAPITALIZATION. The authorized stock of UAG and the number of shares of capital stock which are issued and outstanding are set forth on SCHEDULE 4.3 hereto. The shares listed on SCHEDULE 4.3 hereto constitute all the issued and outstanding shares of capital stock of UAG and have been validly authorized and issued, are fully paid and nonassessable, have not been issued in violation of any preemptive rights or of any federal or state securities law and no personal liability attaches to the ownership thereof. There is no security, option, warrant, right, call, subscription, agreement, commitment or understanding of any nature whatsoever, fixed or contingent, that directly or indirectly (i) calls for the issuance, sale, pledge or other disposition of any shares of capital stock of UAG or any securities convertible into, or other rights to acquire, any shares of capital stock of UAG, or (ii) obligates UAG to grant, offer or enter into any of the foregoing, or (iii) relates to the voting or control of such capital stock, securities or rights, except as set forth on SCHEDULE 4.3 hereto. 4.4 AUTHORITY; APPROVALS AND CONSENTS. UAG has the corporate power and authority to enter into this Agreement and the Documents to which it is a party and to perform its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and the Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized and approved by the Board of Directors of UAG and no other corporate proceedings on the part of UAG are necessary to authorize and approve this Agreement and the Documents and the transactions contemplated hereby and thereby. This Agreement has been, and on the Closing Date the Documents will be, duly executed and delivered by, and constitute a valid and binding obligation of, UAG, enforceable against UAG in accordance with their respective terms. Except as set forth on SCHEDULE 4.4 hereto, the execution, delivery and performance by UAG of this Agreement and the Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby do not and will not: (i) contravene any provisions of the Certificate of Incorporation or By-Laws (including any comparable governing instrument with a different name) of UAG; (ii) (after notice or lapse of time or both) conflict with, result in a breach of any provision of, constitute a default under, result in the modification or cancellation of, or give rise to any right of termination or acceleration in respect of, any UAG Agreement (as defined below) or require any consent or waiver of any party to any UAG Agreement; -32- (iii) result in the creation of any Security Interest upon, or any person obtaining any right to acquire, any properties, assets or rights of any UAG or any UAG Subsidiary; (iv) violate or conflict with any Legal Requirements applicable to UAG or any UAG Subsidiary or any of their respective businesses or properties; or (v) require any authorization, consent, order, permit or approval of, or notice to, or filing, registration or qualification with, any governmental, administrative or judicial authority, except in connection with or in compliance with the provisions of the H-S-R Act. Except as set forth or referred to above, no authorization, consent, order, permit or approval of, or notice to, or filing, registration or qualification with, any governmental administrative or judicial authority is necessary to be obtained or made by UAG to enable UAG to continue to conduct its business and operations and use its properties after the Closing in a manner which is in all material respects consistent with that in which they are presently conducted. 4.5 FINANCIAL STATEMENTS. Attached as SCHEDULE 4.5 are true and complete copies of the consolidated balance sheet of UAG and its consolidated UAG Subsidiaries as of December 31 in each of the years 1993 and 1994 (such balance sheet as of December 31, 1994 being referred to herein as the "UAG Balance Sheet"), and the related consolidated statements of income, stockholders' equity and cash flows for the fiscal years ended on such dates, together with the notes thereto, in each case examined by and accompanied by the report of Coopers & Lybrand, independent certified public accountants (all the foregoing financial statements, including the notes thereto, being referred to herein collectively as the "UAG Financial Statements"). The UAG Financial Statements are in accordance with the books and records of UAG and the UAG Subsidiaries, fairly present the consolidated financial position, results of operations, stockholders' equity and changes in financial position of UAG and the UAG Subsidiaries as of the dates and for the periods indicated, in each case in conformity with GAAP consistently applied (except as otherwise indicated in such statements) during such periods, and can be legitimately reconciled with the financial statements and the financial records maintained and the accounting methods applied by UAG and the UAG Subsidiaries for federal income tax purposes, and the unaudited financial statements included in the UAG Financial Statements indicate all adjustments, which consist of only normal recurring accruals, necessary for such fair presentations. The statements of income included in the UAG Financial Statements do not contain any items of special or -33- nonrecurring income except as expressly specified therein, and the balance sheets included in the UAG Financial Statements do not reflect any write-up or revaluation increasing the book value of any assets. The books and accounts of UAG and the UAG Subsidiaries are complete and correct in all material respects and fairly reflect all of the transactions, items of income and expense and all assets and liabilities of the businesses of UAG and the UAG Subsidiaries consistent with prior practices of UAG and the UAG Subsidiaries. 4.6 ABSENCE OF UNDISCLOSED LIABILITIES. Neither UAG nor any UAG Subsidiary has any liability of any nature whatsoever (whether known or unknown, due or to become due, accrued, absolute, contingent or otherwise), including, without limitation, any unfunded obligation under employee benefit plans or arrangements as described in SECTION 4.17 AND 4.18 hereof or liabilities for Taxes (as defined in SECTION 4.8 hereof), except for (i) liabilities reflected or reserved against the most recent UAG Financial Statement, (ii) current liabilities incurred in the ordinary course of business and consistent with past practice after the date of the UAG Balance Sheet which, individually and in the aggregate, do not have, and cannot reasonably be expected to have, a material adverse effect on UAG and the UAG Subsidiaries, taken as a whole, and (iii) liabilities disclosed on SCHEDULE 4.6 hereto. Neither UAG nor any UAG Subsidiary is a party to any UAG Agreement, or subject to any charter or by-law provision, any other corporate limitation or any Legal Requirement, which has, or can reasonably be expected to have, a material adverse effect on UAG and the UAG Subsidiaries, taken as a whole. 4.7 ABSENCE OF MATERIAL ADVERSE EFFECT; CONDUCT OF BUSINESS. (a) Since December 31, 1993, UAG and each UAG Subsidiary has operated in the ordinary course of business consistent with past practice, except as set forth on SCHEDULE 4.7(a) hereto, and there has not been: (i) any material loss, damage, destruction or other casualty to the property or other assets of UAG or any UAG Subsidiary, whether or not covered by insurance; (ii) any change in any method of accounting or accounting practice of UAG or any UAG Subsidiary; or (iii) any loss of the employment, services or benefits of any key employee of UAG or any UAG Subsidiary. (b) Since December 31, 1993, except as set forth in SCHEDULE 4.7(b) hereto, neither UAG nor any UAG Subsidiary has: -34- (i) incurred any material obligation or liability (whether absolute, accrued, contingent or otherwise), except in the ordinary course of business consistent with past practice; (ii) failed to discharge or satisfy any lien or pay or satisfy any obligation or liability (whether absolute, accrued, contingent or otherwise), other than liabilities being contested in good faith and for which adequate reserves have been provided; (iii) mortgaged, pledged or subjected to any lien any of its property or other assets, except for mechanics' liens and liens for taxes not yet due and payable; (iv) sold or transferred any assets or cancelled any debts or claims or waived any rights, except in the ordinary course of business consistent with past practice; (v) defaulted on any material obligation; (vi) written down the value of any inventory or written off as uncollectible any accounts receivable or any portion thereof not reflected in the UAG Financial Statements; (vii) discontinued any franchise or the sale of any products or product line or program; or (viii) entered into any agreement or made any commitment to do any of the foregoing that has not been terminated. 4.8 TAXES. UAG, each UAG Subsidiary and, for any period during all or part of which the tax liability of any other corporation was determined on a combined or consolidated basis with UAG or any UAG Subsidiary, any such other corporation, have filed timely all federal, state, local and foreign tax returns, reports and declarations required to be filed (or have obtained or timely applied for an extension with respect to such filing) correctly reflecting the Taxes and all other information required to be reported thereon and have paid, or made adequate provision for the payment of, all Taxes which are due pursuant to such returns or pursuant to any assessment received by UAG or any UAG Subsidiary or any such other corporation. Copies of all tax returns for the fiscal years ended since December 31, 1992 have been furnished to the Stockholders or their representatives and such copies are accurate and complete as of the date hereof. UAG has also furnished to the Stockholders correct and complete copies of all notices and correspondence sent or received since December 31, 1992 by UAG or the UAG Subsidiaries to or from any -35- federal, state or local tax authorities. UAG has adequately reserved for the payment of all Taxes with respect to periods ended on, prior to or through the Closing Date for which tax returns have not yet been filed. In the ordinary course, UAG makes adequate provision on its books for the payment of all Taxes (including for the current fiscal period) owed by UAG and the UAG Subsidiaries. Except to the extent reserves therefor are reflected on the UAG Balance Sheet or on SCHEDULE 4.8 hereto, neither UAG nor any UAG Subsidiary is liable, or will become liable, for any Taxes for any period ending on, prior to or through the Closing Date. Neither UAG nor any UAG Subsidiary has been subject to a federal or state tax audit of any kind, and no adjustment has been proposed by the IRS with respect to any return for any subsequent year. UAG knows of no basis for an assertion of a deficiency for Taxes against UAG or any UAG Subsidiary. 4.9 LEGAL MATTERS. (a) Except as set forth on SCHEDULE 4.9(a) hereto, (i) there are no Claims pending against, or, to the knowledge of UAG or any UAG Subsidiary, threatened against or affecting, UAG, any UAG Subsidiary, any of their respective officers, directors, employees, agents or Affiliates involving, affecting or relating to any assets, properties or operations of UAG or any UAG Subsidiary, any UAG ERISA Plan (as defined below) or any of their respective properties or rights before or by any court, arbitrator, panel, agency or other governmental, administrative or judicial entity, domestic or foreign, nor is any basis known to UAG, any UAG Subsidiary or any of their directors, officers, employees or agents for any such Claims, and (ii) neither UAG nor any UAG Subsidiary is subject to any Judgments of any governmental, administrative or judicial authority, domestic or foreign. SCHEDULE 4.9(a) hereto identifies each Claim and Judgment disclosed thereon which is fully covered by an insurance policy. As used in this Agreement, the term "UAG ERISA Plans" shall mean the employee pension benefit plans and employee welfare benefit plans set forth on SCHEDULE 4.17 hereto. (b) The businesses of UAG and the UAG Subsidiaries are being conducted in compliance with all Legal Requirements applicable to UAG or any UAG Subsidiary or any of their respective businesses or properties, except where the failure to be in such compliance could not have a material adverse effect on UAG and the UAG Subsidiaries, taken as a whole. Except as set forth on SCHEDULE 4.9(b) hereto, UAG and the UAG Subsidiaries hold, and are in compliance with, all Permits required by all applicable Legal Requirements and where the failure to hold or be in compliance with such Permits could have a material adverse effect on UAG and the UAG Subsidiaries, taken as a whole. A list of all such Permits is set forth on SCHEDULE 4.9(b) hereto. -36- (c) UAG and each UAG Subsidiary owns or holds all Permits material to the conduct of its business. No event has occurred and is continuing which permits, or after notice or lapse of time or both would permit, any modification or termination of any Permit. 4.10 PROPERTY. The properties and assets owned by or leased to UAG and the UAG Subsidiaries are adequate for the conduct of the respective businesses of UAG and the UAG Subsidiaries as presently conducted. All improvements (the "UAG Improvements") to the real property (the "UAG Real Property") owned by or leased to UAG and each UAG Subsidiary and all machinery, equipment and other tangible property owned or used by or leased to UAG or any UAG Subsidiary are in good operating condition and in good repair, ordinary wear and tear excepted. Such tangible properties and all UAG Improvements owned or leased by UAG or any UAG Subsidiary conform in all material respects with all applicable laws, ordinances, rules and regulations and other Legal Requirements and such UAG Improvements do not encroach in any respect on property of others. 4.11 ENVIRONMENTAL MATTERS. (a) Except as set forth on SCHEDULE 4.11(a) hereto, (i) UAG and each UAG Subsidiary, the UAG Real Property, the UAG Improvements and any property formerly owned, occupied or leased as part of the business of UAG or any UAG Subsidiary are in full compliance with all Environmental Laws, (ii) UAG and the UAG Subsidiaries have obtained all UAG Environmental Permits, (iii) such Environmental Permits are in full force and effect, and (iv) UAG and the UAG Subsidiaries are in full compliance with all terms and conditions of such UAG Environmental Permits. As used herein, "UAG Environmental Permits" shall mean all permits, licenses, approvals, authorizations, consents or registrations required under applicable Environmental Laws in connection with the ownership, use and/or operation of UAG and the UAG Subsidiaries or the UAG Real Property and UAG Improvements. As used in this SECTION 4.11, "Hazardous Materials" shall mean, in addition to those substances set forth in clauses (ii), (iii) and (iv) in the second paragraph of SECTION 2.11(a) hereof, those substances included within the definitions of or identified as "hazardous chemicals," "hazardous waste," "hazardous substances," "hazardous materials," "toxic substances" or similar terms in or pursuant to, without limitation, CERCLA, RCRA, OSHA, HMTA, the Industrial Site Recovery Act (N.J.S.A. 13:1K-6, et seq.) ("ISRA"), the New Jersey Spill Compensation and Control Act (N.J.S.A. 58:10-23.11, et seq.), the Solid Waste Management Act (N.J.S.A. 13:1K-1 et seq.), the New Jersey Underground Storage of Hazardous Substances Act (N.J.S.A. 58:10A-21 et seq.), any article of the Environmental Conservation Law of New York State, including, but not limited to, any Title of E.C.L. Article 27, -37- and in the Connecticut Hazardous Waste Law (Conn. Gen. Stat. Section 22a-114, et seq.), and in the regulations promulgated pursuant to such laws, all as amended. (b) UAG and the UAG Subsidiaries have not violated, done or suffered any act which could give rise to liability under, and are not otherwise exposed to liability under, any Environmental Law. No event has occurred with respect to the UAG Real Property, the UAG Improvements, any property formerly owned, occupied or leased as part of the business of UAG or any UAG Subsidiary, or UAG or any UAG Subsidiary which, with the passage of time or the giving of notice, or both, would constitute a violation of or non-compliance with any applicable Environmental Law. UAG and the UAG Subsidiaries have no contingent liability under any Environmental Law. There are no liens under any Environmental Law on the UAG Real Property. (c) Except as set forth on SCHEDULE 4.11(C) hereto, (i) neither UAG, the UAG Subsidiaries, the UAG Real Property or any portion thereof, the UAG Improvements or any property formerly owned, occupied or leased as part of the business of UAG or any UAG Subsidiary, nor, to the knowledge of UAG, any property adjacent to the UAG Real Property, is being used or has been used for the treatment, generation, transportation, processing, handling, production or disposal of any Hazardous Materials or as a landfill or other waste disposal site, (ii) none of the UAG Real Property or portion thereof, the Improvements or any property formerly owned, occupied or leased as part of the business of UAG or any UAG Subsidiary has been subject to investigation by any governmental authority evaluating the need to investigate or undertake Remedial Action (as defined below) at such property, and (iii) none of the UAG Real Property, the UAG Improvements or any property formerly owned, occupied or leased as part of the business of UAG or any UAG Subsidiary, or any site or location where UAG or any UAG Subsidiary sent waste of any kind, is identified on the current or proposed (A) National Priorities List under 40 C.F.R. 300 Appendix B, (B) Comprehensive Environmental Response Compensation and Liability Inventory System list, or (C) any list arising from any statute analogous to CERCLA. -38- (d) Except as set forth on SCHEDULE 4.11(D) hereto, there have been and are no (i) aboveground or underground storage tanks, subsurface disposal systems, or wastes, drums or containers disposed of or buried on, in or under the ground or any surface waters, (ii) asbestos, asbestos containing materials or radon gas, (iii) polychlorinated biphenyls ("PCB") or PCB-containing equipment, including transformers, or (iv) wetlands (as defined under any Environmental Law) located within any portion of the UAG Real Property, nor have any liens been placed upon any portion of the UAG Real Property, the UAG Improvements or any property formerly owned, occupied or leased as part of the business of UAG or any UAG Subsidiary in connection with any actual or alleged liability under any Environmental Law. (e) Except as set forth on SCHEDULE 4.11(E) hereto, (i) there is no pending or threatened claim, litigation, or administrative proceeding, or known prior claim, litigation or administrative proceeding, arising under any Environmental Law involving UAG or any UAG Subsidiary, the UAG Real Property, the UAG Improvements, any property formerly owned, leased or occupied as part of the business of UAG or any UAG Subsidiary, any offsite contamination affecting the business of UAG or any UAG Subsidiary or any operations conducted at the UAG Real Property, (ii) there are no ongoing negotiations with or agreements with any governmental authority relating to any Remedial Action or other environmentally-related claim, (iii) neither UAG nor any UAG Subsidiary has submitted notice pursuant to Section 103 of CERCLA or analogous statute or notice under any other applicable Environmental Law reporting a release of a Hazardous Material into the environment, and (iv) neither UAG nor any UAG Subsidiary has received any notice, claim, demand, suit or request for information from any governmental or private entity with respect to any liability or alleged liability under any Environmental Law, nor to knowledge of UAG and the UAG Subsidiaries, has any other entity whose liability therefor, in whole or in part, may be attributed to UAG or any UAG Subsidiary, received such notice, claim, demand, suit or request for information. (f) UAG and the UAG Subsidiaries have provided to Landers Auto all environmental studies and reports pertaining to the UAG Real Property, the UAG Improvements, UAG and the UAG Subsidiaries and any property formerly owned, occupied or leased as part of the businesses of UAG or any UAG Subsidiary, and has permitted (or will have permitted as of the Closing Date), the testing of the soil, groundwater, building components, tanks, containers and equipment on the UAG Real Property, the UAG Improvements, any property formerly owned, occupied or leased as part of the businesses of UAG and the UAG Subsidiaries by Landers Auto or Landers Auto's agents or experts as they have or shall have deemed necessary or appropriate to confirm the condition of such properties. 4.12 INVENTORIES. The values at which inventories are carried on the UAG Balance Sheet reflect the normal inventory valuation policies of UAG, and such values are in conformity with GAAP consistently applied. All inventories reflected on the UAG Balance Sheet or arising since the date thereof are currently marketable and can reasonably be anticipated to be sold at normal mark-ups within 120 days after the date hereof in the ordinary course of business (subject to the reserve for obsolete, off- -39- grade or slow-moving items that is set forth on the UAG Balance Sheet), except for spare parts inventory which inventory is good and usable. 4.13 ACCOUNTS RECEIVABLE. All accounts receivable reflected on the UAG Balance Sheet or arising since the date thereof (subject to the reserve for bad debts reflected on the UAG Balance Sheets) are good and have been collected or are collectible, without resort to litigation or extraordinary collection activity, within 90 days of the Closing Date, and are subject to no defenses, set-offs or counterclaims other than normal cash discounts accrued in the ordinary course of business of UAG and the UAG Subsidiaries. 4.14 INSURANCE. All properties and assets of UAG and the UAG Subsidiaries which are of an insurable character are insured against loss or damage by fire and other risks to the extent and in the manner reasonable in light of the risks attendant to the businesses and activities in which UAG and the UAG Subsidiaries are or have been engaged and customary for companies engaged in similar businesses or owning similar assets. 4.15 CONTRACTS; ETC. As used in this Agreement, the term "UAG Agreements" shall mean all mortgages, indenture notes, agreements, contracts, leases, licenses, franchises, obligations, instruments or other commitments, arrangements or understandings of any kind, whether written or oral, binding or non-binding, to which UAG or any UAG Subsidiary is a party or by which UAG or any UAG Subsidiary or any of their respective properties may be bound or affected, including all amendments, modifications, extensions or renewals of any of the foregoing. Set forth on SCHEDULE 4.15 hereto is a complete and accurate list of each UAG Agreement which is material to the businesses, operations, assets, condition (financial or otherwise) or prospects of UAG and the UAG Subsidiaries. Neither UAG nor any UAG Subsidiary nor, to the knowledge of UAG and each UAG Subsidiary, any other party thereto, is in breach of or default under any UAG Agreement, and no event has occurred which (after notice or lapse of time or both) would become a breach or default under, or would permit modification, cancellation, acceleration or termination of, any UAG Agreement or result in the creation of any Security Interest upon, or any person obtaining any right to acquire, any properties, assets or rights of UAG or any UAG Subsidiary in any such case where such breach, default or other event would have, or could reasonably be expected to have, a material adverse effect on UAG and the UAG Subsidiaries, taken as a whole. There are no material unresolved disputes involving UAG or any UAG Subsidiary under any UAG Agreement. -40- 4.16 LABOR RELATIONS. (a) UAG and each of the UAG Subsidiaries has paid or made provision for the payment of all salaries and accrued wages and has complied in all material respects with all applicable laws, rules and regulations relating to the employment of labor, including those relating to wages, hours, collective bargaining and the payment and withholding of taxes, and has withheld and paid to the appropriate governmental authority, or is holding for payment not yet due to such authority, all amounts required by law or agreement to be withheld from the wages or salaries of its employees. (b) Except as set forth in SCHEDULE 4.16(b) hereto, (i) there is no unfair labor practice charge or complaint pending before the NLRB, (ii) there is no labor strike, material slowdown or material work stoppage or lockout actually pending or, to UAG's or any of the UAG Subsidiaries' knowledge, threatened, against or affecting UAG or any UAG Subsidiary, and neither UAG nor any UAG Subsidiary has experienced any strike, material slow down or material work stoppage, lockout or other collective labor action by or with respect to employees of UAG or any UAG Subsidiary, (iii) there is no representation claim or petition pending before the NLRB or any similar foreign agency and no question concerning representation exists relating to the employees of UAG or any UAG Subsidiary, (iv) there are no charges with respect to or relating to UAG or any UAG Subsidiary pending before the Equal Employment Opportunity Commission or any state, local or foreign agency responsible for the prevention of unlawful employment practices, (v) neither UAG nor any UAG Subsidiary has received formal notice from any federal, state, local or foreign agency responsible for the enforcement of labor or employment laws of an intention to conduct an investigation of UAG or any UAG Subsidiary and no such investigation is in progress and (vi) the consents of the unions that are parties to any UAG Employment and Labor Agreements (as defined below) are not required to complete the transactions contemplated by this Agreement and the Documents. As used in this agreement, the term "UAG Employment and Labor Agreements" shall mean all (i) outstanding employment agreements or contracts with officers or employees that are not terminable at will, or that provide for the payment of any bonus or commission, (ii) agreements, policies or practices that require UAG or any UAG Subsidiary to pay termination or severance pay to salaried, non-exempt or hourly employees (other than as required by law), (iii) collective bargaining agreements or other labor union contracts applicable to persons employed by UAG or any UAG Subsidiary. (c) Neither UAG nor any UAG Subsidiary has ever caused any "plant closing" or "mass layoff" as such actions are defined in the Worker Adjustment and Retraining Notification Act, as -41- codified at 29 U.S.C. Sections 2101-2109, and the regulations promulgated therein. 4.17 EMPLOYEE BENEFIT PLANS. Set forth on SCHEDULE 4.17 hereto is a true and complete list of: (i) each employee pension benefit plan, as defined in Section 3(2) of ERISA, maintained by UAG or any UAG Subsidiary or to which UAG or any UAG Subsidiary is required to make contributions; and (ii) each employee welfare benefit plan, as defined in Section 3(1) of ERISA, maintained by UAG or any UAG Subsidiary or to which UAG or any UAG Subsidiary is required to make contributions. 4.18 OTHER BENEFIT AND COMPENSATION PLANS OR ARRANGEMENTS. Set forth on SCHEDULE 4.18 hereto is a true and complete list of: (i) each employee stock purchase, employee stock option, employee stock ownership, deferred compensation, performance, bonus, incentive, vacation pay, holiday pay, insurance, severance, retirement, excess benefit or other plan, trust or arrangement which is not a UAG ERISA Plan, whether written or oral, which UAG or any UAG Subsidiary maintains or is required to make contributions to; and (ii) each other agreement, arrangement, commitment and understanding of any kind, whether written or oral, with any current or former officer, director, employee or consultant of UAG or any UAG Subsidiary pursuant to which payments may be required to be made at any time following the date hereof (including, without limitation, any employment, deferred compensation, severance, supplemental pension, termination or consulting agreement or arrangement) (all of the written plans, arrangements and agreements referred to on SCHEDULE 4.18 are collectively referred to as the "UAG Compensation Commitments"). 4.19 TRANSACTIONS WITH INSIDERS. Set forth on SCHEDULE 4.19 hereto is a complete and accurate description of all material transactions between UAG or any UAG Subsidiary or any UAG ERISA Plan, on the one hand, and any UAG Insider, on the other hand, that have occurred since January 1, 1987. For purposes of this Agreement, the term "UAG Insider" shall mean any director, officer, key employee of UAG or any UAG Subsidiary, and any Affiliate, Associate or Relative of any of the foregoing persons. -42- 4.20 PROPRIETY OF PAST PAYMENTS. Except as set forth in SCHEDULE 4.20 hereto, no funds or assets of UAG or any UAG Subsidiary have been used for illegal purposes; no unrecorded funds or assets of UAG or any UAG Subsidiary have been established for any purpose; no accumulation or use of UAG's or any UAG Subsidiary's corporate funds or assets has been made without being properly accounted for in the respective books and records of UAG or any UAG Subsidiary; all payments by or on behalf of UAG and the UAG Subsidiaries have been duly and properly recorded and accounted for in their respective books and records; no false or artificial entry has been made in the books and records of UAG or any UAG Subsidiary for any reason; no payment has been made by or on behalf of UAG or any UAG Subsidiary with the understanding that any part of such payment is to be used for any purpose other than that described in the documents supporting such payment; and neither UAG nor any UAG Subsidiary has made, directly or indirectly, any illegal contributions to any political party or candidate, either domestic or foreign. Neither the IRS nor any other federal, state, local or foreign government agency or entity has initiated or threatened any investigation of any payment made by UAG or any UAG Subsidiary of, or alleged to be of, the type described in this SECTION 4.20. 4.21 BROKERS. Neither UAG nor any UAG Subsidiary, nor any director, officer or employee thereof, has employed any broker or finder or has incurred or will incur any broker's, finder's or similar fees, commissions or expenses, in each case in connection with the transactions contemplated by this Agreement or the Documents. 4.22 ACQUISITION OF THE SHARES FOR INVESTMENT. UAG is acquiring the Shares for investment and not with a view toward, or for sale in connection with, any distribution thereof, nor with any present intention of distributing or selling the Shares. 4.23 DISCLOSURE. Neither UAG nor any UAG Subsidiary has made any material misrepresentation to the Companies or the Stockholders relating to this Agreement and neither UAG nor any UAG Subsidiary has omitted to state to the Companies or the Stockholders any material fact relating to this Agreement which is necessary in order to make the information given by or on behalf of UAG or any UAG Subsidiary to the Companies or the Stockholders or their representatives at or prior to Closing not misleading. No fact, event, condition or contingency exists or has occurred which has, or in the future can reasonably be expected to have, a material adverse effect on UAG and the UAG Subsidiaries, taken as a whole, which has not been disclosed in the UAG Financial Statements, the UAG Balance Sheet, or the Schedules to this Agreement. -43- ARTICLE 5 COVENANTS AND ADDITIONAL AGREEMENTS 5.1 ACCESS; CONFIDENTIALITY. Between the date hereof and the Closing Date, the Stockholders and the Company will (i) provide to the officers and other authorized representatives of UAG full access, during normal business hours, to any and all premises, properties, files, books, records, documents, and other information of the Company and will cause their officers to furnish to UAG and its authorized representatives any and all financial, technical and operating data and other information pertaining to the businesses and properties of the Company, and (ii) make available for inspection and copying by UAG true and complete copies of any documents relating to the foregoing. UAG will hold in confidence (unless and to the extent compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law) all Confidential Information (as defined below) and will not disclose the same to any third party except in connection with obtaining financing and otherwise as may reasonably be necessary to carry out this Agreement and the transactions contemplated hereby, including any due diligence review by or on behalf of UAG. If this Agreement is terminated, UAG will promptly return to the Company, upon the reasonable request of such Company, all Confidential Information furnished by the Company and held by UAG, including all copies and summaries thereof. As used herein, "Confidential Information" shall mean all information concerning the Company obtained by UAG from the Company in connection with the transactions contemplated by this Agreement, except information (x) ascertainable or obtained from public information, (y) received from a third party not employed by or otherwise affiliated with the Company or (z) which is or becomes known to the public, other than through a breach by UAG of this Agreement. 5.2 FURNISHING INFORMATION; ANNOUNCEMENTS. The Stockholders and the Company, on the one hand, and UAG, on the other hand, will, as soon as practicable after reasonable request therefor, furnish to the other all the information concerning the Stockholders and the Company or UAG, respectively, required for inclusion in any statement or application made by UAG or the Company to any governmental or regulatory body or in connection with obtaining any third party consent in connection with the transactions contemplated by this Agreement. Neither the Stockholders nor the Company, on the one hand, or UAG, on the other hand, or any representative thereof, shall issue any press releases or otherwise make any public statement with respect to the transactions contemplated hereby without the prior consent of the other, except as may be required by law. -44- 5.3 ANTITRUST IMPROVEMENTS ACT COMPLIANCE. UAG and the Stockholders and the Company, as applicable, shall each file or cause to be filed with the Federal Trade Commission and the United States Department of Justice any notifications required to be filed by their respective "ultimate parent" entities under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R Act"), and the rules and regulations promulgated thereunder, with respect to the transactions contemplated herein. The parties shall use their best efforts to make such filings promptly, to respond to any requests for additional information made by either of such agencies, to cause the waiting periods under the H-S-R Act to terminate or expire at the earliest possible date and to resist vigorously, at their respective cost and expense (including, without limitation, the institution or defense of legal proceedings), any assertion that the transactions contemplated herein constitute a violation of the antitrust laws, all to the end of expediting consummation of the transactions contemplated herein; PROVIDED, HOWEVER, that if UAG or the Stockholders shall determine after issuance of any preliminary injunction that continuing such resistance is not in its or his best interests, UAG or the Stockholders, as the case may be, may, by written notice to the other party, terminate this Agreement with the effect set forth in SECTION 8.2 hereof. 5.4 CERTAIN CHANGES AND CONDUCT OF BUSINESS. (a) From and after the date of this Agreement and until the Closing Date, the Company shall, and the Stockholders shall cause the Company to, conduct its businesses solely in the ordinary course consistent with past practices and, without the prior written consent of UAG, neither the Stockholders nor the Company will, except as required or permitted pursuant to the terms hereof, permit the Company to: (i) make any material change in the conduct of its businesses and operations or enter into any transaction other than in the ordinary course of business consistent with past practices; (ii) make any change in its Certificate of Incorporation or By-laws, issue any additional shares of capital stock or equity securities or grant any option, warrant or right to acquire any capital stock or equity securities or issue any security convertible into or exchangeable for its capital stock or alter any material term of any of its outstanding securities or make any change in its outstanding shares of capital stock or other ownership interests or its capitalization, whether by reason of a reclassification, recapitalization, stock split or combination, exchange or readjustment of shares, stock dividend or otherwise; -45- (iii) (A) incur, assume or guarantee any indebtedness for borrowed money, issue any notes, bonds, debentures or other corporate securities or grant any option, warrant or right to purchase any thereof, except pursuant to transactions in the ordinary course of business consistent with past practices, (B) issue any securities convertible or exchangeable for debt securities of the Company, or (C) issue any options or other rights to acquire from the Company, directly or indirectly, debt securities of the Company or any security convertible into or exchangeable for such debt securities; (iv) make any sale, assignment, transfer, abandonment or other conveyance of any of its assets or any part thereof, except transactions pursuant to existing contracts set forth in SCHEDULE 2.16 hereto and dispositions of inventory or of worn-out or obsolete equipment for fair or reasonable value in the ordinary course of business consistent with past practices; (v) subject any of its assets, or any part thereof, to any lien or suffer such to be imposed other than such liens as may arise in the ordinary course of business consistent with past practices by operation of law which will not have, or cannot reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; (vi) (A) declare, set aside or pay any dividends or other distribution (whether in cash, stock, property or any combination thereof) in respect of any shares of its capital stock which would result in the Net Worth of the Company to decrease below $8,000,000 (provided, however, that if the Stockholders pay any such dividend or other such distribution that has the effect of reducing the Net Worth of the Company on the Closing Date below $8,000,000, then, in addition to any other rights the Company has under this Agreement (including Section 1.2 and Article 9 hereof), the Stockholders shall contribute to the Company, within thirty (30) days of the Closing Date, an amount equal to $8,000,000 less the Net Worth of the Company on the Closing Date as set forth on the Estimated Closing Date Balance Sheet), or (B) declare, set aside or pay any such dividend or other such distribution from the consolidated net earnings of the Company for the period commencing immediately after the date of the Closing Date Balance Sheet and ending on the Closing Date, or (C) redeem, retire, purchase or otherwise acquire, directly or indirectly, any shares of its capital stock; (vii) acquire any assets, raw materials or properties, or enter into any other transaction, other than -46- in the ordinary course of business consistent with past practices; (viii) enter into any new (or amend any existing) employee benefit plan, program or arrangement or any new (or amend any existing) employment, severance or consulting agreement, grant any general increase in the compensation of officers or employees (including any such increase pursuant to any bonus, pension, profit-sharing or other plan or commitment) or grant any increase in the compensation payable or to become payable to any employee, except in accordance with pre-existing contractual provisions or consistent with past practices; (ix) make or commit to make any individual material capital expenditure in excess of $50,000, or aggregate capital expenditures in excess of $150,000; (x) pay, loan or advance any amount to, or sell, transfer or lease any properties or assets to, or enter into any agreement or arrangement with, any of its Affiliates; (xi) guarantee any indebtedness for borrowed money or any other obligation of any other person, other than in the ordinary course of business consistent with past practice; (xii) fail to keep in full force and effect insurance comparable in amount and scope to coverage maintained by it (or on behalf of it) on the date hereof; (xiii) make any loan, advance or capital contribution to or investment in any person; (xiv) make any change in any method of accounting or accounting principle, method, estimate or practice except for any such change required by reason of a concurrent change in GAAP or write-down the value of any inventory or write-off as uncollectible any accounts receivable except in the ordinary course of business consistent with past practices; (xv) settle, release or forgive any material claim or litigation or waive any material right; (xvi) make, enter into, modify, amend in any material respect or terminate any material commitment, bid or expenditure, other than in the ordinary course of business consistent with past practice; -47- (xvii) take any other action that would cause any of the representations and warranties made by it in this Agreement not to remain true and correct; or (xviii) commit itself to do any of the foregoing. (b) From and after the date hereof and until the Closing Date, the Stockholders and the Company will cause the Company to use their reasonable best efforts to: (i) continue to maintain, in all material respects, its properties in accordance with present practices in a condition suitable for their current use; (ii) comply with all applicable Environmental Laws, and, in the event it shall receive notice that there exists a violation of any Environmental Law with respect to its operations or any Real Property, promptly (and in any event within the time period permitted by the applicable governmental authority) remove or remedy such violation in accordance with all applicable Environmental Laws; (iii) file, when due or required, federal, state, foreign and other tax returns and other reports required to be filed and pay when due all taxes, assessments, fees and other charges lawfully levied or assessed against it unless the validity thereof is contested in good faith and by appropriate proceedings diligently conducted; (iv) keep its books of account, records and files in the ordinary course and in accordance with existing practices; (v) preserve its business organization intact and continue to maintain existing business relationships with suppliers, customers and others with whom business relationships exist other than relationships that are, at the same time, not economically beneficial to it; and (vi) continue to conduct their business in the ordinary course consistent with past practices. 5.5 CONTRIBUTION OR LOAN; NO INTERCOMPANY PAYABLES OR RECEIVABLES. (a) Prior to the Closing Date, the Stockholders will contribute or loan an aggregate of $1,947,000 to the Company (the "Landers Payable"). (b) At the Closing, except for the Landers Payable, there will be no intercompany payables or intercompany -48- receivables due and/or owing between the Stockholders and their Affiliates (other than the Company), on the one hand, and the Company, on the other hand. 5.6 NEGOTIATIONS. Until the earlier of 180 days from the date hereof and the termination of this Agreement pursuant to clause (ii) of SECTION 8.1 hereof, no Stockholder, nor the Company, nor their officers, directors, employees, advisors, agents, representatives, Affiliates or anyone acting on behalf of the Stockholders, the Company or such persons, shall, directly or indirectly, encourage, solicit, initiate or engage in discussions or negotiations with, or provide any information to, any person (other than UAG or its representatives) concerning any merger, sale of assets (other than in the ordinary course of business), purchase or sale of shares of capital stock or similar transaction involving the Company. The Stockholders shall promptly communicate to UAG any inquiries or communications concerning any such transaction (including the identity of any person making such inquiry or communication) which any Stockholder may receive or of which any Stockholder may become aware. 5.7 CONSENTS; COOPERATION. Subject to the terms and conditions hereof, the Stockholders and the Company and UAG will use their respective best efforts at their own expense: (i) to obtain prior to the earlier of the date required (if so required) or the Closing Date, all waivers, permits, licenses, approvals, authorizations, qualifications, orders and consents of all third parties and governmental authorities, and make all filings and registrations with governmental authorities which are required on their respective parts for (A) the consummation of the transactions contemplated by this Agreement, (B) the ownership or leasing and operating after the Closing by the Company of all its material properties and (C) the conduct after the Closing by the Company of its businesses as conducted by it on the date hereof; (ii) to defend, consistent with applicable principles and requirements of law, any lawsuit or other legal proceedings, whether judicial or administrative, whether brought derivatively or on behalf of third persons (including governmental authorities) challenging this Agreement or the transactions contemplated hereby and thereby; and (iii) to furnish each other such information and assistance as may reasonably be requested in connection with the foregoing. -49- To the extent permitted by law, UAG, on the one hand, and the Stockholders and the Company, on the other hand, will supply each other with copies of all correspondence, filings or written communications between UAG, any Stockholder, the Company or their respective representatives and any governmental authority or third party from whom consent is required to consummate the transactions contemplated by this Agreement or members of their respective staffs with respect to this Agreement and the transactions contemplated hereby. 5.8 ADDITIONAL AGREEMENTS. Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to use its best efforts at its own expense to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers of the Company shall take all such necessary action. 5.9 INTERIM FINANCIAL STATEMENTS. Within thirty (30) days after the end of each calendar month after the date of this Agreement, the Company will deliver to UAG unaudited consolidated balance sheets of the Company, and UAG will deliver to the Stockholders unaudited consolidated balance sheets of UAG, in each case as at the end of such calendar month and at the end of the corresponding calendar month of the preceding fiscal year, together with the related unaudited consolidated statements of income and cash flow for the fiscal months then ended. All such financial statements shall fairly present the financial position, results of operations and cash flow of the Company and UAG, as applicable, as at the date or for the periods indicated. All unaudited financial statements delivered pursuant to this SECTION 5.9 shall be prepared on a basis consistent with the Company Financial Statements and the UAG Financial Statements, as applicable. 5.10 NOTIFICATION OF CERTAIN MATTERS. Between the date hereof and the Closing, each party to this Agreement will give prompt notice in writing to the other party hereto of: (i) any information that indicates that any representation and warranty of such party contained herein was not true and correct as of the date hereof or will not be true and correct as of the Closing, (ii) the occurrence of any event which could result in the failure to satisfy a condition specified in ARTICLE 6 or ARTICLE 7 hereof, as applicable, (iii) any notice or other communication from any third person alleging that the consent of such third person is or may be required in connection with the transactions contemplated by this Agreement, and (iv) in the case of the Stockholders and the Company, any notice of, or other -50- communication relating to, any default or event which, with notice or lapse of time or both, would become a default under any Company Agreement. Each party hereto will (x) promptly advise the other party hereto of any event that has, or could in the future have, a Material Adverse Effect or material adverse effect on UAG and the UAG Subsidiaries, taken as a whole, as applicable, (y) confer on a regular and frequent basis with one or more designated representatives of the other party to report operational matters and to report the general status of ongoing operations, and (z) notify the other party of any emergency or other change in the normal course of business or in the operation of the properties of the Company and of any governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated) or adjudicatory proceedings involving any property of the Company or UAG, as applicable, and will keep the other party fully informed of such events and permit UAG's representatives access to all materials prepared in connection therewith. Each Stockholder shall give prompt notice to UAG of any notice or other communication from any third person asserting any right, title or interest in any of the Shares held by such Stockholder (including, without limitation, any threat to commence, or notice of the commencement of any action or other proceeding with respect to the Shares) or the occurrence of any other event of which such Stockholder has knowledge which could result in any failure to consummate the sale of the Shares as contemplated hereby. 5.11 ADDITIONAL CAPITAL CONTRIBUTIONS. (a) On the Closing Date, UAG shall make a capital contribution to the Company in an aggregate amount equal to $1,947,000, which amount shall be used to fund the repayment in full of the Landers Payable. (b) After the Closing, in order to fund the acquisition of dealerships as mutually agreed upon by UAG and the Stockholders, UAG agrees to make equity capital contributions in cash to the Company in an aggregate amount of up to $5,000,000 (less any amount contributed by UAG or expended by the Company in connection with the acquisition of the Spivey Interest contemplated by SECTION 5.12 hereof) at such times and in such amounts as UAG and the Stockholders shall mutually determine. 5.12 PURCHASE OF CHEVROLET DEALERSHIP. In the event that Steve Landers or John Landers (or an Affiliate thereof) acquire an interest in Spivey Chevrolet, Inc., whether through the purchase of assets, capital stock or otherwise (the "Spivey Interest"), the Company shall own, directly or indirectly, 100% of the Spivey Interest immediately following such acquisition. In the event that the transactions contemplated by this Agreement are consummated, then Landers Chevrolet shall be deemed to be a -51- "Company" for all purposes under this Agreement (except ARTICLE 1 and SECTION 2.24 hereof). 5.13 OBSERVER RIGHTS. After the Closing Date and for so long as the Stockholders own in the aggregate at least 15% of the outstanding shares of capital stock of the Company or 5% of the outstanding shares of capital stock of UAG (the "Observance Period"), either John Landers or Steve Landers, as they shall to determine (the "Observer"), shall be permitted to attend and observe, and participate in all discussions at, all meetings of UAG's Board of Directors, provided that the Observer shall not have the right to vote on any matter presented to, or hold an office or other position on, UAG's Board of Directors, and provided further that the Stockholders shall keep the information and subject matters discussed at such meetings (whether written or oral) confidential. During the Observance Period, UAG shall provide the Observer with written or oral notice of each meeting of UAG's Board of Directors at the same time and in the same manner as the members of UAG's Board of Directors receive notice of such meetings. Notwithstanding anything contained in this SECTION 5.13, the Observer's right to attend meetings of UAG's Board of Directors and to receive information shall be subject to the right of UAG to exclude the Observer from any meeting (or any portion thereof) of UAG's Board of Directors, or otherwise preclude the Observer from receiving any information, relating to the Stockholders or their Affiliates. The Observer shall be reimbursed by the Company for his reasonable expenses in attending meetings of UAG's Board of Directors pursuant to this SECTION 5.13. 5.14 RELEASE OF GUARANTEES. UAG shall use its best efforts to cause the Stockholders to be released from all personal liability relating to the personal guarantees of the Stockholders set forth on SCHEDULE 5.14 hereto. 5.15 KEY MAN LIFE INSURANCE. The Company, Steve Landers and John Landers shall each use its best efforts to obtain key man life insurance on the life of each of Steve Landers and John Landers in the amount of $5,000,000 each (or such lesser amounts as UAG may determine), on terms satisfactory to UAG. 5.16 ASSURANCE BY THE STOCKHOLDERS. The Stockholders shall cause each Company to comply with their respective covenants set forth in this Agreement. -52- ARTICLE 6 CONDITIONS TO THE OBLIGATIONS OF UAG TO EFFECT THE CLOSING The obligations of UAG required to be performed by it at the Closing shall be subject to the satisfaction, at or prior to the Closing, of each of the following conditions, each of which may be waived by UAG as provided herein except as otherwise required by applicable law: 6.1 REPRESENTATIONS AND WARRANTIES; AGREEMENTS; COVENANTS. Each of the representations and warranties of the Company and the Stockholders contained in this Agreement shall be true and correct as of the date hereof and (having been deemed to have been made again at and as of the Closing) shall be true and correct as of the Closing. Each of the obligations of the Company and the Stockholders required by this Agreement to be performed by them at or prior to the Closing shall have been duly performed and complied with in all respects as of the Closing. At the Closing, UAG shall have received a certificate, dated the Closing Date and duly executed by Steve Landers or John Landers and the chief financial officer of each Company, to the effect that the conditions set forth in the two preceding sentences have been satisfied. 6.2 AUTHORIZATION; CONSENTS. (a) All corporate action necessary to authorize the execution, delivery and performance of this Agreement and the Documents, and the consummation of the transactions contemplated hereby and thereby shall have been duly and validly taken by the Company. All filings required to be made under the H-S-R Act in connection with the transactions contemplated hereby shall have been made and all applicable waiting periods with respect to each such filing, including any extensions thereof, shall have expired or been terminated. (b) All notices to, and declarations, filings and registrations with, and consents, authorizations, approvals and waivers from, governmental and regulatory bodies and third persons (including, but not limited to, all automobile manufacturers with whom the Company has entered into a franchise agreement (or comparable instrument)) required to consummate the transactions contemplated hereby and all consents or waivers shall have been made or obtained. 6.3 OPINIONS OF THE COMPANY'S AND THE STOCKHOLDERS' COUNSEL. UAG shall have been furnished with the opinion of Davidson, Horne & Hollingsworth, counsel for the Company and the Stockholders, dated the Closing Date, in form and substance satisfactory to UAG and its counsel, which opinion shall have been rendered with respect to those matters contained in SECTIONS -53- 2.1, 2.2, 2.3, 2.4, 2.9, 3.1 AND 3.2 hereof. In rendering the foregoing opinion, such counsel may rely as to factual matters upon certificates or other documents furnished by officers and directors of the Company and by government officials and upon such other documents and data as such counsel deem appropriate as a basis for their opinions. Such counsel may specify the state or states in which they are admitted to practice, that they are not admitted to the Bar in any other state or experts in the law of any other state and that such opinions are limited to Arkansas and federal laws and the General Corporation Law of the State of Delaware. 6.4 ABSENCE OF LITIGATION. No order, stay, injunction or decree of any court of competent jurisdiction in the Untied States shall be in effect (i) that prevents or delays the consummation of any of the transactions contemplated hereby or (ii) would impose any limitation on the ability of UAG effectively to exercise full rights of ownership of the Shares. No action, suit or proceeding before any court or any governmental or regulatory entity shall be pending (or threatened by any governmental or regulatory entity), and no investigation by any governmental or regulatory entity shall have been commenced (and be pending), seeking to restrain or prohibit (or questioning the validity or legality of) the consummation of the transactions contemplated by this Agreement or seeking damages in connection therewith which UAG, in good faith and with the advice of counsel, believes makes it undesirable to proceed with the consummation of the transactions contemplated hereby. 6.5 NO MATERIAL ADVERSE EFFECT. During the period from December 31, 1993 to the Closing Date, there shall not have been any material adverse change in the assets, properties, business, operations, prospects, net income or financial condition of the Company. 6.6 WORKING CAPITAL REQUIREMENTS. On the Closing Date, the Stockholders shall deliver to UAG a consolidated balance sheet of the Company dated as of the last day of the month immediately preceding the Closing Date (or such later date as is practicable), in each case prepared in accordance with the Accounting Principles (the "Estimated Closing Date Balance Sheet"). The Estimated Closing Date Balance Sheet shall show as of the date thereof, after taking into account the transactions contemplated by SECTION 5.5 hereof and the payment of any of the Stockholders' fees, costs and expenses by the Company incurred in connection with this Agreement, consolidated net working capital of not less than such amount as shall be agreed upon by UAG and the Stockholders prior to the Closing Date (the "Minimum Working Capital Amount") and set forth on SCHEDULE 6.6 hereto. If the consolidated net working capital of the Company on the Closing Date (the "Actual Working Capital Amount") is less than the -54- Minimum Working Capital Amount and UAG waives satisfaction of the condition to Closing set forth in the second sentence of this SECTION 6.6, within thirty (30) days of the Closing Date, UAG, at its sole option, can require the Stockholders to loan to the Company an amount up to an amount equal to the Minimum Working Capital Amount less the Actual Working Capital Amount. In the event UAG elects to exercise the foregoing option, in consideration therefor, the Company will issue the Working Capital Note to the Stockholders on the date such loan is made to the Company. 6.7 COMPLETION OF DUE DILIGENCE. UAG shall have completed their due diligence examination of the Company and the results of such examination, including any Phase I or Phase II environmental audits of the Company, shall be satisfactory to UAG. 6.8 EMPLOYMENT AGREEMENTS. The Company and Steve Landers, John Landers and Dwight Everett shall have entered into the Steve Landers Employment Agreement, the John Landers Employment Agreement and the Everett Employment Agreement, respectively. 6.9 LEASES. The Stockholders and UAG shall have entered into the Leases. 6.10 SHAREHOLDERS AGREEMENT. UAG, Landers Auto, Steve Landers and John Landers shall have entered into the Shareholders Agreement. 6.11 REGISTRATION RIGHTS AGREEMENT. Steve Landers and John Landers shall have become a party to the Registration Rights Agreement. 6.12 BOARD APPROVAL. The Board of Directors of UAG shall have approved the consummation of all of the transactions contemplated by this Agreement and the Documents. 6.13 CERTIFICATES. The Stockholders and the Company shall have furnished UAG with such certificates of its officers and others as UAG may reasonably request to evidence compliance with the conditions set forth in this ARTICLE 6. 6.14 LEGAL MATTERS. All certificates, instruments, opinions and other documents required to be executed or delivered by or on behalf of the Stockholders and the Company under the provisions of this Agreement, and all other actions and proceedings required to be taken by or on behalf of the Stockholders and the Company in furtherance of the transactions contemplated hereby, shall be reasonably satisfactory in form and substance to counsel for UAG. -55- ARTICLE 7 CONDITIONS TO THE OBLIGATIONS OF THE STOCKHOLDERS TO EFFECT THE CLOSING The obligations of the Stockholders required to be performed by them at the Closing shall be subject to the satisfaction, at or prior to the Closing, of each of the following conditions, each of which may be waived by any Stockholder on behalf of all of the Stockholders as provided herein except as otherwise required by applicable law: 7.1 REPRESENTATIONS AND WARRANTIES; AGREEMENTS. Each of the representations and warranties of UAG contained in this Agreement shall be true and correct as of the date hereof and (having been deemed to have been made again at and as of the Closing) shall be true and correct as of the Closing. Each of the obligations of UAG required by this Agreement to be performed by it at or prior to the Closing shall have been duly performed and complied with in all respects as of the Closing. At the Closing, the Stockholders shall have received a certificate, dated the Closing Date and duly executed by the chief executive officer and chief financial officer of UAG to the effect that the conditions set forth in the preceding two sentences have been satisfied. 7.2 AUTHORIZATION OF THE AGREEMENT, CONSENTS. (a) All corporate action necessary to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby shall have been duly and validly taken by UAG. All filings required to be made under the H-S-R Act in connection with the transactions contemplated hereby shall have been made and all applicable waiting periods with respect to each such filing (including any extensions thereof) shall have expired or been terminated. (b) All notices to, and declarations, filings and registrations with, and consents, authorizations, approvals and waivers from, governmental and regulatory bodies and third persons (including, but not limited to, all automobile manufacturers with whom the Company has entered into a franchise agreement (or comparable instrument)) required to consummate the transactions contemplated hereby and all consents or waivers shall have been made or obtained. 7.3 OPINIONS OF UAG'S COUNSEL. The Stockholders shall have been furnished with opinions of Willkie Farr & Gallagher, counsel to UAG, and such other local counsel selected by UAG (and reasonably satisfactory to counsel for the Stockholders), each dated the Closing Date, in form and substance satisfactory to the Stockholders, which opinions, when taken together, shall have -56- been rendered with respect to those matters contained in SECTIONS 4.1, 4.2, 4.3, 4.4 AND 4.9 hereof. In rendering the foregoing opinions, such counsel may rely as to factual matters upon certificates or other documents furnished by officers and directors of UAG and by government officials, and upon such other documents and data as such counsel deem appropriate as a basis for their opinions. Such counsel may specify the state or states in which they are admitted to practice, that they are not admitted to the Bar in any other state or experts in the law of any other state and that such opinions are limited to New York and federal laws and the General Corporation Law of the State of Delaware, and in the case of local counsel selected by UAG, to Arkansas law. 7.4 ABSENCE OF LITIGATION. No order, stay, judgment or decree shall have been issued by any court and be in effect restraining or prohibiting the consummation of the transactions contemplated hereby. 7.5 EMPLOYMENT AGREEMENT. The Company and Steve Landers and John Landers shall have entered into the Steve Landers Employment Agreement and the John Landers Employment Agreement, respectively. 7.6 LEASES. The Stockholders and UAG shall have entered into the Leases. 7.7 SHAREHOLDERS AGREEMENT. UAG, Landers Auto, Steve Landers and John Landers shall have entered into the Shareholders Agreement. 7.8 REGISTRATION RIGHTS AGREEMENT. Steve Landers and John Landers shall have become a party to the Registration Rights Agreement. 7.9 CERTIFICATES. UAG shall have furnished the Stockholders with such certificates of its officers and others to evidence compliance with the conditions set forth in this ARTICLE 7 as may be reasonably requested by the Stockholders. 7.10 LEGAL MATTERS. All certificates, instruments, opinions and other documents required to be executed or delivered by or on behalf of UAG under the provisions of this Agreement, and all other actions and proceedings required to be taken by or on behalf of UAG in furtherance of the transactions contemplated hereby, shall be reasonably satisfactory in form and substance to counsel for the Stockholders. -57- ARTICLE 8 TERMINATION 8.1 TERMINATION. This Agreement may be terminated at any time prior to Closing: (i) by mutual consent of UAG and the Stockholders; (ii) by either UAG or the Stockholders if the Closing shall not have taken place on or prior to August 31, 1995, or such later date as shall have been approved by UAG and the Stockholders (provided that the terminating party is not otherwise in material breach of its representations, warranties, covenants or agreements under this Agreement); (iii) by UAG or the Stockholders if any court of competent jurisdiction in the United States or other United States governmental body shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement, and such order, decree, ruling or other action shall have become final and non-appealable; (iv) by UAG if any of the conditions specified in ARTICLE 6 hereof have not been met or waived by at such time as such condition is no longer capable of satisfaction (provided UAG is not otherwise in material breach of its representations, warranties, covenants or agreements under this Agreement); (v) by the Stockholders if any of the conditions specified in ARTICLE 7 hereof have not been met or waived by any Stockholder at such time as such condition is no longer capable of satisfaction (provided that neither any Stockholder nor the Company is otherwise in material breach of his or its representations, warranties covenants or agreements under this Agreement); or (vi) by either UAG or the Stockholders if there has been a material breach on the part of the other of any representation, warranty, covenant or agreement set forth in this Agreement, which breach has not been cured within ten (10) Business Days following receipt by the breaching party of written notice of such breach. If UAG or the Stockholders shall terminate this Agreement pursuant to the provisions hereof, such termination shall be effected by notice to the other party specifying the provision hereof pursuant to which such termination is made. -58- 8.2 EFFECT OF TERMINATION. Except (i) for any breach of this Agreement prior to its termination, (ii) for the obligations contained in SECTIONS 5.1 AND 10.2 hereof and (iii) as set forth in SECTION 9.1 hereof, upon the termination of this Agreement pursuant to SECTION 8.1 hereof, this Agreement shall forthwith become null and void and none of the parties hereto or any of their respective officers, directors, employees, agents, Affiliates, consultants, stockholders or principals shall have any liability or obligation hereunder or with respect hereto. ARTICLE 9 INDEMNIFICATION 9.1 INDEMNIFICATION BY THE STOCKHOLDERS. Notwithstanding the Closing or the delivery of the Shares, each Stockholder, jointly and severally, indemnifies and agrees to fully defend, save and hold harmless on an after-tax basis UAG, the Company, and any of their respective officers, directors, employees, stockholders, advisors, representatives, agents and Affiliates (each a "UAG Indemnified Party"), if a UAG Indemnified Party (including the Company after the Closing Date) shall at any time or from time to time suffer any Costs (as defined in SECTION 9.7 below) arising, directly or indirectly, out of or resulting from, or shall pay or become obligated to pay any sum on account of, (i) any and all Events of Breach (as defined below) or (ii) any Claim before or by any court, arbitrator, panel, agency or other governmental, administrative or judicial entity, which Claim involves, affects or relates to any assets, properties or operations of the Company or the conduct of the business of the Company prior to the Closing Date (a "Landers Third Party Claim"). As used herein, "Event of Breach" shall be and mean any one or more of the following: (i) any untruth or inaccuracy in any representation of the Stockholders or the Company or the breach of any warranty of the Stockholders or the Company contained in this Agreement, including, without limitation, any misrepresentation in, or omission from, any statement, certificate, schedule, exhibit, annex or other document furnished pursuant to this Agreement by the Stockholders or the Company (or any representative of the Stockholders or the Company) to UAG (or any representative of UAG) and any misrepresentation in or omission from any document furnished to UAG in connection with the Closing, and (ii) any failure of any Stockholder or the Company duly to perform or observe any term, provision, covenant, agreement or condition on the part of such Stockholder or the Company to be performed or observed. 9.2 INDEMNIFICATION BY UAG. Notwithstanding the Closing, UAG indemnifies and agrees to fully defend, save and hold harmless on an after-tax basis the Stockholders, the Company, and -59- any of their respective officers, directors, employees, stockholders, advisors, representatives, agents and Affiliates (each a "Landers Indemnified Party"), if a Landers Indemnified Party shall at any time or from time to time suffer any Costs arising, directly or indirectly, out of or resulting from, or shall pay or become obligated to pay any sum on account of, (i) any and all UAG Events of Breach (as defined below) or (ii) any Claim before or by any court, arbitrator, panel, agency or other governmental, administrative or judicial entity, which Claim involves, affects or relates to any assets, properties or operations of UAG or the conduct of the business of UAG prior to the Closing Date (a "UAG Third Party Claim"). As used herein, "UAG Event of Breach" shall be and mean any one or more of the following: (i) any untruth or inaccuracy in any representation of UAG or the breach of any warranty of UAG contained in this Agreement, including, without limitation, any misrepresentation in, or omission from, any statement, certificate, schedule, exhibit, annex or other document furnished pursuant to this Agreement by UAG (or any representative of UAG) to the Stockholders (or any representative of the Stockholders) and any misrepresentation in or omission from any document furnished to the Stockholders in connection with the Closing, and (ii) any failure of UAG duly to perform or observe any term, provision, covenant, agreement or condition on the part of UAG to be performed or observed. 9.3 PROCEDURES. If (i) any Event of Breach occurs or is alleged and a UAG Indemnified Party asserts that a Stockholder has become obligated to a UAG Indemnified Party pursuant to SECTION 9.1, or if any Third Party Claim is begun, made or instituted as a result of which a Stockholder may become obligated to a UAG Indemnified Party hereunder, or (ii) a UAG Event of Breach occurs or is alleged and a Landers Indemnified Party asserts that UAG has become obligated to a Landers Indemnified Party pursuant to SECTION 9.2, or if any UAG Third Party Claim is begun, made or instituted as a result of which UAG may become obligated to a Landers Indemnified Party hereunder (for purposes of this ARTICLE 9, any UAG Indemnified Party and any Landers Indemnified Party is sometimes referred to as an "Indemnified Party" and UAG and the Stockholders are sometimes referred to as an "Indemnifying Party," and any UAG Third Party Claim and any Landers Third Party Claim is sometimes referred to as a "Third Party Claim," in each case as the context so requires), such Indemnified Party shall give written notice to the Indemnifying Party of its or his obligation to provide indemnification hereunder, provided that any failure to so notify the Indemnifying Party shall not relieve them from any liability that it or he may have to the Indemnified Party under this ARTICLE 9. If such notice relates to a Third Party Claim, each Indemnifying Party, jointly and severally, agrees to defend, contest or otherwise protect such Indemnified Party against any -60- such Third Party Claim at his or its sole cost and expense. Such Indemnified Party shall have the right, but not the obligation, to participate at its own expense in the defense thereof by counsel of such Indemnified Party's choice and shall in any event cooperate with and assist the Indemnifying Party to the extent reasonably possible. If the Indemnifying Party fails timely to defend, contest or otherwise protect against such Third Party Claim, such Indemnified Party shall have the right to do so, including, without limitation, the right to make any compromise or settlement thereof, and such Indemnified Party shall be entitled to recover the entire Cost thereof from the Indemnifying Party, including, without limitation, attorneys' fees, disbursements and amounts paid (or of which such Indemnified Party has become obligated to pay) as the result of such Third Party Claim. Failure by the Indemnifying Party to notify such Indemnified Party of its or their election to defend any such Third Party Claim within fifteen (15) days after notice thereof shall have been given to the Indemnifying Party shall be deemed a waiver by the Indemnifying Party of its or their right to defend such Third Party Claim. If the Indemnifying Party assumes the defense of the particular Third Party Claim, the Indemnifying Party shall not, in the defense of such Third Party Claim, consent to entry of any judgment or enter into any settlement, except with the written consent of such Indemnified Party. In addition, the Indemnifying Party shall not enter into any settlement of any Third Party Claim (except with the written consent of such Indemnified Party) which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to such Indemnified Party a full release from all liability in respect of such Third Party Claim. Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to control (but shall be entitled to participate at their own expense in the defense of), and the Indemnified Party shall be entitled to have sole control over, the defense or settlement of any Third Party Claim to the extent the Third Party Claim seeks an order, injunction or other equitable relief against the Indemnified Party which, if successful, could materially interfere with the business, operations, assets, condition (financial or otherwise) or prospects of the Indemnified Party. 9.4 LIMITATION ON INDEMNIFICATION. (a) INDEMNIFICATION BY THE STOCKHOLDERS. (i) A UAG Indemnified Party shall be entitled to indemnification in connection with an Event of Breach only if the aggregate Costs incurred or sustained by all UAG Indemnified Parties exceed the Basket (as defined in SECTION 9.7 hereof); PROVIDED, HOWEVER, that, notwithstanding the Basket, a UAG Indemnified Party shall be entitled to indemnification for all Costs incurred or sustained by such UAG Indemnified Party as a -61- result of any untruth or inaccuracy in, or breach of, a representation, warranty or covenant (or failure to perform or observe any term, agreement or condition) contained in SECTIONS 1.1, 1.2, 2.3, 2.8, 2.11, 3.1, 5.4(A)(II), 5.4(A)(VI), 5.4(B)(III), 5.5 AND 10.2 hereof. (ii) The aggregate Costs for which the Stockholders shall be obligated to indemnify the UAG Indemnified Parties shall not exceed $2,000,000 in the case of Costs incurred or sustained by all UAG Indemnified Parties in connection with an Event of Breach; PROVIDED, HOWEVER, a UAG Indemnified Party shall be entitled to indemnification for all Costs incurred or sustained by such UAG Indemnified Party as a result of any untruth or inaccuracy in, or breach of, a representation, warranty or covenant (or failure to perform or observe any term, agreement or condition) contained in Sections 1.1, 1.2, 2.3, 2.8, 2.11, 3.1, 5.4(a)(ii), 5.4(a)(vi), 5.4(b)(iii), 5.5 and 10.2 hereof. (b) INDEMNIFICATION BY UAG. (i) A Landers Indemnified Party shall be entitled to indemnification in connection with a UAG Event of Breach only if the aggregate Costs incurred or sustained by all Landers Indemnified Parties exceed the Basket; PROVIDED, HOWEVER, that, notwithstanding the Basket, a Landers Indemnified Party shall be entitled to indemnification for all Costs incurred or sustained by such Landers Indemnified Party as a result of any untruth or inaccuracy in, or breach of, a representation, warranty or covenant (or failure to perform or observe any term, agreement or condition) contained in SECTIONS 1.1, 4.3, 4.8, 4.11 AND 10.2 hereof. (ii) The aggregate Costs for which UAG shall be obligated to indemnify the Landers Indemnified Parties shall not exceed $2,000,000 in the case of Costs incurred or sustained by all Landers Indemnified Parties in connection with a UAG Event of Breach; PROVIDED, HOWEVER, a Landers Indemnified Party shall be entitled to indemnification for all Costs incurred or sustained by such Landers Indemnified Party as a result of any untruth or inaccuracy in, or breach of, a representation, warranty or covenant (or failure to perform or observe any term, agreement or condition) contained in SECTIONS 1.1, 4.3, 4.8, 4.11 AND 10.2 hereof. 9.5 OFFSET. In addition to and not in limitation of all rights of offset that an Indemnified Party may have under applicable law, the parties agree that, at any Indemnified Party's option, any or all amounts owing to such Indemnified Party under this ARTICLE 9 or any other provision of this Agreement or any other liability of the other parties (or any Affiliate of the other parties) to such Indemnified Party in -62- connection with any of the Documents, may be recovered by the Indemnified Party by an offset against any or all amounts due to such other parties pursuant to this Agreement or the Documents. 9.6 REMEDIES. The rights of an Indemnified Party under this ARTICLE 9 are in addition to such other rights and remedies which such Indemnified Party may have under this Agreement, applicable law or otherwise. 9.7 DEFINITIONS. For purposes of this ARTICLE 9: (a) "Basket" shall mean an amount equal to the Net Worth of the Company as reflected on the Reviewed Balance Sheet less $7,500,000, provided that in no event shall such amount exceed $500,000 for purposes of this ARTICLE 9. For purposes of determining whether the Basket has been exceeded, none of the Stockholders' or UAG's representations and warranties shall be deemed to include any qualifier in respect of a Material Adverse Effect or any other qualifier in respect of materiality. (b) "Costs" shall mean all liabilities, losses, costs, damages (not including consequential damages), expenses, claims, attorneys' fees, experts' fees, consultants' fees, and disbursements of any kind or of any nature whatsoever. For purposes of application of the indemnity provisions of this ARTICLE 9, the amount of any Cost arising from the breach of any representation, warranty, covenant or agreement shall be the entire amount of any Cost suffered, paid or required to be paid by the respective Indemnified Party as a result of such breach and not just that portion of the Cost that exceeds the relevant level of materiality. 9.8 INDEMNIFYING STOCKHOLDERS. Notwithstanding anything else contained in this ARTICLE 9 to the contrary, for purposes of this ARTICLE 9, all references to the term "Stockholder" or "Stockholders" shall be deemed to refer to Steve Landers and John Landers only, and not Bob Landers, except that the term "Stockholder" or "Stockholders" shall also be deemed to refer to Bob Landers if there is an Event of Breach arising out of any untruth or inaccuracy in, or breach of, a representation or warranty contained in SECTIONS 3.1 AND 3.2 hereof. -63- ARTICLE 10 MISCELLANEOUS 10.1 SURVIVAL OF PROVISIONS. (a) The respective representations, warranties, covenants and agreements of each of the parties to this Agreement (except covenants and agreements which are expressly required to be performed and are performed in full on or before the Closing Date) shall survive the Closing Date and the consummation of the transactions contemplated by this Agreement, subject to SECTION 10.1(b) below. In the event of a breach of any such representations, warranties or covenants, the party to whom such representations, warranties or covenants have been made shall have all rights and remedies for such breach available to it under the provisions of this Agreement or otherwise, whether at law or in equity, regardless of any disclosure to, or investigation made by or on behalf of, such party on or before the Closing Date. (b) Each of the representations and warranties set forth in ARTICLE 2, ARTICLE 3 and ARTICLE 4 hereof shall be deemed represented and made by the Stockholders and the Company and UAG, as applicable, at the Closing as if made at such time and shall survive (and not be affected in any respect by) the Closing for a period terminating on the later of (i) the date three years after the Closing Date, and (ii) with respect to any claim asserted with respect to any breach of such representation or warranty or pursuant to SECTION 9.3 hereof before the expiration of such representation or warranty, on the date such claim is finally liquidated or otherwise resolved, except with respect to the representations and warranties (i) in SECTIONS 2.8 AND 4.6, which shall survive for six years following the due date (including extensions) of the income tax returns of the Companies for the first taxable year (as defined in Section 441(b) of the Code) which will end after the Closing Date, (ii) in SECTIONS 2.11, 2.18 AND 4.13, which shall survive the Closing Date for a period of time equal to any applicable statute of limitations, (iii) in SECTIONS 2.5 AND 4.5, which shall survive until April 1, 1996, and (iv) in SECTION 3.1, which shall survive indefinitely. 10.2 FEES AND EXPENSES. Except as otherwise expressly provided in this Agreement, all legal and other fees, costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby through the Closing Date shall be paid by the party incurring such fees, costs or expenses; PROVIDED, HOWEVER, that if the Closing does not occur and SECTION 5.6 hereof is breached, then the Stockholders or the Company shall pay to UAG, within five (5) Business Days after receipt of a request therefor, an amount equal to all of the legal and other -64- fees, costs and expenses incurred by UAG in connection with this Agreement and the transactions contemplated hereby; PROVIDED FURTHER, HOWEVER, that if the Closing does not occur solely as a result of UAG's failure to obtain the consent of the automobile manufacturers contemplated by SECTION 7.2(B) hereof, then UAG shall pay to the Shareholders, within five (5) Business Days after receipt of a request therefor, an amount equal to all of the legal and other fees, costs and expenses incurred by the Shareholders in connection with this Agreement and the transactions contemplated hereby. Notwithstanding the foregoing, any fees, costs and expenses of, or any liabilities or obligations to, Geneva Capital Markets, Inc. and/or John Dorey incurred in connection with this Agreement and the transactions contemplated hereby shall be the sole responsibility of the Stockholders and in no event will such fees, costs and expenses be the responsibility of UAG or, after Closing, the Company. 10.3 HEADINGS. The section headings herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. 10.4 NOTICES. All notices or other communications required or permitted hereunder shall be given in writing and shall be deemed sufficient if delivered by hand, recognized overnight delivery service or facsimile transmission or mailed by registered or certified mail, postage prepaid (return receipt requested), as follows: If to the Company before the Closing Date: Landers Auto Sales, Inc. Congo Exit 118 -- Highway I-30 Benton, Arkansas 72015 Facsimile No.: (501) 778-4077 Attn: Mr. Steve Landers with a copy to: Davidson, Horne & Hollingsworth 401 West Capitol Suite 501 P.O. Box 3363 Little Rock, Arkansas 72203 Facsimile No.: (501) 372-7142 Attn: Garland W. Binns, Jr., Esq. -65- If to the Company after the Closing Date (in addition to the foregoing addresses): United Auto Group, Inc. 375 Park Avenue New York, New York 10022 Facsimile No.: (212) 223-5148 Attn: George G. Lowrance, Esq., Executive Vice President and General Counsel with a copy to: Willkie Farr & Gallagher One Citicorp Center 153 East 53rd Street New York, New York 10022 Facsimile No.: (212) 821-8111 Attn: Peter A. Appel, Esq. If to any Stockholder: Mr. Steve Landers 3316 Highway 5 Benton, Arkansas 72015 Facsimile No.: (501) 778-4077 with a copy to: Davidson, Horne & Hollingsworth 401 West Capitol Suite 501 P.O. Box 3363 Little Rock, Arkansas 72203 Facsimile No.: (501) 372-7142 Attn: Garland W. Binns, Jr., Esq. If to UAG: United Auto Group, Inc. 375 Park Avenue New York, New York 10022 Facsimile No.: (212) 223-5148 Attn: George G. Lowrance, Esq., Executive Vice President and General Counsel -66- with a copy to: Willkie Farr & Gallagher One Citicorp Center 153 East 53rd Street New York, New York 10022 Facsimile No.: (212) 821-8111 Attn: Peter A. Appel, Esq. or such other address as shall be furnished in writing by such party, and any such notice or communication shall be effective and be deemed to have been given as of the date so delivered or three (3) days after the date so mailed; PROVIDED, HOWEVER, that any notice or communication changing any of the addresses set forth above shall be effective and deemed given only upon its receipt. 10.5 ASSIGNMENT. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto (and with respect to the Stockholders, the personal representatives and heirs of the Stockholders) and their respective successors and permitted assigns, and the provisions of ARTICLE 9 hereof shall inure to the benefit of the Indemnified Parties referred to therein; PROVIDED, HOWEVER, that neither this Agreement nor any of the rights, interests, or obligations hereunder may be assigned by any of the parties hereto without the prior written consent of the other parties. Notwithstanding the foregoing, UAG shall have the unrestricted right to assign this Agreement and to delegate all or any part of its obligations hereunder to any Affiliate of UAG, but in such event UAG shall remain fully liable for the performance of all of such obligations in the manner prescribed in this Agreement. 10.6 ENTIRE AGREEMENT. This Agreement (including the Schedules hereto) and the Documents embody the entire agreement and understanding of the parties with respect to the transactions contemplated hereby and supersede all prior written or oral commitments, arrangements or understandings between the parties with respect thereto and all prior drafts of this Agreement. There are no restrictions, agreements, promises, warranties, covenants or undertakings with respect to the transactions contemplated hereby other than those expressly set forth herein or in the Documents. Prior drafts of this Agreement shall not be used as a basis for interpreting this Agreement. 10.7 WAIVER AND AMENDMENTS. Each of the Stockholders, the Company and UAG may by written notice to the other parties (i) extend the time for the performance of any of the obligations or other actions of the other parties, (ii) waive any inaccuracies in the representations or warranties of the other parties contained in this Agreement, (iii) waive compliance with any of -67- the covenants of the other parties contained in this Agreement, (iv) waive performance of any of the obligations of the other parties created under this Agreement, or (v) waive fulfillment of any of the conditions to its own obligations under this Agreement. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach, whether or not similar. This Agreement may be amended, modified or supplemented only by a written instrument executed by the parties hereto. 10.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which shall be considered one and the same agreement and each of which shall be deemed an original. 10.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ARKANSAS. 10.10 ACCOUNTING TERMS. All accounting terms used herein which are not expressly defined in this Agreement shall have the respective meanings given to them in accordance with GAAP. 10.11 CERTAIN DEFINITIONS. For purposes of this Agreement: (a) "Affiliate" of a specified person shall mean a person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified, and in the case of a specified person who is a natural person, his spouse, his issue, his parents, his estate and any trust entirely for the benefit of his spouse and/or issue. (b) "best efforts" shall be deemed to not include any obligation on the part of any person to undertake any liabilities, expend any funds or perform any acts (except liabilities, expenditures or performance, other than any best efforts obligations, expressly required to be undertaken by the terms of this Agreement) which are materially burdensome to such person; PROVIDED, HOWEVER, that notwithstanding the foregoing, the term "best efforts" shall include an obligation to take such actions which are normally incident to or reasonably foreseeable in connection with such obligation or the transactions contemplated hereby. (c) "Business Day" shall mean any day excluding Saturday, Sunday and any day which is a legal holiday under Federal law. (d) "Documents" shall mean the Steve Landers Employment Agreement, the John Landers Employment Agreement, the Shareholders Agreement, the UAG Guaranty, the UAG Note I, the UAG Note II, the Leases and the Registration Rights Agreement. -68- (e) "GAAP" shall mean generally accepted accounting principles which, for purposes of Sections 1.3 and 1.4 hereof, are in effect in the United States on the Closing Date. (f) "Material Adverse Effect" shall mean any change in, or effect on, the Company (including the business thereof) which is, or might be, materially adverse to the business, operations, assets, condition (financial or otherwise) or prospects of such Company. (g) "person" shall mean and include an individual, corporation, partnership, joint venture, association, trust, any other unincorporated organization or entity and a governmental entity or any department or agency thereto. 10.12 SCHEDULES. Disclosure of any matter in any Schedule hereto or in the Financial Statements shall not be considered as disclosure pursuant to any other provision, subprovision, section or subsection of this Agreement or Schedule to this Agreement. 10.13 SEVERABILITY. If any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected thereby. To the extent permitted by applicable law, each party waives any provision of law which renders any provision of this Agreement invalid, illegal or unenforceable in any respect. 10.14 REMEDIES. None of the remedies provided for in this Agreement, including termination of this Agreement as set forth in ARTICLE 8, indemnification as set forth in ARTICLE 9, the payment of certain fees, costs and expenses as set forth in SECTION 10.2 or specific performance as set forth in this SECTION 10.14, shall be the exclusive remedy of either party for a breach of this Agreement. The parties hereto shall have the right to seek any other remedy in law or equity in lieu of or in addition to any remedies provided in this Agreement, including an action for damages for breach of contract. 10.15 THE COMPANY. For purposes of this Agreement, any reference to the "Company" as of a date prior to December 22, 1994 (the date on which Landers Oldsmobile-GMC, Inc. and Landers Jeep-Eagle, Inc., previously wholly-owned subsidiaries of the Company, were merged with and into the Company) shall also be deemed to refer to Landers Oldsmobile-GMC, Inc. and Landers Jeep-Eagle, Inc. -69- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. LANDERS AUTO SALES, INC. UNITED AUTO GROUP, INC. By: /s/ Steve Landers By: /s/ Carl Spielvogel --------------------------- -------------------------- Name: Steve Landers Name: Carl Spielvogel Title: President Title: Chairman and Chief Executive Officer THE STOCKHOLDERS: /s/ Steve Landers - ------------------------------ Steve Landers /s/ John Landers - ------------------------------ John Landers /s/ Bob Landers - ------------------------------ Bob Landers -70- EX-10.4-2 30 EXHIBIT 10.4.2 UNITED AUTO GROUP, INC. PROMISSORY NOTE $3,287,896 Little Rock, Arkansas August 1, 1995 FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged, United Auto Group, Inc., a Delaware corporation ("UAG"), hereby promises to pay to Steve Landers and John Landers (collectively, the "Landers"), having an address at c/o Steve Landers, 3316 Highway 5, Benton, Arkansas 72015, at such address or at such other place as may be designated in writing by the holders of this Note, the principal sum of $3,287,896 bearing interest at the rate of 8% per annum and payable in sixty (60) equal installments of principal and interest of $66,666.67 on the last day of each month commencing with the last day of the month immediately following the date hereof until the fifth anniversary of such date. This Note is issued pursuant to the Amended and Restated Stock Purchase Agreement, dated July 1, 1995, among UAG, the Landers and certain other parties named therein (the "Purchase Agreement"), and is subject to the provisions, terms and conditions of the Purchase Agreement as well as the provisions, terms and conditions contained herein. This Note is non-negotiable and may not be transferred, assigned, pledged or otherwise disposed of or encumbered by the Landers without the prior written consent of UAG. In addition to and not in limitation of all rights of set-off that UAG may have under applicable law, any amounts claimed by UAG to be owed by the Landers to UAG (or any affiliate of UAG) under the Purchase Agreement or the Documents (as defined in the Purchase Agreement) or any other liability of the Landers (or any affiliate of the Landers) to UAG (or any affiliate of UAG) may be recovered by UAG by a set-off against any amounts due to the Landers under this Note. This Note shall be governed by and construed and enforced in accordance with the laws of the State of Arkansas. UNITED AUTO GROUP, INC. By: /s/Carl Spielvogel -------------------------------- Name: Carl Spielvogel Title: Chairman and Chief Executive Officer EX-10.4-3 31 EXHIBIT 10.4.3 UNITED AUTO GROUP, INC. PROMISSORY NOTE $726,619 Little Rock, Arkansas August 1, 1995 FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged, United Auto Group, Inc., a Delaware corporation ("UAG"), hereby promises to pay to Steve Landers and John Landers (collectively, the "Landers"), having an address at c/o Steve Landers, 3316 Highway 5, Benton, Arkansas 72015, at such address or at such other place as may be designated in writing by the holders of this Note, the principal sum of $726,619 bearing interest at the rate of 8% per annum and payable in thirty-six (36) equal installments of principal and interest of $22,770 on the last day of each month commencing with the last day of the month immediately following the date hereof until the third anniversary of such date. This Note is issued pursuant to the Amended and Restated Stock Purchase Agreement, dated as of July 1, 1995, among UAG, the Landers and certain other parties named therein (the "Purchase Agreement"), and is subject to the provisions, terms and conditions of the Purchase Agreement as well as the provisions, terms and conditions contained herein. This Note is non-negotiable and may not be transferred, assigned, pledged or otherwise disposed of or encumbered by the Landers without the prior written consent of UAG. In addition to and not in limitation of all rights of set-off that Landers Auto or UAG may have under applicable law, any amounts claimed by Landers Auto or UAG to be owed by the Landers to Landers Auto or UAG (or any affiliate of Landers Auto or UAG) under the Purchase Agreement or the Documents (as defined in the Purchase Agreement) or any other liability of the Landers (or any affiliate of the Landers) to Landers Auto or UAG (or any affiliate of Landers Auto or UAG) may be recovered by Landers Auto or UAG by a set-off against any amounts due to the Landers under this Note. This Note shall be governed by and construed and enforced in accordance with the laws of the State of Arkansas. UNITED AUTO GROUP, INC. By: /s/Carl Spielvogel ------------------------------- Name: Carl Spielvogel Title: Chairman and Chief Executive Officer EX-10.4-4 32 EXHIBIT 10.4.4 GUARANTY FOR VALUE RECEIVED, United Auto Group, Inc., a Delaware corporation ("UAG"), hereby guarantees collection by Steve Landers and John Landers, individuals residing in Arkansas (the "Landers"), of the payment obligations of Landers Auto Sales, Inc., an Arkansas corporation (the "Company") under the Steve Landers Employment Agreement, the John Landers Employment Agreement and the Leases (as such terms are defined in the Amended and Restated Stock Purchase Agreement, dated as of July 1, 1995, among UAG, the Landers, Bob Landers and the Company). UAG shall, however, have any and all rights of defense, set-off and counterclaim which are available to the Company. This guaranty is conditional in that it is a guaranty of collection only and not a guaranty of payment. Accordingly, UAG shall not be obligated to make any payment hereunder, and the Landers shall not have recourse against UAG, until all attempts to collect from the Company have failed. This guaranty shall be governed by, and the rights and obligations hereunder shall be determined in accordance with, the laws of the State of Arkansas. IN WITNESS WHEREOF, UAG has caused this guaranty to be duly executed by its duly authorized officer as of this 1st day of August, 1995. UNITED AUTO GROUP, INC. By: /s/Carl Spielvogel ------------------------------ Name: Carl Spielvogel Title: Chairman and Chief Executive Officer 91430459 EX-10.4-5 33 EXHIBIT 10.4.5 EMPLOYMENT AGREEMENT This Employment Agreement is dated as of August 1, 1995, and is entered into between Landers Auto Sales, Inc., an Arkansas corporation (the "Company"), and Steve Landers, an individual residing in Arkansas ("Executive"). WHEREAS, Executive and the Company desire to embody in this Agreement the terms and conditions of Executive's employment by the Company. NOW, THEREFORE, the parties hereby agree: ARTICLE I EMPLOYMENT, DUTIES AND RESPONSIBILITIES 1.01. EMPLOYMENT. The Company shall employ Executive as Chief Executive Officer and President of the Company. Executive hereby accepts such employment. Executive agrees to devote his full business time and efforts to promote the interests of the Company and its subsidiaries. 1.02. DUTIES AND RESPONSIBILITIES. Executive shall be required to perform such duties and responsibilities as are consistent with his position and as the Board of Directors of the Company (the "Board"), the Executive Committee thereof (the "Executive Committee") and/or the Chief Executive Officer of United Auto Group, Inc. ("UAG") may from time to time prescribe. Notwithstanding the foregoing, in the event that the Company conducts business on Sundays, Executive shall be under no obligation to work on any Sunday, and any failure by Executive to work on Sunday shall not, in and of itself, constitute a breach of this Agreement. 1.03. BOARD AND EXECUTIVE COMMITTEE MEMBERSHIP. Subject to Section 3.1 of the Shareholders Agreement, dated the date hereof, among the Company, UAG, Executive and certain other parties named therein (the "Shareholders Agreement"), the Company will nominate Executive for election to the Board and will use its best efforts to secure Executive's election to the Board and his appointment as a member of the Executive Committee. 1.04. REPORTING. Executive shall report, in the performance of his duties, directly to the Chief Executive Officer of UAG. ARTICLE II TERM 2.01. TERM. The term of Executive's employment under this Agreement (the "Term") shall commence on August 1, 1995 and shall continue until July 31, 2000; provided that (i) the Term shall be renewed for an additional one-year period as of August 1 of each year commencing with August 1, 2000 (each, a "Renewal Date"), unless either the Company or Executive gives written notice, at least ninety (90) days prior to a Renewal Date, of its or his intention not to so renew the Term, and (ii) this Agreement may be terminated earlier as provided in Section 3.01(a) hereof and in Article V hereof. 2.02. NO VIOLATION. Executive represents and warrants to the Company that neither the execution and delivery of this Agreement nor the performance of his duties hereunder violates or will violate the provisions of any other agreement to which he is a party or by which he is bound. ARTICLE III COMPENSATION AND EXPENSES 3.01. SALARY AND BENEFITS. As compensation and consideration for the performance by Executive of his obligations under this Agreement, Executive shall be entitled to the following (subject, in each case, to the provisions of Article V hereof): (a) SALARY. The Company shall pay Executive a salary during the first three years of the Term, payable in accordance with the normal payment procedures of the Company and subject to such withholdings and other normal employee deductions as may be required by law, at the rate of $327,065 per annum (or such PRO RATA amount thereof for any period of less than one year). Within ninety (90) days of the end of the third year of the Term, Executive and the Company shall agree on a salary to be paid to Executive for the remaining portion of the Term. If the parties are unable to agree on a salary by the end of the third year of the Term, then either party may terminate this Agreement upon written notice to the other party pursuant to Section 6.02 hereof. (b) BENEFIT PLANS. Executive shall participate during the Term in such health and major medical insurance plans -2- for the benefit of the employees of the Company as may be maintained from time to time during the Term, if at all, in each case to the extent and in the manner available to other officers of the Company and subject to the terms and provisions of such plans or programs. (c) DISABILITY INSURANCE. The Company shall obtain and maintain a disability insurance policy providing for the payment of six months of salary at the rate set forth in Section 3.01(a) hereof in the event this Agreement is terminated pursuant to Section 5.04 hereof; provided, however, that in no event shall the Company be required to spend in excess of $10,000 per year for such insurance. (d) VACATION. Executive shall be entitled to a paid vacation in accordance with Company policy during the Term. 3.02. EXPENSES. The Company will reimburse Executive for reasonable business-related expenses incurred by him in connection with the performance of his duties hereunder during the Term, subject, however, to the Company's policies relating to business-related expenses as in effect from time to time during the Term. ARTICLE IV EXCLUSIVITY, ETC. 4.01. EXCLUSIVITY. Executive agrees to perform his duties, responsibilities and obligations hereunder to the best of his ability. Executive agrees that he will devote his entire working time, care and attention and best efforts to such duties, responsibilities and obligations throughout the Term. Executive also agrees that he will not engage in any other business activities, pursued for gain, profit or other pecuniary advantage, that are competitive with the activities of the Company or any of its subsidiaries, except as permitted in Section 4.02 below. Executive agrees that all of his activities as an employee of the Company shall be in conformity with all policies, rules and regulations and directions of the Company not inconsistent with this Agreement. 4.02. OTHER BUSINESS VENTURES. Executive agrees that, so long as he is employed by the Company, he will not have any financial or other beneficial interest in any business enterprise which is engaged in, or competitive with, any business engaged in by the Company or any of its subsidiaries. Notwithstanding the foregoing, Executive may own, directly or indirectly, up to one -3- percent (1%) of the outstanding capital stock of any such business having a class of capital stock which is traded on any national stock exchange or in the over-the-counter market. 4.03. CONFIDENTIALITY; NON-COMPETITION. (a) Executive agrees that he will not, at any time during or after the Term, make use of or divulge to any other person, firm or corporation any trade or business secret, process, method or means, or any other confidential information concerning the business or policies of the Company, any of its subsidiaries or their affiliates. For purposes of this Agreement, a "trade or business secret, process, method or means, or any other confidential information" shall mean and include information treated as confidential or as a trade secret by the Company, any of its subsidiaries or their affiliates, including but not limited to information regarding contemplated products, models, compilations, business and financial methods or practices, marketing, merchandising and selling techniques, customers, vendors, suppliers, trade secrets, training programs, manuals or materials, technical information, contracts, systems, procedures, mailing lists, know-how, trade names, improvements, pricing, price lists, financial or other data (including the revenues, costs or profits associated with any of the Company's or its subsidiaries' products or services), business plans, strategy, code books, invoices and other financial statements, computer programs, software systems, databases, discs and printouts, other plans (technical or otherwise), customer and industry lists, supplier lists, correspondence, internal reports, personnel files, sales and advertising material, telephone numbers, names, addresses or any other compilation of information, written or unwritten, which is or was used in the business of the Company, any of its subsidiaries or their affiliates. Executive's obligation under this Section 4.03(a) shall not apply to any information which is in the public domain or hereafter enters the public domain without the fault of Executive. Executive agrees not to remove from the premises of the Company or any of its subsidiaries, except as an employee of the Company in pursuit of the business of the Company or except as specifically permitted in writing by the Company, any document or other object containing or reflecting any such information. Executive agrees and acknowledges that all of such information, in any form, and copies and extracts thereof, are and shall remain the sole and exclusive property of the Company, and upon termination of his employment with the Company, Executive shall return to the Company the originals and all copies of any such information provided to or acquired by Executive in connection with the performance of his duties for the Company, and shall return to the Company all files, correspondence and/or other communications received, maintained and/or originated by Executive during the -4- course of his employment, and no copy of any such shall be retained by him. (b) Executive acknowledges that the agreements and covenants contained in this Section 4.03(b) are essential to protect the value of the Company's and its subsidiaries' and their affiliates' business and assets and by virtue of his employment with the Company, Executive has obtained and will obtain knowledge, contacts, know-how, training, experience and other information relating to the Company's and its subsidiaries' and their affiliates' business operations, and there is a substantial probability that such knowledge, know-how, contacts, training, experience and information could be used to the substantial advantage of a competitor of the Company and its subsidiaries and their affiliates and to the Company's and its subsidiaries' and their affiliates' substantial detriment. Accordingly, for a period commencing on the date of termination of Executive's employment with the Company and ending on the earlier to occur of three (3) years from and after such date or two years from and after the fifth anniversary of the date hereof (or such later date of termination of Executive's employment if the Term is renewed pursuant to Section 2.01 hereof) (the "Non-Compete Period"), Executive shall not, directly or indirectly, for himself or on behalf of or in conjunction with any person, partnership, corporation or other entity, compete, own, operate, control, or participate or engage in the ownership, management, operation or control of, or be connected with as an officer, employee, partner, director, shareholder, representative, consultant, independent contractor, guarantor, advisor or in any other manner or otherwise have a financial interest in, a proprietorship, partnership, joint venture, association, firm, corporation or other business organization or enterprise that competes with the Company or any of its subsidiaries or their affiliates (including any business or enterprise that operates dealerships for the retail sales of new and used automobiles or trucks and businesses ancillary thereto), provided that such business or enterprise (A) is or becomes located or otherwise engaged within a 100 mile radius of any automobile or truck dealership or ancillary business in which the Company (or any affiliate thereof), directly or indirectly, has on ownership interest at any time during the Non-Compete Period or (B) is an automobile or truck dealership or group of affiliated automobile or truck dealerships (and all businesses ancillary thereto) whose aggregate gross sales during the 12 month period immediately preceding the date of Executive's termination exceeded $500,000,000. During the Non-Compete Period, Executive shall not interfere with or disrupt, or attempt to interfere with or disrupt, the relationship, contractual or otherwise, between the Company or any of its subsidiaries or their affiliates and any -5- customer, client, supplier, manufacturer, distributor, consultant, independent contractor or employee of the Company or any of its subsidiaries or their affiliates. (ii) It is the desire and intent of the parties that the provisions of this Section 4.03(b) shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular portion of this Section 4.03(b) shall be adjudicated to be invalid or unenforceable, this Section 4.03(b) shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of this Section 4.03(b) in the particular jurisdiction in which such adjudication is made. (c) Executive agrees that, at any time and from time to time during and after the Term, he will execute any and all documents which the Company may deem reasonably necessary or appropriate to effectuate the provisions of this Section 4.03. ARTICLE V TERMINATION 5.01. TERMINATION BY THE COMPANY. Subject to Section 5.05, the Company shall have the right to terminate Executive's employment at any time, with "Cause." For purposes of this Agreement, "Cause" shall mean: (i) Executive's failure, neglect or refusal to perform his duties hereunder, which failure, neglect or refusal shall not have been remedied by Executive within fifteen (15) days of receipt by Executive of written notice from the Company of such failure, neglect or refusal, (ii) Executive's refusal to follow the instructions, orders or directives of the Board, the Executive Committee or the Chief Executive Officer of UAG with respect to his duties and responsibilities hereunder, (iii) any willful or intentional act of Executive that has the effect of injuring the reputation or business of the Company or its affiliates in any material respect, (iv) any continued or repeated absence from the Company, unless such absence is (A) approved or excused by the Board or (B) is the result of Executive's illness, disability or incapacity or a personal or family emergency, (v) use of illegal drugs by Executive, (vi) conviction of Executive for, or the entry of a plea (including nolo contendere or its equivalent) by Executive with respect to, a felony (or equivalent offense not categorized as a "felony") under federal or state law, (vii) the commission by Executive of an act of fraud or embezzlement -6- against the Company, or (viii) Executive's other material breach of this Agreement that causes material harm to the Company. 5.02. TERMINATION FOR GOOD REASON. "Termination for Good Reason" shall mean a termination of Executive's employment at his initiative as promptly as practicable following the occurrence, without Executive's written consent, of one or more of the following events: (i) the assignment to Executive of duties which are materially inconsistent with his position as Chief Executive Officer of the Company, or (ii) the relocation of Executive's own office location as assigned to him by the Company to a location more than 30 miles from Little Rock, Arkansas. 5.03. DEATH. In the event Executive dies during the Term, this Agreement shall automatically terminate (subject to Section 5.05 hereof), such termination to be effective on the date of Executive's death. 5.04. DISABILITY. In the event that Executive shall suffer a disability which shall have prevented him from performing satisfactorily his obligations hereunder for a period of at least 90 consecutive days, or 180 non- consecutive days within any 365 day period, the Company shall have the right to terminate this Agreement (subject to Section 5.05 hereof), such termination to be effective upon the giving of notice thereof to Executive in accordance with Section 6.02 hereof. 5.05. EFFECT OF TERMINATION. (a) In the event of termination of Executive's employment for any reason, the Company shall pay to Executive (or his beneficiary in the event of his death) any salary earned but not paid to Executive prior to the effective date of such termination. (b) The parties hereto acknowledge that the continued employment of Executive was a significant factor in UAG's valuation of the Company and UAG's determination to pay the Purchase Price provided for in the Amended and Restated Stock Purchase Agreement, dated July 1, 1995, among UAG, the Company, Executive, John Landers and Bob Landers. Accordingly, notwithstanding anything contained herein to the contrary, in the event Executive's employment is terminated for any reason, Executive shall pay UAG, in equal monthly installments for a period equal to the lesser of (i) three years from the date of termination of Executive's employment and (ii) the number of years and days remaining in the period commencing on the date hereof and ending on the fifth anniversary of the date hereof (the "Remaining Term"), an aggregate amount equal to the product of (A) $375,000 and (B) the sum of (x) the number of full years comprising the Remaining Term and (y) a fraction, the numerator -7- of which is equal to the number of days comprising the stub period between the last full year of the Remaining Term and the last day of the Remaining Term, and the denominator of which is equal to 365. ARTICLE VI MISCELLANEOUS 6.01. BENEFIT OF AGREEMENT; ASSIGNMENT; BENEFICIARY. (a) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns, including, without limitation, any corporation or person which may acquire all or substantially all of the Company's assets or business, or with or into which the Company may be consolidated or merged. This Agreement shall also inure to the benefit of, and be enforceable by, Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amount would still be payable to Executive hereunder if he had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to Executive's beneficiary, devisee, legatee or other designee, or if there is no such designee, to Executive's estate. 6.02. NOTICES. Any notice required or permitted hereunder shall be in writing and shall be sufficiently given if personally delivered or if sent by telegram or telex or by registered or certified mail, postage prepaid, with return receipt requested, addressed: (a) in the case of the Company to c/o United Auto Group, Inc. 375 Park Avenue, New York, New York 10022, facsimile no. (212) 223-5148, Attention: General Counsel, or to such other address and/or to the attention of such other person as the Company shall designate by written notice to Executive; and (b) in the case of Executive, to 3316 Highway 5, Benton, Arkansas 72015, facsimile no. (501) 778-4077, or to such other address as Executive shall designate by written notice to the Company. Any notice given hereunder shall be effective and deemed to have been given as of the date so delivered or three (3) days after the date so mailed. 6.03. AMENDMENT. This Agreement may not be changed or modified except by an instrument in writing signed by both of the parties hereto. 6.04. WAIVER. The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a continuing waiver or as a consent to or waiver of -8- any subsequent breach hereof. Any waiver must be in writing and signed by Executive or the Company, as the case may be. 6.05. HEADINGS. The Article and Section headings herein are for convenience of reference only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 6.06. GOVERNING LAW. This Agreement shall be governed by, and construed and interpreted in accordance with, the internal laws of the State of Arkansas without reference to the principles of conflict of laws. 6.07. AGREEMENT TO TAKE ACTIONS. Each party hereto shall execute and deliver such documents, certificates, agreements and other instruments, and shall take such other actions, as may be reasonably necessary or desirable in order to perform his or its obligations under this Agreement or to effectuate the purposes hereof. 6.08. SURVIVORSHIP. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 6.09. VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision or provisions of this Agreement, which shall remain in full force and effect. 6.10. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. -9- IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement effective as of the date first above written. LANDERS AUTO SALES, INC. By: /s/Carl Spielvogel ----------------------------- Name: Carl Spielvogel Title: Chairman of the Board /s/Steve Landers -------------------------------- Steve Landers -10- EX-10.4-6 34 EXHIBIT 10.4.6 [Jeep-Eagle] LEASE Between STEVE LANDERS, JOHN LANDERS AND BOB LANDERS Lessor, AND LANDERS AUTO SALES, INC., Lessee. Premises: County of Saline, Arkansas Lease Date: August 1, 1995 LEASE THIS LEASE (this "Lease"), dated as of the 1st day of August, 1995, is made by and between STEVE LANDERS, JOHN LANDERS AND BOB LANDERS, all of whom are individuals residing in Benton, Arkansas (collectively, "Lessor") and LANDERS AUTO SALES, INC., a corporation organized under the laws of the State of Arkansas, having an address at Congo Exit 118 (7800 Alcoa), Highway I-30, Benton, Arkansas 72015 ("Lessee"). RECITALS A. Lessor is the owner of the Demised Premises (hereinafter defined). B. Lessor desires to lease to Lessee, and Lessee desires to lease from Lessor, the Demised Premises. NOW, THEREFORE for good and valuation consideration, the receipt and sufficiency of which are hereby acknowledged, Lessor and Lessee agree as follows: ARTICLE I. PREMISES 1.1. DEMISED PREMISES. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, for the Term (hereinafter defined), at the rental, and upon all of the terms, covenants and conditions set forth herein, the following (collectively, the "Demised Premises"): (a) that certain real property located in Township 1 South, County of Saline, State of Arkansas, described in Exhibit A attached hereto and made a part hereof, together with any buildings and improvements now or hereafter located therein or thereon, including, without limitation, the Jeep-Eagle automobile dealership, showroom and service facility currently located thereon (collectively, the "Real Property"); (b) All right, title and interest, if any, of Lessor in and to any land lying in the bed of any street, road or avenue, open or proposed, in front of or adjoining the Real Property to the center line; (c) All right, title and interest, if any, of Lessor in and to any strips and gores of land adjacent to, abutting, or used in connection with the Real Property, and in and to easements, if any, enuring to the benefit of the Demised Premises or the fee owner; (d) Any appurtenances and hereditaments belonging or in any wise appertaining to the Real Property; and (e) Any and all personal property located at the Real Property owned by Lessor and used in connection with the operation of the Real Property as an automobile dealership and related uses; and (f) Any and all leases, tenancies and occupancy agreements in any way affecting the Real Property. 1.2. COMMON AREAS. Lessee shall have, as appurtenant to the Demised Premises, the non-exclusive right to use the Common Areas (hereinafter defined) of any improvements in common with others, subject to the terms and conditions of this Lease. For purposes of this Lease, "Common Areas" shall mean, collectively: the sidewalks, driveways, if any, entrances, parking areas, passages, and other portions of the improvements and/or the land shown on the site plan, that Lessor makes available from time to time for the common use of lessees of the improvements. ARTICLE II. TERM 2.1. INITIAL TERM. The term of this Lease, (as the same may be extended, the "Term") shall commence on the date hereof (the "Commencement Date"), and shall continue for a period of twenty (20) years thereafter (the "Initial Term"). 2.2. RENEWAL OPTIONS. Lessee shall have the option to extend the Term on all of the terms and provisions contained in this Lease, except for the payment of rent which is to be negotiated by the parties hereto, for two (2) successive five (5) year renewal periods (each, a "Renewal Period") following the expiration of the Initial Term of this Lease, by giving written notice to Lessor of the exercise of this option to extend the Term not later than ninety (90) days prior to the expiration of the Initial Term or the first Renewal Period, as the case may be. 2 ARTICLE III. RENT 3.1. FIXED RENT. (a) Lessee shall, during the Term, pay to Lessor at such place as Lessor shall designate in writing, from time to time, annual fixed rental in the amounts set forth on SCHEDULE A attached hereto and made a part hereof, subject to adjustment as set forth on SCHEDULE A (hereinafter, the "FIXED RENT"). (b) The Fixed Rent shall be payable monthly in advance on the first day of each month in equal monthly installments equal to one-twelfth (1/12) of the Fixed Rent. (c) Fixed Rent for any period during the Term which is for less than one calendar month shall be prorated based on the number of calendar days in such calendar month that falls within the Term. 3.2. ADDITIONAL RENT. Lessee shall, during the Term, pay to Lessor at such place as Lessor shall designate in writing, from time to time, and, except as expressly provided herein, without offset, counterclaim, defense or demand thereof, additional rent ("Additional Rent") consisting of all other sums of money that become due from Lessee and payable to Lessor hereunder. Fixed Rent and Additional Rent are hereinafter collectively referred to as "Rent". ARTICLE IV. INTENTIONALLY OMITTED ARTICLE V. USE The Demised Premises shall be used for the operation of automobile dealerships and ancillary business thereto, general office purposes and/or any other lawful purposes. Lessee shall obtain, at its sole cost and expense, all licenses, approvals and permits required for Lessee's use and occupancy of the Demised Premises. Lessee shall not use or permit the use of the Demised Premises, in violation of any applicable law, statute, ordinance, code, rule, regulation order or decree, of any hazardous, toxic 3 or dangerous waste, substance or material defined as such in the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act, any so-called "Superfund" or "Superlien" law, or any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic or dangerous waste, substance or material, as now or at any time hereafter in effect. ARTICLE VI. COMPLIANCE WITH LAW 6.1. LESSOR REPRESENTATIONS. Lessor represents and warrants to Lessee that during the Term, the Demised Premises shall, but without regard to the use for which Lessee will use the Demised Premises, comply with all applicable laws, statutes, ordinances, rules, regulations and orders of all state, municipal and local governmental authorities having jurisdiction over the Demised Premises, including, building and zoning codes, regulations and ordinances and environmental codes, regulations and laws, including those related to pollution and contamination (collectively "Governmental Laws"). If it is determined that this warranty has been violated, then it shall be the obligation of Lessor, after written notice from Lessee, promptly, at Lessor's sole cost and expense, to rectify any such violation. 6.2. LESSEE COMPLIANCE. Lessee shall, at Lessee's expense, promptly comply with all Governmental Laws relating to the Demised Premises in effect during the Term or any part of the Term regulating the use by Lessee of the Demised Premises. If it is determined that this covenant has been violated, then it shall be the obligation of Lessee, after written notice from Lessor, to promptly, at Lessee's sole cost and expense, to rectify any such violation. 6.3. CONTESTS. Lessee shall have the right, to the extent permitted by law, at its own expense to contest the validity and/or applicability of any Governmental Laws relating to the Demised Premises by appropriate proceedings diligently conducted in good faith, and, notwithstanding the provisions of PARAGRAPH 6.2 hereof, Lessee's compliance with such contested Governmental Laws may be postponed or deferred during the pendency of such proceeding so long as neither the Demised Premises nor any part thereof would, by reason of such non- compliance be, in the reasonable judgment of Lessor, in danger of 4 being forfeited or lost and Lessor shall not be subject to any criminal or civil liability. ARTICLE VII. CONDITION OF THE DEMISED PREMISES Lessee hereby agrees to accept the Demised Premises in accordance with the terms of this Lease, subject to all Governmental Laws and restrictions of record governing and regulating the use of the Demised Premises, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. ARTICLE VIII. MAINTENANCE AND REPAIRS 8.1. LESSEE REPAIR OBLIGATIONS. Lessee shall, at its expense, take good care of the Demised Premises, the fixtures and appurtenances therein and any of Lessee's trade fixtures, furnishings, equipment and personal property (collectively, "Lessee's Property"). Except as provided in PARAGRAPH 8.2, Lessee shall be responsible for and shall promptly make all repairs, interior and exterior, structural and nonstructural, ordinary and extraordinary, in and to the Demised Premises. Lessee, at its expense, shall be responsible for the repair, maintenance and replacement of all mechanical, electrical, sanitary, heating, ventilating, air-conditioning and other fixtures and equipment in the Demised Premises. 8.2. LESSOR REPAIR OBLIGATIONS. Lessor agrees, at its sole cost and expense, to repair any material defects in the Demised Premises arising from defective design, labor or material, and to remedy and correct any violation of Governmental Laws arising out of or relating to the construction of the improvements or the environmental condition of the Demised Premises on the date hereof. Neither Lessee's acceptance of the Demised Premises nor Lessee's entry into possession thereof, nor payments of any monthly installments of Rent, nor Lessee's performance of any of the other provisions or conditions hereof, shall relieve Lessor of such responsibility. 5 ARTICLE IX. SURRENDER On the last day of the Term, or on any sooner termination of this Lease, subject to the terms of ARTICLE 13, Lessee shall surrender the Demised Premises to Lessor in the same condition as when received by Lessee broom clean, ordinary wear and tear excepted. ARTICLE X. LESSOR'S AND LESSEE'S RIGHTS If either party fails to perform its obligations hereunder, the other may at its option (but shall not be required to) put the same in good order, condition and repair, upon sixty (60) days written notice to the non-performing party (which written notice shall not be required in the case of an emergency) and the cost thereof, together with interest thereon at the Lease Interest Rate (as defined in PARAGRAPH 20.3) shall become due and payable from the non- performing party to the other party within ten (10) days after demand by the performing party; PROVIDED, HOWEVER, if the obligation of the non-performing party is not capable of being performed within such sixty (60) day period and if the non-performing party is diligently endeavoring to perform such obligation, the performing party shall not perform such obligation. All such work performed by the performing party shall be performed in a good and workmanlike manner, in compliance with all Governmental Laws. Neither Lessee nor Lessor shall perform any such work until such time as it has received all necessary permits, licenses and approvals from the applicable state, county and municipal governmental authorities having jurisdiction over the Demised Premises ("Governmental Authorities"). If either party performs any such work, such party shall, at all times, keep the Demised Premises free of liens and encumbrances for labor and materials. ARTICLE XI. ALTERATIONS AND IMPROVEMENTS 11.1. LESSEE ALTERATIONS. Lessee shall have the right, at its own cost and expense, to make such alterations and changes in and to the Demised Premises as it shall deem expedient or necessary for its purposes. All such work shall be done in a 6 good and workmanlike manner, and in accordance with all Governmental Laws. Lessor shall execute and deliver upon request of Lessee such reasonable instrument or instruments embodying the approval of Lessor which may be required by any Governmental Authority for the purpose of obtaining any license, permit or approval for the making of alterations or changes in, to or upon the Demised Premises, Lessee agreeing to pay for any such license, permit or approval. Lessee shall not make any alterations to the Demised Premises until such time as it has received all required permits, licenses and approvals from the applicable Governmental Authority. 11.2. REMOVAL OF IMPROVEMENTS. Any and all alterations, improvements and installations made by Lessee in, to or upon the Demised Premises, as well as any fixtures installed on the Demised Premises by Lessee, at Lessee's option, may be removed from the Demised Premises at any time and from time to time during the Term and shall remain the property of Lessee during and at the expiration of the Term of this Lease, provided that, if any such alterations, improvements, installations and/or fixtures are removed by Lessee, any damage caused by such removal shall be promptly repaired by Lessee at its sole cost and expense. ARTICLE XII. INSURANCE 12.1. Insurance Coverage. (a) Lessee shall, at Lessee's cost and expense, maintain the following insurance issued in the names of Lessor and Lessee as their interests may appear: (i) a policy of standard fire and extended coverage insurance on all improvements included in the Demised Premises with vandalism and malicious mischief endorsements, to the extent of full replacement value; and (ii) a policy of general public liability insurance against claims for personal injury or property damage, with such limits as may be reasonably requested by Lessor from time to time, but not more than Two Million Dollars ($2,000,000) in respect of bodily injury or death 7 and Two Million Dollars ($2,000,000) for property damage. (b) All such insurance policies shall provide that any proceeds shall be made payable into an escrow account maintained by an escrow agent mutually selected by Lessee and Lessor, who shall distribute same pursuant to the terms of this Lease and in accordance with the written instructions of Lessee and the approval of Lessor, which approval by Lessor shall not be unreasonably withheld, delayed or conditioned. (c) All such insurance policies may, at the option of Lessee, be effected by blanket and/or umbrella policies issued to Lessee covering the Demised Premises and other properties owned or leased by Lessee or its affiliates. (d) Lessor shall not obtain or continue to maintain any separate or additional insurance which is contributing in the event of loss unless it is properly endorsed and otherwise satisfactory to Lessee in all respects. 12.2. CERTIFICATES. All insurance provided for under this Lease shall be effected under valid enforceable policies insured by insurers of recognized responsibility and who are reasonably acceptable to Lessor and licensed to do business in the State of Arkansas. Such insurance may be carried by Lessee as a part of blanket coverage for such insurance covering all premises owned or leased by Lessee wherever located. Certificates of Insurance evidencing the current existence of such coverage shall be delivered to Lessor at least ten days prior to the expiration date of any policy. Renewal certificates shall be delivered by Lessee to Lessor, together with satisfactory evidence of payment of the premium on such policies. To the extent obtainable, all such policies shall contain agreements by the insurers that such policies shall not be cancelled except upon thirty days' prior written notice to each named insured and loss payee, including Lessor. 12.3. ADJUSTMENTS. All policies of insurance required herein shall name Lessor and Lessee as the insureds as their respective interests may appear. The loss, if any, under said policies referred to in this ARTICLE 12 shall be adjusted with the insurance companies by Lessee to the extent that Lessee is obligated to repair or restore the Demised Premises pursuant 8 to ARTICLE 13 hereof and by Lessor in the event that Lessee is not so obligated to restore. 12.4. PROCEEDS. All proceeds payable by reason of any loss or damage to the Demised Premises, or any portion thereof, and insured under any policy of insurance required by this ARTICLE 12 shall be paid to Lessee and shall be used only for reconstruction or repair, as the case may be, of any damage to or destruction of the Demised Premises, or any portion thereof. Any excess proceeds of insurance remaining after the completion of the restoration or reconstruction of the Demised Premises shall be retained by Lessee. In the event that, pursuant to the terms of PARAGRAPH 13.3, Lessee is not required or does not elect to repair and restore and this Lease expires or is terminated, all such insurance proceeds shall be paid to and retained by Lessor. ARTICLE XIII. DAMAGE OR DESTRUCTION 13.1. RESTORATION. Subject to the provisions of PARAGRAPH 13.3 hereof, Lessee covenants that in the event of damage to all or a portion of the Demised Premises by fire or any other cause, similar or dissimilar, insured or uninsured, in the event that Lessor approves the distribution of the insurance proceeds in accordance with Lessee's instructions under PARAGRAPH 12.1(b), Lessee will promptly, at its sole cost and expense, restore or repair the Demised Premises so damaged or destroyed as nearly as possible to the condition it was in immediately prior to such damage or destruction, or with such changes or alterations as Lessee shall elect to make in conformity with ARTICLE 11 hereof, whether or not any costs or expenses of such restoration exceeds the amount of the insurance proceeds received in connection with such damage or destruction. Such restoration, shall be commenced promptly and prosecuted with reasonable diligence, unavoidable delays excepted. 13.2. NO ABATEMENT. Except as provided in PARAGRAPH 13.3, the Fixed Rent and all Additional Rent payable hereunder shall not be abated due to any damage or destruction to the Demised Premises. 13.3. TERMINATION OPTION. Notwithstanding the provisions of PARAGRAPH 13.1 hereof, in the event that (i) at any time during the Initial Term or a Renewal Term, Lessor 9 unreasonably withholds its approval of the distribution of the insurance proceeds in accordance with Lessee's instructions, (ii) at any time during the eighteenth (18th) or nineteenth (19th) years of the Initial Term, all or a portion of the Demised Premises are damaged to the extent that, in Lessee's reasonable judgment, the necessary repairs or restoration would not be substantially completed within nine (9) months from the date of said casualty, or (iii) at any time during the last year of the Initial Term or at any time during a Renewal Term, all or a portion of the Demised Premises are damaged, Lessee may, terminate this Lease upon delivery of written notice to Lessor within sixty (60) days after the occurrence of the casualty causing such damage and Lessee shall be released from any liability under this Lease accruing from and after the date of said casualty. In the event that Lessee terminates this Lease as provided in the immediately preceding sentence, all insurance proceeds resulting from said casualty shall be paid to and retained by Lessor. ARTICLE XIV. TAXES 14.1. IMPOSITIONS. Lessee covenants and agrees to pay or cause to be paid, as hereinafter provided, to the Governmental Authority imposing the same, all of the following items ("Impositions") not later than the date on which same are due without the payment of any fines, penalties or interest: (a) real property taxes and assessments assessed and levied against the Demised Premises or any part thereof, (b) personal property taxes, (c) water, water meter and sewer rents, rates and charges, and (d) fines, penalties and other similar or like governmental charges applicable to the foregoing and any interest or costs with respect thereto only to the extent incurred by reason of Lessee's wrongful act or omission or Lessee's failure fully and promptly to comply with any provision of this Lease. Each such Imposition, or installment thereof, during the Term shall be paid prior to the last day the same may be paid without fine, penalty, interest or additional cost; provided, however, that if, by law, any Imposition may at the option of the taxpayer be paid in installments (whether or not interest shall accrue on the unpaid balance of such Imposition), Lessee may exercise the option to pay the same in such installments and shall be responsible for the payment of such installments only. 14.2. EVIDENCE OF PAYMENT. If Lessee is paying any Imposition directly to the Governmental Authority imposing the same, then Lessee, from time to time upon the request of Lessor, 10 shall furnish to Lessor, within the earlier of (i) ninety (90) days after the date when such Imposition is due and payable under this Lease, or (ii) thirty (30) days after the date when an official receipt of the Governmental Authority imposing the same is received, such official receipt or, if no such receipt has been received by Lessee, other evidence reasonably satisfactory to Lessor, evidencing the payment of the Imposition. 14.3. EXCLUDED TAXES. Nothing herein contained shall require Lessee to pay municipal, state or federal income, inheritance, estate, succession, transfer or gift taxes of Lessor, or any corporate franchise tax imposed upon Lessor or any gross income or gross receipts taxes to the extent the same are imposed on Lessor in lieu of net income taxes or corporate franchise taxes. 14.4. APPORTIONMENTS. Any Imposition, relating to a fiscal period of the imposing Governmental Authority, a part of which period is included within the Term and a part of which is included in a period of time before the Commencement Date or after the Expiration Date (whether or not such Imposition shall be assessed, levied, confirmed, imposed upon or in respect of or become a lien upon the Demised Premises, or shall become payable, during the Term) shall be apportioned between Lessor and Lessee as of the Commencement Date or Expiration Date, as the case may be, so that Lessee shall pay that portion of such Imposition which that part of such fiscal period included in the period of time after the Commencement Date and before the Expiration Date. 14.5. CONTESTS. (a) Lessee shall have the right, to the extent permitted by law, at its own expense to contest the amount or validity, in whole or in part, of any Imposition by appropriate proceedings diligently conducted in good faith, and, notwithstanding the provisions of PARAGRAPH 14.1 hereof, the payment of such contested Imposition may be postponed or deferred so long as neither the Demised Premises nor any part thereof, nor any part of the rents, issues and profits thereof, would, by reason of such postponement or deferment, be, in the reasonable judgment of Lessor, in danger of being forfeited or lost and Lessor shall not be subject to any criminal or civil liability. 11 (b) Lessee shall have the right, to the extent permitted by law, and at Lessee's sole cost and expense, to seek a reduction in the valuation of the Demised Premises assessed for real property tax purposes and to prosecute any action or proceeding in connection therewith. Lessor shall fully cooperate with Lessee in any such proceeding. (c) Lessor shall not be required to join in any proceedings referred to in PARAGRAPHS 14.5(a) and (b) hereof unless the provisions of any law, rule or regulation at the time in effect shall require that such proceedings be brought by and/or in the name of Lessor, in which event, Lessor shall join and cooperate in such proceedings or permit the same to be brought in its name, but shall not be liable for the payment of any costs or expenses in connection with any such proceedings and Lessee shall reimburse Lessor for any and all reasonable costs or expenses which Lessor may sustain or incur in connection with any such proceedings. ARTICLE XV. UTILITIES AND SERVICES 15.1. LESSOR REPRESENTATION. Lessor represents and warrants that the Demised Premises are equipped with all plumbing equipment, electrical facilities and lighting fixtures and equipment, heating, air conditioning, ventilating, and other appurtenant equipment and facilities necessary or appropriate for Lessee's use of the Demised Premises or as otherwise required by Governmental Laws. Lessee will pay, or cause to be paid all changes for electricity, power, gas, oil, water and other utilities used in connection with the Demised Premises during the term of this Lease. 15.2. NO SERVICES. Lessor shall not be obligated to furnish or to pay for utilities or services to the Demised Premises. ARTICLE XVI. ASSIGNMENT Except as expressly permitted in this Lease, Lessee shall not voluntarily or by operation of law assign all or any part of Lessee's interest in this Lease, without Lessor's prior written consent, which Lessor shall not unreasonably withhold, condition or delay. Any attempted assignment without such 12 consent shall be void and shall constitute a breach of this Lease, unless the same is expressly permitted hereunder. In no event shall (i) any transfer (by one or more transfers) of a majority of the stock of Lessee, (ii) the merger or consolidation of Lessee with another corporation, or (iii) the transfer of all or substantially all of Lessee's assets to another corporation or entity, constitute an assignment, or attempted assignment of this Lease, provided that, in all such events in which Lessee survives such transaction, Lessee shall remain fully liable for the payment of Rent and for the other obligations of this Lease on the part of Lessee to be performed or observed. ARTICLE XVII. DEFAULTS; REMEDIES 17.1. DEFAULTS. If any of the following events shall occur (each, a "Default" and collectively "Defaults"): (a) The failure by Lessee to make any payment of Rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of ten (10) days after written notice from Lessor to Lessee; (b) The failure by Lessee to observe or perform any of the material covenants, conditions to provisions of this Lease to be observed or performed by Lessee, other than described in PARAGRAPH 17.1(a) above, where such failure shall continue for a period of thirty (30) days after written notice thereof from Lessor to Lessee specifying, in reasonable detail, how Lessee has failed to perform; PROVIDED, HOWEVER, that if Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then Lessee shall not be deemed to be in Default if Lessee commenced such cure within said 30-day period and thereafter diligently prosecutes such cure to completion; then in any of said cases, and without waiving any claims for breach of agreement, Lessor may (i) accelerate all Rent owing hereunder upon such Default; (ii) Take possession of the Demised Premises and lease the same for the account of Lessee upon such terms as may be acceptable to Lessor and apply the net proceeds received from such leasing toward the payment 13 of Rent which Lessee herein is obligated to pay and collect the balance thereof, if any, from Lessee; (iii) Terminate the Lease and take possession of the Demised Premises and collect from Lessee all damages sustained by reason of such Default; or (iv) Pursue any remedy or remedies which may be available at law or in equity; PROVIDED, HOWEVER, that Lessor hereby agrees to use its best efforts to mitigate any damages sustained or liability incurred by reason of any Default and the exercise of any remedies in connection therewith. 17.2. LESSEE OBJECTION. Subject to the last sentence of this PARAGRAPH 17.2., upon the happening of any alleged non-monetary Default on the part of Lessee, if Lessee within thirty (30) days after receipt of such appropriate notice as set forth in PARAGRAPH 17.1 from Lessor shall, commence and thereafter in good faith, diligently prosecute in a court of competent jurisdiction a proceeding to determine whether or not such non-monetary defaults or alleged defaults have occurred, then Lessor may not terminate this Lease or exercise any rights as provided above by law or otherwise unless the final judgment not subject to further appeal in such court proceedings shall be adverse to Lessee and Lessee, in such case, within twenty (20) days from the date of the final judgment in such court proceedings fails to cure such non- monetary default(s) or, if any such default or defaults cannot reasonably be cured within such twenty (20) days, if Lessee within said twenty (20) days shall fail to commence and thereafter diligently and continuously prosecute to completion the work of curing such non-monetary default or defaults. Notwithstanding the foregoing, Lessee shall have no rights under this PARAGRAPH 17.2 if, at the time Lessee receives notice of any non-monetary default under this Lease, the laws of the State of Arkansas otherwise provides for the injunction of the threatened termination of a lease until a final judgment has been rendered by a court of competent jurisdiction as to whether or not a non- monetary default has occurred thereunder. 17.3. VACATING THE DEMISED PREMISES. (a) In the event of any such termination of this Lease, (i) this Lease shall be of no further force and effect; and (ii) Lessee covenants and agrees to surrender and deliver the Demised Premises to Lessor in accordance 14 with ARTICLE 9 hereof immediately upon the termination of the Lease. (b) It is understood and agreed that at the time of the termination or at any time thereafter Lessor may rent the Demised Premises, or any portion thereof for such period and on such term or terms, and for a term which may expire before or after the expiration of the Term and Lessee shall have no interest in any income received by Lessor as a result of such reletting and no title or interest in the Demised Premises whatsoever. 17.4. LESSOR'S SELF-HELP REMEDY. If Lessee shall fail, after thirty (30) days notice from Lessor, to perform any of the covenants, terms or conditions required to be performed by Lessee hereunder (except that in the event of an emergency, the notice shall either be dispensed with or shortened as reasonably required by the nature of the emergency), in addition to the provisions of this ARTICLE 17, Lessor may do whatever is reasonably necessary for the performance thereof for the account and at the expense of Lessee. In the event Lessor shall pay any money by reason of said failure, Lessee shall repay any such reasonable sums so paid on its behalf together with interest thereon at the Lease Interest Rate which shall be deemed Rent, and the same shall be payable within 30 days after presentation of the request for payment, accompanied by Lessor's statement submitted to Lessee by Lessor showing in all reasonable detail the expenses of Lessor, why incurred, to whom payment was made and the calculations of and supporting bills or records showing Lessor's expenditures. 17.5. LESSEE'S SELF-HELP REMEDY. If Lessor shall fail, after thirty (30) days notice from Lessor, to perform any of the covenants, terms or conditions required to be performed by Lessor hereunder (except that in the event of an emergency, the notice shall either be dispensed with or shortened as reasonably required by the nature of the emergency), Lessee may do whatever is reasonably necessary for the performance thereof for the account and at the expense of Lessor. In the event Lessee shall pay any money by reason of said failure, Lessor shall repay any such reasonable sums so paid on its behalf together with interest thereon at the Lease Interest Rate, and the same shall be payable within 30 days after presentation of the request for payment, accompanied by Lessee's statement submitted to Lessor by Lessee showing in all reasonable detail the expenses of Lessee, why incurred, to whom payment was made and the calculations of and supporting bills or records showing Lessee's expenditures. If Lessor shall fail to reimburse Lessee within thirty (30) days 15 after receipt of Lessee's request for reimbursement for money expended by Lessee under this PARAGRAPH 17.5, Lessee may set-off against Rent, next becoming due to Lessor, such amount together with interest at the Lease Interest Rate from the date expended until Lessee has recouped the money due it under this PARAGRAPH 17.5. 17.6. EXCLUSIVE REMEDIES. No remedy herein or otherwise conferred upon or reserved to Lessor or Lessee shall be considered exclusive of any other remedy, but the same shall be distinct, separate and cumulative and shall be in addition to every other remedy given under this Lease, or now or hereafter existing at law or in equity or by statute. Every power and remedy given by this Lease to Lessor, or Lessee, may be exercised from time to time as often as occasion may arise, or as may be deemed expedient. No delay or omission of Lessor or Lessee to exercise any right or power arising from any default on the part of the other shall impair any such right or power, or shall be construed to be a waiver of such default or any other default or an acquiescence thereto. The consent or approval by Lessor or Lessee to or of any act by the other requiring such consent or approval shall not be deemed to waive or render unnecessary the consent or approval to or of any subsequent similar acts by Lessor or Lessee, as the case may be. 17.7. LESSEE TERMINATION RIGHT. (a) Without limiting the provisions of PARAGRAPH 17.6 and in addition to all other remedies which the Lessee may have as stated elsewhere in this Lease, at law or in equity, including the right to seek specific performance or injunctive relief, Lessee shall have the right, but not the obligation, on notice to Lessor, to terminate this Lease if Lessor shall fail to perform any of the terms, covenants and obligations of Lessor herein. (a) With respect to defaults as to which this Lease does not provide any grace period or opportunity to cure, Lessor shall have thirty (30) days after receipt of such notice from Lessee to cure the default giving rise to Lessee's right to so terminate this Lease. (b) If Lessor cures the default within said 30-day period this Lease shall not terminate and shall continue in full force and effect. If Lessor fails to cure the default within said 30-day period, Lessee shall give notice to Lessor of Lessor's failure to cure the same and this Lease shall terminate, as if by passage of time, on the date 16 set forth in Lessee's notice of termination; PROVIDED, HOWEVER, that if Lessor's Default is such that more than thirty (30) days are reasonably required for its cure, then this Lease shall not terminate if Lessor commenced such cure within said 30-day period and thereafter diligently prosecutes such cure to completion and such cure is completed within ninety (90) days after the occurrence of such default. ARTICLE XVIII. CONDEMNATION 18.1. If the Demised Premises or any portion thereof are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called ("Condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title to or possession of the Demised Premises of such portion thereof, whichever first occurs. If (i) more than 20% of the floor area of the Demised Premises, or more than 20% of the parking area included in the Demised Premises and used by Lessee, is taken by Condemnation and (ii) in Lessee's judgment, the Demised Premises cannot be repaired or restored to a condition which would allow Lessee to use the Demised Premises substantially in the manner that Lessee had used the Demised Premises prior to said Condemnation, Lessee may, at Lessee's option, to be exercised in writing within twenty (20) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within twenty (20) days after the condemning authority shall have taken title to or possession of the Demised Premises or any part thereof) terminate this Lease as of the later of the date on which the condemning authority takes title to or possession of the Demised Premises or any part thereof. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Demised Premises remaining, except that the Rent shall be reduced from the date of the taking in the proportion that the portion of the Demised Premises taken bears to the total area of the Demised Premises. Any award for the taking of all or any part of the Demised Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor; PROVIDED, HOWEVER, that Lessee shall be entitled to any award made as compensation for diminution in value of the Lessee's leasehold estate, business loss, moving expenses, loss of or damage to the Lessee's trade fixtures and removable personal property. In the event that this Lease is not terminated by reason of such Condemnation, Lessor shall, to the extent of any award received 17 by Lessor in connection with such Condemnation, repair any damage to the Demised Premises caused by such Condemnation except to the extent that Lessee has been reimbursed therefore by the condemning authority. 18.2. Notwithstanding anything which may be to the contrary in this ARTICLE 18, in connection with any taking, Lessee shall be entitled to make a separate claim, and to prove and receive an award for (a) the diminution in value of Lessee's leasehold estate, (b) the value of Lessee's property to the extent the same is taken, and (c) any moving allowance and other expenses permitted by law. ARTICLE XIX. INTENTIONALLY OMITTED ARTICLE XX. GENERAL PROVISIONS 20.1. ESTOPPEL CERTIFICATES. (a) Lessee shall at any time upon not less than twenty (20) days prior written notice from Lessor execute, acknowledge and deliver to Lessor or any party designated by Lessor a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the Rent and other charges are paid in advance, if any, (ii) acknowledging, as of the date of the certificate, that, to its actual knowledge, there are no uncured Defaults or events which with the giving of notice or the passage of time or both would constitute a Default or specifying such Defaults or events, if any are claimed and (iii) any other information reasonably requested by Lessor. Such statement shall be binding on Lessee and may be relied upon by Lessor or any other party designated by Lessor to whom such certificate is delivered. (b) Lessor shall at any time upon not less than twenty (20) days prior written notice from Lessee execute, acknowledge and deliver to Lessee or any party designated by Lessee a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, 18 stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the Rent and other charges are paid in advance, if any, (ii) acknowledging, as of the date of the certificate, that, to its actual knowledge, there are no uncured Defaults or events which with the giving of notice or the passage of time or both would constitute a Default or specifying such Defaults or events, if any are claimed and (iii) any other information reasonably requested by Lessee. Such statement shall be binding on Lessor and may be relied upon by Lessee or any other party designated by Lessee to whom such certificate is delivered. 20.2. SEVERABILITY. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 20.3. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly provided herein, any amount due hereunder to either Lessor or Lessee from the other party which is not paid when due and any amount paid by Lessor or Lessee on behalf of the other in accordance with the terms hereof shall bear interest from the date due or the date paid, as applicable, at a rate (the "Lease Interest Rate") equal to the lesser of (a) 2% in excess of the prime or base rate of interest announced by Citibank, N.A. at its principal office in New York City, New York and (b) the maximum rate of interest permitted by applicable law with respect to said amounts. Payment of such interest shall not excuse or cure any Default or event of default by Lessee or Lessor under this Lease. Notwithstanding anything to the contrary contained in this Lease, in no event shall interest be payable by Lessee with respect to (i) any amounts due and payable by Lessee during the period in which either John Landers or Steve Landers are employees of Lessee, (ii) any late charges incurred by Lessee, or (iii) any amounts upon which late charges are paid by Lessee. 20.4. CAPTIONS. Article and paragraph captions are not a part hereof and are for convenience of reference only. 20.5. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains the entire agreement and understanding of the parties hereto with respect to the subject matter hereof. All prior agreements or understandings pertaining to the subject matter hereof shall be of no force or effect. This Lease may only be amended or modified in writing, signed by 19 the parties in interest at the time of such amendment or modification. 20.6. NOTICES. Any notices required or permitted to be given hereunder shall be sufficient if given at the addresses of Lessor and Lessee first set forth above. Notices shall be sufficient if sent by certified mail, return receipt requested, postage pre-paid; nationally recognized overnight courier service; or by hand. Notices sent (i) by certified mail, return receipt requested shall be deemed received three (3) days after deposit in a United States mail box, postage prepaid, (ii) by nationally recognized overnight courier service shall be deemed received one (1) business day after delivery to such courier service; and (iii) by hand shall be deemed delivered upon receipt. 20.7. WAIVERS. No waiver by either party of any term or provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by the other of the same or any other provision. Lessor's consent to or approval of any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act by Lessee. The acceptance of Rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular Rent so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such Rent. 20.8. RECORDING. Lessee shall not record this Lease without Lessor's prior written consent, and such recordation shall, at the option of Lessor, constitute a non-curable Default of Lessee hereunder. The parties hereto shall contemporaneously herewith execute and record, at Lessee's expense, a Memorandum of Lease in the form attached hereto as Exhibit B. 20.9. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 20.10. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties hereto and their respective successors and assigns. This Lease shall be governed by the laws of the State in which the Demised Premises is located. 20 20.11. SUBORDINATION. (a) Provided Lessor obtains and delivers to Lessee a Subordination, Nondisturbance and Attornment Agreement in the form attached hereto as Exhibit C (the "SNDA") from the holder of any present or future mortgage or deed of trust encumbering the Demised Premises (a "Mortgagee"), then this Lease shall be subject and subordinate to the lien of the mortgage or deed of trust, specifically referenced in such SNDA. (b) If at any time a Mortgagee or any party claiming by or through a Mortgagee shall succeed to the rights of Lessor as lessor under this Lease, whether through foreclosure action, assignment or deed in lieu of foreclosure or otherwise (a "Successor Lessor"), at the request of such Successor Lessor, and upon the written agreement of such Successor Lessor to accept Lessee's attornment, Lessee shall attorn to and recognize such Successor Lessor as Lessee's lessor under this Lease. In confirmation of such attornment, Lessee shall promptly execute, acknowledge and deliver any instrument that Lessor or such Successor Lessor requests to evidence such attornment. Upon any such attornment, this Lease shall continue in full force and effect as, or as if it were, a direct lease between such Successor Lessor and Lessee upon all of the then executory terms, conditions and covenants as are set forth in this Lease and which shall be applicable after such attornment, except that the Successor Lessor shall not be: (i) liable for any prior act or omission of Lessor; (ii) subject to any offsets or defenses which Lessee may have against Lessor; (iii) bound by any payment of Rent which Lessee might have made to Lessor for more than one month in advance of the date the same was due under this Lease or bound by any security or other deposits not actually received by such Successor Lessor; (iv) bound by any obligation to make any payment to Lessee, or provide any services or perform any repairs, maintenance or restoration provided for under this Lease to be performed before the date that the Successor Lessor becomes the lessor of Lessee; 21 (v) bound by any obligation to construct any improvements on the Demised Premises; or (vi) bound by any modification of this Lease made without the written consent of such Successor Lessor or the Mortgagee through which such Successor Lessor is claiming its interest, where such consent is required under the terms of the documents evidencing its loan to Lessor, after written notice has been given to Lessee of the existence of such Successor Lessor or Mortgagee. (c) If any act or omission of Lessor would give Lessee the right, immediately or after lapse of a period of time, to cancel or terminate this Lease, or to claim a partial or total eviction, Lessee shall not exercise such right until (a) Lessee gives notice of such act or omission to Lessor and to each Mortgagee whose name and address were previously furnished to Lessee and (b) a reasonable period of time for remedying such act or omission elapses following the time when such Mortgagee becomes entitled under its Mortgage to remedy same (which reasonable period shall in no event be less than the period to which Lessor is entitled under this Lease or otherwise, after similar notice, to effect such remedy or be longer than 45 days after notice from Lessee to Mortgagee of such act or omission). 20.12. LESSOR'S ACCESS. Subject to Lessee's reasonable security regulations, Lessor and Lessor's agents shall have the right to enter the Demised Premises at reasonable times upon reasonable notice for the purpose of inspecting the same, showing the same to perspective purchasers, Lenders, or lessees, and making such alterations, repairs, improvements or additions to the Demised Premises as Lessor deems necessary or desirable. Any time during the last one hundred twenty (120) days of the Term, Lessor may place on or about the Demised Premises any ordinary "For Lease" sign. 20.13. CONSENTS. Wherever in this Lease the consent of one party is required to an act of the other party such consent shall not be unreasonably withheld, conditioned or delayed. 20.14. QUIET POSSESSION. Upon Lessee paying the Rent reserved hereunder and observing and performing all of the material covenants, conditions and provisions on Lessee's party 22 to be observed and performed hereunder, Lessee shall have quiet possession of the Demised Premises for the entire Term hereof subject to all of the provisions of this Lease. 20.15. SIGNAGE. During the period in which Lessee occupies the Demised Premises, Lessee shall have the right to place signs on the Demised Premises. All signs erected or placed on the Demised Premises by Lessee shall comply with all applicable Governmental Laws. 20.16. BROKERS. Lessor and Lessee each covenant, warrant and represent to the other that no broker was instrumental in bringing about or consummating this Lease except for Geneva Companies and that neither Lessor nor Lessee has had dealings with any broker or other person concerning the leasing of the Demised Premises other than Geneva Companies. Lessor acknowledges and agrees that all fees and commissions payable to Geneva Companies shall be paid solely by Lessor. Lessor and Lessee shall each indemnify and hold the other harmless against and from any claims for any brokerage commissions or fees, and all costs, expenses and liabilities in connection therewith, including, without limitation, attorneys' fees and expenses (a) in connection with such claim if any broker or other person claims to have had dealings with the indemnifying party and/or (b) in connection with the enforcement of a party's rights under this PARAGRAPH 20.16. 20.17. INDEMNITIES. (a) Lessor shall indemnify, defend and hold harmless Lessee, its officers, agents, employees, parents, subsidiaries and affiliate organizations, from and against any claims, suits, loss, costs, (including attorneys' fees and disbursements and cleanup costs), damages, expenses and liabilities, including claims by reason of property damage or personal injury (including death) (collectively referred to as "Claims") arising out of the ownership or maintenance of the Demised Premises by Lessor or to the extent the same results from Lessor's actions or inactions arising from any acts, incidents, events, occurrences, or omissions which occurred or took place prior to the effective date of this Lease including, but not limited to, those related to ownership, tenancy, possession, construction, operation, or use by Lessor or any other party of the Demised Premises or which result in pollution, contamination or seepage and all matters relating to environmental waste disposal laws, 23 regulations, or issues, other than Claims relating to the gross negligence or wilful misconduct of Lessee, its officers, agents, employees, parents, subsidiaries and affiliate organizations. This provision shall survive any termination or expiration of this Lease. (b) Lessee shall indemnify, defend and hold harmless Lessor, its officers, agents, employees, parents, subsidiaries and affiliate organizations, from and against any and all Claims of whatsoever nature against them individually or collectively, arising out of the use of the Demised Premises by Lessee, its officers, agents, employees, parents, subsidiaries and affiliate organizations and the exercise by Lessee of enjoyment of the privileges herein granted or by reason of any act or omission of Lessee, its officers, agents, employees, parents, subsidiaries and affiliate organizations, from or in connection with this Lease, including, but not limited to, those related to tenancy, possession, construction, operation, or use by Lessee of the Demised Premises or which result in pollution, contamination or seepage and all such matters relating to environmental waste disposal laws, regulations, or issues, other than Claims arising from the gross negligence or wilful misconduct of Lessor and other lessees of the Demised Premises and their respective officers, agents, employees, parents, subsidiaries and affiliate organizations. This provision shall survive any termination or expiration of this Lease. 20.18. UNAVOIDABLE DELAYS. In the event of any Unavoidable Delays (hereinafter defined) under this Lease, the time of performance of the covenants and obligations under this Lease in question shall automatically be extended for a period of time equal to the aggregate period of the Unavoidable Delays. "Unavoidable Delays" shall mean delays due to (i) strikes, lockouts, acts of God, governmental restrictions or preemptions, enemy action, riot, civil commotion, storms, fire, floods, earthquakes, or the inability to obtain labor or materials due to governmental restrictions, (ii) the wrongful failure of either party hereto to grant any consent or approval to the other party hereto, (iii) fire or other casualty or other causes beyond the control of the parties hereto and (iv) the breach or default of either party hereto in the performance of its obligations under this Lease which directly prevents the other party from proceeding to perform its obligations hereunder. 20.19. AUTHORIZATION. Lessor and Lessee each represent to the other that all necessary authorizations, 24 consents and approvals required in connection with the execution and delivery of this Lease have been obtained and that the entering into of this Lease does not violate the organizational documents of such party or any agreement, court order or law to which such party is subject. 20.20. NO PARTNERSHIP. Nothing contained in this Lease shall be deemed or construed to create a partnership or joint venture of or between Lessor and Lessee, or to create any relationship between the parties other than that of a lessor and a lessee. 20.21. RELEASE OF LIABILITY. Lessor hereby releases Lessee from all liabilities arising out of loss or damage to the Demised Premises (except any damage to Lessee's leasehold improvements which Lessee is required to insure under the terms of this Lease) caused by perils covered under fire and extended coverage insurance policies or all risk property insurance policies maintained by Lessor as required herein, other than any such loss or damage caused by the negligent or wrongful act or failure to act of Lessee, its officers, agents, employees, parents, subsidiaries and affiliate organizations. 25 20.22. COUNTERPARTS. This instrument may be executed in one or more counterparts, each of which when taken together shall constitute one and the same instrument The parties hereto have executed this Lease as of the date set forth above. LESSOR: /s/ Steve Landers --------------------- Steve Landers /s/ John Landers --------------------- John Landers /s/ Bob Landers --------------------- Bob Landers LESSEE: LANDERS AUTO SALES, INC. By: /s/ Carl Spielvogel --------------------- Carl Spielvogel Chairman and CEO 26 Schedule A FIXED RENT The annual fixed rental shall be Three Hundred Twenty-Four Thousand and 00/100 Dollars ($324,000). ADJUSTMENTS (a) The Fixed Rent shall be adjusted on each Actual Adjustment Date (and only on an Actual Adjustment Date) by the Actual Adjustment Amount determined on such Actual Adjustment Date, such adjusted Fixed Rent to be effective until the next Actual Adjustment Date. (b) For purposes of this Schedule A, the following terms shall have the following meanings (any term used in this Schedule A and not otherwise defined shall have the meaning ascribed to such term in the Lease): "ACTUAL ADJUSTMENT AMOUNT," with respect to each Adjustment Period, shall mean an amount equal to the sum of the Yearly Adjustment Amounts accrued in such Adjustment Period. "ACTUAL ADJUSTMENT DATE" shall mean each of the fourth, seventh, tenth, thirteenth, sixteenth and nineteenth anniversaries of the date of the Lease. "ADJUSTMENT PERIOD" shall mean, as applicable, the four year period ending on the fourth anniversary of the date of the Lease and each three year period thereafter through the end of the Initial Term. "INDEX" shall mean the Consumer Price for all items in the Index entitled: "Consumer Price Index for the United States Southern Region for All Urban Consumers (1983--100) (as revised) and issued by the Bureau of Labor Statistics of the United States Department of Labor. (In the event said Index shall hereafter be converted to a different Standard reference base or otherwise revised, the determination of the Percentage Increase (defined below) shall be made with the use of such conversion factor formula or table for converting said Index as may be published by the Bureau of Labor Statistics or, if said Bureau shall not publish the same, then with the use of such conversion factor, formula or table as may be published by any other Federal authority or, failing such publication, by any other nationally recognized publisher of similar statistical information.) "PERCENTAGE CHANGE," with respect to each year of the Term, shall mean a fraction, the numerator of which is equal to the Index in effect on the Yearly Adjustment Date less the Index in effect on the immediately preceding Yearly Adjustment Date, and the denominator of which is equal to the Index in effect on the immediately preceding Yearly Adjustment Date; provided that in no event shall the Percentage Change in any year exceed four percent (4%). "YEARLY ADJUSTMENT AMOUNT," with respect to each Yearly Adjustment Date, shall mean an amount equal to (A) the Fixed Rent in effect for the year immediately preceding such Yearly Adjustment Date plus the sum of the Yearly Adjustment Amounts accrued in the applicable Adjustment Period for which an Actual Adjustment Amount is being determined multiplied by (B) the Percentage Change for such year. "YEARLY ADJUSTMENT DATE," with respect to each year of the Term, shall mean each anniversary of the date of the Lease through the nineteenth anniversary of the date of the Lease. EX-10.4-7 35 EXHIBIT 10.4.7 [Oldsmobile-GMC] LEASE Between STEVE LANDERS, JOHN LANDERS AND BOB LANDERS Lessor, AND LANDERS AUTO SALES, INC., Lessee. Premises: County of Saline, Arkansas Lease Date: August 1, 1995 LEASE THIS LEASE (this "Lease"), dated as of the 1st day of August, 1995, is made by and between STEVE LANDERS, JOHN LANDERS AND BOB LANDERS, all of whom are individuals residing in Benton, Arkansas (collectively, "Lessor") and LANDERS AUTO SALES, INC., a corporation organized under the laws of the State of Arkansas, having an address at Congo Exit 118 (7800 Alcoa), Highway I-30, Benton, Arkansas 72015 ("Lessee"). RECITALS A. Lessor is the owner of the Demised Premises (hereinafter defined). B. Lessor desires to lease to Lessee, and Lessee desires to lease from Lessor, the Demised Premises. NOW, THEREFORE for good and valuation consideration, the receipt and sufficiency of which are hereby acknowledged, Lessor and Lessee agree as follows: ARTICLE I. PREMISES 1.1 DEMISED PREMISES. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, for the Term (hereinafter defined), at the rental, and upon all of the terms, covenants and conditions set forth herein, the following (collectively, the "Demised Premises"): (a) that certain real property located in Township 2 South, County of Saline, State of Arkansas, described in Exhibit A attached hereto and made a part hereof, together with any buildings and improvements now or hereafter located therein or thereon, including, without limitation, the Oldsmobile-GMC automobile dealership, showroom and service facility currently located thereon (collectively, the "Real Property"); (b) All right, title and interest, if any, of Lessor in and to any land lying in the bed of any street, road or avenue, open or proposed, in front of or adjoining the Real Property to the center line; (c) All right, title and interest, if any, of Lessor in and to any strips and gores of land adjacent to, abutting, or used in connection with the Real Property, and in and to easements, if any, enuring to the benefit of the Demised Premises or the fee owner; (d) Any appurtenances and hereditaments belonging or in any wise appertaining to the Real Property; and (e) Any and all personal property located at the Real Property owned by Lessor and used in connection with the operation of the Real Property as an automobile dealership and related uses; and (f) Any and all leases, tenancies and occupancy agreements in any way affecting the Real Property. 1.2. COMMON AREAS. Lessee shall have, as appurtenant to the Demised Premises, the non-exclusive right to use the Common Areas (hereinafter defined) of any improvements in common with others, subject to the terms and conditions of this Lease. For purposes of this Lease, "Common Areas" shall mean, collectively: the sidewalks, driveways, if any, entrances, parking areas, passages, and other portions of the improvements and/or the land shown on the site plan, that Lessor makes available from time to time for the common use of lessees of the improvements. ARTICLE II. TERM 2.1. INITIAL TERM. The term of this Lease, (as the same may be extended, the "Term") shall commence on the date hereof (the "Commencement Date"), and shall continue for a period of twenty (20) years thereafter (the "Initial Term"). 2.2. RENEWAL OPTIONS. Lessee shall have the option to extend the Term on all of the terms and provisions contained in this Lease, except for the payment of rent which is to be negotiated by the parties hereto, for two (2) successive five (5) year renewal periods (each, a "Renewal Period") following the expiration of the Initial Term of this Lease, by giving written notice to Lessor of the exercise of this option to extend the Term not later than ninety (90) days prior to the expiration of the Initial Term or the first Renewal Period, as the case may be. 2 ARTICLE III. RENT 3.1. FIXED RENT. (a) Lessee shall, during the Term, pay to Lessor at such place as Lessor shall designate in writing, from time to time, annual fixed rental in the amounts set forth on SCHEDULE A attached hereto and made a part hereof, subject to adjustment as set forth on SCHEDULE A (hereinafter, the "FIXED RENT"). (b) The Fixed Rent shall be payable monthly in advance on the first day of each month in equal monthly installments equal to one-twelfth (1/12) of the Fixed Rent. (c) Fixed Rent for any period during the Term which is for less than one calendar month shall be prorated based on the number of calendar days in such calendar month that falls within the Term. 3.2. ADDITIONAL RENT. Lessee shall, during the Term, pay to Lessor at such place as Lessor shall designate in writing, from time to time, and, except as expressly provided herein, without offset, counterclaim, defense or demand thereof, additional rent ("Additional Rent") consisting of all other sums of money that become due from Lessee and payable to Lessor hereunder. Fixed Rent and Additional Rent are hereinafter collectively referred to as "Rent". ARTICLE IV. INTENTIONALLY OMITTED ARTICLE V. USE The Demised Premises shall be used for the operation of automobile dealerships and ancillary business thereto, general office purposes and/or any other lawful purposes. Lessee shall obtain, at its sole cost and expense, all licenses, approvals and permits required for Lessee's use and occupancy of the Demised Premises. Lessee shall not use or permit the use of the Demised Premises, in violation of any applicable law, statute, ordinance, code, rule, regulation order or decree, of any hazardous, toxic 3 or dangerous waste, substance or material defined as such in the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act, any so-called "Superfund" or "Superlien" law, or any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic or dangerous waste, substance or material, as now or at any time hereafter in effect. ARTICLE VI. COMPLIANCE WITH LAW 6.1. LESSOR REPRESENTATIONS. Lessor represents and warrants to Lessee that during the Term, the Demised Premises shall, but without regard to the use for which Lessee will use the Demised Premises, comply with all applicable laws, statutes, ordinances, rules, regulations and orders of all state, municipal and local governmental authorities having jurisdiction over the Demised Premises, including, building and zoning codes, regulations and ordinances and environmental codes, regulations and laws, including those related to pollution and contamination (collectively "Governmental Laws"). If it is determined that this warranty has been violated, then it shall be the obligation of Lessor, after written notice from Lessee, promptly, at Lessor's sole cost and expense, to rectify any such violation. 6.2. LESSEE COMPLIANCE. Lessee shall, at Lessee's expense, promptly comply with all Governmental Laws relating to the Demised Premises in effect during the Term or any part of the Term regulating the use by Lessee of the Demised Premises. If it is determined that this covenant has been violated, then it shall be the obligation of Lessee, after written notice from Lessor, to promptly, at Lessee's sole cost and expense, to rectify any such violation. 6.3. CONTESTS. Lessee shall have the right, to the extent permitted by law, at its own expense to contest the validity and/or applicability of any Governmental Laws relating to the Demised Premises by appropriate proceedings diligently conducted in good faith, and, notwithstanding the provisions of PARAGRAPH 6.2 hereof, Lessee's compliance with such contested Governmental Laws may be postponed or deferred during the pendency of such proceeding so long as neither the Demised Premises nor any part thereof would, by reason of such non- compliance be, in the reasonable judgment of Lessor, in danger of 4 being forfeited or lost and Lessor shall not be subject to any criminal or civil liability. ARTICLE VII. CONDITION OF THE DEMISED PREMISES Lessee hereby agrees to accept the Demised Premises in accordance with the terms of this Lease, subject to all Governmental Laws and restrictions of record governing and regulating the use of the Demised Premises, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. ARTICLE VIII. MAINTENANCE AND REPAIRS 8.1. LESSEE REPAIR OBLIGATIONS. Lessee shall, at its expense, take good care of the Demised Premises, the fixtures and appurtenances therein and any of Lessee's trade fixtures, furnishings, equipment and personal property (collectively, "Lessee's Property"). Except as provided in PARAGRAPH 8.2, Lessee shall be responsible for and shall promptly make all repairs, interior and exterior, structural and nonstructural, ordinary and extraordinary, in and to the Demised Premises. Lessee, at its expense, shall be responsible for the repair, maintenance and replacement of all mechanical, electrical, sanitary, heating, ventilating, air-conditioning and other fixtures and equipment in the Demised Premises. 8.2. LESSOR REPAIR OBLIGATIONS. Lessor agrees, at its sole cost and expense, to repair any material defects in the Demised Premises arising from defective design, labor or material, and to remedy and correct any violation of Governmental Laws arising out of or relating to the construction of the improvements or the environmental condition of the Demised Premises on the date hereof. Neither Lessee's acceptance of the Demised Premises nor Lessee's entry into possession thereof, nor payments of any monthly installments of Rent, nor Lessee's performance of any of the other provisions or conditions hereof, shall relieve Lessor of such responsibility. 5 ARTICLE IX. SURRENDER On the last day of the Term, or on any sooner termination of this Lease, subject to the terms of ARTICLE 13, Lessee shall surrender the Demised Premises to Lessor in the same condition as when received by Lessee broom clean, ordinary wear and tear excepted. ARTICLE X. LESSOR'S AND LESSEE'S RIGHTS If either party fails to perform its obligations hereunder, the other may at its option (but shall not be required to) put the same in good order, condition and repair, upon sixty (60) days written notice to the non-performing party (which written notice shall not be required in the case of an emergency) and the cost thereof, together with interest thereon at the Lease Interest Rate (as defined in PARAGRAPH 20.3) shall become due and payable from the non- performing party to the other party within ten (10) days after demand by the performing party; PROVIDED, HOWEVER, if the obligation of the non-performing party is not capable of being performed within such sixty (60) day period and if the non-performing party is diligently endeavoring to perform such obligation, the performing party shall not perform such obligation. All such work performed by the performing party shall be performed in a good and workmanlike manner, in compliance with all Governmental Laws. Neither Lessee nor Lessor shall perform any such work until such time as it has received all necessary permits, licenses and approvals from the applicable state, county and municipal governmental authorities having jurisdiction over the Demised Premises ("Governmental Authorities"). If either party performs any such work, such party shall, at all times, keep the Demised Premises free of liens and encumbrances for labor and materials. ARTICLE XI. ALTERATIONS AND IMPROVEMENTS 11.1 LESSEE ALTERATIONS. Lessee shall have the right, at its own cost and expense, to make such alterations and changes in and to the Demised Premises as it shall deem expedient or necessary for its purposes. All such work shall be done in a 6 good and workmanlike manner, and in accordance with all Governmental Laws. Lessor shall execute and deliver upon request of Lessee such reasonable instrument or instruments embodying the approval of Lessor which may be required by any Governmental Authority for the purpose of obtaining any license, permit or approval for the making of alterations or changes in, to or upon the Demised Premises, Lessee agreeing to pay for any such license, permit or approval. Lessee shall not make any alterations to the Demised Premises until such time as it has received all required permits, licenses and approvals from the applicable Governmental Authority. 11.2. REMOVAL OF IMPROVEMENTS. Any and all alterations, improvements and installations made by Lessee in, to or upon the Demised Premises, as well as any fixtures installed on the Demised Premises by Lessee, at Lessee's option, may be removed from the Demised Premises at any time and from time to time during the Term and shall remain the property of Lessee during and at the expiration of the Term of this Lease, provided that, if any such alterations, improvements, installations and/or fixtures are removed by Lessee, any damage caused by such removal shall be promptly repaired by Lessee at its sole cost and expense. ARTICLE XII. INSURANCE 12.1. Insurance Coverage. (a) Lessee shall, at Lessee's cost and expense, maintain the following insurance issued in the names of Lessor and Lessee as their interests may appear: (i) a policy of standard fire and extended coverage insurance on all improvements included in the Demised Premises with vandalism and malicious mischief endorsements, to the extent of full replacement value; and (ii) a policy of general public liability insurance against claims for personal injury or property damage, with such limits as may be reasonably requested by Lessor from time to time, but not more than Two Million Dollars ($2,000,000) in respect of bodily injury or death 7 and Two Million Dollars ($2,000,000) for property damage. (b) All such insurance policies shall provide that any proceeds shall be made payable into an escrow account maintained by an escrow agent mutually selected by Lessee and Lessor, who shall distribute same pursuant to the terms of this Lease and in accordance with the written instructions of Lessee and the approval of Lessor, which approval by Lessor shall not be unreasonably withheld, delayed or conditioned. (c) All such insurance policies may, at the option of Lessee, be effected by blanket and/or umbrella policies issued to Lessee covering the Demised Premises and other properties owned or leased by Lessee or its affiliates. (d) Lessor shall not obtain or continue to maintain any separate or additional insurance which is contributing in the event of loss unless it is properly endorsed and otherwise satisfactory to Lessee in all respects. 12.2. CERTIFICATES. All insurance provided for under this Lease shall be effected under valid enforceable policies insured by insurers of recognized responsibility and who are reasonably acceptable to Lessor and licensed to do business in the State of Arkansas. Such insurance may be carried by Lessee as a part of blanket coverage for such insurance covering all premises owned or leased by Lessee wherever located. Certificates of Insurance evidencing the current existence of such coverage shall be delivered to Lessor at least ten days prior to the expiration date of any policy. Renewal certificates shall be delivered by Lessee to Lessor, together with satisfactory evidence of payment of the premium on such policies. To the extent obtainable, all such policies shall contain agreements by the insurers that such policies shall not be cancelled except upon thirty days' prior written notice to each named insured and loss payee, including Lessor. 12.3. ADJUSTMENTS. All policies of insurance required herein shall name Lessor and Lessee as the insureds as their respective interests may appear. The loss, if any, under said policies referred to in this ARTICLE 12 shall be adjusted with the insurance companies by Lessee to the extent that Lessee is obligated to repair or restore the Demised Premises pursuant 8 to ARTICLE 13 hereof and by Lessor in the event that Lessee is not so obligated to restore. 12.4. PROCEEDS. All proceeds payable by reason of any loss or damage to the Demised Premises, or any portion thereof, and insured under any policy of insurance required by this ARTICLE 12 shall be paid to Lessee and shall be used only for reconstruction or repair, as the case may be, of any damage to or destruction of the Demised Premises, or any portion thereof. Any excess proceeds of insurance remaining after the completion of the restoration or reconstruction of the Demised Premises shall be retained by Lessee. In the event that, pursuant to the terms of PARAGRAPH 13.3, Lessee is not required or does not elect to repair and restore and this Lease expires or is terminated, all such insurance proceeds shall be paid to and retained by Lessor. ARTICLE XIII. DAMAGE OR DESTRUCTION 13.1. RESTORATION. Subject to the provisions of PARAGRAPH 13.3 hereof, Lessee covenants that in the event of damage to all or a portion of the Demised Premises by fire or any other cause, similar or dissimilar, insured or uninsured, in the event that Lessor approves the distribution of the insurance proceeds in accordance with Lessee's instructions under PARAGRAPH 12.1(b), Lessee will promptly, at its sole cost and expense, restore or repair the Demised Premises so damaged or destroyed as nearly as possible to the condition it was in immediately prior to such damage or destruction, or with such changes or alterations as Lessee shall elect to make in conformity with ARTICLE 11 hereof, whether or not any costs or expenses of such restoration exceeds the amount of the insurance proceeds received in connection with such damage or destruction. Such restoration, shall be commenced promptly and prosecuted with reasonable diligence, unavoidable delays excepted. 13.2. NO ABATEMENT. Except as provided in PARAGRAPH 13.3, the Fixed Rent and all Additional Rent payable hereunder shall not be abated due to any damage or destruction to the Demised Premises. 13.3. TERMINATION OPTION. Notwithstanding the provisions of PARAGRAPH 13.1 hereof, in the event that (i) at any time during the Initial Term or a Renewal Term, Lessor 9 unreasonably withholds its approval of the distribution of the insurance proceeds in accordance with Lessee's instructions, (ii) at any time during the eighteenth (18th) or nineteenth (19th) years of the Initial Term, all or a portion of the Demised Premises are damaged to the extent that, in Lessee's reasonable judgment, the necessary repairs or restoration would not be substantially completed within nine (9) months from the date of said casualty, or (iii) at any time during the last year of the Initial Term or at any time during a Renewal Term, all or a portion of the Demised Premises are damaged, Lessee may, terminate this Lease upon delivery of written notice to Lessor within sixty (60) days after the occurrence of the casualty causing such damage and Lessee shall be released from any liability under this Lease accruing from and after the date of said casualty. In the event that Lessee terminates this Lease as provided in the immediately preceding sentence, all insurance proceeds resulting from said casualty shall be paid to and retained by Lessor. ARTICLE XIV. TAXES 14.1. IMPOSITIONS. Lessee covenants and agrees to pay or cause to be paid, as hereinafter provided, to the Governmental Authority imposing the same, all of the following items ("Impositions") not later than the date on which same are due without the payment of any fines, penalties or interest: (a) real property taxes and assessments assessed and levied against the Demised Premises or any part thereof, (b) personal property taxes, (c) water, water meter and sewer rents, rates and charges, and (d) fines, penalties and other similar or like governmental charges applicable to the foregoing and any interest or costs with respect thereto only to the extent incurred by reason of Lessee's wrongful act or omission or Lessee's failure fully and promptly to comply with any provision of this Lease. Each such Imposition, or installment thereof, during the Term shall be paid prior to the last day the same may be paid without fine, penalty, interest or additional cost; provided, however, that if, by law, any Imposition may at the option of the taxpayer be paid in installments (whether or not interest shall accrue on the unpaid balance of such Imposition), Lessee may exercise the option to pay the same in such installments and shall be responsible for the payment of such installments only. 14.2. EVIDENCE OF PAYMENT. If Lessee is paying any Imposition directly to the Governmental Authority imposing the same, then Lessee, from time to time upon the request of Lessor, 10 shall furnish to Lessor, within the earlier of (i) ninety (90) days after the date when such Imposition is due and payable under this Lease, or (ii) thirty (30) days after the date when an official receipt of the Governmental Authority imposing the same is received, such official receipt or, if no such receipt has been received by Lessee, other evidence reasonably satisfactory to Lessor, evidencing the payment of the Imposition. 14.3. EXCLUDED TAXES. Nothing herein contained shall require Lessee to pay municipal, state or federal income, inheritance, estate, succession, transfer or gift taxes of Lessor, or any corporate franchise tax imposed upon Lessor or any gross income or gross receipts taxes to the extent the same are imposed on Lessor in lieu of net income taxes or corporate franchise taxes. 14.4. APPORTIONMENTS. Any Imposition, relating to a fiscal period of the imposing Governmental Authority, a part of which period is included within the Term and a part of which is included in a period of time before the Commencement Date or after the Expiration Date (whether or not such Imposition shall be assessed, levied, confirmed, imposed upon or in respect of or become a lien upon the Demised Premises, or shall become payable, during the Term) shall be apportioned between Lessor and Lessee as of the Commencement Date or Expiration Date, as the case may be, so that Lessee shall pay that portion of such Imposition which that part of such fiscal period included in the period of time after the Commencement Date and before the Expiration Date. 14.5. CONTESTS. (a) Lessee shall have the right, to the extent permitted by law, at its own expense to contest the amount or validity, in whole or in part, of any Imposition by appropriate proceedings diligently conducted in good faith, and, notwithstanding the provisions of PARAGRAPH 14.1 hereof, the payment of such contested Imposition may be postponed or deferred so long as neither the Demised Premises nor any part thereof, nor any part of the rents, issues and profits thereof, would, by reason of such postponement or deferment, be, in the reasonable judgment of Lessor, in danger of being forfeited or lost and Lessor shall not be subject to any criminal or civil liability. 11 (b) Lessee shall have the right, to the extent permitted by law, and at Lessee's sole cost and expense, to seek a reduction in the valuation of the Demised Premises assessed for real property tax purposes and to prosecute any action or proceeding in connection therewith. Lessor shall fully cooperate with Lessee in any such proceeding. (c) Lessor shall not be required to join in any proceedings referred to in PARAGRAPHS 14.5(a) and (b) hereof unless the provisions of any law, rule or regulation at the time in effect shall require that such proceedings be brought by and/or in the name of Lessor, in which event, Lessor shall join and cooperate in such proceedings or permit the same to be brought in its name, but shall not be liable for the payment of any costs or expenses in connection with any such proceedings and Lessee shall reimburse Lessor for any and all reasonable costs or expenses which Lessor may sustain or incur in connection with any such proceedings. ARTICLE XV. UTILITIES AND SERVICES 15.1. LESSOR REPRESENTATION. Lessor represents and warrants that the Demised Premises are equipped with all plumbing equipment, electrical facilities and lighting fixtures and equipment, heating, air conditioning, ventilating, and other appurtenant equipment and facilities necessary or appropriate for Lessee's use of the Demised Premises or as otherwise required by Governmental Laws. Lessee will pay, or cause to be paid all changes for electricity, power, gas, oil, water and other utilities used in connection with the Demised Premises during the term of this Lease. 15.2. NO SERVICES. Lessor shall not be obligated to furnish or to pay for utilities or services to the Demised Premises. ARTICLE XVI. ASSIGNMENT Except as expressly permitted in this Lease, Lessee shall not voluntarily or by operation of law assign all or any part of Lessee's interest in this Lease, without Lessor's prior written consent, which Lessor shall not unreasonably withhold, condition or delay. Any attempted assignment without such 12 consent shall be void and shall constitute a breach of this Lease, unless the same is expressly permitted hereunder. In no event shall (i) any transfer (by one or more transfers) of a majority of the stock of Lessee, (ii) the merger or consolidation of Lessee with another corporation, or (iii) the transfer of all or substantially all of Lessee's assets to another corporation or entity, constitute an assignment, or attempted assignment of this Lease, provided that, in all such events in which Lessee survives such transaction, Lessee shall remain fully liable for the payment of Rent and for the other obligations of this Lease on the part of Lessee to be performed or observed. ARTICLE XIII. DEFAULTS; REMEDIES 17.1. DEFAULTS. If any of the following events shall occur (each, a "Default" and collectively "Defaults"): (a) The failure by Lessee to make any payment of Rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of ten (10) days after written notice from Lessor to Lessee; (b) The failure by Lessee to observe or perform any of the material covenants, conditions to provisions of this Lease to be observed or performed by Lessee, other than described in Paragraph 17.1(a) above, where such failure shall continue for a period of thirty (30) days after written notice thereof from Lessor to Lessee specifying, in reasonable detail, how Lessee has failed to perform; PROVIDED, HOWEVER, that if Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then Lessee shall not be deemed to be in Default if Lessee commenced such cure within said 30-day period and thereafter diligently prosecutes such cure to completion; then in any of said cases, and without waiving any claims for breach of agreement, Lessor may (i) accelerate all Rent owing hereunder upon such Default; (ii) Take possession of the Demised Premises and lease the same for the account of Lessee upon such terms as may be acceptable to Lessor and apply the net proceeds received from such leasing toward the payment 13 of Rent which Lessee herein is obligated to pay and collect the balance thereof, if any, from Lessee; (iii) Terminate the Lease and take possession of the Demised Premises and collect from Lessee all damages sustained by reason of such Default; or (iv) Pursue any remedy or remedies which may be available at law or in equity; PROVIDED, HOWEVER, that Lessor hereby agrees to use its best efforts to mitigate any damages sustained or liability incurred by reason of any Default and the exercise of any remedies in connection therewith. 17.2. LESSEE OBJECTION. Subject to the last sentence of this PARAGRAPH 17.2., upon the happening of any alleged non-monetary Default on the part of Lessee, if Lessee within thirty (30) days after receipt of such appropriate notice as set forth in PARAGRAPH 17.1 from Lessor shall, commence and thereafter in good faith, diligently prosecute in a court of competent jurisdiction a proceeding to determine whether or not such non-monetary defaults or alleged defaults have occurred, then Lessor may not terminate this Lease or exercise any rights as provided above by law or otherwise unless the final judgment not subject to further appeal in such court proceedings shall be adverse to Lessee and Lessee, in such case, within twenty (20) days from the date of the final judgment in such court proceedings fails to cure such non- monetary default(s) or, if any such default or defaults cannot reasonably be cured within such twenty (20) days, if Lessee within said twenty (20) days shall fail to commence and thereafter diligently and continuously prosecute to completion the work of curing such non-monetary default or defaults. Notwithstanding the foregoing, Lessee shall have no rights under this PARAGRAPH 17.2 if, at the time Lessee receives notice of any non-monetary default under this Lease, the laws of the State of Arkansas otherwise provides for the injunction of the threatened termination of a lease until a final judgment has been rendered by a court of competent jurisdiction as to whether or not a non- monetary default has occurred thereunder. 17.3. VACATING THE DEMISED PREMISES. (a) In the event of any such termination of this Lease, (i) this Lease shall be of no further force and effect; and (ii) Lessee covenants and agrees to surrender and deliver the Demised Premises to Lessor in accordance 14 with ARTICLE 9 hereof immediately upon the termination of the Lease. (b) It is understood and agreed that at the time of the termination or at any time thereafter Lessor may rent the Demised Premises, or any portion thereof for such period and on such term or terms, and for a term which may expire before or after the expiration of the Term and Lessee shall have no interest in any income received by Lessor as a result of such reletting and no title or interest in the Demised Premises whatsoever. 17.4. LESSOR'S SELF-HELP REMEDY. If Lessee shall fail, after thirty (30) days notice from Lessor, to perform any of the covenants, terms or conditions required to be performed by Lessee hereunder (except that in the event of an emergency, the notice shall either be dispensed with or shortened as reasonably required by the nature of the emergency), in addition to the provisions of this ARTICLE 17, Lessor may do whatever is reasonably necessary for the performance thereof for the account and at the expense of Lessee. In the event Lessor shall pay any money by reason of said failure, Lessee shall repay any such reasonable sums so paid on its behalf together with interest thereon at the Lease Interest Rate which shall be deemed Rent, and the same shall be payable within 30 days after presentation of the request for payment, accompanied by Lessor's statement submitted to Lessee by Lessor showing in all reasonable detail the expenses of Lessor, why incurred, to whom payment was made and the calculations of and supporting bills or records showing Lessor's expenditures. 17.5. LESSEE'S SELF-HELP REMEDY. If Lessor shall fail, after thirty (30) days notice from Lessor, to perform any of the covenants, terms or conditions required to be performed by Lessor hereunder (except that in the event of an emergency, the notice shall either be dispensed with or shortened as reasonably required by the nature of the emergency), Lessee may do whatever is reasonably necessary for the performance thereof for the account and at the expense of Lessor. In the event Lessee shall pay any money by reason of said failure, Lessor shall repay any such reasonable sums so paid on its behalf together with interest thereon at the Lease Interest Rate, and the same shall be payable within 30 days after presentation of the request for payment, accompanied by Lessee's statement submitted to Lessor by Lessee showing in all reasonable detail the expenses of Lessee, why incurred, to whom payment was made and the calculations of and supporting bills or records showing Lessee's expenditures. If Lessor shall fail to reimburse Lessee within thirty (30) days 15 after receipt of Lessee's request for reimbursement for money expended by Lessee under this PARAGRAPH 17.5, Lessee may set-off against Rent, next becoming due to Lessor, such amount together with interest at the Lease Interest Rate from the date expended until Lessee has recouped the money due it under this PARAGRAPH 17.5. 17.6. EXCLUSIVE REMEDIES. No remedy herein or otherwise conferred upon or reserved to Lessor or Lessee shall be considered exclusive of any other remedy, but the same shall be distinct, separate and cumulative and shall be in addition to every other remedy given under this Lease, or now or hereafter existing at law or in equity or by statute. Every power and remedy given by this Lease to Lessor, or Lessee, may be exercised from time to time as often as occasion may arise, or as may be deemed expedient. No delay or omission of Lessor or Lessee to exercise any right or power arising from any default on the part of the other shall impair any such right or power, or shall be construed to be a waiver of such default or any other default or an acquiescence thereto. The consent or approval by Lessor or Lessee to or of any act by the other requiring such consent or approval shall not be deemed to waive or render unnecessary the consent or approval to or of any subsequent similar acts by Lessor or Lessee, as the case may be. 17.7. LESSEE TERMINATION RIGHT. (a) Without limiting the provisions of PARAGRAPH 17.6 and in addition to all other remedies which the Lessee may have as stated elsewhere in this Lease, at law or in equity, including the right to seek specific performance or injunctive relief, Lessee shall have the right, but not the obligation, on notice to Lessor, to terminate this Lease if Lessor shall fail to perform any of the terms, covenants and obligations of Lessor herein. (a) With respect to defaults as to which this Lease does not provide any grace period or opportunity to cure, Lessor shall have thirty (30) days after receipt of such notice from Lessee to cure the default giving rise to Lessee's right to so terminate this Lease. (b) If Lessor cures the default within said 30-day period this Lease shall not terminate and shall continue in full force and effect. If Lessor fails to cure the default within said 30-day period, Lessee shall give notice to Lessor of Lessor's failure to cure the same and this Lease shall terminate, as if by passage of time, on the date 16 set forth in Lessee's notice of termination; PROVIDED, HOWEVER, that if Lessor's Default is such that more than thirty (30) days are reasonably required for its cure, then this Lease shall not terminate if Lessor commenced such cure within said 30-day period and thereafter diligently prosecutes such cure to completion and such cure is completed within ninety (90) days after the occurrence of such default. ARTICLE XVIII. CONDEMNATION 18.1. If the Demised Premises or any portion thereof are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called ("Condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title to or possession of the Demised Premises of such portion thereof, whichever first occurs. If (i) more than 20% of the floor area of the Demised Premises, or more than 20% of the parking area included in the Demised Premises and used by Lessee, is taken by Condemnation and (ii) in Lessee's judgment, the Demised Premises cannot be repaired or restored to a condition which would allow Lessee to use the Demised Premises substantially in the manner that Lessee had used the Demised Premises prior to said Condemnation, Lessee may, at Lessee's option, to be exercised in writing within twenty (20) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within twenty (20) days after the condemning authority shall have taken title to or possession of the Demised Premises or any part thereof) terminate this Lease as of the later of the date on which the condemning authority takes title to or possession of the Demised Premises or any part thereof. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Demised Premises remaining, except that the Rent shall be reduced from the date of the taking in the proportion that the portion of the Demised Premises taken bears to the total area of the Demised Premises. Any award for the taking of all or any part of the Demised Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor; PROVIDED, HOWEVER, that Lessee shall be entitled to any award made as compensation for diminution in value of the Lessee's leasehold estate, business loss, moving expenses, loss of or damage to the Lessee's trade fixtures and removable personal property. In the event that this Lease is not terminated by reason of such Condemnation, Lessor shall, to the extent of any award received 17 by Lessor in connection with such Condemnation, repair any damage to the Demised Premises caused by such Condemnation except to the extent that Lessee has been reimbursed therefore by the condemning authority. 18.2. Notwithstanding anything which may be to the contrary in this ARTICLE 18, in connection with any taking, Lessee shall be entitled to make a separate claim, and to prove and receive an award for (a) the diminution in value of Lessee's leasehold estate, (b) the value of Lessee's property to the extent the same is taken, and (c) any moving allowance and other expenses permitted by law. ARTICLE XIX. INTENTIONALLY OMITTED ARTICLE XX. GENERAL PROVISIONS 20.1. ESTOPPEL CERTIFICATES. (a) Lessee shall at any time upon not less than twenty (20) days prior written notice from Lessor execute, acknowledge and deliver to Lessor or any party designated by Lessor a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the Rent and other charges are paid in advance, if any, (ii) acknowledging, as of the date of the certificate, that, to its actual knowledge, there are no uncured Defaults or events which with the giving of notice or the passage of time or both would constitute a Default or specifying such Defaults or events, if any are claimed and (iii) any other information reasonably requested by Lessor. Such statement shall be binding on Lessee and may be relied upon by Lessor or any other party designated by Lessor to whom such certificate is delivered. (b) Lessor shall at any time upon not less than twenty (20) days prior written notice from Lessee execute, acknowledge and deliver to Lessee or any party designated by Lessee a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, 18 stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the Rent and other charges are paid in advance, if any, (ii) acknowledging, as of the date of the certificate, that, to its actual knowledge, there are no uncured Defaults or events which with the giving of notice or the passage of time or both would constitute a Default or specifying such Defaults or events, if any are claimed and (iii) any other information reasonably requested by Lessee. Such statement shall be binding on Lessor and may be relied upon by Lessee or any other party designated by Lessee to whom such certificate is delivered. 20.2. SEVERABILITY. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 20.3. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly provided herein, any amount due hereunder to either Lessor or Lessee from the other party which is not paid when due and any amount paid by Lessor or Lessee on behalf of the other in accordance with the terms hereof shall bear interest from the date due or the date paid, as applicable, at a rate (the "Lease Interest Rate") equal to the lesser of (a) 2% in excess of the prime or base rate of interest announced by Citibank, N.A. at its principal office in New York City, New York and (b) the maximum rate of interest permitted by applicable law with respect to said amounts. Payment of such interest shall not excuse or cure any Default or event of default by Lessee or Lessor under this Lease. Notwithstanding anything to the contrary contained in this Lease, in no event shall interest be payable by Lessee with respect to (i) any amounts due and payable by Lessee during the period in which either John Landers or Steve Landers are employees of Lessee, (ii) any late charges incurred by Lessee, or (iii) any amounts upon which late charges are paid by Lessee. 20.4. CAPTIONS. Article and paragraph captions are not a part hereof and are for convenience of reference only. 20.5. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains the entire agreement and understanding of the parties hereto with respect to the subject matter hereof. All prior agreements or understandings pertaining to the subject matter hereof shall be of no force or effect. This Lease may only be amended or modified in writing, signed by 19 the parties in interest at the time of such amendment or modification. 20.6. NOTICES. Any notices required or permitted to be given hereunder shall be sufficient if given at the addresses of Lessor and Lessee first set forth above. Notices shall be sufficient if sent by certified mail, return receipt requested, postage pre-paid; nationally recognized overnight courier service; or by hand. Notices sent (i) by certified mail, return receipt requested shall be deemed received three (3) days after deposit in a United States mail box, postage prepaid, (ii) by nationally recognized overnight courier service shall be deemed received one (1) business day after delivery to such courier service; and (iii) by hand shall be deemed delivered upon receipt. 20.7. WAIVERS. No waiver by either party of any term or provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by the other of the same or any other provision. Lessor's consent to or approval of any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act by Lessee. The acceptance of Rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular Rent so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such Rent. 20.8. RECORDING. Lessee shall not record this Lease without Lessor's prior written consent, and such recordation shall, at the option of Lessor, constitute a non-curable Default of Lessee hereunder. The parties hereto shall contemporaneously herewith execute and record, at Lessee's expense, a Memorandum of Lease in the form attached hereto as Exhibit B. 20.9. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 20.10. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties hereto and their respective successors and assigns. This Lease shall be governed by the laws of the State in which the Demised Premises is located. 20 20.11. SUBORDINATION. (a) Provided Lessor obtains and delivers to Lessee a Subordination, Nondisturbance and Attornment Agreement in the form attached hereto as Exhibit C (the "SNDA") from the holder of any present or future mortgage or deed of trust encumbering the Demised Premises (a "Mortgagee"), then this Lease shall be subject and subordinate to the lien of the mortgage or deed of trust, specifically referenced in such SNDA. (b) If at any time a Mortgagee or any party claiming by or through a Mortgagee shall succeed to the rights of Lessor as lessor under this Lease, whether through foreclosure action, assignment or deed in lieu of foreclosure or otherwise (a "Successor Lessor"), at the request of such Successor Lessor, and upon the written agreement of such Successor Lessor to accept Lessee's attornment, Lessee shall attorn to and recognize such Successor Lessor as Lessee's lessor under this Lease. In confirmation of such attornment, Lessee shall promptly execute, acknowledge and deliver any instrument that Lessor or such Successor Lessor requests to evidence such attornment. Upon any such attornment, this Lease shall continue in full force and effect as, or as if it were, a direct lease between such Successor Lessor and Lessee upon all of the then executory terms, conditions and covenants as are set forth in this Lease and which shall be applicable after such attornment, except that the Successor Lessor shall not be: (i) liable for any prior act or omission of Lessor; (ii) subject to any offsets or defenses which Lessee may have against Lessor; (iii) bound by any payment of Rent which Lessee might have made to Lessor for more than one month in advance of the date the same was due under this Lease or bound by any security or other deposits not actually received by such Successor Lessor; (iv) bound by any obligation to make any payment to Lessee, or provide any services or perform any repairs, maintenance or restoration provided for under this Lease to be performed before the date that the Successor Lessor becomes the lessor of Lessee; 21 (v) bound by any obligation to construct any improvements on the Demised Premises; or (vi) bound by any modification of this Lease made without the written consent of such Successor Lessor or the Mortgagee through which such Successor Lessor is claiming its interest, where such consent is required under the terms of the documents evidencing its loan to Lessor, after written notice has been given to Lessee of the existence of such Successor Lessor or Mortgagee. (c) If any act or omission of Lessor would give Lessee the right, immediately or after lapse of a period of time, to cancel or terminate this Lease, or to claim a partial or total eviction, Lessee shall not exercise such right until (a) Lessee gives notice of such act or omission to Lessor and to each Mortgagee whose name and address were previously furnished to Lessee and (b) a reasonable period of time for remedying such act or omission elapses following the time when such Mortgagee becomes entitled under its Mortgage to remedy same (which reasonable period shall in no event be less than the period to which Lessor is entitled under this Lease or otherwise, after similar notice, to effect such remedy or be longer than 45 days after notice from Lessee to Mortgagee of such act or omission). 20.12. LESSOR'S ACCESS. Subject to Lessee's reasonable security regulations, Lessor and Lessor's agents shall have the right to enter the Demised Premises at reasonable times upon reasonable notice for the purpose of inspecting the same, showing the same to perspective purchasers, Lenders, or lessees, and making such alterations, repairs, improvements or additions to the Demised Premises as Lessor deems necessary or desirable. Any time during the last one hundred twenty (120) days of the Term, Lessor may place on or about the Demised Premises any ordinary "For Lease" sign. 20.13. CONSENTS. Wherever in this Lease the consent of one party is required to an act of the other party such consent shall not be unreasonably withheld, conditioned or delayed. 20.14. QUIET POSSESSION. Upon Lessee paying the Rent reserved hereunder and observing and performing all of the material covenants, conditions and provisions on Lessee's party 22 to be observed and performed hereunder, Lessee shall have quiet possession of the Demised Premises for the entire Term hereof subject to all of the provisions of this Lease. 20.15. SIGNAGE. During the period in which Lessee occupies the Demised Premises, Lessee shall have the right to place signs on the Demised Premises. All signs erected or placed on the Demised Premises by Lessee shall comply with all applicable Governmental Laws. 20.16. BROKERS. Lessor and Lessee each covenant, warrant and represent to the other that no broker was instrumental in bringing about or consummating this Lease except for Geneva Companies and that neither Lessor nor Lessee has had dealings with any broker or other person concerning the leasing of the Demised Premises other than Geneva Companies. Lessor acknowledges and agrees that all fees and commissions payable to Geneva Companies shall be paid solely by Lessor. Lessor and Lessee shall each indemnify and hold the other harmless against and from any claims for any brokerage commissions or fees, and all costs, expenses and liabilities in connection therewith, including, without limitation, attorneys' fees and expenses (a) in connection with such claim if any broker or other person claims to have had dealings with the indemnifying party and/or (b) in connection with the enforcement of a party's rights under this PARAGRAPH 20.16. 20.17. INDEMNITIES. (a) Lessor shall indemnify, defend and hold harmless Lessee, its officers, agents, employees, parents, subsidiaries and affiliate organizations, from and against any claims, suits, loss, costs, (including attorneys' fees and disbursements and cleanup costs), damages, expenses and liabilities, including claims by reason of property damage or personal injury (including death) (collectively referred to as "Claims") arising out of the ownership or maintenance of the Demised Premises by Lessor or to the extent the same results from Lessor's actions or inactions arising from any acts, incidents, events, occurrences, or omissions which occurred or took place prior to the effective date of this Lease including, but not limited to, those related to ownership, tenancy, possession, construction, operation, or use by Lessor or any other party of the Demised Premises or which result in pollution, contamination or seepage and all matters relating to environmental waste disposal laws, 23 regulations, or issues, other than Claims relating to the gross negligence or wilful misconduct of Lessee, its officers, agents, employees, parents, subsidiaries and affiliate organizations. This provision shall survive any termination or expiration of this Lease. (b) Lessee shall indemnify, defend and hold harmless Lessor, its officers, agents, employees, parents, subsidiaries and affiliate organizations, from and against any and all Claims of whatsoever nature against them individually or collectively, arising out of the use of the Demised Premises by Lessee, its officers, agents, employees, parents, subsidiaries and affiliate organizations and the exercise by Lessee of enjoyment of the privileges herein granted or by reason of any act or omission of Lessee, its officers, agents, employees, parents, subsidiaries and affiliate organizations, from or in connection with this Lease, including, but not limited to, those related to tenancy, possession, construction, operation, or use by Lessee of the Demised Premises or which result in pollution, contamination or seepage and all such matters relating to environmental waste disposal laws, regulations, or issues, other than Claims arising from the gross negligence or wilful misconduct of Lessor and other lessees of the Demised Premises and their respective officers, agents, employees, parents, subsidiaries and affiliate organizations. This provision shall survive any termination or expiration of this Lease. 20.18. UNAVOIDABLE DELAYS. In the event of any Unavoidable Delays (hereinafter defined) under this Lease, the time of performance of the covenants and obligations under this Lease in question shall automatically be extended for a period of time equal to the aggregate period of the Unavoidable Delays. "Unavoidable Delays" shall mean delays due to (i) strikes, lockouts, acts of God, governmental restrictions or preemptions, enemy action, riot, civil commotion, storms, fire, floods, earthquakes, or the inability to obtain labor or materials due to governmental restrictions, (ii) the wrongful failure of either party hereto to grant any consent or approval to the other party hereto, (iii) fire or other casualty or other causes beyond the control of the parties hereto and (iv) the breach or default of either party hereto in the performance of its obligations under this Lease which directly prevents the other party from proceeding to perform its obligations hereunder. 20.19. AUTHORIZATION. Lessor and Lessee each represent to the other that all necessary authorizations, 24 consents and approvals required in connection with the execution and delivery of this Lease have been obtained and that the entering into of this Lease does not violate the organizational documents of such party or any agreement, court order or law to which such party is subject. 20.20. NO PARTNERSHIP. Nothing contained in this Lease shall be deemed or construed to create a partnership or joint venture of or between Lessor and Lessee, or to create any relationship between the parties other than that of a lessor and a lessee. 20.21. RELEASE OF LIABILITY. Lessor hereby releases Lessee from all liabilities arising out of loss or damage to the Demised Premises (except any damage to Lessee's leasehold improvements which Lessee is required to insure under the terms of this Lease) caused by perils covered under fire and extended coverage insurance policies or all risk property insurance policies maintained by Lessor as required herein, other than any such loss or damage caused by the negligent or wrongful act or failure to act of Lessee, its officers, agents, employees, parents, subsidiaries and affiliate organizations. 25 20.22. COUNTERPARTS. This instrument may be executed in one or more counterparts, each of which when taken together shall constitute one and the same instrument. The parties hereto have executed this Lease as of the date set forth above. LESSOR: /s/ Steve Landers --------------------- Steve Landers /s/ John Landers --------------------- John Landers /s/ Bob Landers --------------------- Bob Landers LESSEE: LANDERS AUTO SALES, INC. By: /s/ Carl Spielvogel --------------------- Carl Spielvogel Chairman & CEO 26 Schedule A FIXED RENT The annual fixed rental shall be Two Hundred Sixteen Thousand and 00/100 Dollars ($216,000). ADJUSTMENTS (a) The Fixed Rent shall be adjusted on each Actual Adjustment Date (and only on an Actual Adjustment Date) by the Actual Adjustment Amount determined on such Actual Adjustment Date, such adjusted Fixed Rent to be effective until the next Actual Adjustment Date. (b) For purposes of this Schedule A, the following terms shall have the following meanings (any term used in this Schedule A and not otherwise defined shall have the meaning ascribed to such term in the Lease): "ACTUAL ADJUSTMENT AMOUNT," with respect to each Adjustment Period, shall mean an amount equal to the sum of the Yearly Adjustment Amounts accrued in such Adjustment Period. "ACTUAL ADJUSTMENT DATE" shall mean each of the fourth, seventh, tenth, thirteenth, sixteenth and nineteenth anniversaries of the date of the Lease. "ADJUSTMENT PERIOD" shall mean, as applicable, the four year period ending on the fourth anniversary of the date of the Lease and each three year period thereafter through the end of the Initial Term. "INDEX" shall mean the Consumer Price for all items in the Index entitled: "Consumer Price Index for the United States Southern Region for All Urban Consumers (1983--100) (as revised) and issued by the Bureau of Labor Statistics of the United States Department of Labor. (In the event said Index shall hereafter be converted to a different Standard reference base or otherwise revised, the determination of the Percentage Increase (defined below) shall be made with the use of such conversion factor formula or table for converting said Index as may be published by the Bureau of Labor Statistics or, if said Bureau shall not publish the same, then with the use of such conversion factor, formula or table as may be published by any other Federal authority or, failing such publication, by any other nationally recognized publisher of similar statistical information.) "PERCENTAGE CHANGE," with respect to each year of the Term, shall mean a fraction, the numerator of which is equal to the Index in effect on the Yearly Adjustment Date less the Index in effect on the immediately preceding Yearly Adjustment Date, and the denominator of which is equal to the Index in effect on the immediately preceding Yearly Adjustment Date; provided that in no event shall the Percentage Change in any year exceed four percent (4%). "YEARLY ADJUSTMENT AMOUNT," with respect to each Yearly Adjustment Date, shall mean an amount equal to (A) the Fixed Rent in effect for the year immediately preceding such Yearly Adjustment Date plus the sum of the Yearly Adjustment Amounts accrued in the applicable Adjustment Period for which an Actual Adjustment Amount is being determined multiplied by (B) the Percentage Change for such year. "YEARLY ADJUSTMENT DATE," with respect to each year of the Term, shall mean each anniversary of the date of the Lease through the nineteenth anniversary of the date of the Lease. 2 EX-10.4-8 36 EXHIBIT 10.4.8 SHAREHOLDERS' AGREEMENT This SHAREHOLDERS' AGREEMENT, dated as of August 1, 1995, among United Auto Group, Inc., a Delaware corporation ("UAG"), United Landers, Inc., a Delaware corporation and a wholly owned subsidiary of UAG ("UAG/Landers"), Landers Auto Sales, Inc., an Arkansas corporation (the "Company"), Steve Landers, an individual residing in Arkansas ("Steve Landers"), and John Landers, an individual residing in Arkansas ("John Landers") (Steve Landers and John Landers are collectively referred to herein as the "Landers Shareholders"). UAG/Landers and the Landers Shareholders, and each other person or entity that may become a party hereto as contemplated hereby, are hereinafter individually referred to a "Shareholder" and collectively referred to as the "Shareholders." W I T N E S S E T H : WHEREAS, the Company has authorized capital stock of ten shares of common stock, no par value (the "Common Stock"); and WHEREAS, immediately prior to consummation of the UAG Purchase (as defined below), the Landers Shareholders and Bob Landers will each own 3.33 shares of Common Stock, which will constitute all of the issued and outstanding capital stock of the Company as of such time; and WHEREAS, the Landers Shareholders, Bob Landers, UAG and the Company have entered into an Amended and Restated Stock Purchase Agreement, dated as of July 1, 1995 (the "Stock Purchase Agreement"), pursuant to which UAG has agreed to purchase (the "UAG Purchase") 3.33 shares of Common Stock from Bob Landers and 2.335 shares of Common Stock from each of the Landers Shareholders (the "Shares"), such that immediately after giving effect to the UAG Purchase, UAG and the Landers Shareholders will own eighty percent (80%) and twenty percent (20%), respectively, of all of the issued and outstanding shares of Common Stock, on a fully-diluted basis; and WHEREAS, immediately after consummation of the UAG Purchase, UAG will contribute the Shares to UAG/Landers, its wholly owned subsidiary; and WHEREAS, pursuant to the Stock Purchase Agreement it is a condition precedent to the obligations of UAG and the Landers Shareholders to consummate the UAG Purchase that UAG, UAG/Landers, the Company and the Landers Shareholders shall have entered into this Agreement; and WHEREAS, UAG, UAG/Landers, the Company and the Landers Shareholders desire, INTER ALIA, to (i) make arrangements as to the composition of the Company's Board of Directors and the executive committee thereof, (ii) make certain provisions for the management of the Company, and (iii) provide certain rights and set certain restrictions in connection with the transfer of the Shareholders' shares of capital stock of the Company; NOW, THEREFORE, in consideration of the mutual terms, conditions, covenants and agreements made herein, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: "AFFILIATE" shall mean, with respect to any Shareholder, (i) in all cases, any Person that, directly or indirectly, controls, is controlled by or is under common control with such Shareholder and (ii) in the case of a Shareholder who is a natural person, his spouse, his issue, his estate and any trust entirely for the benefit of his spouse and/or issue. Neither the Company nor any of its Subsidiaries shall be deemed an Affiliate of any Shareholder. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with") as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "APPRAISED VALUE" shall have the meaning specified in Section 5.2(c) hereof. "BUSINESS DAY" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday, excluding Federal holdings. "COMMON STOCK" shall have the meaning specified in the first recital hereof. "COMMON STOCK EQUIVALENTS" shall mean all rights, warrants, options, indebtedness or other securities exercisable or exchangeable for, or convertible into, directly or indirectly, Common Stock. 2 "COMPANY" shall have the meaning set forth in the preamble hereof. "COMPANY BOARD" shall have the meaning specified in Section 3.1(a) hereof. "EFFECTIVE DATE" shall have the meaning set forth in Section 2.1 hereto. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder. "FIRST OFFER" shall have the meaning specified in Section 4.3(a) hereof. "FIRST OFFER PERIOD" shall have the meaning specified in Section 4.3(a) hereof. "FULLY-DILUTED SHARES" shall mean, at any time, the outstanding Common Stock plus (without duplication) all shares of Common Stock issuable, whether at such time, upon the passage of time or occurrence of future events, upon the exercise, conversion or exchange of all then outstanding Common Stock Equivalents. "LANDERS DESIGNEE" shall have the meaning specified in Section 3.1(a) hereof. "LANDERS EXCHANGED SHARES" shall have the meaning specified in Section 5.1(c) hereof. "LANDERS INTEREST" shall have the meaning specified in Section 5.1(a) hereof. "LANDERS INTEREST PERCENTAGE" shall have the meaning specified in Section 5.1(c) hereof. "LANDERS INTEREST VALUE" shall have the meaning specified in Section 5.1(b) hereof. "LANDERS SHAREHOLDERS" shall have the meaning specified in the preamble hereof. "MANAGING UNDERWRITER" shall have the meaning specified in Section 5.1(b) hereof. "MINORITY INTEREST PERCENTAGE" shall have the meaning specified in Section 5.1(c) hereof. 3 "MINORITY SHARES" shall have the meaning specified in Section 5.1(c) hereof. "OFFERED SHARES" shall have the meaning specified in Section 4.3(a) hereof. "OTHER MINORITY HOLDERS" shall have the meaning specified in Section 5.1(c) hereof. "OTHER MINORITY INTEREST" shall have the meaning specified in Section 5.1(c) hereof. "OUTSTANDING UAG SHARES" shall have the meaning specified in Section 5.1(c) hereof. "PERSON" shall mean an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind. "PUBLIC FLOAT DATE" shall mean the date on which shares of Common Stock shall have been sold by the Company or its shareholders pursuant to a Public Offering. "PUBLIC OFFERING" shall mean the completion of a sale of Common Stock pursuant to a registration statement which has become effective under the Securities Act, excluding registration statements on Form S-4, S-8 or similar forms. "PURCHASE OFFER" shall have the meaning specified in Section 4.3(a) hereof. "PURCHASER" shall have the meaning specified in Section 4.3(a) hereof. "PUT" shall have the meaning specified in Section 5.2(a) hereof. "PUT CLOSING" shall have the meaning specified in Section 5.2(a) hereof. "PUT CLOSING DATE" shall have the meaning specified in Section 5.2(a) hereof. "PUT INTEREST" shall have the meaning specified in Section 5.2(a) hereof. "PUT NOTICE" shall have the meaning specified in Section 5.2(a) hereof. 4 "PUT PRICE" shall have the meaning specified in Section 5.2(c) hereof. "SEC" shall mean the Securities and Exchange Commission. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder. "SELLING STOCKHOLDER" shall have the meaning specified in Section 4.3(a) hereof. "SHAREHOLDERS" shall have the meaning specified in the preamble hereof. "SHARES" shall have the meaning specified in the third recital hereof. "STOCK PURCHASE AGREEMENT" shall have the meaning specified in the third recital hereof. "SUBSIDIARY" shall mean (i) a corporation a majority of whose capital stock with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly, owned by the Company, by a Subsidiary or by the Company and a Subsidiary or (ii) any other Person (other than a corporation) in which the Company, a Subsidiary or the Company and a Subsidiary, directly or indirectly, at the date of determination thereof, has at least a majority ownership interest. "SUBSTITUTE DIRECTOR" shall have the meaning specified in Section 3.1(b) hereof. "TAG-ALONG OFFER" shall have the meaning specified in Section 4.3(b) hereof. "TAG-ALONG PARTICIPATION NOTICE" shall have the meaning specified in Section 4.3(b) hereof. "TAG-ALONG SALE" shall have the meaning specified in Section 4.3(b) hereof. "TAG-ALONG SALE NOTICE" shall have the meaning specified in Section 4.3(b) hereof. "TAKE-ALONG SALE" shall have the meaning specified in Section 4.3(c) hereof. 5 "TOTAL EXCHANGED SHARES" shall have the meaning specified in Section 5.1(c) hereof. "TOTAL INTEREST PERCENTAGE" shall have the meaning specified in Section 5.1(c) hereof. "TRANSFER" shall have the meaning specified in Section 4.1(a) hereof. "UAG" shall have the meaning specified in the preamble hereof. "UAG COMMON STOCK" shall have the meaning specified in Section 5.1(a) hereof. "UAG COMMON STOCK EQUIVALENTS" shall have the meaning specified in Section 5.1(c) hereof. "UAG COMMON STOCK PRICE" shall have the meaning specified in Section 5.1(b) hereof. "UAG DESIGNEE" shall have the meaning specified in Section 3.1(a) hereof. "UAG EXCHANGE" shall have the meaning specified in Section 5.1(a) hereof. "UAG EXCHANGE DATE" shall have the meaning specified in Section 5.1(c) hereof. "UAG PUBLIC OFFERING" shall have the meaning specified in Section 5.1(c) hereof. "UAG PURCHASE" shall have the meaning specified in third recital hereof. "UAG SHAREHOLDERS AGREEMENT" shall mean the Stockholders' Agreement, dated as of October 15, 1993, among UAG and certain shareholders of UAG named therein. "WITHDRAWING DIRECTOR" shall have the meaning specified in Section 3.1(b) hereof. 6 ARTICLE II EFFECTIVENESS OF AGREEMENT Section 2.1. EFFECTIVE DATE. This Agreement shall become effective as of the date and time (the "Effective Date") the UAG Purchase shall have been consummated, and this Agreement shall have no effect for any purpose unless and until the UAG Purchase shall have occurred. ARTICLE III MANAGEMENT OF THE COMPANY; ACTIVITIES OF THE SHAREHOLDERS Section 3.1. BOARD OF DIRECTORS. (a) NUMBER AND MEMBERSHIP. The Shareholders and the Company shall take all action within their respective power, including, but not limited to, the voting of capital stock of the Company, required to cause the Board of Directors of the Company (the "Company Board") to consist of five (5) members and to at all times include (i) four (4) designees of UAG (each a "UAG Designee") and (ii) one (1) designee of the Landers Shareholders (the "Landers Designee"), provided that the Landers Designee shall be Steve Landers or, in the event that Steve Landers is no longer employed by the Company, John Landers. The right of the Landers Shareholders to designate one director under this Section 3.1(a) shall terminate at such time as (i) the Landers Shareholders and their Affiliates shall first cease to own at least 50% of the Fully-Diluted Shares owned by the Landers Shareholders on the Effective Date (after giving effect to the UAG Purchase and without giving effect to any stock splits or reclassifications occurring after the Effective Date) or (ii) both Steve Landers' and John Landers' employment with the Company has terminated. (b) SUBSTITUTE DIRECTOR. In the event that any director (a "Withdrawing Director") designated in the manner set forth in Section 3.1(a) hereof is unable to serve, or once having commenced to serve, is removed or withdraws from the Company Board (other than as contemplated in Section 3.1(a) hereof), such Withdrawing Director's replacement (the "Substitute Director") on the Company Board will be designated by the party who designated the Withdrawing Director. Subject to the foregoing, any UAG Designee may be removed, with or without cause, by UAG, and UAG may thereafter designate a replacement for such director. The Company and each of the Shareholders agree to take all action within its or his power, including, but not limited to, the 7 voting of capital stock of the Company, to cause the election of such Substitute Director. (c) VACANCIES. Subject to Section 3.1(a) hereof, in the event any Shareholder entitled to designate a director or directors pursuant to Section 3.1(a) hereof ceases to be so entitled, the vacancy or vacancies resulting therefrom shall be filled by the remaining directors or by the Shareholders in the manner provided by law. (d) EXECUTIVE COMMITTEE. The Company and the Shareholders shall take all action within their respective power, including, but not limited to, the voting of capital stock of the Company, required to cause the Executive Committee of the Company Board to consist of two UAG Designees and the Landers Designee and each such designee shall be entitled to serve on such committee for as long as UAG or the Landers Shareholders, as the case may be, are entitled to designate such designee as a director pursuant to Section 3.1(a) hereof. It is agreed by the parties hereto that the Executive Committee of the Company Board shall initially be comprised of Marshall S. Cogan and Carl Spielvogel as the UAG Designees and Steve Landers as the Landers Designee. (e) NO ASSIGNMENT. Notwithstanding anything to the contrary in this Agreement, the rights of the Landers Shareholders to designate a director of the Company pursuant to Section 3.1(a) hereof are not transferable, whether by sale of capital stock or otherwise, to any Person. Section 3.2. MANAGEMENT. (a) MANAGEMENT OF THE COMPANY. The Landers Shareholders shall have responsibility for the day-to-day management of the Company, subject in all cases to the instructions and requirements of, and the policy guidelines established by, UAG, the Company Board (or the Executive Committee thereof) or the Chief Executive Officer of UAG. In connection with the management of the Company, prior to the 1st day of December of each year, the Landers Shareholders (or their designee) shall prepare a detailed business plan of the Company covering the following year's budget and subsequent long-range business forecasts and projections of operating results, which shall be submitted to the Executive Committee of the Company Board and the Chief Executive Officer of UAG for its and his approval. Within forty-five (45) days of the close of each fiscal quarter of the Company, the Landers Shareholders shall provide the Executive Committee of the Company Board and the 8 Chief Executive Officer of UAG with a comparison of actual year-to-date results with the corresponding budgeted amounts. (b) TRANSACTIONS REQUIRING CONSENT OF LANDERS DESIGNEE. For as long as the Landers Shareholders and their Affiliates own shares of capital stock of the Company or Common Stock Equivalents representing collectively at least 10% of the Fully-Diluted Shares, prior to the third anniversary of the date hereof, without the consent of the Landers Designee, which consent shall not be unreasonably withheld, (A) the Company shall not, and the remaining Shareholders, severally, shall not permit the Company to: (i) directly or indirectly declare or pay any dividends or make distributions in cash, property or securities upon any of its equity securities to the extent any such dividend or distribution has the effect of reducing the working capital of the Company to an amount that is less than 80% of the amount of working capital required by the automobile manufacturers with whom the Company has entered into franchise agreements; (ii) directly or indirectly redeem, purchase or otherwise acquire any equity security of the Company, except for redemptions and purchases permitted herein or in the Stock Purchase Agreement; (iii) voluntarily liquidate or dissolve; (iv) merge or consolidate with any Person; or (v) sell or dispose of any assets other than in the ordinary course of business; and (B) UAG shall not grant registration rights to any future investor containing terms and conditions more favorable to such future investor than those terms and conditions applicable to the Landers Shareholders contained in the Registration Rights Agreement, dated August 1, 1995, among UAG and certain parties named therein. 9 ARTICLE IV TRANSFER OF SECURITIES Section 4.1. CONSENT OF UAG. (a) Subject to the rights of Landers Shareholders contained in Sections 4.3(b), 5.1 and 5.2 hereof and for as long as UAG/Landers (or an Affiliate thereof) shall own 35% of the Fully-Diluted Shares, prior to the third anniversary of the date hereof, no Shareholder other than UAG/Landers shall directly or indirectly Transfer (as defined below) any shares of capital stock of the Company now or hereafter at any time owned by such Shareholder or any interest therein, or the stock certificate or certificates representing any such shares, or any voting trust certificate or certificates issued with respect to such shares, without the prior written consent of UAG. Any Transfer effected, or purported or attempted to be effected, not in accordance with the terms and conditions of this Section 4.1, or to a Person prohibited by law from holding shares of capital stock of the Company, shall be void and shall not bind the Company. As used in this Agreement, the term "Transfer" shall mean and include (i) when used as a verb, the act of selling, pledging, mortgaging, hypothecating, giving, transferring, creating a security interest, lien or trust (voting or otherwise), assigning or otherwise encumbering or disposing of, and (ii) when used as a noun, any sale, pledge, mortgage, hypothecation, gift, transfer, creation of security interest, lien or trust, any assignment or other encumbrance or disposition. (b) Notwithstanding the provisions of Section 4.1(a) hereof, but subject to the provisions of Section 4.2(a) and (b) hereof, a Shareholder may effect a Transfer of shares of capital stock of the Company by will or the laws of descent and distribution to the legal representative of such Shareholder or to such Shareholder's spouse, immediate family members or lineal descendants or a trust the primary beneficiaries of which are such persons. Section 4.2. GENERAL RESTRICTIONS. No Shareholder (including UAG/Landers and any other Shareholder permitted to Transfer shares of capital stock of the Company or any interest therein in accordance with Section 4.1 hereof) shall, directly or indirectly, Transfer any shares of capital stock of the Company or any interest therein, whether voluntarily or involuntarily, unless: (a) (i) such Transfer complies with the provisions of this Agreement, including Section 4.3 hereof, if applicable, and 10 (ii) the transferee (if other than another Shareholder) agrees to be bound by this Agreement and executes a counterpart hereof and such further documents as may be necessary, in the opinion of the Company, to make it a party hereto (any such transferee shall be deemed to be a Shareholder for purposes of this Agreement); and (b) such Transfer is made pursuant to either (i) an effective registration statement under the Securities Act and any applicable state securities laws, or (ii) an available exemption from the registration requirements of the Securities Act and such laws and, prior to any such Transfer (other than a Transfer to another Shareholder), the Person proposing the Transfer provides to the Company a written opinion of legal counsel satisfactory in form and substance to the Company and its counsel to the effect that the proposed Transfer may be effected without registration under the Securities Act and any applicable state securities laws. Section 4.3. RIGHT OF FIRST REFUSAL AND CO-SALE RIGHTS AND OBLIGATIONS. (a) RIGHT OF FIRST REFUSAL. (i) FIRST OFFER NOTICE. Except as otherwise permitted by Section 4.1(b) hereof, subject to Section 4.1(a) hereof, at any time prior to the Public Float Date, no Shareholder (other than UAG/Landers (or an Affiliate thereof)) shall transfer all or any of his shares of Common Stock (which shall include all or any Common Stock Equivalents) (the "Offered Shares") unless (x) such Shareholder (the "Selling Shareholder") has received a bona fide written offer (the "Purchase Offer") from the proposed transferee of the Offered Shares (the "Purchaser") to purchase the Offered Shares, which offer shall be in writing signed by the Purchaser, and (y) the Selling Shareholder first offers to sell to UAG the Offered Shares. Prior to making any transfer that is subject to this Section 4.3(a), the Selling Shareholder shall give UAG written notice (the "Offer Notice") which shall include (x) the identity of the Purchaser, (y) a copy of the Purchase Offer, and (z) an offer (the "First Offer") to sell to UAG the Offered Shares upon the same terms and conditions as those provided for in the Purchase Offer. The First Offer shall be irrevocable for a period of thirty (30) days following receipt by UAG of the Offer Notice (the "First Offer Period"). (ii) ACCEPTANCE OF FIRST OFFER. At any time during the First Offer Period, UAG may accept the First Offer of the Offered Shares by giving written notice to the Selling Shareholder of such acceptance . In the event UAG accepts the First Offer, the closing of the sale of the Offered Shares shall take place within 11 thirty (30) days after the First Offer is accepted by UAG or, if later, the date of closing set forth in the Purchaser Offer. At such closing, the Selling Shareholder will deliver certificates for such Offered Shares against payment of the purchase price therefor, and UAG will acquire the Offered Shares free and clear of all liens, pledges, encumbrances, restrictions and security interests of any kind. If UAG does not accept the First Offer, the Selling Shareholder may sell the Offered Shares to the Purchaser at any time within thirty (30) days after the last day of the First Offer Period, provided that such sale shall be made on terms no less favorable to the Selling Shareholder than the terms contained in the Purchase Offer and provided further that such sale complies with the terms, conditions and restrictions of this Agreement. In the event that the Offered Shares are not sold in accordance with the terms of the preceding sentence, the Offered Shares shall again be subject to all of the conditions and restrictions of this Section 4.3(a). (b) TAG-ALONG RIGHT. (i) TAG-ALONG SALE NOTICE. If, at any time prior to the earlier to occur of the Public Float Date and the Put Closing Date, UAG (or an Affiliate thereof) at any time receives a bona fide offer (a "Tag-Along Offer") from a third party to purchase shares of Common Stock from UAG (or an Affiliate thereof) or UAG otherwise proposes to sell shares of Common Stock for value, in each case other than in connection with a Public Offering (a "Tag-Along Sale"), UAG shall be required to notify the Landers Shareholders, not less than fifteen (15) days prior to such proposed Tag-Along Sale, of such Tag-Along Offer or proposed Tag-Along Sale and the Landers Shareholders shall have the option to participate in such Tag-Along Sale as set forth in clause (ii) of this Section 4.3(b). The notice from UAG (the "Tag-Along Sale Notice") shall set forth: (A) the number of shares of Common Stock proposed to be transferred, (B) the name and address of the proposed purchaser, (C) the proposed amount of consideration and terms and conditions of payment offered by or to such proposed purchaser, and (D) that the proposed purchaser has been informed of the "tag-along" rights provided for in this Section 4.3(b) and has agreed to purchase shares of Common Stock in accordance with the terms hereof. (ii) TAG-ALONG RIGHT. Any time prior to the earlier to occur of the Public Float Date and the Put Closing Date, each Landers Shareholder shall have the right to require the proposed purchaser to purchase from him a number of whole shares of Common Stock up to the number of shares equal to the total number of shares to be sold to the proposed purchaser multiplied by a fraction, the numerator of which is the number of shares of 12 Common Stock held by him and the denominator of which is the total number of shares of Common Stock held by him and UAG (or an Affiliate thereof). Any shares of Common Stock purchased from a Landers Shareholder pursuant to this Section 4.3(b) shall be paid for upon the same terms and conditions (including as to price and type of consideration) received by UAG. (iii) TAG-ALONG NOTICE. If a Landers Shareholder elects to exercise the tag-along right provided for in this Section 4.3(b), he must deliver written notice to UAG (the "Tag-Along Participation Notice") within five (5) days following receipt by him of the Tag-Along Sale Notice. If such Landers Shareholder does not deliver a Tag-Along Participation Notice within such five-day period he shall be deemed to have waived his tag-along right with respect to the proposed Tag-Along Sale. Each Tag-Along Participation Notice shall state the number of shares of Common Stock that such Landers Shareholder proposes to include in such transfer to the proposed purchaser up to the number of shares determined in accordance with Section 4.3(b)(ii) hereof. (c) TAKE-ALONG RIGHT. (i) TAKE-ALONG NOTICE. If UAG (or an Affiliate thereof) at any time receives a bona fide offer from a third party to purchase shares of Common Stock from UAG (or an Affiliate thereof) or UAG (or an Affiliate thereof) otherwise proposes to sell shares of Common Stock for value (a "Take-Along Sale"), UAG can require the other Shareholders, to participate in such Take-Along Sale as set forth in clause (ii) of this Section 4.3(c). If UAG elects to exercise the take-along right provided for in this Section 4.3(c), it must provide, at least twenty (20) days before the date of consummation of the proposed Take-Along Sale, notice to each other Shareholder setting forth: (i) the number of shares of Common Stock proposed to be transferred, (ii) the number of shares of Common Stock that such Shareholder must include in such transfer to the proposed purchaser as determined in accordance with clause (ii) of this Section 4.3(c), (iii) the name and address of the proposed purchaser, (iv) the proposed amount of consideration and terms and conditions of payment offered by or to such proposed purchaser, and (v) that the proposed purchaser has been informed of the "take-along" rights provided for in this Section 4.3(c) and has agreed to purchase shares of Common Stock in accordance with the terms hereof. (ii) TAKE-ALONG RIGHT. UAG shall at any time have the right to require each other Shareholder to sell to the proposed purchaser a number of whole shares of Common Stock up to the number of shares equal to the total number of shares to be sold 13 to the proposed purchaser multiplied by a fraction, the numerator of which is the number of shares of Common Stock held by such other Shareholder and the denominator of which is the total number of shares of Common Stock held by all of the Shareholders, including UAG (or an Affiliate thereof). Any shares of Common Stock purchased from Shareholders other than UAG pursuant to this Section 4.3(c) shall be paid for upon the same terms and conditions (including as to price and type of consideration) received by UAG. Section 4.4. LEGENDS ON STOCK CERTIFICATES. For so long as shares of capital stock of the Company held by a Shareholder are subject to this Agreement, all certificates representing such shares shall bear the following legend: "The securities represented by this certificate are subject to restrictions on transfer and certain other provisions of the Shareholders' Agreement, dated as of August 1, 1995, as the same may be amended from time to time, by and among United Auto Group, Inc., United Landers, Inc., Landers Auto Sales, Inc. (the "Company"), Steve Landers, John Landers, Bob Landers and certain other shareholders of the Company who may from time to time become parties to such Shareholders' Agreement, a copy of which may be obtained at the offices of the Company." Section 4.5. IMPROPER TRANSFERS INEFFECTIVE. Any purported transfer of Common Stock by a Shareholder which is not permitted by the foregoing provisions of this Article IV, or which is in violation of such provisions, shall be void and of no force and effect whatsoever. ARTICLE V EXCHANGE; PUT Section 5.1 EXCHANGE FOR UAG COMMON STOCK. (a) In the event of an underwritten public offering pursuant to an effective registration statement under the Securities Act covering the offering and sale of common stock, par value $.0001 per share, of UAG ("UAG Common Stock") for the account of UAG on a firm commitment basis (the "UAG Public Offering"), the Landers Shareholders (and any transferee or Affiliate of the Landers Shareholders holding shares of Common Stock) shall be required to exchange all shares of Common Stock beneficially owned by them (and their transferees and Affiliates) (the "Landers Interest") immediately prior to the closing of the 14 UAG Public Offering for shares of UAG Common Stock under the terms and conditions set forth below, and UAG shall be required to exchange the Landers Interest for UAG Common Stock (such exchange is hereinafter referred to as the "UAG Exchange"). (b) If the parties are required to consummate the UAG Exchange, the value of UAG (the "UAG Value") and the Company (the "Company Value") shall be determined by the investment banking firm which is acting as managing underwriter (the "Managing Underwriter") for the UAG Public Offering and such determination shall be binding upon the parties hereto. The value of the Landers Interest (the "Landers Interest Value") shall be an amount equal to (A) the Company Value multiplied by (B) a fraction, the numerator of which shall be equal to the aggregate number of shares of Common Stock comprising the Landers Interest immediately prior to the UAG Exchange, and the denominator of which shall be the total number of shares of Common Stock outstanding immediately prior to the UAG Exchange. The additional cost which the Managing Underwriter charges to compute the UAG Value and the Company Value shall be paid by UAG. (c) The number of shares of UAG Common Stock to which the Landers Shareholders are entitled upon the consummation of the UAG Exchange (the "Landers Exchanged Shares") shall be determined by multiplying the Landers Interest Percentage (as defined below) by the total number of shares of UAG Common Stock outstanding immediately prior to the closing of the UAG Public Offering, which such number of shares shall include all shares of UAG Common Stock issued in respect of the Landers Interest pursuant to this Section 5.1 and to holders of minority interests (the "Other Minority Holders") in subsidiaries of UAG (the "Other Minority Interests") pursuant to agreements comparable to the agreement contained in this Section 5.1 (collectively, the "Minority Shares"), but shall not include any other shares of UAG Common Stock issuable upon the exercise, conversion or exchange of all then outstanding rights, warrants, options, indebtedness or other securities exercisable or exchangeable for, or convertible into, directly or indirectly, UAG Common Stock (collectively, "UAG Common Stock Equivalents"). Specifically, the number of Landers Exchange Shares shall be determined by multiplying (A) the number of Total Exchanged Shares (as defined below) by (B) a fraction, the numerator of which shall be equal to the Landers Interest Percentage, and the denominator of which shall be equal to the Total Interest Percentage (as defined below). For purposes of this Section 5.1, (i) the "Landers Interest Percentage" shall be determined by dividing the Landers Interest Value by the UAG Value, (ii) the "Total Interest Percentage" shall equal the sum of all of the "Minority Interest Percentages," each of which shall be determined pursuant to the 15 agreements between UAG and the Other Minority Holders relating to the exchange of the Other Minority Interests for shares of UAG Common Stock in connection with the UAG Public Offering, and (iii) the "Total Exchanged Shares" shall be determined by dividing (A) the product of (x) the Total Interest Percentage and (y) the total number of shares of UAG Common Stock outstanding immediately prior to the closing of the UAG Public Offering (the "Outstanding UAG Shares") (not including the Minority Shares and any shares of UAG Common Stock issuable upon the exercise, conversion or exchange of any UAG Common Stock Equivalent) by (B) an amount equal to 1 minus the Total Interest Percentage. Expressed as a formula, the number of Landers Exchanged Shares shall be determined as follows: (TIP X OUS) LIP --------------- X --- (1 - TIP) TIP, where "TIP" refers to the Total Interest Percentage, "OUS" refers to the Outstanding UAG Shares and "LIP" refers to the Landers Interest Percentage. (d) The Landers Exchanged Shares shall be issued immediately prior to the occurrence of the UAG Public Offering and UAG shall not be required to issue such shares if the UAG Public Offering is not consummated for any reason. (e) Upon consummation of the UAG Exchange, (i) if the UAG Public Offering is not a Qualified Public Offering (as such term is defined in UAG's Amended and Restated Certificate of Incorporation) or the UAG Shareholders Agreement otherwise remains in full force or effect, then the Landers Shareholders shall each become a party to the UAG Shareholders Agreement and (ii) the Landers Shareholders agree to take such actions and to execute such instruments as UAG may reasonably request to evidence the consummation of the UAG Exchange and the change in the agreement between the parties hereto as a result of the UAG Exchange. Section 5.2 ABILITY TO PUT. (a) If the UAG Public Offering has not occurred within five years of the date hereof, pursuant to the provisions of this Section 5.2, the Landers Shareholders shall have the option to sell to UAG, and thereupon UAG shall have the obligation to purchase, all, but not less than all, of the number of shares of Common Stock held by the Landers Shareholders (the shares which are put by the Landers Shareholders pursuant to this Section 5.2 are hereinafter referred to as the "Put Interest") at a price equal to the Put Price (as defined in Section 5.2(c)) (such option to sell and reciprocal obligation to purchase are hereinafter referred to as 16 the "Put"). In the event the Landers Shareholders intend to exercise the Put, the Landers Shareholders shall deliver a written notice (the "Put Notice") to UAG notifying UAG of the Landers Shareholders' desire to exercise the Put. The closing ("Put Closing") for the purchase by UAG of the Put Interest upon exercise of the Put shall occur at UAG's principal office, or at such other place as shall be mutually agreeable to the Landers Shareholders and UAG, within twenty (20) Business Days after the determination of the Put Price in accordance with Sections 5.2(c) (such date of closing hereinafter referred to as the "Put Closing Date"). (b) PUT CLOSING. On the Put Closing Date, (i) UAG shall pay to the Landers Shareholders by wire transfer or certified or official bank check an amount equal to the Put Price with respect to the Put Interest and (ii) the Landers Shareholders shall deliver to UAG such documents and instruments as shall be effective to vest in UAG all of the Landers Shareholders' right, title and interest in and to all of the Put Interest, free and clear of all liens, pledges, encumbrances, restrictions and security interests of any kind. (c) PUT PRICE. (A) In the event that either Steve Landers or John Landers is not continuously employed by the Company from the date hereof through the fifth anniversary of the date hereof pursuant to the terms of his respective Employment Agreement with the Company, "Put Price" for the Put Interest shall mean an amount equal to the Put Interest's proportionate share of the UAG/Landers Net Worth (as defined herein). For purposes of this Section 5.2, the term "UAG/Landers Net Worth" shall mean the value or amount, as reflected on UAG/Landers most recent consolidated balance sheet, of (i) the total assets of the Companies, LESS (ii) the intangible assets of the Companies, LESS (iii) the current liabilities of the Companies, LESS (iv) the long-term liabilities of the Companies and any outstanding equity securities that are senior to the Common Stock, provided that for purposes of this Section 5.1(c), UAG/Landers Net Worth shall be calculated giving effect to the net worth (as determined in accordance with the foregoing formula) (the "Acquired Net Worth") of the entity or entities (each, an "Acquired Entity" and, collectively, the "Acquired Entities") acquired pursuant to Section 5.11 of the Stock Purchase Agreement, provided that (i) if the consideration paid by UAG (or an Affiliate thereof) in the acquisition pursuant to which UAG contributes $5,000,000 exceeds $5,000,000, then the Acquired Net Worth included in the UAG/Landers Net Worth shall be equal to an amount obtained by multiplying the net worth of the Acquired Entity obtained in such acquisition by a fraction, the numerator of which is equal to $5,000,000 and the denominator of which is equal to the 17 consideration paid in such acquisition, or (ii) if there is more than one acquisition pursuant to Section 5.11 of the Stock Purchase Agreement pursuant to which UAG has contributed an aggregate of $5,000,000, and the total consideration paid by UAG (or an Affiliate thereof) in such acquisitions exceeds $5,000,000, then the Acquired Net Worth included in the UAG/Landers Net Worth with respect to all of the Acquired Entities shall be an amount equal to the product of (A) the sum of each Acquired Entity's Pro Rata Net Worth (as defined below) and (B) a fraction, the numerator of which is equal to $5,000,000 and the denominator of which is equal to the total consideration paid for all of the Acquired Entities. For purposes of this Agreement, the term "Acquired Entity's Pro Rata Net Worth" shall mean, with respect to an Acquired Entity, an amount equal to the product of (i) the net worth of such Acquired Entity and (ii) a fraction, the numerator of which is equal to the consideration paid for such Acquired Entity and the denominator of which is equal to the total consideration paid for all Acquired Entities. (B) In the event that both Steve Landers and John Landers remain continuously employed by the Company from the date hereof through the fifth anniversary of the date hereof pursuant to the terms of their respective Employment Agreements with the Company, "Put Price" for the Put Interest shall mean the fair market value of the Put Interest determined by mutual agreement of UAG and the Landers Shareholders. In the event UAG and the Landers Shareholders are unable to agree on a fair market value, UAG and the Landers Shareholders shall each submit their respective valuations of the Put to a third party appraiser selected pursuant to the procedures set forth below who shall determine a fair market value pursuant to the appraisal procedure set forth below, which shall be binding upon the parties hereto (the "Appraised Value"). In order to determine the Appraised Value of the Put Interest to be purchased and sold pursuant to the provisions of this Section 5.2, UAG and the Landers Shareholders shall mutually agree on an appraiser who shall choose one of the valuations submitted to it pursuant to this Section 5.2(c)(B) within thirty (30) days, which shall be binding on UAG and the Landers Shareholders. UAG and the Landers Shareholders shall share the cost of such appraiser equally. The appraiser appointed pursuant to this Section 5.2(c)(B) shall be a nationally recognized investment banking firm or nationally recognized accounting firm qualified in valuing automobile dealerships similar to the Company and shall be unaffiliated with either party. 18 ARTICLE VI MISCELLANEOUS Section 6.1. TERM. All provisions of this Agreement shall terminate upon consummation of the UAG Exchange or, in respect of any Shareholder, when such Shareholder no longer owns any capital stock of the Company. Notwithstanding the foregoing, the provisions contained in Article III hereof shall terminate and cease to be of any further effect on August 1, 2004, unless the Shareholders agree in writing to extend the effectiveness of such provisions at any time after August 1, 2002 and prior to August 1, 2004. Section 6.2. AMENDMENT; WAIVER. This Agreement may be altered or amended only with the written consent of all of the parties hereto. Any term of this Agreement and the observance of any term herein may be waived (either generally or in a particular instance and either retroactively or prospectively) by any party hereto only with the written consent of such party, provided that any such waiver by any party hereto shall not operate or be construed as a waiver of any other term or observance of any term herein, whether or not similar. Section 6.3. SPECIFIC PERFORMANCE. The parties recognize that the obligations imposed on them in this Agreement are special, unique and of extraordinary character, and that in the event of breach by any party, damages will be an insufficient remedy; consequently, it is agreed that the parties hereto may have specific performance (in addition to damages) as a remedy for the enforcement hereof, without proving damages. Section 6.4. ASSIGNMENT. Except as otherwise expressly provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties hereto. This Agreement may be assigned by a Shareholder only in connection with a Transfer of any shares of Common Stock in accordance with the terms of this Agreement; PROVIDED, HOWEVER, that the rights of the Landers Shareholders contained in Sections 3.1, 3.2, 4.3 and 5.2 hereof cannot be assigned or otherwise transferred in connection with any Transfer of shares of Common Stock by the Landers Shareholders without the prior written consent of UAG. No assignment of this Agreement shall relieve the assignor from any liability hereunder. Section 6.5. SHARES SUBJECT TO THIS AGREEMENT. All shares of capital stock of the Company now owned or hereafter acquired 19 by any of the Shareholders shall be subject to the terms of this Agreement. Section 6.6. ADDITIONAL SHAREHOLDERS. The Company covenants that it shall not issue or cause to be issued at any time prior to the Public Float Date any shares of capital stock of the Company to any Person in any transaction not involving a Public Offering of such shares, unless as a condition to such issuance such Person agrees to become a party to this Agreement and to be bound by all the obligations of a Shareholder under this Agreement. Stock certificates issued to such Persons shall be marked as provided in Section 4.4 hereof. No shares of capital stock of the Company shall be transferred on the books of the Company until all the applicable provisions of this Agreement have been complied with. Section 6.7. LEGEND. Certificates evidencing shares of capital stock shall bear such legends as the Company shall reasonably deem necessary to protect the rights of the parties hereunder. Section 6.8. NOTICES. All notices and other communications required or permitted to be given hereunder shall be in writing and shall be delivered personally, telegraphed, telexed, sent by facsimile transmission or sent by certified, registered, or express mail, postage prepaid, to the parties at the addresses sent forth below. Notices or other communications given by certified, registered, or express mail shall be deemed given three (3) Business Days after the date of mailing. Notices or other communications sent in any other manner shall be deemed given only when actually received. If to the Company: Landers Auto Sales, Inc. Congo Exit 118 -- Highway I-30 Benton, Arkansas 72015 Facsimile No.: (501) 778-4077 Attn: Mr. Steve Landers 20 with a copy to: Davidson, Horne & Hollingsworth 401 West Capitol Suite 501 P.O. Box 3363 Little Rock, Arkansas 62203 Facsimile No.: (501) 372-7142 Attn: Garland W. Binns, Jr., Esq. and United Auto Group, Inc. 375 Park Avenue New York, New York 10022 Facsimile No.: (212) 223-5148 Attn: George G. Lowrance, Esq., Executive Vice President and General Counsel with a copy to: Willkie Farr & Gallagher One Citicorp Center 153 East 53rd Street New York, New York 10022 Facsimile No.: (212) 821-8111 Attn: Peter A. Appel, Esq. If to any Landers Shareholder: Mr. Steve Landers 3316 Highway 5 Benton, Arkansas 72015 Facsimile No.: (501) 778-4077 with a copy to: Davidson, Horne & Hollingsworth 401 West Capitol Suite 501 P.O. Box 3363 Little Rock, Arkansas 62203 Facsimile No.: (501) 372-7142 Attn: Garland W. Binns, Jr., Esq. 21 If to UAG or UAG/Landers: United Auto Group, Inc. 375 Park Avenue New York, New York 10022 Facsimile No.: (212) 223-5148 Attn: George G. Lowrance, Esq., Executive Vice President and General Counsel with a copy to: Willkie Farr & Gallagher One Citicorp Center 153 East 53rd Street New York, New York 10022 Facsimile No.: (212) 821-8111 Attn: Peter A. Appel, Esq. or such other address as shall be furnished in writing by such party, and any such notice or communication shall be effective and be deemed to have been given as of the date so delivered or three (3) days after the date so mailed; PROVIDED, HOWEVER, that any notice or communication changing any of the addresses set forth above shall be effective and deemed given only upon its receipt. Section 6.9. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and which counterparts together shall constitute one and the same agreement of the parties hereto. Section 6.10. SECTION HEADINGS. Headings contained in this Agreement are inserted only as a matter of convenience and in no way define, limit or extend the scope or intent of this Agreement or any provisions hereof. SECTION 6.11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ARKANSAS, WITHOUT GIVING EFFECT TO THE CHOICE-OF-LAW PROVISIONS THEREOF. Section 6.12. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties hereto respecting the subject matter hereof and supersedes all prior agreements, discussions, and understandings among such parties with respect to such subject matter. 22 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. UNITED AUTO GROUP, INC. By: /s/Carl Spielvogel -------------------------- Name: Carl Spielvogel Title: Chairman and Chief Executive Officer UNITED LANDERS, INC. By:/s/ Carl Spielvogel --------------------------- Name: Carl Spielvogel Title: Chairman and Chief Executive Officer LANDERS AUTO SALES, INC. By:/s/Steve Landers --------------------------- Name: Steve Landers Title: President and Chief Executive Officer /s/Steve Landers ------------------------------ Steve Landers /s/John Landers ------------------------------ John Landers 23 EX-10.4-9 37 EXHIBIT 10.4.9 EXHIBIT 10.4.9 CHRYSLER CORPORATION EAGLE SALES AND SERVICE AGREEMENT United Landers Auto Sales, Inc. d/b/a Landers - --------------------------------------------------------------- Chrysler Plymouth Dodge Jeep Eagle - --------------------------------------------------------------- located at Alcoa Road at I-30 Benton Arkansas ------------------------------------------------------ (STREET) (CITY) (STATE) a(n) Corporation hereinafter called DEALER, and ------------------------- (INDIVIDUAL, CORPORATION OR PARTNERSHIP) Chrysler Corporation, a Delaware corporation, hereinafter sometimes referred to as "CC", have entered into this Chrysler Corporation Eagle Sales and Service Agreement, hereinafter referred to as "Agreement", the terms of which are as follows: _______________________________________________________________________________ INTRODUCTION The purpose of the relationship established by this Agreement is to provide a means for the sale and service of specified Eagle vehicles and the sale of CC vehicle parts and accessories in a manner that will maximize customer satisfaction and be of benefit to DEALER and CC. While the following provisions, each of which is material, set forth the undertakings of this relationship, the success of those undertakings rests on a recognition of the mutuality of interests of DEALER and CC, and a spirit of understanding and cooperation by both parties in the day to day performance of their respective functions. As a result of such considerations, CC has entered into this Agreement in reliance upon and has placed its trust in the personal abilities, expertise, knowledge and integrity of DEALER's principal owners and management personnel, which CC anticipates will enable DEALER to perform the personal services contemplated by this Agreement. It is the mutual goal of this relationship to promote the sale and service of specified CC products by maintaining and advancing their excellence and reputation by earning, holding and furthering the public regard for CC and all CC dealers. _____________________________ 1 PRODUCTS COVERED DEALER has the right to order and purchase from CC and to sell at retail only those specific models of CC vehicles, sometimes referred to as "specified CC vehicles," listed on the Motor Vehicle Addendum, attached hereto and incorporated herein by reference. CC may change the models of CC vehicles listed on the Motor Vehicle Addendum by furnishing DEALER a superseding Motor Vehicle Addendum. Such a superseding Motor Vehicle Addendum will not be deemed or construed to be an amendment to this Agreement. ________________________________________________________________ 2 DEALER'S MANAGEMENT CC has entered into this Agreement relying on the active, substantial and continuing personal participation in the management of DEALER's organization by: NAME POSITION Steven J. Landers President ----------------- ------------------ ----------------- ------------------ DEALER represents and warrants that at least one of the above named individuals will be physically present at DEALER's facility (sometimes referred to as "Dealership Facilities") during most of its operating hours and will manage all of DEALER's business relating to the sale and service of CC products. DEALER shall not change the personnel holding the above described position(s) or the nature and extent of his/her/their management participation without the prior written approval of CC. ________________________________________________________________ 3 DEALER'S CAPITAL STOCK OR PARTNERSHIP INTEREST If DEALER is a corporation or partnership, DEALER represents and agrees that the persons named below own beneficially the capital stock or partnership interest of DEALER in the percentages indicated below. DEALER warrants there will be no change affecting more than 50% of the ownership interest of DEALER, nor will there be any other change in the ownership interest of DEALER which may affect the managerial control of DEALER without CC's prior written approval. -2- NAME VOTING STOCK NON-VOTING PARTNERSHIP ACTIVE STOCK INTEREST YES/NO Steven J. Landers 10.00 % % % Yes - ------------------- -------- ---------- ------------ ----- John E. Landers 10.00 % % % Yes - ------------------- -------- ---------- ------------ ----- United Auto Group, Inc. 80.00 % % % No - ------------------- -------- ---------- ------------ ----- % % % - ------------------- -------- ---------- ------------ ----- % % % - ------------------- -------- ---------- ------------ ----- TOTAL 100.00 % % % -------- ---------- ------------ ----- ________________________________ 4 SALES LOCALITY DEALER shall have the non-exclusive right, subject to the provisions of this Agreement, to purchase from CC those new specified CC vehicles, vehicle parts, accessories and other CC products for resale at the DEALER's facilities and location described in the Dealership Facilities and Location Addendum, attached hereto and incorporated herein by reference. DEALER will actively and effectively sell and promote the retail sale of CC vehicles, vehicle parts and accessories in DEALER's Sales Locality. As used herein, "Sales Locality" shall mean the area designated in writing to DEALER by CC from time to time as the territory of DEALER's responsibility for the sale of CC vehicles, vehicle parts and accessories, although DEALER is free to sell said products to customers wherever they may be located. Said Sales Locality may be shared with other CC dealers of the same line-make as CC determines to be appropriate. ________________________________ 5 ADDITIONAL TERMS AND PROVISIONS The additional terms and provisions set forth in the document entitled "Chrysler Corporation Sales and Service Agreement Additional Terms and Provisions" marked "Form 91(J-E)," as may hereafter be amended from time to time, constitute a part of this Agreement with the same force and effect as if set forth at length herein, and the term "this Agreement" includes said additional terms and provisions. ________________________________ 6 FORMER AGREEMENTS, REPRESENTATIONS OR STATEMENTS This Chrysler Corporation Eagle Sales and Service Agreement and other documents, (or their successors as specifically provided for herein) which are specifically incorporated herein by reference constitute the entire agreement between the parties -3- relating to the purchase by DEALER of those new specified CC vehicles, parts and accessories from CC for resale; and it cancels and supersedes all earlier agreements, written or oral, between CC and DEALER relating to the purchase by DEALER of Eagle vehicles, parts and accessories, except for (a) amounts owing by CC to DEALER, such as payments for warranty service performed and incentive programs, or (b) amounts owing or which may be determined to be owed, as a result of an audit or investigation, by DEALER to CC due to DEALER's purchase from CC of vehicles, parts, accessories and other goods or services, or (c) amounts DEALER owes to CC as a result of other extensions of credit by CC to DEALER. No representations or statements, other than those expressly set forth herein or those set forth in the applications for this Agreement submitted to CC by DEALER or DEALER's representatives, are made or relied upon by any party hereto in entering into this Agreement. ________________________________ 7 WAIVER AND MODIFICATION No waiver, modification or change of any of the terms of this Agreement or change or erasure of any printed part of this Agreement or addition to it (except the filling in of blank spaces and lines) will be valid or binding on CC unless approved in writing by the President or a Vice President or the National Dealer Placement Manager of Chrysler Corporation. ________________________________ 8 AMENDMENT DEALER and CC recognize that this Agreement does not have an expiration date and will continue in effect unless terminated under the limited circumstances set forth in Paragraph 28. DEALER and CC further recognize that the passage of time, changes in the industry, ways of doing business and other unforeseen circumstances may cause CC to determine that it should amend all Chrysler Corporation Eagle Sales and Service Agreements. Therefore, CC will have the right to amend this Agreement to the extent that CC deems advisable, provided that CC makes the same amendment in Chrysler Corporation Eagle Sales and Service Agreements generally. Each such amendment will be issued in a notice sent by certified mail or delivered in person to DEALER and signed by the President or a Vice President or the National Dealer Placement Manager of Chrysler Corporation. Thirty-five (35) days after mailing or delivery of such notice to DEALER, this Agreement will be deemed amended in the manner and to the extent set froth in the notice. ________________________________ -4- 9 ARBITRATION Any and all disputes arising out of or in connection with the interpretation, performance or non-performance of this Agreement or any and all disputes arising out of or in connection with transactions in any way related to this Agreement (including, but not limited to, the validity, scope and enforceability of this arbitration provision, or disputes under rights granted pursuant to the statutes of the state in which DEALER is licensed) shall be finally and completely resolved by arbitration pursuant to the arbitration laws of the United States of America as codified in Title 9 of the United States Code, Sections 1-14, under the Rules of Commercial Arbitration of the American Arbitration Association (hereinafter referred to as the "Rules") by a majority vote of a panel of three arbitrators. One arbitrator will be selected by DEALER (DEALER's arbitrator). One arbitrator will be selected by CC (CC's arbitrator). These arbitrators must be selected by the respective parties within ten (10) business days after receipt by either DEALER or CC of a written notification from the other party of a decision to arbitrate a dispute pursuant to this Agreement. Should either CC or DEALER fail to select an arbitrator within said ten-day period, the party who so fails to select an arbitrator will have its arbitrator selected by the American Arbitration Association upon the application of the other party. The third arbitrator must be an individual who is familiar with business transactions and be a licensed attorney admitted to the practice of law within the United States of America, or a judge. The third arbitrator will be selected by DEALER's and CC's arbitrators. If said arbitrators cannot agree on a third arbitrator within thirty (30) days from the date of the appointment of the last selected arbitrator, then either DEALER's or CC's arbitrator may apply to the American Arbitration Association to appoint said third arbitrator pursuant to the criteria set forth above. The arbitration panel shall conduct the proceedings pursuant to the then existing Rules. Notwithstanding the foregoing, to the extent any provision of the Rules conflict with any provision of this Paragraph 9, the provisions of this Paragraph 9 will be controlling. CC and DEALER agree to facilitate the arbitration by: (a) each party paying to the American Arbitration Association one-half (1/2) of the required deposit before the proceedings commence; (b) making available to one another and to the arbitration panel, for inspection and photocopying all documents, books and records, if determined by the arbitrator to be relevant to the dispute; (c) making available to one another and to the arbitration panel personnel directly or indirectly under their control, for testimony during hearings and prehearing proceedings if determined by the arbitration panel to be relevant to the dispute; (d) conducting arbitration hearings to the greatest extent possible on consecutive business days; and (e) strictly observing the time periods established by the Rules or by the arbitration panel for the submission of evidence and of briefs. -5- Unless otherwise agreed to by CC and DEALER, a stenographic record of the arbitration shall be made and a transcript thereof shall be ordered for each party, with each party paying one-half (1/2) of the total cost of such recording and transcription. The stenographer shall be state-certified, if certification is made by the state, and the party to whom it is most convenient shall be responsible for securing and notifying such stenographer of the time and place of the arbitration hearing(s). If the arbitration provision is invoked when the dispute between the parties is either the legality of terminating this Agreement or of adding a new CC dealer of the same line-make or relocating an existing CC dealer of the same line-make, CC will stay the implementation of the decision to terminate this Agreement or add such new CC dealer or approve the relocation of an existing CC dealer of the same line-make until the decision of the arbitrator has been announced, providing DEALER does not in any way attempt to avoid the obligations of this Paragraph 9, in which case the decision at issue will be immediately implemented. Except as limited hereby, the arbitration panel shall have all powers of law and equity, which it can lawfully assume, necessary to resolve the issues in dispute including, without limiting the generality of the foregoing, making awards of compensatory damages, issuing both prohibitory and mandatory orders in the nature of injunctions and compelling the production of documents and witnesses for pre-arbitration discovery and/or presentation at the arbitration hearing on the merits of the case. The arbitration panel shall not have legal or equitable authority to issue a mandatory or prohibitory order which: (a) extends or has effect beyond the subject matter of this Agreement, or (b) will govern the activities of either party for a period of more than two years; nor shall the arbitration panel have authority to award punitive, consequential or any damages whatsoever beyond or in addition to the compensatory damages allowed to be awarded under this Agreement. The decision of the arbitration panel shall be in written form and shall include findings of fact and conclusions of law. It is the intent and desire of DEALER and CC to hereby and forever renounce and reject any and all recourse to litigation before any judicial or administrative forum and to accept the award of the arbitration panel as final and binding, subject to no judicial or administrative review, except on those grounds set forth in 9 USC Section 10 and Section 11. Judgment on the award and/or orders may be entered in any court having jurisdiction over the parties or their assets. In the final award and/or order, the arbitration panel shall divide all costs (other than attorney fees, which shall be borne by the party incurring such fees and other costs specifically provided for herein) incurred in conducting the arbitration in accordance with what the arbitration panel deems just and equitable under the -6- circumstances. The fees of DEALER's arbitrator shall be paid by DEALER. The fees of CC's arbitrator shall be paid by CC. ________________________________ 10 SIGNATURE This Agreement becomes valid only when signed by the President or a Vice President or the National Dealer Placement Manager of Chrysler Corporation and by a duly authorized officer or executive of DEALER if a corporation; or by one of the general partners of DEALER if a partnership; or by DEALER if an individual. IN WITNESS WHEREOF, the parties hereto have signed this Agreement which is finally executed at DETROIT, Michigan, in triplicate, on AUGUST 16, 1995. UNITED LANDERS AUTO SALES, INC. d/b/a Landers Chrysler Plymouth Dodge Jeep Eagle - ----------------------------------------------- (DEALER, Firm Name and D/B/A/, if applicable) By /s/ Steven J. Landers --------------------------------------------- (Individual Duly Authorized to Sign) President - ----------------------------------------------- (Title) CHRYSLER CORPORATION By /s/ W. S. [ ] --------------------------------------------- National Dealer Placement Manager - ----------------------------------------------- (Title) -7- EX-10.4-16 38 EXHIBIT 10.4.16 CHRYSLER CREDIT SECURITY AGREEMENT AND MASTER CREDIT AGREEMENT (Non-Chrysler Corporation Dealer) This Security Agreement and Master Credit Agreement (hereinafter called the "Agreement"), made as of this 25th day of October, 1993, is by and between Landers Oldsmobile-GMC, Inc., having its principal place of business at 1701 I- 30 Frontage Road, Benton Ar 72015 (hereinafter called "Debtor"), and Chrysler Credit Corporation, a Delaware corporation, having offices located at 27777 Franklin Rd., Southfield, Michigan 48034-8286 (hereinafter called "Secured Party"). WHEREAS, Debtor is engaged in business as an authorized dealer of GMC & Oldsmobile and desires Secured Party to finance the acquisition by Debtor in the ordinary course of its business of new and unused vehicles sold and distributed by General Motors Corporation and/or other authorized sellers and of used vehicles (all such unused and used vehicles being hereinafter collectively called the "Vehicles"). WHEREAS, Secured Party is willing to provide wholesale financing to Debtor to finance the acquisition of Vehicles by Debtor by making loans or advances to Debtor to finance the acquisition by Debtor of Vehicles. NOW, THEREFORE, in consideration of the mutual premises herein contained and other good and valuable consideration paid by each party to the other, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: 1.0 FINANCING - Secured Party agrees to extend to Debtor wholesale financing by making loans or advances to Debtor to finance the acquisition by Debtor of Vehicles from sellers thereof, on the terms and conditions set forth in Paragraph 2.1 herein or as set forth in the Vehicle financing terms and conditions as they may be made available to Debtor from time to time by Secured Party. For the purposes of this Agreement, loans or advances provided by Secured Party directly to either Debtor or to the seller of Vehicles to Debtor are herein called "Advances". Debtor acknowledges that (x) the maximum amount of Advances which will be made by Secured Party hereunder will be established from time to time by Secured Party in its sole discretion and (y) all such Advances shall be made on and shall be subject to the terms and conditions of this Agreement. It is understood and agreed that the making of any Advance hereunder shall be at the option of Secured Party and shall not be obligatory, and that the right of Debtor to request that Secured Party make Advances may be terminated at any time by Secured Party at its election without notice. 2.0 EVIDENCE OF ADVANCES AND PAYMENT TERMS - Each Advance shall be made at such time as Debtor shall request in accordance with the then-effective Vehicle financing terms and conditions referred to above. Debtor will execute and deliver to Secured Party from time to time its demand promissory notes in aggregate principal amount equal to that amount agreed to by Debtor and Secured Party from time to time, such demand promissory notes (the "Promissory Notes") to evidence the liability of Debtor to Secured Party on account of all Advances. The maximum liability of Debtor under this Agreement shall at any time be equal to the aggregate principal amount of all Advances at the time outstanding hereunder plus interest and such other amounts as may be due under this Agreement. Debtor will pay to Secured Party on demand the aggregate principal amount of all Advances from time to time outstanding, and will pay upon demand the interest due thereon and such other additional charges as Secured Party shall determine from time to time. In consideration of Secured Party's making Advances, Debtor will pay to Secured Party interest at the rate(s) per annum designated by Secured Party from time to time on the amount of each Advance made by Secured Party hereunder from the date of such Advance until the date of repayment to Secured Party of the full amount thereof. Secured Party will give notice to Debtor of the interest rate(s) established by it from time to time under the terms hereof, and each such notice shall constitute an agreement between Debtor and Secured Party as to the applicability to the Advances of the interest rate(s) contained therein, to be applicable from the dates stated in such notice until such interest rate(s) are changed by subsequent notice given by Secured Party pursuant to this sentence. All interest accrued on the Advances shall be payable monthly by Debtor, and shall be due upon receipt by Debtor of the statement of Secured Party setting forth the amount of such accrued interest. 2.1 Debtor agrees that financing pursuant to this Agreement shall be used exclusively for the purpose of acquiring Vehicles for Debtor's inventory and Debtor shall not sell or otherwise dispose of such Vehicles except by sale in the ordinary course of business. If so requested by Secured Party, Debtor agrees to maintain a separate bank account into which all cash proceeds of such sales or other dispositions of such Vehicle will be deposited. Debtor further agrees that upon the sale of each Vehicle with respect to which an Advance has been made by Secured Party, -2- Debtor will promptly remit to Secured Party the total amount then outstanding of Secured Party's Advance on each such Vehicle unless other terms of repayment have been agreed to by Secured Party. Debtor agrees to hold in trust for Secured Party and shall forthwith remit to Secured Party, to the extent of any unpaid and past due indebtedness hereunder, all proceeds of each Vehicle when received by Debtor, or to allow Secured Party to make direct collection thereof and credit Debtor with all sums received by Secured Party. 3.0 SECURITY - Debtor hereby grants to Secured Party a first and prior security interest in and to each and every Vehicle financed hereunder, whether now owned or hereafter acquired by way of replacement, substitution, addition or otherwise, together with all additions and accessions thereto and all proceeds thereof. Further, Debtor also hereby grants to Secured Party a security interest in and to all Chattel Paper, Accounts whether or not earned by performance and including without limitation all amounts due from the manufacturer or distributor of the Vehicles or any of its subsidiaries or affiliates, Contract Rights, Documents, Instruments, General Intangibles, Consumer Goods, Inventory of Automotive Parts, Accessories and Supplies, Equipment, Furniture, Fixtures, Machinery, Tools, and Leasehold Improvements, whether now owned or hereafter acquired by way of replacement, substitution, addition or otherwise, together with all additions and accessions thereto and all proceeds thereof, as additional security for each and every indebtedness and obligation of Debtor as set forth herein. The security interest hereby granted shall secure the prompt, timely and full payment of (1) all Advances, (2) all interest accrued thereon in accordance with the terms of this Agreement and the Promissory Notes, (3) all other indebtedness and obligations of Debtor under the Promissory Notes, (4) all costs and expenses incurred by Secured Party in the collection or enforcement of the Promissory Notes or of the obligations of the Debtor under this Agreement, (5) all monies advanced by Secured Party on behalf of Debtor for taxes, levies, insurance and repairs to and maintenance of any Vehicle or other collateral, and (6) each and every other indebtedness or obligation now or hereafter owing by Debtor to Secured Party including any collection or enforcement costs and expenses or monies advanced on behalf of Debtor in connection with any such other indebtedness or obligations. 3.1 All said security set forth in Paragraph 3.0 shall hereinafter collectively be called "Collateral". Debtor hereby expressly agrees that the term "proceeds" as used in Paragraph 3.0 shall include without limitation all insurance proceeds on the Collateral, money, chattel paper, goods received in trade including without limitation vehicles received in trade, contract rights, instruments, documents, -3- accounts whether or not earned by performance, general intangibles, claims and tort recoveries relating to the Collateral. Notwithstanding that Advances hereunder are made from time to time with respect to specific Vehicles, each Vehicle and the proceeds thereof and all other Collateral hereunder shall constitute security for all obligations of Debtor to Secured Party secured hereunder. 3.2 Debtor hereby agrees that upon request of the Secured Party it will take such action and/or execute and deliver to Secured Party any and all documents (and pay all costs and expenses of recording the same), in form and substance satisfactory to Secured Party, which will perfect in Secured Party its security interest in the Collateral in which Secured Party has or is to have a security interest under the terms of this Agreement. 3.3 Secured Party's security interest in the Collateral shall attach to the full extent provided or permitted by law to the proceeds, in whatever form, of any disposition of said Collateral or to any part thereof by Debtor until such proceeds are remitted and accounted for as provided herein. Debtor will notify Secured Party before Debtor signs, executes or authorizes any financing statement regardless of coverage. 3.4 Debtor shall be responsible for all loss and damage to the Collateral and agrees to keep Collateral insured against loss or damage by fire, theft, collision, vandalism and against such other risks as Secured Party may require from time to time. Insurance and policies evidencing such insurance shall be with such companies, in such amount and such form as shall be satisfactory to Secured Party. If so requested by Secured Party, any or all such policies of insurance shall contain an endorsement, in form and substance satisfactory to Secured Party, showing loss payable to Secured Party as its interest may appear, and a certificate of insurance evidencing such coverage will be provided to Secured Party. 4.0 DEBTOR'S WARRANTIES - Debtor warrants and agrees that the Collateral now is and shall always be kept free of all taxes, liens and encumbrances, except as specifically disclosed in Paragraph 4.1 below or provided for in Paragraph 3.0 above, and Debtor shall defend the Collateral against all other claims and demands whatsoever and shall indemnify, hold harmless and defend Secured Party in connection therewith. Any sum of money that may be paid by Secured Party in release or discharge of any taxes, liens or encumbrances shall be paid to Secured Party on demand as an additional part of the obligation secured hereunder. Debtor hereby agrees not to mortgage, pledge or loan (except for designated demonstrators as agreed to in advance by Secured Party in writing) the Vehicles and shall not license, title, -4- use, transfer or otherwise dispose of them except as provided in this Agreement. Debtor agrees that it will execute in favor of Secured Party any form of document which may be required to evidence further Advances by Secured Party hereunder, and shall execute such additional documents as Secured Party may at any time request in order to conform or perfect Debtor's title to or Secured Party's security interest in the Vehicles. Execution by Debtor of notes, checks or other instruments for the amount advanced shall be deemed evidence of Debtor's obligation and not payment therefor until collected in full by Secured Party. 4.1 DISCLOSURE OF TAXES, LIENS AND ENCUMBRANCES - (IF THERE ARE ANY, LIST THEM HERE; IF NONE, SO STATE.) - ------------------------------------------------------------------------------- PLACE FILED DATE OF FILING NAME AND ADDRESS OF CREDITOR - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 5.0 SIGNATORY AUTHORIZATION - Debtor hereby authorizes Secured Party or any of its officers, employees, agents or any other person Secured Party may designate to execute any and all documents pursuant to the terms and conditions of that certain Power of Attorney and Signatory Authorization of even date herewith. 6.0 EVENTS OF DEFAULT AND REMEDIES/TERMINATION - Time is of the essence herein and it is understood and agreed that Secured Party may terminate this Agreement, refuse to advance funds hereunder, and declare the aggregate of all Advances outstanding hereunder immediately due and payable upon the occurrence of any of the following events (each hereinafter called an "Event of Default"), and that Debtor's liabilities under this sentence shall constitute additional obligations of Debtor secured under this Agreement. (a) Debtor shall fail to make any payment to Secured Party, whether constituting the principal amount of any Advance, interest thereon or any other payment due hereunder, when and as due in accordance with the terms of this Agreement or with any demand permitted to be made by Secured Party under this Agreement or any Promissory Note, or shall -5- fail to pay when due any other amount owing to Secured Party under any other agreement between Secured Party and Debtor, or shall fail in the due performance or compliance with any other term or condition hereof or thereof, or shall be in default in the payment of any liabilities constituting indebtedness for money borrowed or the deferred payment of the purchase price of property or a rental payment with respect to property material to the conduct of Debtor's business; (b) A tax lien or notice thereof shall have been filed against any of the Debtor's property or a proceeding in bankruptcy, insolvency or receivership shall be instituted by or against Debtor or Debtor's property or an assignment shall have been made by Debtor for the benefit of creditors; (c) In the event that Secured Party deems itself insecure for any reason or the Vehicles are deemed by Secured Party to be in danger of misuse, loss, seizure or confiscation or other disposition not authorized by this Agreement; (d) Termination of any franchise authorizing Debtor to sell Vehicles; (e) A misrepresentation by Debtor for the purpose of obtaining credit or an extension of credit or a refusal by Debtor to execute documents relating to the Collateral and/or Secured Party's security interest therein or to furnish financial information to Secured Party at reasonable intervals or to permit persons designated by Secured Party to examine Debtor's books or records and to make periodic inspections of the Collateral; or (f) Debtor, without Secured Party's prior written consent, shall guarantee, endorse or otherwise become surety for or upon the obligations of others except as may be done in the ordinary course of Debtor's business, shall transfer or otherwise dispose of any proprietary, partnership or share interest Debtor has in his business, or all or substantially all of the assets thereof, shall enter into any merger or consolidation, if a corporation, or shall make any substantial disbursements or use of funds of Debtor's business, except as may be done in the ordinary course of Debtor's business, or assign this Agreement in whole or in part or any obligation hereunder. Upon the occurrence of an Event of Default, Secured Party may take immediate possession of said Vehicles without demand or further notice and without legal process; and for the purpose and furtherance thereof, Debtor shall, if Secured Party so requests, assemble the Vehicles and make them available to Secured Party at a reasonably convenient -6- place designated by Secured Party and Secured Party shall have the right, and Debtor hereby authorizes and empowers Secured Party to enter upon the premises wherever said Vehicles may be, to remove same. In addition, Secured Party or its assigns shall have all the rights and remedies applicable under the Uniform Commercial Code or under any other statute or at common law or in equity or under this Agreement. Such rights and remedies shall be cumulative. Debtor hereby agrees that it shall pay all expenses and reimburse Secured Party for any expenditures, including reasonable attorneys' fees and legal expenses, in connection with Secured Party's exercise of any of its rights and remedies under this Agreement. 7.0 INSPECTION: VEHICLES/BOOKS AND RECORDS - It is hereby understood and agreed by and between Debtor and Secured Party that Secured Party shall have the right of access to and inspection of the Vehicles and the right to examine Debtor's books and records, which Debtor warrants are genuine in all respects. Debtor hereby certifies to Secured Party that all Vehicles and books and records shall be kept at the principal place of business of Debtor as hereinabove stated or at such other locations as approved in writing by Secured Party, and Debtor shall not remove or permit the removal of the Vehicles or books and records during the pendency of this Agreement except in the ordinary course of business and as authorized by Secured Party. 7.1 Debtor agrees to furnish to Secured Party after the end of each month, for so long as this Agreement shall be effective, balance sheets and statements of profit and loss for each month with respect to Debtor's business in such detail and at such times as Secured Party may require from time to time. 8.0 GENERAL - Debtor and Secured Party further covenant and agree that: 8.1 Any provision hereof prohibited by law shall be ineffective to the extent of such prohibition without invalidating the remaining provisions hereof. 8.2 This Agreement shall be interpreted according to the laws of the State of Debtor's principal place of business as identified above. 8.3 This Agreement cannot be modified or amended, except in writing by both parties unless otherwise specifically authorized herein, and shall be binding and inure to the benefit of each of the parties hereto and their respective legal representatives, successors and assigns. 8.4 Interest to be paid in connection herewith shall never exceed the maximum rate allowable by law applicable hereto, -7- as the parties intend to strictly comply with all law relating to usury. Notwithstanding any provision hereof or any other document in connection herewith to the contrary, Debtor shall not pay nor will Secured Party accept payment of any such excessive interest, which excessive interest is hereby canceled, and Secured Party shall be entitled at its option to refund any such interest erroneously paid or credit the same to Debtor's obligations hereunder. 8.5 The terms and provisions of this Agreement and of any other agreement between Debtor and Secured Party should be construed together as one agreement; provided, however, in the event of any conflict, the terms and provisions of this Agreement shall govern such conflict. 8.6 No failure or delay on the part of Secured Party in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power preclude any other or further exercise thereof or the exercise of any other right or power hereunder. The remedies herein are in addition to those available in law or equity, and Secured Party need not pursue any rights it might have as a Secured Party before pursuing payment and performance by Debtor or any guarantor or surety. 8.7 This Agreement may not be assigned by Debtor. 9.0 NOTICES - Any notice given hereunder shall be in writing and given by personal delivery or shall be sent by U.S. Mail, postage prepaid, addressed to the party to be charged with such notice at the respective address set forth below: - ------------------------------------------------------------------------------- TO DEBTOR TO SECURED PARTY - ------------------------------------------------------------------------------- Landers Oldsmobile-GMC, Inc. Chrysler Credit Corporation 1701 I-30 Frontage Road 10801 Executive Center Drive Suite 101 Benton Ar 72015 Little Rock Ar 72211 - ------------------------------------------------------------------------------- -8- IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. Landers Oldsmobile-GMC, Inc. ------------------------------ (Debtor) /s/ Bob Landers By /s/ Steve Landers - ------------------------------ ------------------------------------------ (WITNESS) illegible Title President - ------------------------------ --------------------------------------- (WITNESS) CHRYSLER CREDIT CORPORATION By illegible ------------------------------------------ Title illegible --------------------------------------- -9- PROMISSORY NOTE - ------------------------------------------------------------------------------- AMOUNT CITY STATE DATE $7,100,000.00 Benton Arkansas October 25, 1993 - ------------------------------------------------------------------------------- ON DEMAND, FOR VALUE RECEIVED, the undersigned promise(s) to pay to the order of CHRYSLER CREDIT CORPORATION, a Delaware Corporation, at its office at 10801 Executive Center Drive, Suite 101, Little Rock Ar 72211 or at such other place as the holder hereof may direct in writing, the sum of Seven Million One Hundred Thousand Dollars ($7,100,000.00), in lawful money of the United States of America, together with interest thereon from the date hereof until paid at the rate or rates established from time to time, pursuant to paragraph 2.0 of that certain Security Agreement and Master Credit Agreement dated ______________, 19__, between the undersigned and Chrysler Credit Corporation, which interest shall be payable monthly in like lawful money; provided, however, that the rate of interest payable hereunder shall not exceed the maximum rate of interest permitted by applicable law. The undersigned agrees to pay reasonable attorneys fees if this note is placed in the hands of an attorney for collection. The makers, sureties, guarantors and endorsers hereof severally waive presentment for payment, protest and notice of protest and non-payment of this note, and consents to any extension, renewal or postponement of the time of payment of this note, without notice, at the option of the holder. - ------------------------------------------------------------------------------- DEALER BY ITS Landers Oldsmobile-GMC, Inc. /s/ Steve Landers President - ------------------------------------------------------------------------------- EX-10.4-17 39 EXHIBIT 10.4.17 Exhibit 10.4.17 SECURITY AGREEMENT AND MASTER CREDIT AGREEMENT This Security Agreement and Master Credit Agreement (hereinafter called the "Agreement"), made as of this 17th day of MAY, 1989; and effective September 1, 1984 or the date hereof, whichever is later, is by and between LANDERS JEEP- EAGLE, INC., having its principal place of business at 1800 MILITARY RD., BENTON, AR 72015 (hereinafter called "Debtor"), and Chrysler Credit Corporation, a Delaware corporation, having offices located at 900 Tower Drive, Troy, Michigan 48098 (hereinafter called "Secured Party"). WHEREAS, Debtor is engaged in business as an authorized dealer of Chrysler Corporation and desires Secured Party to finance the acquisition by Debtor in the ordinary course of its business of new and unused vehicles sold and distributed by Chrysler Corporation and/or other authorized sellers and of used vehicles (all such unused and used vehicles being hereinafter collectively called the "Vehicles"). WHEREAS, Secured Party is willing to provide wholesale financing to Debtor to finance the acquisition of Vehicles by Debtor (1) by agreeing with Chrysler Corporation to purchase from Chrysler Corporation receivables evidencing credit sales of Vehicles by Chrysler Corporation to Debtor, and (2) by making loans or advances to Debtor to finance the acquisition by Debtor of Vehicles from other sellers. NOW, THEREFORE, in consideration of the mutual premises herein contained and other good and valuable consideration paid by each party to the other, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: 1.0 FINANCING - Secured Party agrees to extend to Debtor wholesale financing as follows: (a) to purchase receivables from Chrysler Corporation evidencing credit sales of Vehicles by Chrysler Corporation to Debtor, at 100% of the face amount of such receivables; or (b) by making loans or advances to Debtor to finance the acquisition by Debtor of Vehicles from sellers thereof, on the terms and conditions set forth in Paragraph 2.1 herein or as set forth in the Vehicle financing terms and conditions as they may be made available to Debtor from time to time by Secured Party. For the purposes of this Agreement, amounts applied by Secured Party to acquire Debtor's receivables from Chrysler Corporation as contemplated by clause (a) are herein called "Receivable Purchase Advances", and loans or advances provided by Secured Party directly to either Debtor or to the seller of Vehicles to Debtor as contemplated by clause (b) are herein called "Direct Loan Advances", and all such amounts, loans and advances provided by Secured Party contemplated by clause (a) and clause (b) are herein collectively called "Advances". Debtor acknowledges that (x) the maximum amount of Advances which will be made by Secured Party hereunder will be established from time to time by Secured Party in its sole discretion and (y) all such Advances shall be made on and shall be subject to the terms and conditions of this Agreement. It is understood and agreed that the making of any Advance hereunder shall be at the option of Secured Party and shall not be obligatory, and that the right of Debtor to request that Secured Party make Advances may be terminated at any time by Secured Party at its election without notice. 2.0 EVIDENCE OF ADVANCES AND PAYMENT TERMS - Each Receivable Purchase Advance shall be evidenced by and made against a Credit Sale Agreement of Chrysler Corporation delivered to Secured Party, and Secured Party shall be entitled to make Receivable Purchase Advances against such Credit Sale Agreement appropriately completed and executed on behalf of Debtor by Chrysler Corporation by facsimile signature or otherwise under Power of Attorney given by Debtor, without any duty to inquire as to the continued effectiveness of such power or to verify with Debtor the amount of, or Vehicles listed upon, such Credit Sale Agreement and each such Credit Sale Agreement shall evidence the valid and binding payment obligation of Debtor. Each Direct Loan Advance shall be made at such time as Debtor shall request in accordance with the then-effective Vehicle financing terms and conditions referred to above. Debtor will execute and deliver to Secured Party from time to time its demand promissory notes in aggregate principal amount equal to that amount agreed to by Debtor and Secured Party from time to time, such demand promissory notes (the "Promissory Notes") to evidence the liability of Debtor to Secured Party on account of all Direct Loan Advances and to constitute additional evidence of Debtor's obligation in respect of the receivables underlying the Receivable Purchase Advances. The maximum liability of Debtor under this Agreement shall at any time be equal to the aggregate principal amount of all Advances at the time outstanding hereunder plus interest and such other amounts as may be due under this Agreement. Debtor will pay to Secured Party on demand the aggregate principal amount of all Advances from time to time outstanding, and will pay upon demand the interest due thereon and such other additional charges as Secured Party shall determine from time to time. -2- Notwithstanding any inconsistent terms of any agreement between Debtor and Chrysler Corporation in respect of Debtor's liability under any Credit Sale Agreement, in consideration of Secured Party's making of Receivable Purchase Advances and Direct Loan Advances, Debtor will pay to Secured Party interest at the rate(s) per annum designated by Secured Party from time to time on the amount of each Advance made by Secured Party hereunder from the date of such Advance until the date of repayment to Secured Party of the full amount thereof. For the purposes of the preceding sentence, each Receivable Purchase Advance shall be deemed to have been made by Secured Party on the date on which payment shall have been made by Secured Party to Chrysler Corporation for the related receivable of Debtor purchased by Secured Party from Chrysler Corporation. Secured Party will give notice to Debtor of the interest rate(s) established by it from time to time under the terms hereof, and each such notice shall constitute an agreement between Debtor and Secured Party as to the applicability to the Advances of the interest rate(s) contained therein, to be applicable from the dates stated in such notice until such interest rate(s) are changed by subsequent notice given by Secured Party pursuant to this sentence. All interest accrued on the Advances shall be payable monthly by Debtor, and shall be due upon receipt by Debtor of the statement of Secured Party setting forth the amount of such accrued interest. 2.1 Debtor agrees that financing pursuant to this Agreement shall be used exclusively for the purpose of acquiring Vehicles for Debtor's inventory and Debtor shall not sell or otherwise dispose of such Vehicles except by sale in the ordinary course of business. If so requested by Secured Party, Debtor agrees to maintain a separate bank account into which all cash proceeds of such sales or other dispositions of such Vehicle will be deposited. Debtor further agrees that upon the sale of each Vehicle with respect to which an Advance has been made by Secured Party, Debtor will promptly remit to Secured Party the total amount then outstanding of Secured Party's Advance on each such Vehicle unless other terms of repayment have been agreed to by Secured Party. Debtor agrees to hold in trust for Secured Party and shall forthwith remit to Secured Party, to the extent of any unpaid and past due indebtedness hereunder, all proceeds of each Vehicle when received by Debtor, or to allow Secured Party to make direct collection thereof and credit Debtor with all sums received by Secured Party. 3.0 SECURITY - Debtor hereby grants to Secured Party a first and prior security interest in and to each and every Vehicle financed hereunder, whether now owned or hereafter acquired by way of replacement, substitution, addition or otherwise, -3- together with all additions and accession thereto and all proceeds thereof, subject only to any prior security interest in a Vehicle financed by a Receivable Purchase Advance which has been granted by Debtor to Chrysler Corporation and assigned by Chrysler Corporation to Secured Party in connection with the making of such Receivable Purchase Advance. The security interest hereby granted shall secure the prompt, timely and full payment of (1) all Advances, (2) all interest accrued thereon in accordance with the terms of this Agreement and the Promissory Notes, (3) all other indebtedness and obligations of Debtor under the Promissory Notes, (4) all costs and expenses incurred by Secured Party in the collection or enforcement of the Promissory Notes or of the receivable underlying any Receivable Purchase Advance or of the obligations of the Debtor under this Agreement, (5) all monies advanced by Secured Party on behalf of Debtor for taxes, levies, insurance and repairs to and maintenance of any Vehicle or other collateral, and (6) each and every other indebtedness or obligation now or hereafter owing by Debtor to Secured Party including any collection or enforcement costs and expenses or monies advanced on behalf of Debtor in connection with any such other indebtedness or obligations. Nothing in this Agreement shall require Debtor, in respect of any Receivable Purchase Advance, to proceed first under the security interest created by this Agreement or first under the security interest granted by Debtor to Chrysler Corporation to secure the receivable underlying such Receivable Purchase Advance and assigned by Chrysler Corporation to Secured Party and the remedies of Secured Party under each security interests shall be cumulative. 3.1 All said security set forth in Paragraph 3.0 above shall hereinafter collectively be called "Collateral", Debtor hereby expressly agrees that the term "proceeds" as used in Paragraph 3.0 above shall include without limitation all insurance proceeds on the Collateral, money, chattel paper, goods received in trade including without limitation vehicles received in trade, contract rights, instruments, documents, accounts whether or not earned by performance, general intangibles, claims and tort recoveries relating to the Collateral. Notwithstanding that Advances hereunder are made from time to time with respect to specific Vehicles, each Vehicle and the proceeds thereof and all other Collateral hereunder shall constitute security for all obligations of Debtor to Secured Party secured hereunder. 3.2 Debtor hereby agrees that upon request of the Secured Party it will take such action and/or execute and deliver to Secured Party any and all documents (and pay all costs and expenses of recording the same), in form and substance satisfactory to Secured Party, which will perfect in Secured Party its security interest in the Collateral in which -4- Secured Party has or is to have a security interest under the terms of this Agreement. 3.3 Secured Party's security interest in the Collateral shall attach to the full extent provided or permitted by law to the proceeds, in whatever form, of any disposition of said Collateral or to any part thereof by Debtor until such proceeds are remitted and accounted for as provided herein. Debtor will notify Secured Party before Debtor signs, executes or authorizes any financing statement regardless of coverage. 3.4 Debtor shall responsible for all loss and damage to the Collateral and agrees to keep Collateral insured against loss or damage by fire, theft, collision, vandalism and against such other risks as Secured Party may require from time to time. Insurance and polices evidencing such insurance shall be with such companies, in such amount and such form as shall be satisfactory to Secured Party. If so requested by Secured Party, any or all such policies of insurance shall contain an endorsement, in form and substance satisfactory to Secured Party, showing loss payable to Secured Party as its interest may appear, and a certificate of insurance evidencing such coverage will be provided to Secured Party. 4.0 DEBTOR'S WARRANTIES - Debtor warrants and agrees that the Collateral now is and shall always be kept free of all taxes, liens and encumbrances, except as specifically disclosed in Paragraph 4.1 below or provided for in Paragraph 3.0 above, and Debtor shall defend the Collateral against all other claims and demands whatsoever and shall indemnify, hold harmless and defend Secured Party in connection therewith. Any sum of money that may be paid by Secured Party in release or discharge of any taxes, liens or encumbrances shall be paid to Secured Party on demand as an additional part of the obligation secured hereunder. Debtor hereby agrees not to mortgage, pledge or loan (except for designated demonstrators as agreed to in advance by Secured Party in writing) the Vehicles and shall not license, title, use, transfer or otherwise dispose of them except as provided in this Agreement. Debtor agrees that it will execute in favor of Secured Party any form of document which may be required to evidence further Advances by Secured Party hereunder, and shall execute such additional documents as Secured Party may at any time request in order to conform or perfect Debtor's title to or Secured Party's security interest in the Vehicles. Execution by Debtor of notes, checks or other instruments for the amount advanced shall be deemed evidence of Debtor's obligation and not payment therefor until collected in full by Secured Party. -5- 4.1 Disclosure of Taxes, Liens and Encumbrances (IF THERE ARE ANY, LIST THEM HERE: IF NONE, SO STATE.) PLACE FILED DATE OF FILING NAME AND ADDRESS OF CREDITOR None 5.0 SIGNATORY AUTHORIZATION - Debtor hereby authorizes Secured Party or any of its officers, employees, agents or any other person Secured Party may designate to execute any and all documents pursuant to the terms and conditions of that certain Power of Attorney and Signatory Authorization of even date herewith. 6.0 EVENTS OF DEFAULT AND REMEDIES/TERMINATION - Time is of the essence herein and it is understood and agreed that Secured Party may, at its option and notwithstanding any inconsistent terms in any agreement between Debtor and Chrysler Corporation and/or Secured Party with respect to the receivable underlying any Receivable Purchase Advance by Secured Party, terminate this Agreement, refuse to advance funds hereunder, convert outstanding installment payment obligations to payment on Vehicle sale obligations, and declare the aggregate of all Advances outstanding hereunder immediately due and payable upon the occurrence of any of the following events (each hereinafter called an "Event of Default"), and that Debtor's liabilities under this sentence shall constitute additional obligations of Debtor secured under this Agreement. (a) Debtor shall fail to make any payment to Secured Party, whether constituting the principal amount of any Advance, interest thereon or any other payment due hereunder, when and as due in accordance with the terms of this Agreement or with any demand permitted to be made by Secured Party under this Agreement or any Promissory Note, or shall fail to pay when due any other amount owing to Secured Party under any other agreement between Secured Party and Debtor, or shall fail in the due performance or compliance with any other term or condition hereof or thereof, or shall be in default in the payment of any liabilities constituting indebtedness for money borrowed or the deferred payment of the purchase price of property or a rental payment with respect to property material to the conduct of Debtor's business; (b) A tax lien or notice thereof shall have been filed against any of the Debtor's property or a proceeding in -6- bankruptcy, insolvency or receivership shall be instituted by or against Debtor or Debtor's property or an assignment shall have been made by Debtor for the benefit of creditors; (c) In the event that Secured Party deems itself insecure for any reason or the Vehicles are deemed by Secured Party to be in danger of misuse, loss, seizure or confiscation or other disposition not authorized by this Agreement; (d) Termination of any franchise authorizing Debtor to sell Vehicles; (e) A misrepresentation by Debtor for the purpose of obtaining credit or an extension of credit or a refusal by Debtor to execute documents relating to the Collateral and/or Secured Party's security interest therein or to furnish financial information to Secured Party at reasonable intervals or to permit persons designated by Secured Party to examine Debtor's books or records and to make periodic inspections of the Collateral; or (f) Debtor, without Secured Party's prior written consent, shall guarantee, endorse or otherwise become surety for or upon the obligations of others except as may be done in the ordinary course of Debtor's business, shall transfer or otherwise dispose of any proprietary, partnership or share interest Debtor has in his business, or all or substantially all of the assets thereof, shall enter into any merger or consolidation, if a corporation, or shall make any substantial disbursements or use of funds of Debtor's business, except as may be done in the ordinary course of Debtor's business, or assign this Agreement in whole or in part or any obligation hereunder. Upon the occurrence of an Event of Default, Secured Party may take immediate possession of said Vehicles without demand or further notice and without legal process; and for the purpose and furtherance thereof, Debtor shall, if Secured Party so requests, assemble the Vehicles and make them available to Secured Party at a reasonably convenient place designated by Secured Party and Secured Party shall have the right, and Debtor hereby authorizes and empowers Secured Party to enter upon the premises wherever said Vehicles may be, to remove same. In addition, Secured Party or its assigns shall have all the rights and remedies applicable under the Uniform Commercial Code or under any other statute or at common law or in equity or under this Agreement. Such rights and remedies shall be cumulative. Debtor hereby agrees that it shall pay all expenses and reimburse Secured Party for any expenditures, including -7- reasonable attorneys' fees and legal expenses, in connection with Secured Party's exercise of any of its rights and remedies under this Agreement. 7.0 INSPECTION; VEHICLES/BOOKS AND RECORDS - It is hereby understood and agreed by and between Debtor and Secured Party that Secured Party shall have the right of access to and inspection of the Vehicles and the right to examine Debtor's books and records, which Debtor warrants are genuine in all respects. Debtor hereby certifies to Secured Party that all Vehicles and books and records shall be kept at the principal place of business of Debtor as hereinabove stated or at such other locations as approved in writing by Secured Party, and Debtor shall not remove or permit the removal of the Vehicles or books and records during the pendency of this Agreement except in the ordinary course of business and as authorized by Secured Party. 7.1 Debtor agrees to furnish to Secured Party after the end of each month, for so long as this Agreement shall be effective, balance sheets and statements of profit and loss for each month with respect to Debtor's business in such detail and at such times as Secured Party may require from time to time. 8.0 GENERAL - Debtor and Secured Party further covenant and agree that: 8.1 Any provision hereof prohibited by law shall be ineffective to the extent of such prohibition without invalidating the remaining provisions hereof. 8.2 This Agreement shall be interpreted according to the laws of the State of Debtor's principal place of business as identified above. 8.3 This Agreement cannot be modified or amended, except in writing by both parties unless otherwise specifically authorized herein, and shall be binding and inure to the benefit of each of the parties hereto and their respective legal representatives, successors and assigns. 8.4 Interest to be paid in connection herewith shall never exceed the maximum rate allowable by law applicable hereto, as the parties intend to strictly comply with all law relating to usury. Notwithstanding any provision hereof or any other document in connection herewith to the contrary, Debtor shall not pay nor will Secured Party accept payment of any such excessive interest, which excessive interest is hereby canceled, and Secured Party shall be entitled at its option to refund any such interest erroneously paid or credit the same to Debtor's obligations hereunder. -8- 8.5 The terms and provisions of this Agreement and of any other agreement between Debtor and Secured Party or Debtor, Secured Party and Chrysler Corporation or Debtor and Chrysler Corporation with respect to the Receivable underlying any Receivable Purchase Advance by Secured Party should be construed together as one agreement; provided, however, in the event of any conflict, the terms and provisions of this Agreement shall govern such conflict. 8.6 No failure or delay on the part of Secured Party in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power preclude any other or further exercise thereof or the exercise of any other right or power hereunder. The remedies herein are in addition to those available in law or equity, and Secured Party need not pursue any rights it might have as a Secured Party before pursuing payment and performance by Debtor or any guarantor or surety. 8.7 This Agreement may not be assigned by Debtor. 9.0 NOTICES - Any notice given hereunder shall be in writing and given by personal delivery or shall be sent by U.S. Mail, postage prepaid, addressed to the party to be charged with such notice at the respective address set forth below: TO DEBTOR TO SECURED PARTY Landers Jeep-Eagle, Inc. Chrysler Credit Corporation 1800 Military Road 10801 Executive Center Dr. Benton, Arkansas 72015 Little Rock, AR 72211 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. Landers Jeep-Eagle, Inc. ----------------------------- (DEBTOR) /s/ [Illegible] By /s/ Steve Landers - ---------------------------- --------------------------- (WITNESS) /s/ [Illegible] - ---------------------------- (WITNESS) Title Pres. ----------------------- CHRYSLER CREDIT CORPORATION By /s/ [Illegible] -------------------------- Title Br. Mgr. ---------------------- -9- EX-10.4-18 40 EXHIBIT 10.4.18 Exhibit 10.4.18 CONTINUING GUARANTY IN CONSIDERATION of and in order to induce Chrysler Credit Corporation (hereinafter referred to as "Lender") to extend credit in any form whatsoever to Landers Auto Sales, Inc., 1701 I-30, Frontage Rd., Benton, AR 72015 (hereinafter referred to as "Debtor") including, but not limited to, (i) the financing of inventory, fixtures and personal property, (ii) the loan of money in any form whatsoever, (iii) the purchase, acceptance or discounting of notes, retail installment contracts, chattel mortgages, security agreements, trust receipts, leases, instruments or other evidences of indebtedness or contractual obligations of or from Debtor or endorsed or guaranteed in any manner by Debtor, (iv) and generally to engage in financial accomodations and do business with Debtor, the undersigned (hereinafter singularly and collectively referred to as "Guarantor") hereby covenants and agrees with Lender as follows: 1. Guarantor, as a primary obligor, jointly and severally, hereby unconditionally guarantees to Lender the full and prompt payment when due of all indebtedness (as hereafter defined) of Debtor due and to become due the Lender and the full, prompt and faithful discharge of all present and future obligations owed to or assigned to Lender. The Lender may have immediate recourse against Guarantor for full and immediate payment of the Indebtedness at any time after the Indebtedness, or any part thereof, has not been paid in full at its maturity (whether at fixed maturity or maturity accelerated by reason of a demand for payment from Debtor or a default under the terms of the instrument governing such Indebtedness or any instrument securing the same). The Lender may have immediate recourse against Guarantor for full and immediate performance of any other obligation owed or assigned to Lender at any time that Debtor fails, upon demand, to perform said obligation. 2. The term "Indebtedness" shall mean any and all indebtedness, liabilities and obligations of every kind, nature and description, owed to Lender by Debtor, whether direct or indirect, absolute or contingent, whether now due and owing, or which may hereafter, from time to time, be or become due and owing, whether heretofore or hereafter created or arising, including all indebtedness evidenced by any promissory note(s) now or hereinafter executed and delivered by Debtor to the Lender and any and all renewals, extensions, increases or modifications thereof, and including, without limitation, reasonable attorney fees, costs and expenses incurred by Lender in connection with the enforcement of this Guaranty and any and all obligations of the Debtor. 3. This is a guarantee of payment, and not of collection, and Guarantor therefore agrees that the Lender shall not be obligated prior to seeking recourse against or receiving payment from Guarantor, to take any action whatsoever against Debtor, or, without limiting the generality of the foregoing, to do any of the following (although the Lender may do so, in whole or in part, at its sole option), the performance of which are hereby unconditionally waived by Guarantor: (a) Take any steps whatsoever to make demand upon or to collect from Debtor or to file any claim of any kind against Debtor; or (b) Take any steps whatsoever to accept, perfect the Lender's interest in, foreclose upon or realize on collateral security, if any, for the payment of the Indebtedness, or any other guarantee of the Indebtedness; or (c) In any other respect exercise any diligence whatever in collecting or attempting to collect the Indebtedness by any means. 4. Guarantor's liability for payment of the Indebtedness shall be absolute and unconditional, and nothing whatever except actual full payment to the Lender of the Indebtedness shall operate to discharge Guarantor's liability hereunder. Accordingly, Guarantor unconditionally and irrevocably waives each and every defense which, under principles of guarantee or suretyship law, would otherwise operate to impair or diminish the liability of Guarantor for the Indebtedness. Without limiting the generality of the foregoing waiver, Guarantor agrees that none of the following acts, omissions or occurrences shall diminish or impair the liability of Guarantor in any respect (all of which acts, omissions or occurrences may be done without notice to Guarantor of any kind): (a) Any extension, modification, indulgence, compromise, settlement or variation of any of the terms of the Indebtedness; (b) The discharge, disaffirmance or release of any obligations of the Debtor or any other person now or hereafter liable on the Indebtedness, by reason of bankruptcy or insolvency laws or otherwise; (c) The acceptance or release by the Lender of any collateral security or other Guaranty, or any settlement, compromise or extension with respect to any collateral security or other Guaranty or other Guarantor hereunder; (d) The application or allocation by the Lender of payments, collections or credits on the Indebtedness or any other obligations of the Debtor to the Lender; (e) The creation of any new Indebtedness by Debtor, (f) The making of a demand, or absence of demand, for payment of the Indebtedness, or giving, or failing to give, any notice of dishonor or protest or any other notice; (g) The death of any Guarantor as to the obligations of such Guarantor's estate under this Guaranty or of any other Guarantor hereunder; (h) The validity, legality or enforceability of the Indebtedness or this Guaranty; (i) Any law, regulation or decree now or hereafter in effect that might in any manner affect any of the terms or provisions of the Indebtedness or any of the rights of Lender under -2- the Indebtedness or this Guaranty as against the Debtor or as against any other party to any part of the Indebtedness; (j) The merger or consolidation of Debtor or Guarantor into or with any corporation or any sale or transfer by the Debtor or Guarantor of all or any part of its property; (k) Any other circumstance whatsoever that might in any manner vary the risk of Guarantor hereunder or otherwise constitute a legal or equitable discharge of a surety or guarantor. 5. Guarantor unconditionally waives: (a) Any subrogation to the rights of the Lender against the Debtor, until the Indebtedness has been paid in full; (b) Any claim, right or remedy which Guarantor may now have or hereafter acquire against Debtor, until the Indebtedness have been paid in full; (c) Any acceptance of this Guaranty; (d) Any set-offs or counterclaims against the Lender which would otherwise impair the Lender's rights against Guarantor; and (e) Any notice of the disposition of any collateral security and any right to object to the commercial reasonableness of the disposition of any such collateral security. 6. Guarantor hereby authorizes the Lender to obtain credit reports and conduct credit and asset investigations on Guarantor so long as any Indebtedness exists. 7. This Guaranty shall inure to the benefit of the Lender and its successors and assigns, including each and every holder or owner of any of the Indebtedness guaranteed hereby. In the event that there shall be more than one such holder or owner, this Guaranty shall be deemed a separate contract with each holder and owner. In the event that any person other than the Lender shall become a holder or owner of any of the Indebtedness, each reference to the Lender hereunder shall be construed as if it referred to each such holder or owner. 8. This Guaranty shall be binding upon Guarantor and his successors and assigns, and shall continue in effect until Guarantor shall deliver to the Lender (and each other holder or owner of the Indebtedness) thirty (30) days advance written notice of termination, which delivery of notice must be acknowledged in writing by Lender to be effective; provided that this Guaranty shall continue in effect thereafter with respect to all Indebtedness in existence on the effective date of such termination (including all extensions and renewals thereof and all subsequently accruing interest and other charges thereon) until all such Indebtedness shall be fully paid. 9. Guarantor agrees that recourse may be had against his earnings and separate property for all of Guarantor's obligations under this Guaranty. -3- 10. Guarantor warrants and represents to the Lender that any and all financial statements concerning his personal financial condition delivered to the Lender are true and correct in all material respects as of the date of such statements, and if such statements are not current, that there has been no material adverse change in the financial situation of Guarantor from the date of such statement to the date of deliver of this Guaranty to the Lender. Guarantor acknowledges that in accepting this Guaranty, the Lender has relied upon any such financial statements, and Guarantor agrees to provided the Lender a statement of his current financial condition in a form satisfactory to the Lender at least annually upon the Lender's request. 11. The liability of each Guarantor executing this Guaranty shall be joint and several and the term "Guarantor" shall mean each and all such Guarantors. Masculine terms, as used herein, shall also refer where applicable to the feminine gender and the neuter gender and the singular reference shall also include the plural of any word, if the context so requires. 12. No modifications, recision, waiver, release or amendment of any provision of this Continuing Guaranty shall be made or accepted, except by a written agreement duly executed by Guarantor and Lender. 13. This Guaranty and all rights and obligations hereunder, including matters of construction, validity and performance, shall be governed by the laws of the State in which this Guaranty is executed. 14. THIS GUARANTY IS FREELY AND VOLUNTARILY GIVEN TO THE LENDER BY GUARANTOR, JOINTLY AND SEVERALLY, WITHOUT ANY DURESS OR COERCION, AND AFTER GUARANTOR, JOINTLY AND SEVERALLY, HAS EITHER CONSULTED WITH COUNSEL OR BEEN GIVEN AN OPPORTUNITY TO DO SO, AND GUARANTOR, JOINTLY AND SEVERALLY, HAS CAREFULLY AND COMPLETELY READ ALL OF THE TERMS AND PROVISIONS OF THIS GUARANTY. United Landers, Inc. /s/ George G. Lowrance /s/ Carl Spielvogel - ---------------------- ------------------------ Attest By: Carl Spielvogel Its: Chairman & CEO Date: August 15, 1995 375 Park Avenue New York, New York 10152 Loan # -4- EX-10.5-1 41 EXHIBIT 10.5.1 STOCK PURCHASE AGREEMENT DATED AS OF NOVEMBER 17, 1995 AMONG UNITED AUTO GROUP, INC., UAG ATLANTA, INC., ATLANTA TOYOTA, INC., AND CARL H. WESTCOTT This STOCK PURCHASE AGREEMENT, dated as of November 17, 1995, is by and among United Auto Group, Inc., a Delaware corporation ("UAG"), UAG Atlanta, Inc., a Delaware corporation ("Sub"), Atlanta Toyota, Inc., a Texas corporation (the "Company") and Carl H. Westcott ("Selling Stockholder"). W I T N E S S E T H: WHEREAS, the Company operates franchise automobile dealerships and related businesses; WHEREAS, the Selling Stockholder owns all of the issued and outstanding shares of common stock, par value $.10, of the Company (the "Common Stock"); and WHEREAS, Sub is a wholly-owned subsidiary of UAG; and WHEREAS, Sub desires to purchase 1,000 shares of Common Stock from the Selling Stockholder (such shares being collectively referred to herein as the "Shares"), and the Selling Stockholder desires to sell the Shares to Sub (upon the terms and subject to the conditions set forth in this Agreement), such that immediately after giving effect to such purchase and sale, Sub will own one hundred (100%) percent of all of the issued and outstanding shares of Common Stock, on a fully diluted basis; NOW, THEREFORE, in consideration of the mutual terms, conditions and other agreements set forth herein, the parties hereto hereby agree as follows: ARTICLE 1 PURCHASE AND SALE OF SHARES 1.1 PURCHASE AND SALE OF THE SHARES. (a) PURCHASE AND SALE. Upon the terms and subject to the conditions set forth in this Agreement, the Selling Stockholder shall sell to Sub, and Sub shall purchase from the Selling Stockholder, the Shares for an aggregate purchase price equal to (i) $9,555,455 (the "Base Price"), which Base Price is subject to adjustment at Closing as provided in SECTION 1.3 hereof and after Closing as provided in SECTION 1.2 hereof and (ii) a promissory note (the "Sub Note") issued by Sub and guaranteed by UAG in the principal amount of $2,100,100 with interest only payable semi-annually at the prime rate set by Citibank, N.A. on the Closing Date and maturing on the last day of the thirtieth month following the Closing Date, such promissory note being in a form mutually acceptable to the parties. At the Closing referred to in SECTION 1.1(b) hereof: (i) The Selling Stockholder shall sell, assign, transfer and deliver to Sub the Shares representing 100% of the outstanding Common Stock and shall deliver the certificates representing such Shares accompanied by stock powers duly executed in blank; and (ii) Sub shall accept and purchase the Shares from the Selling Stockholder and in payment therefor shall deliver to the Selling Stockholder (A) immediately available funds in an aggregate amount equal to the Base Price as adjusted as provided in SECTION 1.3 hereof by wire transfer to an account designated in writing by the Selling Stockholder and (B) the Sub Note duly executed by Sub. (b) CLOSING. Subject to the conditions set forth in this Agreement, the purchase and sale of the Shares pursuant to this Agreement (the "Closing") shall take place at the offices of Rogers & Hardin, 2700 Cain Tower, Peachtree Center, 229 Peachtree Street, N.E., Atlanta, Georgia 30303, or such other location as the parties shall agree upon, at 10:00 a.m. as soon as practicable following the date on which all conditions to the obligations of the parties hereunder (other than those requiring an exchange of certificates, opinions or other documents, or the taking of other action, at the Closing) have been satisfied or waived but no later than December 31, 1995. The date on which the Closing is to occur is herein referred to as the "Closing Date." (c) DELIVERIES AT THE CLOSING. Subject to the conditions set forth in this Agreement, at the Closing: (i) The Selling Stockholder shall deliver to Sub (A) certificates representing the Shares bearing the restrictive legend customarily placed on securities that have not been registered under applicable federal and state securities laws and accompanied by stock powers as required by SECTION 1.1(a)(i) hereof, and any other documents that are necessary to transfer to Sub good title to all the Shares, and (B) all opinions, certificates and other instruments and documents required to be delivered by the Selling Stockholder at or prior to the Closing or otherwise required in connection herewith; (ii) Sub shall pay and deliver to the Selling Stockholder (A) funds as required by SECTION 1.1(a)(ii) hereof, (B) the Sub Note duly executed by Sub; (C) a guaranty of the Sub Note and the Lease (as hereinafter defined) by UAG in a form mutually acceptable to the parties, executed by UAG and (D) all opinions, certificates and other instruments and documents required to be delivered by Sub at or prior to the Closing or otherwise required in connection herewith; (iii) the Selling Stockholder, Sub and the Company shall enter into a lease for the real property used in the business of the Company in a form mutually acceptable to the parties (the "Lease"). The Lease shall be for a twenty (20) year term commencing on the Closing Date. The initial lease rate shall be $980,000 per year, payable monthly, and (a) on the third anniversary of the Closing Date shall increase to $1,080,000 per year (the "Adjusted Base Rate"), (b) on the tenth anniversary of the Closing Date (the "Tenth Anniversary") shall increase to an amount equal to the Adjusted Base Rate plus an amount equal to a percentage of the Adjusted Base Rate, which percentage shall be three-fourths (3/4) of the percentage increase in the Consumer Price Index published -2- from time to time by the United States Department of Labor ("CPI") between the Closing Date and the Tenth Anniversary (such increased lease rate hereinafter the "Increased Rate"), and (c) on the fifteenth anniversary of the Closing Date (the "Fifteenth Anniversary") shall increase to an amount equal to the Increased Rate plus an amount equal to a percentage of the Increased Rate, which percentage shall be three-fourths (3/4) of the percentage increase in the CPI between the Tenth Anniversary and the Fifteenth Anniversary. In no event shall any adjustment in the lease rate pursuant to SECTIONS 1.1(c) (vi)(b) OR (c) result in a rental rate exceeding one and one-quarter (1 1/4%) percent of gross sales of the Company for the calendar year immediately preceding such adjustment. 1.2 NET WORTH ADJUSTMENT. (a) If the Closing Date is on or before the fifteenth (15th) of any month, as soon as practicable after the Closing Date, the Selling Stockholder shall deliver to Sub a balance sheet of the Company dated as of the last day of the month immediately preceding the Closing Date, and if the Closing Date is after the fifteenth (15th) of any month, as soon as practicable after the Closing Date, the Selling Stockholder shall deliver to Sub a balance sheet of the Company dated as of the last day of the month in which the Closing Date occurred (such balance sheet so delivered is referred to herein as the "Closing Date Balance Sheet") . The Closing Date Balance Sheet shall be prepared in good faith on the same basis and in accordance with the accounting principles, methods and practices used in preparing the Company Financial Statements (as defined in SECTION 2.5 hereof), subject to the modifications, adjustments and exceptions to such accounting principles, methods and practices as may be agreed upon by Sub and the Selling Stockholder within thirty (30) days (or such other number of days as the parties shall agree upon) of the date hereof and set forth on SCHEDULE 1.2(a) hereto, and shall also include mutually agreed upon procedures to adjust for any earnings and/or distributions of the Company between the date of the Closing Date Balance Sheet and the Closing Date (such accounting principles, methods and practices as so modified and adjusted, and such procedures, are referred to herein as the "Accounting Principles") . In connection with the preparation of the Closing Date Balance Sheet, the Selling Stockholder and the Company shall permit the Reviewer (as -3- defined below) and other representatives of Sub to conduct a physical inventory at each location where inventory is held by the Company. From the results of such inventory and prior to the Closing Date, Sub and the Selling Stockholder (or the respective representatives thereof) will prepare a schedule, which shall be signed by each of Sub and the Selling Stockholder, setting forth the nature and quality of such inventory and such other items as shall be agreed upon by Sub and the Selling Stockholder. (b) Within thirty (30) days after delivery of the Closing Date Balance Sheet, (i) Coopers & Lybrand or such other national accounting firm (the "Reviewer") selected by Sub, shall audit or otherwise review the Closing Date Balance Sheet in such manner as Sub and the Reviewer deem appropriate, and (ii) Sub shall deliver such reviewed balance sheet (the "Reviewed Balance Sheet"), together with the Reviewer's report thereon, to the Selling Stockholder. The Reviewed Balance Sheet (i) shall be prepared on the same basis and in accordance with the Accounting Principles and (ii) shall include a schedule showing the computation of the Final Net Worth (as defined in SECTION 1.2(g)(i) hereof), computed in accordance with the definition of Net Worth set forth in SECTION 1.2(g)(ii) hereof. Sub and the Reviewer shall have the opportunity to consult with the Selling Stockholder, the Company and each of the accountants and other representatives of the Selling Stockholder and the Company and examine the work papers, schedules and other documents prepared by the Selling Stockholder, the Company and each of such accountants and other representatives during the preparation of the Closing Date Balance Sheet. The Selling Stockholder and the Selling Stockholder's independent public accountants shall have the opportunity to consult with the Reviewer and examine the work papers, schedules and other documents prepared by Sub and the Reviewer during the preparation of the Reviewed Balance Sheet. (c) The Selling Stockholder shall have a period of forty-five (45) days after delivery to the Selling Stockholder of the Reviewed Balance Sheet to present in writing to Sub all objections the Selling Stockholder may have to any of the matters set forth or reflected therein, which objections shall be set forth in reasonable detail. If no objections are raised within such 45-day period, the Reviewed Balance Sheet shall be deemed accepted and approved by the Selling Stockholder and a supplemental closing (the "Supplemental Closing") shall take -4- place within five (5) Business Days following the expiration of such 45-day period, or on such other date as may be mutually agreed upon in writing by Sub and the Selling Stockholder. (d) If the Selling Stockholder shall raise any objection within the 45-day period, Sub and the Selling Stockholder shall attempt to resolve the matter or matters in dispute and, if resolved, the Supplemental Closing shall take place within five (5) Business Days following such resolution. (e) If such dispute cannot be resolved by Sub and the Selling Stockholder within sixty (60) days after the delivery of the Reviewed Balance Sheet, then the specific matters in dispute shall be submitted to Ernst & Young or such other firm of independent public accountants mutually acceptable to Sub and the Selling Stockholder, which firm shall make a final and binding determination as to such matter or matters. Such accounting firm shall send its written determination to Sub and the Selling Stockholder and the Supplemental Closing, if any, shall take place five (5) Business Days following the receipt of such determination by Sub and the Selling Stockholder. The fees and expenses of the accounting firm referred to in this SECTION 1.2(e) shall be paid one half by Sub and one half by the Selling Stockholder. (f) Sub and the Selling Stockholder agree to cooperate with each other and each other's authorized representatives and with any accounting firm selected by Sub and the Selling Stockholder pursuant to SECTION 1.2 (e) hereof in order that any and all matters in dispute shall be resolved as soon as practicable. (g) (i) If the Net Worth as shown on the Reviewed Balance Sheet as finally determined through the operation of SECTIONS 1. 2 (a) THROUGH (e) hereof (such amount being referred to herein as the "Final Net Worth") shall be less than the required net worth in Section 6.15 (the amount of any such deficiency being referred to herein as the "Net Worth Deficiency"), the Selling Stockholder shall pay to Sub at the Supplemental Closing, by wire transfer of immediately available funds to an account designated in writing by Sub within two (2) Business Days of the date of the Supplemental -5- Closing, an amount equal to the difference between the Net Worth Deficiency and $200,000, together with interest on such amount from the Closing Date to the date of the Supplemental Closing at the prime rate or its equivalent (as announced from time to time by Citibank, N.A.). (ii) "Net Worth" computed in connection with the Closing Date Balance Sheet and the Reviewed Balance Sheet shall mean the amount by which the total assets exceed the total liabilities reflected, in each case, on the balance sheet of Company comprising the Closing Date Balance Sheet or the Reviewed Balance Sheet, as the case may be; provided that, notwithstanding the foregoing, the effect of any disposition of the Company's Buick dealership and related assets shall be disregarded for the purposes of computing Net Worth. 1.3 PARKING GARAGE. The Company is a party to a General Construction Contract Agreement dated July 12, 1995 (the "Construction Contract") with Excel Building Systems, Inc. which provides for the construction of a two-story parking deck for the Company (the "Parking Garage"). The Construction Contract and change orders attached to a Requisition for Payment dated October 6, 1995 have been supplied to Sub. Sub and Selling Stockholder acknowledge that the parking structure may not be completed prior to the Closing. To fund progress payments under the Construction Contract, the Company has executed a promissory note to NationsBank dated October 25, 1995 in the principal amount of $450,000 and the Company may borrow additional amounts to fund amounts due under the Construction Contract. At the Closing, UAG, Sub and Selling Stockholder agree that the Base Price shall be reduced by $1,106,700 (plus the cost, if any, of any change orders reflecting changes required in order for the Company to obtain a certificate of occupancy for the -6- Parking Garage) and that Sub shall pay or cause the payment of all indebtedness of the Company to NationsBank incurred to fund the Construction Contract (the "Construction Debt") and that Sub shall assume and agree to perform the remaining obligations of the Company under the Construction Contract, including amounts due for change orders. Change orders subsequent to October 6, 1995 will be submitted to Sub for approval prior to such orders becoming binding upon the Company. Sub will not unreasonably withhold approval of change orders approved by the Company's consulting engineers. After the Closing Date, change orders reflecting changes required in order for the Company to obtain a certificate of occupancy for the Parking Garage will be submitted to the Selling Stockholder at least five days prior to such change orders becoming binding on the Company, and the Selling Stockholder will be provided with an opportunity to consult with the Company and its consulting engineers with respect thereto prior to such change orders becoming binding on the Company. To the extent that such change orders reflect changes required in order for the Company to obtain a certificate of occupancy for the Parking Garage (and not attributable to changes in the Parking Garage that were made (with Sub's approval or after the Closing) or are to be made for reasons other than being required to obtain a certificate of occupancy for the Parking Garage), the Selling Stockholder will, upon receipt of written request therefor, reimburse the Company for reasonable amounts paid by the Company as a result of such required changes. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING STOCKHOLDER Upon delivery of all of the Schedules referred to in this Article 2, which delivery shall be no later than 30 days after the date hereof, except as specifically set forth on SCHEDULE 2, the Company and the Selling Stockholder will be deemed to jointly and severally represent and warrant to Sub and UAG as follows: 2.1 ORGANIZATION AND GOOD STANDING. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and has the corporate power and authority to own, lease and operate the properties used in its business and to carry on its business as now being conducted. The Company is duly qualified to do business and is in good standing as a foreign corporation in each state and jurisdiction where qualification as a foreign corporation is required, except for such failures to be qualified and in good standing, if any, which when taken together with all other such failures of the Company would not, or could not reasonably be expected to, in the aggregate have a Material Adverse Effect (as defined in SECTION 10.11 hereof). SCHEDULE 2.1 hereto lists (i) the states and other jurisdictions where the Company is so qualified and (ii) the assumed names under which the Company conducts business and has conducted business during the past five -7- years. The Company has previously delivered or made available to Sub complete and correct copies of its articles of incorporation and bylaws as amended and presently in effect. 2.2 SUBSIDIARIES. The Company does not have any subsidiaries. 2.3 CAPITALIZATION. The authorized stock of the Company and the number of shares of capital stock that are issued and outstanding are set forth on SCHEDULE 2.3 hereto. The shares listed on SCHEDULE 2.3 hereto constitute all the issued and outstanding shares of capital stock of the Company and have been validly authorized and issued, are fully paid and nonassessable, have not been issued in violation of any preemptive rights or of any federal or state securities law and no personal liability attaches to the ownership thereof. There is no security, option, warrant, right, call, subscription, agreement, commitment or understanding of any nature whatsoever, fixed or contingent, that directly or indirectly (i) calls for the issuance, sale, pledge or other disposition of any shares of capital stock of the Company or any securities convertible into, or other rights to acquire, any shares of capital stock of the Company, or (ii) obligates the Company to grant, offer or enter into any of the foregoing, or (iii) relates to the voting or control of such capital stock, securities or rights, except as provided in this Agreement or the Documents or as set forth on SCHEDULE 2.3 hereto. The Company has not agreed to register any securities under the Securities Act. 2.4 AUTHORITY; APPROVALS AND CONSENTS. The Company has the corporate power and authority to enter into this Agreement and the Documents (as defined in SECTION 10.11 hereof) to which it is a party and to perform its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and the Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized and approved by the Board of Directors of the Company and no other corporate proceedings on the part of the Company are necessary to authorize and approve this Agreement and the Documents and the transactions -8- contemplated hereby and thereby. This Agreement has been, and on the Closing Date the Documents to which the Company is a party will be, duly executed and delivered by, and constitute a valid and binding obligation of, the Company, enforceable against the Company in accordance with their respective terms, except as enforceability may be limited by general equitable principles, bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally. Except as set forth on SCHEDULE 2.4, the execution, delivery and performance by the Company and the Selling Stockholder of this Agreement and the Documents to which it or he is a party and the consummation of the transactions contemplated hereby and thereby do not and will not: (i) contravene any provisions of the Articles of Incorporation or By-Laws of the Company; (ii) (after notice or lapse of time or both) conflict with, result in a breach of any provision of, constitute a default under, result in the modification or cancellation of, or give rise to any right of termination or acceleration in respect of, any Company Agreement (as defined in SECTION 2.15 hereof) or, require any consent or waiver of any party to any Company Agreement other than agreements the breach or violation of which could not reasonably be expected to have a Material Adverse Effect; (iii) result in the creation of any Security Interest upon, or any person obtaining any right to acquire, any properties, assets or rights of the Company (other than the rights of Sub to acquire the Shares pursuant to this Agreement); (iv) violate or conflict with any Legal Requirements (as defined in SECTION 2.9 hereof) applicable to the Company or any of its businesses or properties; or (v) require any authorization, consent, order, permit or approval of, or notice to, or filing, registration or qualification with, any governmental, administrative or judicial authority. -9- Except as set forth on SCHEDULE 2.4 or referred to above, to the knowledge of the Company, no permit or approval of, or notice to any governmental, administrative or judicial authority is necessary to be obtained or made by the Company to enable the Company to continue to conduct its business and operations and use its properties after the Closing in a manner which is in all material respects consistent with that in which they are presently conducted except for the renewal of any permits in the ordinary course of business (provided that the Company reasonably believes that any such permit will be renewed). 2.5 FINANCIAL STATEMENTS. Except as otherwise indicated below, attached as SCHEDULE 2.5 are true and complete copies of: (i) (A) the audited balance sheet of the Company as of December 31, 1994, and the related statements of income, stockholders' equity and cash flow for the fiscal year ended December 31, 1994, together with the notes thereto, in each case examined by and accompanied by the report of independent certified public accountants, and (B) the audited balance sheet of the Company as of December 31, 1993, and the related statements of income, stockholders' equity and cash flow for the fiscal year ended December 31, 1994, together with the notes thereto, in each case examined by and accompanied by the report of independent certified public accountants; and (ii) the September 1995 financial statements provided to Toyota Motor Sales USA, Inc. ("Toyota") and Southeast Toyota, Inc. ("Southeast Toyota") by the Company (the "Company Factory Statements" and the balance sheet information included therein being referred to as the "Company Balance Sheet"); (all the foregoing financial statements, including the notes thereto, being referred to herein collectively as the "Company Financial Statements") . The Company Financial Statements are in accordance with the books and records of the Company, fairly present the consolidated financial position and results of operations of the Company as of the dates and for the periods indicated, in the case of the financial statements referred to in clause (i) above in conformity with GAAP consistently applied -10- (except as otherwise indicated in such statements) during such periods, and can be legitimately reconciled with the financial statements and the financial records maintained and the accounting methods applied by the Company for federal income tax purposes, and the unaudited financial statements included in the Company Financial Statements include all adjustments, which consist of only normal recurring accruals, necessary for such fair presentations. The statements of income included in the Company Financial Statements do not contain any items of special or nonrecurring income except as expressly specified therein, and the balance sheets included in the Company Financial Statements do not reflect any write-up or revaluation increasing the book value of any assets except as expressly stated therein. The books and accounts of the Company are complete and correct in all material respects and fairly reflect all of the transactions, items of income and expense and all assets and liabilities of the businesses of the Company consistent with prior practices of the Company. 2.6 ABSENCE OF UNDISCLOSED LIABILITIES. The Company does not have any liability of any nature whatsoever (whether known or unknown, due or to become due, accrued, absolute, contingent or otherwise), including, without limitation, any unfunded obligation under employee benefit plans or arrangements as described in SECTION 2.17 AND 2.18 hereof or liabilities for Taxes (as defined in SECTION 2.8 hereof), except for (i) liabilities reflected or reserved in against the most recent Company Financial Statement, (ii) current liabilities incurred in the ordinary course of business and consistent with past practice after the date of the Company Balance Sheet which, individually and in the aggregate, do not have, and cannot reasonably be expected to have, a Material Adverse Effect, and (iii) liabilities disclosed on SCHEDULE 2.6 hereto. The Company is not a party to any Company Agreement,or subject to any articles of incorporation or bylaw provision, any other corporate limitation or any Legal Requirement which has, or, to the Company or the Selling Stockholder's knowledge, can reasonably be expected to have, a Material Adverse Effect. -11- 2.7 ABSENCE OF MATERIAL ADVERSE EFFECT; CONDUCT OF BUSINESS. (a) Since December 31, 1994, except as set forth on SCHEDULE 2.7(a) hereto, the Company has operated in the ordinary course of business consistent with past practice and there has not been: (i) any material adverse change in the assets, properties, business, operations, prospects, net income or financial condition of the Company and, to the knowledge of the Selling Stockholder and the Company, no factor, event, condition, circumstance or prospective development exists which could reasonably be expected to have a Material Adverse Effect; (ii) any material loss, damage, destruction or other casualty to the property or other assets of the Company, whether or not covered by insurance; (iii) any change in any method of accounting or accounting practice of the Company; or (iv) any loss of the employment, services or benefits of any key employee of the Company. (b) Since December 31, 1994, except as set forth in SCHEDULE 2.7(b) hereto, the Company has not: (i) incurred any material obligation or liability (whether absolute, accrued, contingent or otherwise), except in the ordinary course of business consistent with past practice; (ii) mortgaged, pledged or subjected to any lien any of its property or other assets except in the ordinary course of business, and except for mechanics and materialmens liens and liens for taxes not yet due and payable; (iii) sold or transferred any assets or cancelled any debts or claims or waived any rights, except in the ordinary course of business consistent with past practice; -12- (iv) defaulted on any material obligation; (v) entered into any material transaction, except in the ordinary course of business consistent with past practice; (vi) written down the value of any inventory or written off as uncollectible any accounts receivable or any portion thereof not reflected in the Company Financial Statements except in the ordinary course of business; (vii) granted any increase in the compensation or benefits of employees other than increases in accordance with past practice not exceeding 10% or entered into any employment or severance agreement or arrangement with any of them; (viii) discontinued any franchise; (ix) incurred any obligation or liability to any employee for the payment of severance benefits of more than $5,000; or (x) entered into any agreement or made any commitment to do any of the foregoing. 2.8 TAXES. The Company and, for any period during all or part of which the tax liability of any other corporation was determined on a combined or consolidated basis with the Company any such other corporation, have filed timely all federal, state, local and foreign tax returns, reports and declarations required to be filed (or have obtained or timely applied for an extension with respect to such filing) correctly reflecting the Taxes (as defined below) and all other information required to be reported thereon and have paid, or made adequate provision for the payment of, all Taxes which are due pursuant to such returns or pursuant to any assessment received by the Company or any such other corporation. As used herein, "Taxes" shall mean all taxes, fees, levies or other assessments, including but not limited to income, excise, property (including property taxes paid by the Company pursuant to any lease), sales, franchise, withholding, social security and unemployment taxes imposed by the United States, any -13- state, county, local or foreign government, or any subdivision or agency thereof or taxing authority therein, and any interest, penalties or additions to tax relating to such taxes, charges, fees, levies or other assessments. Copies of all tax returns for each fiscal year since the formation of the Company have been furnished or made available to UAG or its representatives and such copies are accurate and complete as of the date hereof. The Company has also furnished or made available to UAG correct and complete copies of all notices and correspondence sent or received since the formation of the Company by the Company to or from any federal, state or local tax authorities. The Company has adequately reserved for the payment of all Taxes with respect to periods ended on, prior to or through the date of the Company Balance Sheet for which tax returns have not yet been filed. In the ordinary course, the Company makes adequate provision on its books for the payment of all Taxes (including for the current fiscal period) owed by the Company. Except to the extent reserves therefor are reflected on the Company Balance Sheet, the Company is not liable, or will not become liable, for any Taxes for any period ending on, prior to or through the date of the Company Balance Sheet. On the Closing Date Balance Sheet, the Company will have adequately reserved for the payment of any Taxes for any period ending on, prior to or through the date of the Closing Date Balance Sheet. Except as set forth on SCHEDULE 2.8 hereto, the Company has not been subject to a federal or state tax audit of any kind, and no adjustment has been proposed by the Internal Revenue Service ("IRS") with respect to any return for any subsequent year. With respect to the audits referred to on SCHEDULE 2.8 hereto, no such audit has resulted in an adjustment in excess of $50,000. Neither the Company nor the Selling Stockholder knows of any basis for an assertion of a deficiency for Taxes against the Company. The Selling Stockholder will cooperate with the Company in the filing of any returns and in any audit or refund claim proceedings involving Taxes for which the Company may be liable or with respect to which the Company may be entitled to a refund. -14- 2.9 LEGAL MATTERS. (a) Except as set forth on SCHEDULE 2.9(a) hereto, (i) there is no claim, action, suit, litigation, investigation, inquiry, review or proceeding (collectively, "Claims") pending against, or, to the knowledge of the Company or the Selling Stockholder, threatened against or affecting, the Company, any ERISA Plan (as defined in SECTION 2.18(a) hereof) or any of their respective properties or rights before or by any court, arbitrator, panel, agency or other governmental, administrative or judicial entity, domestic or foreign, nor is any basis known to the Selling Stockholder or the Company for any such Claims, and (ii) the Company is not subject to any judgment, decree, writ, injunction, ruling or order (collectively, "Judgments") of any governmental, administrative or judicial authority, domestic or foreign. SCHEDULE 2.9(a) hereto identifies each Claim and Judgment disclosed thereon which is fully covered by an insurance policy. (b) The businesses of the Company are being conducted in compliance with all laws, ordinances, codes, rules, regulations, standards, judgments and other requirements of all governmental, administrative or judicial entities (collectively, "Legal Requirements") applicable to the Company or any of its respective businesses or properties, except where the failure to be in such compliance could not reasonably be expected to have a Material Adverse Effect. The Company holds, and is in compliance with, all franchises, licenses, permits, registrations, certificates, consents, approvals or authorizations (collectively, "Permits") required by all applicable Legal Requirements except where the failure to hold or be in compliance with such Permits could not reasonably be expected to have a Material Adverse Effect. (c) The Company owns or holds all Permits material to the conduct of its business. No event has occurred and is continuing which permits, or after notice or lapse of time or both would permit, any modification or termination of any Permit, except where the failure to own or hold such Permit(s) could not reasonably be expected to have a Material Adverse Effect. 2.10 PROPERTY -15- (a) The properties and assets owned by or leased to the Company are adequate for the conduct of the respective businesses of the Company as presently conducted. Set forth on SCHEDULE 2.10 hereto is a list of all real property owned by or leased to the Company (including all real property owned or leased by the Selling Stockholder used in the businesses of the Company) and of all options or other contracts to acquire any such interest (collectively, the "Real Property "). All improvements to the Real Property ("Improvements") and all machinery, equipment and other tangible property owned or used by or leased to the Company are fit for the particular purposes for which they are used by the Company, subject only to normal maintenance and ordinary wear and tear. Such tangible properties and all Improvements owned or leased by the Company conform in all material respects with all applicable laws, ordinances, rules and regulations and other Legal Requirements and such Improvements do not encroach in any respect on property of others. (b) (i) The Real Property is currently zoned to permit the conduct of the respective businesses of the Company as presently conducted. A Certificate of Occupancy has been issued with respect to the Improvements (other than the Parking Garage) without special conditions or restrictions. (ii) To the knowledge of the Company and the Selling Stockholder, the detention pond on the Real Property has not flooded in the past five years. (iii) All necessary building permits and other governmental approvals that the Company was required to obtain on or before the date hereof have been obtained with respect to construction of the Parking Garage. (iv) The Improvements and all machinery, equipment and other tangible property owned or used by or leased to the Company are in good working order and condition for the particular purposes for which they are used subject only to normal maintenance and ordinary wear and tear. No notice of any pending, threatened or contemplated action by any governmental authority or agency having the power of eminent domain has been given to the Company or the Selling Stockholder with respect to the Real Property. 2.11 ENVIRONMENTAL MATTERS. -16- (a) Except as set forth on SCHEDULE 2.11(a) hereto, (i) the Company, the Real Property, the Improvements and any property formerly owned, occupied or leased by the Company are in full compliance with all Environmental Laws (as defined below), (ii) the Company has obtained all Environmental Permits (as defined below), (iii) such Environmental Permits are in full force and effect, and (iv) the Company is in full compliance with all terms and conditions of such Environmental Permits. As used herein, "Environmental Laws" shall mean all applicable requirements of environmental, public or employee health and safety, public or community right-to-know, ecological or natural resource laws or regulations or controls, including all applicable requirements imposed by any law (including without limitation common law), rule, order, or regulations of any federal, state, or local executive, legislative, judicial, regulatory, or- administrative agency, board, or authority, or any applicable private agreement (such as covenants, conditions and restrictions), which relate to, (i) noise, (ii) pollution or protection of the air, surface water, groundwater, or soil, (iii) solid, gaseous, or liquid waste generation, treatment, storage, disposal or transportation, (iv) exposure to Hazardous Materials (as defined below), or (v) regulation of the manufacture, processing, distribution and commerce, use, or storage of Hazardous Materials. As used herein, "Environmental Permits" shall mean all permits, licenses, approvals, authorizations, consents or registrations required under applicable Environmental Law in connection with the ownership, use and/or operation of the Company or the Real Property and Improvements of the Company. As used in this SECTION 2.11, "Hazardous Materials" shall mean, collectively, (i) those substances included within the definitions of or identified as "hazardous chemicals," "hazardous waste," "hazardous substances," "hazardous materials," "toxic substances" or similar terms in or pursuant to, without limitation, the Comprehensive Environmental Response Compensation and Liability Act of 1980 (42 U.S.C. 9601 ET SEQ.) ("CERCLA"), as amended by Superfund Amendments and Reauthorization Act of 1986 (Pub. L. 99-499, 100 State, 1613), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 ET SEQ.) ("RCRA") and the Occupational Safety and Health Act of 1970 (29 U.S.C. Section 651 ET SEQ.) ("OSHA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 ET SEQ. ("HMTA"), and in the regulations promul- -17- gated pursuant to such laws, all as amended, (ii) those substances listed in the United States Department of Transportation Table (49 CFR 172.101 and amendments thereto) or by the Environmental Protection Agency (or any successor agency) as hazardous substances (40 CFR part 302 and amendments thereto), (iii) any material, waste or substance which is or contains (A) petroleum, including crude oil or any fraction thereof, natural gas, or synthetic gas usable for fuel or any mixture thereof, (B) asbestos, (C) polychlorinated biphenyls, (D) designated as a "hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. Section 1251 ET SEQ. (33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. Section 1317), (E) flammable explosives, (F) radioactive materials, and (iv) such other substances, materials and wastes which are or become regulated or classified as hazardous, toxic or as "special wastes" under any Environmental Laws. (b) Except as set forth on SCHEDULE 2.11(b), the Company and the Selling Stockholder have not violated, done or suffered any act which could give rise to liability under, and are not otherwise exposed to liability under, any Environmental Law. Except as set forth on SCHEDULE 2.11(b), no event has occurred with respect to the Real Property, the Improvements, any property formerly owned, occupied or leased by the Company, which, with the passage of time or the giving of notice, or both, would constitute a violation of or non- compliance with any applicable Environmental Law. Except as set forth on SCHEDULE 2.11(b), the Company has no contingent liability under any Environmental Law. There are no liens under any Environmental Law on the Real Property. (c) Except as set forth on SCHEDULE 2.11(c) hereto, (i) neither the Company, the Real Property or any portion thereof, the Improvements or any property formerly owned, occupied or leased by the Company, nor, to the knowledge of the Selling Stockholder, any property adjacent to the Real Property is being used or has been used for the treatment, generation, transportation, processing, handling, production or disposal of any Hazardous Materials or as a landfill or other waste disposal site (provided, however, that certain petroleum products are stored and handled on the Real Property in the ordinary course of the Company's business in compliance with all Environmental Laws), (ii) none of the Real Property or portion thereof, the Improve- -18- ments or any property formerly owned, occupied or leased by the Company has been subject to investigation by any governmental authority evaluating the need to investigate or undertake Remedial Action (as defined below) at such property, and (iii) none of the Real Property, the Improvements or any property formerly owned, occupied or leased by the Company, or, to the knowledge of the Company, any site or location where the Company sent waste of any kind, is identified on the current or proposed (A) National Priorities List under 40 C.F.R. 300 Appendix B, (B) Comprehensive Environmental Response Compensation and Liability Inventory System list, or (C) any list arising from any statute analogous to CERCLA. As used herein, "Remedial Action" shall mean any action required to (i) clean up, remove or treat Hazardous Materials, (ii) prevent a release or threat of release of any Hazardous Material, (iii) perform pre-remedial studies, investigations or post-remedial monitoring and care, (iv) cure a violation of Environmental Law or (v) take corrective action under sections 3004(u), 3004(v) or 3008(h) of RCRA or analogous state law. (d) Except as set forth on SCHEDULE 2.11(d) hereto, there have been and are no (i) aboveground or underground storage tanks, subsurface disposal systems, or wastes, drums or containers disposed of or buried on, in or under the ground or any surface waters, (ii) asbestos or asbestos containing materials or radon gas (except that, as to radon gas, the Company makes no representation or warranty with respect to the Parking Garage), (iii) polychlorinated biphenyls ("PCB") or PCB-containing equipment, including transformers, or (iv) wetlands (as defined under any Environmental Law) located within any portion of the Real Property, nor have any liens been placed upon any portion of the Real Property, the Improvements or any property formerly owned, occupied or leased by the Company in connection with any actual or alleged liability under any Environmental Law. (e) Except as set forth on SCHEDULE 2.11(e) hereto, (i) there is no pending or threatened claim, litigation, or administrative proceeding, or known prior claim, litigation or administrative proceeding, arising under any Environmental Law involving any of the Company, the Real Property, the Improvements, any property formerly owned, leased or occupied by the Company, any offsite contamination affecting the business of the Company or any operations conducted at the Real Property, (ii) there are no -19- ongoing negotiations with or agreements with any governmental authority relating to any Remedial Action or other environmentally related claim, (iii) the Company has not submitted notice pursuant to Section 103 of CERCLA or analogous statute or notice under any other applicable Environmental Law reporting a release of a Hazardous Material into the environment, and (iv) the Company has not received any notice, claim, demand, suit or request for information from any governmental or private entity with respect to any liability or alleged liability under any Environmental Law, nor to knowledge of the Selling Stockholder and the Company, has any other entity whose liability therefor, in whole or in part, may be attributed to the Company, received such notice, claim, demand, suit or request for information. (f) The Selling Stockholder or the Company have provided to UAG all environmental studies and reports obtained by them or known to them pertaining to the Real Property, the Improvements, the Company and any property formerly owned, occupied or leased by the Company, and have permitted (or will have permitted as of the Closing Date), the testing of the soil, groundwater, building components, tanks, containers and equipment on the Real Property, the Improvements, any property formerly owned, occupied or leased by the Company by UAG or UAG's agents or experts as they have or shall have deemed necessary or appropriate to confirm the condition of such properties. 2.12 INVENTORIES. The values at which inventories are carried on the Company Balance Sheet reflect the normal inventory valuation policies of the Company, and such values are in conformity with GAAP consistently applied. All inventories reflected on the Company Balance Sheet and Company Factory Statement or arising since the date thereof are currently marketable and can reasonably be anticipated to be sold at normal mark-ups within 180 days after the date hereof in the ordinary course of business (subject to the reserve for obsolete, off- grade or slow-moving items that is reflected in the Company Balance Sheet or will be reflected in the Closing Date Balance Sheet), except for spare parts inventory which inventory is good and usable. -20- 2.13 ACCOUNTS RECEIVABLE. All accounts receivable, other than accounts receivable from Jayhawk Acceptance Corporation, reflected on the Company Balance Sheet are, and all accounts receivable, other than accounts receivable from Jayhawk Acceptance Corporation, that will be or will have been reflected on the Closing Date Balance Sheet will be, good and have been or will have been collected or are collectible, without resort to litigation, within 120 days of the Closing Date, and are subject to no defenses, setoffs or counterclaims other than normal cash discounts accrued in the ordinary course of business (in each case, subject to any reserves reflected on such balance sheets.) 2.14 INSURANCE. All material properties and assets of the Company which are of an insurable character are insured against loss or damage by fire and other risks to the extent and in the manner reasonable in light of the risks attendant to the businesses and activities in which the Company is engaged and customary for companies engaged in similar businesses or owning similar assets. Set forth on SCHEDULE 2.14 hereto is a list and brief description (including the name of the insurer, the type of coverage provided, the amount of the annual premium for the current policy period, the amount of remaining coverage and deductibles and the coverage period) of all policies for such insurance and the Company previously has made available to UAG true and complete copies of all such policies. All such policies are in full force and effect sufficient for all applicable requirements of law and will not in any way be effected by or terminated or lapsed by reason of the consummation of the transactions contemplated by this Agreement and the Documents. No notice of cancellation or non-renewal with respect to, or disallowance of any claim under, any such policy has been received by the Company. 2.15 CONTRACTS; ETC. As used in this Agreement, the term "Company Agreements" shall mean all mortgages, indenture notes, agreements, contracts, leases, licenses, franchises, obligations, instruments or other commitments, arrangements or understandings of any kind, whether -21- written or oral, binding or non-binding, (including all leases and other agreements referred to on SCHEDULE 2.10 hereto) to which the Company is a party or by which the Company or any of its properties may be bound or affected, including all amendments, modifications, extensions or renewals of any of the foregoing. Set forth on SCHEDULE 2.15 hereto is a complete and accurate list of each Company Agreement which is material to the businesses, operations, assets, condition (financial or otherwise) or prospects of the Company and involves more than $50,000 over the life of such Company Agreement. True and complete copies of all written Company Agreements referred to on SCHEDULE 2.15 and SCHEDULE 2.10 hereto have heretofore been delivered or made available to UAG, and the Company has provided UAG with accurate and complete written summaries of all such Company Agreements which are unwritten. Except as set forth on SCHEDULE 2.15, the Company is not, nor, to the knowledge of the Company and the Selling Stockholder is, any other party thereto, in breach of or default under any Company Agreement, and no event has occurred which (after notice or lapse of time or both) would become a breach or default under, or would permit modification, cancellation, acceleration or termination of, any Company Agreement or result in the creation of any Security Interest upon, or any person obtaining any right to acquire, any properties, assets or rights of the Company in any such case where such breach, default or other event would have, or could reasonably be expected to have, a Material Adverse Effect. 2.16 LABOR RELATIONS. (a) The Company has paid or made provision for the payment of all salaries and accrued wages and has complied in all material respects with all applicable laws, rules and regulations relating to the employment of labor, including those relating to wages, hours, collective bargaining and the payment and withholding of taxes, and has withheld and paid to the appropriate governmental authority, or is holding for payment not yet due to such authority, all amounts required by law or agreement to be withheld from the wages or salaries of its employees. (b) Except as set forth on SCHEDULE 2.16(b) hereto, the Company is not a party to any (i) outstanding employment agreements or contracts with officers or employees that are not terminable at will, or that provide for payment of any bonus or -22- commission in excess of $10,000, (ii) agreement, policy or practice that requires it to pay termination or severance pay to salaried, non-exempt or hourly employees (other than as required by law), (iii) collective bargaining agreement or other labor union contract applicable to persons employed by the Company, nor does the Selling Stockholder or the Company know of any activities or proceedings of any labor union to organize any such employees. The Company has furnished to UAG complete and correct copies of all such agreements ("Employment and Labor Agreements"). The Company has not breached or otherwise failed to comply with any provisions of any Employment or Labor Agreement, except where such breach or failure could not reasonably be expected to have a Material Adverse Effect. (c) Except as set forth in SCHEDULE 2.16(c) hereto, (i) there is no unfair labor practice charge or complaint pending before the National Labor Relations Board ("NLRB"), (ii) there is no labor strike, material slowdown or material work stoppage or lockout actually pending or, to the Selling Stockholder's or the Company's knowledge, threatened, against or affecting the Company, and the Company has not experienced any strike, material slow down or material work stoppage, lockout or other collective labor action by or with respect to employees of the Company, (iii) there is no representation claim or petition pending before the NLRB or any similar foreign agency and no question concerning representation exists relating to the employees of the Company, (iv) there are no charges with respect to or relating to the Company pending before the Equal Employment Opportunity Commission or any state, local or foreign agency responsible for the prevention of unlawful employment-practices, (v) the Company has not received formal notice from any federal, state, local or foreign agency responsible for the enforcement of labor or employment laws of an intention to conduct an investigation of the Company and, to the knowledge of the Company, no such investigation is in progress and (vi) the consents of the unions that are parties to any Employment and Labor Agreements are not required to complete the transactions contemplated by this Agreement and the Documents. (d) The Company has never caused any "plant closing" or "mass layoff" as such actions are defined in the Worker Adjustment and Retraining Notification Act, as codified at 29 U.S.C. Sections 2101-2109, and the regulations promulgated therein. -23- 2.17 EMPLOYEE BENEFIT PLANS. (a) Set forth on SCHEDULE 2.17(a) hereto is a true and complete list of: (i) each employee pension benefit plan, as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974 ("ERISA"), maintained by the Company or to which the Company is required to make contributions ("Pension Benefit Plan"); and (ii) each employee welfare benefit plan, as defined in Section 3(i) of ERISA, maintained by the Company or to which the Company is required to make contributions ("Welfare Benefit Plan"). True and complete copies of all Pension Benefit Plans and Welfare Benefit Plans (collectively, "ERISA Plans") have been delivered to or made available to UAG together with, as applicable with respect to each such ERISA Plan, trust agreements, summary plan descriptions, all IRS determination letters or applications therefor with respect to any Pension Benefit Plan intended to be qualified pursuant to Section 401 (a) of the Internal Revenue Code of 1986, as amended (the "Code"), and valuation or actuarial reports, accountant's opinions, financial statements, IRS Form 5500s (or 5500-C or 5500-R) and summary annual reports for the last three years. (b) With respect to the ERISA Plans, except as set forth on SCHEDULE 2.17(b): (i) there is no ERISA Plan which is a " multiemployer" plan as that term is defined in Section 3(37) of ERISA ("Multiemployer Plan"); (ii) no event has occurred or (to the knowledge of the Company or the Selling Stockholder) is threatened or about to occur which would constitute a prohibited transaction under Section 406 of ERISA or under Section 4975 of the Code; -24- (iii) each ERISA Plan has operated since its inception in accordance with the reporting and disclosure requirements imposed under ERISA and the Code and has timely filed Form 5500e (or 5500-C or 5500-R) and predecessors thereof; and (iv) no ERISA Plan is liable for any federal, state, local or foreign Taxes. (c) Each Pension Benefit Plan intended to be qualified under Section 401(a) of the Code, except as set forth on SCHEDULE 2.17(c): (i) has been qualified, from its inception, under Section 401(a) of the Code, and the trust established thereunder has been exempt from taxation under Section 501(a) of the Code and is currently in compliance with applicable federal laws; (ii) has been operated, since its inception, in accordance with its terms and there exists no fact which would adversely affect its qualified status; and (iii) is not currently under investigation, audit or review by the IRS or (to the knowledge of the Company or the Selling Stockholder) no such action is contemplated or under consideration and the IRS has not asserted that any Pension Benefit Plan is not qualified under Section 401(a) of the Code or that any trust established under a Pension Benefit Plan is not exempt under Section 501(a) of the Code. (d) With respect to each Pension Benefit Plan which is a defined benefit plan under Section 414(j) and, for the purpose solely of SECTION 2.17(d)(iv) hereof, each defined contribution plan under Section 414(i) of the Code, except as set forth on SCHEDULE 2.17(d): (i) no liability to the Pension Benefit Guaranty Corporation ("PBGC") under Sections 4062-4064 of ERISA has been incurred by the Company since the effective date of ERISA and all premiums due and owing to the PBGC have been timely paid; -25- (ii) the PBGC has not notified the Company or any Pension Benefit Plan of the commencement of proceedings under Section 4042 of ERISA to terminate any such plan; (iii) no event has occurred since the inception of any Pension Benefit Plan or (to the knowledge of the Company or the Selling Stockholder) is threatened or about to occur which would constitute a reportable event within the meaning of Section 4043(b) of ERISA; (iv) no Pension Benefit Plan ever has incurred any "accumulated funding deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code); and (v) if any of such Pension Benefit Plans were to be terminated on the Closing Date (A) no liability under Title IV of ERISA would be incurred by the Company and (B) all benefits accrued to the day prior to the Closing Date (whether or not vested) would be fully funded in accordance with the actuarial assumptions and method utilized by such plan for valuation purposes. (e) With respect to each Pension Benefit Plan, SCHEDULE 2.17(e) contains a list of all Pension Benefit Plans to which ERISA has applied which have been or are being terminated, or for which a termination is contemplated, and a description of the actions taken by the PBGC and the IRS with respect thereto. (f) The aggregate of the amounts of contributions by the Company to be paid or accrued under ERISA Plans is not expected to exceed approximately $250,000 for the current fiscal year. To the extent required in accordance with GAAP, the Company Balance Sheet reflects in the aggregate an accrual of all amounts of employer contributions accrued but unpaid by the Company under the ERISA Plans as of the date of the Company Balance Sheet. (g) Except as set forth on SCHEDULE 2.17(g), with respect to any Multiemployer Plan (1) the Company has not, since its formation, made or suffered a "complete withdrawal" or "partial withdrawal" as such terms are respectively defined in Sections 4203 and S205 of ERISA; (2) there is no withdrawal liability of the Company under any Multiemployer Plan, computed as if a "complete withdrawal" by the Company had occurred under -26- each such Plan as of December 31, 1994; and (3) the Company has not received notice to the effect that any Multiemployer Plan is either in reorganization (as defined in Section 4241 of ERISA) or insolvent (as defined in Section 4245 of ERISA). (h) With respect to the Welfare Benefit Plans, except as set forth on SCHEDULE 2.17(h): (i) There are no liabilities of the Company under Welfare Benefit Plans with respect to any condition which relates to a claim filed on or before the date of this Agreement. (ii) No claims for benefits are in dispute or litigation. 2.18 OTHER BENEFIT AND COMPENSATION PLANS OR ARRANGEMENTS. (a) Set forth on SCHEDULE 2.18(a) hereto is a true and complete list of: (i) each employee stock purchase, employee stock option, employee stock ownership, deferred compensation, performance, bonus, incentive, vacation pay, holiday pay, insurance, severance, retirement, excess benefit or other plan, trust or arrangement which is not an ERISA Plan whether written or oral, which the Company maintains or is required to make contributions to; (ii) each other agreement, arrangement, commitment and understanding of any kind, whether written or oral, with any current or former officer, director or consultant of the Company pursuant to which payments may be required to be made at any time following the date hereof (including, without limitation, any employment, deferred compensation, severance, supplemental pension, termination or consulting agreement or arrangement); and (iii) each employee of the Company whose aggregate compensation for the fiscal year ended December 31, 1994 exceeded, and whose aggregate compensation for the fiscal year ended December 31, 1995 is likely to exceed, $50,000. True and complete copies of all of the written plans, -27- arrangements and agreements referred to on SCHEDULE 2.18(a) ("Compensation Commitments") have been provided to UAG together with, where prepared by or for the Company, any valuation, actuarial or accountant's opinion or other financial reports with respect to each Compensation Commitment for the last three years. An accurate and complete written summary has been provided to UAG with respect to any Compensation Commitment which is unwritten. (b) Each Compensation Commitment: (i) since its inception, has been operated in all material respects in accordance with its terms; (ii) is not currently under investigation, audit or review by the IRS or any other federal or state agency and (to the knowledge of any Company or the Selling Stockholder) no such action is contemplated or under consideration; (iii) has no liability for any federal, state, local or foreign Taxes; (iv) has no claims subject to dispute or litigation; (vi) has met all applicable requirements, if any, of the Code; and (v) has operated since its inception in material compliance with the reporting and disclosure requirements imposed under ERISA and the Code. 2.19 TRANSACTIONS WITH INSIDERS. Set forth on SCHEDULE 2.19 hereto is a complete and accurate description of all material transactions between the Company or any ERISA Plan, on the one hand, and any Insider, on the other hand, that have occurred since January 1, 1995. For purposes of this Agreement: (i) the term "Insider" shall mean the Selling Stockholder, any director or officer of the Company, and any Affiliate, Associate or Relative of any of the foregoing persons; -28- (ii) the term "Associate" used to indicate a relationship with any person means (A) any corporation, partnership, joint venture or other entity of which such person is an officer or partner or is, directly or indirectly, through one or more intermediaries, the beneficial owner of 30% or more of (1) any class or type of equity securities or other profits interest or (2) the combined voting power of interests ordinarily entitled to vote for management or otherwise, and (B) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; and (iii) a "Relative" of a person shall mean such person's spouse, such person's parents, sisters, brothers, children and the spouses of the foregoing, and any member of the immediate household of such person. 2.20 PROPRIETY OF PAST PAYMENTS. Except as set forth in SCHEDULE 2.20 hereto, no funds or assets of the Company have been used for illegal purposes; no unrecorded funds or assets of the Company have been established for any purpose; no accumulation or use of the Company's corporate funds or assets has been made without being properly accounted for in the respective books and records of the Company; all payments by or on behalf of the Company have been duly and properly recorded and accounted for in their respective books and records; no false or artificial entry has been made in the books and records of the Company for any reason; no payment has been made by or on behalf of the Company with the understanding that any part of such payment is to be used for any purpose other than that described in the documents supporting such payment; and the Company has not made, directly or indirectly, any illegal contributions to any political party or candidate, either domestic or foreign. Neither the IRS nor any other federal, state, local or foreign government agency or entity has initiated or threatened any investigation of any payment made by the Company of, or alleged to be of, the type described in this SECTION 2.20. 2.21 INTEREST IN COMPETITORS. -29- Neither the Company nor the Selling Stockholder, nor any of their Affiliates, has any interest, either by way of contract or by way of investment (other than as holder of not more than 2% of the outstanding capital stock of a publicly traded person, so long as such holder has no other connection or relationship with such person) or otherwise, directly or indirectly, in any person other than the Company that is engaged in the retail sale of automobiles in Georgia. 2.22 BROKERS. Neither the Company, nor any director, officer or employee thereof, nor the Selling Stockholder or any representative of the Selling Stockholder, has employed any broker or finder or has incurred or will incur any broker's, finder's or similar fees, commissions or expenses, in each case in connection with the transactions contemplated by this Agreement or the Documents. 2.23 ACCOUNTS. SCHEDULE 2.23 hereof correctly identifies each bank account maintained by or on behalf or for the benefit of the Company and the name of each person with any power or authority to act with respect thereto. 2.24 DISCLOSURE. Neither the Company nor the Selling Stockholder has made any material misrepresentation to UAG relating to the Company or the Shares and neither the Company nor the Selling Stockholder has omitted to state to UAG any material fact relating to the Company or the Shares which is necessary in order to make the information given by or on behalf of the Company or the Selling Stockholder to UAG not misleading or which if disclosed would reasonably affect the decision of a person considering an acquisition of the Shares. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDER -30- Upon his delivery of SCHEDULE 3.2 to UAG, the Selling Stockholder shall be deemed to represent and warrant to UAG and Sub as follows: 3.1 OWNERSHIP OF SHARES; TITLE. The Selling Stockholder is the owner of record and beneficially of the Shares and has, and shall transfer to Sub at the Closing, good and marketable title to the Shares, free and clear of any and all Security Interests, proxies and voting or other agreements except restrictions on transfer imposed by applicable federal and state securities laws and except as provided in the Shareholders' Agreement. 3.2 AUTHORITY. The Selling Stockholder has all requisite power and authority and has full legal capacity and is competent to execute, deliver and perform this Agreement and the Documents to which he is a party and to consummate the transactions contemplated hereby and thereby (including the disposition of the Shares to Sub as contemplated by this Agreement). This Agreement has been duly executed and delivered by the Selling Stockholder and constitutes, and the Documents to which the Selling Stockholder is a party when executed and delivered by the Selling Stockholder will constitute, a valid and binding obligation of the Selling Stockholder, enforceable against the Selling Stockholder in accordance with its terms, except as enforceability may be limited by general equitable principles, bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally. Except as set forth on SCHEDULE 3.2, the execution, delivery and performance of this Agreement and the Documents by the Selling Stockholder and the consummation of the transactions contemplated hereby and thereby do not and will not: (i) (after notice or lapse of time or both) conflict with, result in a breach of any provision of, constitute a default under, result in the modification or cancellation of, or give rise to any right of termination or acceleration in respect of, any material contract, agreement, commitment, understanding, arrangement or restriction to which the Selling Stockholder is a party or to which the Selling -31- Stockholder or any of the Selling Stockholder's property is subject; (ii) violate or conflict with any Legal Requirements applicable to the Selling Stockholder or any of the Selling Stockholder's businesses or properties; or (iii) require any authorization, consent, order, permit or approval of, or notice to, or filing, registration or qualification with, any governmental, administrative or judicial authority. 3.3 REAL PROPERTY AND IMPROVEMENTS. Except as set forth on SCHEDULE 3.3: (a) The Selling Stockholder owns the Real Property and Improvements in fee simple, free and clear of all liens, claims and encumbrances, except those disclosed in SCHEDULE 3.3, none of which currently or, to his knowledge, in the future will affect the use of the Real Property and Improvements for the conduct of the respective businesses of the Company as presently conducted. No assessments have been made against any portion of the Real Property which are unpaid (except ad valorem taxes for the current year that are not yet due and payable), whether or not they have become liens. To the Selling Stockholder's knowledge, there are no disputes concerning the location of the lines and corners of the Real Property. (b) No one has been granted any right to purchase or lease the Real Property or Improvements other than the existing lease in favor of the Company, which is to be terminated at Closing. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF UAG AND SUB Upon delivery of all of the Schedules referred to in this Article 4, UAG and Sub will be deemed to represent and warrant to the Company and the Selling Stockholder as follows: 4.1 ORGANIZATION AND GOOD STANDING. -32- Each of UAG and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation and has the corporate power and authority to own, lease and operate the properties used in its business and to carry on its business as now being conducted. Each of UAG and each of its subsidiaries is duly qualified to do business and is in good standing as a foreign corporation in each state and jurisdiction where qualification as a foreign corporation is required, except for such failures to be qualified and in good standing, if any, which when taken together with all other such failures of UAG and its subsidiaries would not, or could not reasonably be expected to, in the aggregate have a material adverse effect on UAG and its subsidiaries, taken as a whole. SCHEDULE 4.1 hereto lists (i) the states and other jurisdictions where UAG and its subsidiaries are so- qualified and (ii) the assumed names under which UAG conducts business. UAG has previously delivered or made available to the Selling Stockholder complete and correct copies of its certificate of incorporation and by-laws (including comparable governing instruments with different names), as amended and presently in effect. 4.2 CAPITALIZATION. The authorized stock of UAG and the number of shares of capital stock which are issued and outstanding are set forth on SCHEDULE 4.2 hereto. The shares listed on SCHEDULE 4.2 hereto constitute all the issued and outstanding shares of capital stock of UAG and have been validly authorized and issued, are fully paid and nonassessable, have not been issued in violation of any preemptive rights or of any federal or state securities law and no personal liability attaches to the ownership thereof. There is no security, option, warrant, right, call, subscription, agreement, commitment or understanding of any nature whatsoever, fixed or contingent, that directly or indirectly (i) calls for the issuance, sale, pledge or other disposition of any shares of capital stock of UAG or any securities convertible into, or other rights to acquire, any shares of capital stock of UAG, or (ii) obligates UAG to grant, offer or enter into any of the foregoing, or (iii) relates to the voting or control of such capital stock, securities or rights, except as set forth on SCHEDULE 4.2 hereto. 4.3 AUTHORITY; APPROVALS AND CONSENTS. -33- UAG and Sub have the corporate power and authority to enter into this Agreement and the Documents to which they are a party and to perform their respective obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and the Documents to which they are a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized and approved by the Board of Directors of UAG and Sub and no other corporate proceedings on the part of UAG or Sub are necessary to authorize and approve this Agreement and the Documents and the transactions contemplated hereby and thereby. This Agreement has been, and on the Closing Date the Documents will be, duly executed and delivered by, and constitute valid and binding obligations of, UAG and Sub, enforceable against UAG and Sub in accordance with their respective terms, except as enforceability may be limited by general equitable principles, bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally. Except as set forth on SCHEDULE 4.3 hereto, the execution, delivery and performance by UAG and Sub of this Agreement and the Documents to which they are a party and the consummation of the transactions contemplated hereby and thereby do not and will not: (i) contravene any provisions of the Certificate of Incorporation or Bylaws (including any comparable governing instrument with a different name) of UAG or Sub; (ii) (after notice or lapse of time or both) conflict with, result in a breach of any provision of, constitute a default under, result in the modification or cancellation of, or give rise to any right of termination or acceleration in respect of, any UAG Agreement (as defined below) or, require any consent or waiver of any party to any UAG Agreement other than agreements the breach or violation of which could not reasonably be expected to have a Material Adverse effect; (iii) result in the creation of any Security Interest upon, or any person obtaining any right to acquire, any properties, assets or rights of UAG or any UAG Subsidiary; (iv) violate or conflict with any Legal Requirements applicable to UAG or any UAG Subsidiary or any of their respective businesses or properties; or -34- (v) require any authorization, consent, order, permit or approval of, or notice to, or filing, registration or qualification with, any governmental, administrative or judicial authority. 4.4 FINANCIAL STATEMENTS. Attached as SCHEDULE 4.4 are true and complete copies of: (i) the consolidated balance sheet of UAG and its subsidiaries as of December 31 in each of the years 1993 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for the fiscal years ended on such dates, together with the notes thereto, in each case examined by and accompanied by the report of Coopers & Lybrand, independent certified public accountants; and (ii) the unaudited consolidated balance sheet of UAG and its subsidiaries as of __________________ (the "UAG Balance Sheet"), and the unaudited consolidated statements of income, stockholders' equity and cash flows for the month periods ended on such date, together with the notes thereto; (all the foregoing financial statements, including the notes thereto, being referred to herein collectively as the "UAG Financial Statements"). The UAG Financial Statements are in accordance with the books and records of UAG and its subsidiaries, fairly present the consolidated financial position, results of operations, stockholders' equity and changes in financial position of UAG and its subsidiaries as of the dates and for the periods indicated, in each case in conformity with GAAP consistently applied (except as otherwise indicated in such statements) during such periods, and can be legitimately reconciled with the financial statements and the financial records maintained and the accounting methods applied by UAG and its subsidiaries for federal income tax purposes, and the unaudited financial statements included in the UAG Financial Statements indicate all adjustments, which consist of only normal recurring accruals, necessary for such fair presentations. The statements of income included in the UAG Financial Statements do not contain any items of special or nonrecurring income except as expressly specified therein, and the balance sheets included in the UAG -35- Financial Statements do not reflect any write-up or revaluation increasing the book value of any assets, except as expressly stated therein. The books and accounts of UAG and its subsidiaries are complete and correct in all material respects and fairly reflect all of the transactions, items of income and expense and all assets and liabilities of the businesses of UAG and its subsidiaries consistent with prior practices of UAG and its subsidiaries. 4.5 BROKERS. Neither UAG, Sub nor any of their directors, officers or employees has employed any broker or finder or has incurred or will incur any broker's, finder's or similar fees, commissions or expenses, in each case in connection with the transactions contemplated by this Agreement or the Documents. 4.6 DISCLOSURE. Neither UAG nor Sub has made any material misrepresentation to the Selling Stockholder and neither UAG nor Sub has omitted to state to the Selling Stockholder any material fact relating to UAG or Sub which is necessary in order to make the information given by UAG or Sub not misleading or which if disclosed would reasonably affect the decision of a person considering the sale of the Shares. ARTICLE 5 COVENANTS AND ADDITIONAL AGREEMENTS 5.1 ACCESS; CONFIDENTIALITY. Between the date hereof and the completion of due diligence as set forth in Section 6.7 hereof, the Selling Stockholder and the Company will (i) provide to the officers and other authorized representatives of UAG and Sub full access, during normal business hours, to any and all premises, properties, files, books, records, documents, and other information of the Company and will cause the Company's officers to furnish to UAG and its authorized representatives any and all financial, technical and operating data and other information pertaining to the businesses and properties of the Company, and (ii) make available -36- for inspection and copying by UAG and Sub true and complete copies of any documents relating to the foregoing. UAG and Sub will hold, and will cause their representatives to hold, in confidence (unless and to the extent compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law) all Confidential Information (as defined below) and will not disclose the same to any third party except in connection with obtaining financing and otherwise as may reasonably be necessary to carry out this Agreement and the transactions contemplated hereby, including any due diligence review by or on behalf of UAG and Sub. If this Agreement is terminated, UAG and Sub will, and will cause their representatives to, promptly return to the Company, upon the reasonable request of the Company, all Confidential Information furnished by the Company, including all copies and summaries thereof. As used herein, "Confidential Information" shall mean all information concerning the Company obtained by UAG, Sub and their representatives from the Company in connection with the transactions contemplated by this Agreement, except information (x) ascertainable or obtained from public information, (y) received from a third party not employed by or otherwise affiliated with the Company or (z) which is or becomes known to the public, other than through a breach by UAG or Sub or any of their representatives of this Agreement. 5.2 FURNISHING INFORMATION; ANNOUNCEMENTS. The Selling Stockholder and the Company, on the one hand, and UAG and Sub, on the other hand, will, as soon as practicable after reasonable request therefor, furnish to the other all the information concerning the Selling Stockholder and the Company or UAG and Sub, respectively, required for inclusion in any statement or application made by UAG or Sub or the Company or the Selling Stockholder to any governmental or regulatory body or to any manufacturer or distributor or in connection with obtaining any third party consent in connection with the transactions contemplated by this Agreement. Neither the Selling Stockholder nor the Company, on the one hand, or UAG or Sub, on the other hand, or any representative thereof, shall issue any press releases or otherwise make any public statement with respect to the transactions contemplated hereby without the prior consent of the other, except as may be required by law. -37- 5.3 CERTAIN CHANGES AND CONDUCT OF BUSINESS. (a) Except for the sale of the Company's Buick franchise and any assets related thereto and except for transactions in connection with the construction of the Company's parking garage and the financing thereof and except as contemplated below, from and after the date of this Agreement and until the Closing Date, the Company shall, and the Selling Stockholder shall cause the Company to, conduct its businesses solely in the ordinary course consistent with past practices and, without the prior written consent of UAG, neither the Selling Stockholder nor the Company will, except as required or permitted pursuant to the terms hereof, permit the Company to: (i) make any material change in the conduct of its businesses and operations or enter into any transaction other than in the ordinary course of business consistent with past practices; (ii) make any change in its articles of incorporation or by- laws, issue any additional shares of capital stock or equity securities or grant any option, warrant or right to acquire any capital stock or equity securities or issue any security convertible into or exchangeable for its capital stock or alter any material term of any of its outstanding securities or make any change in its outstanding shares of capital stock or other ownership interests or its capitalization, whether by reason of a reclassification, recapitalization, stock split or combination, exchange or readjustment of shares, stock dividend or otherwise; (iii) (A) incur, assume or guarantee any indebtedness for borrowed money, issue any notes, bonds, debentures or other corporate securities or grant any option, warrant or right to purchase any thereof, except pursuant to transactions in the ordinary course of business consistent with past practices, (B) issue any securities convertible or exchangeable for debt securities of the Company, or (C) issue any options or other rights to acquire from the Company, directly or indirectly, debt securities of the Company or any security convertible into or exchangeable for such debt securities; -38- (iv) make any sale, assignment, transfer, abandonment or other conveyance of any of its assets or any part thereof, except transactions pursuant to existing contracts (which will be set forth in SCHEDULE 2.15 hereto) and dispositions in the ordinary course of business consistent with past practices; (v) subject any of its assets, or any part thereof, to any lien or suffer such to be imposed other than such liens as may arise in the ordinary course of business consistent with past practices; (vi) declare, set aside or pay any dividends or other distribution (whether in cash, stock, property or any combination thereof) in respect of any shares of its capital stock which would result in the Net Worth of the Company to decrease below $2,216,168 or redeem, retire, purchase or otherwise acquire, directly or indirectly, any shares of its capital stock; (vii) acquire any assets, raw materials or properties, or enter into any other transaction, other than in the ordinary course of business consistent with past practices; (viii) except as may be disclosed to UAG prior to the Closing, enter into any new (or amend any existing) employee benefit plan, program or arrangement or any new (or amend any existing) employment, severance or consulting agreement, grant any general increase in the compensation of officers or employees (including any such increase pursuant to any bonus, pension, profit-sharing or other plan or commitment) or grant any increase in the compensation payable or to become payable to any employee, except in accordance with pre-existing contractual provisions or consistent with past practices; (ix) make or commit to make any individual material capital expenditure in excess of $50,000, or aggregate capital expenditures in excess of $150,000, except in the ordinary course of business and except as contemplated by the preceding provisions of this SECTION 5.3; -39- (x) pay, loan or advance any amount to, or sell, transfer or lease any properties or assets to, or enter into any agreement or arrangement with, any of its Affiliates, except in the ordinary course of business and except as contemplated by the preceding provisions of this SECTION 5.3; (xi) guarantee any indebtedness for borrowed money or any other obligation of any other person, other than in the ordinary course of business consistent with past practice; (xii) fail to keep in full force and effect insurance comparable in amount and scope to coverage maintained by it (or on behalf of it) on the date hereof; (xiii) make any loan, advance or capital contribution to or investment in any person, except in the ordinary course of business; (xiv) make any change in any method of accounting or accounting principle, method, estimate or practice except for any such change required by reason of a concurrent change in GAAP or write-down the value of any inventory or write-off as uncollectible any accounts receivable except in the ordinary course of business consistent with past practices; (xv) settle, release or forgive any material claim or litigation or waive any material right; (xvi) make, enter into, modify, amend in any material respect or terminate any material commitment, bid or expenditure, other than in the ordinary course of business consistent with past practice; (xvii) commit itself to do any of the foregoing. (b) Except for the sale of the Company's Buick franchise and any assets related thereto and except for transactions in connection with the construction of the Company's parking garage and the financing thereof, from and after the date hereof and until the Closing Date, the Selling Stockholder and the Company will use their reasonable best efforts to cause the Company to: -40- (i) continue to maintain, in all material respects, its properties in accordance with present practices in a condition suitable for their current use; (ii) file, when due or required, federal, state, foreign and other tax returns and other reports required to be filed and pay when due all taxes, assessments, fees and other charges lawfully levied or assessed against it unless the validity thereof is contested in good faith and by appropriate proceedings diligently conducted; (iii) keep its books of account, records and files in the ordinary course and in accordance with existing practices; (iv) preserve its business organization intact and continue to maintain existing business relationships with suppliers, customers and others with whom business relationships exist other than relationships that are, at the same time, not economically beneficial to it; and (v) continue to conduct its business in the ordinary course consistent with past practices. 5.4 NO INTERCOMPANY PAYABLES OR RECEIVABLES. Except as disclosed on SCHEDULE 5.4 (which shall be delivered within 30 days of the date of this Agreement), at the Closing there will be no intercompany payables or intercompany receivables due and/or owing between the Selling Stockholder and its Affiliates (other than the Company), on the one hand, and the Company, on the other hand, other than those incurred in the ordinary course of business and generally disclosed in the notes to the Company's audited financial statements. 5.5 NEGOTIATIONS. Until the earlier of 120 days from the date hereof and the termination of this Agreement pursuant to SECTION 8.1 hereof, neither the Selling Stockholder, nor the Company, nor the Company's officers, directors, employees, advisors, agents, representatives, Affiliates or anyone acting on behalf of the Selling Stockholder, the Company or such persons, shall, directly or -41- indirectly, encourage, solicit, initiate or engage in discussions or negotiations with, or provide any information to, any person (other than UAG or its representatives) concerning any merger, sale of assets (other than as contemplated hereby or in connection with the Company's sale of the Buick franchise or in the ordinary course of business), purchase or sale of shares of capital stock or similar transaction involving the Company. The Selling Stockholder shall promptly communicate to UAG any inquiries or communications concerning any such transaction (including the identity of any person making such inquiry or communication) which the Selling Stockholder may receive or of which the Selling Stockholder may become aware. 5.6 CONSENTS; COOPERATION. Subject to the terms and conditions hereof, the Selling Stockholder and the Company and UAG and Sub will use their respective best efforts at their own expense: (i) to obtain prior to the earlier of the date required (if so required) or the Closing Date, all waivers, permits, licenses, approvals, authorizations, qualifications, orders and consents of all third parties and governmental authorities, and make all filings and registrations with governmental authorities which are required on their respective parts for (A) the consummation of the transactions contemplated by this Agreement, (B) the ownership or leasing and operating after the Closing by the Company of all its material properties and (C) the conduct after the Closing by the Company of its businesses as conducted by it on the date hereof; PROVIDED, HOWEVER, that no such consent shall be required from the Buick Motor Division of General Motors Corporation. (ii) to defend, consistent with applicable principles and requirements of law, any lawsuit or other legal proceedings, whether judicial or administrative, whether brought derivatively or on behalf of third persons (including governmental authorities) challenging this Agreement or the transactions contemplated hereby; and -42- (iii) to furnish each other such information and assistance as may reasonably be requested in connection with the foregoing. 5.7 ADDITIONAL AGREEMENTS. Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to use its best efforts at its own expense to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers of the Company shall take all such necessary action. 5.8 INTERIM FINANCIAL STATEMENTS. The Company will deliver to UAG copies of the financial statements provided to Toyota after the date hereof within five days of their delivery, and within thirty (30) days after the end of each calendar month after the date of this Agreement, UAG will deliver to the Company unaudited consolidated balance sheets of UAG, in each case as at the end of such calendar month, together with the related unaudited consolidated statements of income and cash flow for the fiscal month then ended. All such financial statements shall fairly present the financial position and results of operations of the Company and UAG, as applicable, as at the date or for the periods indicated. All unaudited financial statements delivered pursuant to this SECTION 5.8 shall be prepared on a basis consistent with the Company Financial Statements and the UAG Financial Statements, as applicable. 5.9 NOTIFICATION OF CERTAIN MATTERS. Between the date hereof and the Closing, each party to this Agreement will give prompt notice in writing to the other party hereto of: (i) any information that indicates that any representation and warranty of such party contained herein was not true and correct as of the date made or will not be true and correct as of the Closing, (ii) the occurrence of any event which could result in the failure to satisfy a condition specified in -43- ARTICLE 6 or ARTICLE 7 hereof, as applicable, (iii) any notice or other communication from any third person alleging that the consent of such third person is or may be required in connection with the transactions contemplated by this Agreement, and (iv) in the case of the Selling Stockholder and the Company, any notice of, or other communication relating to, any default or event which, with notice or lapse of time or both, would become a default under any Company Agreement set forth on SCHEDULE 2.15. Each party hereto will (x) promptly advise the other party hereto of any event that has, or could reasonably be expected in the future to have, a Material Adverse Effect or material adverse effect on UAG and its subsidiaries, taken as a whole, as applicable, (y) confer on a regular and frequent basis with one or more designated representatives of the other party to report operational matters and to report the general status of ongoing operations, and (z) notify the other party of any emergency or other change in the normal course of business or in the operation of the properties of the Company and of any governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated) or adjudicatory proceedings involving any property of the Company or UAG, as applicable, and will keep the other party fully informed of such events and permit UAG's representatives access to all materials prepared in connection therewith. The Selling Stockholder shall give prompt notice to UAG of any notice or other communication from any third person asserting any right, title or interest in any of the Shares held by the Selling Stockholder (including, without limitation, any threat to commence, or notice of the commencement of any action or other proceeding with respect to the Shares) or the occurrence of any other event of which the Selling Stockholder has knowledge which could result in any failure to consummate the sale of the Shares as contemplated hereby. 5.10 ASSURANCE BY THE SELLING STOCKHOLDER. The Selling Stockholder shall use his best efforts to cause the Company to comply with its respective covenants set forth in this Agreement. -44- ARTICLE 6 CONDITIONS TO THE OBLIGATIONS OF UAG AND SUB TO EFFECT THE CLOSING The obligations of Sub required to be performed by it at the Closing shall be subject to the satisfaction, at or prior to the Closing, of each of the following conditions, each of which may be waived by Sub as provided herein except as otherwise required by applicable law: 6.1 REPRESENTATIONS AND WARRANTIES; AGREEMENTS; COVENANTS. Each of the representations and warranties of the Company and the Selling Stockholder contained in this Agreement shall be true and correct on the date made and shall be true and correct in all material respects as of the Closing. Each of the obligations of the Company and the Selling Stockholder required by this Agreement to be performed by them at or prior to the Closing shall have been duly performed and complied with in all material respects as of the Closing. At the Closing, Sub shall have received a certificate, dated the Closing Date and duly executed by the Selling Stockholder and the chief financial officer of the Company, to the effect that the conditions set forth in the two preceding sentences have been satisfied except as specified in such certificate. 6.2 AUTHORIZATION; CONSENTS. (a) All corporate action necessary to authorize the execution, delivery and performance of this Agreement and the Documents, and the consummation of the transactions contemplated hereby and thereby shall have been duly and validly taken by the Company. (b) All notices to, and declarations, filings and registrations with, and consents, authorizations, approvals and waivers from, governmental and regulatory bodies and third persons (including, but not limited to, all automobile manufacturers with whom the Company has a franchise agreement (or comparable instrument) as of the Closing Date other than Buick) required to consummate the transactions contemplated hereby and all consents or waivers shall have been made or obtained. -45- 6.3 OPINIONS OF THE COMPANY'S AND THE SELLING STOCKHOLDER'S COUNSEL. UAG shall have been furnished with the opinion of counsel for the Company and the Selling Stockholder, dated the Closing Date, in form and substance satisfactory to UAG and its counsel. In rendering the foregoing opinion, such counsel may rely as to factual matters upon certificates or other documents furnished by officers and directors of the Company and by government officials and upon such other documents and data as such counsel deem appropriate as a basis for their opinions. Such counsel may specify the state or states in which they are admitted to practice, that they are not admitted to the Bar in any other state or experts in the law of any other state and that such opinions are limited to Georgia, Texas and federal laws. 6.4 ABSENCE OF LITIGATION. No order, stay, injunction or decree of any court of competent jurisdiction in the Untied States shall be in effect (i) that prevents or delays the consummation of any of the transactions contemplated hereby or (ii) would impose any limitation on the ability of Sub effectively to exercise full rights of ownership of the Shares. No action, suit or proceeding before any court or any governmental or regulatory entity shall be pending (or threatened by any governmental or regulatory entity), and no investigation by any governmental or regulatory entity shall have been commenced (and be pending), seeking to restrain or prohibit (or questioning the validity or legality of) the consummation of the transactions contemplated by this Agreement or seeking damages in connection therewith which Sub, in good faith and with the advice of counsel, believes makes it undesirable to proceed with the consummation of the transactions contemplated hereby. 6.5 NO MATERIAL ADVERSE EFFECT. During the period from December 31, 1994 to the Closing Date, there shall not have been any material adverse change in the assets, properties, business, operations, prospects, net income or financial condition of the Company. -46- 6.6 WORKING CAPITAL REQUIREMENTS. On the Closing Date, the Selling Stockholder shall deliver to Sub a balance sheet of the Company dated as of the most recent practicable date preceding the Closing Date, prepared in accordance with the Accounting Principles (the "Estimated Closing Date Balance Sheet"). The Estimated Closing Date Balance Sheet shall show as of the date thereof, after taking into account the payment of any of the fees, costs and expenses by the Company incurred in connection with this Agreement, consolidated net working capital of not less than $5,454,832. 6.7 COMPLETION OF DUE DILIGENCE. Sub shall have completed its due diligence examination of the Company, the Real Property and the Improvements and the results of such examination, including any Phase I or Phase II environmental audits of the Company, shall be satisfactory to UAG; PROVIDED, HOWEVER, that, with the exception of due diligence relating to any environmental issues, such due diligence shall be completed, and shall be deemed completed, no later than thirty (30) days after the execution of this Agreement. Sub will pay the costs for a Phase I environmental audit. If, after obtaining the results of the Phase I environmental audit, Sub determines that a Phase II environmental audit is required, the expenses of the Phase II environmental audit shall be paid one- half by Sub and one-half by the Selling Stockholder. 6.8 LEASE. The Selling Stockholder and the Company shall have entered into the Lease. 6.9 BOARD APPROVAL. The Board of Directors of UAG and Sub shall have approved the consummation of all of the transactions contemplated by this Agreement and the Documents. 6.10 CERTIFICATES. The Selling Stockholder and the Company shall have furnished Sub with such certificates of its officers and others -47- as Sub may reasonably request to evidence compliance with the conditions set forth in this ARTICLE 6. 6.11 LEGAL MATTERS. All certificates, instruments, opinions and other documents required to be executed or delivered by or on behalf of the Selling Stockholder and the Company under the provisions of this Agreement, and all other actions and proceedings required to be taken by or on behalf of the Selling Stockholder and the Company in furtherance of the transactions contemplated hereby, shall be reasonably satisfactory in form and substance to counsel for UAG and Sub. 6.12 APPROVAL OF MANUFACTURER AND DISTRIBUTOR. The Selling Stockholder and the Company shall have obtained the consent, authorization and approval of Toyota and Southeast Toyota on terms no less favorable to those granted to the Company immediately prior to the execution of this Agreement. 6.13 EMPLOYMENT AGREEMENT. The Company and John Smith shall have entered into the John Smith Employment Agreement. 6.14 SCHEDULES. The Company and the Selling Stockholder shall have delivered to UAG all Schedules referred to in ARTICLES 2 AND 3 and such Schedules shall be acceptable in form and substance to UAG and Sub. 6.15 NET WORTH OF THE COMPANY. The Net Worth of the Company, as determined in accordance with Section 1.2 hereof, shall not be less than $2,216,168 on the Closing Date. 6.16 ENVIRONMENTAL LAWS. The Company shall be in compliance with all applicable Environmental Laws. -48- 6.17 NONDISTURBANCE AGREEMENT. The Selling Stockholder shall have obtained a nondisturbance agreement acceptable to the Company and UAG. ARTICLE 7 CONDITIONS TO THE OBLIGATIONS OF THE SELLING STOCKHOLDER TO EFFECT THE CLOSING The obligations of the Selling Stockholder and the Company required to be performed by them at the Closing shall be subject to the satisfaction, at or prior to the Closing, of each of the following conditions, each of which may be waived by the Selling Stockholder as provided herein except as otherwise required by applicable law: 7.1 REPRESENTATIONS AND WARRANTIES; AGREEMENTS. Each of the representations and warranties of UAG and Sub contained in this Agreement shall be true and correct on the date made and shall be true and correct in all material respects as of the Closing. Each of the obligations of UAG and Sub required by this Agreement to be performed by it at or prior to the Closing shall have been duly performed and complied with in all material respects as of the Closing. At the Closing, the Selling Stockholder shall have received a certificate, dated the Closing Date and duly executed by the chief executive officer and chief financial officer of UAG and of Sub to the effect that the conditions set forth in the preceding two sentences have been satisfied except as specified in such certificate. 7.2 AUTHORIZATION OF THE AGREEMENT, CONSENTS. (a) All corporate action necessary to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby shall have been duly and validly taken by UAG and Sub. (b) All notices to, and declarations, filings and registrations with, and consents, authorizations, approvals and waivers from, governmental and regulatory bodies and third persons (including, but not limited to, all automobile manufacturers -49- with whom the Company has entered into a franchise agreement (or comparable instrument)) required to consummate the transactions contemplated hereby and all consents or waivers shall have been made or obtained. 7.3 OPINIONS OF UAG'S AND SUB'S COUNSEL. The Selling Stockholder shall have been furnished with the opinion of Rogers & Hardin, counsel to UAG and Sub, dated the Closing Date, in form and substance satisfactory to the Selling Stockholder. In rendering the foregoing opinions, such counsel may rely as to factual matters upon certificates or other documents furnished by officers and directors of UAG and Sub and by government officials, and upon such other documents and data as such counsel deems appropriate as a basis for its opinion. Such counsel may specify the state or states in which they are admitted to practice, that they are not admitted to the Bar in any other state or experts in the law of any other state and that such opinions are limited to Georgia and federal laws and the General Corporation Law of the State of Delaware. 7.4 ABSENCE OF LITIGATION. No order, stay, judgment or decree shall have been issued by any court and be in effect restraining or prohibiting the consummation of the transactions contemplated hereby. 7.5 LEASE. The Company and Sub shall have entered into the Lease. 7.6 CERTIFICATES. UAG and Sub shall have furnished the Selling Stockholder with such certificates of its officers and others to evidence compliance with the conditions set forth in this ARTICLE 7 as may be reasonably requested by the Selling Stockholder. 7.7 LEGAL MATTERS. All certificates, instruments, opinions and other documents required to be executed or delivered by or on behalf of UAG or Sub under the provisions of this Agreement, and all other 50- actions and proceedings required to be taken by or on behalf of UAG or Sub in furtherance of the transactions contemplated hereby, shall be reasonably satisfactory in form and substance to counsel for the Selling Stockholder. 7.8 NO MATERIAL ADVERSE EFFECT. During the period from December 31, 1994 to the Closing Date, there shall not have been any material adverse change in the assets, properties, business, operations, prospects, net income or financial condition of UAG. 7.9 BOARD APPROVAL. The Board of Directors of the Company shall have approved the consummation of all of the transactions contemplated by this Agreement and the Documents. 7.10 SCHEDULES. UAG and Sub shall have delivered to the Selling Stockholder all Schedules referred to in ARTICLE 4 and such Schedules shall be acceptable in form and substance to the Selling Stockholder. 7.11 REPAYMENT OF CONSTRUCTION DEBT. UAG and Sub shall have repaid all of the Construction Debt. ARTICLE 8 TERMINATION 8.1 TERMINATION. This Agreement may be terminated at any time prior to Closing: (i) by mutual consent of UAG, Sub and the Selling Stockholder; -51- (ii) by either UAG, Sub, or the Selling Stockholder if the Closing shall not have taken place on or prior to December 31, 1995, or such later date as shall have been approved by UAG, Sub and the Selling Stockholder (provided that the terminating party is not otherwise in material breach of its representations, warranties, covenants or agreements under this Agreement); (iii) by UAG, Sub, or the Selling Stockholder if any court of competent jurisdiction in the United States or other United States governmental body shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement, and such order, decree, ruling or other action shall have become final and non-appealable; (iv) by UAG or Sub if any of the conditions specified in ARTICLE 6 hereof have not been met or waived by UAG and Sub at such time as such condition is no longer capable of satisfaction (provided that neither UAG nor Sub is otherwise in material breach of its representations, warranties, covenants or agreements under this Agreement); (v) by the Selling Stockholder if any of the conditions specified in ARTICLE 7 hereof have not been met or waived by the Selling Stockholder at such time as such condition is no longer capable of satisfaction (provided that neither the Selling Stockholder nor the Company is otherwise in material breach of his or its representations, warranties covenants or agreements under this Agreement); or (vi) by either UAG, Sub or the Selling Stockholder if there has been a material breach on the part of the other of any representation, warranty, covenant or agreement set forth in this Agreement, which breach has not been cured within ten (10) Business Days following receipt by the breaching party of written notice of such breach. If UAG, Sub or the Selling Stockholder shall terminate this Agreement pursuant to the provisions hereof, such termination shall be effected by notice to the other parties specifying the provision hereof pursuant to which such termination is made. -52- 8.2 EFFECT OF TERMINATION. Except (i) for any breach of this Agreement prior to its termination, and (ii) for the obligations contained in SECTIONS 5.1 AND 10.2 hereof, and (iii) as set forth in SECTION 9.1 and SECTION 9.2 hereof, upon the termination of this Agreement pursuant to SECTION 8.1 hereof, this Agreement shall forthwith become null and void and none of the parties hereto or any of their respective officers, directors, employees, agents, Affiliates, consultants, stockholders or principals shall have any liability or obligation hereunder or with respect hereto. ARTICLE 9 INDEMNIFICATION 9.1 INDEMNIFICATION BY THE SELLING STOCKHOLDER. Notwithstanding the Closing or the delivery of the Shares, the Selling Stockholder indemnifies and agrees to fully defend, save and hold harmless on an after-tax basis UAG, Sub, the Company, and any of their respective officers, directors, employees, stockholders, advisors, representatives, agents and Affiliates (other than the Selling Stockholder) (each a "UAG Indemnified Party"), if a UAG Indemnified Party (including the Company after the Closing Date) shall at any time or from time to time suffer any Costs (as defined in SECTION 9.7 below) arising, directly or indirectly, out of or resulting from, or shall pay or become obligated to pay any sum on account of any and all Events of Breach (as defined below). As used herein, "Event of Breach" shall be and mean any untruth or inaccuracy in any representation of the Selling Stockholder or the Company or the breach of any warranty of the Selling Stockholder or the Company contained in ARTICLE 2 OR 3 of this Agreement. -53- 9.2 INDEMNIFICATION BY UAG. Notwithstanding the Closing, UAG indemnifies and agrees to fully defend, save and hold harmless on an after-tax basis the Selling Stockholder, and any of his respective advisors, representatives, agents and Affiliates (other than the Company) (each a "Westcott Indemnified Party"), if a Westcott Indemnified Party (including the Company prior to Closing) shall at any time or from time to time suffer any Costs arising, directly or indirectly, out of or resulting from, or shall pay or become obligated to pay any sum on account of any and all UAG Events of Breach (as defined below). As used herein, "UAG Event of Breach" shall be and mean any untruth or inaccuracy in any representation of UAG or Sub or the breach of any warranty of UAG or Sub contained in ARTICLE 4 of this Agreement. 9.3 PROCEDURES. If (i) any Event of Breach occurs or is alleged and a UAG Indemnified Party asserts that the Selling Stockholder has become obligated to a UAG Indemnified Party pursuant to SECTION 9.1, or if any third party claim is begun, made or instituted as a result of which the Selling Stockholder may become obligated to a UAG Indemnified Party under this ARTICLE 9 (a "Westcott Third- Party Claim") or (ii) a UAG Event of Breach occurs or is alleged and a Westcott Indemnified Party asserts that UAG has become obligated to a Westcott Indemnified Party pursuant to SECTION 9.2, or if any third-party claim is begun, made or instituted as a result of which UAG may become obligated to a Westcott Indemnified Party under this ARTICLE 9 (a "UAG Third-Party Claim") (for purposes of this ARTICLE 9, any UAG Indemnified Party and any Westcott Indemnified Party is sometimes referred to as an "Indemnified Party" and UAG and the Selling Stockholder are sometimes referred to as an "Indemnifying Party," and any UAG Third-Party Claim and any Westcott Third-Party Claim is sometimes referred to as a "Third Party Claim", in each case as the context so requires), such Indemnified Party shall give written notice to the Indemnifying Party of its or his obligation to provide indemnification hereunder, provided that any failure to so notify the Indemnifying Party shall not relieve them from any liability that it or he may have to the Indemnified Party under this ARTICLE 9. If such notice relates to a Third Party Claim, each Indemnifying Party, jointly and severally, agrees to defend, contest or otherwise -54- protect such Indemnified Party against any such Third Party Claim at his or its sole cost and expense. Such Indemnified Party shall have the right, but not the obligation, to participate at its own expense in the defense thereof by counsel of such Indemnified Party's choice and shall in any event cooperate with and assist the Indemnifying Party to the extent reasonably possible. If the Indemnifying Party fails timely to defend, contest or otherwise protect against such Third Party Claim, such Indemnified Party shall have the right to do so, including, without limitation, the right to make any compromise or settlement thereof, and such Indemnified Party shall be entitled to recover the entire Cost thereof from the Indemnifying Party, including, without limitation, attorneys' fees, disbursements and amounts paid (or of which such Indemnified Party has become obligated to pay) as the result of such Third Party Claim. Failure by the Indemnifying Party to notify such Indemnified Party of its or their election to defend any such Third Party Claim within fifteen (15) days after notice thereof shall have been given to the Indemnifying Party shall be deemed a waiver by the Indemnifying Party of its or their right to defend such Third Party Claim. If the Indemnifying Party assumes the defense of the particular third party claim, the Indemnifying Party shall not, in the defense of such third party claim, consent to entry of any judgment or enter into any settlement, except with the written consent of such Indemnified Party which consent shall not be unreasonably withheld. In addition, the Indemnifying Party shall not enter into any settlement of any Third Party Claim except with the written consent of such Indemnified Party) which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to such Indemnified Party a full release from all liability in respect of such Third Party Claim. Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to control (but shall be entitled to participate at their own expense in the defense of), and the Indemnified Party shall be entitled to have sole control over, the defense or settlement of any third party claim to the extent the Third Party Claim seeks an order, injunction or other equitable relief against the Indemnified Party which, if successful, could materially interfere with the business, operations, assets, condition (financial or otherwise) or prospects of the Indemnified Party. -55- 9.4 LIMITATION ON INDEMNIFICATION. (a) INDEMNIFICATION BY THE SELLING STOCKHOLDER. (i) The aggregate Costs for which the Selling Stockholder shall be obligated to indemnify the UAG Indemnified Parties shall not exceed $11,100,000 in the case of Costs incurred or sustained by all UAG Indemnified Parties in connection with an Event of Breach. (b) INDEMNIFICATION BY UAG. (i) The aggregate Costs for which UAG shall be obligated to indemnify the Westcott Indemnified Parties shall not exceed $2,000,000 in the case of Costs incurred or sustained by all Westcott Indemnified Parties in connection with a UAG Event of Breach. 9.5 EXCLUSIVE REMEDIES FOR BREACH OF REPRESENTATIONS AND WARRANTIES. Notwithstanding any other provision of this Agreement to the contrary, (i) neither UAG nor Sub shall be liable for the breach of any representation or warranty set forth in this Agreement unless the aggregate amount of such liability exceeds $200,000, in which event UAG shall be fully liable without regard to such threshold, and (ii) the Selling Stockholder shall not be liable for any breach of a representation or warranty set forth in this Agreement unless the aggregate amount of such liability, together with the Net Worth Deficiency, if any, exceeds $200,000, in which event the Selling Stockholder shall be fully liable without regard to such threshold. 9.6 DEFINITIONS. For purposes of this ARTICLE 9, "Costs" shall mean all liabilities, losses, costs, damages (not including consequential damages), expenses, claims, attorneys' fees, experts' fees, consultants' fees, and disbursements of any kind or of any nature whatsoever. For purposes of application of the indemnity provisions of this ARTICLE 9, the amount of any Cost arising from the breach of any representation or warranty shall be the entire -56- amount of any Cost suffered, paid or required to be paid by the respective Indemnified Party as a result of such breach. ARTICLE 10 MISCELLANEOUS 10.1 SURVIVAL OF PROVISIONS. (a) The respective representations, warranties, covenants and agreements of each of the parties to this Agreement (except covenants and agreements which are expressly required to be performed and are performed in full on or before the Closing Date) shall survive the Closing Date and the consummation of the transactions contemplated by this Agreement, subject to SECTION 10.1(b) below. In the event of a breach of any such representations, warranties or covenants, the party to whom such representations, warranties or covenants have been made shall have, subject to ARTICLE 9 hereof, all rights and remedies for such breach available to it under the provisions of this Agreement or otherwise, whether at law or in equity, regardless of any disclosure to, or investigation made by or on behalf of, such party on or before the Closing Date. (b) Each of the representations and warranties set forth in ARTICLE 2, ARTICLE 3 and ARTICLE 4 hereof and in any certificate delivered pursuant to ARTICLE 6 or ARTICLE 7 hereof, shall survive (and not be affected in any respect by) the Closing for a period terminating on the later of (i) the date two years after the Closing Date, and (ii) with respect to any claim asserted with respect to any breach of such representation or warranty or pursuant to SECTION 9.3 hereof before the expiration of such representation or warranty, on the date such claim is finally liquidated or otherwise resolved, except with respect to the representations and warranties in SECTIONS 2.11, 2.10(b)(ii) AND 3.3(b), which shall survive the Closing Date for a period terminating on the later of (y) the date five years after the Closing Date, and (z) with respect to any claim asserted with respect to any breach of such representation or warranty or pursuant to SECTION 9.3 hereof before the expiration of such representation or warranty, on the date the claim is finally liquidated or otherwise resolved. -57- 10.2 FEES AND EXPENSES. Except as otherwise expressly provided in this Agreement, all legal and other fees, costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby through the Closing Date shall be paid by the party incurring such fees, costs or expenses; PROVIDED, HOWEVER, that if the Closing does not occur and SECTION 5.5 hereof is breached, then the Selling Stockholder or the Company shall pay to UAG, within five (5) Business Days after receipt of a request therefor, an amount equal to all of the legal and other fees, costs and expenses incurred by UAG in connection with this Agreement and the transactions contemplated hereby. 10.3 HEADINGS. The section headings herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. 10.4 NOTICES. All notices or other communications required or permitted hereunder shall be given in writing and shall be deemed sufficient if delivered by hand, recognized overnight delivery service or facsimile transmission or mailed by registered or certified mail, postage prepaid (return receipt requested), as follows: If to the Company before the Closing date: Carl H. Westcott 1303 Marsh Lane Carrollton, Texas 75006 with a copy to: John D. Curtis Two Galleria Tower Suite 900 13455 Noel Road Dallas, Texas 75240 -58- If to the Company after the Closing Date (in addition to the foregoing addresses): United Auto Group, Inc. 375 Park Avenue New York, New York 10022 Facsimile No.: (212) 223-5148 Attn: George G. Lowrance, Esq., Executive Vice President and General Counsel with a copy to: Rogers & Hardin 2700 Cain Tower, Peachtree Center 229 Peachtree Street, N.E. Atlanta, Georgia 30303 Facsimile No.: (404) 525-2224 Attn: Michael Rosenzweig If to the Selling Stockholder: Carl H. Westcott 1303 Marsh Lane Carrollton, Texas 75006 with a copy to: John D. Curtis Two Galleria Tower Suite 900 13455 Noel Road Dallas, Texas 75240 -59- If to UAG or Sub: United Auto Group, Inc. 375 Park Avenue New York, New York 10022 Facsimile No.: (212) 223-5148 Attn: George G. Lowrance, Esq., Executive Vice President and General Counsel with a copy to: Rogers & Hardin 2700 Cain Tower, Peachtree Center 229 Peachtree Street, N.E. Atlanta, Georgia 30303 Facsimile No.: (404) 525-2224 Attn: Michael Rosenzweig or such other address as shall be furnished in writing by such party, and any such notice or communication shall be effective and be deemed to have been given as of the date so delivered or three (3) days after the date so mailed; PROVIDED, HOWEVER, that any notice or communication changing any of the addresses set forth above shall be effective and deemed given only upon its receipt. -60- 10.5 ASSIGNMENT. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto (and with respect to the Selling Stockholder, the personal representatives and heirs of the Selling Stockholder) and their respective successors and permitted assigns, and the provisions of ARTICLE 9 hereof shall inure to the benefit of the Indemnified Parties referred to therein; PROVIDED, HOWEVER, that neither this Agreement nor any of the rights, interests, or obligations hereunder may be assigned by any of the parties hereto without the prior written consent of the other parties. Notwithstanding the foregoing, UAG and Sub shall have the unrestricted right to assign this Agreement and to delegate all or any part of their obligations hereunder to any Affiliate of UAG, but in such event UAG shall remain fully liable for the performance of all of such obligations in the manner prescribed in this Agreement. 10.6 ENTIRE AGREEMENT. This Agreement (including the Schedules hereto) and the Documents embody the entire agreement and understanding of the parties with respect to the transactions contemplated hereby and supersede all prior written or oral commitments, arrangements or understandings between the parties with respect thereto and all prior drafts of this Agreement. There are no restrictions, agreements, promises, warranties, covenants or undertakings with respect to the transactions contemplated hereby other than those expressly set forth herein or in the Documents. Prior drafts of this Agreement shall not be used as a basis for interpreting this Agreement. 10.7 WAIVER AND AMENDMENTS. Each of the Selling Stockholder, the Company, UAG and Sub may by written notice to the other parties (i) extend the time for the performance of any of the obligations or other actions of the other parties, (ii) waive any inaccuracies in the representations or warranties of the other parties contained in this Agreement, (iii) waive compliance with any of the covenants of the other parties contained in this Agreement, (iv) waive performance of any of the obligations of the other parties created under this Agreement, or (v) waive fulfillment of any of the -61- conditions to its own obligations under this Agreement. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach, whether or not similar. This Agreement may be amended, modified or supplemented only by a written instrument executed by the parties hereto. 10.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which shall be considered one and the same agreement and each of which shall be deemed an original. 10.9 GOVERNING LAW. This Agreement shall be governed by the laws of the State of Georgia. 10.10 ACCOUNTING TERMS. All accounting terms used herein which are not expressly defined in this Agreement shall have the respective meanings given to them in accordance with GAAP. 10.11 CERTAIN DEFINITIONS. For purposes of this Agreement: (a) "Affiliate" of a specified person shall mean a person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified, and in the case of a specified person who is a natural person, his spouse, his issue, his parents, his estate and any trust entirely for the benefit of his spouse and/or issue. (b) "best efforts" shall be deemed to not include any obligation on the part of any person to undertake any liabilities, expend any funds or perform acts (except liabilities, expenditures or performance, other than any best efforts obligations, expressly required to be undertaken by the terms of this Agreement) which are materially burdensome to such person; PROVIDED, HOWEVER, that notwithstanding the foregoing, the term -62- "best efforts" shall include an obligation to take such actions which are normally incident to or reasonably foreseeable in connection with such obligation or the transactions contemplated hereby. (c) "Business Day" shall mean any day excluding Saturday, Sunday and any day which is a legal holiday under Federal law. (d) "Documents" shall mean the Sub Note, the UAG Guaranty and the Lease. (e) "GAAP" shall mean generally accepted accounting principles which are in effect in the United States on the Closing Date. (f) "Material Adverse Effect" shall mean any change in, or effect on, the Company (including the business thereof) which is, or could reasonably be expected to be, materially adverse to the business, operations, assets, condition (financial or otherwise) or prospects of such Company. (g) "person" shall mean and include an individual, corporation, partnership, joint venture, association, trust, any other unincorporated organization or entity and a governmental entity or any department or agency thereto. 10.12 SCHEDULES. Disclosure of any matter in any Schedule hereto or in the Financial Statements shall not be considered as disclosure pursuant to any other provision, subprovision, section or subsection of this Agreement or Schedule to this Agreement. 10.13 SEVERABILITY. If any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected thereby. To the extent permitted by applicable law, each party waives any provision of law which renders any provision of this Agreement invalid, illegal or unenforceable in any respect. -63- 10.14 REMEDIES. Except as contemplated by SECTION 9.5 hereof, none of the remedies provided for in this Agreement, including termination of this Agreement as set forth in ARTICLE 8, indemnification as set forth in ARTICLE 9, the payment of certain fees, costs and expenses as set forth in SECTION 10.2 or specific performance as set forth in this SECTION 10.14, shall be the exclusive remedy of either party for a breach of this Agreement, the parties hereto having the right to seek any other remedy in law or equity in lieu of or in addition to any remedies provided in this Agreement, including an action for damages for breach of contract. 10.15 TAXES AND COOPERATION. The parties hereby agree that the accounting records and books of the Company will be closed on the Closing Date and agree that the pro rata allocation method provided in Section 1362(e)(2) of the Code will not apply. The Company will make an election under Section 1362(e)(3) of the Code for purposes of determining the Company's taxable income or loss to be reported on the Selling Stockholder's Form K-1, and each party hereto will take all necessary or proper steps and make any filings or notifications required to effect such Section 1362(e)(3) election. The parties hereto agree that the accounting firm that prepared the Company's 1994 tax return will prepare the Company's final S corporation tax return. The Company agrees that it will make its books and records available to the Selling Stockholder and his representatives, upon reasonable notice and at reasonable times, at the Selling Stockholder's cost and expense, it being understood that the Selling Stockholder shall be entitled to make copies of any such books and records as shall be reasonably necessary. In the event the Internal Revenue Service or any other taxing authority initiates an examination of the Company with respect to a taxable period that could impact the Selling Stockholder's tax liability for any year, UAG shall promptly notify the Selling Stockholder of such examination, and the Selling Stockholder shall have the right to control the defense of the Company in responding to any proposed adjustments that would impact the Selling Stockholder. 10.16 TIME IS OF THE ESSENCE. -64- Time is of the essence for purposes of this Agreement. -65- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. UNITED AUTO GROUP, INC. By: /s/ Ezra P. Mager ------------------------------ Name: Ezra P. Mager Title: Executive Vice Chairman UAG ATLANTA, INC. By: /s/ Ezra P. Mager -------------------------------- Name: Ezra P. Mager Title: ------------------------------- ATLANTA TOYOTA, INC. By: /s/ Carl H. Westcott ------------------------------ Name: Carl H. Westcott Title: Chairman /s/ Carl H. Westcott ---------------------------------- Carl H. Westcott -66- EX-10.5-2 42 EXHIBIT 10.5.2 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAS BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE ASSIGNED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THIS NOTE UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL SATISFACTORY TO THE MAKER THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT. $2,100,100.00 January 16, 1996 PROMISSORY NOTE UAG ATLANTA, INC., a Delaware corporation (hereinafter called "Maker"), for value received, promises and agrees to pay to Carl H. Westcott (hereinafter called "Payee"), in lawful money of the United States of America, the principal sum of TWO MILLION ONE HUNDRED THOUSAND ONE HUNDRED AND 00/100 DOLLARS ($2,100,100.00) on July 31, 1998, together with interest thereon (calculated on the basis of a 365 day year, or a 366 day year in the case of a leap year) from and after the date hereof until maturity at a rate per annum equal to eight and one-half percent (81/2%) (the "Applicable Rate"), but in no event in excess of the maximum rate of nonusurious interest allowed from time to time by law (hereinafter called the "Highest Lawful Rate"). All past due amounts of principal of, and to the extent permitted by applicable law, unpaid interest on, this note from time to time outstanding, and all unpaid amounts of principal of this note during any period in which an Event of Default (as hereinafter defined) exists or would exist but for the giving of notice or the passage of time, shall bear interest at the rate equal to the Applicable Rate plus 5%, but in no event greater than the Highest Lawful Rate. All sums due under this note are payable to Payee at such address as may be designated in writing by Payee to the Maker. ACCRUED INTEREST is due and payable semi-annually commencing on the last day of the sixth month immediately following the date hereof and on the last day of each and every sixth consecutive calendar month thereafter and at maturity; PROVIDED, HOWEVER, that if the principal of this note is prepaid in whole or in part, all accrued and unpaid interest is due and payable on the date of such prepayment. If any amount owing under this note is due and payable on a day that is not a business day, such payment shall instead be due and payable on the next succeeding business day. Maker has the right to prepay this note in whole or in part at any time and from time to time without premium or penalty upon not less than five days' notice to Payee. SO LONG as any principal or interest remains unpaid on this note, Maker will comply or cause compliance with each of the following covenants: (a) Maker shall, within fifteen (15) days after such are prepared but in no event later than 120 days after the close of each fiscal year of United Auto Group, Inc., a Delaware corporation ("UAG"), furnish to Payee the audited consolidated financial statements of UAG for such period; provided, however, that if UAG's auditors have not delivered such financial statements within said 120-day period despite UAG's diligent requests of them to do so, such added delay shall not constitute a default or an Event of Default (as hereinafter defined) under this note. In addition, Maker shall furnish to Payee from time to time (but no more than once in any given calendar year), within 30 days after a request by Payee, current unaudited consolidated financial statements of Maker. (b) Maker shall promptly notify Payee in writing of any Event of Default under this note or any event that with the giving of notice or the passage of time or both would constitute an Event of Default under this note. FOR PURPOSES of this note, an "Event of Default" shall occur whenever: (a) default is made in the payment when due of the principal of this note, (b) default is made in the payment when due of any installment of interest on this note and such default has not been cured within five days after the date on which Maker receives written notice of the default from Payee, (c) Maker shall fail to perform or observe any other term, covenant or agreement contained in this note and any such failure shall remain unremedied for 10 days after written notice thereof shall have been given to Maker by Payee, (d) Maker or UAG or any of UAG's other subsidiaries shall fail to pay when due any principal of or interest on any indebtedness (other than this note) in excess of $500,000 and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument related to such indebtedness or any other default under any agreement or instrument related to such indebtedness, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such indebtedness, or any such indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly schedule required prepayment), prior to stated maturity thereof, (e) UAG shall sell all or substantially all of its assets or UAG shall pay a dividend or make a distribution to holders of its securities generally (other than in shares of stock or other securities of UAG or rights to purchase stock or other securities of UAG), which dividend or distribution, together with all other dividends or distributions by UAG on or after the date hereof, shall result in an amount in excess of twenty-five percent (25%) of UAG's assets having been distributed to its shareholders, (f) Maker or UAG institutes proceedings to be adjudicated as bankrupt or insolvent, or consents to institution of bankruptcy or insolvency proceedings against it or -2- the filing by it of a petition or answer or consent seeking reorganization or release under the federal Bankruptcy Act or any other applicable federal or state law, or consents to the filing of any such petition or the appointment of a receiver, liquidator, assignee, trustee or other similar official of Maker or UAG, or of any substantial part of its property, or makes an assignment for the benefit of creditors, or takes corporate action in furtherance of any such action, or (g) within 60 days after the commencement of an action against Maker or UAG seeking any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such action shall not have been resolved in favor of Maker or UAG, as applicable, or all orders or proceedings thereunder affecting the operations or the business of Maker or UAG, as applicable, stayed, or if the stay of any such order or proceeding shall thereafter be set aside, or if, within 60 days after the appointment without the consent or acquiescence of Maker or UAG of any trustee, receiver or liquidator of Maker or UAG or all or any substantial part of its properties, such appointment shall not have been vacated. UPON THE OCCURRENCE and during the continuance of any Event of Default described in clause (a), (b), (c), (d) or (e) of the foregoing paragraph, Payee may declare the entire principal amount then outstanding under this note, together with interest then accrued thereon, to be immediately due and payable. Upon the occurrence of any Event of Default described in clause (f) or (g) of the foregoing paragraph, the entire principal amount of all indebtedness then outstanding under this note, together with interest then accrued thereon, shall automatically become immediately due and payable. IT IS the intention of Maker and Payer to conform strictly to applicable usury laws. Accordingly, if the transactions contemplated hereby would be usurious under applicable law (including the laws of the State of Georgia and the laws of the United States of America), then, in that event, notwithstanding anything to the contrary herein or in any agreement entered into in connection with or as security for this note, it is agreed that the aggregate of all consideration which constitutes interest under applicable law that is taken, reserved, contracted for, charged or received under this note or under any of the other aforesaid agreements or otherwise in connection with this note shall under no circumstances exceed the maximum amount of interest allowed by applicable law, and any excess shall be cancelled automatically and, if theretofore paid, shall be credited on the note by the holder hereof (or, to the extent that this note shall have been or would thereby be paid in full, refunded to the Maker). IF THE holder hereof expends any effort in any attempt to enforce payment of all or any part or installment of any sum due the holder hereunder, or if this note is placed in the hands of an attorney for collection, or if it is collected through any -3- legal proceedings, Maker agrees to pay all reasonable costs, expenses and fees incurred by the holder, including reasonable attorney's fees. MAKER AND each surety, guarantor, endorser and other party ever liable for payment of any sums of money payable on this note jointly and severally waive notice, presentment, demand for payment, protest, notice of protest and non-payment or dishonor, notice of acceleration, notice of intent to accelerate, notice of intent to demand, diligence in collecting, grace, and all other formalities of any kind, and consent to all extensions without notice for any period or periods of time and partial payments, before or after maturity, all without prejudice to the holder. MAKER AND each surety, guarantor, endorser and other party ever liable for payment of any sums of money payable on this note jointly and severally do hereby, to the extent permitted by applicable law, further convey and assign to the holder hereof and waive and renounce any and all exemption rights which they may have under or by virtue of the Constitution or laws of Georgia, or any other state, or the United States, as may be allowed, against this debt or any renewal thereof. THIS NOTE has been executed and delivered in and shall be construed in accordance with and governed by the laws of the State of Georgia and of the United States of America: UAG ATLANTA, INC. By:/s/George Lowrance ------------------------------- Its: Secretary --------------------------- -4- EX-10.5-3 43 EXHIBIT 10.5.3 EXHIBIT 10.5.3 GUARANTY In order to induce Carl Westcott, an individual resident of the State of Texas ("Westcott"), to sell one hundred percent (100%) percent of the issued and outstanding shares of common stock of Atlanta Toyota, Inc., a Texas corporation ("Atlanta Toyota"), to UAG Atlanta, Inc., a Delaware corporation and a wholly-owned subsidiary of the undersigned ("UAG/Atlanta"), the undersigned hereby irrevocably, unconditionally and absolutely guarantees the due performance and punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of UAG/Atlanta now or hereafter existing under that certain Promissory Note (the "Note") dated January 16, 1996 payable to the order of Westcott in the original principal amount of $2,100,100 (all such obligations being sometimes hereinafter referred to as the "Obligations"), and agrees to pay any and all expenses (including reasonable counsel fees and expenses) incurred by Westcott in enforcing any rights under this Guaranty. The undersigned hereby waives promptness, diligence, presentment, protest, notice of dishonor, demand for payment, extension of time of payment, notice of acceptance of this Guaranty, notice of non-payment when due of the Obligations guaranteed hereby and indulgences and notices of every other kind and hereby consents to any and all forebearances and extensions of time of payment of the Obligations and to any and all of the changes in the terms, covenants and conditions thereof hereafter made or guaranteed. The liability of the undersigned under this Guaranty shall be absolute and unconditional irrespective of (i) any lack of validity or enforceability of the Note, (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver or any consent to departure from the Note and any other agreement or instrument relating thereto, (iii) any release or amendment or waiver of or consent to departure from any other guaranty for all or any of the Obligations, or (iv) any other circumstance which might otherwise constitute a defense available to, or a discharge of UAG/Atlanta or a guarantor. No delay or omission by Westcott in exercising any of his rights, remedies, powers and privileges hereunder and no course of dealing between Westcott, on the one hand, and UAG/Atlanta, Atlanta Toyota, the undersigned or any other person, on the other hand, shall be deemed a waiver by Westcott of any of his rights, remedies, powers, and privileges, even if such delay or omission is continuous or repeated; nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise thereof by Westcott or the exercise of any other right, remedy, power or privilege by Westcott. No notice or demand on UAG/Atlanta, Atlanta Toyota, the undersigned or any other person in any instance shall entitle UAG/Atlanta, Atlanta Toyota, the undersigned or any other person to any other or further notice or demand in similar or other circumstances or constitute a waiver of Westcott's right to any other or further action in any circumstances without notice or demand. This Guaranty shall be enforceable without Westcott having to proceed first against UAG/Atlanta (the right to require Westcott to take action against UAG/Atlanta as required by O.C.G.A. Section 10-7-24 being hereby expressly waived) or against any security for the payment of the Obligations, and shall be effective regardless of the solvency or insolvency of UAG/Atlanta, any reorganization, merger or consolidation of UAG/Atlanta, or any change in the composition, nature, personnel or location of UAG/Atlanta. This Guaranty shall remain in full force and effect, and the undersigned shall continue to be liable for the payment of the Obligations in accordance with the terms of the documents and instruments evidencing and securing the same, notwithstanding the commencement of any bankruptcy, reorganization or other debtor relief proceeding by or against UAG/Atlanta, and notwithstanding any modification, discharge or extension of the Obligations, any modification or amendment of any document or instrument evidencing or securing any of the Obligations, any stay of the exercise by Westcott of any of his rights and remedies against UAG/Atlanta with respect to any of the Obligations, or any cure of any default by UAG/Atlanta under any document or instrument evidencing or securing any of the Obligations, which may be effected in connection with any such proceeding, whether permanent or temporary, and notwithstanding any assent thereto by Westcott. Wherever possible, each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or be invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. The undersigned warrants and represents to Westcott that any financial statements heretofore delivered by the undersigned to Westcott were true and correct in all respects as of the date delivered to Westcott. This Guaranty shall inure to the benefit of Westcott and his successors and assigns, and shall be binding upon the undersigned and its successors and assigns. This instrument constitutes the entire agreement as to the subject matter contemplated hereby. No amendment or waiver of any provision of this Guaranty nor consent to any departure by Westcott therefrom shall -2- in any event be effective unless the same shall be in writing and signed by Westcott and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. This instrument has been made and delivered in Georgia and shall be governed by the laws of Georgia. WITNESS the undersigned's signature as of the 16th day of January, 1996. UNITED AUTO GROUP, INC., a Delaware corporation By: /s/George Lowrance ----------------------------- Its: Secretary ----------------------------- -3- EX-10.5-6 44 EXHIBIT 10.5.6 AFTER RECORDING RETURN TO: STEPHEN R. LEEDS, ESQ. ROGERS & HARDIN 2700 CAIN TOWER, PEACHTREE CENTER 229 PEACHTREE STREET N.E. ATLANTA, GEORGIA 30303 LEASE AGREEMENT THIS LEASE AGREEMENT ("Lease") made as of the 3rd day of January, 1996, by and between CARL H. WESTCOTT ("Landlord"), whose address is 1303 Marsh Lane, Carrollton, Texas 75006 and ATLANTA TOYOTA, INC., a Texas corporation ("Tenant"), whose address is 2345 Pleasant Hill Road, Duluth, Georgia 30136. W I T N E S S E T H: FOR AND IN CONSIDERATION of the sum of $10.00 Dollars in hand paid and of the mutual covenants and conditions contained herein, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. PREMISES. Landlord leases to Tenant and Tenant takes bona Landlord the following property: The tract of land containing 9.634 acres, being in Land Lot 231 of the 6th District of Gwinnett County, Georgia, being more particularly described on EXHIBIT A, attached hereto and incorporated by reference herein. together with all improvements thereon and all rights, privileges, easements and appurtenances pertaining thereto (collectively, the "Premises") upon the terms contained herein. 2. TERM. The term ("Term") hereof shall begin on the date hereof and shall end on January 31, 2016, unless extended or sooner terminated as provided herein. 3. RENT. (a) During the first (1st) through the thirty-sixty (36th) month of the Term, Tenant agrees to pay to Landlord, without demand, deduction, or offset, as rent for the Premises, the sum of $81,666.67 per month. (b) During the thirty-seventh (37th) through the one hundred twentieth (120th) month of the Term, Tenant agrees to pay to Landlord, without demand, deduction, or offset, as rent for the Premises, the sum of $90,000.00 per month. (c) During the one hundred twenty-first (121st) through the one hundred eightieth (180th) month of the Term, Tenant agrees to pay to Landlord, without demand, deduction, or offset, as rent for the Premises, the greater of either (i) $90,000.00 per month, or (ii) the First CPI Adjusted Rent Rate per month (as calculated and defined below). (d) During the one hundred eighty-first (181st) month of the Term through the end of the Term, Tenant agrees to pay to Landlord, without demand, deduction, or offset, as rent for the Premises, the greater of either (i) the monthly rent provided for in subparagraph 30) above, or (i) the Second CPI Adjusted Rent Rate per month (as calculated and defined below). (e) (i) For purposes of this Lease, the following definitions shall apply: (A) The term "CONSUMER PRICE INDEX" shall mean the Consumer Price Index for All Urban Consumers of Atlanta, Georgia (all items, 1982- -2- 84=100) published by the Bureau of Labor Statistics, United States Department of Labor. (B) The term "Basic Index" shall mean, with respect to the calculation of the First CPI Adjusted Rent Rate, the Consumer Price Index most recently published prior to January 3, 1996, and shall mean, with respect to the calculation of the Second CPI Adjusted Rent Rate, the Consumer Price Index most recently published prior to February 1, 2006. (C) The term "ADJUSTED INDEX" shall mean, with respect to the calculation of the First CPI Adjusted Rent Rate, the Consumer Price Index most recently published prior to February 1, 2006, and shall mean, with respect to the calculation of the Second CPI Adjusted Rent Rate, the Consumer Price Index most recently published prior to February 1, 2011. (ii) In computing the First CPI Adjusted Rent Rate, the pertinent Adjusted Index shall be divided by the pertinent Basic Index, and the resulting quotient shall be multiplied by seventy-five hundredths (.75 or 75%). This product shall then be multiplied by the monthly rental figure determined in accordance with subparagraph 3(b) above and the product thereof shall equal the First CPI Adjusted Rent Rate. -3- (iii) In computing the Second CPI Adjusted Rent Rate, the pertinent Adjusted Index shall be divided by the pertinent Basic Index, and the resulting quotient shall be multiplied by seventy-five hundredths (.75 or 75%). This product shall then be multiplied by the monthly rental figure determined in accordance with subparagraph 3(c) above and the product thereof shall equal the Second CPI Adjusted Rent Rate. (iv) In the event that (A) the Consumer Price Index ceases to use 1982-84=100 as the basis of calculation, or (B) the Consumer Price Index shall be discontinued for any reason, the Bureau of Labor Statistics shall be requested to furnish a new index comparable to the Consumer Price Index together with information which will make possible the conversion to the new index in computing the adjusted rent under this subparagraph 3(e). If for any reason the Bureau of Labor Statistics does not furnish such an index and such information, the parties hereto shall hereafter accept and use such other index or comparable statistics on the cost of living for the City of Atlanta, Georgia as shall be computed and published by an agency of the United States or by a responsible financial periodical of recognized authority men to be selected by Landlord and Tenant. (f) Notwithstanding the foregoing, in no event shall any monetary adjustment in the annualized rent rate -4- pursuant to subparagraphs 3(c) or 3(d) above ever result in the annual rental being increased to an amount greater than one and one-quarter percent (1.25%) of all gross sales generated by Tenant from the Premises during the twelve-month period occurring immediately prior to such increase. (g) Rent during the Term hereof shall be due and payable at Landlord's office at the above address on or before the first day of each calendar month thereof. Any rent payment not received by the fifth (5th) day of the calendar month shall be subject to a two and one-half percent (2.5%) late charge, which charge the parties agree is a fair estimation of the damages which may reasonably be expected to be incurred by Landlord in connection with receiving such late payment. (h) If the Term shall commence or end on a day other than the first day of a calendar month, then the monthly rent for any fractional months of the Term shall be appropriately prorated. 4. UTILITIES. Tenant shall have all utilities listed in its name and shall pay all utility bills, including, but not limited to water, sewer, gas, electricity, fuel, light, and heat bills, for the Premises, and Tenant shall pay all charges for garbage collection services or other sanitary services rendered to the Premises or used by Tenant in connection therewith. If Tenant fails to pay for such services, Landlord may, at its option and after providing Tenant with at least three (3) days -5- prior written notice, pay the same, and the amount of the payment shall be payable to Landlord as additional rent. 5. USE OF THE PREMISES; ENVIRONMENTAL INDEMNITY. The Premises shall be used only for the operation of an automobile dealership, service facility, and body shop facility and for any other purposes which may be agreed to by the parties. The Premises shall not be used for any illegal purpose, nor in any manner which may create nuisance or trespass. Furthermore, Tenant shall not violate way federal or state environmental law, and Tenant agrees to indemnify and hold harmless Landlord from any and all damages, costs, fines and expenses that might arise as a result of any such violation and from its placement upon the Premises of hazardous wastes and toxic substances that are placed on the Premises after the date hereof. Notwithstanding anything to the contrary contained in this Paragraph 5, there shall not be deemed to be a nuisance or trespass and Tenant's obligation to indemnify and hold Landlord harmless shall not extend to any damages, claims, or liabilities arising as a result of contaminants existing on the Premises on the date hereof or migrating onto or beneath the Premises where such contamination is not caused by or attributable to Tenant. 6. REPRESENTATION. All representations and warranties made by Landlord in Sections 2.10, 2.11 and 3.3 of that certain Stock Purchase Agreement (the "SPX') dated November 17, 1995, as amended by that certain Amendment Agreement dated January 16, 1996, by and among Landlord, United Auto Group, Inc. and UAG Atlanta, Inc. are hereby incorporated by reference to the same -6- effect as if fully set forth herein; provided, however, that such representations and warranties shall survive only for the period of time stipulated in the SPA. 7. NO REPAIRS BY LAND. Landlord shall not be obligated to repair or maintain the Premises, and all repairs, replacements, and maintenance of any kind shall be the sole responsibility of Tenant. 8. REPAIRS BY TENANT. Tenant accepts the condition of the Premises as of the date hereof and agrees that the Premises are suited for the uses specified herein. Tenant shall, throughout the Term, at its expense, maintain the Premises in good order and repair, including but not limited to repair and maintenance and, if necessary, replacement of the electrical, heating ventilation and air conditioning and plumbing systems, as well as the roof and all structural components of buildings located on the Premises. Tenant further agrees to care for all landscaping on the Premises, including the mowing of grass, paving, policing, care of shrubs and general landscaping. If Tenant fails to properly maintain and repair any portion of the Premises, Landlord may, following at least three (3) days prior written notice to Tenant maintain the same including replacing of components and Tenant shall pay to Landlord upon demand the commercially reasonable costs thereof together with interest on said amount from the date of payment by Landlord at a rate equal to three percent (3%) over the prime commercial rate announced from time to time by NationsBank of Georgia, N.A. (or, if not available, by any other large banking institution with offices -7- situated in Atlanta, Georgia). Tenant agrees to return the Premises to Landlord in as good condition and repair as when first received by Tenant, natural wear and tear, damage by storm, fire, lightening; earthquake or other casualties and condemnation excepted. 9. TAX AND INSURANCE. Tenant shall promptly and on a timely basis pay as additional rent during the Term all charges for taxes (including, but not limited to, ad valorem taxes, special assessments and any other governmental charges) on the Premises, which amounts shall be prorated between Tenant and Landlord for all periods partially but not entirely within the Term. Tenant shall also maintain, at all times during the Tenn of this Lease, fire and extended insurance coverage on the Premises in amounts equal to the full replacement value of the Premises, and written on policies issued by underwriters reasonably acceptable to Landlord. Landlord agrees that such coverages may be provided by blanket policies of insurance covering other locations in addition to the Premises. All policies shall insure Landlord and Tenant as their respective interests shall appear and shall contain a replacement cost endorsement and a mortgagee clause in favor of Landlord's mortgagee(s). Should Tenant fail to pay such tax expenses or fail to provide certificates evidencing the required insurance coverage, Landlord may, following at least three (3) days prior written notice to Tenant, pay any such charges or secure such coverage, and Tenant shall pay to Landlord upon demand as additional rent all amounts so expended by Landlord together with -8- interest on said amount from the date of payment by Landlord at a rate equal to three percent (3%) over the prime commercial rate announced from time to time by NationsBank of Georgia, N.A. (or, if not available, by any other large banking institution with offices situated in Atlanta, Georgia). 10. DESTRUCTION OF OR DAMAGE TO THE PREMISES. If the Premises should be damaged or destroyed by any insured peril whatsoever, all insurance proceeds shall be delivered to Landlord and Landlord shall proceed with reasonable diligence to rebuild and repair the Premises to substantially the condition in which it existed prior to such damage or destruction. If, however, the damage or destruction (a) shall be complete or (b) shall occur within the last year of the Term, then either Tenant or Landlord may terminate this Lease as of the date that such damage or destruction occurs by giving written notice to the other of such election to terminate within sixty (60) days after the date of such damage or destruction. The rent payable under this Lease shall be abated beginning on the date of damage or destruction within the scope of this Paragraph 10 (to the extent that the Premises are rendered unusable by Tenant) and shall resume upon recompletion to substantially the condition in which the Premises existed prior to such damage or destruction. The obligation of Landlord to rebuild the Premises as required by this Paragraph 10 shall not be affected or diminished in any may by Landlord's inability to obtain access to any insurance proceeds which may have been delivered to Landlord's mortgagee. -9- 11. INDEMNITY; WAIVER OF SUBROGATION. Tenant agrees to indemnify and hold harmless Landlord, against all claims, and expenses resulting therefrom, including reasonable attorneys' fees and court costs, for damage to persons or property by reason of the use or occupancy of the Premises by Tenant. Tenant shall periodically provide Landlord with certificates of general liability insurance naming Landlord as an additional insured, in an amount of not less than $3,000,000 and with an insurance carrier reasonably satisfactory to Landlord. The dollar amount of such insurance coverage shall be reviewed annually, and adjusted if necessary, in order to provide for adequate protection to both Landlord and Tenant; provided, however, in no event shall any aggregate percentage increases in Tenant's liability coverage obligations hereunder ever exceed the cumulative percentage increases in the Consumer Price Index occurring during the corresponding portion of the Term of this Lease. Landlord and Tenant each hereby release and waive any right of recovery against the other for any loss, claim, liability, or damage occurring on or to the Premises, whether wholly or contributorily caused by the negligence of the other party, to the extent that the same is compensated by actual receipt of proceeds from insurance policies covering such loss, claim, liability, or damage. 12. ALTERATIONS. Tenant shall make no alterations, additions or improvements to the Premises without the express prior written consent of Landlord which consent shall not be -10- unreasonably withheld, except that Tenant may alter any wall that is not of a load-bearing nature without the consent of Landlord. In the event Landlord has not responded to Tenant's written request for alterations within fifteen (15) days of when received, such alteration shall be deemed to have been approved by Landlord. Tenant agrees to save Landlord harmless on account of any claim or lien of mechanics, materialmen or other party, in connection with any alterations, additions or improvements of or to the Premises performed by Tenant. Tenant shall furnish such waivers of liens and appropriate affidavits from the general contractor or subcontractors as Landlord may reasonably require. Notwithstanding the foregoing, Tenant shall be entitled to make the following changes without necessity of Landlord's consent: (i) any alterations required to be made by it pursuant to governmental orders, rules, laws, regulations, ordinances or requirements, (ii) any changes in its signage, and (iii) any non-structural alterations costing less than $25,000.00. Tenant shall have the right to finance any alterations or improvements permitted hereunder and may pledge its interest in this Lease as security therefor; provided, however, that any liens granted in connection with such financings shall be subordinate to both the rights of Landlord under this Lease and to the rights of any of Landlord's mortgagees. 13. GOVERNMENTAL ORDERS. Tenant agrees, at its own expense, to promptly comply with all requirements of any public authority made necessary by reason of Tenant's occupancy of the Premises or which may be necessary for Tenant's occupancy to -11- continue. Landlord shall have no obligation of any kind for such compliance. 14. CONDEMNATION. If all or a substantial part of the Premises is condemned for any public use or purpose, then the Term shall cease from the date when possession thereof is taken, and rent shall be prorated as of that date; provided, however, that Tenant may elect to continue this Lease in full force and effect notwithstanding any such taking. Any termination shall be without prejudice to the rights of either Landlord or Tenant to recover compensation and damage caused by such condemnation from the condemner. Neither Tenant nor Landlord shall have any rights in any award made to the other by any condemnation authority notwithstanding the termination of the Lease as herein provided. If the Lease is not terminated as provided above, then (i) this Lease shall continue in effect with respect to the remaining portion of the Premises, in which event the rent payable hereunder during the unexpired portion of the Term of this Lease shall be adjusted equitably, and (ii) Landlord shall proceed with reasonable diligence to rebuild and repair the untaken portions of the Premises to as nearly as reasonably possible their value, condition, and character as such existed immediately prior to such taking. The obligation of Landlord to rebuild the Premises as required by this Paragraph 14 shall not be affected or diminished in any way by Landlord's inability to obtain access to any condemnation proceeds which may have been delivered to Landlord's mortgagee. The phrase "substantial part," for purposes of this section shall mean so much of the Premises, the -12- improvements located thereon, access to the Premises, or any combination of the foregoing, such that the taking thereof would prevent or substantially impair the ability of Tenant to operate its business in a manner consistent with the operation of its business prior to such taking. 15. ASSIGNMENT AND SUBLETTING. Tenant shall not, without the prior written consent of Landlord (which consent shall not be unreasonably withheld), assign this Lease or any interest hereunder, or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant. All requests for assignment or subletting shall be made in writing and delivered to Landlord. Failure by Landlord to disapprove of any proposed assignment or subletting within thirty (30) days after receipt of Tenant's written request shall result in such request being deemed approved. Consent to any assignment or sublease shall not invalidate this provision, and all later assignments or subleases shall be made only on the prior written consent of Landlord. Any assignee of Tenant, at option of Landlord, shall become directly liable to Landlord for all obligations of Tenant hereunder, but no sublease or assignment by Tenant shall relieve Tenant of any liability hereunder. Notwithstanding the foregoing, Tenant shall be entitled to freely assign or sublet its interest in this Lease to any parent, wholly-owned subsidiary, or other entity, under common control with Tenant, without the prior written consent of Landlord. Moreover, the sale or transfer of all or any part of the capital -13- stock of Tenant shall not be deemed to be an assignment hereunder. 16. REMOVAL OF FIXTURES. Tenant may (so long as no Event of Default has occurred and is continuing hereunder), prior to the end of the Term, remove all trade fixtures and equipment which Tenant has purchased as leasehold improvements or placed in the Premises subsequent to the date hereof, provided that Tenant repairs all damage to the Premises caused by the removal. However, any buildings, fixtures, or other attached property installed by Tenant as replacements of existing items, or anything that cannot be removed without substantially changing the character of the Premises, shall become the property of Landlord. 17. CANCELLATION OF LEASE BY LANDLORD. It shall be an "Event of Default" hereunder if, (a) Tenant fails to pay rent, including additional rent herein reserved, when due, and fails to cure the failure to pay within ten (10) days after written notice thereof from Landlord; (b) Tenant fails to perform any of the terms or provisions of this Lease other than the provision requiring the payment of rent, and fails to cure the default within thirty (30) days after the date of receipt of written notice of default from Landlord; provided, however, that if the nature of the default is such that the same cannot reasonably be cured within said thirty (30) day period, Tenant shall not be deemed to be in default if Tenant shall, within such -14- period, commence such cure and thereafter diligently prosecute the same to completion; (c) Tenant is adjudicated bankrupt; (d) a permanent receiver is appointed for Tenant's property and the receiver is not removed within sixty (60) days after written notice from Landlord to Tenant to obtain the removal; (e) Tenant or any guarantor of Tenant's obligations under this Lease files a petition seeking an order for relief under Title 11 of the United States Code, as amended, or under any similar law or statute of the United States or any state thereof, or a petition seeking an order for relief under Title 11 of the United States Code, or any similar law or statute of the United States or any state thereof, is filed against Tenant or any guarantor of Tenant's obligations under this Lease and such petition is not dismissed with prejudice within sixty days from the date of filing; (f) Tenant makes an assignment for benefit of creditors; or (g) Tenant's effects should be levied upon or attached under process against Tenant and not satisfied or dissolved within thirty (30) days after written notice from Landlord to Tenant to obtain satisfaction thereof. Upon the occurrence of an Event of Default, Landlord may pursue any right or remedy against Tenant available at law or in equity. Without limitation to the foregoing, Landlord, at its option, may at once or within six (6) months thereafter (so long as such -15- Event of Default is continuing), elect to terminate this Lease by written notice to Tenant; whereupon this Lease shall terminate. Any notice provided in this section may be given by Landlord, or its attorney, or agent herein named. Upon termination of the Lease by Landlord, Tenant shall at once surrender possession of the Premises to Landlord and remove all of Tenant's effects therefrom, or Landlord shall be entitled to remove all persons and effects therefrom, using such force as may be necessary without being guilty of trespass, forcible entry or detainer or other tort. 18. RELETTING BY LANDLORD. If, after an Event of Default, Landlord has not elected to terminate this Lease, Landlord shall, as Tenant's agent, without terminating this Lease, enter upon and exercise good faith efforts to rent the Premises at the best price obtainable by reasonable effort, for any term Landlord deems proper. Tenant shall be liable to Landlord for the present value of any deficiency between rent due hereunder and the rent received by Landlord upon relenting. For purposes of computing the "present value of any deficiency" in accordance with the provisions of this paragraph, the parties agree to utilize a discount rate equal to the then prevailing prime rate of interest charged by leading money center banks as published in "THE WALL STREET JOURNAL." 19. FINANCIAL STATEMENTS. Within fifteen (15) days after such are prepared (but in no event later than 120 days after the end of each fiscal year), Tenant shall deliver to Landlord audited consolidated financial statements of United Auto -16- Group, Inc. ("UAG") prepared in accordance with generally accepted accounting principles consistently applied by an independent certified public accountant; provided, however, that if UAG's auditors love not delivered such financial statements within said 120-day period despite UAG's diligent requests of them to do so, such added delay shall not constitute a default or an Event of Default hereunder. In addition, Tenant shall deliver to Landlord from time to time (but no more than once in any given calendar year), within thirty (30) days after request, current unaudited financial statements of Tenant prepared in accordance with generally accepted accounting principles consistently applied by and certified to be true and correct by Tenant. 20. FOR RENT SIGNS. Landlord may place "FOR RENT" or "FOR SALE "signs in the Premises one hundred eighty (180) days before the end of the Term. Landlord may enter the Premises at reasonable hours, and after reasonable notice, to show the Premises to prospective purchasers or tenants. 21. EFFECT OF TERMINATION OF LEASE. No termination of this Lease prior to the normal ending thereof, by lapse of time or otherwise, shall affect Landlord's right to collect rent for the period prior to termination thereof. 22. WARRANTIES OF TITLE AND QUIET POSSESSION. Landlord warrants and represents that it has good and marketable title to the Premises and has full right to make this Lease and that Tenant shall have quiet and peaceable possession of the Premises during the Term so long as no Event of Default is in existence and continuing hereunder. -17- 23. SUBORDINATION ATTORNMENT. This Lease is subject and subordinate to any deed of trust, mortgage, or other security instrument, which presently or may in the future cover the Premises, and to any increases, renewals, modifications, consolidations, replacements, and extensions of any of such deed of trust, mortgage, or security instrument, provided, however, that Tenant's subordination to any encumbrance arising after the date of this Lease shall be conditioned upon Landlord's delivery to Tenant of a nondisturbance agreement in form reasonably satisfactory to Tenant. Tenant shall, however, within ten (10) days after demand, execute, acknowledge, and deliver to Landlord any further instruments and certificates evidencing such subordination as Landlord may reasonably require. If Tenant fails to return such instrument or certificate within said ten (10) day period due to any reasonable objection(s) as to its form, Tenant shall not be deemed in default hereunder so long as Tenant indicates to Landlord the basis of such reasonable objection(s) within said ten (10) day period. This Lease is further subject and subordinate to (a) all applicable ordinances of the city in which the Premises are located, relating to easements, franchises and other interests or rights upon, across, or appurtenant to the Premises, and (b) utility easements and agreements, covenants, restrictions, and other encumbrances, both existing and (subject to the provisions of Paragraph 24 hereof) any future encumbrances. Notwithstanding the generality of the foregoing, any mortgagee shall have the right at any time to subordinate any -18- deed of trust, mortgage, or other security instrument to this Lease. At any time, before or after the institution of any proceedings for the foreclosure of any deed of trust, mortgage, or other security instrument or sale of the Premises under any such deed of trust, mortgage, or other security instrument, Tenant shall attorn to such purchaser upon any such sale or the grantee under any deed in lieu of such foreclosure and shall recognize such purchaser or grantee as Landlord under this Lease. The agreement of Tenant to attorn contained in the immediately preceding sentence shall survive any such foreclosure sale, trustee's sale, or conveyance in lieu thereof. Tenant shall, upon demand at any time, before or after any foreclosure sale, trustee's sale, or conveyance in lieu thereof, execute, acknowledge, and deliver to Landlord's mortgagee any written instruments and certificates evidencing such attornment as Landlord's mortgagee may reasonably require. Upon Tenant's written request and notice to Landlord, Landlord shall obtain from any such mortgagee a written agreement that the rights of Tenant shall remain in full force and effect during the Term of this Lease so long as Tenant shall continue to recognize and perform all of the covenants and conditions of this Lease. 24. ESTATE CREATED FUTURE GRANTS. Landlord and Tenant intend for and agree that this Lease shall create a leasehold estate in the Premises for the Term. Landlord agrees that, during the Term of this Lease, it will not execute or join in any conveyances of easements or restrictive covenants or other -19- agreements restricting or affecting Tenant's use of the Premises without the prior written consent of Tenant. 25. HOLDING OVER. If Tenant remains in possession of the Premises after expiration of the Term, with Landlord's acquiescence and without any express agreement of parties, Tenant shall be a tenant from month-to-month at a monthly rent rate equal to 150% of the monthly rental rate in effect at the end of the Tenn, and there shall be no renewal of this Lease by operation of law. 26. ATTORNEY'S FEES AND HOMESTEAD. In the event either party should seek to enforce its rights under this Lease through judicial process, the prevailing party in any such action shall be entitled to collect from the other party, in addition to all other sums owing hereunder, its reasonable attorney's fees. Tenant waives all homestead rights and exemptions which it may have under any law as against any obligation owing under this Lease. 27. RIGHTS CUMULATIVE. All rights hereunder shall be cumulative but not restrictive to those given by law. 28. SERVICE OF NOTICE. Any notice required or permitted to be delivered hereunder may be delivered in person or by United States certified mail, postage prepaid, return receipt requested, or by recognized overnight courier (e.g. Federal Express or DHL), next day delivery charges prepaid, addressed to the parties at the addresses indicated above or at such other addresses as may be specified by written notice delivered in accordance herewith. Such notices shall be deemed effective three (3) business days -20- after deposited in the U.S. mail, or on the next business day if delivered by overnight courier, or immediately upon delivery in person. 29. WAIVER OF RIGHTS. Neither party's failure to exercise any power given to them hereunder, or to insist upon strict compliance by the other party with its obligations hereunder, nor any custom or practice of the parties at variance with the terms hereof, shall constitute a waiver of such party's right to demand exact compliance with the terms hereof. 30. TIME OF ESSENCE. Time is of the essence under this Lease. 31. SUCCESSORS AND ASSIGNS. This Lease shall apply to, inure to the benefit of, and be binding upon the parties hereof and their respective successors, permitted assigns, and legal representatives except as otherwise expressly provided herein. 32. TRIPLE NET LEASE. This Lease shall be considered a "triple net lease" so that, except as expressly set forth herein, Tenant shall bear all responsibility as additional rent for all payments of any kind or nature relating to the Premises and/or the ownership, leasing, operation, maintenance, repair and replacement, rebuilding, use or occupation thereof during the Term, including but not limited to payment of all taxes (except for income, estate, inheritance or gift taxes of Landlord), insurance, repairs, maintenance, assessments, or otherwise. Except as expressly set forth herein, (i) Tenant shall assume with respect to the Premises every obligation relating thereto which the ownership thereof entails and which, but for this -21- Lease, would be borne by Landlord; and (ii) Tenant agrees to indemnify and hold harmless Landlord for any and all claims, liabilities or costs including attorneys' fees) arising out of this Lease or Tenant's occupancy; provided, however, that in no event shall Tenant be responsible for, or be deemed to have indemnified Landlord against any violation of applicable environmental laws existing on the date of this Lease. 33. ENTIRE AGREEMENT; CONFLICT. This Lease and the SPA, including any attachments made a part hereof or thereof, contains the entire agreement between the parties and no representations, inducements, promises or agreements, oral or otherwise, between the parties, not embodied herein or in the SPA, shall be of any force or effect. In the event of any conflict between the terms contained herein and the terms contained in the SPA, the terms of the SPA shall control. 34. SEVERABILITY. If any term, provision or clause of this Lease, or if the application thereof to any person or circumstances, shall to any extent be invalid or unenforceable, then the remainder of this Lease or the application of such term, provision or clause to persons or circumstances other than those to which it is invalid or unenforceable shall not be affected thereby, and each and every remaining term, provision, clause and application of this Lease shall be valid and enforceable to the fullest extent permitted by law. 35. EXECUTION IN COUNTERPARTS. This Lease may be executed in two or more counterparts, each of which shall be -22- deemed an original, but all of which taken together shall constitute one and the same instrument. 36. AMENDMENT. This Lease may not be altered, waived, amended or extended except by an instrument in writing signed by Landlord and Tenant. 37. HEADINGS. The headings used in this Lease are for the purposes of convenience only. They shall not be construed to limit or to extend the meaning of any part of this Lease. 38. GOVERNING LAW. This Lease shall be construed in accordance with the laws of the State of Georgia, and all obligations of the parties created hereunder are performable in Gwinnett County, Georgia. 39. FORCE MAJEURE. Wherever a period of time is herein prescribed for action to be taken by either Landlord or Tenant, such party shall not be liable or responsible for, and there shall be excluded from the computation of any such period of time, any delays due to strikes, riots, acts of God, shortages of labor or materials, wars, governmental laws, regulations or restrictions or other causes which are beyond the control of Landlord or Tenant, as the case may be. 40. LIMITATION OF WARRANTIES. LANDLORD AND TENANT EXPRESSLY AGREE THAT THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE, AND THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN THIS LEASE OR IN THE SPA. -23- IN WITNESS WHEREOF, the parties herein have hereunto set their hands and seals, in triplicate, the day and year first above written. LANDLORD: /s/Carl H. Westcott ------------------- Notarized Carl H. Westcott TENANT: Atlanta Toyota, Inc. a Texas Corporation By: /s/George Lowrance ------------------ Name: George Lowrance Notarized Title: Secretary -24- EXHIBIT "A" All that certain tract or parcel of land containing 9.634 acres, lying and being in Land Lot 231 of the 6th District of Gwinnett County, Georgia, being more particularly shown on a plat of survey of Precision Planning, Inc., Randall W. Dixon, G.R.L.S. No. 1678, dated December 18, 1986, and from said plat described as follows: BEGINNING on an iron pin (set) located on the Southwestern margin of the right-of-way of Pleasant Hill Road (a 120 foot right-of-way), said iron pin being the Northernmost corner of the property herein conveyed as shown and described on the survey of this property prepared by Precision Planning, Inc., as referenced above, said iron pin also being the Northernmost point of the right-of-way of Old Norcross Road as conveyed by right-of-way deed recorded in Deed Book 3131, Page 198, Gwinnett County, Georgia, Records, as said deed defines and illustrates the point of intersection of the Southeastern boundary of Old Norcross Road and the Southwestern margin of Pleasant Hill Road, and running thence from said Beginning in a Southeasterly direction along the right - -of-way of Pleasant Hill Road the following courses and distances: South 53 degrees 36 minutes 34 seconds Ease 382.22 feet; and thence 117.79 feet along the arc of a curve to the right to an iron pin (set), such curve being subtended by a cord bearing South 52 degrees 24 minutes 22 seconds East 117.77 feet and having a radius of 2,804.79 feet; thence with the line of property now or formerly owned by Pleasant Land Corporation South 61 degrees 53 minutes 21 seconds West 796.81 feet to an iron pin (set); and South 62 degrees 44 minutes 28 seconds West 238.77 feet to an iron pin (set) located on the Southeastern right-of-way of Franklin Road (a 100 foot right-of-way); thence with the right - -of-way of Franklin Road in a Northwesterly direction the following courses and distances: 259.45 feet along the arc of a curve to the left, such curve being subtended by a cord bearing North 19 degrees 11 minutes 36 seconds West 258.95 feet and having a radius of 1,195.915 feet; thence North 25 degrees 24 minutes 29 seconds West 143.57 feet to an iron pin (set); and North 18 degrees 55 minutes 18 seconds East 107.30 feet to an iron pin (set) located at the intersection of the rights-of-way of Franklin Road and Old Norcross Road; thence with the Southeastern right-of-way of Old Norcross Road the following courses and distances: 113.32 feet along the arc of a curve to the right to an iron pin (set), such curve being subtended by a cord bearing North 62 degrees 24 minutes 13 seconds East 113.32 feet, and having a radius of 6,346.386 feet; thence North 61 degrees 53 minutes 21 seconds East 538.05 feet to an iron pin (set); and North 88 degrees 08 minutes 13 seconds East 51.02 feet to the point and place of BEGINNING. -25- EX-10.5-7 45 EXHIBIT 10.5.7 LEASE GUARANTY The undersigned, in order to induce Carl Westcott, an individual resident of the State of Texas ("Westcott") to enter into that certain Lease Agreement (herein so called) dated as of January 3, 1996, between Westcott and Atlanta Toyota, Inc. ("Atlanta Toyota"), a Texas corporation and a subsidiary of UAG Atlanta, Inc., a Delaware corporation that is wholly owned by the undersigned, hereby irrevocably guarantees the collection of all rent and other obligations of Atlanta Toyota now or hereafter existing under the terms of the Lease Agreement; provided, however, that the undersigned shall not be obligated to make any payment under this Guaranty unless and until (i) Westcott has first attempted to recover from Atlanta Toyota and has obtained a judgment against Atlanta Toyota, which judgment has been returned unsatisfied in whole or in part, or (ii) Atlanta Toyota has become bankrupt or insolvent or it is otherwise apparent that it is useless to proceed against Atlanta Toyota. The undersigned also agrees to pay any and all reasonable expenses (including reasonable counsel fees and expenses) incurred by Westcott in enforcing any rights under this Guaranty. The undersigned hereby waives presentment, protest, notice of dishonor, extension of time of payment, notice of acceptance of this Guaranty, notice of non-payment when due of the obligations guaranteed hereby and indulgences and notices of every other kind and hereby consents to any and all forebearances and extensions of time of payment of the obligations guaranteed hereby and to any and all of the changes in the terms, covenants and conditions thereof hereafter made or guaranteed. The liability of the undersigned under this Guaranty shall be absolute and unconditional irrespective of (i) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations guaranteed hereby, or any amendment or waiver or any consent to departure from the Lease Agreement and any other agreement or instrument relating thereto, or (ii) any release or amendment or waiver of or consent to departure from any other guaranty for all or any of the obligations guaranteed hereby. No delay or omission by Westcott in exercising any of his rights, remedies, powers and privileges hereunder and no course of dealing between Westcott, on the one hand, and Atlanta Toyota, the undersigned or any other person, on the other hand, shall be deemed a waiver by Westcott of any of his rights, remedies, powers and privileges, even if such delay or omission is continuous and repeated; nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise thereof by Westcott or the exercise of any other right, remedy, power or privilege by Westcott. No notice or demand on Atlanta Toyota, the undersigned or any other person in any instance shall entitle Atlanta Toyota, the undersigned or any other person to any other or further notice or demand in similar or other circumstances or constitute a waiver of Westcott's right to any other or further action in any circumstances without notice or demand. This Guaranty shall be effective regardless of the solvency or insolvency of Atlanta Toyota, any reorganization, merger or consolidation of Atlanta Toyota, or any change in the composition, nature, personnel or location of Atlanta Toyota. This Guaranty shall remain in full force and effect, and the undersigned shall continue to be liable for the payment of the obligations under the Lease Agreement in accordance with the terms of the Lease Agreement and this Guaranty, notwithstanding the commencement of any bankruptcy, reorganization or other debtor relief proceedings by or against Atlanta Toyota, and notwithstanding any modification, discharge or extension of the obligations under the Lease Agreement, any modification or amendment of the Lease Agreement, or any stay of the exercise by Westcott of any of his rights and remedies against Atlanta Toyota with respect to any of the obligations under the Lease Agreement. Wherever possible, each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or be invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. The undersigned warrants and represents to Westcott that any financial statements heretofore delivered by the undersigned to Westcott were true and correct in all respects as of the date delivered to Westcott. This Guaranty shall inure to the benefit of Westcott and his successors and assigns, and shall be binding upon the undersigned and its successors and assigns. This instrument constitutes the entire agreement as to the subject matter contemplated hereby. No amendment or waiver of any provision of this Guaranty nor consent to any departure by Westcott therefrom shall in any event be effective unless the same shall be in writing and signed by Westcott and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. This instrument has been made and delivered in the State of Georgia and shall be governed by the laws of the State of Georgia. WITNESS the undersigned's signature as of the 16th day of January, 1996. UNITED AUTO GROUP, INC., a Delaware Corporation By: /s/ George Lawrance --------------------------------- Its: Secretary -------------------------------- -2- EX-10.5-9 46 EXHIBIT 10.5.9 WHOLESALE FLOOR PLAN SECURITY AGREEMENT In the course of business, Atlanta Toyota, Inc., a Texas corporation ("Dealer"), acquires new and used cars, trucks and chassis, including trailers and semi-trailers, motor homes, campers, camping trailers, as well as equipment and accessories thereto ("Vehicles"), from manufacturers, distributors and other sellers. Dealer requests that World Omni Financial Corp. ("WOFCO") finance the acquisition of such Vehicles and pay the manufacturers, distributors or sellers therefor. In consideration of WOFCO's financing of Dealer's acquisition of the Vehicles, and in further consideration of the inducement to WOFCO to make loans and advances to, to purchase from or otherwise acquire retail installment sales contracts, conditional sales contracts or other security instruments from, and to otherwise extend credit or to do business with Dealer, which loans, advances, purchases, acquisitions, or extension of credit would not have been made but for the execution of this Wholesale Floor Plan Security Agreement (this "Agreement"), this Agreement is entered into between WOFCO and Dealer. Dealer and WOFCO agree to the extension of a line of credit in the amount of Fifteen Million DOLLARS ($15,000,000.00) from WOFCO to Dealer. As evidence of the above line of credit, Dealer agrees to execute and deliver to WOFCO WOFCO's standard form of demand promissory note ("Demand Promissory Note") of even date in the amount set forth above with documentary tax stamps attached thereto, if applicable. In addition thereto, all other taxes due upon the execution of this Agreement or the Demand Promissory Note or arising out of the transactions evidenced by such documents, if any, will be paid by Dealer. If the line of credit is increased at any time, Dealer will deliver to WOFCO additional Demand Promissory Notes in the amounts of such increases which will bear interest in accordance with their terms. All the provisions of this Agreement shall apply to the total line of credit to include any and all increases. Failure on Dealer's part to deliver additional Demand Promissory Notes shall not impair WOFCO's secured status as to future advances even though the line of credit set forth above is exceeded. Dealer agrees to pay to WOFCO upon demand the amount WOFCO advances or is obligated to advance to the manufacturer, distributor or seller for each Vehicle with interest at the rate per annum stated in the above described Demand Promissory Notes. Dealer understands that it may sell and lease at retail in the ordinary course of business that part of the Collateral (as hereinafter defined) which consists of inventory. Dealer further agrees that on or before the soonest of (i) WOFCO's demand therefor, (ii) two days (excluding weekends and legal holidays) following the date on which each Vehicle is sold or leased, or (iii) the completion of a WOFCO audit, Dealer will faithfully and promptly remit to WOFCO the amount WOFCO advanced or has become obligated to advance on Dealer's behalf to the manufacturer, distributor or seller for the purchase of the sold or leased Vehicle. If Dealer has not sold or leased any Vehicle for which any advance was made, and unless and until WOFCO has made demand upon Dealer for payment of the amount of any advance made by WOFCO to Dealer, then the advance shall be paid in full on or before March 31 of the year following the model year of the Vehicle for which the advance was made. On those advances that have been made to enable Dealer to purchase a Vehicle that has been used as a -1- "demonstrator," and unless otherwise agreed upon in writing, Dealer shall pay the entire amount of the advance in accordance with the foregoing or, if earlier, when the "demonstrator's" odometer reaches 5,000 miles or the Vehicle is damaged so as to reduce its wholesale value, after repair, below the amount advanced thereon. Dealer understands that WOFCO, in its sole discretion, may in writing extend the term of payment of any advance beyond that set forth above, but any such extension shall not affect WOFCO's right to make demand upon Dealer for the payment of any advance for which the payment thereof has been extended. Upon WOFCO's receipt of the amount advanced by WOFCO on Dealer's behalf for the purchase of the sold or leased Vehicle, WOFCO's security interest in the Vehicle shall cease and shall no longer exist. Dealer acknowledges and agrees that the relationship between Dealer and WOFCO created by this Agreement and the Demand Promissory Note is that of debtor-creditor and not that of joint venturers, that WOFCO is not a joint venturer of Dealer pursuant to any other agreement with Dealer and that Dealer will make no representations to the contrary. Dealer also agrees that to secure collectively the payment by Dealer of the amounts of all advances made and obligations to advance incurred by WOFCO pursuant to this Agreement or the Demand Promissory Notes, and the interest due thereon, any late fees, costs, attorneys' fees and any other legal expenses charged hereunder or thereunder, and any other Obligations (as hereinafter defined), WOFCO is hereby granted a security interest in the Collateral (as hereinafter defined). WOFCO's security interest in the Collateral shall attach to the proceeds, in whatever form, including the proceeds of any retail sale or lease of Vehicles by Dealer and to the proceeds of any other disposition of said Vehicles or any part thereof, to the fullest extent provided or permitted by law. This security interest is given not only to secure the payment by Dealer of such advances and obligations to advance, including those payment and performance obligations evidenced by the above described Demand Promissory Notes, but also to secure the payment and performance of any other obligations Dealer has to WOFCO, whether primary, secondary, direct, indirect, contingent, sole, joint or several, whether presently existing or hereafter arising under present or future advances by WOFCO to Dealer, pursuant to this Agreement or pursuant to any other agreement between WOFCO and Dealer whether presently existing or hereafter executed, and also any obligations Dealer may have to third parties which may now or hereafter be purchased by WOFCO, and any and all extensions or renewals thereof, and also to secure the performance by Dealer of the promises, warranties and agreements set forth herein (all of the foregoing hereinafter called "Obligations"). If, for any reason, total payments which may be deemed interest under any of the Obligations shall be greater than the limit imposed by the usury laws under applicable law for any interest payment period, then all sums in excess of those lawfully collectable as interest for that period shall be applied, without further agreement or notice, first to the reduction of principal until paid in full with the excess,if any, being then repaid to any Obligor (as hereinafter defined). -2- The Collateral subject to this Agreement is (a) all inventory of the Dealer consisting of new and used Vehicles (whether held for sale or lease, including used Vehicles which are received as "trade-ins"); all additions, accessories and accessions to any of the foregoing; all general intangibles, instruments, chattel paper, accounts, books and records, contract rights and accounts receivable of the Dealer, whether now owned or hereafter acquired by Dealer, arising out of the sale or lease of any of the foregoing; all substitutions for any of the foregoing and all returned and repossessed items; and all proceeds of any of the foregoing, including insurance proceeds; and (b) to the extent the pledge thereof will not violate, or require the approval of a third party pursuant to, any other agreement in effect as of the date of this Agreement to which the Dealer is a party, all inventory, equipment, documents and all other property of the Dealer, whether now owned or hereafter acquired by Dealer, including, but not limited to, parts inventory, furniture and fixtures; all tools, parts and equipment used with, or intended for use with, any of the foregoing; all additions, accessories and accessions to any of the foregoing; all general intangibles, instruments, chattel paper, accounts, books and records, contract rights and accounts receivable of the Dealer, whether now owned or hereafter acquired by Dealer and whether arising out of the sale or lease of any of the foregoing or otherwise; all substitutions for any of the foregoing and all returned and repossessed items; and all proceeds of any of the foregoing, including insurance proceeds (all of the foregoing herein defined as the "Collateral"). Dealer's possession of the Vehicles shall be for the purpose of storing and exhibiting same for retail sale or lease in the regular course of business. With the exception of used Vehicles, Dealer shall keep the Vehicles brand new and Dealer shall not use the Vehicles, new or used, illegally, improperly or for hire. WOFCO shall at all times have the right of access to and inspection of the Vehicles and the right to examine Dealer's books and records in any way relating to its business, including those pertaining to the Vehicles. It is agreed that certain Vehicles financed hereunder may be used as demonstrators for the purpose of promoting the sale of these and other Vehicles. Mutually, WOFCO and Dealer will establish in writing the number of new units to be outstanding as demonstrators at any one time. Dealer shall, at all times during the shipment of Vehicles, cause them to be fully insured at Dealer's or the shipper's expense, as the case may be, in WOFCO's favor and to WOFCO's satisfaction, and, at Dealer's own expense, to insure the Vehicles at all times thereafter for no less than the actual cash value of the Vehicles against at least the perils of collision, fire, theft and the perils contemplated in combined additional coverage and further agree to maintain liability insurance, all with a financially sound and reputable insurer acceptable to WOFCO. The insurance policy will name WOFCO as loss payee and as an additional insured and will include a clause providing for 30 days prior written notice to WOFCO of cancellation, material change or non-renewal. At all times, WOFCO will be provided written evidence that the insurance is in force and WOFCO will be furnished a copy of each current policy in a timely manner. Dealer agrees to pay promptly when due all taxes, assessments and governmental charges upon or against Dealer or upon the Collateral or upon Dealer's property or operations, in each case before the same become delinquent and before penalties accrue thereon, unless and to the extent that the same are being contested in good faith by appropriate proceedings, and Dealer shall take appropriate actions to assure that the Collateral remains free of any lien. In the event Dealer shall fail to maintain insurance, pay -3- taxes, assessments, costs and expenses which Dealer is required to pay under any of the terms hereof, or fail to keep the Collateral free from other security interests, liens or encumbrances, WOFCO may make expenditures for any or all such purposes and the amount so expended together with interest thereon at the rate of 18% per annum shall become immediately due and payable by Dealer to WOFCO as an additional part of the Obligations and shall have the benefit of and be secured by the security interest herein granted and agreed to. Prior to default by Dealer hereunder, payments for losses made under any policy of hazard insurance shall be applied, at Dealer's option, to either replace Collateral or to reduce the Obligations. After default, payments under any insurance policy shall be first applied to the Obligations due and owing to WOFCO. After the Obligations are paid in full, any remainder may be paid to Dealer. WOFCO is hereby granted a security interest in unearned premiums rebated or returned upon cancellation of any insurance policy. Dealer hereby grants to WOFCO an irrevocable power of attorney, which power of attorney shall be coupled with an interest in the Collateral, and hereby appoints WOFCO to act as Dealer's attorney-in-fact for Dealer in obtaining, adjusting, settling and cancelling such insurance and endorsing any draft issued by any insurer in payment of claims. WOFCO may apply any proceeds of such insurance which may be received by WOFCO for payment of the Obligations, whether due or not due, in such order of application as WOFCO may determine. Dealer represents and warrants that the Collateral is free and clear of all liens, security interests and other encumbrances at the time of execution of this Agreement, except for the lien and security interest granted to WOFCO hereunder, and that the lien and security interest granted to WOFCO hereunder is a first priority lien on and security interest in the Collateral. Dealer further covenants that as of the time of each advance made under any Demand Promissory Note, WOFCO's lien on and security interest in the Collateral shall be a first priority lien and security interest. Dealer shall not mortgage, pledge or loan the Collateral and shall not transfer or otherwise dispose of it except as provided herein. Dealer shall execute in favor of WOFCO any forms or documents which may be required for the amounts advanced pursuant to this Agreement, and shall execute such additional documents as WOFCO may at any time request in order to confirm or perfect title or a security interest in the Collateral. Execution by Dealer of any instrument for the amount advanced shall be deemed evidence of Dealer's obligation and not payment therefor. Dealer hereby grants to WOFCO an irrevocable power of attorney, which power of attorney shall be coupled with an interest in the Collateral, and hereby appoints WOFCO or any of WOFCO's officers as Dealer's attorney-in-fact to supply any omitted information and correct patent errors in any documents executed by Dealer pursuant to or in furtherance of this Agreement. Dealer certifies that any information concerning its business organization or financial condition furnished or that may be furnished in the future to WOFCO is true and correct and fairly presents the financial condition of Dealer in accordance with generally accepted accounting principles consistently applied. Dealer agrees to furnish such information to WOFCO at such times (on at least a monthly basis) and in such form as WOFCO may request. Dealer represents and warrants: (a) that its principal place of business, and if more than one, that its chief executive office is located at the address of Dealer set forth on the -4- signature page hereof and that such principal place of business or chief executive office has been maintained at such location, or at such other locations as indicated on the signature page hereof, since the formation of the Dealer or any predecessor in interest thereto or for at least seven years, whichever is longer; and (b) that Dealer has conducted business under its current corporate name, or if it conducts business under a trade name, that it has conducted business under its current trade name, and has not conducted business under any other name, other than the corporate or trade names listed on the signature page hereof, since the formation of the Dealer or any predecessor in interest thereto or for at least seven years, whichever is longer. Dealer covenants to promptly give WOFCO notice in writing: (a) of all threatened or actual actions or suits and of all investigations or proceedings by or before any court, arbitrator or any governmental department, board, agency or other instrumentality, state or federal, affecting Dealer or its properties which involves potential liability of Dealer in excess of $100,000 in any individual case; (b) of any material adverse change in the condition (financial or otherwise) of Dealer; (c) of any notice of intent to seize, levy or assess or of any actual seizure, levy or assessment upon or against any property of Dealer; and (d) of any change in Dealer's corporate name or any trade name and any change in its chief executive office or place(s) of business. At WOFCO's option, Dealer shall be in default under this Agreement and under any Demand Promissory Notes upon the happening of any of the following events or conditions (hereinafter collectively called "Event of Default"), whether happening to Dealer or any other party primarily, secondarily or contingently liable on any of the Obligations (hereinafter collectively called "Obligor" without regard to number or gender): 1. Failure to pay or perform when due any obligation, covenant, agreement, or liability contained or referred to herein or in any other agreement between Obligor and WOFCO; 2. Loss, theft, substantial damage, destruction, sale or encumbrance of any Collateral, except as herein permitted, or the making of any levy, seizure, garnishment, or attachment thereof or thereon; 3. Obligor makes an assignment for the benefit of creditors, files a petition in bankruptcy, petitions or applies to any tribunal for the appointment of a custodian, receiver or trustee for it or a substantial part of its assets, or commences any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect, or any such petition or application is filed against Obligor, or any such proceeding is commenced against it; 4. Obligor admits in writing its inability, or is generally unable, to pay its debts as they become due, or Obligor, by any act or omission, indicates its consent to, approval of or acquiescence in any petition, application, proceeding or order for relief or the appointment of a custodian, receiver or trustee for the Obligor or any substantial part of any of its properties, or suffers any such custodianship, receivership or trusteeship; -5- 5. Merger, consolidation, change of voting control or transfer or sale of substantially all the assets of any corporate Obligor; 6. WOFCO, in good faith, believes that the prospect of payment or performance of any agreements or obligations between any Obligor and WOFCO or any other Obligor is impaired or that the Vehicles are in danger of misuse, loss, seizure or confiscation; 7. There is a change in Dealer's managerial control, including a change resulting from a management contract or a change in substantially all of Dealer's executive officers; 8. There occurs a breach or violation of any subordination agreement or guaranty by any party thereto which has been executed in WOFCO's favor and given to WOFCO to guaranty any Obligations or to subordinate any of Dealer's other indebtedness or obligations to the Obligations; 9. Any final judgment(s) for the payment of money in excess of $100,000 in the aggregate, excluding judgments for claims covered by insurance, are rendered against the Obligor and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed; or notice of intent to levy by any governmental agency or body (whether local, state or federal) is issued to or against Obligor or any of its properties for an amount in excess of $100,000; 10. Any consent, approval, franchise, license or permit of any governmental agency or of any motor vehicle manufacturer, franchisor or distributor that is a party to any agreement with Dealer, which is necessary for the ownership of Dealer's assets or for the operation of its business, is cancelled, revoked or modified in a manner which materially adversely affects Dealer or its properties; or 11. Obligor shall default in the performance of any agreement with any person other than WOFCO if the effect of such default is, or with notice or the passage of time or both would be, to accelerate the maturity of any indebtedness, or Obligor shall fail to pay any indebtedness at maturity. Upon the occurrence of any Event of Default or at any time thereafter, WOFCO's obligations to make advances hereunder or under any Demand Promissory Note shall be terminated at WOFCO's option, and WOFCO shall have the right to terminate this Agreement at WOFCO's option without demand or notice, and in such event, all Obligations secured hereby, or any of them (notwithstanding any provisions thereof), shall immediately become due and payable without demand or notice and WOFCO may take immediate possession of the Collateral without demand, notice or legal process; and for the purpose and in furtherance thereof, Dealer shall, if WOFCO so requests, assemble the Collateral and make it available to WOFCO at a reasonably convenient place designated by WOFCO, and WOFCO shall have the right (and Dealer hereby authorizes and empowers WOFCO to do so) to enter upon the premises wherever said Collateral may be and remove same. Dealer shall hold WOFCO harmless from any claim for trespass or breach of peace in connection with such -6- entry and removal. In the event WOFCO acquires possession of any Collateral, WOFCO may, in its sole discretion, sell the Collateral by private or public sale for the account of Dealer after given reasonable notice of the time and place of sale to Dealer. Any notice from WOFCO placed in the U.S. Mail, postage prepaid, addressed to Dealer at its address shown on WOFCO's records at least seven business days prior to any action or sale shall be reasonable notice to Dealer. Any proceeds of the disposition of any Collateral may be applied by WOFCO toward the reasonable expenses of retaking, holding, preparing for sale and selling the Collateral, next to reasonable attorneys' fees and legal expenses incurred by WOFCO, and finally to Obligations of Dealer to WOFCO in any order WOFCO may elect. Dealer shall be liable for any deficiency and WOFCO shall be entitled to interest thereon at the rate of 18% per annum. In the event of repossession of the Collateral by WOFCO, then the rights and remedies applicable under the Uniform Commercial Code in effect in the state which laws shall govern this Agreement as provided below shall apply, except as permitted to be modified by agreement and which were so modified herein. In conjunction with or in lieu of any of the remedies provided for in this paragraph, and at WOFCO's sole option, Dealer shall allow WOFCO or any agent or designee thereof to enter upon Dealer's premises for the purpose of taking possession of, holding, and controlling The disposition of, in any manner deemed appropriate by WOFCO, all Vehicles financed in whole or in part by WOFCO and constituting a portion of the Collateral, all title and registration documents, manufacturers' statements or certificates of origin and keys for any such Vehicles, all to the sole end of further protecting WOFCO's rights as a secured party hereunder and for no other purpose. Dealer hereby grants to WOFCO an irrevocable power of attorney, which power of attorney shall be coupled with an interest in the Collateral, and hereby appoints WOFCO or any of WOFCO's officers as Dealer's attorney-in-fact to execute on Dealer's behalf all title and registration documents, all manufacturers' statements or certificates of origin, and to do any and all things in the name of and on behalf of Dealer to enable WOFCO to fully exercise its rights in and to the Collateral as provided in this Agreement and under applicable law. Dealer shall pay all expenses of every kind for the enforcement of any of WOFCO's rights mentioned herein or in any Demand Promissory Notes and reimburse WOFCO for any expenditures, including expenses incurred in realizing on Collateral, court costs, other legal expenses and reasonable attorneys' fees (provided, however, that if this Agreement is governed by and construed and enforced under the laws of the State of Georgia, Dealer shall pay WOFCO's attorneys' fees at the rate of 15% of principal and interest owing by Dealer to WOFCO) incurred in consultation or in judicial, administrative or arbitration proceedings, both at trial and appellate levels, and such expenses shall bear interest at the rate of 18% per annum until paid and shall be secured hereby. Dealer understands that WOFCO does not warrant the Vehicles and Dealer will not be relieved of any Obligation or liability to WOFCO because the Vehicles are defective or fail to conform to the warranties extended by the manufacturer or supplier. This Agreement and the Obligations arising from it shall not be affected by any dispute Dealer may have with any manufacturer, distributor or shipper of the Vehicles. Specifically, Dealer will not assert against WOFCO any claim or defense Dealer may have against any manufacturer, distributor or shipper of the Vehicles. Dealer shall indemnify and hold WOFCO harmless against any claims or defenses asserted by any consumer or other buyer of Vehicles in the ordinary course -7- of business by reason of the condition of any Vehicles sold by Dealer, any representations made by Dealer about the Vehicles, or any violation of any applicable law or regulation. Any provision of this Agreement to the contrary notwithstanding, the line of credit extended hereunder may be cancelled at any time by WOFCO at WOFCO's election without prior notice or demand, and in such event the Demand Promissory Notes and all sums for which Dealer shall be indebted to WOFCO under this Agreement, plus interest, shall immediately become due and payable without notice. No waiver of any default or non-exercise of a right hereunder shall waive any other default, or the same default on a future occasion, or preclude exercising any other right or the same right on a future occasion. Time is of the essence. The provisions hereof are cumulative to provisions of any other agreement between the parties hereto. Singular includes plural, and neuter includes masculine and feminine. This Agreement is effective as of its date. WOFCO's rights hereunder shall inure to the benefit of its successors and assigns, and Dealer's duties shall bind its successors and assigns. If any provision of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect under applicable law, the same shall not affect any other provision of this Agreement and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. This Agreement, the Demand Promissory Note and any other agreement or document executed or delivered pursuant hereto, or in connection or arising with the loans or transactions contemplated by this Agreement, embody the entire agreement and understanding between the parties hereto, supersede all prior agreements and understandings relating to the subject matter hereof, and may not be modified or varied except in a writing signed by WOFCO and Dealer. In the event any conflict arises between the terms of this Agreement and the terms of any other document or agreement between WOFCO and Dealer, the terms of this Agreement shall govern. WOFCO may assign this Agreement or any of its rights and powers hereunder, and in the event of such assignment, the assignee shall have the same rights, duties, remedies and obligations as if originally named herein in WOFCO's place. Dealer and WOFCO hereby knowingly, voluntarily and intentionally waive any right either of them may have to obtain punitive or exemplary damages from the other based on any rights, claim or action either of them may have against the other, including, but not limited to, any right, claim or action arising out of this Agreement, any Demand Promissory Note or any document, agreement or transaction to which they are both parties. Except as otherwise specifically set forth herein or agreed to in writing by WOFCO and Dealer, any action, dispute, claim, or controversy between or among the parties, whether sounding in contract, tort, or otherwise ("Dispute"), shall be resolved by arbitration as set forth below, and shall include any Dispute arising out of or in connection with (1) this Agreement, any Demand Promissory Note, or any related agreements or instruments, (2) all past, present, and future agreements involving the parties, (3) any transaction contemplated hereby and all past, present, and future transactions involving the parties, and (4) any aspect of the past, present, or future relationships of the parties. Such disputes shall be resolved by binding arbitration in accordance with Title 9 of the United States Code and the Commercial Arbitration Rules of the American Arbitration Association. In the event of any inconsistency -8- between such Rules and these arbitration provisions, these provisions shall supersede such Rules. All statutes of limitations which would otherwise be applicable shall apply to any arbitration proceeding described herein. In any arbitration proceeding subject to these provisions, the arbitrators are specifically empowered to decide (by documents only, or with a hearing, at the arbitrators' sole discretion) pre-hearing motions which are substantially similar to pre-hearing motions to dismiss and motions for summary adjudication. Any arbitration proceeding subject to these provisions shall be conducted in the state in which the Dealer's place of business for the sale of Vehicles is located and in the county in such state in which WOFCO's principal place of business in that state is located. Judgement upon the award rendered may be entered in any court of appropriate subject matter jurisdiction, which judgement may be domesticated in any jurisdiction for purposes of enforcement. The parties to this Agreement expressly subject themselves to the personal jurisdiction of any such court for the entry of any such judgement and for the resolution of any dispute, action, or suit arising in connection with the entry of such judgement. Any Dispute subject to arbitration proceedings in accordance with this Agreement shall be decided by a majority vote of three arbitrators. The arbitrators shall have the power to award recovery of all costs and fees (including attorneys' fees, administrative fees, arbitrators' fees and court costs) to the prevailing party. No provision of, nor the exercise of any rights under the preceding paragraph, shall limit the right of WOFCO (1) to foreclose against Collateral by the exercise of a power of sale under this Agreement or applicable law, (2) to exercise self-help remedies including, without limitation, setoff and repossession, (3) to obtain provisional or ancillary remedies such as injunctive relief, attachment, or the appointment of a receiver from a court having jurisdiction before, during, or after the pendency of any arbitration proceeding, or (4) to otherwise exercise its rights in and to the Collateral or its remedies as a secured creditor under Article 9 of the Uniform Commercial Code (as adopted in the state which laws govern the construction and enforceability of this Agreement, as set forth below) or as set forth in this Agreement. The institution and maintenance of an action for judicial relief or pursuit of provisional or ancillary remedies or exercise of self-help remedies shall not constitute a waiver of the right of any party to submit the Dispute to arbitration. In the event it shall be determined for any reason that any Dispute shall not be subject to arbitration as set forth herein, DEALER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY in respect to any litigation arising out of or in connection with (1) this Agreement, any Demand Promissory Note, or any related agreements or instruments, (2) all past, present, and future agreements involving the parties, (3) any transaction contemplated hereby, and all past, present, and future transactions involving the parties, and (4) any aspect of the past, present, or future relationships of the parties. This waiver of trial by jury provision is a material inducement for WOFCO to enter into this Agreement. This Agreement shall be governed by and construed and enforced under the laws of the State of Georgia without regard to its conflict of laws principles. -9- IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed under its hand and seal by its duly authorized representative this day of , 19 . WORLD OMNI FINANCIAL CORP. Atlanta Toyota, Inc. (Dealer's Name) By: (SEAL) 2345 Pleasant Hill Road (CORPORATE SEAL) Duluth, GA 30136 (Address of current principal place of business, or if more than one, current chief executive office, of Dealer) By: /s/ Carl Spielvogel (SEAL) -------------------------------- , President ------------------------------------ Attest: /s/ George Lowrance (SEAL) ----------------- , Secretary ---------------------------------- (CORPORATE SEAL) Other corporate and trade names of Dealer (or any predecessor in interest thereto) and locations of its principal place of business and chief executive office of Dealer (or any predecessor in interest thereto) during the past seven years. ____________________ _______________________ (Name) (Name) ____________________ _______________________ ____________________ _______________________ (Address) (Address) -10- USED VEHICLE FLOOR PLAN AGREEMENT (Amendment to Wholesale Floor Plan Security Agreement) This Agreement is entered into on _________, __96, by and between WORLD OMNI FINANCIAL CORP., a Florida corporation ("WOFCO") and Atlanta Toyota, Inc. a Texas corporation D/B/A Atlanta Toyota ("DEALER"). WOFCO and DEALER have previously entered into a Wholesale Floor Plan Security Agreement (the "Security Agreement") dated _________, 199_. In consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, WOFCO and DEALER hereby amend the Security Agreement as follows: 1. All capitalized terms used herein shall have the meanings given to such terms in the Security Agreement. 2. From time to time during the term of the Security Agreement WOFCO will advance to DEALER upon DEALER'S request up to a total of THREE MILLION DOLLARS ($3,000,000.00) under the line of credit extended to DEALER pursuant to the Security Agreement for the purpose of financing DEALER'S acquisition of qualified used Vehicles. Qualified used Vehicles shall mean used Vehicles that are clean, and in good condition, have low mileage and are no more than four (4) years old. 3. Advances made for the purpose of financing qualified used Vehicles shall be evidenced by a separate Demand Promissory Note in the amount of $3,000,000.00. Such advances shall represent a revolving loan and DEALER may borrow up to $3,000,000.00, repay all or any portion of such advances, and reborrow up to $3,000,000.00, subject to the terms and conditions set forth herein and in the Security Agreement. 4. DEALER shall give WOFCO written notice of any requested advance hereunder. Such notice shall specify the proposed date of the advance and the amount thereof. Subject to confirmation by WOFCO that the amount requested will not cause the total amounts advanced hereunder to exceed $3,000,000.00, WOFCO shall make each subsequent advance hereunder on the date proposed by DEALER therefor (which may be the same banking day if such request is made by DEALER and is received by WOFCO prior to 11:00 A.M. (Deerfield Beach time), otherwise no earlier than the following banking day, in the manner agreed upon by WOFCO and DEALER. WOFCO shall have no duty or obligation to verify or confirm the authority of the person of DEALER requesting any such subsequent advance as long as said person identifies himself as an employee of DEALER. 5. DEALER shall at all times maintain in inventory qualified used Vehicles with a collective wholesale value of not less than the amount outstanding hereunder for the acquisition of used Vehicle inventory. All such used Vehicles shall be maintained at the DEALER'S location and shall be titled in the DEALER'S name with no outstanding liens. 6. Except as amended hereby, the Security Agreement, as it may be amended from time to time, shall govern the terms of all advances made under the line of credit for the financing of qualified used Vehicles. IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed under hand and seal by its duly authorized representative as of the date and year first written above. WORLD OMNI FINANCIAL CORP. BY:________________________(SEAL) ____________________________ (Print Name and Title) ATLANTA TOYOTA, INC. BY:/s/ Carl Spielvogel (SEAL) ----------------------- Attest: BY:/s/ George Lowrance (SEAL) ----------------------- Secretary DEMAND PROMISSORY NOTE (Line of Credit) $15,000,000.00 DATE:____________________________ LOCATION: 2345 Pleasant Hill Road ----------------------- Duluth, GA 30136 ----------------------- VALUE RECEIVED, the undersigned ("Maker") promises to pay on DEMAND to the order of WORLD OMNI FINANCIAL CORP., a Florida corporation, together with any subsequent holder hereof (hereinafter collectively called the "Holder"), the principal sum of Fifteen Million DOLLARS ($15,000,000.00) or such portion thereof which shall have been advanced to Maker, with interest as set forth below on the unpaid balance until paid, and both principal and interest shall be payable in lawful money of the United States of America at the office of Holder located at 120 N.W. 12th Avenue Deerfield Beach, FL 33442, or at such other place as Holder may designate in writing. It is understood and agreed that additional amounts may be advanced by Holder as provided in the Wholesale Floor Plan Security Agreement (as hereinafter defined) securing this Demand Prmoissory Note ("Note") and, if no promissory note reflecting such additional advance is executed by Maker, such advances will be added to the principal of this Note, will accrue interest as set forth below from the date of advance until paid and will otherwise be payable in accordance with the terms of this Note. All sums due under this Note, including, without limitation, all principal and interest and all amounts advanced by the Holder of this Note or any predecessor or assignor (immediate or remote) with respect hereto, shall be due and payable upon DEMAND or, in the absence of any DEMAND, upon such additional terms and conditions as are set forth in this Note and in the Wholesale Floor Plan Security Agreement dated ___________, 19__, between World Omni Financial Corp. and Maker, including any amendments thereto (the "Wholesale Floor Plan Security Agreement"), which agreement and amendments, if any, are incorporated herein by reference. Accrued interest shall be paid monthly on the 1st day of each month commencing on ___________, 19__. On that portion of the principal amount of this Note advanced to enable Maker to acquire new Vehicles (as defined in the Wholesale Floor Plan Security Agreement), interest shall be a percentage of such principal amount at an annual rate equal to .75 percent (.75) plus the interest rate announced from time to time by First Union National Bank of Florida, as the Prime Rate (the "Prime Rate"), and shall be computed on the basis of the actual number of days elapsed over a period of 360 days. On that portion of the principal amount of this Note advanced to enable Maker to acquire used Vehicles or advanced for any other purpose, other than to enable Maker to acquire new Vehicles, interest shall be a -1- percentage of such principal amount at an annual rate equal to 1.75 percent (1.75) over the interest rate announced from time to time by First Union National Bank of Florida, as the Prime Rate, and shall be computed on the basis of the actual number of days elapsed over a period of 360 days. Each change in the interest rate hereunder shall be effective as of the date upon which the Prime Rate is changed. Interest shall be computed on a daily basis by applying the interest rate effective on that day as a daily rate to the outstanding principal balance as of that day. The outstanding principal balance as of any day shall be the outstanding principal balance hereunder as of the beginning of the day, plus any advance made pursuant to this loan charged to Maker's account on that day (exclusive of interest) and less any payments of principal credited to Maker's account on that day. The obligation of Maker to make the payments required to be made hereunder shall be absolute and unconditional and shall not be subject to diminution or delay by setoff, counterclaim, abatement or otherwise. Maker shall indicate in writing, at the time of each request for an advance hereunder, the amount of the requested advance that will be used to enable Maker to acquire new Vehicles and the amount of the requested advance that will be used to enable Maker to acquire used Vehicles, which indications shall be made in accordance with Holder's normal business practices. Holder shall provide a monthly statement to Maker indicating the amount of the advances made hereunder that have been made to enable Maker to acquire new Vehicles and indicating the amount of the advances made hereunder that have been made to enable Maker to acquire used Vehicles, which monthly statement shall be controlling in the event of any conflict with any writing provided by Maker. Each Event of Default as defined in the Wholesale Floor Plan Security Agreement shall be, and hereby is, incorporated herein by this reference and by virtue thereof shall be deemed an event of default hereunder (hereinafter, an "Event of Default"). In the event of default in payment of any installment of principal or interest hereof or upon the occurrence of any other Event of Default, Holder may, without notice, declare the remainder of the principal and interest due hereunder at once due and payable. Failure to exercise this option shall not constitute a waiver of the right to exercise the same at any other time. The unpaid principal of this Note and accrued interest, if any, shall bear interest after default at the rate of 18% per annum until paid. Acceptance of any payment after its due date shall not be deemed a waiver of the right to require prompt payment when due of all other sums, and acceptance of any payment after Holder has declared its entire indebtedness due and payable shall not -2- cure any Event of Default or operate as a waiver of any right of Holder hereunder. Maker, and any sureties, guarantors or endorsers of this Note, hereby jointly and severally waive presentment for payment, demand for payment, protest, notice of dishonor, notice of nonpayment or notice of default (or any other notice of any kind, all of which are hereby expressly waived by Maker and such sureties, guarantors and endorsers to the fullest extent permitted by law), and hereby jointly and severally waive all defenses on the grounds of extension of time for the payment hereof, renewals, waivers, modifications, or substitutions hereof, releases of Collateral, or substitution or release of any sureties, guarantors and endorsers hereof which may be given by Holder to them or either of them or to anyone who has assumed any obligation for the payment of this Note. All payments shall be applied first to fees and costs, including attorneys' fees, if any, next to interest and then to principal, but notwithstanding any provision in this Note or in any other document executed in connection with this Note, Maker's total liability during any payment period for payment of fees, charges or other payments which may be deemed interest shall not exceed the limits imposed by the usury laws under applicable law. If, for any reason, total payments which may be deemed interest shall be greater than the limit imposed by the usury laws under applicable law for any interest payment period, then all sums in excess of those lawfully collectable as interest for that period shall be applied, without further agreement or notice, first to the reduction of principal until paid in full with the excess, if any, being then repaid to Maker. Holder agrees to accept such sums as a penalty-free prepayment of principal, unless Holder at any time elects, by notice in writing, to waive or limit the collection of any sums in excess of those lawfully collectable as interest rather than accept those sums as a prepayment of principal. If this Note is accelerated by an Event of Default, any interest on principal accelerated to maturity in excess of the limits imposed by the usury laws under applicable law shall be eliminated. This Note may be prepaid in whole or in part at any time without penalty. Upon the occurrence of an Event of Default, Holder may employ an attorney or a law firm to enforce Holder's rights and remedies, including the right to collect the amounts due under this Note and to protect or foreclose the Collateral, and Maker, principal, surety, guarantor and endorsers of this Note hereby agree, jointly and severally, to pay to Holder reasonable attorneys' fees (provided, however, that if this Demand Promissory Note is governed by and construed and enforced under the laws of the State of Georgia, Maker shall pay Holder attorneys' fees at the rate of 15% of principal and interest owing by Maker to Holder) and costs, whether or not suit be brought, including attorneys' fees and costs on appeal, plus all other reasonable expenses incurred by Holder in exercising any of -3- the Holder's rights and remedies upon default, including, without limitation, courts costs, other legal expenses and attorneys' fees incurred in connection with consultation, arbitration and litigation, and such fees, costs, and expenses shall bear interest at the rate of 18% per annum until paid and shall be secured as provided by the Wholesale Floor Plan Security Agreement. Unless otherwise defined herein, all capitalized terms used herein shall have the meanings given to such terms in the Wholesale Floor Plan Security Agreement. Holder may pledge, transfer or assign this Note and shall thereupon be relieved of all duties hereunder and with respect to the Collateral. All rights and duties of the parties hereto and any sureties, guarantors and endorsers shall inure to the benefit of and bind their heirs, distributees, legal representatives, successors and assigns. This Note is given for the loan of money, and is secured by a security interest in the Collateral granted pursuant to the Wholesale Floor Plan Security Agreement and incorporated herein by reference. The provisions of all other security agreements securing this Note, if any, are incorporated herein by reference. This Note may not be changed orally, but only by an agreement in writing and signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. This Note is to be governed by and construed and enforced under the laws of the State of Georgia out regard to its conflict of laws principles. Maker hereby knowingly, voluntarily and intentionally waives the right to a trial by jury in respect to any litigation based on this Note, or arising out of, under, or in connection with any document or agreement executed in connection with the transactions contemplated hereby, or arising out of, under, or in connection with any course of conduct, course of dealing, statements (whether written or oral), or actions of Maker or any other person. This waiver of trial by jury provision is a material inducement for Holder to enter into the transactions contemplated by this Note. IN TESTIMONY WHEREOF, each corporate Maker caused this instrument to be executed under its hand and seal in its corporate name by its ______________ _________________ President, and caused its -4- corporate seal to be affixed hereto, all by order of its Board of Directors, first duly given, this day and year first above written. ATLANTA TOYOTA, INC. (Corporate Name) (Corporate Seal) By: /s/ Carl Spielvogel (SEAL) --------------------- ,as its President ----------------- ATTEST: /s/ George Lowrance (SEAL) - -------------------- , as its Secretary - -------------------- -5- STATE OF NEW YORK COUNTY OF NEW YORK I hereby certify that on this date before me, an officer duly authorized in the State aforesaid and in the County aforesaid to take acknowledgements, personally appeared CARL SPIELVOGEL of Atlanta Toyota, Inc. (Company Name), who is personally known to me who did/did not take an oath, who is known to me to be the person who executed the attached Demand Promissory Note dated ____________________, 19__, in the maximum principal amount of Fifteen Million Dollars ($15,000,000.00), on behalf of Atlanta Toyota, Inc. (Company Name), and who acknowledged before me that he/she executed the same. /s/ Eleanor McKenna _______________________________________ Notary Public Eleanor McKenna _______________________________________ Print Name My Commission Expires: Oct. 9, 1996 Exhibit B EX-10.5-11 47 EXHIBIT 10.5.11 ASSIGNMENT OF RIGHTS UNDER INVENTORY FINANCING PAYMENT AGREEMENT This Assignment of Rights Under Inventory Financing Payment Agreement ("Assignment") is executed as of the 24 day of May, 1996 by Atlanta Toyota, Inc. ("Dealer") in favor of World Omni Financial Corp. ("WOFC"). Dealer entered into an Inventory Financing Payment Agreement with Fidelity Warranty Services, Inc. ("FWS") and WOFC pursuant to which Dealer is entitled to receive certain payments from FWS and/or WOFC. Dealer has also entered into a Wholesale Floor Plan Financing Agreement and has executed one or more Demand Promissory Notes in favor of WOFC pursuant to which WOFC provides financing to Dealer to enable Dealer to acquire motor vehicle inventory for Dealer's motor vehicle dealership. In consideration of the sum of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency which is hereby acknowledged, Dealer hereby grants, bargains, sells, assigns, transfers and sets over unto WOFC and its assigns, all of Dealer's right, title and interest in and to Dealer's right to receive (a) JM&A Rate Reduction Payments from FWS under the Inventory Financing Payment Agreement, and (b) WOFC's Rate Reduction Payments from WOFC under the Inventory Financing Payment Agreement. The JM&A Rate Reduction Payments and WOFC Rate Reduction Payments received by WOFC are to be applied as payments on the above described Demand Promissory Notes. IN WITNESS WHEREOF, Dealer has executed this Assignment as of the day and year first written above. Witnesses: Dealer /s/ Lauren Dowling Atlanta Toyota, Inc. - ------------------ /s/ Eric S. Kahn By: /s/ Carl Spielvogel - ------------------ ----------------------- Name: Carl Spielvogel ----------------- Title: President ---------------- STATE OF NEW YORK COUNTY OF NEW YORK THE FOREGOING instrument was acknowledged before me this 24 day of May, 1996, by Carl Spielvogel, as an authorized representative of Atlanta Toyota a Texas corporation, on behalf of said corporation, who is personally known to me, and who did/did not take an oath. /s/ Eleanor McKenna ------------------- Notary Public --------------------------- Print Name My Commission expires: ----- -2- Exhibit 10.5.11 INVENTORY FINANCING PAYMENT AGREEMENT This Inventory Financing Payment Agreement ("Agreement") is entered into as of the day and year written below by and between the undersigned Dealer ("Dealer"), Fidelity Warranty Services, Inc. ("FWS") and World Omni Financial Corp. ("WOFC"). Dealer has executed one or more Demand Promissory Notes (collectively the "Note") in favor of World Omni Financial Corp. ("WOFC") to enable Dealer to obtain financing for the acquisition of motor vehicle inventory in connection with Dealer's business as a motor vehicle dealer. In connection with its sale and lease of new and used motor vehicles, Dealer desires to sell or to continue to sell motor vehicle mechanical failure service contracts ("Service Contracts"), maintenance contracts for motor vehicles which are leased ("Lease Care Contracts"), maintenance contracts for motor vehicles which are purchased ("Car Care Contracts"), and guaranteed auto protection policies ("GAP Contracts", and the Service Contracts, Lease Care Contracts, Car Care Contracts and GAP Contracts shall hereinafter be collectively referred to as the "JM&A Products") that have been issued by Fidelity Warranty Services, Inc. ("FWS") and/or marketed by Jim Moran & Associates, Inc. In addition, Dealer desires to sell motor vehicle retail installment sale contracts ("Contracts") and/or closed-end motor vehicle lease agreements ("Leases") to WOFC, and/or an affiliate or designee of WOFC, and to obtain motor vehicle wholesale floorplan financing from WOFC ("Floorplan"), (collectively, Contracts, Leases and Floorplan hereinafter referred to as "WOFC Products", and collectively the JM&A Products and WOFC Products shall hereinafter be referred to as the "Products"). FWS and WOFC have instituted a Rate Assistance Program (the "Program") pursuant to which FWS and/or WOFC will pay to Dealer monthly an amount of money based on Dealer's monthly interest payments on the Note and on the market penetration obtained by Dealer in its sale of the JM&A Products and/or WOFC Products respectively. Dealer desires to participate in the Program in accordance with the terms of this Agreement. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants set forth herein, Dealer, FWS and WOFC agree as follows: 1. FWS agrees to pay to Dealer for any calendar month an amount of money equal to the difference between (i) Dealer's monthly interest payment on the Note calculated in accordance with the applicable interest rate thereon (the "Note Rate") and (ii) what Dealer's monthly interest payment on the Note would have been if the Note Rate were reduced in accordance with the JM&A Interest Rate Schedule attached to this Agreement. When computing the amount represented by clause (ii) above, the Note Rate shall be reduced in accordance with the JM&A Interest Rate Schedule based on Dealer's sales of the JM&A Products in the prior month. 2. WOFC agrees to pay to Dealer for any calendar month an amount of money equal to the difference between (i) Dealer's monthly interest payment on the Note calculated in accordance with the applicable interest rate thereon (the "Note Rate") and (ii) what Dealer's monthly interest payment on the Note would have been if the Note Rate were reduced in accordance with the WOFC Interest Rate Schedule attached to this Agreement. When computing the amount represented by clause (ii) above, the Note Rate shall be reduced in accordance with the WOFC Interest Rate Schedule based on Dealer's sales of the WOFC Products in the prior month. 3. The amount of money FWS is obligated to pay Dealer pursuant to paragraph 1 for any monthly period shall hereinafter be referred to as a "JM&A Rate Reduction Payment". The JM&A Rate Reduction Payment calculated for any calendar month shall be payable within thirty (30) days after the last day of such month. 4. The amount of money WOFC is obligated to pay Dealer pursuant to paragraph 2 for any monthly period shall hereinafter be referred to as a "WOFC Rate Reduction Payment". The WOFC Rate Reduction Payment calculated for any calendar month shall be payable within thirty (30) days after the last day of such month. 5. The JM&A Rate Reduction Payment and the WOFC Rate Reduction Payment shall be calculated for each month commencing with the first calendar month that begins after the execution of this Agreement. Therefore, all sales of the JM&A Products and/or WOFC Products by Dealer in the month in which this Agreement is executed shall be considered for purposes of calculating the JM&A Rate Reduction Payment and the WOFC Rate Reduction Payment for the next month. Notwithstanding anything to the contrary, any Dealer who executes this Agreement during the month of August, 1995 and who had Floorplan from WOFC in July, 1995 shall receive a JM&A Rate Reduction Payment and/or WOFC Rate Reduction Payment for all sales of the JM&A Products and/or WOFC Products which occurred during July, 1995. 6. The JM&A Interest Rate Schedule may be amended from time to time in FWS' absolute and sole discretion. In the event FWS amends the JM&A Interest Rate Schedule, FWS shall give Dealer thirty (30) days notice of such amendment. Any amended JM&A Interest Rate Schedule shall become effective for the first month that begins after such thirty day notice period has expired. The JM&A Rate Reduction Payment calculated for such month shall be payable within thirty (30) days after the last day of such month. 7. The WOFC Interest Rate Schedule may be amended from time to time in WOFC'S absolute and sole discretion. In the event WOFC amends the WOFC Interest Rate Schedule, WOFC shall give Dealer thirty (30) days notice of such amendment. Any amendment WOFC Interest Rate Schedule shall become effective for the first month that begins after such thirty day notice period has expired. The WOFC Rate Reduction Payment calculated for such -2- month shall be payable within thirty (30) days after the last day of such month. 8. Dealer acknowledges that it is not required to sell any of the Products in order to obtain Floorplan from WOFC, and that it is not required to obtain Floorplan from WOFC to sell any of the Products. Dealer may terminate its sale of any or all of the Products or its Floorplan from WOFC at any time; provided, however, that if Dealer does not both sell any of the Products and obtain its Floorplan from WOFC, Dealer shall not be entitled to receive either JM&A Rate Reduction Payments and/or WOFC Rate Reduction Payments, and this Agreement shall immediately be terminated. Dealer desires to both sell one or more of the Products and obtain Floorplan from WOFC in order to obtain the benefits of this Agreement. 9. Dealer acknowledges that it is entering into this Agreement voluntarily and without duress and that it was not coerced, intimidated or in any way required by any person, whether explicitly or implicitly, to sell one or more of the Products or to obtain Floorplan from WOFC or both. Dealer acknowledges that the Products are available from a number of other companies and the Dealer's decision to sell Products and obtain Floorplan from FWS, WOFC and/or Jim Moran & Associates, Inc. is based on Dealer's separate review and evaluation. 10. Dealer acknowledges that FWS may discontinue the JM&A Interest Rate Reduction Program described herein in any time in FWS' absolute and sole discretion and that WOFC may discontinue the WOFC Interest Rate Reduction Program described herein at any time in WOFC's absolute and sole discretion. In the event that FWS discontinues the FWS Interest Rate Reduction Program and WOFC discontinues the WOFC Interest Rate Reduction Program, then this Agreement shall be considered to be automatically terminated. 11. This Agreement shall be governed by the laws of the State of Florida. Dealer, FWS and WOFC hereby agree that any dispute, controversy or claim arising out of or relating to this Agreement shall be subject to a mandatory mediation period of thirty (30) days during which time the parties shall (i) appoint a mutually acceptable mediator with whom they shall cooperate, and (ii) use their good faith efforts to resolve the dispute. The costs and expenses of the mediator shall be borne equally by the parties. Should the process of mediation fail to settle the dispute, the dispute shall be submitted to arbitration in accordance with the Arbitration Rules of the American Arbitration Association then in effect and the award rendered by the arbitrator shall be binding as between the parties, and judgment on such award may be entered in any court having competent jurisdiction. -3- This Inventory Financing Payment Agreement shall be effective as of the 24 day of May, 96. FIDELITY WARRANTY DEALER SERVICES, INC. Atlanta Toyota, Inc. By: By: /s/ Carl Spielvogel ----------------------- -------------------------- Name: Name: Carl Spielvogel --------------------- ----------------------- Title: Title: President -------------------- ----------------------- WORLD OMNI FINANCIAL CORP. By: ----------------------- Name: --------------------- Title: -------------------- -4- EX-10.5-13 48 EXHIBIT 10.5.13 EMPLOYMENT AGREEMENT This Employment Agreement is dated as of January 16, 1996, and is entered into between UAG Atlanta, Inc., a Delaware corporation ("UAG/Atlanta"), Atlanta Toyota, Inc., a Texas corporation (the "Company") and John R. Smith, an individual resident of the State of Georgia ("Executive"). WHEREAS, Executive and the Company desire to embody in this Agreement the terms and conditions of Executive's employment by the Company; NOW, THEREFORE, the parties hereby agree: ARTICLE 1 EMPLOYMENT, DUTIES AND RESPONSIBILITIES 1.1. EMPLOYMENT. Executive shall be employed as President of the Company and Vice-President of UAG/Atlanta. Executive hereby accepts such employment. Executive agrees to devote his full business time and efforts to promote the interests of the Company and its subsidiaries. 1.2. DUTIES AND RESPONSIBILITIES. Executive shall be required to perform such duties and responsibilities as are consistent with his position and as the Board of Directors of the Company (the "Board") and/or the Chief Executive Officer of United Auto Group, Inc. may from time to time prescribe. 1.3. REPORTING. Executive shall report, in the performance of his duties, directly to the Chief Executive Officer of UAG/Atlanta. ARTICLE 2 TERM 2.1. TERM. The term of Executive's employment under this Agreement (the "Term") shall commence on January 1, 1996 and shall continue until December 31, 1996; provided that this Agreement may be terminated earlier as provided in Article 5 hereof. 2.2. NO VIOLATION. Executive represents and warrants to the Company and UAG/Atlanta that neither the execution and delivery of this Agreement nor the performance of his duties hereunder violates or will violate the provisions of any other agreement to which he is a party or by which he is bound. ARTICLE 3 COMPENSATION AND EXPENSES 3.1. SALARY AND BENEFITS. As compensation and consideration for the performance by Executive of his obligations under this Agreement, Executive shall be entitled to the following (subject, in each case, to the provisions of Article 5 hereof): (a) SALARY. The Company shall pay Executive a salary payable in accordance with the normal payment procedures of the Company and subject to such withholdings and other normal employee deductions as may be required by law, at the rate of $350,000 per annum (or such PRO RATA amount thereof for any period of less than one year). In addition, the Company shall pay executive a bonus to be determined in accordance with the terms of the 1996 Bonus Agreement attached hereto as Exhibit A. (b) BENEFIT PLANS. Executive shall participate during the Term in such health, major medical insurance and other plans for the benefit of the employees of the Company as may be maintained from time to time during the Term, if at all, in each case to the extent and in the manner available to other officers of the Company and subject to the terms and provisions of such plans or programs. (c) VACATION. Executive shall be entitled to a paid vacation in accordance with Company policy during the Term. ARTICLE 4 EXCLUSIVITY, ETC. 4.1. EXCLUSIVITY. Executive agrees to perform his duties, responsibilities and obligations hereunder to the best of his ability. Executive agrees that he will devote his entire working time, care and attention and best efforts to such duties, responsibilities and obligations throughout the Term. Executive also agrees that he will not engage in any other business activities, pursued for gain, profit or other pecuniary advantage, that are competitive with the activities of the Company or any of its subsidiaries, except as permitted in Section 4.2 below. Executive agrees that all of his activities as an employee of the Company shall be in conformity with all policies, rules and regulations and directions of the Company not inconsistent with this Agreement. 4.2. OTHER BUSINESS VENTURES. Executive agrees that, so long as he is employed by the Company, he will not have any financial or other beneficial interest in any business enterprise which is engaged in, or competitive with, any business engaged in by the Company or any of its subsidiaries or affiliates. Notwithstanding the foregoing, Executive may own, directly or indirectly, up to one percent (1%) of the outstanding capital stock of any such business -2- having a class of capital stock which is traded on any national stock exchange or in the over-the-counter market. 4.3. CONFIDENTIALITY; NON-INTERFERENCE. (a) Executive agrees that he will not, at any time during or after the Term, make use of or divulge to any other person, firm or corporation any trade or business secret, process, method or means, or any other confidential information concerning the business or policies of the Company, any of its subsidiaries or their affiliates. For purposes of this Agreement, a "trade or business secret, process, method or means, or any other confidential information" shall mean and include information treated as confidential or as a trade secret by the Company, any of its subsidiaries or their affiliates, including but not limited to, information regarding contemplated products or models, unless such information is otherwise available to Executive or to the public generally; business and financial methods or practices, marketing, merchandising and selling techniques which were devised, designed or invented by the Company, any of its subsidiaries or their affiliates; customers, vendors or suppliers, or lists thereof, where such information is not generally available to the public; trade secrets of the Company, any of its subsidiaries or their affiliates; training programs, manuals or materials other than general business practices generally used in the business of selling and leasing motor vehicles; the specific terms of contracts between the Company, any of its subsidiaries or their affiliates and its customers, vendors and suppliers; systems or procedures which were designed, devised or invented by the Company, any of its subsidiaries or their affiliates, and which are unique to them; mailing lists, pricing plans or schemes designed, devised or invented by the Company, any of its subsidiaries or their affiliates; price lists, financial data (including the revenues, costs or profits associated with any of the Company's or its subsidiaries' products or services); specific business plans or goals of the Company, any of its subsidiaries or their affiliates, and the strategies designed or devised by the Company, any of its subsidiaries or their affiliates to achieve or reach those plans or goals; code books, invoices and other financial statements; computer programs, software systems or discs and printouts containing such programs or systems, which are not commonly available to the public and which are customized for the Company, any of its subsidiaries or their affiliates; databases containing any of the information set out in this subsection; customer and industry lists compiled by the Company, any of its subsidiaries or their affiliates; correspondence containing any of the information set out in this subsection; internal reports; personnel files; sales and advertising material or any other compilation of information, written or unwritten, which contains any of the information set out in this subsection in regard to the business of the Company, any of its subsidiaries or their affiliates; provided, however, that nothing set forth herein is intended to prohibit Executive from accepting employment with any automobile or truck dealership or ancillary business after this Agreement is terminated, whether the Agreement is terminated by the Company or by Executive. -3- Executive's obligation under this Section 4.3(a) shall not apply to any information which is in the public domain or hereafter enters the public domain without the fault of Executive. Executive agrees not to remove from the premises of the Company or any of its subsidiaries, except as an employee of the Company in pursuit of the business of the Company or except as specifically permitted in writing by the Company, any document or other object containing or reflecting any such information. Executive agrees and acknowledges that all of such information, in any form, and copies and extracts thereof, are and shall remain the sole and exclusive property of the Company, and upon termination of his employment with the Company, Executive shall return to the Company the originals and all copies of any such information provided to or acquired by Executive in connection with the performance of his duties for the Company, and shall return to the Company all files, correspondence and/or other communications received, maintained and/or originated by Executive during the course of his employment, and no copy of any such shall be retained by him. (b) During the Term and thereafter until June 30, 1997, Executive shall not interfere with or disrupt, or attempt to interfere with or disrupt, the relationship, contractual or otherwise, between the Company or any of its subsidiaries or their affiliates and any customer, client, supplier, manufacturer, distributor, consultant, independent contractor or employee of the Company or any of its subsidiaries or their affiliates. The provisions of this Section 4.3(b) shall not apply if the Executive is terminated by the Company without Cause. For purposes of this Agreement, "Cause" shall mean: (i) Executive's failure, neglect or refusal to perform his duties hereunder, which failure, neglect or refusal shall not have been remedied by Executive within five (5) days of receipt by Executive of written notice from the Company of such failure, neglect or refusal, (ii) Executive's refusal to follow the instructions, orders or directives of the Board or UAG/Atlanta Board or the Chief Executive Officer of United Auto Group with respect to his duties and responsibilities hereunder, (iii) any willful or intentional act of Executive that has the effect of injuring the reputation or business of the Company or its affiliates, (iv) any continued or repeated absence from the Company, unless such absence is (A) approved or excused by the Board or (B) is the result of Executive's illness, disability or incapacity or a personal or family emergency, (v) use of illegal drugs by Executive, (vi) conviction of Executive for, or the entry of a plea (including nolo contenders or its equivalent) by Executive with respect to, a felony or any act of fraud, misappropriation or embezzlement under federal or state law, (vii) the commission by Executive of an act of fraud or embezzlement against the Company, or (viii) Executive's other material breach of this Agreement. (c) It is the desire and intent of the parties that the provisions of this Section 4.3 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if -4- any particular portion of this Section 4.3 shall be adjudicated to be invalid or unenforceable, this Section 4.3 shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of this Section 4.3 in the particular jurisdiction in which such adjudication is made. (d) Executive agrees that, at any time and from time to time during and after the Term, he will execute any and all documents which the Company may deem reasonably necessary or appropriate to effectuate the provisions of this Section 4.3. ARTICLE 5 TERMINATION 5.1. TERMINATION BY THE COMPANY. Subject to Section 5.4, the Company shall have the right to terminate Executive's employment at any time. 5.2. DEATH. In the event Executive dies during the Term, this Agreement shall automatically terminate (subject to Section 5.4 hereof), such termination to be effective on the date of Executive's death. 5.3. DISABILITY. In the event that Executive shall suffer a disability which shall have prevented him from performing satisfactorily his obligations hereunder for a period of at least 90 consecutive days, or 180 non- consecutive days within any 365 day period, the Company shall have the right to terminate this Agreement (subject to Section 5.5 hereof), such termination to be effective upon the giving of notice thereof to Executive in accordance with Section 6.2 hereof. 5.4. EFFECT OF TERMINATION. In the event of termination of Executive's employment for any reason, the Company shall pay to Executive (or his beneficiary in the event of his death) any salary earned but not paid to Executive prior to the effective date of such termination. ARTICLE 6 MISCELLANEOUS 6.1. BENEFIT OF AGREEMENT; ASSIGNMENT; BENEFICIARY. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns, including, without limitation, any corporation or person which may acquire all or substantially all of the Company's assets or business, or with or into which the Company may be consolidated or merged. This Agreement shall also inure to the benefit of, and be enforceable by, Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. -5- If Executive should die while any amount would still be payable to Executive hereunder if he had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to Executive's beneficiary, devisee, legatee or other designee, or if there is no such designee, to Executive's estate. 6.2. NOTICES. Any notice required or permitted hereunder shall be in writing and shall be sufficiently given if personally delivered or if sent by telegram or telex or by registered or certified mail, postage prepaid, with return receipt requested, addressed: (a) in the case of the Company to c/o United Auto Group, Inc. 375 Park Avenue, New York, New York 10022, facsimile no. (212) 223-5148, Attention: General Counsel, or to such other address and/or to the attention of such other person as the Company shall designate by written notice to Executive; and (b) in the case of Executive, to John R. Smith c/o Atlanta Toyota, Inc., 2345 Pleasant Hill Road, Duluth, Georgia 30136 or to such other address as Executive shall designate by written notice to the Company. Any notice given hereunder shall be effective and deemed to have been given as of the date so delivered or three (3) days after the date so mailed. 6.3. AMENDMENT. This Agreement may not be changed or modified except by an instrument in writing signed by both of the parties hereto. 6.4. WAIVER. The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a continuing waiver or as a consent to or waiver of any subsequent breach hereof. Any waiver must be in writing and signed by Executive or the Company, as the case may be. 6.5. HEADINGS. The Article and Section headings herein are for convenience of reference only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 6.6. GOVERNING LAW. This Agreement shall be governed by, and construed and interpreted in accordance with, the internal laws of the State of Georgia without reference to the principles of conflict of laws. 6.7. AGREEMENT TO TAKE ACTIONS. Each party hereto shall execute and deliver such documents, certificates, agreements and other instruments, and shall take such other actions, as may be reasonably necessary or desirable in order to perform his or its obligations under this Agreement or to effectuate the purposes hereof. 6.8. SURVIVORSHIP. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. -6- 6.9. VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision or provisions of this Agreement, which shall remain in full force and effect. 6.10. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement effective as of the date first above written. ATLANTA TOYOTA, INC., a Texas corporation By: /s/Jeffrey A. Gurske -------------------------------- Its: Executive -------------------------------- UAG ATLANTA, INC., a Delaware corporation By: /s/John R. Smith -------------------------------- Its: President -------------------------------- John R. Smith -7- EX-10.6-1 49 EXHIBIT 10.6.1 STOCK PURCHASE AGREEMENT DATED AS OF MARCH 1, 1996 AMONG UNITED AUTO GROUP, INC., UAG ATLANTA II, INC., STEVE RAYMAN NISSAN, INC., STEVEN L. RAYMAN AND RICHARD W. KEFFER, JR. This STOCK PURCHASE AGREEMENT, dated as of March 1, 1996 is by and among United Auto Group, Inc., a Delaware corporation ("UAG"), UAG Atlanta II, Inc., a Delaware corporation ("Sub"), Steve Rayman Nissan, Inc., a Georgia corporation (the "Company"), Steven L. Rayman ("Rayman") and Richard W. Keffer, Jr. ("Keffer") (Rayman and Keffer are referred to hereinafter individually as a "Stockholder" and collectively as the "Stockholders"). W I T N E S S E T H: WHEREAS, the Company operates a Nissan automobile dealership and related businesses in Morrow, Georgia; WHEREAS, the Stockholders own all of the issued and outstanding shares of common stock, par value $100.00, of the Company (the "Common Stock"); WHEREAS, Sub is a wholly-owned subsidiary of UAG; and WHEREAS, Sub desires to purchase 5,000 shares of Common Stock from the Stockholders (such shares being collectively referred to herein as the "Shares"), and the Stockholders desire to sell the Shares to Sub (upon the terms and subject to the conditions set forth in this Agreement), such that immediately after giving effect to such purchase and sale, Sub will own one hundred (100%) percent of all of the issued and outstanding shares of Common Stock, on a fully diluted basis; NOW, THEREFORE, in consideration of the mutual terms, conditions and other agreements set forth herein, the parties hereto hereby agree as follows: ARTICLE 1 PURCHASE AND SALE OF SHARES 1.1 PURCHASE AND SALE OF THE SHARES. (a) PURCHASE AND SALE. Upon the terms and subject to the conditions set forth in this Agreement, the Stockholders shall sell to Sub, and Sub shall purchase from the Stockholders, the Shares for an aggregate purchase price equal to Eleven Million Four Hundred Fifty Thousand Dollars ($11,450,000.00) (the "Base Price"), which Base Price is subject to adjustment after Closing as provided in SECTION 1.2 hereof. At the Closing referred to in SECTION 1.1(b) hereof: (i) the Stockholders shall sell, assign, transfer and deliver to Sub the Shares representing 100% of the outstanding Common Stock, free and clear of all Liens (as defined in SECTION 10.11), and shall deliver the certificates representing such Shares accompanied by stock powers duly executed in blank; and (ii) Sub shall accept and purchase the Shares from the Stockholders and in payment therefor shall deliver to the Stockholders immediately available funds in an aggregate amount equal to the Base Price by wire transfer to an account designated in writing by the Stockholders or by certified funds. (b) CLOSING. Subject to the conditions set forth in this Agreement, the purchase and sale of the Shares pursuant to this Agreement (the "Closing") shall take place at the offices of Rogers & Hardin, 2700 Cain Tower, Peachtree Center, 229 Peachtree Street, N.E., Atlanta, Georgia 30303, or such other location as the parties shall agree upon, at 10:00 a.m. as soon as practicable following the date on which all conditions to the obligations of the parties hereunder (other than those requiring an exchange of certificates, opinions or other documents, or the taking of other action, at the Closing) have been satisfied or waived but no later than the earlier of a date ten (10) business days following the satisfaction of all conditions described in Sections 6.2 and 7.2 or April 30, 1996. The date on which the Closing occurs is herein referred to as the "Closing Date". (c) DELIVERIES AT THE CLOSING. Subject to the conditions set forth in this Agreement, at the Closing: (i) the Stockholders shall deliver to Sub (A) certificates representing the Shares bearing the restrictive legend customarily placed on securities that have not been registered under applicable federal and state securities laws and accompanied by stock powers as required by SECTION 1.1(a)(i) hereof, and any other documents that are necessary to transfer to Sub good title to all the Shares, and (B) all 2 opinions, certificates and other instruments and documents required to be delivered by the Stockholders at or prior to the Closing or otherwise required in connection herewith; (ii) Sub shall pay and deliver to the Stockholders funds as required by SECTION 1.1(a)(ii) hereof and all opinions, certificates and other instruments and documents required to be delivered by Sub at or prior to the Closing or otherwise required in connection herewith; (iii) Rayman & Keffer Investments ("Landlord"), a Georgia partnership having the two (2) Stockholders as equal partners, and the Company shall enter into a lease for the real property used in the business of the Company in a form mutually acceptable to the parties (the "Lease") and the Stockholders shall guarantee the performance of the Landlord's obligations thereunder and UAG shall guarantee the performance and obligations of Sub thereunder. The Lease shall be for a twenty (20) year term commencing on the Closing Date. The initial lease rate shall be the [current lease rate] per year ("Base Rate"), payable monthly, and (x) on the fifth anniversary of the Closing Date (the "Fifth Anniversary") shall increase to an amount equal to the Base Rate plus an amount equal to a percentage of the Base Rate, which percentage shall be three-fourths (3/4) of the percentage increase in the Consumer Price Index published from time to time by the United States Department of Labor ("CPI") between the Closing Date and the Fifth Anniversary (such increased lease rate hereinafter the "Increased Rate"), and (y) on the tenth anniversary of the Closing Date (the "Tenth Anniversary") shall increase to an amount equal to the Increased Rate plus an amount equal to a percentage of the Increased Rate, which percentage shall be three-fourths (3/4) of the percentage increase in the CPI between the Fifth Anniversary and the Tenth Anniversary (such increased lease rate being referred to as the "Second Increased Rate"), and (z) on the fifteenth anniversary of the Closing Date (the "Fifteenth Anniversary") shall increase to an amount equal to the Second Increased Rate plus an amount equal to a percentage of the Second Increased Rate, which percentage shall be three-fourths (3/4) of the percentage increase in the CPI between the Tenth Anniversary and the Fifteenth Anniversary (such increased lease rate being referred to as the "Third Increased Rate"). The lease shall provide the Company with 3 the option to extend the lease term for an additional five-year period (the "First Option") commencing on the twentieth anniversary of the Closing Date ("Twentieth Anniversary") at a rate equal to the Third Increased Rate plus a percentage of the Third Increased Rate, which percentage shall be three-fourths (3/4) of the percentage increase in the CPI between the Fifteenth Anniversary and the Twentieth Anniversary (such increased lease rate being referred to as the "Fourth Increased Rate"). The lease shall further provide that, in the event the Company exercises the First Option, the Company shall have the option to extend the lease term for an additional five-year period commencing with the twenty-fifth anniversary of the Closing Date ("Twenty-Fifth Anniversary") at a rate equal to the Fourth Increased Rate plus a percentage of the Fourth Increased Rate, which percentage shall be three-fourths (3/4) of the percentage increase in the CPI between the Twentieth Anniversary and the Twenty-Fifth Anniversary. 1.2 NET WORTH ADJUSTMENT. (a) As soon as practicable after the Closing Date, the Stockholders shall deliver to Sub a balance sheet of the Company dated as of the Closing Date (such balance sheet so delivered is referred to herein as the "Closing Date Balance Sheet"). The Closing Date Balance Sheet shall be prepared in good faith on the same basis and in accordance with the accounting principles, methods and practices used in preparing the Company Financial Statements (as defined in SECTION 2.5 hereof), subject to the modifications, adjustments and exceptions to such accounting principles, methods and practices set forth on SCHEDULE 1.2(a) hereto (such accounting principles, methods and practices as so modified and adjusted, and such procedures, are referred to herein as the "Accounting Principles"). In connection with the preparation of the Closing Date Balance Sheet, the Stockholders and the Company and the Reviewer (as defined below) and other representatives of Sub will conduct a physical inventory at each location where inventory is held by the Company. From the results of such inventory and prior to the Closing Date, Sub and the Stockholders (or the respective representatives thereof) will prepare a schedule, which shall be signed by each of Sub and the Stockholders, setting forth the nature and quality of such inventory and such other items as shall be agreed upon by Sub and 4 the Stockholders to be included in the Closing Date Balance Sheet. (b) Within forty-five (45) days after delivery of the Closing Date Balance Sheet, (i) Coopers & Lybrand or such other national accounting firm (the "Reviewer") selected by Sub, shall audit or otherwise review the Closing Date Balance Sheet in such manner as Sub and the Reviewer deem appropriate, and (ii) Sub shall deliver such reviewed balance sheet (the "Reviewed Balance Sheet"), together with the Reviewer's report thereon, to the Stockholders. The Reviewed Balance Sheet (i) shall be prepared on the same basis and in accordance with the Accounting Principles and (ii) shall include a schedule showing the computation of the Final Net Worth (as defined in SECTION 1.2(g)(i) hereof), computed in accordance with the definition of Net Worth set forth in SECTION 1.2(g)(ii) hereof. Sub and the Reviewer shall have the opportunity to consult with the Stockholders, the Company and each of the accountants and other representatives of the Stockholders and the Company and examine the work papers, schedules and other documents prepared by the Stockholders, the Company and each of such accountants and other representatives during the preparation of the Closing Date Balance Sheet. The Stockholders and the Stockholders' independent public accountants shall have the opportunity to consult with the Reviewer and examine the work papers, schedules and other documents prepared by Sub and the Reviewer during the preparation of the Reviewed Balance Sheet. (c) The Stockholders shall have a period of forty-five (45) days after delivery to the Stockholders of the Reviewed Balance Sheet to present in writing to Sub all objections the Stockholders may have to any of the matters set forth or reflected therein, which objections shall be set forth in reasonable detail. During said forty-five (45) day period, the Stockholders, their accountants and other representatives of the Stockholders may, at the office of the Company or the office of the Reviewer, as determined by Stockholders, examine Reviewer's work papers, schedules, research notes and all correspondence between Reviewer and Sub or UAG or any representative of Sub or UAG, which relate to the Closing Date Balance Sheet or Reviewed Balance Sheet and any entry thereto made, considered or proposed by Reviewer. If no objections are raised within such 45-day period, the Reviewed Balance Sheet shall be deemed accepted and approved by the Stockholders and a supplemental closing (the 5 "Supplemental Closing") shall take place within five (5) Business Days following the expiration of such 45-day period, or on such other date as may be mutually agreed upon in writing by Sub and the Stockholders. (d) If the Stockholders shall raise any objection within the 45-day period, Sub and the Stockholders shall attempt to resolve the matter or matters in dispute and, if resolved, the Supplemental Closing shall take place within five (5) Business Days following such resolution. (e) If such dispute cannot be resolved by Sub and the Stockholders within sixty (60) days after the delivery of the Reviewed Balance Sheet, then the specific matters in dispute shall be submitted to a firm of independent certified public accountants having a reputation for special expertise in automobile dealership accounting and mutually acceptable to Sub and the Stockholders, which firm shall make a final and binding determination as to such matter or matters. Such accounting firm shall send its written determination to Sub and the Stockholders and the Supplemental Closing, if any, shall take place five (5) Business Days following the receipt of such determination by Sub and the Stockholders. The fees and expenses of the accounting firm referred to in this SECTION 1.2(e) shall be paid one half by Sub and one half by the Stockholders. (f) Sub and the Stockholders agree to cooperate with each other and each other's authorized representatives and with any accounting firm selected by Sub and the Stockholders pursuant to SECTION 1.2 (e) hereof in order that any and all matters in dispute shall be resolved as soon as practicable. (g) (i) If the Net Worth as shown on the Reviewed Balance Sheet as finally determined through the operation of SECTIONS 1.2 (a) THROUGH (e) hereof (such amount being referred to herein as the "Final Net Worth") shall be less than One Million Eight Hundred Thousand Dollars ($1,800,000.00) (the amount of any such deficiency being referred to herein as the "Net Worth Deficiency"), the Stockholders shall pay to Sub at the Supplemental Closing, by wire transfer of immediately available funds to an account designated in writing by Sub within two (2) Business Days of the date of the Supplemental Closing, an amount equal to the Net Worth Deficiency, together with interest on such amount from the Closing Date to the date of the Supplemental Closing at the 6 prime rate or its equivalent (as announced from time to time by Citibank, N.A.). (i) If the Final Net Worth shall be more than One Million Eight Hundred Thousand Dollars ($1,800,000.00) (the amount of any such excess being referred to herein as the "Net Worth Excess"), Sub shall pay to the Stockholders at the Supplemental Closing, by wire transfer of immediately available funds to an account designated in writing by the Stockholders within two (2) Business Days of the date of the Supplemental Closing, an amount equal to the Net Worth Excess, together with interest on such amount from the Closing Date to the date of the Supplemental Closing at the prime rate or its equivalent (as announced from time to time by Citibank, N.A.). (ii) "Net Worth" computed in connection with the Closing Date Balance Sheet and the Reviewed Balance Sheet shall mean the amount by which the total assets exceed the total liabilities reflected, in each case, on the balance sheet of Company comprising the Closing Date Balance Sheet or the Reviewed Balance Sheet, as the case may be. 1.3 PURCHASE AND SALE OF THE COMPUTER. The Computer system presently utilized by Company is separately owned by Stockholders and accordingly will not appear as an asset of the Company on the Closing Date Balance Sheet. Sub agrees, as of the Closing Date, to acquire said Computer System from Stockholders for One Hundred Seventy Five Thousand Dollars ($175,000) and to make payment therefor in the manner described in Section 1.1(a)(ii). The Computer System shall be transferred to Sub (or Company at Sub's election) free and clear of all liens and encumbrances and subject to all of the other representations and warranties of Stockholders contained in the Agreement. 7 ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS Subject to the parties' agreement and acknowledgement that certain of the Schedules referred to in this Article 2 are to be delivered by the Company and the Stockholders after the execution and delivery of this Agreement, the Company and the Stockholders hereby jointly and severally represent and warrant to UAG and Sub as follows: 2.1 ORGANIZATION AND GOOD STANDING. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Georgia and has the corporate power and authority to own, lease and operate the properties used in its business and to carry on its business as now being conducted. The Company is duly qualified to do business and is in good standing as a foreign corporation in each state and jurisdiction where qualification as a foreign corporation is required, except for such failures to be qualified and in good standing, if any, which when taken together with all other such failures of the Company would not, or could not reasonably be expected to, in the aggregate have a Material Adverse Effect (as defined in SECTION 10.11 hereof). SCHEDULE 2.1(a) hereto lists (i) the states and other jurisdictions where the Company is so qualified and (ii) the assumed names under which the Company conducts business and has conducted business during the past five years. Attached as SCHEDULE 2.1(b) are complete and correct copies of the Company's Articles of Incorporation and Bylaws as amended and presently in effect. 2.2 SUBSIDIARIES. The Company does not have any interest or investment in any Person (as defined in SECTION 10.11 hereof). 8 2.3 CAPITALIZATION. The authorized stock of the Company and the number of shares of capital stock that are issued and outstanding are set forth on SCHEDULE 2.3 hereto. The shares listed on SCHEDULE 2.3 hereto constitute all the issued and outstanding shares of capital stock of the Company and have been validly authorized and issued, are fully paid and nonassessable, have not been issued in violation of any preemptive rights or of any federal or state securities law and no personal liability attaches to the ownership thereof. There is no security, option, warrant, right, call, subscription, agreement, commitment or understanding of any nature whatsoever, fixed or contingent, that directly or indirectly (i) calls for the issuance, sale, pledge or other disposition of any shares of capital stock of the Company or any securities convertible into, or other rights to acquire, any shares of capital stock of the Company, or (ii) obligates the Company to grant, offer or enter into any of the foregoing, or (iii) relates to the voting or control of such capital stock, securities or rights, except as provided in this Agreement. The Company has not agreed to register any securities under the Securities Act. 2.4 AUTHORITY; APPROVALS AND CONSENTS. The Company has the corporate power and authority to enter into this Agreement and the Lease and to perform its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and the Lease and the consummation of the transactions contemplated hereby and thereby have been duly authorized and approved by the Board of Directors of the Company and no other corporate proceedings on the part of the Company are necessary to authorize and approve this Agreement or the Lease and the transactions contemplated hereby and thereby. This Agreement has been, and on the Closing Date the Lease will be, duly executed and delivered by, and constitute a valid and binding obligation of, the Company, enforceable against the Company in accordance with its terms. The execution, delivery and performance by the Company and the Stockholders of this Agreement and the Lease and the consummation of the transactions contemplated hereby and thereby do not and will not: (i) contravene any provisions of the Articles of Incorporation or By-Laws of the Company; 9 (ii) (after notice or lapse of time or both) conflict with, result in a breach of any provision of, constitute a default under, result in the modification or cancellation of, or give rise to any right of termination or acceleration in respect of, any Company Agreement (as defined in SECTION 2.15 hereof) or, require any consent or waiver of any party to any Company Agreement; (iii) result in the creation of any Lien upon, or any Person obtaining any right to acquire, any properties, assets or rights of the Company (other than the rights of Sub to acquire the Shares pursuant to this Agreement); (iv) violate or conflict with any Legal Requirements (as defined in SECTION 2.9 hereof) applicable to the Company or any of its businesses or properties; or (v) require any authorization, consent, order, permit or approval of, or notice to, or filing, registration or qualification with, any governmental, administrative or judicial authority, except the Georgia administrative agency governing the sale of motor vehicles, and except in connection with or in compliance with the provisions of the H-S-R Act (as defined in SECTION 5.11 hereof). Except as referred to above, no permit or approval of, or notice to any governmental, administrative or judicial authority is necessary to be obtained or made by the Company to enable the Company to continue to conduct its business and operations and use its properties after the Closing in a manner which is in all material respects consistent with that in which they are presently conducted. 2.5 FINANCIAL STATEMENTS. Attached as SCHEDULE 2.5 are true and complete copies of: (i) (A)the reviewed balance sheet of the Company as of December 31, 1995 (the "Company Balance Sheet"), and the related statements of income, stockholders' equity and cash flow for the fiscal year ended December 31, 1995, together with the notes thereto, in each case examined by and accompanied by the report of independent certified public 10 accountants, and (B) the reviewed balance sheet of the Company as of December 31, 1994, and the related statements of income, stockholders' equity and cash flow for the fiscal year ended December 31, 1994, together with the notes thereto, in each case examined by and accompanied by the report of independent certified public accountants; and (ii) the most recent monthly and year-to-date financial statements provided to Nissan Motor Corporation USA (the "Company Factory Statements"); (the financial statements referred to in clause (i) above, including the notes thereto, being referred to herein collectively as the "Company Financial Statements"). The Company Financial Statements, which reflect that Company and the Stockholders have elected to taxation under Subchapter S of the Internal Revenue Code of 1986, as amended (the "Code"), are in accordance with the books and records of the Company, fairly present the consolidated financial position, results of operations, stockholders' equity and changes in the financial position of the Company as of the dates and for the periods indicated, in the case of the financial statements referred to in clause (i) above in conformity with GAAP consistently applied (except as otherwise indicated in such statements) during such periods, and can be legitimately reconciled with the financial statements and the financial records maintained and the accounting methods applied by the Company for federal income tax purposes, and the unaudited financial statements included in the Company Financial Statements include all adjustments, which consist of only normal recurring accruals, necessary for such fair presentations. The statements of income included in the Company Financial Statements do not contain any items of special or nonrecurring income except as expressly specified therein, and the balance sheets included in the Company Financial Statements do not reflect any write-up or revaluation increasing the book value of any assets from their acquisition cost except as expressly stated therein. The books and accounts of the Company are complete and correct in all material respects and fairly reflect all of the transactions, items of income and expense and all assets and liabilities of the businesses of the Company consistent with prior practices of the Company. 2.6 ABSENCE OF UNDISCLOSED LIABILITIES. 11 The Company does not have any liability of any nature whatsoever (whether known or unknown, due or to become due, accrued, absolute, contingent or otherwise), including, without limitation, any unfunded obligation under employee benefit plans or arrangements as described in SECTION 2.17 AND 2.18 hereof or liabilities for Taxes (as defined in SECTION 2.8 hereof), except for (i) liabilities reflected or reserved against in the Closing Date Balance Sheet, (ii) current liabilities incurred in the ordinary course of business and consistent with past practice after the date of the Closing Date Balance Sheet which relate to matters occurring prior to the Closing Date and which, individually and in the aggregate, do not have, and cannot reasonably be expected to have, a Material Adverse Effect, and (iii) liabilities disclosed on SCHEDULE 2.6 hereto. Provided, however, the existence of a liability or liabilities not reserved against in the Closing Statement Balance Sheet shall not be deemed a violation of this representation and warranty unless and except to the extent that there is an increase in the net amount of liabilities reflected in the Reviewed Balance Sheet. The Company is not a party to any Company Agreement, or subject to any articles of incorporation or bylaw provision, any other corporate limitation or any Legal Requirement which has, or can reasonably be expected to have, a Material Adverse Effect. 2.7 ABSENCE OF MATERIAL ADVERSE EFFECT; CONDUCT OF BUSINESS. (a) Since December 31, 1994, except as set forth on SCHEDULE 2.7(a) hereto, the Company has operated in the ordinary course of business consistent with past practice and there has not been: (i) any material adverse change in the assets, properties, business, operations, prospects, net income or financial condition of the Company and no factor, event, condition, circumstance or prospective development exists which threatens or may threaten to have a Material Adverse Effect; (ii) any material loss, damage, destruction or other casualty to the property or other assets of the Company, whether or not covered by insurance; (iii) any change in any method of accounting or accounting practice of the Company; or 12 (iv) any loss of the employment, services or benefits of any key employee of the Company. (b) Since December 31, 1994, except as set forth in SCHEDULE 2.7(b) hereto, the Company has not: (i) incurred any material obligation or liability (whether absolute, accrued, contingent or otherwise), except in the ordinary course of business consistent with past practice; (ii) failed to disclose or satisfy any lien or pay or satisfy any obligation or liability (whether absolute, accrued, contingent or otherwise), other than liabilities being contested in good faith and for which adequate reserves have been provided and liabilities incurred to acquire vehicles in inventory; (iii) mortgaged, pledged or subjected to any lien any of its property or other assets except for floor plan liens, mechanics' liens, and liens for taxes not yet due and payable; (iv) sold or transferred any assets or cancelled any debts or claims or waived any rights, except in the ordinary course of business consistent with past practice; (v) defaulted on any material obligation; (vi) entered into any material transaction, except in the ordinary course of business consistent with past practice; (vii) through the date illustrated on the last Company Factory Statement written down the value of any inventory or written off as uncollectible any accounts receivable or any portion thereof not reflected in the Company Financial Statements; (viii) granted any increase in the compensation or benefits of employees other than increases in accordance with past practice not exceeding 10% or entered into any employment or severance agreement or arrangement with any of them; 13 (ix) made any individual capital expenditure in excess of $75,000, or aggregate capital expenditures in excess of $200,000, or additions to property, plant and equipment other than ordinary repairs and maintenance; (x) discontinued any franchise or the sale of any products or product line; (xi) incurred any obligation or liability to any employee for the payment of severance benefits; or (x) entered into any agreement or made any commitment to do any of the foregoing. 2.8 TAXES. The Company and, for any period during all or part of which the tax liability of any other corporation was determined on a combined or consolidated basis with the Company any such other corporation, have filed timely all federal, state, local and foreign tax returns, reports and declarations required to be filed (or have obtained or timely applied for an extension with respect to such filing) correctly reflecting the Taxes (as defined below) and all other information required to be reported thereon and have paid, or made adequate provision for the payment of, all Taxes which are due pursuant to such returns or pursuant to any assessment received by the Company or any such other corporation. As used herein, "Taxes" shall mean all taxes, fees, levies or other assessments, including but not limited to income, excise, property (including property taxes paid by the Company pursuant to any lease), sales, franchise, withholding, social security and unemployment taxes imposed by the United States, any state, county, local or foreign government, or any subdivision or agency thereof or taxing authority therein, and any interest, penalties or additions to tax relating to such taxes, charges, fees, levies or other assessments. Copies of all tax returns for each fiscal year since the formation of the Company have been furnished or made available to UAG or its representatives and such copies are accurate and complete as of the date hereof. The Company has also furnished or made available to UAG correct and complete copies of all notices and correspondence sent or received since the formation of the Company by the Company to or from any federal, state or local tax authorities. The Company 14 has adequately reserved for the payment of all Taxes with respect to periods ended on, prior to or through the date of the Company Balance Sheet for which tax returns have not yet been filed. In the ordinary course, the Company makes adequate provision on its books for the payment of all Taxes (including for the current fiscal period) owed by the Company. Except to the extent reserves therefor are reflected on the Company Balance Sheet, the Company is not liable, or will not become liable, for any Taxes for any period ending on, prior to or through the date of the Company Balance Sheet. On the Closing Date Balance Sheet, the Company will have adequately reserved for the payment of any Taxes for any period ending on, prior to or through the date of the Closing Date Balance Sheet. Except as set forth on SCHEDULE 2.8 hereto, the Company has not been subject to a federal or state tax audit of any kind, and no adjustment has been proposed by the Internal Revenue Service ("IRS") with respect to any return for any subsequent year. With respect to the audits referred to on SCHEDULE 2.8 hereto, no such audit has resulted in an adjustment in excess of $50,000. Neither the Company nor the Stockholders knows of any basis for an assertion of a deficiency for Taxes against the Company. The Stockholders will cooperate with the Company in the filing of any returns and in any audit or refund claim proceedings involving Taxes for which the Company may be liable or with respect to which the Company may be entitled to a refund. Sub and UAG acknowledge that so long as Company has made a valid election to be taxed under Subchapter S of the Code, Company's books will not reflect any accrual for unpaid income taxes. 15 2.9 LEGAL MATTERS. (a) Except as set forth on SCHEDULE 2.9(a) hereto, (i) there is no claim, action, suit, litigation, investigation, inquiry, review or proceeding (collectively, "Claims") pending against, or, to the knowledge of the Company or the Stockholders, threatened against or affecting, the Company, any ERISA Plan (as defined in SECTION 2.18(a) hereof) or any of their respective assets, properties or rights before or by any court, arbitrator, panel, agency or other governmental, administrative or judicial entity, domestic or foreign, nor is any basis known to the Stockholders or the Company for any such Claims, and (ii) the Company is not subject to any judgment, decree, writ, injunction, ruling or order (collectively, "Judgments") of any governmental, administrative or judicial authority, domestic or foreign. SCHEDULE 2.9(a) hereto identifies each Claim and Judgment disclosed thereon which is fully covered by an insurance policy. (b) The businesses of the Company are being conducted in compliance with all laws, ordinances, codes, rules, regulations, standards, judgments and other requirements of all governmental, administrative or judicial entities (collectively, "Legal Requirements") applicable to the Company or any of its respective businesses or properties, except where the failure to be in such compliance could not reasonably be expected to have a Material Adverse Effect. The Company holds, and is in compliance with, all franchises, licenses, permits, registrations, certificates, consents, approvals or authorizations (collectively, "Permits") required by all applicable Legal Requirements except where the failure to hold or be in compliance with such Permits could not reasonably be expected to have a Material Adverse Effect. A list of all such permits is set forth on SCHEDULE 2.9(b) hereof. (c) The Company owns or holds all Permits material to the conduct of its business. No event has occurred and is continuing which permits, or after notice or lapse of time or both would permit, any modification or termination of any Permit. 2.10 PROPERTY. (a) The properties and assets owned by or leased to the Company are adequate for the conduct of the respective businesses of the Company as presently conducted. Set forth on SCHEDULE 2.10 hereto is a list of all interests in real property owned by 16 or leased to the Company (including all real property owned or leased by the Stockholders (directly or indirectly) and used in the businesses of the Company) and of all options or other contracts to acquire any such interest (collectively, the "Real Property "). All improvements to the Real Property ("Improvements") and all machinery, equipment and other tangible property owned or used by or leased to the Company are in good operating condition and in good repair and are fit for the particular purposes for which they are used by the Company, subject only to ordinary wear and tear. Such tangible properties and all Improvements owned or leased by the Company conform in all material respects with all applicable laws, ordinances, rules and regulations and other Legal Requirements and such Improvements do not encroach in any respect on property of others. There are no latent defects with respect to the Improvements. The Real Property is currently zoned to permit the conduct of the respective businesses of the Company as presently conducted. A Certificate of Occupancy has been issued with respect to the Improvements without special conditions or restrictions. All utilities servicing the Real Property and the Improvements are provided by publicly-dedicated utility lines and are located within public rights-of-way and do not cross or encumber any private land. No notice of any pending, threatened or contemplated action by any governmental authority or agency having the power of eminent domain has been given to the Company or the Stockholders with respect to the Real Property. 2.11 ENVIRONMENTAL MATTERS. (a) Except as set forth on SCHEDULE 2.11(a) hereto, (i) the Company, the Real Property, the Improvements and any property formerly owned, occupied or leased by the Company are in full compliance with all Environmental Laws (as defined below), (ii) the Company has obtained all Environmental Permits (as defined below), (iii) such Environmental Permits are in full force and effect, and (iv) the Company is in full compliance with all terms and conditions of such Environmental Permits. As used herein, "Environmental Laws" shall mean all applicable requirements of environmental, public or employee health and safety, public or community right-to-know, ecological or natural resource laws or regulations or controls, including all applicable requirements imposed by any law (including without limitation common law), rule, order, or regulations of any federal, state, or local executive, legislative, judicial, regulatory, or administrative 17 agency, board, or authority, or any applicable private agreement (such as covenants, conditions and restrictions), which relate to, (i) noise, (ii) pollution or protection of the air, surface water, groundwater, or soil, (iii) solid, gaseous, or liquid waste generation, treatment, storage, disposal or transportation, (iv) exposure to Hazardous Materials (as defined below), or (v) regulation of the manufacture, processing, distribution and commerce, use, or storage of Hazardous Materials. As used herein, "Environmental Permits" shall mean all permits, licenses, approvals, authorizations, consents or registrations required under applicable Environmental Law in connection with the ownership, use and/or operation of the Company's business or the Real Property or Improvements. As used in this SECTION 2.11, "Hazardous Materials" shall mean, collectively, (i) those substances included within the definitions of or identified as "hazardous chemicals," "hazardous waste," "hazardous substances," "hazardous materials," "toxic substances" or similar terms in or pursuant to, without limitation, the Comprehensive Environmental Response Compensation and Liability Act of 1980 (42 U.S.C. 9601 ET SEQ.) ("CERCLA"), as amended by Superfund Amendments and Reauthorization Act of 1986 (Pub. L. 99-499, 100 State, 1613), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 ET SEQ.) ("RCRA"), the Occupational Safety and Health Act of 1970 (29 U.S.C. Section 651 ET SEQ.) ("OSHA"), and the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 ET SEQ. ("HMTA"), and in the regulations promulgated pursuant to such laws, all as amended, (ii) those substances listed in the United States Department of Transportation Table (49 CFR 172.101 and amendments thereto) or by the Environmental Protection Agency (or any successor agency) as hazardous substances (40 CFR part 302 and amendments thereto), (iii) any material, waste or substance which is or contains (A) petroleum, including crude oil or any fraction thereof, natural gas, or synthetic gas usable for fuel or any mixture thereof, (B) asbestos, (C) polychlorinated biphenyls, (D) designated as a "hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. Section 1251 ET SEQ. (33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. Section 1317), (E) flammable explosives, (F) radioactive materials, and (iv) such other substances, materials and wastes which are or become regulated or classified as hazardous, toxic or as "special wastes" under any Environmental Laws. 18 (b) The Company and the Stockholders have not violated, done or suffered any act which could give rise to liability under, and are not otherwise exposed to liability under, any Environmental Law. No event has occurred with respect to the Real Property, the Improvements or any property formerly owned, occupied or leased by the Company, which, with the passage of time or the giving of notice, or both, would constitute a violation of or non-compliance with any applicable Environmental Law. The Company has no contingent liability under any Environmental Law. There are no liens under any Environmental Law on the Real Property. (c) Except as set forth on SCHEDULE 2.11(c) hereto, (i) neither the Company, the Real Property or any portion thereof, the Improvements or any property formerly owned, occupied or leased by the Company, nor, to the knowledge of the Company or the Stockholders, any property adjacent to the Real Property is being used or has been used for the treatment, generation, transportation, processing, handling, production or disposal of any Hazardous Materials or as a landfill or other waste disposal site (provided, however, that certain petroleum products are stored and handled on the Real Property in the ordinary course of the Company's business in full compliance with all Environmental Laws including the existing regulations of the United States Environmental Protection Agency and the State of Georgia requiring spill protection, overfill protection and corrosion protection by December 22, 1998), (ii) none of the Real Property or portion thereof, the Improvements or any property formerly owned, occupied or leased by the Company has been subject to investigation by any governmental authority evaluating the need to investigate or undertake Remedial Action (as defined below) at such property, and (iii) none of the Real Property, the Improvements or any property formerly owned, occupied or leased by the Company, or, to the knowledge of the Company or the Stockholders, any site or location where the Company sent waste of any kind, is identified on the current or proposed (A) National Priorities List under 40 C.F.R. 300 Appendix B, (B) Comprehensive Environmental Response Compensation and Liability Inventory System list, or (C) any list arising from any statute analogous to CERCLA. As used herein, "Remedial Action" shall mean any action required to (i) clean up, remove or treat Hazardous Materials, (ii) prevent a release or threat of release of any Hazardous Material, (iii) perform pre-remedial studies, investigations or post-remedial monitoring and care, (iv) cure a violation of Environmental Law 19 or (v) take corrective action under sections 3004(u), 3004(v) or 3008(h) of RCRA or analogous state law. (d) Except as set forth on SCHEDULE 2.11(d) hereto, there have been and are no (i) aboveground or underground storage tanks, subsurface disposal systems, or wastes, drums or containers disposed of or buried on, in or under the ground or any surface waters, (ii) asbestos or asbestos containing materials or radon gas, (iii) polychlorinated biphenyls ("PCB") or PCB-containing equipment, including transformers, or (iv) wetlands (as defined under any Environmental Law) located within any portion of the Real Property, nor have any liens been placed upon any portion of the Real Property, the Improvements or any property formerly owned, occupied or leased by the Company in connection with any actual or alleged liability under any Environmental Law. (e) Except as set forth on SCHEDULE 2.11(e) hereto, (i) there is no pending or threatened claim, litigation, or administrative proceeding, or known prior claim, litigation or administrative proceeding, arising under any Environmental Law involving any of the Company, the Real Property, the Improvements, any property formerly owned, leased or occupied by the Company, any offsite contamination affecting the business of the Company or any operations conducted at the Real Property, (ii) there are no ongoing negotiations with or agreements with any governmental authority relating to any Remedial Action or other environmentally related claim, (iii) the Company has not submitted notice pursuant to Section 103 of CERCLA or analogous statute or notice under any other applicable Environmental Law reporting a release of a Hazardous Material into the environment, and (iv) the Company has not received any notice, claim, demand, suit or request for information from any governmental or private entity with respect to any liability or alleged liability under any Environmental Law, nor to knowledge of the Stockholders and the Company, has any other entity whose liability therefor, in whole or in part, may be attributed to the Company, received such notice, claim, demand, suit or request for information. (f) The Stockholders and the Company have provided to UAG all environmental studies and reports obtained by them or known to them pertaining to the Real Property, the Improvements, the Company and any property formerly owned, occupied or leased by the Company, and have permitted (or will have permitted as of 20 the Closing Date), the testing of the soil, groundwater, building components, tanks, containers and equipment on the Real Property, the Improvements, and any property formerly owned, occupied or leased by the Company, by UAG or UAG's agents or experts as they have or shall have deemed necessary or appropriate to confirm the condition of such properties. 2.12 INVENTORIES. The values at which inventories are carried on the Company Balance Sheet reflect the normal inventory valuation policies of the Company incorporating the LIFO method for new vehicles, and such values are in conformity with GAAP consistently applied. All inventories reflected on the Company Balance Sheet and Company Factory Statement or arising since the date thereof are currently marketable and can reasonably be anticipated to be sold at normal mark-ups within 120 days after the date hereof in the ordinary course of business (subject to the reserve for obsolete, off-grade or slow-moving items that is reflected in the Company Balance Sheet or will be reflected in the Closing Date Balance Sheet), except for spare parts inventory which inventory is good and usable. 2.13 ACCOUNTS RECEIVABLE. In the aggregate all accounts receivable reflected on the Company Balance Sheet are, and all accounts receivable that will be or will have been reflected on the Closing Date Balance Sheet will be, good, and to the extent of the net amount (I.E., after any reserve for doubtful or uncollectible accounts) have been or will have been collected or are collectible, without resort to litigation, within 90 days of the Closing Date, and are subject to no defenses, setoffs or counterclaims other than normal cash discounts accrued in the ordinary course of business. 21 2.14 INSURANCE. Except for the lives of key personnel all material properties and assets of the Company which are of an insurable character are insured against loss or damage by fire and other risks to the extent and in the manner reasonable in light of the risks attendant to the businesses and activities in which the Company is engaged and customary for companies engaged in similar businesses or owning similar assets. Set forth on SCHEDULE 2.14 hereto is a list and brief description (including the name of the insurer, the type of coverage provided, the amount of the annual premium for the current policy period, the amount of remaining coverage and deductibles and the coverage period) of all policies for such insurance and the Company has made or will make available to UAG true and complete copies of all such policies. All such policies are in full force and effect sufficient for all applicable requirements of law and will not in any way be effected by or terminated or lapsed by reason of the consummation of the transactions contemplated by this Agreement and the Lease. No notice of cancellation or non-renewal with respect to, or disallowance of any claim under, any such policy has been received by the Company. 2.15 CONTRACTS; ETC. As used in this Agreement, the term "Company Agreements" shall mean all mortgages, indenture notes, agreements, contracts, leases, licenses, franchises, obligations, instruments or other commitments, arrangements or understandings of any kind, whether written or oral, binding or non-binding, (including all leases and other agreements referred to on SCHEDULE 2.10 hereto) to which the Company is a party or by which the Company or any of its assets or properties (including the Real Property and the Improvements) may be bound or affected, including all amendments, modifications, extensions or renewals of any of the foregoing. Set forth on SCHEDULE 2.15 hereto is a complete and accurate list of each Company Agreement which is material to the businesses, operations, assets, condition (financial or otherwise) or prospects of the Company. True and complete copies of all written Company Agreements referred to on SCHEDULE 2.15 and SCHEDULE 2.10 hereto, exclusive of individual vehicle titles and/or manufacturer's certificates of origin and floor plan liens applicable to individual vehicles, have been delivered or made available to UAG, and the Company has provided UAG with accurate 22 and complete written summaries of all such Company Agreements which are unwritten. Except as set forth on SCHEDULE 2.15, the Company is not, nor, to the knowledge of the Company and the Stockholders is, any other party thereto, in breach of or default under any Company Agreement, and no event has occurred which (after notice or lapse of time or both) would become a breach or default under, or would permit modification, cancellation, acceleration or termination of, any Company Agreement or result in the creation of any Lien upon, or any Person obtaining any right to acquire, any properties, assets or rights of the Company in any such case where such breach, default or other event would have, or could reasonably be expected to have, a Material Adverse Effect. There are no material unresolved disputes involving any Company under any Company Agreement. 2.16 LABOR RELATIONS. (a) The Company has paid or made provision for the payment of all salaries and accrued wages and has complied in all material respects with all applicable laws, rules and regulations relating to the employment of labor, including those relating to wages, hours, collective bargaining and the payment and withholding of taxes, and has withheld and paid to the appropriate governmental authority, or is holding for payment not yet due to such authority, all amounts required by law or agreement to be withheld from the wages or salaries of its employees. (b) Except as described in Section 6.13 and as set forth on SCHEDULE 2.16(b) hereto, the Company is not a party to any (i) outstanding employment agreements or contracts with officers or employees that are not terminable at will, or that provide for payment of any bonus or commission, (ii) agreement, policy or practice that requires it to pay termination or severance pay to salaried, non-exempt or hourly employees (other than as required by law), (iii) collective bargaining agreement or other labor union contract applicable to persons employed by the Company, nor do the Stockholders or the Company know of any activities or proceedings of any labor union to organize any such employees. The Company has furnished to UAG complete and correct copies of all such agreements ("Employment and Labor Agreements"). The Company has not breached or otherwise failed to comply with any provisions of any Employment or Labor Agreement. 23 (c) Except as set forth in SCHEDULE 2.16(c) hereto, (i) there is no unfair labor practice charge or complaint pending before the National Labor Relations Board ("NLRB"), (ii) there is no labor strike, material slowdown or material work stoppage or lockout actually pending or, to the Stockholders' or the Company's knowledge, threatened, against or affecting the Company, and the Company has not experienced any strike, material slow down or material work stoppage, lockout or other collective labor action by or with respect to employees of the Company, (iii) there is no representation claim or petition pending before the NLRB or any similar foreign agency and no question concerning representation exists relating to the employees of the Company, (iv) there are no charges with respect to or relating to the Company pending before the Equal Employment Opportunity Commission or any state, local or foreign agency responsible for the prevention of unlawful employment-practices, (v) the Company has not received formal notice from any federal, state, local or foreign agency responsible for the enforcement of labor or employment laws of an intention to conduct an investigation of the Company and, to the knowledge of the Company, no such investigation is in progress and (vi) the consents of the unions that are parties to any Employment and Labor Agreements are not required to complete the transactions contemplated by this Agreement and the Documents. (d) The Company has never caused any "plant closing" or "mass layoff" as such actions are defined in the Worker Adjustment and Retraining Notification Act, as codified at 29 U.S.C. Sections 2101-2109, and the regulations promulgated therein. 2.17 EMPLOYEE BENEFIT PLANS. (a) Set forth on SCHEDULE 2.17(a) hereto is a true and complete list of: (i) each employee pension benefit plan, as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974 ("ERISA"), maintained by the Company or to which the Company is required to make contributions ("Pension Benefit Plan"); and (ii) each employee welfare benefit plan, as defined in Section 3(i) of ERISA, maintained by the Company or to 24 which the Company is required to make contributions ("Welfare Benefit Plan"). True and complete copies of all Pension Benefit Plans and Welfare Benefit Plans (collectively, "ERISA Plans") have been delivered to or made available to UAG together with, as applicable with respect to each such ERISA Plan, trust agreements, summary plan descriptions, all IRS determination letters or applications therefor with respect to any Pension Benefit Plan intended to be qualified pursuant to Section 401 (a) of the Internal Revenue Code of 1986, as amended (the "Code"), and valuation or actuarial reports, accountant's opinions, financial statements, IRS Form 5500s (or 5500-C or 5500-R) and summary annual reports for the last three years. (b) With respect to the ERISA Plans, except as set forth on SCHEDULE 2.17(b): (i) there is no ERISA Plan which is a " multiemployer" plan as that term is defined in Section 3(37) of ERISA ("Multiemployer Plan"); (ii) no event has occurred or (to the knowledge of the Company or the Stockholders) is threatened or about to occur which would constitute a prohibited transaction under Section 406 of ERISA or under Section 4975 of the Code; (iii) each ERISA Plan has operated since its inception in accordance with the reporting and disclosure requirements imposed under ERISA and the Code and has timely filed Form 5500e (or 5500-C or 5500-R) and predecessors thereof; and (iv) no ERISA Plan is liable for any federal, state, local or foreign Taxes. (c) Each Pension Benefit Plan intended to be qualified under Section 401(a) of the Code: (i) has been qualified, from its inception, under Section 401(a) of the Code, and the trust established thereunder has been exempt from taxation under Section 501(a) of the Code and is currently in compliance with applicable federal laws; 25 (ii) has been operated, since its inception, in accordance with its terms and there exists no fact which would adversely affect its qualified status; and (iii) is not currently under investigation, audit or review by the IRS or (to the knowledge of the Company or the Stockholders) no such action is contemplated or under consideration and the IRS has not asserted that any Pension Benefit Plan is not qualified under Section 401(a) of the Code or that any trust established under a Pension Benefit Plan is not exempt under Section 501(a) of the Code. (d) With respect to each Pension Benefit Plan which is a defined benefit plan under Section 414(j) and, for the purpose solely of SECTION 2.17(d)(iv) hereof, each defined contribution plan under Section 414(i) of the Code: (i) no liability to the Pension Benefit Guaranty Corporation ("PBGC") under Sections 4062-4064 of ERISA has been incurred by the Company since the effective date of ERISA and all premiums due and owing to the PBGC have been timely paid; (ii) the PBGC has not notified the Company or any Pension Benefit Plan of the commencement of proceedings under Section 4042 of ERISA to terminate any such plan; (iii) no event has occurred since the inception of any Pension Benefit Plan or (to the knowledge of the Company or the Stockholders) is threatened or about to occur which would constitute a reportable event within the meaning of Section 4043(b) of ERISA; (iv) no Pension Benefit Plan ever has incurred any "accumulated funding deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code); and (v) if any of such Pension Benefit Plans were to be terminated on the Closing Date (A) no liability under Title IV of ERISA would be incurred by the Company and (B) all benefits accrued to the day prior to the Closing Date (whether or not vested) would be fully funded in accordance with the actuarial assumptions and method utilized by such plan for valuation purposes. 26 (e) With respect to each Pension Benefit Plan, SCHEDULE 2.17(e) contains a list of all Pension Benefit Plans to which ERISA has applied which have been or are being terminated, or for which a termination is contemplated, and a description of the actions taken by the PBGC and the IRS with respect thereto. (f) The approximate aggregate of the amounts of contributions by the Company to be paid or accrued under ERISA Plans for the current fiscal year is set forth on SCHEDULE 2.17(f) (the "Aggregate ERISA Contributions"), and the Aggregate ERISA Contributions are not expected to exceed the total amount set forth on SCHEDULE 2.17(f). To the extent required in accordance with GAAP, the Company Balance Sheet reflects in the aggregate an accrual of all amounts of employer contributions accrued but unpaid by the Company under the ERISA Plans as of the date of the Company Balance Sheet. (g) With respect to any Multiemployer Plan (1) the Company has not, since its formation, made or suffered a "complete withdrawal" or "partial withdrawal" as such terms are respectively defined in Sections 4203 and 4205 of ERISA; (2) there is no withdrawal liability of the Company under any Multiemployer Plan, computed as if a "complete withdrawal" by the Company had occurred under each such Plan as of December 31, 1995; and (3) the Company has not received notice to the effect that any Multiemployer Plan is either in reorganization (as defined in Section 4241 of ERISA) or insolvent (as defined in Section 4245 of ERISA). (h) With respect to the Welfare Benefit Plans: (i) There are no liabilities of the Company under Welfare Benefit Plans with respect to any condition which relates to a claim filed on or before the Closing Date. (ii) No claims for benefits are in dispute or litigation. 2.18 OTHER BENEFIT AND COMPENSATION PLANS OR ARRANGEMENTS. (a) Set forth on SCHEDULE 2.18(a) hereto is a true and complete list of: 27 (i) each employee stock purchase, employee stock option, employee stock ownership, deferred compensation, performance, bonus, incentive, vacation pay, holiday pay, insurance, severance, retirement, excess benefit or other plan, trust or arrangement which is not an ERISA Plan whether written or oral, which the Company maintains or is required to make contributions to; (ii) each other agreement, arrangement, commitment and understanding of any kind, whether written or oral, with any current or former officer, director or consultant of the Company pursuant to which payments may be required to be made at any time following the date hereof (including, without limitation, any employment, deferred compensation, severance, supplemental pension, termination or consulting agreement or arrangement); and (iii) each employee of the Company whose aggregate compensation for the fiscal year ended December 31, 1995 exceeded, and whose aggregate compensation for the fiscal year ended December 31, 1996 is likely to exceed, $50,000. True and complete copies of all of the written plans, arrangements and agreements referred to on SCHEDULE 2.18(a) ("Compensation Commitments") have been provided to UAG together with, where prepared by or for the Company, any valuation, actuarial or accountant's opinion or other financial reports with respect to each Compensation Commitment for the last three years. An accurate and complete written summary has been provided to UAG with respect to any Compensation Commitment which is unwritten. (b) Each Compensation Commitment: (i) since its inception, has been operated in all material respects in accordance with its terms; (ii) is not currently under investigation, audit or review by the IRS or any other federal or state agency and (to the knowledge of the Company or the Stockholders) no such action is contemplated or under consideration; (iii) has no liability for any federal, state, local or foreign Taxes; 28 (iv) has no claims subject to dispute or litigation; (v) has met all applicable requirements, if any, of the Code; and (vi) has operated since its inception in material compliance with the reporting and disclosure requirements imposed under ERISA and the Code. 2.19 TRANSACTIONS WITH INSIDERS. Set forth on SCHEDULE 2.19 hereto is a complete and accurate description of all material transactions between the Company or any ERISA Plan, on the one hand, and any Insider, on the other hand, that have occurred since January 1, 1995. For purposes of this Agreement: (i) the term "Insider" shall mean the Stockholders, any director or officer of the Company, and any Affiliate, Associate or Relative of any of the foregoing persons; (ii) the term "Associate" used to indicate a relationship with any person means (A) any corporation, partnership, joint venture or other entity of which such person is an officer or partner or is, directly or indirectly, through one or more intermediaries, the beneficial owner of 30% or more of (1) any class or type of equity securities or other profits interest or (2) the combined voting power of interests ordinarily entitled to vote for management or otherwise, and (B) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; and (iii) a "Relative" of a person shall mean such person's spouse, such person's parents, sisters, brothers, children and the spouses of the foregoing, and any member of the immediate household of such person. 29 2.20 PROPRIETY OF PAST PAYMENTS. No funds or assets of the Company have been used for illegal purposes; no unrecorded funds or assets of the Company have been established for any purpose; no accumulation or use of the Company's corporate funds or assets has been made without being properly accounted for in the respective books and records of the Company; all payments by or on behalf of the Company have been duly and properly recorded and accounted for in their respective books and records; no false or artificial entry has been made in the books and records of the Company for any reason; no payment has been made by or on behalf of the Company with the understanding that any part of such payment is to be used for any purpose other than that described in the documents supporting such payment; and the Company has not made, directly or indirectly, any illegal contributions to any political party or candidate, either domestic or foreign. Neither the IRS nor any other federal, state, local or foreign government agency or entity has initiated or threatened any investigation of any payment made by the Company of, or alleged to be of, the type described in this SECTION 2.20. 2.21 INTEREST IN COMPETITORS. Except as set forth on SCHEDULE 2.21, neither the Company nor the Stockholders, nor any of their Affiliates, have any interest, either by way of contract or by way of investment (other than as holder of not more than 2% of the outstanding capital stock of a publicly traded Person, so long as such holder has no other connection or relationship with such Person) or otherwise, directly or indirectly, in any Person other than the Company that is engaged in the retail sale of automobiles in Georgia. 2.22 BROKERS. Neither the Company, nor any director, officer or employee thereof, nor the Stockholders or any representative of the Stockholders, has employed any broker or finder or has incurred or will incur any broker's, finder's or similar fees, commissions or expenses, in each case in connection with the transactions contemplated by this Agreement or the Lease. 30 2.23 ACCOUNTS. SCHEDULE 2.23 hereof correctly identifies each bank account maintained by or on behalf or for the benefit of the Company and the name of each person with any power or authority to act with respect thereto. 2.24 DISCLOSURE. Neither the Company nor any Stockholder has made any material misrepresentation to UAG relating to the Company or the Shares and neither the Company nor any Stockholders has omitted to state to UAG any material fact relating to the Company or the Shares which is necessary in order to make the information given by or on behalf of the Company or the Stockholders to UAG not misleading or which if disclosed would reasonably affect the decision of a person considering an acquisition of the Shares. No fact, event, condition or contingency exists or has occurred which has, or in the future can reasonably be expected to have, a Material Adverse Effect, which has not been disclosed in the Company's Financial Statements or the schedules to this Agreement. 2.25 NET WORTH AND WORKING CAPITAL. The Net Worth of the Company, as determined in accordance with the Accounting Principles, will be equal to or greater than One Million Eight Hundred Thousand Dollars ($1,800,000.00) on the Closing Date. The working capital of the Company, as reflected on the Estimated Closing Date Balance Sheet (as defined in Section 6.6 hereof) will be not less than the amount required by Nissan Motor Corporation USA. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS Each Stockholder hereby jointly and severally represents and warrants to UAG and Sub as follows: 3.1 OWNERSHIP OF SHARES; TITLE. 31 Each Stockholder is the owner of record and beneficially of the Shares set forth on SCHEDULE 3.1 hereof and has, and shall transfer to Sub at the Closing, good and marketable title to the Shares owned by him, free and clear of any and all Liens, claims and encumbrances and free and clear of any restrictions on transfer (other than restrictions on transfer imposed by applicable federal and state securities laws), proxies and voting or other agreements. 3.2 AUTHORITY. Each Stockholder has all requisite power and authority and has full legal capacity and is competent to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby (including the disposition of the Shares to Sub as contemplated by this Agreement). This Agreement has been duly executed and delivered by each Stockholder and constitutes a valid and binding obligation of each Stockholder, enforceable against each Stockholder in accordance with its terms. Except as set forth on SCHEDULE 3.2, the execution, delivery and performance of this Agreement by each Stockholder and the consummation of the transactions contemplated hereby do not and will not: (i) (after notice or lapse of time or both) conflict with, result in a breach of any provision of, constitute a default under, result in the modification or cancellation of, or give rise to any right of termination or acceleration in respect of, any material contract, agreement, commitment, understanding, arrangement or restriction to which any Stockholder is a party or to which any Stockholder or any of such Stockholders's property is subject; (ii) violate or conflict with any Legal Requirements applicable to any Stockholder or any of such Stockholder's businesses or properties; or (iii) require any authorization, consent, order, permit or approval of, or notice to, or filing, registration or qualification with, any governmental, administrative or judicial authority, except in connection with or in compliance with the provisions of the H-S-R Act, and except to the extent such is required by the Georgia administrative agency governing the sale of motor vehicles. 32 3.3 REAL PROPERTY AND IMPROVEMENTS. The Stockholders are the only two partners in Landlord. Landlord owns the Real Property and Improvements in fee simple, free and clear of all Liens, claims and encumbrances, except those disclosed in SCHEDULE 3.3(a), none of which currently or, to each Stockholder's knowledge, in the future will affect the use of the Real Property or the Improvements for the conduct of the respective businesses of the Company as presently conducted. No assessments have been made against any portion of the Real Property which are unpaid (except ad valorem taxes for the current year that are not yet due and payable), whether or not they have become Liens. There are no disputes concerning the location of the lines and corners of the Real Property. No one has been granted any right to purchase or lease the Real Property or Improvements other than the existing lease in favor of the Company, which is to be terminated at Closing. Attached as SCHEDULE 3.3 are all surveys, title binders, title policies and copies of any exceptions to title. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF UAG AND SUB UAG and Sub hereby represent and warrant to the Company and the Stockholders as follows: 4.1 ORGANIZATION AND GOOD STANDING. Each of UAG and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation and has the corporate power and authority to own, lease and operate the properties used in its business and to carry on its business as now being conducted. Each of UAG and each of its subsidiaries is duly qualified to do business and is in good standing as a foreign corporation in each state and jurisdiction where qualification as a foreign corporation is required, except for such failures to be qualified and in good standing, if any, which when taken together with all other such failures of UAG and its subsidiaries would not, or could not reasonably be expected to, in the aggregate have a material adverse effect on UAG and its subsidiaries, taken as a whole. 33 4.2 AUTHORITY; APPROVALS AND CONSENTS. UAG and Sub have the corporate power and authority to enter into this Agreement and to perform their respective obligations hereunder. This Agreement has been duly executed and delivered by, and constitutes valid and binding obligation of, UAG and Sub, enforceable against UAG and Sub in accordance with its terms. Except as set forth on SCHEDULE 4.3 hereto, the execution, delivery and performance by UAG and Sub of this Agreement and the consummation of the transactions contemplated hereby do not and will not: (i) contravene any provisions of the certificate of incorporation or bylaws of UAG or Sub; (ii) (after notice or lapse of time or both) conflict with, result in a breach of any provision of, constitute a default under, result in the modification or cancellation of, or give rise to any right of termination or acceleration in respect of, any UAG Agreement (as defined below) or, require any consent or waiver of any party to any UAG Agreement other than agreements the breach or violation of which could not reasonably be expected to have a material adverse effect on UAG and its subsidiaries, taken as a whole; (iii) violate or conflict with any Legal Requirements applicable to UAG or any of its subsidiaries or any of their respective businesses or properties; or (iv) require any authorization, consent, order, permit or approval of, or notice to, or filing, registration or qualification with, any governmental, administrative or judicial authority, except in connection with or in compliance with the provisions of the H-S-R Act. 4.3 BROKERS. Neither UAG, Sub nor any of their directors, officers or employees has employed any broker or finder or has incurred or will incur any broker's, finder's or similar fees, commissions or expenses, in each case in connection with the transactions contemplated by this Agreement or the Lease. 34 4.4 DISCLOSURE. Neither UAG nor Sub has made any material misrepresentation to the Stockholders and neither UAG nor Sub has omitted to state to the Stockholders any material fact relating to UAG or Sub which is necessary in order to make the information given by UAG or Sub not misleading or which if disclosed would reasonably affect the decision of a person considering the sale of the Shares. ARTICLE 5 COVENANTS AND ADDITIONAL AGREEMENTS 5.1 ACCESS; CONFIDENTIALITY. Between the date hereof and the completion of due diligence as set forth in SECTION 6.7 hereof, the Stockholders and the Company will (i) provide to the officers and other authorized representatives of UAG and Sub, who will proceed knowing and realizing that only a limited number of Company employees have or will have any knowledge of a possible change of ownership of Company and that such information if generally made known to other employees of Company could cause substantial economic loss to Company, reasonable access, during normal business hours, to any and all premises, properties, files, books, records, documents, and other information of the Company and will cause the Company's officers to furnish to UAG and its authorized representatives any and all financial, technical and operating data and other information pertaining to the businesses and properties of the Company (including the Real Property and the Improvements), and (ii) make available for inspection and copying by UAG and Sub true and complete copies of any documents relating to the foregoing. UAG and Sub will hold, and will cause their representatives to hold, in confidence (unless and to the extent compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law) all Confidential Information (as defined below) and will not disclose the same to any third party except in connection with obtaining financing and otherwise as may reasonably be necessary to carry out this Agreement and the transactions contemplated hereby, including any due diligence review by or on behalf of UAG and Sub. If this Agreement is terminated, UAG and Sub will, and will cause their representatives to, promptly return to the Company, 35 all Confidential Information furnished by the Company, including all copies and summaries thereof. As used herein, "Confidential Information" shall mean all information concerning the Company obtained by UAG, Sub and their representatives from the Company in connection with the transactions contemplated by this Agreement, except information (x) ascertainable or obtained from public information, (y) received from a third party not employed by or otherwise affiliated with the Company or (z) which is or becomes known to the public, other than through a breach by UAG or Sub or any of their representatives of this Agreement. 5.2 FURNISHING INFORMATION; ANNOUNCEMENTS. The Stockholders and the Company, on the one hand, and UAG and Sub, on the other hand, will, as soon as practicable after reasonable request therefor, furnish to the other all the information concerning the Stockholders and the Company or UAG and Sub, respectively, required for inclusion in any statement or application made by UAG or Sub or the Company or the Stockholders to any governmental or regulatory body or to any manufacturer or distributor or in connection with obtaining any third party consent in connection with the transactions contemplated by this Agreement. Neither the Stockholders or the Company, on the one hand, nor UAG or Sub, on the other hand, nor any representative thereof, shall issue any press releases or otherwise make any public statement with respect to the transactions contemplated hereby without the prior consent of the other, except as may be required by law. In performing its due diligence UAG and Sub will, without the prior consent of Rayman, refrain from informing any employee of Company about any aspects of a potential change in ownership of Company. 5.3 CERTAIN CHANGES AND CONDUCT OF BUSINESS. (a) From and after the date of this Agreement and until the Closing Date, the Company shall, and the Stockholders shall cause the Company to, conduct its businesses solely in the ordinary course consistent with past practices and, without the prior written consent of UAG, neither the Stockholders nor the Company will, except as required or permitted pursuant to the terms hereof, permit the Company to: (i) make any material change in the conduct of its businesses and operations or enter into any transaction other 36 than in the ordinary course of business consistent with past practices; (ii) make any change in its Articles of Incorporation or Bylaws, issue any additional shares of capital stock or equity securities or grant any option, warrant or right to acquire any capital stock or equity securities or issue any security convertible into or exchangeable for its capital stock or alter any material term of any of its outstanding securities or make any change in its outstanding shares of capital stock or other ownership interests or its capitalization, whether by reason of a reclassification, recapitalization, stock split or combination, exchange or readjustment of shares, stock dividend or otherwise; (iii) (A) incur, assume or guarantee any indebtedness for borrowed money, issue any notes, bonds, debentures or other corporate securities or grant any option, warrant or right to purchase any thereof, except pursuant to transactions in the ordinary course of business consistent with past practices, (B) issue any securities convertible or exchangeable for debt securities of the Company, or (C) issue any options or other rights to acquire from the Company, directly or indirectly, debt securities of the Company or any security convertible into or exchangeable for such debt securities; (iv) make any sale, assignment, transfer, abandonment or other conveyance of any of its assets or any part thereof, except transactions pursuant to existing contracts (which will be set forth in SCHEDULE 2.15 hereto) and dispositions in the ordinary course of business consistent with past practices; (v) subject any of its assets, or any part thereof, to any lien or suffer such to be imposed other than such liens as may arise in the ordinary course of business consistent with past practices; (vi) declare, set aside or pay any dividends or other distribution (whether in cash, stock, property or any combination thereof) in respect of any shares of its capital stock which would decrease the Net Worth of the Company below One Million Eight Hundred Thousand Dollars ($1,800,000.00) or 37 redeem, retire, purchase or otherwise acquire, directly or indirectly, any shares of its capital stock; (vii) acquire any assets, raw materials or properties, or enter into any other transaction, other than in the ordinary course of business consistent with past practices; (viii) enter into any new (or amend any existing) employee benefit plan, program or arrangement or any new (or amend any existing) employment, severance or consulting agreement, grant any general increase in the compensation of officers or employees (including any such increase pursuant to any bonus, pension, profit-sharing or other plan or commitment) or grant any increase in the compensation payable or to become payable to any employee, except in accordance with pre-existing contractual provisions or consistent with past practices; (ix) make or commit to make any individual material capital expenditure in excess of $50,000, or aggregate capital expenditures in excess of $150,000, except in the ordinary course of business; (x) pay, loan or advance any amount to, or sell, transfer or lease any properties or assets to, or enter into any agreement or arrangement with, any of its Affiliates, except in the ordinary course of business; (xi) guarantee any indebtedness for borrowed money or any other obligation of any other Person, other than in the ordinary course of business consistent with past practice; (xii) fail to keep in full force and effect insurance comparable in amount and scope to coverage maintained by it (or on behalf of it) on the date hereof; (xiii) make any loan, advance or capital contribution to or investment in any Person, except in the ordinary course of business; (xiv) make any change in any method of accounting or accounting principle, method, estimate or practice except for any such change required by reason of a concurrent change in 38 GAAP or write-down the value of any inventory or write-off as uncollectible any accounts receivable except in the ordinary course of business consistent with past practices; (xv) settle, release or forgive any material claim or litigation or waive any material right; (xvi) make, enter into, modify, amend in any material respect or terminate any material commitment, bid or expenditure, other than in the ordinary course of business consistent with past practice; or (xvii) commit itself to do any of the foregoing. (b) From and after the date hereof and until the Closing Date, the Stockholders and the Company will use their reasonable best efforts to cause the Company to: (i) continue to maintain, in all material respects, the Company's properties, the Real Property and the Improvements in accordance with present practices in a condition suitable for their current use; (ii) comply with all applicable Environmental Laws, and, in the event it shall receive notice that there exists a violation of any Environmental Law with respect to its operations, the Improvements or any Real Property, promptly (and in any event within the time period permitted by the applicable governmental authority) remove or remedy such violation in accordance with all applicable Environmental Laws; (iii) file, when due or required, federal, state, foreign and other tax returns and other reports required to be filed and pay when due all taxes, assessments, fees and other charges lawfully levied or assessed against it unless the validity thereof is contested in good faith and by appropriate proceedings diligently conducted; (iv) keep its books of account, records and files in the ordinary course and in accordance with existing practices; 39 (v) preserve its business organization intact and continue to maintain existing business relationships with suppliers, customers and others with whom business relationships exist other than relationships that are, at the same time, not economically beneficial to it; and (vi) continue to conduct its business in the ordinary course consistent with past practices. 5.4 NO INTERCOMPANY PAYABLES OR RECEIVABLES. At the Closing there will be no intercompany payables or intercompany receivables due and/or owing between the Stockholders and any of their Affiliates, on the one hand, and the Company, on the other hand. 5.5 NEGOTIATIONS. Until the earlier of 180 days from the date hereof or the termination of this Agreement pursuant to SECTION 8.1 hereof, no Stockholder, nor the Company, nor the Company's officers, directors, employees, advisors, agents, representatives, Affiliates or anyone acting on behalf of the Stockholders, the Company or such persons, shall, directly or indirectly, encourage, solicit, initiate or engage in discussions or negotiations with, or provide any information to, any person (other than UAG or its representatives) concerning any merger, sale of assets (other than in the ordinary course of business), purchase or sale of shares of capital stock or similar transaction involving the Company. The Stockholders shall promptly communicate to UAG any inquiries or communications concerning any such transaction (including the identity of any person making such inquiry or communication) which the Stockholders may receive or of which the Stockholders may become aware. 5.6 CONSENTS; COOPERATION. Subject to the terms and conditions hereof, the Stockholders and the Company and UAG and Sub will use their respective best efforts at their own expense: (i) to obtain prior to the earlier of the date required (if so required) or the Closing Date, all waivers, permits, licenses, approvals, authorizations, qualifications, 40 orders and consents of all third parties and governmental authorities, and make all filings and registrations with governmental authorities which are required on their respective parts for (A) the consummation of the transactions contemplated by this Agreement, (B) the ownership or leasing and operating after the Closing by the Company of all its material properties and (C) the conduct after the Closing by the Company of its businesses as conducted by it on the date hereof. (ii) to defend, consistent with applicable principles and requirements of law, any lawsuit or other legal proceedings, whether judicial or administrative, whether brought derivatively or on behalf of third persons (including governmental authorities) challenging this Agreement or the transactions contemplated hereby; and (iii) to furnish each other such information and assistance as may reasonably be requested in connection with the foregoing. 5.7 ADDITIONAL AGREEMENTS. Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to use its best efforts at its own expense to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers of the Company shall take all such necessary action. 41 5.8 INTERIM FINANCIAL STATEMENTS. Within five (5) days of the execution of this Agreement or thirty (30) days after the end of each calendar month after December 31, 1995, whichever occurs later, the Company will deliver to UAG unaudited balance sheets of the Company at the end of such calendar month and at the end of the corresponding calendar month of the preceding fiscal year, together with the related unaudited statements of income for the fiscal months then ended. The Company will also deliver to UAG copies of the Company Factory Statements provided to Nissan after the date hereof within five days of their delivery to Nissan. All such financial statements shall fairly present the financial position and results of operations of the Company as of the date or for the periods indicated. All unaudited financial statements delivered pursuant to this SECTION 5.9 shall be prepared on a basis consistent with the Company Financial Statements. 42 5.9 NOTIFICATION OF CERTAIN MATTERS. Between the date hereof and the Closing, each party to this Agreement will to the extent known to such party after diligent inquiry, give prompt notice in writing to the other party hereto of: (i) any information that indicates that any representation and warranty of such party contained herein was not true and correct as of the date made or will not be true and correct as of the Closing, (ii) the occurrence of any event which could result in the failure to satisfy a condition specified in ARTICLE 6 or ARTICLE 7 hereof, as applicable, (iii) any notice or other communication from any third person alleging that the consent of such third person is or may be required in connection with the transactions contemplated by this Agreement, and (iv) in the case of the Stockholders and the Company, any notice of, or other communication relating to, any default or event which, with notice or lapse of time or both, would become a default under any Company Agreement set forth on SCHEDULE 2.15. The Company and the Stockholders will (x) to the extent known to either of them after diligent inquiry, promptly advise UAG of any event that has, or could reasonably be expected in the future to have, a Material Adverse Effect on the Company, (y) confer on a regular and frequent basis with one or more designated representatives of UAG to report operational matters and to report the general status of ongoing operations, and (z) to the extent known to either of them after diligent inquiry, notify UAG of any emergency or other change in the normal course of business or relating to the Real Property or Improvements of the Company and of any governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated) or adjudicatory proceedings involving the Company, the Real Property or the Improvements and will keep UAG fully informed of such events and permit UAG's representatives access to all materials prepared in connection therewith. Each Stockholder shall give prompt notice to UAG of any notice or other communication from any third person asserting any right, title or interest in any of the Shares held by such Stockholder (including, without limitation, any threat to commence, or notice of the commencement of any action or other proceeding with respect to the Shares) or the occurrence of any other event of which such Stockholder has knowledge which could result in any failure to consummate the sale of the Shares as contemplated hereby. 43 5.10 ASSURANCE BY THE STOCKHOLDERS. Each Stockholder shall use its best efforts to cause the Company to comply with its respective covenants set forth in this Agreement. 5.11 ANTITRUST IMPROVEMENTS ACT COMPLIANCE. UAG, the Stockholders and the Company, as applicable, shall each file or cause to be filed with the Federal Trade Commission and the United States Department of Justice any notifications required to be filed by the respective "ultimate parent" entities under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R Act"), and the rules and regulations promulgated thereunder, with respect to the transactions contemplated herein. The parties shall use their best efforts to make such filings promptly, to respond to any requests for additional information made by either of such agencies, to cause the waiting periods under the H-S-R Act to terminate or expire at the earliest possible date and to resist vigorously, at their respective cost and expense (including, without limitation, the institution or defense of legal proceedings), any assertion that the transactions contemplated herein constitute a violation of the antitrust laws, all to the end of expediting consummation of the transactions contemplated herein; PROVIDED, HOWEVER, that if UAG or the Stockholders shall determine after issuance of any preliminary injunction that continuing such resistance is not in its or their best interests, UAG or the Stockholders, as the case may be, may, by written notice to the other party, terminate this Agreement with the effect set forth in SECTION 8.2 hereof. ARTICLE 6 CONDITIONS TO THE OBLIGATIONS OF UAG AND SUB TO EFFECT THE CLOSING The obligations of UAG and Sub required to be performed by them at the Closing shall be subject to the satisfaction, at or prior to the Closing, of each of the following conditions, each of which may be waived by UAG and Sub as provided herein except as otherwise required by applicable law: 44 6.1 REPRESENTATIONS AND WARRANTIES; AGREEMENTS; COVENANTS. Each of the representations and warranties of the Company and the Stockholders contained in this Agreement shall be true and correct on the date made and shall be true and correct in all material respects as of the Closing. Each of the obligations of the Company and the Stockholders required by this Agreement to be performed by them at or prior to the Closing shall have been duly performed and complied with in all material respects as of the Closing. At the Closing, Sub shall have received a certificate, dated the Closing Date and duly executed by the Stockholders and the chief financial officer of the Company, to the effect that the conditions set forth in the two preceding sentences have been satisfied. 6.2 AUTHORIZATION; CONSENTS. (a) All corporate action necessary to authorize the execution, delivery and performance of this Agreement and the Lease, and the consummation of the transactions contemplated hereby shall have been duly and validly taken by the Company. All filings required to be made under the H-S-R Act in connection with the transactions contemplated hereby shall have been made and all applicable waiting periods with respect to each such filing, including extensions thereof, shall have expired or been terminated. (b) All notices to, and declarations, filings and registrations with, and consents, authorizations, approvals and waivers from, governmental and regulatory bodies and third persons (including, but not limited to, all automobile manufacturers with whom the Company has a franchise agreement (or comparable instrument)) required to consummate the transactions contemplated hereby and all consents or waivers shall have been made or obtained. 6.3 OPINIONS OF THE COMPANY'S AND THE STOCKHOLDERS' COUNSEL. UAG and Sub shall have been furnished with the opinion of the Company's and the Stockholders' counsel, dated the Closing Date, in form and substance reasonably satisfactory to UAG and Sub and their counsel, which opinion shall have been rendered with respect to those matters contained in SECTIONS 2.1, 2.2, 45 2.3, 2.4, 2.9, 3.1 AND 3.2 hereof. In rendering the foregoing opinion, such counsel may rely as to factual matters upon certificates or other documents furnished by officers and directors of the Company and by government officials and upon such other documents and data as such counsel deem appropriate as a basis for their opinions. Such opinions may be limited to Georgia and federal laws. 6.4 ABSENCE OF LITIGATION. No order, stay, injunction or decree of any court of competent jurisdiction in the Untied States shall be in effect (i) that prevents or delays the consummation of any of the transactions contemplated hereby or (ii) would impose any limitation on the ability of UAG or Sub effectively to exercise full rights of ownership of the Shares. No action, suit or proceeding before any court or any governmental or regulatory entity shall be pending (or threatened by any governmental or regulatory entity), and no investigation by any governmental or regulatory entity shall have been commenced (and be pending), seeking to restrain or prohibit (or questioning the validity or legality of) the consummation of the transactions contemplated by this Agreement or seeking damages in connection therewith which UAG or Sub, in good faith and with the advice of counsel, believes makes it undesirable to proceed with the consummation of the transactions contemplated hereby. 6.5 NO MATERIAL ADVERSE EFFECT. During the period from December 31, 1995 to the Closing Date, there shall not have been any material adverse change in the assets, properties, business, operations, prospects, net income or financial condition of the Company, except for the distribution of those dividends which are permissible under Section 5.3(vi). 46 6.6 WORKING CAPITAL REQUIREMENTS. On the Closing Date, the Stockholders shall deliver to Sub a balance sheet of the Company dated as of the most recent practicable date preceding the Closing Date, prepared in accordance with the Accounting Principles (the "Estimated Closing Date Balance Sheet"). The Estimated Closing Date Balance Sheet shall show as of the date thereof, after taking into account the payment of any of the fees, costs and expenses by the Company incurred in connection with this Agreement, net working capital of not less than the amount required by Nissan Motor Corporation USA. 6.7 COMPLETION OF DUE DILIGENCE. UAG and Sub shall have completed their due diligence examination of the Company, the Real Property and the Improvements and the results of such examination, including any Phase I or Phase II environmental audits of the Company, shall be satisfactory to UAG and Sub; PROVIDED, HOWEVER, that, with the exception of due diligence relating to any environmental issues, such due diligence shall be completed, and shall be deemed completed, no later than forty-five (45) days after the execution of this Agreement. Sub will pay the costs for a Phase I environmental audit. If, after obtaining the results of the Phase I environmental audit, Sub determines that a Phase II environmental audit is required, then Sub and Stockholders shall agree as to a suitable company for the performance thereof, and the expenses of performing the Phase II environmental audit shall be paid one-half by Sub and one-half by the Stockholders. 6.8 LEASE. The Landlord and the Company shall have entered into the Lease. 6.9 BOARD APPROVAL. The Board of Directors of UAG and Sub shall have approved the consummation of all of the transactions contemplated by this Agreement. 6.10 CERTIFICATES. 47 The Stockholders and the Company shall have furnished UAG and Sub with a certificate, dated as of the Closing Date, executed by the Stockholders certifying to the fulfillment of the conditions set forth in Section 6.5, 6.6 and 6.14 hereof and shall have furnished UAG and Sub with such any other certificates of its officers and others as UAG and Sub may reasonably request to evidence compliance with the conditions set forth in this ARTICLE 6. 6.11 LEGAL MATTERS. All certificates, instruments, opinions and other documents required to be executed or delivered by or on behalf of the Stockholders and the Company under the provisions of this Agreement, and all other actions and proceedings required to be taken by or on behalf of the Stockholders and the Company in furtherance of the transactions contemplated hereby, shall be reasonably satisfactory in form and substance to counsel for UAG and Sub. 6.12 APPROVAL OF MANUFACTURER AND DISTRIBUTOR. The Stockholders and the Company shall have obtained the consent, authorization and approval of Nissan Motor Corporation USA on terms no less favorable to those granted to the Company immediately prior to the execution of this Agreement. 6.13 EMPLOYMENT AGREEMENT. The Company and Bruce Dunker shall have entered into an employment agreement for the employment of Bruce Dunker as Executive Manager of the Company. 6.14 ENVIRONMENTAL LAWS. The Company shall be in compliance with all applicable Environmental Laws. 48 6.15 NONDISTURBANCE AGREEMENT. The Landlord shall have obtained a nondisturbance agreement in form and substance satisfactory to the Company and UAG. 6.16 TITLE INSURANCE. UAG shall have obtained title insurance on behalf of Company with respect to its leasehold estate in form and substance satisfactory to UAG. 6.17 LEASE TERMINATION AGREEMENT/MEMORANDUM OF LEASE. The appropriate parties shall have executed a Lease Termination Agreement and a Memorandum of Lease in form and substance satisfactory to UAG and the Company. 6.18 RESIGNATION OF THE COMPANY'S DIRECTORS. Each of the persons who is a director of the Company on the Closing Date shall have tendered to Sub in writing his resignation as such in form and substance satisfactory to UAG. 6.19 SCHEDULES. The Company and the Stockholders shall have delivered to UAG and Sub all Schedules referred to in ARTICLES 2 AND 3 and such Schedules shall be acceptable in form and substance to UAG and Sub. ARTICLE 7 CONDITIONS TO THE OBLIGATIONS OF THE STOCKHOLDERS TO EFFECT THE CLOSING The obligations of the Stockholders and the Company required to be performed by them at the Closing shall be subject to the satisfaction, at or prior to the Closing, of each of the following conditions, each of which may be waived by the Company and the Stockholders as provided herein except as otherwise required by applicable law: 49 7.1 REPRESENTATIONS AND WARRANTIES; AGREEMENTS. Each of the representations and warranties of UAG and Sub contained in this Agreement shall be true and correct on the date made and shall be true and correct in all material respects as of the Closing. Each of the obligations of UAG and Sub required by this Agreement to be performed by them at or prior to the Closing shall have been duly performed and complied with in all material respects as of the Closing. At the Closing, the Stockholders shall have received a certificate, dated the Closing Date and duly executed by the chief financial officer of UAG and of Sub to the effect that the conditions set forth in the preceding two sentences have been satisfied. 7.2 AUTHORIZATION OF THE AGREEMENT, CONSENTS. (a) All corporate action necessary to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, including but not limited to UAG's guarantee of Sub's lease with Landlord, shall have been duly and validly taken by UAG and Sub. All filings required to be made under the H-S-R Act in connection with the transactions contemplated hereby shall have been made and all applicable waiting periods with respect to each such filing, including extensions thereof, shall have expired or been terminated. (b) All notices to, and declarations, filings and registrations with, and consents, authorizations, approvals and waivers from, governmental and regulatory bodies and third persons (including, but not limited to, all automobile manufacturers with whom the Company has entered into a franchise agreement (or comparable instrument)) required to consummate the transactions contemplated hereby and all consents or waivers shall have been made or obtained. 50 7.3 OPINIONS OF UAG'S AND SUB'S COUNSEL. The Stockholders shall have been furnished with the opinion of Rogers & Hardin, counsel to UAG and Sub, dated the Closing Date, in form and substance reasonably satisfactory to the Stockholders and their counsel, which opinions, when taken together, shall have been rendered with respect to those matters contained in SECTIONS 4.1 AND 4.2 hereof. In rendering the foregoing opinions, such counsel may rely as to factual matters upon certificates or other documents furnished by officers and directors of UAG and Sub and by government officials, and upon such other documents and data as such counsel deems appropriate as a basis for its opinion. Such opinions may be limited to Georgia and federal laws and the General Corporation Law of the State of Delaware. 7.4 ABSENCE OF LITIGATION. No order, stay, judgment or decree shall have been issued by any court and be in effect restraining or prohibiting the consummation of the transactions contemplated hereby. 7.5 LEASE. The Company shall have entered into the Lease. 7.6 CERTIFICATES. UAG and Sub shall have furnished the Stockholders with such certificates of its officers and others to evidence compliance with the conditions set forth in this ARTICLE 7 as may be reasonably requested by the Stockholders. 7.7 LEGAL MATTERS. All certificates, instruments, opinions and other documents required to be executed or delivered by or on behalf of UAG or Sub under the provisions of this Agreement, and all other actions and proceedings required to be taken by or on behalf of UAG or Sub in furtherance of the transactions contemplated hereby, shall be reasonably satisfactory in form and substance to counsel for the Stockholders. 51 ARTICLE 8 TERMINATION 8.1 TERMINATION. This Agreement may be terminated at any time prior to Closing: (i) by mutual consent of UAG, Sub and the Stockholders; (ii) by either UAG, Sub, or the Stockholders if the Closing shall not have taken place on or prior to the date established in Section 1.1(b), or such later date as shall have been approved by UAG, Sub and the Stockholders (provided that the terminating party is not otherwise in material breach of its representations, warranties, covenants or agreements under this Agreement); (iii) by UAG, Sub, or the Stockholders if any court of competent jurisdiction in the United States or other United States governmental body shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement, and such order, decree, ruling or other action shall have become final and non-appealable; (iv) by UAG or Sub if any of the conditions specified in ARTICLE 6 hereof have not been met or waived by UAG and Sub at such time as such condition is no longer capable of satisfaction (provided that neither UAG nor Sub is otherwise in material breach of its representations, warranties, covenants or agreements under this Agreement); (v) by the Stockholders if any of the conditions specified in ARTICLE 7 hereof have not been met or waived by the Stockholders at such time as such condition is no longer capable of satisfaction (provided that neither the Stockholders nor the Company is otherwise in material breach of his or its representations, warranties covenants or agreements under this Agreement); or 52 (vi) by either UAG, Sub or the Stockholders if there has been a material breach on the part of the other of any representation, warranty, covenant or agreement set forth in this Agreement, which breach has not been cured within ten (10) Business Days following receipt by the breaching party of written notice of such breach. If UAG, Sub or the Stockholders shall terminate this Agreement pursuant to the provisions hereof, such termination shall be effected by notice to the other parties specifying the provision hereof pursuant to which such termination is made. 8.2 EFFECT OF TERMINATION. Except (i) for any breach of this Agreement prior to its termination, and (ii) for the obligations contained in SECTIONS 5.1 AND 10.2 hereof, and (iii) as set forth in SECTION 9.1 and SECTION 9.2 hereof, upon the termination of this Agreement pursuant to SECTION 8.1 hereof, this Agreement shall forthwith become null and void and none of the parties hereto or any of their respective officers, directors, employees, agents, Affili-ates, consultants, stockholders or principals shall have any liability or obligation hereunder or with respect hereto. 53 ARTICLE 9 INDEMNIFICATION 9.1 INDEMNIFICATION BY THE STOCKHOLDERS. Notwithstanding the Closing or the delivery of the Shares, the Stockholders indemnify and agree to fully defend, save and hold harmless on an after-tax basis UAG, Sub, the Company (after the Closing), and any of their respective officers, directors, employees, stockholders, advisors, representatives, agents and Affiliates (other than the Stockholders) (each a "UAG Indemnified Party"), if a UAG Indemnified Party (including the Company after the Closing Date) shall at any time or from time to time suffer any Costs (as defined in SECTION 9.7 below) arising, directly or indirectly, out of or resulting from, or shall pay or become obligated to pay any sum on account of, (i) any and all Stockholders Events of Breach (as defined below) or (ii) any Claim before or by any court, arbitrator, panel, agency or other governmental, administrative or judicial entity, which Claim involves, affects or relates to any assets, properties or operations of the Company or the conduct of the business of the Company prior to the Closing Date (a "Stockholders Third Party Claim"). As used herein, "Stockholders Event of Breach" shall be and mean any one or more of the following: (i) any untruth or inaccuracy in any representation of any Stockholder or the Company or the breach of any warranty of any Stockholder or the Company contained in this Agreement, including, without limitation, any misrepresentation in, or omission from, any statement, certificate, schedule, exhibit, annex or other document furnished pursuant to this Agreement by any Stockholder or the Company (or any representative of any Stockholder or the Company) to UAG or Sub (or any representative of UAG or Sub) and any misrepresentation in or omission from any document furnished to UAG or Sub in connection with the Closing, and (ii) any failure of any Stockholder or the Company duly to perform or observe any term, provision, covenant, agreement or condition on the part of such Stockholder or the Company to be performed or observed under the terms of this Agreement. 54 9.2 INDEMNIFICATION BY UAG. Notwithstanding the Closing, UAG indemnifies and agrees to fully defend, save and hold harmless on an after-tax basis the Stockholders, the Company (prior to the Closing), and any of their respective officers, directors, employees, stockholders, advisors, representatives, agents and Affiliates (each a "Stockholder Indemnified Party"), if a Stockholder Indemnified Party (including the Company prior to Closing) shall at any time or from time to time suffer any Costs arising, directly or indirectly, out of or resulting from, or shall pay or become obligated to pay any sum on account of, (i) any and all UAG Events of Breach (as defined below) or (ii) any Claim before or by any court, arbitrator, panel, agency or other governmental, administrative or judicial entity, which Claim involves, affects or relates to any assets, properties or operations of UAG or Sub or the conduct of the business of UAG prior to the Closing Date (a "UAG Third Party Claim"). As used herein, "UAG Event of Breach" shall be and mean any one or more of the following: (i) any untruth or inaccuracy in any representation of UAG or Sub or the breach of any warranty of UAG or Sub contained in this Agreement, including, without limitation, any misrepresentation in, or omission from, any statement, certificate, schedule, exhibit, annex or other document furnished pursuant to this Agreement by UAG or Sub (or any representative of UAG or Sub) to the Stockholders (or any representative of the Stockholders) and any misrepresentation in or omission from any document furnished to the Stockholders in connection with the Closing, and (ii) any failure of UAG or Sub duly to perform or observe any term, provision, covenant, agreement or condition on the part of UAG or Sub to be performed or observed. 9.3 PROCEDURES. If (i) any Stockholders Event of Breach occurs or is alleged and a UAG Indemnified Party asserts that the Stockholders have become obligated to a UAG Indemnified Party pursuant to SECTION 9.1, or if any Stockholder's Third Party Claim is begun, made or instituted as a result of which the Stockholders may become obligated to a UAG Indemnified Party hereunder, or (ii) a UAG Event of Breach occurs or is alleged and a Stockholder Indemnified Party asserts that UAG has become obligated to a Stockholder Indemnified Party pursuant to SECTION 9.2, or if any UAG Third Party Claim is begun, made or instituted as a result of 55 which UAG may become obligated to a Stockholder Indemnified Party hereunder (for purposes of this ARTICLE 9, any UAG Indemnified Party and any Stockholder Indemnified Party is sometimes referred to as an "Indemnified Party" and UAG and the Stockholders are sometimes referred to as an "Indemnifying Party," and any UAG Third Party Claim and any Stockholders Third Party Claim is sometimes referred to as a "Third Party Claim," in each case as the context so requires), such Indemnified Party shall give prompt and timely written notice to the Indemnifying Party of its or his obligation to provide indemnification hereunder, provided that any failure to so notify the Indemnifying Party shall not, in the absence of any Cost to the Indemnifying Party resulting from such failure to notify, relieve them from any liability that it or he may have to the Indemnified Party under this ARTICLE 9. If such notice relates to a Third Party Claim, each Indemnifying Party, jointly and severally, agrees to defend, contest or otherwise protect such Indemnified Party against any such Third Party Claim at Indemnifying Party's sole cost and expense. Such Indemnified Party shall have the right, but not the obligation, to participate at its own expense in the defense thereof by counsel of such Indemnified Party's choice and shall in any event cooperate with and assist the Indemnifying Party to the extent reasonably possible. If the Indemnifying Party fails after written notice to timely defend, contest or otherwise protect against such Third Party Claim, such Indemnified Party shall have the right to do so, including, without limitation, the right to make any compromise or settlement thereof, and such Indemnified Party shall be entitled to recover the entire Cost thereof from the Indemnifying Party, including, without limitation, reasonable attorneys' fees, disbursements and amounts paid (or of which such Indemnified Party has become obligated to pay) as the result of such Third Party Claim. Failure by the Indemnifying Party to notify such Indemnified Party of its or their election to defend any such Third Party Claim within fifteen (15) days after notice thereof shall have been given to the Indemnifying Party shall be deemed a waiver by the Indemnifying Party of its or their right to defend such Third Party Claim. If the Indemnifying Party assumes the defense of the particular Third Party Claim, the Indemnifying Party shall not, in the defense of such Third Party Claim, consent to entry of any judgment or enter into any settlement, except with the written consent of such Indemnified Party, which consent shall not be unreasonably withheld based upon the merits and exposure to liability of that Third Party Claim. In addition, the Indemnifying Party shall not enter into any 56 settlement of any Third Party Claim (except with the written consent of such Indemnified Party) which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to such Indemnified Party the same release from liability in respect of such Third Party Claim as has been received by the Indemnifying Party. Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to control (but shall be entitled to participate at their own expense in the defense of), and the Indemnified Party shall be entitled to have sole control over, the defense or settlement of any Third Party Claim to the extent the Third Party Claim seeks an order, injunction or other equitable relief against the Indemnified Party which, if successful, could materially interfere with the business, operations, assets, condition (financial or otherwise) or prospects of the Indemnified Party; PROVIDED, HOWEVER, that the Indemnified Party shall not have sole control over, and the Indemnified Party and the Indemnifying Party shall cooperate with each other with respect to, the defense or settlement of any Third Party Claim that seeks both damages and such equitable relief against the Indemnified Party. 9.4 OFFSET. In addition to and not in limitation of all rights of offset that an Indemnified Party may have under applicable law, the parties agree that, at any Indemnified Party's option, any or all amounts owing to such Indemnified Party under this ARTICLE 9 or any other provision of this Agreement or any other liability of the other parties (or any Affiliate of the other parties) to such Indemnified Party in connection with this Agreement or the transactions contemplated hereby, may be recovered by the Indemnified Party by an offset against any or all amounts due to such other parties pursuant to this Agreement or the transactions contemplated hereby; provided, however that such shall not include offsets in Company's future rent obligations to Landlord. 9.5 REMEDIES. The rights of an Indemnified Party under this ARTICLE 9 are in addition to such other rights and remedies which such Indemnified Party may have under this Agreement, applicable law or otherwise. 9.6 LIMITATION ON INDEMNIFICATION. 57 No Indemnified Party shall be entitled to indemnification for any Costs hereunder unless the aggregate amount of Costs incurred by such party exceeds $100,000, in which event such party shall be entitled to indemnification for all such Costs, without regard to such threshold. 9.7 DEFINITIONS. For purposes of this ARTICLE 9, "Costs" shall mean all liabilities, losses, costs, damages (not including consequential damages), expenses, claims, reasonable attorneys' fees, experts' fees, consultants' fees, and disbursements of any kind or of any nature whatsoever. For purposes of application of the indemnity provisions of this ARTICLE 9, the amount of any Cost arising from the breach of any representation, warranty, covenant or agreement shall be the entire amount of any Cost suffered, paid or required to be paid by the respective Indemnified Party as a result of such breach. ARTICLE 10 MISCELLANEOUS 10.1 SURVIVAL OF PROVISIONS. The respective representations, warranties, covenants and agreements of each of the parties to this Agreement (except covenants and agreements which are expressly required to be performed and are performed in full on or before the Closing Date) shall survive the Closing Date and the consummation of the transactions contemplated by this Agreement. In the event of a breach of any such representations, warranties or covenants, the party to whom such representations, warranties or covenants have been made shall have, subject to ARTICLE 9 hereof, all rights and remedies for such breach available to it under the provisions of this Agreement or otherwise, whether at law or in equity, but in no instance for any period of time which extends more than three (3) years from the Closing Date, regardless of any disclosure to, or investigation made by or on behalf of, such party on or before the Closing Date. 10.2 FEES AND EXPENSES. 58 Except as otherwise expressly provided in this Agreement, all legal and other fees, costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby through the Closing Date shall be paid by the party incurring such fees, costs or expenses; PROVIDED, HOWEVER, that if the Closing does not occur and SECTION 5.5 hereof has been breached prior to the termination of this Agreement, then the Stockholders or the Company shall pay to UAG, within five (5) Business Days after receipt of a request therefor, an amount equal to all of the reasonable legal and other fees, and other direct costs and expenses incurred by UAG in connection with this Agreement and the transactions contemplated hereby. 10.3 HEADINGS. The section headings herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. 10.4 NOTICES. All notices or other communications required or permitted hereunder shall be given in writing and shall be deemed sufficient if delivered by hand, recognized overnight delivery service or facsimile transmission or mailed by registered or certified mail, postage prepaid (return receipt requested), as follows: If to the Company before the Closing date: Steve Rayman Nissan, Inc. 6889 Jonesboro Road Morrow, Georgia 30260 Attn: Steven L. Rayman with a copy to: Underwood, Kinsey, Warren & Tucker, P.A. 2020 Charlotte Plaza 201 South College Street Charlotte, North Carolina 28244 Attn: Joseph Warren, III, Esq. 59 If to the Company after the Closing Date: United Auto Group, Inc. 375 Park Avenue New York, New York 10022 Facsimile No.: (212) 223-5148 Attn: George G. Lowrance, Esq., Executive Vice President and General Counsel with a copy to: Rogers & Hardin 2700 Cain Tower, Peachtree Center 229 Peachtree Street, N.E. Atlanta, Georgia 30303 Facsimile No.: (404) 525-2224 Attn: Michael Rosenzweig If to the Stockholders: Steven L. Rayman 3014 Lake Park Drive Jonesboro, Georgia 30236_ and Richard W. Keffer, Jr. 8200 E. Independence Blvd. Charlotte, North Carolina 28227 with a copy to: Underwood, Kinsey, Warren & Tucker, P.A. 2020 Charlotte Plaza 201 South College Street Charlotte, North Carolina 28244 Attn: Joseph Warren, III, Esq. 60 If to UAG or Sub: United Auto Group, Inc. 375 Park Avenue New York, New York 10022 Facsimile No.: (212) 223-5148 Attn: George G. Lowrance, Esq., Executive Vice President and General Counsel with a copy to: Rogers & Hardin 2700 Cain Tower, Peachtree Center 229 Peachtree Street, N.E. Atlanta, Georgia 30303 Facsimile No.: (404) 525-2224 Attn: Michael Rosenzweig or such other address as shall be furnished in writing by such party, and any such notice or communication shall be effective and be deemed to have been given as of the date so delivered or three (3) days after the date so mailed; PROVIDED, HOWEVER, that any notice or communication changing any of the addresses set forth above shall be effective and deemed given only upon its receipt. 10.5 ASSIGNMENT. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto (and with respect to the Stockholders, the personal representatives and heirs of the Stockholders) and their respective successors and permitted assigns, and the provisions of ARTICLE 9 hereof shall inure to the benefit of the Indemnified Parties referred to therein; PROVIDED, HOWEVER, that neither this Agreement nor any of the rights, interests, or obligations hereunder may be assigned by any of the parties hereto without the prior written consent of the other parties. Notwithstanding the foregoing, UAG and Sub shall have the unrestricted right to assign this Agreement and to delegate all or any part of their obligations hereunder to any Affiliate of UAG, but in such event UAG and Assignee shall remain fully liable for the performance of all of such obligations in the manner prescribed in this Agreement. 61 10.6 ENTIRE AGREEMENT. This Agreement (including the Schedules hereto) and the Lease embody the entire agreement and understanding of the parties with respect to the transactions contemplated hereby and supersede all prior written or oral commitments, arrangements or understandings between the parties with respect thereto and all prior drafts of this Agreement. There are no restrictions, agreements, promises, warranties, covenants or undertakings with respect to the transactions contemplated hereby other than those expressly set forth herein or in the Lease. Prior drafts of this Agreement shall not be used as a basis for interpreting this Agreement. 10.7 WAIVER AND AMENDMENTS. Each of the Stockholders and the Company as one Party, and UAG and Sub as the other Party may by written notice to the other parties (i) extend the time for the performance of any of the obligations or other actions of the other parties, (ii) waive any inaccuracies in the representations or warranties of the other parties contained in this Agreement, (iii) waive compliance with any of the covenants of the other parties contained in this Agreement, (iv) waive performance of any of the obligations of the other parties created under this Agreement, or (v) waive fulfillment of any of the conditions to its own obligations under this Agreement. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach, whether or not similar. This Agreement may be amended, modified or supplemented only by a written instrument executed by the parties hereto. 10.8 COUNTERPARTS. This Agreement may be executed by facsimile signature(s) and in any number of counterparts, all of which shall be considered one and the same agreement and each of which shall be deemed an original. 10.9 GOVERNING LAW. This Agreement shall be governed by the laws of the State of Georgia. 62 10.10 ACCOUNTING TERMS. All accounting terms used herein which are not expressly defined or modified in this Agreement shall have the respective meanings given to them in accordance with GAAP. 10.11 CERTAIN DEFINITIONS. For purposes of this Agreement: (a) "Affiliate" of a specified Person shall mean a Person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified, and in the case of a specified Person who is a natural person, his spouse, his issue, his parents, his estate and any trust entirely for the benefit of his spouse and/or issue. (b) "best efforts" shall be deemed to not include any obligation on the part of any Person to undertake any liabilities, expend any funds or perform acts (except liabilities, expenditures or performance, other than any best efforts obligations, expressly required to be undertaken by the terms of this Agreement) which are materially burdensome to such Person; PROVIDED, HOWEVER, that notwithstanding the foregoing, the term "best efforts" shall include an obligation to take such actions which are normally incident to or reasonably foreseeable in connection with such obligation or the transactions contemplated hereby. (c) "Business Day" shall mean any day excluding Saturday, Sunday and any day which is a legal holiday under Federal law. (d) "GAAP" shall mean generally accepted accounting principles which are in effect in the United States on the Closing Date. (e) "Liens" shall mean any mortgages, pledges, title defects or objections, liens, claims, security interests, conditional and installment sale agreements, encumbrances or charges of any kind. (f) "Material Adverse Effect" shall mean any change in, or effect on, the Company (including the business thereof) which 63 is, or could reasonably be expected to be, materially adverse to the business, operations, assets, condition (financial or otherwise) or prospects of the Company. (g) "Person" shall mean and include an individual, corporation, limited liability company, partnership, joint venture, association, trust, any other incorporated or unincorporated organization or entity and a governmental entity or any department or agency thereto. 10.12 SCHEDULES. Disclosure of any matter in any Schedule hereto or in the Financial Statements shall not be considered as disclosure pursuant to any other provision, subprovision, section or subsection of this Agreement or Schedule to this Agreement. 10.13 SEVERABILITY. If any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected thereby. To the extent permitted by applicable law, each party waives any provision of law which renders any provision of this Agreement invalid, illegal or unenforceable in any respect. 10.14 REMEDIES. None of the remedies provided for in this Agreement, including termination of this Agreement as set forth in ARTICLE 8, indemnification as set forth in ARTICLE 9, the payment of certain fees, costs and expenses as set forth in SECTION 10.2 or specific performance as set forth in this SECTION 10.14, shall be the exclusive remedy of either party for a breach of this Agreement, the parties hereto having the right to seek any other remedy in law or equity in lieu of or in addition to any remedies provided in this Agreement, including an action for damages for breach of contract. 10.15 TAXES AND COOPERATION. The parties hereby agree that the accounting records and books of the Company will be closed on the Closing Date and agree 64 that the pro rata allocation method provided in Section 1362(e)(2) of the Code does not apply. The Company will make an election under Section 1362(e)(3) of the Code for purposes of determining the Company's taxable income or loss to be reported on the Stockholders' Form K-1, and each party hereto will take all necessary or proper steps and make any filings or notifications required to effect such Section 1362(e)(3) election. The parties hereto agree that the accounting firm that prepared the Company's 1994 tax return will prepare the Company's final S corporation tax return. The Company agrees that it will make its books and records available to the Stockholders and their representatives, upon reasonable notice and at reasonable times, without cost or expense to them, it being understood that the Stockholders shall be entitled to make copies of any such books and records as shall be reasonably necessary. In the event the Internal Revenue Service or any other taxing authority initiates an examination of the Company with respect to a taxable period that could impact the Stockholders' tax liability for any year, UAG shall promptly notify the Stockholders of such examination, and the Stockholders shall have the right to control the defense of the Company and shall have reasonable access to all Company records in order to respond to any proposed adjustments that would impact the Stockholders. 10.16 TIME IS OF THE ESSENCE. Time is of the essence for purposes of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. UNITED AUTO GROUP, INC. By: /s/ Carl Spielvogel ------------------------------------ Name: Carl Spielvogel Title: Chairman, Chief Executive Officer UAG ATLANTA II, INC. By: /s/ George Lowrance ------------------------------------ Secretary 65 Name: Title: STEVE RAYMAN NISSAN, INC. By: /s/Steve L. Rayman ______________________________ Name: Title: /s/Steve L. Rayman __________________________________ Steve L. Rayman /s/Richard W. Keffer, Jr. _________________________________ Richard W. Keffer, Jr. 66 EX-10.6-2 50 EXHIBIT 10.6.2 EMPLOYMENT AGREEMENT This Employment Agreement is dated as of May 1, 1996, and is entered into between United Auto Group, Inc., a Delaware corporation ("UAG"), UAG Atlanta II, Inc., a Delaware corporation ("UAG Atlanta II"), Steve Rayman Nissan, Inc., a Georgia corporation (the "Company") and Bruce G. Dunker, an individual resident of the State of Georgia ("Executive"). WHEREAS, Executive and the Company desire to embody in this Agreement the terms and conditions of Executive's employment by the Company. NOW, THEREFORE, the parties hereby agree: ARTICLE 1 EMPLOYMENT, DUTIES AND RESPONSIBILITIES SECTION 1.1 EMPLOYMENT. Executive shall be employed as President and General Manager of the Company and Executive Vice-President of UAG Atlanta II. Executive hereby accepts such employment. Executive agrees to devote his full business time and efforts to promote the interests of the Company and its subsidiaries. SECTION 1.2 DUTIES AND RESPONSIBILITIES. Executive shall be required to perform such duties and responsibilities as are consistent with his positions and as the Board of Directors of the Company (the "Board") and/or the Chief Executive Officer of United Auto Group, Inc. ("UAG") may from time to time prescribe. Executive shall perform those duties primarily at the Company's facilities in Morrow, Georgia. SECTION 1.3 REPORTING. Executive shall report, in the performance of his duties, directly to the Chief Executive Officer of UAG. ARTICLE 2 TERM SECTION 2.1 TERM. The term of Executive's employment under this Agreement (the "Term") shall commence on May 1, 1996 and shall continue until April 30, 2001; provided that this Agreement may be terminated earlier as provided in Article V hereof. SECTION 2.2 NO VIOLATION. Executive represents and warrants to the Company and UAG Atlanta II that neither the execution and delivery of this Agreement nor the performance of his duties hereunder violates or will violate the provisions of any other agreement to which he is a party or by which he is bound. ARTICLE 3 COMPENSATION AND EXPENSES SECTION 3.1 SALARY AND BENEFITS. As compensation and consideration for the performance by Executive of his obligations under this Agreement, Executive shall be entitled to the following (subject, in each case, to the provisions of Article 5 hereof): (a) SALARY. The Company shall pay Executive a salary payable in accordance with the normal payment procedures of the Company and subject to such withholdings and other normal employee deductions as may be required by law, at the rate of Two Hundred Fifty Thousand Dollars ($250,000) per annum (or such PRO RATA amount thereof for any period of less than one year). In addition, the Company shall pay executive a bonus to be determined in accordance Section 3.2 hereof. (b) BENEFIT PLANS. The Company shall, at its expense, provide the Executive with health, major medical insurance and other plans for the benefit of the employees of the Company as may be maintained from time to time during the Term, if at all, in each case to the extent and in the manner available to other officers of the Company and subject to the terms and provisions of such plans or programs. The Company shall not be responsible for the payment of Executive's tax liabilities (if any) relating to the benefits the Company provides to the Executive. (c) VACATION. Executive shall be entitled to a paid vacation in accordance with Company policy during the Term. (d) VEHICLE. Executive shall be entitled to the use of one vehicle selected by Executive subject to the same terms and conditions applicable to other employees of the Company who are provided with a demonstrator vehicle. In the event that Executive's spouse ceases to be employed by a company whose business includes the retail sale of new vehicles, then Executive shall be entitled to the use of one additional vehicle subject to the same terms and conditions applicable to other employees of the Company who are provided with a demonstrator vehicle. (e) STOCK OPTIONS. Executive shall be entitled to receive, from time to time, stock options on terms and conditions -2- comparable to stock options, if any, that UAG grants to employees of UAG or any of its subsidiaries with responsibilities and duties similar to the responsibilities and duties of Executive under this Agreement; provided, however, that the decision to grant stock options shall be made by UAG in its sole discretion. (f) OTHER COMPENSATION. Executive shall be entitled to receive such other compensation and bonuses as may be granted to Executive by UAG in its sole discretion. SECTION 3.2 BONUSES. (a) NET INCOME BONUS. The Company shall pay Executive a monthly bonus (the "Net Income Bonus") equal to three percent (3%) of the Company's monthly net income before (i) taxes, (ii) any interest charges other than interest charges relating to floor plan financing, (iii) any LIFO adjustments, (iv) any management charges paid to UAG, and (v) the Net Income Bonus ("Monthly Net Income") for the month ending May 31, 1996 and for each month thereafter until the expiration of the Term or the earlier termination of the Agreement pursuant to Article 5 hereof. For purposes of this Section 3.2, Monthly Net Income shall be determined by applying generally accepted accounting principles on a consistent basis and shall not include overhead expenses of UAG or UAG Atlanta II attributed to the Company. (b) CUSTOMER SATISFACTION BONUS. The Company shall pay Executive an additional bonus equal to two percent (2%) of the Company's Monthly Net Income (the "Customer Service Bonus") for each month that the Company meets or exceeds the Nissan Customer Service Retro Bonus (or any successor index as may be announced by Nissan) commencing with the month ending May 31, 1996 and for each month thereafter until the expiration of the Term or the earlier termination of the Agreement pursuant to Article 5 hereof. (c) PAYMENT OF BONUSES. The Company shall pay the Net Income Bonus and the Customer Service Bonus, if any, within 30 days after the last day of the month for which such bonus is being paid. ARTICLE 4 EXCLUSIVITY, ETC. SECTION 4.1 EXCLUSIVITY. Executive agrees to perform his duties, responsibilities and obligations hereunder to the best of his ability. Executive agrees that he will devote his entire working time, care and attention and best efforts to such duties, responsibilities and obligations throughout the Term. Executive also agrees that he will not engage in any other business activities, pursued for gain, profit or other pecuniary advantage, that are competitive with the activities of the Company or any of its subsidiaries, except as -3- permitted in Section 4.2 below. Executive agrees that all of his activities as an employee of the Company shall be in conformity with all policies, rules and regulations and directions of the Company not inconsistent with this Agreement. SECTION 4.2 OTHER BUSINESS VENTURES. Executive agrees that, so long as he is employed by the Company, he will not have any financial or other beneficial interest in any business enterprise which is engaged in, or competitive with, any business engaged in by the Company or any of its subsidiaries or affiliates. Notwithstanding the foregoing, Executive may own, directly or indirectly, up to one percent (1%) of the outstanding capital stock of any such business having a class of capital stock which is traded on any national stock exchange or in the over-the-counter market. SECTION 4.3 CONFIDENTIALITY; NON-COMPETITION. (a) Executive agrees that he will not, other than for proper purposes of the Company, at any time during or after the Term, wrongfully make use of or divulge to any other person, firm or corporation any trade or business secret, process, method or means, or any other confidential information concerning the business or policies of the Company, any of its subsidiaries or their affiliates, except as may be necessary for Executive to carry out his duties hereunder. For purposes of this Agreement, a "trade or business secret, process, method or means, or any other confidential information" shall mean and include information treated as confidential or as a trade secret by the Company, any of its subsidiaries or their affiliates, including but not limited to any confidential information regarding contemplated products, models, compilations, business and financial methods or practices, marketing, merchandising and selling techniques, customers, vendors, suppliers, trade secrets, training programs, manuals or materials, technical information, contracts, systems, procedures, mailing lists, trade names, improvements, pricing, price lists, financial or other data (including the revenues, costs or profits associated with any of the Company's or its subsidiaries' products or services), business plans, strategy, code books, invoices and other financial statements, computer programs, software systems, databases, discs and printouts, other plans (technical or otherwise), customer lists, supplier lists, confidential correspondence, internal reports, personnel files, confidential sales and advertising material, unlisted telephone numbers, names, addresses or any other compilation of confidential information, written or unwritten, which is or was used in the business of the Company, any of its subsidiaries or their affiliates, and which was not generally known or available in the industry. Executive's obligation under this Section 4.3(a) shall not apply to any information which is in the public domain or hereafter enters the public domain without the fault of Executive, or information generally known to Executive based on his experience and work in the industry. -4- Executive agrees not to remove from the premises of the Company or any of its subsidiaries, except as an employee of the Company in pursuit of the business of the Company or except as specifically permitted in writing by the Company, any document or other object containing or reflecting any such information. Executive agrees and acknowledges that all of such information, in any form, and copies and extracts thereof, are and shall remain the sole and exclusive property of the Company, and upon termination of his employment with the Company, Executive shall return to the Company the originals and all copies of any such information provided to or acquired by Executive in connection with the performance of his duties for the Company, and shall return to the Company all files, correspondence and/or other communications received, maintained and/or originated by Executive during the course of his employment, and no copy of any such information shall be retained by him. (b) During the Term and thereafter until May 1, 2003, Executive shall not wrongfully interfere with or disrupt, or attempt to wrongfully interfere with or disrupt, the relationship, contractual or otherwise, between the Company or any of its subsidiaries or their affiliates and any customer, client, supplier, manufacturer, distributor, consultant, independent contractor or employee of the Company or any of its subsidiaries or their affiliates. The provisions of this Section 4.3(b) shall not apply if the Executive is terminated by the Company without Cause. For purposes of this Agreement, "Cause" shall mean: (i) Executive's material failure, neglect or refusal to reasonably perform his duties hereunder, which failure, neglect or refusal shall not have been remedied by Executive within five (5) days of receipt by Executive of written notice from the Company of such failure, neglect or refusal, (ii) Executive's material refusal to follow the lawful and proper instructions, orders or directives of the Board or the Chief Executive Officer of UAG with respect to his duties and responsibilities hereunder, which refusal shall not have been remedied by Executive within five (5) days of receipt by Executive of written notice from the Company of such refusal; (iii) any willful or intentional act of Executive that is intended to and has the effect of materially injuring the reputation or business of the Company or its affiliates, (iv) any continued or repeated absence from the Company, unless such absence is (A) approved or excused by the Board or (B) is the result of Executive's illness, disability or incapacity or a personal or family emergency, (v) use of illegal drugs by Executive, (vi) conviction of Executive for, or the entry of a plea (including nolo contenders or its equivalent) by Executive with respect to, a felony (or equivalent offense not categorized as a "felony") under federal or state law which has the effect of materially injuring the reputation or business of the Company or its affiliates, (vii) the commission by Executive and conviction of a material and intentional act of fraud or embezzlement against the Company, or (viii) Executive's other material breach of this Agreement which breach shall not have been remedied by Executive within five (5) days of receipt by Executive of written notice from the Company of such breach. -5- (c) It is the desire and intent of the parties that the provisions of this Section 4.3 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular portion of this Section 4.3 shall be adjudicated to be invalid or unenforceable, this Section 4.3 shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of this Section 4.3 in the particular jurisdiction in which such adjudication is made. (d) Executive agrees that, at any time and from time to time during and after the Term, he will execute any and all documents which the Company may deem reasonably necessary or appropriate to effectuate the provisions of this Section 4.3. ARTICLE 5 TERMINATION SECTION 5.1 TERMINATION BY THE COMPANY. Subject to Section 5.5, the Company shall have the right to terminate Executive's employment at any time. SECTION 5.2 TERMINATION BY THE EXECUTIVE. The Executive shall have the right to terminate his employment at any time upon sixty (60) days' prior written notice. SECTION 5.3 DEATH. In the event Executive dies during the Term, this Agreement shall automatically terminate (subject to Section 5.5 hereof), such termination to be effective on the date of Executive's death. SECTION 5.4 DISABILITY. In the event that Executive shall suffer a disability which shall have prevented him from performing satisfactorily his obligations hereunder for a period of at least 90 consecutive days, or 180 non-consecutive days within any 365 day period, the Company shall have the right to terminate this Agreement (subject to Section 5.5 hereof), such termination to be effective upon the giving of notice thereof to Executive in accordance with Section 6.2 hereof. SECTION 5.5 EFFECT OF TERMINATION. (a) In the event of termination of Executive's employment for any reason, the Company shall pay to Executive (or his beneficiary in the event of his death) any salary or bonuses earned but -6- not paid to Executive prior to the effective date of such termination. (b) In the event that the Company terminates Executive's employment without Cause prior to the end of the term, the Company shall, for a period of 12 months following such termination, continue to (i) pay to Executive his Base Salary, (ii) provide Executive with one or more vehicles on the terms set forth in Section 3.1(d) and (iii) provide Executive with medical benefits on the terms set forth in Section 3.1(b). ARTICLE 6 MISCELLANEOUS SECTION 6.1 UAG GUARANTY. UAG hereby guarantees the performance of the obligations of the Company and UAG Atlanta II hereunder. SECTION 6.2 BENEFIT OF AGREEMENT; ASSIGNMENT; BENEFICIARY. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns, including, without limitation, any corporation or person which may acquire all or substantially all of the Company's assets or business, or with or into which the Company may be consolidated or merged. This Agreement shall also inure to the benefit of, and be enforceable by, Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amount would still be payable to Executive hereunder if he had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to Executive's beneficiary, devisee, legatee or other designee, or if there is no such designee, to Executive's estate. SECTION 6.3 NOTICES. Any notice required or permitted hereunder shall be in writing and shall be sufficiently given if personally delivered or if sent by telegram or telex or by registered or certified mail, postage prepaid, with return receipt requested, addressed: (a) in the case of the Company to c/o United Auto Group, Inc. 375 Park Avenue, New York, New York 10022, facsimile no. (212) 223-5148, Attention: General Counsel, or to such other address and/or to the attention of such other person as the Company shall designate by written notice to Executive; and (b) in the case of Executive, to Bruce G. Dunker at 1690 Spinnaker Drive, Alpharetta, Georgia 30202, or to such other address as Executive shall designate by written notice to the Company. Any notice given hereunder shall be effective and deemed to have been given as of the date so delivered or three (3) days after the date so mailed. -7- SECTION 6.4 AMENDMENT. This Agreement may not be changed or modified except by an instrument in writing signed by both of the parties hereto. SECTION 6.5 WAIVER. The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a continuing waiver or as a consent to or waiver of any subsequent breach hereof. Any waiver must be in writing and signed by Executive or the Company, as the case may be. SECTION 6.6 HEADINGS. The Article and Section headings herein are for convenience of reference only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. SECTION 6.7 AGREEMENT TO TAKE ACTIONS. Each party hereto shall execute and deliver such documents, certificates, agreements and other instruments, and shall take such other actions, as may be reasonably necessary or desirable in order to perform his or its obligations under this Agreement or to effectuate the purposes hereof. SECTION 6.8 SURVIVORSHIP. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. SECTION 6.9 VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision or provisions of this Agreement, which shall remain in full force and effect. SECTION 6.10 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. -8- IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement effective as of the date first above written. STEVE RAYMAN NISSAN, INC. By: /s/ Steve L. Rayman -------------------------------- Its: President -------------------------------- UNITED AUTO GROUP, INC. By: /s/ George Lowrance -------------------------------- Its: Secretary -------------------------------- UAG ATLANTA II, INC. By: /s/ George Lowrance -------------------------------- Its: Secretary -------------------------------- /s/ Bruce G. Dunker ------------------------------------- Bruce G. Dunker, Individually -9- EX-10.6-3 51 EXHIBIT 10.6.3 AFTER RECORDING RETURN TO: STEPHEN R. LEEDS, ESQ. ROGERS & HARDIN 2700 CAIN TOWER, PEACHTREE CENTER 229 PEACHTREE STREET N.E. ATLANTA, GEORGIA 30303 LEASE AGREEMENT THIS LEASE AGREEMENT ("Lease") made this 1st day of May, 1996, by and between STEVEN L. RAYMAN and RICHARD W. KEFFER, JR. (jointly and severally referred to herein as "Landlord"), whose addresses are 3014 Lake Park Drive, Jonesboro, GA 30236 and 8200 E. Independence Blvd., Charlotte, NC 28227, respectively and STEVE RAYMAN NISSAN, INC., a Georgia corporation ("Tenant"), whose address is 6889 Jonesboro Road, Morrow, Georgia 30260. W I T N E S S E T H: FOR AND IN CONSIDERATION of the sum of $10.00 Dollars in hand paid and of the mutual covenants and conditions contained herein, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. PREMISES. Landlord leases to Tenant and Tenant leases from Landlord the following property: All that tract or parcel of land containing approximately 5.5 acres, lying and being in Land Lots 81 and 112 of the 12th District of Clayton County, City of Morrow, Georgia, being more particularly described on EXHIBIT A, attached hereto and incorporated by reference herein. -1- together with all improvements thereon and all rights, privileges, easements and appurtenances pertaining thereto (collectively, the "Premises") upon the terms contained herein. 2. TERM. The term hereof shall begin on the date hereof and shall end on midnight April 30, 2016, unless extended or sooner terminated as provided herein ("Term"). 3. RENT. (a) During the first (1st) through the sixtieth (60th) month of the Term, Tenant agrees to pay to Landlord, as rent for the Premises, the sum of Twenty-Six Thousand and Fifty ($26,050.00) Dollars per month ("Base Rate"). (b) During the sixty-first (61st) through the one hundred twentieth (120th) month of the Term, Tenant agrees to pay to Landlord, as rent for the Premises, the Base Rate per month plus a percentage of the Base Rate per month, which percentage shall be three-fourths (3/4) of the percentage increase in the Consumer Price Index between the first month of the Term and the sixtieth (60th) month of the Term (the "First CPI Adjusted Rent Rate"). (c) During the one hundred twenty-first (121st) through the one hundred eightieth (180th) month of the Term, Tenant agrees to pay to Landlord, as rent for the Premises, the First CPI Adjusted Rent Rate per month plus a percentage of the First CPI Adjusted Rent Rate per month, which percentage shall be three-fourths (3/4) of the percentage increase in the Consumer Price Index between the Sixtieth (60th) month of Term and the one hundred twentieth (120th) month of the Term (the "Second CPI Adjusted Rent Rate"). -2- (d) During the one hundred eighty-first (181st) month of the Term through the two hundred fortieth (240th) month of the Term, Tenant agrees to pay to Landlord, as rent for the Premises, the Second CPI Adjusted Rent Rate per month plus a percentage of the Second CPI Adjusted Rent Rate per month, which percentage shall be three-fourths (3/4) of the percentage increase in the Consumer Price Index between the one hundred twentieth (120th) month of the Term and the one hundred eightieth (180th) month of the Term (the "Third CPI Adjusted Rent Rate"). (e) (i) For purposes of this Lease, the following definitions shall apply: (A) The term "CONSUMER PRICE INDEX" shall mean the Consumer Price Index for All Urban Consumers of Atlanta, Georgia (all items, 1982-84=100) published by the Bureau of Labor Statistics, United States Department of Labor. (B) In computing increases in the Consumer Price Index the parties will utilize the Consumer Price Index most recently published prior to the dates called for in this Lease. (ii) In the event that (A) the Consumer Price Index ceases to use 1982-84=100 as the basis of calculation, or (B) the Consumer Price Index shall be discontinued for any reason, the Bureau of Labor Statistics shall be requested to furnish a new index comparable to the Consumer Price Index together with information which will make possible the conversion to the new index in computing -3- the adjusted rent under this paragraph 3 and paragraph 40 of this Lease. If for any reason the Bureau of Labor Statistics does not furnish such an index and such information, the parties hereto shall hereafter accept and use such other index or comparable statistics on the cost of living for the City of Atlanta, Georgia as shall be computed and published by an agency of the United States or by a responsible financial periodical of recognized authority then to be selected by Landlord and Tenant. (f) Rent during the Term hereof shall be due and payable at Landlord's office at the above address on or before the first day of each calendar month thereof. Any rent payment not received by the fifth (5th) day after notice of non-payment to Tenant by Landlord shall be subject to an interest charge at the prime commercial rate (as quoted on a daily basis by NationsBank, or, if not available, another large banking institution with offices situated in Atlanta, Georgia) plus two (2%) percent per annum ("Interest Rate"), which charge the parties agree is a fair estimation of the damages which may reasonably be expected to be incurred by Landlord in connection with receiving such late payment. (g) If the Term shall commence or end on a day other than the first day of a calendar month, then the monthly rent for any fractional months of the Term shall be appropriately prorated. -4- (h) In no event shall the Adjusted Rent Rate for any current period be less than the Adjusted Rent Rate for the preceding period. 4. UTILITIES. Tenant shall have all utilities listed in its name and shall pay all utility bills, including, but not limited to water, sewer, gas, electricity, fuel, light, and heat bills, for the Premises, and Tenant shall pay all charges for garbage collection services or other sanitary services rendered to the Premises or used by Tenant in connection therewith. If Tenant fails to pay for such services, Landlord may, at its option and after providing Tenant with at least twenty (20) days prior written notice, pay the same, and the amount of the payment shall be payable to Landlord as additional rent. Landlord shall not be or become liable for damages to Tenant alleged to be caused or occasioned by or in any way connected with or the result of any interruption, defect or breakdown of any utility. 5. USE OF THE PREMISES; ENVIRONMENTAL INDEMNITY. The Premises shall be used only for the operation of a new and used automobile dealership, service facility, body shop facility and uses incidental thereto, and for any other purposes which may be agreed to by the parties. The Premises shall not be used for any illegal purpose, nor in any manner which may create nuisance or trespass. Furthermore, Tenant shall not violate any federal or state environmental law, and Tenant agrees to indemnify and hold harmless Landlord from any and all damages, costs, fines and expenses that might arise as a result of any such violation and from its placement upon the Premises of hazardous wastes and toxic -5- substances that are placed on the Premises after the date hereof. Notwithstanding anything to the contrary contained in this Paragraph 5, there shall not be deemed to be a nuisance or trespass and Tenant's obligation to indemnify and hold Landlord harmless shall not extend to any damages, claims, or liabilities arising as a result of contaminants existing on the Premises on the date hereof or migrating onto or beneath the Premises after the date hereof, where such contamination is not caused by or attributable to Tenant, all of which shall be Landlord's responsibility. 6. REPRESENTATION. All representations and warranties made by Landlord in Sections 2.10, 2.11 and 3.3 of that certain Stock Purchase Agreement (the "SPA") dated as of March 1, 1996 by and among Landlord, United Auto Group, Inc., Steven L. Rayman, Richard W. Keffer and UAG Atlanta II, Inc. are hereby incorporated by reference to the same effect as if fully set forth herein. 7. NO REPAIRS BY LAND. Landlord shall not be obligated to repair or maintain the Premises after the date of this Lease, and all repairs, replacements, and maintenance of any kind shall be the sole responsibility of Tenant except to the extent the necessity therefor arose on or prior to the date hereof, in which event such shall be the responsibility of Landlord. 8. REPAIRS BY TENANT. Subject to Landlord's representations and warranties in the SPA, Tenant accepts the condition of the Premises as of the date hereof and agrees that the Premises are suited for the uses specified herein. Tenant shall, throughout the Term, at its expense, maintain the Premises in good order and repair, including but not limited to repair and -6- maintenance and, if necessary, replacement of the electrical, heating, ventilation and air conditioning and plumbing systems, as well as the roof and all structural components of buildings located on the Premises. Tenant further agrees to care for all landscaping on the Premises, including the mowing of grass, paving, policing, care of shrubs and general landscaping. If Tenant fails to properly maintain and repair any portion of the Premises, Landlord may, following at least twenty (20) days prior written notice to Tenant, maintain the same including replacing of components and Tenant shall pay to Landlord within thirty (30) days after demand the commercially reasonable costs thereof together with interest on said amount from the date of payment by Landlord at a rate equal to the Interest Rate. Tenant agrees to return the Premises to Landlord in as good condition and repair as when first received by Tenant, natural wear and tear, damage by storm, fire, lightening, earthquake or other casualties and condemnation excepted. 9. TAX AND INSURANCE. Tenant shall promptly and on a timely basis pay as additional rent during the Term all charges for taxes (including, but not limited to, ad valorem taxes, special assessments and any other governmental charges) on the Premises, which amounts shall be prorated between Tenant and Landlord for all periods partially but not entirely within the Term. Tenant shall also maintain, at all times during the Term of this Lease, fire and extended insurance coverage on the Premises in amounts equal to the full replacement value of the Premises, and written on policies issued by underwriters reasonably acceptable to Landlord. Landlord agrees that such coverages may be provided by blanket policies of -7- insurance covering other locations in addition to the Premises. All policies shall insure Landlord and Tenant as their respective interests shall appear and shall contain a replacement cost endorsement. Should Tenant fail to pay such tax expenses or fail to provide certificates evidencing the required insurance coverage, Landlord may, following at least twenty (20) days prior written notice to Tenant, pay any such charges or secure such coverage, and Tenant shall pay to Landlord within thirty (30) days after demand as additional rent all amounts so expended by Landlord together with interest on said amount from the date of payment by Landlord at a rate equal to the Interest Rate. 10. DESTRUCTION OF OR DAMAGE TO THE PREMISES. If the Premises should be damaged or destroyed by any insured peril whatsoever, all insurance proceeds shall be delivered to Tenant and Tenant shall proceed with reasonable diligence to rebuild and repair the Premises to substantially the condition in which it existed prior to such damage or destruction. If, however, the damage or destruction (a) shall be complete or (b) shall occur within the last two (2) years of the Term, then Tenant may terminate this Lease as of the date that such damage or destruction occurs by giving written notice to Landlord of such election to terminate within sixty (60) days after the date of such damage or destruction. If this Lease is terminated by Tenant, insurance proceeds with respect to the building shall be paid to Landlord. The rent payable under this Lease shall be abated beginning on the date of damage or destruction within the scope of this Paragraph 10 (to the extent that the Premises are rendered unusable by Tenant) -8- and shall resume upon recompletion to substantially the condition in which the Premises existed prior to such damage or destruction. 11. INDEMNITY; WAIVER OF SUBROGATION. Tenant agrees to indemnify and hold harmless Landlord against all claims and expenses resulting therefrom, including reasonable attorneys' fees and court costs, for damage to persons or property by reason of the use or occupancy of the Premises by Tenant. Tenant shall periodically provide Landlord with certificates of general liability insurance naming Landlord as an additional insured, in an amount of not less than $3,000,000 and with an insurance carrier reasonably satisfactory to Landlord. The dollar amount of such insurance coverage shall be reviewed annually, and adjusted if necessary, in order to provide for adequate protection to both Landlord and Tenant; provided, however, in no event shall any aggregate percentage increases in Tenant's liability coverage obligations hereunder ever exceed the cumulative percentage increases in the Consumer Price Index occurring during the corresponding portion of the Term of this Lease. Landlord and Tenant each hereby release and waive any right of recovery against the other for any loss, claim, liability, or damage occurring on or to the Premises, whether wholly or contributorily caused by the negligence of the other party, to the extent that the same is compensated by actual receipt of proceeds from insurance policies covering such loss, claim, liability, or damage. -9- 12. ALTERATIONS. Tenant shall make no structural alterations, additions or improvements to the Premises without the express prior written consent of Landlord which consent shall not be unreasonably withheld, except that Tenant may alter any wall that is not of a load-bearing nature without the consent of Landlord. Tenant may make non-structural changes and modifications to the Premises without Landlord's approval. In the event Landlord has not responded to Tenant's written request for alterations within fifteen (15) days of when received, such alteration shall be deemed to have been approved by Landlord. Tenant agrees to save Landlord harmless on account of any claim or lien of mechanics, materialmen or other party, in connection with any alterations, additions or improvements of or to the Premises performed by Tenant. Tenant shall furnish such waivers of liens and appropriate affidavits from the general contractor or subcontractors as Landlord may reasonably require. Notwithstanding the foregoing, Tenant shall also be entitled to make the following changes without necessity of Landlord's consent: (i) any alterations required to be made by it pursuant to governmental orders, rules, laws, regulations, ordinances or requirements, and (ii) any changes in its signage or recommended or required by the automobile manufacturer whose automobiles are sold on the Premises. Tenant shall have the right to finance any alterations or improvements permitted hereunder and may pledge its interest in this Lease as security therefor; provided, however, that any liens granted in connection with such financings shall be subordinate to the rights of Landlord under this Lease. -10- 13. GOVERNMENTAL ORDERS. Tenant agrees, at its own expense, to promptly comply with all requirements of any public authority made necessary by reason of Tenant's occupancy of the Premises from and after the date hereof or which may be necessary for Tenant's occupancy to continue if the requirement to comply arises after the date of this Lease. Landlord shall have no obligation of any kind for such compliance except to the extent it arose prior to the date of this Lease. 14. CONDEMNATION. If all or a substantial part of the Premises is condemned for any public use or purpose, then the Term shall cease from the date when possession thereof is taken, and rent shall be prorated as of that date; provided, however, that Tenant may elect to continue this Lease in full force and effect notwithstanding any such taking. Any termination shall be without prejudice to the rights of either Landlord or Tenant to recover compensation and damage caused by such condemnation from the condemner. Except as provided herein, neither Tenant nor Landlord shall have any rights in any award made solely to the other by any condemnation authority notwithstanding the termination of the Lease as herein provided. If the Lease is not terminated as provided above, then (i) this Lease shall continue in effect with respect to the remaining portion of the Premises, in which event the rent payable hereunder during the unexpired portion of the Term of this Lease shall be adjusted proportional to the ratio of the value of the remaining portion of the Premises to the total value of the Premises prior to the taking, (ii) the condemnation award shall be paid to Tenant to hold for payment of repair and restoration to the -11- Premises, and (iii) Tenant shall proceed with reasonable diligence to rebuild and repair the untaken portions of the Premises to as nearly as reasonably possible their value, condition, and character as such existed immediately prior to such taking. Any sums remaining after payment for such reconstruction shall be paid by Tenant to Landlord to the extent they represent payment for a taking of Landlord's fee interest. The phrase "substantial part," for purposes of this section shall mean so much of the Premises, the improvements located thereon, access to the Premises, or any combination of the foregoing, such that the taking thereof would prevent or substantially impair, in Tenant's reasonable judgment, the ability of Tenant to operate its business in a manner consistent with the operation of its business prior to such taking. 15. ASSIGNMENT AND SUBLETTING. Tenant shall not, without the prior written consent of Landlord (which consent shall not be unreasonably withheld or delayed), assign this Lease or any interest hereunder, or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant. All requests for assignment or subletting shall be made in writing and delivered to Landlord. Failure by Landlord to disapprove of any proposed assignment or subletting within ten (10) days after receipt of Tenant's written request with reasons therefor shall result in such request being deemed approved. Consent to any assignment or sublease shall not invalidate this provision, and all later assignments or subleases shall be made only on the prior written consent of Landlord. Any assignee of Tenant, at the option of Landlord, shall become directly liable to Landlord for all -12- obligations of Tenant hereunder, but no sublease or assignment by Tenant shall relieve Tenant of any liability hereunder. Notwithstanding the foregoing, Tenant shall be entitled to freely assign or sublet its interest in this Lease to any parent, subsidiary or other entity under common control with Tenant or Tenant's parent, without the prior written consent of Landlord. Moreover, the sale or transfer of all or any part of the capital stock of Tenant shall not be deemed to be an assignment hereunder. 16. REMOVAL OF FIXTURES. Tenant may (so long as no Event of Default has occurred and is continuing hereunder), prior to the end of the Term, remove all trade fixtures and equipment which Tenant has purchased as leasehold improvements or placed in the Premises subsequent to the date hereof, provided that Tenant repairs all damage to the Premises caused by the removal. However, any buildings, fixtures, or other attached property installed by Tenant as replacements of existing items, or anything that cannot be removed without substantially changing the character of the Premises, shall become the property of Landlord. 17. CANCELLATION OF LEASE BY LANDLORD. It shall be an "Event of Default" hereunder if, (a) Tenant fails to pay rent, including additional rent herein reserved, when due, and fails to cure the failure to pay within ten (10) days after written notice thereof from Landlord; (b) Tenant fails to perform any of the terms or provisions of this Lease other than the provision requiring the payment of rent, and fails to cure the default within thirty -13- (30) days after the date of receipt of written notice of default from Landlord; provided, however, that if the nature of the default is such that the same cannot reasonably be cured within said thirty (30) day period, Tenant shall not be deemed to be in default if Tenant shall, within such period, commence such cure and thereafter diligently prosecute the same to completion; (c) Tenant is adjudicated bankrupt; (d) a permanent receiver is appointed for Tenant's property and the receiver is not removed within sixty (60) days after written notice from Landlord to Tenant to obtain the removal; (e) Tenant or any guarantor of Tenant's obligations under this Lease files a petition seeking an order for relief under Title 11 of the United States Code, as amended, or under any similar law or statute of the United States or any state thereof, or a petition seeking an order for relief under Title 11 of the United States Code, or any similar law or statute of the United States or any state thereof, is filed against Tenant or any guarantor of Tenant's obligations under this Lease and such petition is not dismissed with prejudice within sixty (60) days from the date of filing; (f) Tenant makes an assignment for benefit of creditors; or (g) Tenant's effects should be levied upon or attached under process against Tenant and not satisfied or -14- dissolved within thirty (30) days after written notice from Landlord to Tenant to obtain satisfaction thereof. Upon the occurrence of an Event of Default, Landlord may pursue any right or remedy against Tenant available at law or in equity. Without limitation to the foregoing, Landlord, at its option, may at once or within six (6) months thereafter (so long as such Event of Default is continuing), elect to terminate this Lease by written notice to Tenant; whereupon this Lease shall terminate. Any notice provided in this section may be given by Landlord, or its attorney, or agent herein named. Upon termination of the Lease by Landlord, Tenant shall at once surrender possession of the Premises to Landlord and remove all of Tenant's effects therefrom, or Landlord shall be entitled to remove all persons and effects therefrom, using such force as may be necessary without being guilty of trespass, forcible entry or detainer or other tort. 18. RELETTING BY LANDLORD. If, after an Event of Default, Landlord has not elected to terminate this Lease, Landlord shall, as Tenant's agent, without terminating this Lease, enter upon and exercise good faith efforts to rent the Premises at the best price obtainable by reasonable effort, for any term Landlord deems proper. Tenant shall be liable to Landlord for the present value of any deficiency between rent due hereunder and the rent received by Landlord upon reletting. For purposes of computing the "present value of any deficiency" in accordance with the provisions of this paragraph, the parties agree to utilize a discount rate equal to the then prevailing prime rate of interest charged by leading money center banks as published in "THE WALL STREET JOURNAL." -15- 19. FINANCIAL STATEMENTS. Within fifteen (15) days after such are prepared Tenant shall deliver to Landlord audited consolidated financial statements of United Auto Group, Inc. ("UAG") prepared in accordance with generally accepted accounting principles consistently applied by an independent certified public accountant. 20. FOR RENT SIGNS. Landlord may place "FOR RENT" or "FOR SALE "signs in the Premises one hundred eighty (180) days before the end of the Term. Landlord may enter the Premises at reasonable hours, and after reasonable notice, to show the Premises to prospective purchasers or tenants. 21. EFFECT OF TERMINATION OF LEASE. No termination of this Lease prior to the normal ending thereof, by lapse of time or otherwise, shall affect Landlord's right to collect rent for the period prior to termination thereof. 22. WARRANTIES OF TITLE AND QUIET POSSESSION. Landlord warrants and represents that it has good and marketable title to the Premises and has full right to make this Lease and that Tenant shall have quiet and peaceable possession of the Premises during the Term so long as no Event of Default is in existence and continuing hereunder. 23. SUBORDINATION ATTORNMENT. Landlord represents that the only Deed to Secure Debt with respect to the Premises is in favor of NationsBank, N.A. (South), F/K/A NationsBank of Georgia, N.A., dated April 5, 1993, recorded in Deed Book 1887, Page 90, Clayton County, Georgia Records. Landlord shall provide Tenant a Subordination, Non-Disturbance and Attornment Agreement from -16- NationsBank, N.A. (South) in the form attached hereto and incorporated herein by reference as EXHIBIT "B" ("SNDA"). This Lease is subject and subordinate to any deed of trust, mortgage, or other security instrument, which presently or may in the future cover the Premises, and to any increases, renewals, modifications, consolidations, replacements, and extensions of any of such deed of trust, mortgage, or security instrument, provided, however, that Tenant's subordination to any encumbrance arising after the date of this Lease shall be conditioned upon Landlord's delivery to Tenant of a non-disturbance agreement in form reasonably satisfactory to Tenant containing the substantive provisions of the SNDA. Notwithstanding the generality of the foregoing, any mortgagee shall have the right at any time to subordinate any deed of trust, mortgage, or other security instrument to this Lease. At any time, before or after the institution of any proceedings for the foreclosure of any deed of trust, mortgage, or other security instrument or sale of the Premises under any such deed of trust, mortgage, or other security instrument, Tenant shall attorn to such purchaser upon any such sale or the grantee under any deed in lieu of such foreclosure and shall recognize such purchaser or grantee as Landlord under this Lease. The agreement of Tenant to attorn contained in the immediately preceding sentence shall survive any such foreclosure sale, trustee's sale, or conveyance in lieu thereof. Tenant shall, upon demand at any time, before or after any foreclosure sale, trustee's sale, or conveyance in lieu thereof, execute, acknowledge, and deliver to Landlord's mortgagee any written instruments and certificates evidencing such attornment -17- as Landlord's mortgagee may reasonably require. Upon Tenant's written request and notice to Landlord, Landlord shall obtain from any such mortgagee a written agreement that the rights of Tenant shall remain in full force and effect during the Term of this Lease so long as Tenant shall continue to recognize and perform all of the covenants and conditions of this Lease. 24. ESTATE CREATED; FUTURE GRANTS. Landlord and Tenant intend for and agree that this Lease shall create a leasehold estate in the Premises for the Term. Landlord agrees that, during the Term of this Lease, it will not execute or join in any conveyances of easements or restrictive covenants or other agreements restricting or affecting Tenant's use of the Premises without the prior written consent of Tenant, which may be withheld in Tenant's sole discretion. 25. HOLDING OVER. If Tenant remains in possession of the Premises after expiration of the Term, with Landlord's acquiescence and without any express agreement of parties, Tenant shall be a tenant from month-to-month at a monthly rent rate equal to 125% of the monthly rental rate in effect at the end of the Term, and there shall be no renewal of this Lease by operation of law. 26. ATTORNEY'S FEES AND HOMESTEAD. In the event either party should seek to enforce its rights under this Lease through judicial process, the prevailing party in any such action shall be entitled to collect from the other party, in addition to all other sums owing hereunder, its reasonable attorney's fees. Tenant waives all homestead rights and exemptions which it may have under any law as against any obligation owing under this Lease. -18- 27. RIGHTS CUMULATIVE. All rights hereunder shall be cumulative but not restrictive to those given by law. 28. SERVICE OF NOTICE. Any notice required or permitted to be delivered hereunder may be delivered in person or by United States certified mail, postage prepaid, return receipt requested, or by recognized overnight courier (e.g. Federal Express or DHL), next business day delivery, charges prepaid, addressed to the parties at the addresses indicated above or at such other addresses as may be specified by written notice delivered in accordance herewith. Such notices shall be deemed effective three (3) business days after deposited in the U.S. mail, or on the next business day if delivered by overnight courier, or immediately upon delivery in person. 29. WAIVER OF RIGHTS. Neither party's failure to exercise any power given to them hereunder, or to insist upon strict compliance by the other party with its obligations hereunder, nor any custom or practice of the parties at variance with the terms hereof, shall constitute a waiver of such party's right to demand exact compliance with the terms hereof. 30. TIME OF ESSENCE. Time is of the essence under this Lease. 31. SUCCESSORS AND ASSIGNS. This Lease shall apply to, inure to the benefit of, and be binding upon the parties hereof and their respective successors, permitted assigns, and legal representatives except as otherwise expressly provided herein. 32. TRIPLE NET LEASE. This Lease shall be considered a "triple net lease" so that, except as expressly set forth herein, -19- Tenant shall bear all responsibility as additional rent for all payments of any kind or nature relating to the Premises, including but not limited to payment of all taxes (except for income, estate, inheritance or gift taxes of Landlord), insurance, repairs and maintenance arising after the date of this Lease, but subject to Landlord's representations and warranties in the SPA. 33. ENTIRE AGREEMENT; CONFLICT. This Lease and the SPA, including any attachments made a part hereof or thereof, contains the entire agreement between the parties and no representations, inducements, promises or agreements, oral or otherwise, between the parties, not embodied herein or in the SPA, shall be of any force or effect. In the event of any conflict between the terms contained herein and the terms contained in the SPA, the terms of the SPA shall control. 34. SEVERABILITY. If any term, provision or clause of this Lease, or if the application thereof to any person or circumstances, shall to any extent be invalid or unenforceable, then the remainder of this Lease or the application of such term, provision or clause to persons or circumstances other than those to which it is invalid or unenforceable shall not be affected thereby, and each and every remaining term, provision, clause and application of this Lease shall be valid and enforceable to the fullest extent permitted by law. 35. EXECUTION IN COUNTERPARTS. This Lease may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. -20- 36. AMENDMENT. This Lease may not be altered, waived, amended or extended except by an instrument in writing signed by Landlord and Tenant. 37. HEADINGS. The headings used in this Lease are for the purposes of convenience only. They shall not be construed to limit or to extend the meaning of any part of this Lease. 38. GOVERNING LAW. This Lease shall be construed in accordance with the laws of the State of Georgia, and all obligations of the parties created hereunder are performable in Clayton County, Georgia. 39. FORCE MAJEURE. Wherever a period of time is herein prescribed for action to be taken by either Landlord or Tenant, such party shall not be liable or responsible for, and there shall be excluded from the computation of any such period of time, any delays due to strikes, riots, acts of God, shortages of labor or materials, wars, governmental laws, regulations or restrictions or other causes which are beyond the control of Landlord or Tenant, as the case may be. 40. EXTENSION OPTIONS. Tenant shall have two (2) separate five (5) year options to extend the Term of this Lease upon the following terms and provisions: (a)Notice of the exercise of an option to extend shall be given no less than one hundred eighty (180) days prior to the then expiration of the Term of this Lease; (b) The Term shall be extended under all terms and provisions of this Lease except that the Rent to be paid hereunder with respect to the first option to extend shall be equal to the -21- Third CPI Adjusted Rent Rate per month plus a percentage of the Third CPI Adjusted Rent Rate per month, which percentage shall be three-fourths (3/4) of the percentage increase in the Consumer Price Index between the one hundred eightieth (180th) month of the Term and the two hundred fortieth (240th) month of the Term (such increased rent being referred to herein as the "Fourth CPI Adjusted Rent Rate") and the Rent to be paid hereunder with respect to the second option to extend shall be equal to the Fourth CPI Adjusted Rent Rate per month plus a percentage of the Fourth CPI Adjusted Rent Rate per month, which percentage shall be three-fourths (3/4) of the percentage increase in the Consumer Price Index between the two hundred fortieth (240th) month of the Term and the three hundredth (300th) month of the Term. (c) Upon the request of either party, Landlord and Tenant shall execute an acknowledgment setting forth the dates of the extended Term of the Lease and the amount of the Rent for the applicable extension term, but the failure to execute such acknowledgment shall not affect Tenant's exercise of its option to extend the Term as provided herein. 41. RECORDATION. This Lease will not be recorded unless Landlord fails to execute upon request, in recordable form, a Memorandum of Lease in form required by Tenant's title insurance company. -22- IN WITNESS WHEREOF, the parties herein have hereunto caused their duly authorized representatives to set their hands and seals the day and year first above written. LANDLORD: Signed Sealed and Delivered /s/ Steve L. Rayman in the presence of: --------------------------- (SEAL) STEVEN L. RAYMAN - ------------------------------- /s/ Richard W. Keffer, Jr. Unofficial Witness --------------------------- (SEAL) RICHARD W. KEFFER, JR. - ------------------------------- Notary Public [Notarial Seal] My Commission Expires: - ------------------------------- TENANT: Signed Sealed and Delivered STEVE RAYMAN NISSAN, INC.a in the presence of: Georgia Corporation - -------------------------------- Unofficial Witness By: /s/ Steve L. Rayman ------------------------ Name: Steve L. Rayman ------------------------ - -------------------------------- Title: Notary Public ------------------------ Attest: [Notarial Seal] By: ------------------------ Name: ------------------------ My Commission Expires: Title: ------------------------ - ------------------------------ [Corporate Seal] -23- EX-10.7-1 52 EXHIBIT 10.7.1 STOCK PURCHASE AGREEMENT DATED AS OF JUNE 7, 1996 AMONG UNITED AUTO GROUP, INC., UAG ATLANTA III, INC., HICKMAN NISSAN, INC., LYNDA JANE HICKMAN AND LYNDA JANE HICKMAN AS EXECUTRIX UNDER THE WILL OF JAMES FRANKLIN HICKMAN, JR., DECEASED This STOCK PURCHASE AGREEMENT, dated as of June 7, 1996 is by and among United Auto Group, Inc., a Delaware corporation ("UAG"), UAG Atlanta III, Inc., a Delaware corporation ("Sub"), Hickman Nissan, Inc., a Georgia corporation (the "Company"), Lynda Jane Hickman, an individual resident of the State of Georgia ("Ms. Hickman") and Lynda Jane Hickman, as Executrix under the Will of James Franklin Hickman, Jr. Deceased ("Stockholder"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company operates a Nissan automobile dealership and related businesses in Chamblee, Georgia; WHEREAS, the Stockholder owns all of the issued and outstanding shares of common stock, par value $100, of the Company (the "Common Stock"); WHEREAS, Sub is a wholly-owned subsidiary of UAG; and WHEREAS, Sub desires to purchase 500 shares of Common Stock from the Stockholder (the "Shares"), and the Stockholder desires to sell the Shares to Sub (upon the terms and subject to the conditions set forth in this Agreement), such that immediately after giving effect to such purchase and sale, Sub will own one hundred (100%) percent of the issued and outstanding shares of Common Stock, on a fully diluted basis; NOW, THEREFORE, in consideration of the mutual terms, conditions and other agreements set forth herein, the parties hereto hereby agree as follows: ARTICLE 1 PURCHASE AND SALE OF SHARES 1.1 PURCHASE AND SALE OF THE SHARES. (a) PURCHASE AND SALE. Upon the terms and subject to the conditions set forth in this Agreement, the Stockholder shall sell to Sub, and Sub shall purchase from the Stockholder, the Shares for an aggregate purchase price equal to (i) Eleven Million Dollars ($11,000,000) (the "Base Price"), which Base Price is subject to adjustment after Closing as provided in SECTION 1.2 hereof and (ii) a promissory note (the "Note") issued by Sub and guaranteed by UAG and the Company in the principal amount of Two Million Dollars ($2,000,000) with interest only payable monthly at the rate of nine percent (9%) per annum and maturing on the second anniversary of the Closing Date (the "Maturity Date"), such promissory note being in the form attached hereto as EXHIBIT A. At the Closing referred to in SECTION 1.1(b) hereof: (i) the Stockholder shall sell, assign, transfer and deliver to Sub the Shares representing 100% of the outstanding Common Stock, free and clear of all Liens (as defined in SECTION 10.11), and shall deliver the certificates representing such Shares accompanied by stock powers duly executed in blank; and (ii) Sub shall accept and purchase the Shares from the Stockholder and in payment therefor shall deliver to Stockholder (A) immediately available funds in an aggregate amount equal to the Base Price by wire transfer to an account designated in writing by the Stockholder or by certified funds; (B) the Note duly executed by Sub; (C) a guaranty of the Estate Lease (as defined in SECTION 1.1(c)(iii) hereof executed by UAG, in the form attached hereto as EXHIBIT B (the "UAG Guaranty of Estate Lease); (D) a guaranty of the Argonne Lease (as defined in SECTION 1.1(c)(iv) hereof) executed by UAG, in the form attached hereto as EXHIBIT C (the "UAG Guaranty of Argonne Lease); (E) a guaranty of the Note executed by the Company, in the form attached hereto as EXHIBIT D (the "Company Guaranty of Note"); and (F) a guaranty of the Note executed by UAG in the form attached hereto as EXHIBIT E (the "UAG Guaranty of Note"). (b) CLOSING. Subject to the conditions set forth in this Agreement, the purchase and sale of the Shares pursuant to this Agreement (the "Closing") shall take place at the offices of Rogers & Hardin, 2700 Cain Tower, Peachtree Center, 229 Peachtree Street, N.E., Atlanta, Georgia 30303, or such other location as the parties shall agree upon, at 10:00 a.m. as soon as practicable following the date on which all conditions to the obligations of the parties hereunder (other than those requiring an -2- exchange of certificates, opinions or other documents, or the taking of other action, at the Closing) have been satisfied or waived but no later than the later of: (i) June 28, 1996, (ii) the date that is two (2) business days after the date on which the H-S-R Act (as defined in SECTION 5.11) waiting period expires or is terminated, (iii) the date that is two (2) business days after the date on which the condition set forth in SECTION 6.10 hereof is satisfied; or (iv) the date that is two (2) business days after the date on which the condition set forth in SECTION 6.17 hereof is satisfied; PROVIDED, HOWEVER, that the Closing Date shall be no later than July 10, 1996. The date on which the Closing occurs is herein referred to as the "Closing Date". (c) DELIVERIES AT THE CLOSING. Subject to the conditions set forth in this Agreement, at the Closing: (i) the Stockholder shall deliver to Sub (A) certificates representing the Shares bearing the restrictive legend customarily placed on securities that have not been registered under applicable federal and state securities laws and accompanied by stock powers as required by SECTION 1.1(a)(i) hereof, and any other documents that are necessary to transfer to Sub good title to all the Shares, and (B) all opinions, certificates and other instruments and documents required to be delivered by the Stockholder at or prior to the Closing or otherwise required in connection herewith; (ii) Sub shall pay and deliver to the Stockholder (A) funds as required by SECTION 1.1(a)(ii) hereof, (B) the Note duly executed by Sub; (C) the UAG Guaranty of Estate Lease duly executed by UAG; (D) the UAG Guaranty of Argonne Lease duly executed by UAG; (E) the Company Guaranty of Note duly executed by the Company; (F) the UAG Guaranty of Note executed by UAG; and (G) all opinions, certificates and other instruments and documents required to be delivered by Sub at or prior to the Closing or otherwise required in connection herewith; (iii) The Stockholder and the Company shall enter into a lease for the real property used in the business of the Company and located at 5211 and 5214 Peachtree Industrial -3- Boulevard, Chamblee, Georgia, in the form attached hereto as EXHIBIT F (the "Estate Lease"). (iv) The Stockholder shall deliver to Sub a lease for the real property used in the business of the Company and located at 3393 Malone Drive, Chamblee, Georgia, in the form attached hereto as EXHIBIT G (the "Argonne Lease") duly executed by Argonne Enterprises, Inc. ("Argonne") and the Company (the "Argonne Lease and the Estate Lease being referred to herein collectively as the "Lease"). (v) Sub shall deliver to the Stockholder the Release of Guaranty (as defined in SECTION 7.11 hereof). (d) UAG hereby guarantees to the Stockholder the full and prompt payment of the Base Price and all other amounts owned by Sub to the Stockholder under this Agreement and the full and timely performance of all the terms, conditions, covenants and agreements to be performed by Sub pursuant to this Agreement. -4- 1.2 NET WORTH ADJUSTMENT. (a) As soon as practicable after the Closing Date, the Stockholder shall deliver to Sub a balance sheet of the Company dated as of the Closing Date (such balance sheet so delivered is referred to herein as the "Closing Date Balance Sheet"). The Closing Date Balance Sheet shall be prepared in good faith on the same basis and in accordance with the accounting principles, methods and practices used in preparing the 1995 Company Balance Sheet (as defined in SECTION 2.5 hereof), subject to the modifications, adjustments and exceptions to such accounting principles, methods and practices set forth on SCHEDULE 1.2(a) hereto (such accounting principles, methods, and practices as so modified and adjusted, and such procedures are referred to herein as the "Accounting Principles"). In connection with the preparation of the Closing Date Balance Sheet, the Stockholder and the Company shall permit the Reviewer (as defined below) and other representatives of Sub to conduct a physical inventory at each location where inventory is held by the Company. From the results of such inventory and prior to the Closing Date, Sub and the Stockholder (or the respective representatives thereof) will prepare a schedule, which shall be signed by Sub and the Stockholder, setting forth the nature and quality of such inventory and such other items as shall be agreed upon by Sub and the Stockholder. (b) Within forty-five (45) days after delivery of the Closing Date Balance Sheet, (i) Coopers & Lybrand or such other national accounting firm (the "Reviewer") selected by Sub, shall audit or otherwise review the Closing Date Balance Sheet in such manner as Sub and the Reviewer deem appropriate, and (ii) Sub shall deliver such reviewed balance sheet (the "Reviewed Balance Sheet"), together with the Reviewer's report thereon, to the Stockholder. The Reviewed Balance Sheet (i) shall be prepared on the same basis and in accordance with the Accounting Principles and (ii) shall include a schedule showing the computation of the Final Net Worth (as defined in SECTION 1.2(g)(i) hereof), computed in accordance with the definition of Net Worth set forth in SECTION 1.2(g)(iii) hereof. Sub and the Reviewer shall have the opportunity to consult with the Stockholder, the Company and each of the accountants and other representatives of the Stockholder and the Company and examine the work papers, schedules and other documents prepared by the Stockholder, the Company and each of -5- such accountants and other representatives during the preparation of the Closing Date Balance Sheet. The Stockholder and the Stockholder's independent public accountants shall have the opportunity to consult with the Reviewer and examine the work papers, schedules and other documents prepared by Sub and the Reviewer during the preparation of the Reviewed Balance Sheet. (c) The Stockholder shall have a period of forty-five (45) days after delivery to the Stockholder of the Reviewed Balance Sheet to present in writing to Sub all objections the Stockholder may have to any of the matters set forth or reflected therein, which objections shall be set forth in reasonable detail. If no objections are raised within such 45-day period, the Reviewed Balance Sheet shall be deemed accepted and approved by the Stockholder and a supplemental closing (the "Supplemental Closing") shall take place within five (5) Business Days following the expiration of such 45-day period, or on such other date as may be mutually agreed upon in writing by Sub and the Stockholder. (d) If the Stockholder shall raise any objection within the 45-day period, Sub and the Stockholder shall attempt to resolve the matter or matters in dispute and, if resolved, the Supplemental Closing shall take place within five (5) Business Days following such resolution. (e) If such dispute cannot be resolved by Sub and the Stockholder within sixty (60) days after the delivery of the Reviewed Balance Sheet, then the specific matters in dispute shall be submitted to a national firm of independent public accountants mutually acceptable to Sub and the Stockholder, which firm shall make a final and binding determination as to such matter or matters. Such accounting firm shall send its written determination to Sub and the Stockholder and the Supplemental Closing, if any, shall take place five (5) Business Days following the receipt of such determination by Sub and the Stockholder. The fees and expenses of the accounting firm referred to in this SECTION 1.2(e) shall be paid one half by Sub and one half by the Stockholder. (f) Sub and the Stockholder agree to cooperate with each other and each other's authorized representatives and with any accounting firm selected by Sub and the Stockholder pursuant to -6- SECTION 1.2 (e) hereof in order that any and all matters in dispute shall be resolved as soon as practicable. (g) (i) If the Net Worth as shown on the Reviewed Balance Sheet as finally determined through the operation of SECTIONS 1. 2 (a) THROUGH (e) hereof (such amount being referred to herein as the "Final Net Worth") shall be less than Two Million Four Hundred Sixty-three Thousand Dollars ($2,463,000) (the amount of any such deficiency being referred to herein as the "Net Worth Deficiency"), the Stockholder shall pay to Sub at the Supplemental Closing, by wire transfer of immediately available funds to an account designated in writing by Sub within two (2) Business Days of the date of the Supplemental Closing, an amount equal to the Net Worth Deficiency, together with interest on such amount from the Closing Date to the date of the Supplemental Closing at the prime rate or its equivalent (as announced from time to time by Citibank, N.A.); PROVIDED, HOWEVER, that the Stockholder shall not be required to make any payment pursuant to this SECTION 1.2(g)(i) unless the Net Worth Deficiency exceeds Fifty Thousand Dollars ($50,000), in which event the Stockholder shall be fully liable for all such Net Worth Deficiency without regard to such threshold. (i) If the Final Net Worth shall be more than Two Million Four Hundred Sixty-three Thousand Dollars ($2,463,000) (the amount of any such excess being referred to herein as the "Net Worth Excess"), Sub shall pay to the Stockholder at the Supplemental Closing, by wire transfer of immediately available funds to an account designated in writing by the Stockholder, an amount equal to the Net Worth Excess, together with interest on such amount from the Closing Date to the date of the Supplemental Closing at the prime rate or its equivalent (as announced from time to time by Citibank, N.A.); PROVIDED, HOWEVER, that Sub shall not be required to make any payment pursuant to this SECTION 1.2(g)(ii) unless the Net Worth Excess exceeds Fifty Thousand Dollars ($50,000), in which event Sub shall be fully liable for all such Net Worth Excess without regard to such threshold. (ii) "Net Worth" computed in connection with the Closing Date Balance Sheet and the Reviewed Balance Sheet shall mean the amount by which the total assets (calculated using the -7- FIFO method of inventory which means that the LIFO reserves will be added back to inventory) exceed the total liabilities. ARTICLE 2 REPRESENTATIONS OF THE COMPANY AND THE STOCKHOLDER Subject to the parties' agreement and acknowledgement that certain of the Schedules referred to in this ARTICLE 2 are to be delivered by the Company and the Stockholder no later than June 12, 1996, the Company and the Stockholder hereby jointly and severally represent to UAG and Sub as follows: 2.1 ORGANIZATION AND GOOD STANDING. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Georgia and has the corporate power and authority to own, lease and operate the properties used in its business and to carry on its business as now being conducted. The Company is duly qualified to do business and is in good standing as a foreign corporation in each state and jurisdiction where qualification as a foreign corporation is required, except for such failures to be qualified and in good standing, if any, which when taken together with all other such failures of the Company would not, or could not reasonably be expected to, in the aggregate have a Material Adverse Effect (as defined in SECTION 10.11 hereof). SCHEDULE 2.1(a) hereto lists (i) the states and other jurisdictions where the Company is so qualified and (ii) the assumed names under which the Company conducts business and has conducted business during the past five years. Attached as SCHEDULE 2.1(b) are complete and correct copies of the Company's Articles of Incorporation and Bylaws as amended and presently in effect. 2.2 SUBSIDIARIES. Except as set forth in SCHEDULE 2.2 hereto or the Disclosure Documents (as defined in SECTION 10.11 hereof), the Company does not have any interest or investment in any Person (as defined in SECTION 10.11 hereof). -8- 2.3 CAPITALIZATION. The authorized stock of the Company and the number of shares of capital stock that are issued and outstanding are set forth on SCHEDULE 2.3 hereto. The shares listed on SCHEDULE 2.3 hereto constitute all the issued and outstanding shares of capital stock of the Company and have been validly authorized and issued, are fully paid and nonassessable, have not been issued in violation of any preemptive rights or of any federal or state securities law and no personal liability (except under this Agreement) attaches to the ownership thereof. There is no security, option, warrant, right, call, subscription, agreement, commitment or understanding of any nature whatsoever, fixed or contingent, that directly or indirectly (i) calls for the issuance, sale, pledge or other disposition of any shares of capital stock of the Company or any securities convertible into, or other rights to acquire, any shares of capital stock of the Company, or (ii) obligates the Company to grant, offer or enter into any of the foregoing, or (iii) relates to the voting or control of such capital stock, securities or rights, except as provided in this Agreement. The Company has not agreed to register any securities under the Securities Act. 2.4 AUTHORITY; APPROVALS AND CONSENTS. The Company has the corporate power and authority to enter into this Agreement and the Lease and to perform its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and the Lease and the consummation of the transactions contemplated hereby and thereby have been duly authorized and approved by the Board of Directors of the Company and no other corporate proceedings on the part of the Company are necessary to authorize and approve this Agreement or the Lease and the transactions contemplated hereby and thereby. This Agreement has been, and on the Closing Date the Lease will be, duly executed and delivered by, and constitute a valid and binding obligation of, the Company, enforceable against the Company in accordance with its terms. Except as set forth in SCHEDULE 2.4 hereto or the Disclosure Documents, the execution, delivery and performance by the Company and the Stockholder of this Agreement and the Lease and the consummation of the transactions contemplated hereby and thereby do not and will not: -9- (i) contravene any provisions of the Articles of Incorporation or Bylaws of the Company; (ii) (after notice or lapse of time or both) conflict with, result in a breach of any provision of, constitute a default under, result in the modification or cancellation of, or give rise to any right of termination or acceleration in respect of, any Company Agreement (as defined in SECTION 2.15 hereof) or, require any consent or waiver of any party to any Company Agreement, except Company Agreements the breach or violation of which could not reasonably be expected to have a Material Adverse Effect; (iii) result in the creation of any Lien upon, or any Person obtaining any right to acquire, any properties, assets or rights of the Company (other than the rights of Sub to acquire the Shares pursuant to this Agreement); (iv) violate or conflict with any Legal Requirements (as defined in SECTION 2.9 hereof) applicable to the Company or any of its businesses or properties, except for such violations or conflicts which could not reasonably be expected to have a Material Adverse Effect; or (v) require any authorization, consent, order, permit or approval of, or notice to, or filing, registration or qualification with, any governmental, administrative or judicial authority, except in connection with or in compliance with the provisions of the H-S-R Act (as defined in SECTION 5.11 hereof). Except as referred to above, no permit or approval of, or notice to any governmental, administrative or judicial authority is necessary to be obtained or made by the Company to enable the Company to continue to conduct its business and operations and use its properties after the Closing in a manner which is in all material respects consistent with that in which they are presently conducted, except for such failures which could not reasonably be expected to have a Material Adverse Effect. 2.5 FINANCIAL STATEMENTS. -10- Attached as SCHEDULE 2.5 are true and complete copies of: (i) the audited balance sheet of the Company as of December 31, 1995 (the "1995 Company Balance Sheet"), and the related statements of income, stockholders' equity and cash flow for the fiscal year ended December 31, 1995, together with the notes thereto, in each case examined by and accompanied by the report of independent certified public accountants, and (B) the audited balance sheet of the Company as of December 31, 1994, and the related statements of income, stockholders' equity and cash flow for the fiscal year ended December 31, 1994, together with the notes thereto, in each case examined by and accompanied by the report of independent certified public accountants; (ii) the unaudited balance sheet of the Company as of April 30, 1996 (the "April Company Balance Sheet") and the unaudited statement of income, stockholders' equity and cash flow for the month period ended on such date, together with the notes thereto (the April Unaudited Company Balance Sheet and related statements of income, stockholder's equity and cash flow being referred to collectively herein as "April Unaudited Company Financial Statements"); and (iii) the April 30, 1996 financial statement provided to Nissan (the "Company Factory Statements"); (all of the foregoing financial statements [except for the financial statements referred to in clause (iii) above] including the notes thereto, being referred to herein collectively as the "Company Financial Statements"). The Company Financial Statements are in accordance with the books and records of the Company, fairly present the consolidated financial position, results of operations, stockholders' equity and changes in the financial position of the Company as of the dates and for the periods indicated, in the case of the financial statements referred to in clauses (i) and (ii) above in conformity with GAAP consistently applied (except as otherwise indicated in such statements or Disclosure Documents) during such periods, and can be legitimately reconciled with the financial statements and the financial records maintained and the accounting methods applied by the Company for federal income tax purposes, and the unaudited financial statements included in the Company Financial Statements -11- include all adjustments, which consist of only normal recurring accruals, necessary for such fair presentations. The statements of income included in the Company Financial Statements do not contain any items of special or nonrecurring income except as expressly specified therein or in the Disclosure Documents, and the balance sheets included in the Company Financial Statements do not reflect any write-up or revaluation increasing the book value of any assets except as expressly stated therein or in the Disclosure Documents. The books and accounts of the Company are complete and correct in all material respects and fairly reflect all of the transactions, items of income and expense and all assets and liabilities of the businesses of the Company consistent with prior practices of the Company. 2.6 ABSENCE OF UNDISCLOSED LIABILITIES. To the Stockholder's knowledge (as defined in SECTION 10.11 hereof), the Company does not have any liability of any nature whatsoever (whether known or unknown, due or to become due, accrued, absolute, contingent or otherwise), including, without limitation, any unfunded obligation under employee benefit plans or arrangements as described in SECTIONS 2.17 AND 2.18 hereof or liabilities for Taxes (as defined in SECTION 2.8 hereof), except for (i) liabilities reflected or reserved against in the April Unaudited Company Financial Statement, (ii) current liabilities incurred in the ordinary course of business and consistent with past practice after the date of the April Unaudited Company Balance Sheet which, individually and in the aggregate, do not have, and cannot reasonably be expected to have, a Material Adverse Effect, and (iii) liabilities disclosed on SCHEDULE 2.6 hereto or the Disclosure Documents. The Company is not a party to any Company Agreement, or subject to any articles of incorporation or bylaw provision, any other corporate limitation or any Legal Requirement which has, or can reasonably be expected to have, a Material Adverse Effect, provided that the Company is in compliance with all of the terms and provisions thereof. -12- 2.7 ABSENCE OF MATERIAL ADVERSE EFFECT; CONDUCT OF BUSINESS. (a) Since December 31, 1995, except as set forth on SCHEDULE 2.7(a) hereto or the Disclosure Documents, the Company has operated in the ordinary course of business consistent with past practice and there has not been: (i) any material adverse change in the assets, properties, business, operations, prospects, net income or financial condition of the Company which could reasonably be expected to have a Material Adverse Effect; (ii) any material loss, damage, destruction or other casualty to the property or other assets of the Company, whether or not covered by insurance; (iii) any change in any method of accounting or accounting practice of the Company; or (iv) any loss of the employment, services or benefits of any key employee of the Company. (b) Since December 31, 1995, except as set forth in SCHEDULE 2.7(b) hereto or the Disclosure Documents, the Company has not: (i) incurred any material obligation or liability (whether absolute, accrued, contingent or otherwise), except in the ordinary course of business consistent with past practice; (ii) failed to disclose or satisfy any material lien or pay or satisfy any material obligation or liability (whether absolute, accrued, contingent or otherwise), other than liabilities being contested in good faith and for which adequate reserves have been provided; (iii) mortgaged, pledged or subjected to any lien any of its property or other assets except for mechanics' Liens and Liens for taxes not yet due and payable; -13- (iv) sold or transferred any assets or cancelled any debts or claims or waived any rights, except in the ordinary course of business consistent with past practice; (v) defaulted on any material obligation; (vi) entered into any material transaction, except in the ordinary course of business consistent with past practice; (vii) written down the value of a material portion of the inventory or written off as uncollectible a material portion of the accounts receivable or any portion thereof not reflected in the April Unaudited Company Financial Statements; (viii) granted any increase in the compensation or benefits of employees other than increases in accordance with past practice not exceeding 10% or entered into any employment or severance agreement or arrangement with any of them; (ix) made any individual capital expenditure in excess of $75,000, or aggregate capital expenditures in excess of $200,000, or additions to property, plant and equipment other than ordinary repairs and maintenance, except for improvements to the used-car facility; (x) discontinued any franchise or the sale of any products or product line; (xi) incurred any obligation or liability to any employee for the payment of severance benefits; or (x) entered into any agreement or made any commitment to do any of the foregoing. 2.8 TAXES. (a) The Company and, for any period during all or part of which the tax liability of any other corporation was determined on a combined or consolidated basis with the Company any such other corporation, have filed timely all federal, state, local and foreign tax returns, reports and declarations required -14- to be filed (or have obtained or timely applied for an extension with respect to such filing) correctly reflecting the Taxes (as defined below) and all other information required to be reported thereon and have paid, or made adequate provision for the payment of, all Taxes which are due pursuant to such returns or pursuant to any assessment received by the Company or any such other corporation. As used herein, "Taxes" shall mean all taxes, fees, levies or other assessments for which the Company is liable, including but not limited to income, excise, property (including property taxes paid by the Company pursuant to any lease), sales, franchise, withholding, social security and unemployment taxes imposed by the United States, any state, county, local or foreign government, or any subdivision or agency thereof or taxing authority therein, and any interest, penalties or additions to tax relating to such taxes, charges, fees, levies or other assessments. Copies of all federal income tax returns for tax years ended December 31, 1990, 1991, 1992, 1993, 1994 and 1995 have been furnished or made available to UAG or its representatives and such copies are accurate and complete as of the date hereof. The Company has also furnished or made available to UAG or its representatives correct and complete copies of all material notices and correspondence sent or received since January 1, 1990 by the Company to or from any federal, state or local tax authorities. The Company has adequately reserved for the payment of all Taxes with respect to periods ended on, prior to or through the date of the April Unaudited Company Balance Sheet for which tax returns have not yet been filed. In the ordinary course, the Company makes adequate provision on its books for the payment of all Taxes (including for the current fiscal period) owed by the Company. Except to the extent reserves therefor are reflected on the April Unaudited Company Balance Sheet, the Company is not liable, or will not become liable, for any Taxes for any period ending on, prior to or through the date of the April Unaudited Company Balance Sheet. On the Closing Date Balance Sheet, the Company will have adequately reserved for the payment of any Taxes for any period ending on, prior to or through the date of the Closing Date Balance Sheet. Except as set forth in SCHEDULE 2.8 hereto or the Disclosure Documents, the Company has not been subject to a federal or state tax audit of any kind since January 1, 1990, and no adjustment has been proposed by the Internal Revenue Service ("IRS") since January 1, 1990 with respect to any return for any subsequent year. With respect to the audits referred to on -15- SCHEDULE 2.8 hereto, no such audit has resulted in an adjustment in excess of $50,000. To the Stockholder's knowledge, there is no basis for an assertion of a deficiency for Taxes against the Company which has a substantial possibility of being sustained on its merits on the basis of a reasonable and well-informed analysis by a person knowledgeable in the law of such Taxes. (b) The Stockholder will cooperate with the Company in the filing of any returns and in any audit or refund claim proceedings involving Taxes for which the Company may be liable or with respect to which the Company may be entitled to a refund. 2.9 LEGAL MATTERS. (a) Except as set forth in SCHEDULE 2.9(a) hereto or the Disclosure Documents, (i) there is no claim, action, suit, litigation, investigation, inquiry, review or proceeding (collectively, "Claims") pending against, or, to the Stockholder's knowledge, threatened against or affecting, the Company, the Real Property, the Improvements or any ERISA Plan (as defined in SECTION 2.18(a) hereof) or any of the Company's or any ERISA Plan's respective assets, properties or rights before or by any court, arbitrator, panel, agency or other governmental, administrative or judicial entity, domestic or foreign, and (ii) the Company is not subject to any judgment, decree, writ, injunction, ruling or order (collectively, "Judgments") of any governmental, administrative or judicial authority, domestic or foreign. SCHEDULE 2.9(a) hereto identifies each Claim and Judgment disclosed thereon which is fully covered by an insurance policy. (b) The businesses of the Company are being conducted in compliance with all laws, ordinances, codes, rules, regulations, standards, judgments and other requirements of all governmental, administrative or judicial entities (collectively, "Legal Requirements") applicable to the Company or any of its respective businesses or properties, except where the failure to be in such compliance could not reasonably be expected to have a Material Adverse Effect. The Company holds, and is in compliance with, all franchises, licenses, permits, registrations, certificates, consents, approvals or authorizations (collectively, "Permits") required by all applicable Legal Requirements except where the failure to hold or be in compliance with such Permits could not -16- reasonably be expected to have a Material Adverse Effect. A list of all such permits is set forth on SCHEDULE 2.9(b) hereof. (c) The Company owns or holds all Permits material to the conduct of its business. To the Stockholder's knowledge, no event has occurred and is continuing which permits, or after notice or lapse of time or both would permit, any modification or termination of any Permit material to the conduct of its business. 2.10 PROPERTY. (a) The properties and assets owned by or leased to the Company are adequate for the conduct of the respective businesses of the Company as presently conducted. Set forth on SCHEDULE 2.10 hereto is a list of all interests in real property owned by or leased to the Company (including all real property owned or leased by the Stockholder (directly or indirectly) and used in the businesses of the Company) and of all options or other contracts to acquire any such interest (collectively, the "Real Property "). All improvements to the Real Property ("Improvements") and all machinery, equipment and other tangible property owned or used by or leased to the Company ("the "Tangible Property") are in good operating condition and in good repair and are fit for the particular purposes for which they are used by the Company, subject only to ordinary wear and tear. The Real Property, the Tangible Property and all Improvements owned or leased by the Company conform in all material respects with all applicable laws, ordinances, rules and regulations and other Legal Requirements and such Improvements do not encroach in any respect on property of others except for nonconformity which could not reasonably be expected to have a Material Adverse Effect. There are no latent defects with respect to the Improvements. The Real Property is currently zoned to permit the conduct of the respective businesses of the Company as presently conducted and there is no pending, or to the Stockholder's knowledge, threatened applications for changes in the zoning applicable to the Real Property. To the extent required, a Certificate of Occupancy has been issued with respect to the Improvements without special conditions or restrictions. To the Stockholder's knowledge, all utilities servicing the Real Property and the Improvements are provided by publicly-dedicated utility lines and are located within public rights-of-way and do -17- not cross or encumber any private land, except those utilities that are subject to easements and other rights-of-way. No notice of any pending, threatened or contemplated action by any governmental authority or agency having the power of eminent domain has been given to the Company or the Stockholder with respect to the Real Property. There is no default by any party to any lease of Real Property and true and complete copies of such leases will be provided to UAG on or before June 10, 1996. 2.11 ENVIRONMENTAL MATTERS. (a) Except as set forth in SCHEDULE 2.11(a) hereto or the Disclosure Documents, (i) the Company, the Real Property, the Improvements and any property formerly owned, occupied or leased by the Company are in full compliance with all Environmental Laws (as defined below), (ii) the Company has obtained all Environmental Permits (as defined below), (iii) such Environmental Permits are in full force and effect, and (iv) the Company is in full compliance with all terms and conditions of such Environmental Permits, except for noncompliance which could not reasonably be expected to have a Material Adverse Effect. As used herein, "Environmental Laws" shall mean all applicable requirements of environmental, public or employee health and safety, public or community right- to-know, ecological or natural resource laws or regulations or controls, including all applicable requirements imposed by any law (including without limitation common law), rule, order, or regulations of any federal, state, or local executive, legislative, judicial, regulatory, or administrative agency, board, or authority, or any applicable private agreement (such as covenants, conditions and restrictions), which relate to, (i) noise, (ii) pollution or protection of the air, surface water, groundwater, or soil, (iii) solid, gaseous, or liquid waste generation, treatment, storage, disposal or transportation, (iv) exposure to Hazardous Materials (as defined below), or (v) regulation of the manufacture, processing, distribution and commerce, use, or storage of Hazardous Materials. As used herein, "Environmental Permits" shall mean all permits, licenses, approvals, authorizations, consents or registrations required under applicable Environmental Law in connection with the ownership, use and/or operation of the Company's business or the Real Property or Improvements. -18- As used in this SECTION 2.11, "Hazardous Materials" shall mean, collectively, (i) those substances included within the definitions of or identified as "hazardous chemicals," "hazardous waste," "hazardous substances," "hazardous materials," "toxic substances" or similar terms in or pursuant to, without limitation, the Comprehensive Environmental Response Compensation and Liability Act of 1980 (42 U.S.C. 9601 ET SEQ.) ("CERCLA"), as amended by Superfund Amendments and Reauthorization Act of 1986 (Pub. L. 99-499, 100 State, 1613), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 ET SEQ.) ("RCRA"), the Occupational Safety and Health Act of 1970 (29 U.S.C. Section 651 ET SEQ.) ("OSHA"), and the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 ET SEQ. ("HMTA"), and in the regulations promulgated pursuant to such laws, all as amended, (ii) those substances listed in the United States Department of Transportation Table (49 CFR 172.101 and amendments thereto) or by the Environmental Protection Agency (or any successor agency) as hazardous substances (40 CFR part 302 and amendments thereto), (iii) any material, waste or substance which is or contains (A) petroleum, including crude oil or any fraction thereof, natural gas, or synthetic gas usable for fuel or any mixture thereof, (B) asbestos, (C) polychlorinated biphenyls, (D) designated as a "hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. Section 1251 ET SEQ. (33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. Section 1317), (E) flammable explosives, (F) radioactive materials, and (iv) such other substances, materials and wastes which are or become regulated or classified as hazardous, toxic or as "special wastes" under any Environmental Laws. (b) Except as set forth in the Disclosure Documents, to the Stockholder's knowledge, the Company and the Stockholder have not violated, done or suffered any act which could give rise to liability under, and are not otherwise exposed to liability under, any Environmental Law, except for violations, acts or omissions which could not reasonably be expected to have a Material Adverse Effect. Except as set forth in the Disclosure Documents, to the Stockholder's knowledge, no event has occurred with respect to the Real Property, the Improvements or any property formerly owned, occupied or leased by the Company, which, with the passage of time or the giving of notice, or both, would constitute a violation of or non-compliance with any applicable Environmental Law, except for violations, acts or omissions which -19- could not reasonably be expected to have a Material Adverse Effect. Except as set forth in the Disclosure Documents, to the Stockholder's knowledge, the Company has no contingent liability under any Environmental Law, and there are no liens under any Environmental Law on the Real Property except for contingent liabilities and liens which could not reasonably be expected to have a Material Adverse Effect. (c) Except as set forth in SCHEDULE 2.11(c) hereto or the Disclosure Documents, (i) neither the Company, the Real Property or any portion thereof, the Improvements or any property formerly owned, occupied or leased by the Company, nor, to the knowledge of the Stockholder, any property adjacent to the Real Property is being used or has been used for the treatment, generation, transportation, processing, handling, production or disposal of any Hazardous Materials or as a landfill or other waste disposal site (provided, however, that certain petroleum products are stored and handled on the Real Property in the ordinary course of the Company's business and are, to the extent currently required, in material compliance with all applicable Environmental Laws including the existing regulations of the United States Environmental Protection Agency and the State of Georgia regarding spill protection, overfill protection and corrosion protection, (ii) neither the Company nor the Stockholder has been notified that any of the Real Property or any portion thereof, the Improvements or any property formerly owned, occupied or leased by the Company has been subject to investigation by any governmental authority evaluating the need to investigate or undertake Remedial Action (as defined below) at such property, and (iii) none of the Real Property, the Improvements or any property formerly owned, occupied or leased by the Company, or, to the knowledge of the Stockholder, any site or location where the Company sent waste of any kind, is identified on the current or proposed (A) National Priorities List under 40 C.F.R. 300 Appendix B, (B) Comprehensive Environmental Response Compensation and Liability Inventory System list, or (C) any list arising from any statute analogous to CERCLA. As used herein, "Remedial Action" shall mean any action required to (i) clean up, remove or treat Hazardous Materials, (ii) prevent a release or threat of release of any Hazardous Material, (iii) perform pre- remedial studies, investigations or post-remedial monitoring and care, (iv) cure a violation of Environmental Law or (v) take -20- corrective action under sections 3004(u), 3004(v) or 3008(h) of RCRA or analogous state law. (d) Except as set forth in SCHEDULE 2.11(d) hereto or the Disclosure Documents, there have been and are no (i) aboveground or underground storage tanks, subsurface disposal systems, or wastes, drums or containers disposed of or buried on, in or under the ground or any surface waters (provided, however, that certain petroleum products are stored and handled on the Real Property in the ordinary course of the Company's business and are, to the extent currently required, in material compliance with all applicable Environmental Laws including the existing regulations of the United States Environmental Protection Agency and the State of Georgia regarding spill protection, overfill protection and corrosion protection), (ii) asbestos or asbestos containing materials or radon gas, (iii) polychlorinated biphenyls ("PCB") or PCB-containing equipment, including transformers, or (iv) wetlands (as defined under any Environmental Law) located within any portion of the Real Property, nor have any Liens been placed upon any portion of the Real Property, the Improvements or any property formerly owned, occupied or leased by the Company in connection with any actual or alleged liability under any Environmental Law, except for conditions which could not reasonably be expected to have a Material Adverse Effect. (e) Except as set forth in SCHEDULE 2.11(e) hereto or the Disclosure Documents, (i) there is no pending or, to the Stockholder's knowledge, threatened claim, litigation, or administrative proceeding, or known prior claim, litigation or administrative proceeding, arising under any Environmental Law involving any of the Company, the Real Property, the Improvements or, to the Stockholder's knowledge, any property formerly owned, leased or occupied by the Company, any offsite contamination affecting the business of the Company or any operations conducted at the Real Property, (ii) there are no ongoing negotiations with or agreements with any governmental authority relating to any Remedial Action or other environmentally related claim, (iii) the Company has not submitted notice pursuant to Section 103 of CERCLA or analogous statute or notice under any other applicable Environmental Law reporting a release of a Hazardous Material into the environment, and (iv) the Company has not received any notice, claim, demand, suit or request for information from any governmental or private entity with respect to any liability or -21- alleged liability under any Environmental Law, nor to Stockholder's knowledge, has any other entity whose liability therefor, in whole or in part, may be attributed to the Company, received such notice, claim, demand, suit or request for information. (f) To the Stockholder's knowledge, the Stockholder and the Company have provided to UAG all environmental studies and reports obtained by them or known to them pertaining to the Real Property, the Improvements, the Company and any property formerly owned, occupied or leased by the Company, and have permitted (or will have permitted as of the Closing Date), the testing of the soil, groundwater, building components, tanks, containers and equipment on the Real Property, the Improvements, and any property formerly owned, occupied or leased by the Company (to the extent permitted by the owner thereof), by UAG or UAG's agents or experts as they have or shall have deemed necessary or appropriate to confirm the condition of such properties. 2.12 INVENTORIES. The values at which inventories are carried on the April Unaudited Company Balance Sheet reflect the normal inventory valuation policies of the Company, and such values are in conformity with GAAP consistently applied, except as otherwise provided in the April Unaudited Balance Sheet. All inventories reflected on the April Unaudited Company Balance Sheet and Company Factory Statement or arising since the date thereof are currently marketable and can reasonably be anticipated to be sold in the ordinary course of business (subject to the reserve for obsolete, off-grade or slow-moving items that is reflected in the April Unaudited Company Balance Sheet or will be reflected in the Closing Date Balance Sheet), except for spare parts inventory which inventory is good and usable. 2.13 ACCOUNTS RECEIVABLE. Except to the extent reserved, all accounts receivable reflected on the April Unaudited Company Balance Sheet are, and all accounts receivable on the Closing Date Balance Sheet, except to the extent reserved, will be good and or will have been collected or are collectible, without resort to litigation. -22- 2.14 INSURANCE. All material properties and assets of the Company which are of an insurable character are insured against loss or damage by fire and other risks to the extent and in the manner reasonable in light of the risks attendant to the businesses and activities in which the Company is engaged and customary for companies engaged in similar businesses or owning similar assets. Set forth on SCHEDULE 2.14 hereto is a list and brief description (including the name of the insurer, the type of coverage provided, the amount of the annual premium for the current policy period, the amount of remaining coverage and deductibles and the coverage period) of all policies for such insurance and the Company has made or will make available to UAG true and complete copies of all such policies. All such policies are in full force and effect sufficient for all applicable requirements of law and will not in any way be effected by or terminated or lapsed by reason of the consummation of the transactions contemplated by this Agreement and the Lease. True and complete copies of all insurance policies referred to in SCHEDULE 2.14 hereof have been delivered to or made available to UAG or its representatives. No notice of cancellation or non-renewal with respect to, or disallowance of any claim under, any such policy has been received by the Company. 2.15 CONTRACTS; ETC. As used in this Agreement, the term "Company Agreements" shall mean all mortgages, indenture notes, agreements, contracts, leases, licenses, franchises, obligations, instruments or other commitments, arrangements or understandings of any kind, whether written or oral, binding or non-binding, (including all leases and other agreements referred to on SCHEDULE 2.10 hereto) to which the Company is a party or by which the Company or any of its assets or properties (including the Real Property and the Improvements) may be bound or affected, including all amendments, modifications, extensions or renewals of any of the foregoing and which involve receipts or payments by the Company which exceed or can reasonably be expected to exceed in $10,000 per year. Set forth on SCHEDULE 2.15 hereto is a complete and accurate list of each Company Agreement which is material to the businesses, operations, assets, condition (financial or otherwise) or prospects of the Company. True and complete copies of all written -23- Company Agreements referred to on SCHEDULE 2.15 and SCHEDULE 2.10 hereto have been delivered or made available to UAG or its representatives, and the Company has provided UAG with accurate and complete written summaries of all unwritten Company Agreements which are material. Except as set forth in SCHEDULE 2.15 or the Disclosure Documents, to the Stockholder's knowledge, the Company is not, nor, to the knowledge of the Stockholder, is any other party thereto, in breach of or default under any Company Agreement, and no event has occurred which (after notice or lapse of time or both) would become a breach or default under, or would permit modification, cancellation, acceleration or termination of, any Company Agreement or result in the creation of any Lien upon, or any Person obtaining any right to acquire, any properties, assets or rights of the Company in any such case except for breaches, defaults or other events which could not reasonably be expected to have a Material Adverse Effect. To the Stockholder's knowledge, there are no material unresolved disputes involving any Company Agreement. 2.16 LABOR RELATIONS. (a) Except as set forth in the Disclosure Documents, the Company has paid or made provision for the payment of all salaries and accrued wages and has complied in all material respects with all applicable laws, rules and regulations relating to the employment of labor, including those relating to wages, hours, collective bargaining and the payment and withholding of taxes, and has withheld and paid to the appropriate governmental authority, or is holding for payment not yet due to such authority, all amounts required by law or agreement to be withheld from the wages or salaries of its employees. (b) Except as set forth in SCHEDULE 2.16(b) hereto or the Disclosure Documents, to the Stockholder's knowledge, the Company is not a party to any (i) outstanding employment agreements or contracts with officers or employees that are not terminable at will, or that provide for payment of any bonus or commission, (ii) agreement, policy or practice that requires it to pay termination or severance pay to salaried, non-exempt or hourly employees (other than as required by law), (iii) collective bargaining agreement or other labor union contract applicable to persons employed by the Company, nor does the Stockholder know of any activities or proceedings of any labor union to -24- organize any such employees. The Company has furnished to UAG or its representatives complete and correct copies of all such agreements ("Employment and Labor Agreements"). To the Stockholder's knowledge, the Company has not breached or otherwise failed to comply with any provisions of any Employment or Labor Agreement, except for breaches or failures which could not reasonably be expected to have a Material Adverse Effect. (c) Except as set forth in SCHEDULE 2.16(c) hereto or the Disclosure Documents, (i) there is no unfair labor practice charge or complaint pending before the National Labor Relations Board ("NLRB"), (ii) there is no labor strike, material slowdown or material work stoppage or lockout actually pending or, to the Stockholder's or the Company's knowledge, threatened, against or affecting the Company, and the Company has not experienced any strike, material slow down or material work stoppage, lockout or other collective labor action by or with respect to employees of the Company, (iii) there is no representation claim or petition pending before the NLRB or any similar foreign agency and no question concerning representation exists relating to the employees of the Company, (iv) there are no charges with respect to or relating to the Company pending before the Equal Employment Opportunity Commission or any state, local or foreign agency responsible for the prevention of unlawful employment- practices, (v) the Company has not received formal notice from any federal, state, local or foreign agency responsible for the enforcement of labor or employment laws of an intention to conduct an investigation of the Company and, to the Stockholder's knowledge, no such investigation is in progress and (vi) the consents of the unions that are parties to any Employment and Labor Agreements are not required to complete the transactions contemplated by this Agreement and the Documents. (d) The Company has never caused any "plant closing" or "mass layoff" as such actions are defined in the Worker Adjustment and Retraining Notification Act, as codified at 29 U.S.C. Sections 2101-2109, and the regulations promulgated therein. 2.17 EMPLOYEE BENEFIT PLANS. (a) Set forth in SCHEDULE 2.17(a) hereto or the Disclosure Documents is a true and complete list of: -25- (i) each employee pension benefit plan, as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974 ("ERISA"), maintained by the Company or to which the Company is required to make contributions ("Pension Benefit Plan"); and (ii) each employee welfare benefit plan, as defined in Section 3(i) of ERISA, maintained by the Company or to which the Company is required to make contributions ("Welfare Benefit Plan"). True and complete copies of all current Pension Benefit Plans and Welfare Benefit Plans (collectively, "ERISA Plans") have been delivered to or made available to UAG or its representatives together with, as applicable with respect to each such ERISA Plan, trust agreements, summary plan descriptions, all IRS determination letters or applications therefor with respect to any Pension Benefit Plan intended to be qualified pursuant to Section 401 (a) of the Internal Revenue Code of 1986, as amended (the "Code"), and valuation or actuarial reports, accountant's opinions, financial statements, IRS Form 5500s (or 5500-C or 5500-R) and summary annual reports for the last three years. (b) With respect to the ERISA Plans, except as set forth on SCHEDULE 2.17(b) or the Disclosure Documents: (i) there is no ERISA Plan which is a "multi-employer" plan as that term is defined in Section 3(37) of ERISA ("Multiemployer Plan"); (ii) no event has occurred or (to the Stockholder's knowledge), is threatened or about to occur which would constitute a prohibited transaction under Section 406 of ERISA or under Section 4975 of the Code; (iii) each ERISA Plan has operated since its inception in accordance with the reporting and disclosure requirements imposed under ERISA and the Code and has timely filed Form 5500e (or 5500-C or 5500-R) and predecessors thereof; and (iv) no ERISA Plan is liable for any federal, state, local or foreign Taxes. -26- (c) Except as set forth in SCHEDULE 2.17(c) hereto or in the Disclosure Documents, each Pension Benefit Plan intended to be qualified under Section 401(a) of the Code: (i) has been qualified, from its inception, under Section 401(a) of the Code, and the trust established thereunder has been exempt from taxation under Section 501(a) of the Code and is currently in compliance with applicable federal laws; (ii) has been operated, since its inception, in accordance with its terms and there exists no fact which could reasonably be expected would adversely affect its qualified status; and (iii) is not currently under investigation, audit or review by the IRS or (to the Stockholder's knowledge), no such action is contemplated or under consideration and the IRS has not asserted that any Pension Benefit Plan is not qualified under Section 401(a) of the Code or that any trust established under a Pension Benefit Plan is not exempt under Section 501(a) of the Code. (d) With respect to each Pension Benefit Plan which is a defined benefit plan under Section 414(j) and, for the purpose solely of SECTION 2.17(d)(iv) hereof, to the Stockholder's knowledge, each defined contribution plan under Section 414(i) of the Code: (i) no liability to the Pension Benefit Guaranty Corporation ("PBGC") under Sections 4062-4064 of ERISA has been incurred by the Company since the effective date of ERISA and all premiums due and owing to the PBGC have been timely paid; (ii) the PBGC has not notified the Company or any Pension Benefit Plan of the commencement of proceedings under Section 4042 of ERISA to terminate any such plan; (iii) no event has occurred since the inception of any Pension Benefit Plan or (to the knowledge of the Company or the Stockholder) is threatened or about to occur which would -27- constitute a reportable event within the meaning of Section 4043(b) of ERISA; (iv) no Pension Benefit Plan ever has incurred any "accumulated funding deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code); and (v) if any of such Pension Benefit Plans were to be terminated on the Closing Date (A) no liability under Title IV of ERISA would be incurred by the Company and (B) all benefits accrued to the day prior to the Closing Date (whether or not vested) would be fully funded in accordance with the actuarial assumptions and method utilized by such plan for valuation purposes. (e) With respect to each Pension Benefit Plan, SCHEDULE 2.17(e) contains a list of all Pension Benefit Plans to which ERISA has applied which have been or are being terminated since January 1, 1990, or for which a termination is contemplated, and a description of the actions taken by the PBGC and the IRS with respect thereto. (f) The aggregate of the amounts of contributions by the Company to be paid or accrued under ERISA Plans is not expected to exceed the total amount set forth on SCHEDULE 2.17(f) for the current fiscal year. To the extent required in accordance with GAAP, and except as set forth on the Disclosure Documents, to the Stockholder's knowledge, the April Unaudited Company Balance Sheet reflects in the aggregate an accrual of all amounts of employer contributions accrued but unpaid by the Company under the ERISA Plans as of the date of the April Unaudited Company Balance Sheet. (g) With respect to any Multiemployer Plan (1) the Company has not, since its formation, made or suffered a "complete withdrawal" or "partial withdrawal" as such terms are respectively defined in Sections 4203 and 4205 of ERISA; (2) there is no withdrawal liability of the Company under any Multiemployer Plan, computed as if a "complete withdrawal" by the Company had occurred under each such Plan as of December 31, 1995; and (3) the Company has not received notice to the effect that any Multiemployer Plan is either in reorganization (as defined in -28- Section 4241 of ERISA) or insolvent (as defined in Section 4245 of ERISA). (h) With respect to the Welfare Benefit Plans, except as set forth in the Disclosure Documents: (i) There are no liabilities of the Company under Welfare Benefit Plans with respect to any condition which relates to a claim filed on or before the date of the April Unaudited Company Balance Sheet. (ii) No claims for benefits are in dispute or litigation. 2.18 OTHER BENEFIT AND COMPENSATION PLANS OR ARRANGEMENTS. (a) Set forth on SCHEDULE 2.18(a) hereto or the Disclosure Documents is a true and complete list of: (i) each employee stock purchase, employee stock option, employee stock ownership, deferred compensation, performance, bonus, incentive, vacation pay, holiday pay, insurance, severance, retirement, excess benefit or other plan, trust or arrangement which is not an ERISA Plan whether written or oral, which the Company maintains or is required to make contributions to; (ii) each other agreement, arrangement, commitment and understanding of any kind, whether written or oral, with any current or former officer, director or consultant of the Company pursuant to which payments may be required to be made at any time following the date hereof (including, without limitation, any employment, deferred compensation, severance, supplemental pension, termination or consulting agreement or arrangement); and (iii) each employee of the Company whose aggregate compensation for the fiscal year ended December 31, 1995 exceeded, and whose aggregate compensation for the fiscal year ended December 31, 1996 is likely to exceed, $50,000. True and complete copies of all of the written plans, arrangements and agreements referred to on SCHEDULE 2.18(a) ("Compensation Commitments") have been provided to UAG -29- together with, where prepared by or for the Company, any valuation, actuarial or accountant's opinion or other financial reports with respect to each Compensation Commitment for the last three years. An accurate and complete written summary has been provided to UAG with respect to any Compensation Commitment which is unwritten. (b) Except as set forth in the Disclosure Documents, to the Stockholder's knowledge, each material Compensation Commitment: (i) since its inception, has been operated in all material respects in accordance with its terms; (ii) is not currently under investigation, audit or review by the IRS or any other federal or state agency and (to the knowledge of the Stockholder) no such action is contemplated or under consideration; (iii) has no liability for any federal, state, local or foreign Taxes, except to the extent not due and payable; (iv) has no claims subject to dispute or litigation; (v) has met all applicable requirements, if any, of the Code; and (vi) has operated since its inception in material compliance with the reporting and disclosure requirements imposed under ERISA and the Code, except to the extent ERISA and the Code are not applicable. 2.19 TRANSACTIONS WITH INSIDERS. Set forth on SCHEDULE 2.19 hereto or the Disclosure Documents is a complete and accurate description of all material transactions between the Company or any ERISA Plan, on the one hand, and any Insider, on the other hand, that have occurred since January 1, 1991. For purposes of this Agreement: (i) the term "Insider" shall mean the Stockholder, any director or officer of the Company, and any Affiliate, Associate or Relative of any of the foregoing persons; -30- (ii) the term "Associate" used to indicate a relationship with any person means (A) any corporation, partnership, joint venture or other entity of which such person is an officer or partner or is, directly or indirectly, through one or more intermediaries, the beneficial owner of 30% or more of (1) any class or type of equity securities or other profits interest or (2) the combined voting power of interests ordinarily entitled to vote for management or otherwise, and (B) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; and (iii) a "Relative" of a person shall mean such person's spouse, such person's parents, sisters, brothers, children and the spouses of the foregoing, and any member of the immediate household of such person. 2.20 PROPRIETY OF PAST PAYMENTS. To the Stockholder's knowledge, no funds or assets of the Company have been used for illegal purposes; no unrecorded funds or assets of the Company have been established for any purpose; no accumulation or use of the Company's corporate funds or assets has been made without being properly accounted for in the respective books and records of the Company; all payments by or on behalf of the Company have been duly and properly recorded and accounted for in their respective books and records; no false or artificial entry has been made in the books and records of the Company for any reason; no payment has been made by or on behalf of the Company with the understanding that any part of such payment is to be used for any purpose other than that described in the documents supporting such payment; and the Company has not made, directly or indirectly, any illegal contributions to any political party or candidate, either domestic or foreign. Neither the IRS nor any other federal, state, local or foreign government agency or entity has initiated or, to the Stockholder's knowledge, threatened any investigation of any payment made by the Company of, or alleged to be of, the type described in this SECTION 2.20. -31- 2.21 INTEREST IN COMPETITORS. Except as set forth in SCHEDULE 2.21 or the Disclosure Documents, neither the Company nor the Stockholder, nor any of their Affiliates, have any interest, either by way of contract or by way of investment (other than as holder of not more than 2% of the outstanding capital stock of a publicly traded Person, so long as such holder has no other connection or relationship with such Person) or otherwise, directly or indirectly, in any Person other than the Company that is engaged in the retail sale or servicing of automobiles or light duty trucks. 2.22 BROKERS. Neither the Company, nor any director, officer or employee thereof, nor the Stockholder or any representative of the Stockholder, has employed any broker or finder or has incurred or will incur any broker's, finder's or similar fees, commissions or expenses, in each case in connection with the transactions contemplated by this Agreement or the Lease. 2.23 ACCOUNTS. SCHEDULE 2.23 hereof correctly identifies each bank account maintained by or on behalf or for the benefit of the Company and the name of each person with any power or authority to act with respect thereto. 2.24 DISCLOSURE. Neither the Company nor the Stockholder has made any material misrepresentation to UAG relating to the Company or the Shares and neither the Company nor the Stockholder has omitted to state to UAG any material fact relating to the Company or the Shares which is necessary in order to make the information given by or on behalf of the Company or the Stockholder to UAG not misleading. -32- ARTICLE 3 REPRESENTATIONS OF THE STOCKHOLDER Subject to the parties' agreement and acknowledgement that certain of the Schedules referred to in this ARTICLE 3 are to be delivered by the Stockholder to UAG and Sub no later than June 12, 1996, the Stockholder hereby represents to UAG and Sub as follows: 3.1 OWNERSHIP OF SHARES; TITLE. The Stockholder is the record and legal owner of the Shares set forth on SCHEDULE 3.1 hereof and has, and shall transfer to Sub at the Closing, good and marketable title to the Shares owned by her, free and clear of any and all Liens, claims and encumbrances and free and clear of any restrictions on transfer (other than restrictions on transfer imposed by applicable federal and state securities laws), proxies and voting or other agreements. 3.2 AUTHORITY. (a) The Stockholder has all requisite power and authority and has full legal capacity and is competent to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby (including the disposition of the Shares to Sub as contemplated by this Agreement). This Agreement has been duly executed and delivered by the Stockholder and constitutes a valid and binding obligation of the Stockholder, enforceable against the Stockholder in accordance with its terms. (b) Except as set forth in SCHEDULE 3.2 or the Disclosure Documents, the execution, delivery and performance of this Agreement by the Stockholder and the consummation of the transactions contemplated hereby do not and will not: (i) (after notice or lapse of time or both) conflict with, result in a breach of any provision of, constitute a default under, result in the modification or cancellation of, or give rise to any right of termination or acceleration in respect of, any material contract, agreement, commitment, understanding, arrangement or restriction to which the Stock- -33- holder is a party or to which the Stockholder or any of her property is subject; (ii) violate or conflict with any Legal Requirements applicable to the Stockholder or any of its businesses or properties; or (iii) require any authorization, consent, order, permit or approval of, or notice to, or filing, registration or qualification with, any governmental, administrative or judicial authority, except in connection with or in compliance with the provisions of the H-S-R Act. 3.3 REAL PROPERTY AND IMPROVEMENTS. Except as set forth in SCHEDULE 3.3 hereto or the Disclosure Documents, the Stockholder or Argonne owns the Real Property and Improvements in fee simple, free and clear of all Liens, claims and encumbrances (all such Real Property and Improvements owned by Stockholder or Argonne being referred to herein collectively as the "Stockholder Realty"). No assessments have been made against any portion of the Stockholder Realty which are unpaid (except ad valorem taxes for the current year that are not yet due and payable), whether or not they have become Liens. There are no disputes concerning the location of the lines and corners of the Real Property. No one has been granted any right to purchase or lease the Stockholder Realty other than the existing leases in favor of the Company, which is to be terminated at Closing. All contractors, subcontractors and other persons or entities furnishing work, labor, materials or supplies with respect to any of the Real Property, Improvements or Tangible Property have been paid and there are no Liens against such property in connection therewith (except for improvements to the used car facility which are being paid in the ordinary course of business). Attached as SCHEDULE 3.3 are all surveys, title binders, title policies and copies of any exceptions to title relating to the Stockholder Realty. -34- ARTICLE 4 REPRESENTATIONS OF UAG AND SUB Subject to the parties' agreement and acknowledgement that certain of the Schedules referred to in this ARTICLE 4 are to be delivered by UAG and Sub no later than June 12, 1996, UAG and Sub hereby jointly and severally represent to the Company and the Stockholder as follows: 4.1 ORGANIZATION AND GOOD STANDING. Each of UAG and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation and has the corporate power and authority to own, lease and operate the properties used in its business and to carry on its business as now being conducted. Each of UAG and each of its subsidiaries is duly qualified to do business and is in good standing as a foreign corporation in each state and jurisdiction where qualification as a foreign corporation is required, except for such failures to be qualified and in good standing, if any, which when taken together with all other such failures of UAG and its subsidiaries would not, or could not reasonably be expected to, in the aggregate have a material adverse effect on UAG and its subsidiaries, taken as a whole. 4.2 AUTHORITY; APPROVALS AND CONSENTS. UAG and Sub, respectively, have the corporate power and authority to enter into this Agreement, the Note, the UAG Guaranty of Note, the UAG Guaranty of Estate Lease, the UAG Guaranty of Argonne Lease and the Company Guaranty of Note (the "Stipulated Documents"), and to perform their respective obligations hereunder. This Agreement has been, and on the Closing Date the Stipulated Documents will be, duly executed and delivered by, and constitutes valid and binding obligation of, UAG and Sub, enforceable against UAG and Sub in accordance with its terms. The execution, delivery and performance by UAG and Sub of this Agreement and the consummation of the transactions contemplated hereby do not and will not: (i) contravene any provisions of the certificate of incorporation or bylaws of UAG or Sub; -35- (ii) (after notice or lapse of time or both) conflict with, result in a breach of any provision of, constitute a default under, result in the modification or cancellation of, or give rise to any right of termination or acceleration in respect of, any UAG Agreement (as defined in SECTION 4.5 hereof) or, require any consent or waiver of any party to any UAG Agreement other than agreements the breach or violation of which could not reasonably be expected to have a material adverse effect on UAG and its subsidiaries, taken as a whole; (iii) violate or conflict with any Legal Requirements applicable to UAG or any of its subsidiaries or any of their respective businesses or properties, except for such violations or conflicts which could not reasonably be expected to have a Material Adverse Effect; or (iv) require any authorization, consent, order, permit or approval of, or notice to, or filing, registration or qualification with, any governmental, administrative or judicial authority, except in connection with or in compliance with the provisions of the H-S-R Act. 4.3 FINANCIAL STATEMENTS. Attached as SCHEDULE 4.3 are true and correct copies of: (i) (A) the unaudited balance sheet of UAG as of December 31, 1995 (the "1995 UAG Balance Sheet") and the related statements of income, stockholders' equity and cash flow for the fiscal year ended December 31, 1995, together with the notes thereto, and (B) the audited balance sheet of UAG as of December 31, 1994 and the related statements of income, stockholders' equity and cash flow for the fiscal year ended December 31, 1994, together with the notes thereto, in each case examined by and accompanied by the report of independent certified public accountants; and (ii) the unaudited balance sheet of UAG as of April 30, 1996 (the "April Unaudited UAG Balance Sheet") and the unaudited statement of income, stockholders' equity and cash flow for the month period ended on such date, together with the notes thereto (the April Unaudited UAG Balance Sheet and -36- related statements of income, Stockholder's equity cash flow, being referred to collectively herein as "April Unaudited UAG Financial Statements"); (all of the foregoing financial statements, including the notes thereto, being referred to herein collectively as the "UAG Financial Statements"). The UAG Financial Statements are in accordance with the books and records of UAG, fairly present the consolidated financial position, results of operations, stockholders' equity and changes in the financial position of UAG as of the dates and for the periods indicated, in the case of the financial statements referred to in clause (i) above in conformity with GAAP consistently applied (except as otherwise indicated in such statements) during such periods, and can be legitimately reconciled with the financial statements and the financial records maintained and the accounting methods applied by UAG for federal income tax purposes, and the unaudited financial statements included in the UAG Financial Statements include all adjustments, which consist of only normal recurring accruals, necessary for such fair presentations. The statements of income included in the UAG Financial Statements do not contain any items of special of nonrecurring income except as expressly specified therein, and the balance sheets included in the UAG Financial Statements to not reflect any write-up or evaluation increasing the book value of any assets except as expressly stated therein. The books and accounts of UAG are complete and correct in all material respects and fairly reflect all of the transactions, items of income and expense and all assets and liabilities of the businesses of UAG consistent with prior practices of UAG. -37- 4.4 LEGAL MATTERS. (a) Except as set forth in SCHEDULE 4.4(a) hereto, (i) there is no claim, action, suit, litigation, investigations, inquiry, review or proceeding (collectively, "UAG Claims") pending against, or, to UAG's knowledge, threatened against or affecting, UAG or its subsidiaries or any of their ERISA plans, assets, properties or rights before or by any court, arbitrator, panel, agency or other governmental, administrative or judicial entity, domestic or foreign, and (ii) neither UAG nor any of its subsidiaries, is subject to any judgment, decree, writ, injunction, ruling or order (collectively, "UAG Judgments") of any governmental, administrative or judicial authority, domestic or foreign. (b) To UAG's knowledge, the businesses of UAG and its subsidiaries are being conducted in compliance with all laws, ordinances, codes, rules, regulations, standards, judgments and other requirements of all governmental, administrative or judicial entities (collectively, "UAG Legal Requirements") applicable to UAG, its subsidiaries, or any of its respective businesses or properties. To the knowledge of UAG, UAG or its subsidiaries hold, and are in compliance with, all franchises, licenses, permits, registrations, certificates, consents, approvals or authorizations (collectively, "UAG Permits") required by all applicable UAG Legal Requirements. 4.5 CONTRACTS, ETC. As used in this Agreement, the term "UAG Agreements" shall mean all mortgages, indenture notes, agreements, contracts, leases, licenses, franchises, obligations, instruments or other commitments, arrangements or understandings of any kind, whether written or oral, binding or non-binding, to which UAG or its subsidiaries is a party or by which UAG or its subsidiaries or any of its assets or properties may be bound or affected, including all amendments, modifications, extensions or renewals of any of the foregoing, and which involve receipts or payments by UAG or its subsidiaries which exceed $100,000 per year. To UAG's knowledge, UAG and its subsidiaries are not, nor, to the knowledge of UAG, is any other party thereto, in breach of or default under any UAG Agreement, and no event has occurred which (after notice or lapse of time or both) would become a breach or -38- default under, or would permit modification, cancellation, acceleration or termination of, any UAG Agreement or result in the creation of any Lien upon, or any Person obtaining any right to acquire, any properties, assets or rights of UAG or its subsidiaries in any such case where such breach, default or other event would have, or could not reasonably be expected to have, a material adverse effect. To UAG's knowledge, there are no material unresolved disputes involving any UAG Agreement, except for disputes which could not reasonably be expected to have a material adverse effect. 4.6 BROKERS. Neither UAG, Sub nor any of their directors, officers or employees has employed any broker or finder or has incurred or will incur any broker's, finder's or similar fees, commissions or expenses, in each case in connection with the transactions contemplated by this Agreement or the Lease. 4.7 DISCLOSURE. Neither UAG nor Sub has made any material misrepresentation to the Stockholder and neither UAG nor Sub has omitted to state to the Stockholder any material fact relating to UAG or Sub which is necessary in order to make the information given by UAG or Sub not misleading. 4.8 INVESTMENT. Sub is acquiring the Shares for investment purposes only, for Sub's own account, and not with a view to, or resale in connection with, the distribution or transfer thereof. The Shares have not been offered to Sub or UAG by means of any publicly disseminated advertisements or sales literature. ARTICLE 5 COVENANTS AND ADDITIONAL AGREEMENTS 5.1 ACCESS; CONFIDENTIALITY. (a) Between the date hereof and the Closing Date, the Stockholder and the Company will (i) provide to the officers and -39- other authorized representatives of UAG and Sub full access, during normal business hours, to any and all premises, properties, files, books, records, documents, and other information of the Company and will cause their officers to furnish to UAG and Sub and their authorized representatives any and all financial, technical and operating data and other information pertaining to the businesses and properties of the Company, and (ii) make available for inspection and copying by UAG and Sub true and complete copies of any documents relating to the foregoing. UAG and Sub will hold in confidence (unless and to the extent compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law), and will cause their employees, agents and representatives to hold in confidence, all Confidential Information (as defined below), and will not disclose the same to any third party except in connection with obtaining financing and otherwise as may reasonably be necessary to carry out this Agreement and the transactions contemplated hereby, including any due diligence review by or on behalf of UAG and Sub. If this Agreement is terminated, UAG and Sub will promptly return to the Company, upon the request of either the Stockholder or the Company, all Confidential Information furnished by the Stockholder and/or the Company to UAG, Sub or any of their employees, agents and/or the Company to UAG, Sub or any of their employees, agents or representatives and held by UAG, Sub or any of their employees, agents and representatives, including all originals, copies, excerpts, disks, tapes and summaries thereof. UAG and Sub and their employees, agents and representatives shall use the Confidential Information only for the purpose of consummating the transactions contemplated by this Agreement and shall not use any Confidential Information for any other purpose. If this Agreement is terminated for any reason, UAG, Sub and their employees, agents and representatives shall not use or have any communication with respect to any Confidential Information, or make any Confidential Information available to any other Person (other than the Company or the Stockholder) nor shall they or any of them for a period of two (2) years following the termination of this Agreement, either on their own behalf or on behalf of others, solicit, divert or hire, or attempt to solicit, divert or hire any person employed by the Company at the time of execution of this Agreement, whether or not the employment of any such person is pursuant to a written contract, for a determined period or at will. As used herein, "Confidential Information" shall mean all information, -40- documents and data concerning the Company obtained by UAG, Sub or any of their employees, agents or representatives from the Stockholder and/or the Company in connection with the transactions contemplated by this Agreement, except information (x) ascertainable or obtained from public information, (y) received from a third party not employed by or otherwise affiliated with the Company or (z) which is or becomes known to the public, other than through a breach by UAG, Sub or any of their employees, agents or representatives of this SECTION 5.1 or this Agreement. (b) The Stockholder will hold in confidence (unless and to the extent compelled to disclose by judicial or administrative process, or, in the opinion of her counsel, by other requirements of law) all UAG Confidential Information (as defined below) and will not disclose the same to any third party except as may reasonably be necessary to carry out this Agreement and the transactions contemplated hereby, including any due diligence review by or on behalf of the Stockholder. If this Agreement is terminated, the Stockholder will promptly return to UAG, upon the reasonable request of UAG, all UAG Confidential Information furnished by UAG and held by the Stockholder, including all copies and summaries thereof. As used herein, "UAG Confidential Information" shall mean all information concerning UAG or any of its subsidiaries obtained by the Stockholder in connection with the transactions contemplated by this Agreement, except information (x) ascertainable or obtained from public information, (y) received from a third party not employed or otherwise affiliated with UAG or any of its subsidiaries or (z) which is or becomes known to the public, other than a breach by the Stockholder of this Agreement. (c) The terms and provisions of this SECTION 5.1 shall survive the termination of this Agreement. 5.2 FURNISHING INFORMATION; ANNOUNCEMENTS. The Stockholder and the Company, on the one hand, and UAG and Sub, on the other hand, will, as soon as practicable after reasonable request therefor, furnish to the other all the information concerning the Stockholder and the Company or UAG and Sub, respectively, required for inclusion in any statement or application made by UAG or Sub or the Company or the Stockholder -41- to any governmental or regulatory body or to any manufacturer or distributor or in connection with obtaining any third party consent in connection with the transactions contemplated by this Agreement. Neither the Stockholder or the Company, on the one hand, nor UAG or Sub, on the other hand, nor any representative thereof, shall issue any press releases or otherwise make any public statement with respect to the transactions contemplated hereby without the prior consent of the other, except as may be required by law. 5.3 CERTAIN CHANGES AND CONDUCT OF BUSINESS. (a) From and after the date of this Agreement and until the Closing Date, the Company shall, and the Stockholder shall cause the Company to, conduct its businesses solely in the ordinary course consistent with past practices and, without the prior written consent of UAG, neither the Stockholder nor the Company will, except as required or permitted pursuant to the terms hereof, permit the Company to: (i) make any material change in the conduct of its businesses and operations or enter into any transaction other than in the ordinary course of business consistent with past practices; (ii) make any change in its Articles of Incorporation or Bylaws, issue any additional shares of capital stock or equity securities or grant any option, warrant or right to acquire any capital stock or equity securities or issue any security convertible into or exchangeable for its capital stock or alter any material term of any of its outstanding securities or make any change in its outstanding shares of capital stock or other ownership interests or its capitalization, whether by reason of a reclassification, recapitalization, stock split or combination, exchange or readjustment of shares, stock dividend or otherwise; (iii) (A) incur, assume or guarantee any indebtedness for borrowed money, issue any notes, bonds, debentures or other corporate securities or grant any option, warrant or right to purchase any thereof, except pursuant to transactions in the ordinary course of business consistent with past practices, (B) issue any securities convertible or exchange- -42- able for debt securities of the Company, or (C) issue any options or other rights to acquire from the Company, directly or indirectly, debt securities of the Company or any security convertible into or exchangeable for such debt securities; (iv) make any sale, assignment, transfer, abandonment or other conveyance of any of its assets or any part thereof, except transactions pursuant to existing contracts (which will be set forth in SCHEDULE 2.15 hereto) and dispositions in the ordinary course of business consistent with past practices; (v) subject any of its assets, or any part thereof, to any lien or suffer such to be imposed other than such Liens as may arise in the ordinary course of business consistent with past practices; (vi) declare, set aside or pay any dividends or other distribution (whether in cash, stock, property or any combination thereof) in respect of any shares of its capital stock which could reasonably be expected to decrease the Net Worth of the Company below the April 30, 1996 Net Worth or redeem, retire, purchase or otherwise acquire, directly or indirectly, any shares of its capital stock; (vii) acquire any assets, raw materials or properties, or enter into any other transaction, other than in the ordinary course of business consistent with past practices; (viii) enter into any new (or amend any existing) employee benefit plan, program or arrangement or any new (or amend any existing) employment, severance or consulting agreement, grant any general increase in the compensation of officers or employees (including any such increase pursuant to any bonus, pension, profit-sharing or other plan or commitment) or grant any increase in the compensation payable or to become payable to any employee, except in accordance with pre-existing contractual provisions or consistent with past practices; (ix) make or commit to make any individual material capital expenditure in excess of $50,000, or aggregate capital expenditures in excess of $150,000, except in the -43- ordinary course of business and except improvements to complete the used- car facility which is currently under construction; (x) pay, loan or advance any amount to, or sell, transfer or lease any properties or assets to, or enter into any agreement or arrangement with, any of its Affiliates, except in the ordinary course of business; (xi) guarantee any indebtedness for borrowed money or any other obligation of any other Person, other than in the ordinary course of business consistent with past practice; (xii) fail to keep in full force and effect insurance comparable in amount and scope to coverage maintained by it (or on behalf of it) on the date hereof; (xiii) make any loan, advance or capital contribution to or investment in any Person, except in the ordinary course of business; (xiv) make any change in any method of accounting or accounting principle, method, estimate or practice except for any such change required by reason of a concurrent change in GAAP or write-down the value of any inventory or write-off as uncollectible any accounts receivable except in the ordinary course of business consistent with past practices; (xv) settle, release or forgive any material claim or litigation or waive any material right; (xvi) make, enter into, modify, amend in any material respect or terminate any material commitment, bid or expenditure, other than in the ordinary course of business consistent with past practice; or (xvii) commit itself to do any of the foregoing. (b) From and after the date hereof and until the Closing Date, the Stockholder and the Company will use their reasonable best efforts to cause the Company to: -44- (i) continue to maintain, in all material respects, the Company's properties, the Real Property and the Improvements in accordance with present practices in a condition suitable for their current use; (ii) comply with all applicable Environmental Laws, and, in the event it shall receive notice that there exists a violation of any Environmental Law with respect to its operations, the Improvements or any Real Property, take such action as the Company may deem appropriate consistent with the terms of this Agreement; (iii) file, when due or required, federal, state, foreign and other tax returns and other reports required to be filed and pay when due all taxes, assessments, fees and other charges lawfully levied or assessed against it unless the validity thereof is contested in good faith and by appropriate proceedings diligently conducted; (iv) keep its books of account, records and files in the ordinary course and in accordance with existing practices; (v) preserve its business organization intact and continue to maintain existing business relationships with suppliers, customers and others with whom business relationships exist other than relationships that are, at the same time, not economically beneficial to it; and (vi) continue to conduct its business in the ordinary course consistent with past practices. 5.4 NO INTERCOMPANY PAYABLES OR RECEIVABLES. At the Closing there will be no intercompany payables or intercompany receivables due and/or owing between the Stockholder and any of her Affiliates, on the one hand, and the Company, on the other hand, except under the Estate Lease and the Argonne Lease. -45- 5.5 NEGOTIATIONS. Until the earlier of (i) 180 days from the date hereof and (ii) the termination of this Agreement pursuant to SECTION 8.1 hereof, neither the Stockholder, the Company, nor the Company's officers, directors, employees, advisors, agents, representatives, Affiliates or anyone acting on behalf of the Stockholder, the Company or such persons, shall, directly or indirectly, encourage, solicit, initiate or engage in discussions or negotiations with, or provide any information to, any person (other than UAG, Sub and their respective employees and representatives) concerning any merger, sale of assets (other than in the ordinary course of business), purchase or sale of shares of capital stock or similar transaction involving the Company. The Stockholder shall promptly communicate to UAG any inquiries or communications concerning any such transaction (including the identity of any person making such inquiry or communication) which the Stockholder may receive or of which the Stockholder may become aware. 5.6 CONSENTS; COOPERATION. Subject to the terms and conditions hereof, the Stockholder and the Company and UAG and Sub will use their respective best efforts at their own expense: (i) to obtain prior to the earlier of the date required (if so required) or the Closing Date, all waivers, permits, licenses, approvals, authorizations, qualifications, orders and consents of all third parties and governmental authorities, and make all filings and registrations with governmental authorities which are required on their respective parts for (A) the consummation of the transactions contemplated by this Agreement, (B) the ownership or leasing and operating after the Closing by the Company of all its material properties and (C) the conduct after the Closing by the Company of its businesses as conducted by it on the date hereof. (ii) to defend, consistent with applicable principles and requirements of law, any lawsuit or other legal proceedings, whether judicial or administrative, whether brought derivatively or on behalf of third persons (including -46- governmental authorities) challenging this Agreement or the transactions contemplated hereby; and (iii) to furnish each other such information and assistance as may reasonably be requested in connection with the foregoing. 5.7 ADDITIONAL AGREEMENTS. Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to use its best efforts at its own expense to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, provided that in no event shall total expense of any party under this sentence exceed Twenty-Five Thousand Dollars ($25,000). In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers of the Company shall take all such necessary action. 5.8 INTERIM FINANCIAL STATEMENTS. Within thirty (30) days after the end of each calendar month after April 30, 1996, the Company will deliver to UAG unaudited consolidated balance sheets of the Company at the end of such calendar month and at the end of the corresponding calendar month of the preceding fiscal year, together with the related unaudited consolidated statements of income and cash flow for the fiscal months then ended. The Company will also deliver to UAG copies of the Company Factory Statements provided to Nissan after the date hereof within five days of their delivery to Nissan. All such financial statements shall fairly present the financial position and results of operations of the Company as of the date or for the periods indicated. All unaudited financial statements delivered pursuant to this SECTION 5.9 shall be prepared on a basis consistent with the April Unaudited Company Financial Statements. -47- 5.9 NOTIFICATION OF CERTAIN MATTERS. Between the date hereof and the Closing, each party to this Agreement will give prompt notice in writing to the other party hereto of: (i) any information that indicates that any representation of such party contained herein was not true and correct as of the date made or will not be true and correct as of the Closing, (ii) the occurrence of any event which could result in the failure to satisfy a condition specified in ARTICLE 6 or ARTICLE 7 hereof, as applicable, (iii) any notice or other communication from any third person alleging that the consent of such third person is or may be required in connection with the transactions contemplated by this Agreement, and (iv) in the case of the Stockholder and the Company, any notice of, or other communication relating to, any default or event which, with notice or lapse of time or both, would become a default under any Company Agreement set forth on SCHEDULE 2.15. The Company and the Stockholder will (x) promptly advise UAG of any event that has, or could reasonably be expected in the future to have, a Material Adverse Effect on the Company, (y) confer on a regular and frequent basis with one or more designated representatives of UAG to report operational matters and to report the general status of ongoing operations, and (z) notify UAG of any emergency or other change in the normal course of business or relating to the Real Property or Improvements of the Company and of any governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated) or adjudicatory proceedings involving the Company, the Real Property or the Improvements and will keep UAG fully informed of such events and permit UAG's representatives access to all materials prepared in connection therewith. Each Stockholder shall give prompt notice to UAG of any notice or other communication from any third person asserting any right, title or interest in any of the Shares held by such Stockholder (including, without limitation, any threat to commence, or notice of the commencement of any action or other proceeding with respect to the Shares) or the occurrence of any other event of which such Stockholder has knowledge which could result in any failure to consummate the sale of the Shares as contemplated hereby. -48- 5.10 ASSURANCE BY THE STOCKHOLDER. The Stockholder, the Company, UAG and Sub shall use their respective best efforts to comply with their respective covenants set forth in this Agreement. 5.11 ANTITRUST IMPROVEMENTS ACT COMPLIANCE. UAG, Sub, the Stockholder and the Company, as applicable, shall each file or cause to be filed with the Federal Trade Commission and the United States Department of Justice any notifications required to be filed by the respective "ultimate parent" entities under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R Act"), and the rules and regulations promulgated thereunder, with respect to the transactions contemplated herein. The parties shall use their best efforts to make such filings promptly, to respond to any requests for additional information made by either of such agencies, to cause the waiting periods under the H-S-R Act to terminate or expire at the earliest possible date and to resist vigorously, at UAG's sole cost and expense (including, without limitation, the institution or defense of legal proceedings), any assertion that the transactions contemplated herein constitute a violation of the antitrust laws, all to the end of expediting consummation of the transactions contemplated herein; PROVIDED, HOWEVER, that if UAG or the Stockholder shall determine after issuance of any preliminary injunction that continuing such resistance is not in its or their best interests, UAG or the Stockholder, as the case may be, may, by written notice to the other party, terminate this Agreement with the effect set forth in SECTION 8.2 hereof. Notwithstanding the foregoing, UAG shall pay, at its sole cost and expense, all filing fees and other expenses relating to complying with the H-S-R Act. -49- ARTICLE 6 CONDITIONS TO THE OBLIGATIONS OF UAG AND SUB TO EFFECT THE CLOSING The obligations of UAG and Sub required to be performed by them at the Closing shall be subject to the satisfaction, at or prior to the Closing, of each of the following conditions, each of which may be waived by UAG and Sub as provided herein except as otherwise required by applicable law: 6.1 REPRESENTATIONS; AGREEMENTS; COVENANTS. Each of the representations of the Company and the Stockholder contained in this Agreement shall be true and correct on the date made and shall be true and correct in all material respects as of the Closing. Each of the obligations of the Company and the Stockholder required by this Agreement to be performed by them at or prior to the Closing shall have been duly performed and complied with in all material respects as of the Closing. At the Closing, Sub shall have received a certificate, dated the Closing Date and duly executed by the Stockholder, to the effect that the conditions set forth in the two preceding sentences have been satisfied. 6.2 AUTHORIZATION; CONSENTS. (a) All corporate action necessary to authorize the execution, delivery and performance of this Agreement and the Lease, and the consummation of the transactions contemplated hereby shall have been duly and validly taken by the Company. All filings required to be made under the H-S-R Act in connection with the transactions contemplated hereby shall have been made and all applicable waiting periods with respect to each such filing, including extensions thereof, shall have expired or been terminated. (b) All notices to, and declarations, filings and registrations with, and consents, authorizations, approvals and waivers from, governmental and regulatory bodies and third persons (including, but not limited to, all automobile manufacturers with whom the Company has a franchise agreement (or comparable instrument)) required to consummate the transactions -50- contemplated hereby and all consents or waivers shall have been made or obtained. 6.3 OPINIONS OF THE COMPANY'S AND THE STOCKHOLDER'S COUNSEL. UAG and Sub shall have been furnished with the opinion of the Company's and the Stockholder's counsel, dated the Closing Date, in form and substance that is substantialy similar to the terms agreed to between UAG and Stockholder's counsel on June 5, 1996. 6.4 ABSENCE OF LITIGATION. No order, stay, injunction or decree of any court of competent jurisdiction in the Untied States shall be in effect (i) that prevents or delays the consummation of any of the transactions contemplated hereby or (ii) would impose any limitation on the ability of UAG or Sub effectively to exercise full rights of ownership of the Shares. No action, suit or proceeding before any court or any governmental or regulatory entity shall be pending (or threatened by any governmental or regulatory entity), and no investigation by any governmental or regulatory entity shall have been commenced (and be pending), seeking to restrain or prohibit (or questioning the validity or legality of) the consummation of the transactions contemplated by this Agreement or seeking damages in connection therewith which UAG or Sub, in good faith and with the advice of counsel, believes makes it undesirable to proceed with the consummation of the transactions contemplated hereby. 6.5 NO MATERIAL ADVERSE EFFECT. During the period from December 31, 1995 to the Closing Date, there shall not have been any material adverse change in the assets, properties, business, operations, prospects, net income or financial condition of the Company. 6.6 COMPLETION OF DUE DILIGENCE. UAG and Sub shall have completed their due diligence examination of the Company, the Real Property and the Improvements and the results of such examination, including any Phase I or Phase II environmental audits of the Company, shall be -51- satisfactory to UAG and Sub; PROVIDED, HOWEVER, that, with the exception of due diligence relating to any environmental issues, such due diligence shall be completed, and shall be deemed completed, no later than twenty-one (21) days after the execution of this Agreement. UAG will pay the costs for a Phase I environmental audit. If, after obtaining the results of the Phase I environmental audit, UAG determines that a Phase II environmental audit is required, the expenses of the Phase II environmental audit shall be paid by UAG; PROVIDED, HOWEVER, that if the results of the Phase II environmental audit conclude that remedial action is required, the Stockholder shall reimburse UAG for one-half of the Phase II expenses and shall be responsible for the costs of the remedial action, except that if it can reasonably be expected that the cost of such remedial action will exceed Five Hundred Thousand Dollars ($500,000), the Stockholder shall have the right to terminate this Agreement if UAG does not agree to pay all such costs in excess of Five Hundred Thousand Dollars ($500,000). Notwithstanding the foregoing, UAG, Sub and their respective representatives, in the performance of any due diligence, shall not communicate, without the Stockholder's prior approval, with any employee, lender, creditor, customer, franchisor, licensor, vendor, distributor or supplier of the Company or any other person who deals or is otherwise associated with the Company. 6.7 LEASES. The Stockholder and the Company shall have entered into the Estate Lease, and the Company and Argonne shall have entered into the Argonne Lease. 6.8 CERTIFICATES. The Stockholder and the Company shall have furnished UAG and Sub with a certificate, dated as of the Closing Date, executed by the Stockholder certifying to the fulfillment of the conditions set forth in SECTIONS 6.4 AND 6.11 hereof and shall have furnished UAG and Sub with such any other certificates of its officers and others as UAG and Sub may reasonably request to evidence compliance with the conditions set forth in this ARTICLE 6. -52- 6.9 LEGAL MATTERS. All certificates, instruments and other documents required to be executed or delivered by or on behalf of the Stockholder and the Company under the provisions of this Agreement, and all other actions and proceedings required to be taken by or on behalf of the Stockholder and the Company in furtherance of the transactions contemplated hereby, shall be reasonably satisfactory in form and substance to counsel for UAG and Sub. 6.10 APPROVAL OF MANUFACTURER AND DISTRIBUTOR. The Stockholder and the Company shall have obtained the consent, authorization and approval of Nissan Motor Corporation USA on terms no less favorable to those granted to the Company immediately prior to the execution of this Agreement. 6.11 ENVIRONMENTAL LAWS. The Company shall be in compliance with all applicable Environmental Laws. 6.12 NONDISTURBANCE AGREEMENT. The Stockholder shall have obtained nondisturbance agreements with respect to any indebtedness secured by the Real Property in form and substance satisfactory to the Company and UAG. 6.13 TITLE INSURANCE. UAG and Sub shall have obtained title insurance, at their expense, on behalf of the Company with respect to the leasehold estate for the Estate Lease and the Argonne Lease, in form and substance satisfactory to UAG and Sub and shall have obtained certificates of title from Obenschain and Chandler, L.L.C. with respect to title of the landlord under the Guynn Leases. 6.14 LEASE TERMINATION AGREEMENT/MEMORANDUM OF LEASE. With respect to the existing leases between the Company and the Stockholder and the Company and Argonne, the Company, the Stockholder and Argonne, as the case may be, shall have executed -53- lease termination agreements in form and substance satisfactory to UAG and the Company. With respect to the Estate Lease and the Argonne Lease, the Company, the Stockholder and Argonne shall have executed memoranda of lease in form and substance satisfactory to UAG and the Company. 6.15 RESIGNATION OF THE COMPANY'S DIRECTORS. Each of the persons who is a director of the Company on the Closing Date shall have tendered to Sub in writing his resignation as such in form and substance satisfactory to UAG. 6.16 SCHEDULES. The Company and the Stockholder shall have delivered to UAG and Sub all Schedules referred to in ARTICLES 2 AND 3 and such Schedules and the Disclosure Documents shall be acceptable in form and substance to UAG and Sub. 6.17 COURT ORDER. The Stockholder shall have obtained an order from the Probate Court of Gwinnett County, Georgia relating to the power and authority of the Stockholder to consummate the transactions contemplated by this Agreement. ARTICLE 7 CONDITIONS TO THE OBLIGATIONS OF THE STOCKHOLDER AND THE COMPANY TO EFFECT THE CLOSING The obligations of the Stockholder and the Company required to be performed by them at the Closing shall be subject to the satisfaction, at or prior to the Closing, of each of the following conditions, each of which may be waived by the Company and the Stockholder as provided herein except as otherwise required by applicable law: -54- 7.1 REPRESENTATIONS AND AGREEMENTS. Each of the representations of UAG and Sub contained in this Agreement shall be true and correct on the date made and shall be true and correct in all material respects as of the Closing. Each of the obligations of UAG and Sub required by this Agreement to be performed by them at or prior to the Closing shall have been duly performed and complied with in all material respects as of the Closing. At the Closing, the Stockholder shall have received a certificate, dated the Closing Date and duly executed by the chief financial officer of UAG and of Sub to the effect that the conditions set forth in the preceding two sentences have been satisfied. 7.2 AUTHORIZATION OF THE AGREEMENT, CONSENTS. (a) All corporate action necessary to authorize the execution, delivery and performance of this Agreement, the Stipulated Documents and the consummation of the transactions contemplated hereby shall have been duly and validly taken by UAG and Sub. All filings required to be made under the H-S-R Act in connection with the transactions contemplated hereby shall have been made and all applicable waiting periods with respect to each such filing, including extensions thereof, shall have expired or been terminated. (b) All notices to, and declarations, filings and registrations with, and consents, authorizations, approvals and waivers from, governmental and regulatory bodies and third persons (including, but not limited to, all automobile manufacturers with whom the Company has entered into a franchise agreement (or comparable instrument)) required to consummate the transactions contemplated hereby and all consents or waivers shall have been made or obtained. 7.3 OPINIONS OF UAG'S AND SUB'S COUNSEL. The Stockholder shall have been furnished with the opinion of Rogers & Hardin, counsel to UAG and Sub, dated the Closing Date, in form and substance satisfactory to the Stockholder and its counsel. In rendering the foregoing opinions, such counsel may rely as to factual matters upon certificates or other documents furnished by officers and directors of UAG and -55- Sub and by government officials, and upon such other documents and data as such counsel deems appropriate as a basis for its opinion. Such opinions may be limited to Georgia and federal laws and the General Corporation Law of the State of Delaware. 7.4 ABSENCE OF LITIGATION. No order, stay, injunction or decree of any court of competent jurisdiction in the United States shall be in effect (i) that prevents or delays the consummation of any of the transactions contemplated hereby or (ii) would impose any limitation on the ability of the Stockholder effectively to exercise full right to sell and transfer ownership of the Shares. No action, suit or proceeding before any court or any governmental or regulatory entity shall be pending (or threatened by any governmental or regulatory entity), and no investigation by any governmental or regulatory entity shall have been commenced (and be pending), seeking to restrain or prohibit (or questioning the validity or legality of) the consummation of the transactions contemplated by this Agreement or seeking damages in connection therewith which the Stockholder, in good faith and with the advice of counsel, believes makes it undesirable to proceed with the consummation of the transactions contemplated hereby. 7.5 BASE PRICE AND NOTE. Sub shall have paid the Base Price and shall have executed the Note. 7.6 UAG GUARANTY. UAG shall have executed the UAG Guaranty of Note, the UAG Guaranty of Estate Lease, the UAG Guaranty of Argonne Lease and the UAG Guaranty of Note. 7.7 COMPANY GUARANTY OF NOTE. The Company shall have executed the Company Guaranty of Note. -56- 7.8 CERTIFICATES. UAG and Sub shall have furnished the Stockholder with such certificates of its officers and others to evidence compliance with the conditions set forth in this ARTICLE 7 as may be reasonably requested by the Stockholder. 7.9 LEGAL MATTERS. All certificates, instruments, opinions and other documents required to be executed or delivered by or on behalf of UAG or Sub under the provisions of this Agreement, and all other actions and proceedings required to be taken by or on behalf of UAG or Sub in furtherance of the transactions contemplated hereby, shall be reasonably satisfactory in form and substance to counsel for the Stockholder. 7.10 APPROVAL OF MANUFACTURER AND DISTRIBUTOR. The Stockholder, UAG and the Company hall have obtained the consent, authorization and approval of Nissan Motor Corporation USA. 7.11 RELEASE OF GUARANTY. UAG and Sub shall have obtained the full and complete release of Lynda Hickman, individually ("LH"), and the Stockholder from any and all obligations and liabilities of the Company, including without limitation the guaranty of LH and the Stockholder of all Liabilities under the Promissory Note dated May 4, 1994, in the original principal amount of $7,500,000 between Bank South, N.A. and Hickman Nissan, Inc. (the "Release of Guaranty"). 7.12 SCHEDULES. UAG shall have delivered to the Stockholder all Schedules referred to in ARTICLE 4 and such Schedules shall be acceptable in form and substance to the Stockholder. 7.13 BOARD APPROVAL. -57- The Board of Directors of UAG and Sub shall have approved this Agreement and the transactions contemplated hereby. ARTICLE 8 TERMINATION 8.1 TERMINATION. This Agreement may be terminated at any time prior to Closing: (i) by mutual consent of UAG, Sub and the Stockholder; (ii) by either UAG, Sub, or the Stockholder if the Closing shall not have taken place on or prior to the later of: (A) June 28, 1996, (B) the date that is two (2) business days after the date on which the H-S-R Act (as defined in SECTION 5.11) waiting period expires or is terminated, (C) the date that is two (2) business days after the date on which the condition set forth in Section 6.10 HEREOF IS SATISFIED, or (D) the date that is two (2) business days after the date on which any condition set forth in SECTION 6.17 hereof is satisfied; PROVIDED, HOWEVER, that the Closing Date shall be no later than July 10, 1996 unless a later date shall have been approved by UAG, Sub and the Stockholder. (iii) by UAG, Sub, or the Stockholder if any court of competent jurisdiction in the United States or other United States governmental body shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement, and such order, decree, ruling or other action shall have become final and non-appealable; (iv) by UAG or Sub if any of the conditions specified in ARTICLE 6 hereof have not been met or waived by UAG and Sub at such time as such condition is no longer capable of satisfaction (provided that neither UAG nor Sub is otherwise in material breach of its representations, covenants or agreements under this Agreement); -58- (v) by the Stockholder if any of the conditions specified in ARTICLE 7 hereof have not been met or waived by the Stockholder at such time as such condition is no longer capable of satisfaction (provided that neither the Stockholder nor the Company is otherwise in material breach of his or its representations, covenants or agreements under this Agreement); or (vi) by either UAG, Sub or the Stockholder if there has been a material breach on the part of the other of any representation, covenant or agreement set forth in this Agreement, which breach has not been cured within ten (10) Business Days following receipt by the breaching party of written notice of such breach. If UAG, Sub or the Stockholder shall terminate this Agreement pursuant to the provisions hereof, such termination shall be effected by notice to the other parties specifying the provision hereof pursuant to which such termination is made. 8.2 EFFECT OF TERMINATION. (a) Except (i) for any breach of this Agreement prior to its termination, and (ii) for the obligations contained in SECTIONS 5.1 AND 10.2 hereof and (iii) as set forth in SECTION 8.2(b) hereof, upon the termination of this Agreement pursuant to SECTION 8.1 hereof, this Agreement shall forthwith become null and void and none of the parties hereto or any of their respective officers, directors, employees, agents, Affiliates, consultants, stockholders or principals shall have any liability or obligation hereunder or with respect hereto. (b) Notwithstanding anything contained in this Agreement to the contrary except SECTION 5.1 hereof, if the transactions contemplated by this Agreement fail to close for any reason whatsoever (including without limitation any party's breach of one or more representations, covenants and agreements set forth in this Agreement or any party's arbitrary or capricious refusal to close), then the total liability of the Stockholder and the Company (even if such parties breach this Agreement or refuse to close) under ARTICLE 9 and this Agreement shall not (except for matters described in SECTION 5.1(b) hereof) exceed Twenty-Five Thousand Dollars ($25,000), and the total liability of UAG and -59- Sub (even if such parties breach this Agreement or refuse to close) under ARTICLE 9 and this Agreement shall not (except for matters described in SECTION 5.1(a) hereof) exceed Twenty-Five Thousand Dollars ($25,000), and the parties hereto acknowledge, covenant and agree that none of the parties hereto or any other Person shall be entitled to specific performance or have any right to any other equitable remedy or injunctive relief. ARTICLE 9 INDEMNIFICATION 9.1 INDEMNIFICATION BY THE STOCKHOLDER. Notwithstanding the Closing or the delivery of the Shares, the Stockholder indemnifies and agrees, except to the extent covered by insurance, to fully defend, save and hold harmless UAG, Sub and the Company (after the Closing) (each a "UAG Indemnified Party"), if a UAG Indemnified Party (including the Company after the Closing Date) shall at any time or from time to time pay any Costs (as defined in SECTION 9.7 below) arising out of or resulting from, or shall pay or become legally obligated to pay any sum on account of, (i) any and all Stockholder Events of Breach (as defined below) or (ii) any claim before or by any court, arbitrator, panel, agency or other governmental, administrative or judicial entity, which claim involves, affects or relates to any assets, properties or operations of the Company or the conduct of the business of the Company prior to the Closing Date (a "Stockholder Third Party Claim"). As used herein, "Stockholder Event of Breach" shall be and mean any one or more of the following: (i) any untruth or inaccuracy in any representation of the Stockholder or the Company contained in this Agreement, including, without limitation, any misrepresentation in, or omission from, any statement, certificate, schedule, exhibit, annex or other document furnished pursuant to this Agreement by the Stockholder or the Company (or any representative of the Stockholder or the Company) to UAG or Sub (or any representative of UAG or Sub) and any misrepresentation in or omission from any document furnished to UAG or Sub in connection with the Closing, and (ii) any failure of the Stockholder or the Company duly to perform or observe any term, provision, covenant, agreement or condition on the part of the Stockholder or the Company to be performed or observed. -60- 9.2 INDEMNIFICATION BY UAG. Notwithstanding the Closing, UAG indemnifies and agrees, except to the extent covered by insurance, to fully defend, save and hold harmless the Stockholder and the Company (prior to the Closing) (each a "Stockholder Indemnified Party"), if a Stockholder Indemnified Party (including the Company prior to Closing) shall at any time or from time to time pay any Costs arising out of or resulting from, or shall pay or become legally obligated to pay any sum on account of, (i) any and all UAG Events of Breach (as defined below), (ii) any claim before or by any court, arbitrator, panel, agency or other governmental, administrative or judicial entity, which claim involves, affects or relates to any assets, properties or operations of UAG or Sub or the conduct of the business of UAG or Sub prior to or after the Closing Date or (iii) any claim before or by any court, arbitrator, panel, agency or other governmental, administrative or judicial entity, which claim involves, affects or relates to the conduct of the business of the Company after the Closing Date (any and all claims described in clauses (ii) and (iii) being referred to herein collectively as a "UAG Third Party Claim"). As used herein, "UAG Event of Breach" shall be and mean any one or more of the following: (i) any untruth or inaccuracy in any representation of UAG or Sub contained in this Agreement, including, without limitation, any misrepresentation in, or omission from, any statement, certificate, schedule, exhibit, annex or other document furnished pursuant to this Agreement by UAG or Sub (or any representative of UAG or Sub) to the Stockholder (or any representative of the Stockholder) and any misrepresentation in or omission from any document furnished to the Stockholder in connection with the Closing, and (ii) any failure of UAG or Sub duly to perform or observe any term, provision, covenant, agreement or condition on the part of UAG or Sub to be performed or observed. -61- 9.3 PROCEDURES. -62- If (i) any Stockholder Event of Breach occurs or is alleged and a UAG Indemnified Party asserts that the Stockholder has become obligated to a UAG Indemnified Party pursuant to SECTION 9.1, or if any Stockholder's Third Party Claim is begun, made or instituted as a result of which the Stockholder may become obligated to a UAG Indemnified Party hereunder, or (ii) a UAG Event of Breach occurs or is alleged and a Stockholder Indemnified Party asserts that UAG has become obligated to a Stockholder Indemnified Party pursuant to SECTION 9.2, or if any UAG Third Party Claim is begun, made or instituted as a result of which UAG may become obligated to a Stockholder Indemnified Party hereunder (for purposes of this ARTICLE 9, any UAG Indemnified Party and any Stockholder Indemnified Party is sometimes referred to as an "Indemnified Party" and UAG and the Stockholder are sometimes referred to as an "Indemnifying Party," and any UAG Third Party Claim and any Stockholder Third Party Claim is sometimes referred to as a "Third Party Claim," in each case as the context so requires), such Indemnified Party shall give written notice to the Indemnifying Party of its or her obligation to provide indemnification hereunder, provided that any failure to so notify the Indemnifying Party shall not relieve them from any liability that it or he may have to the Indemnified Party under this ARTICLE 9. If such notice relates to a Third Party Claim, each Indemnifying Party, jointly and severally, agrees to defend, contest or otherwise protect such Indemnified Party against any such Third Party Claim at its or her sole cost and expense. Such Indemnified Party shall have the right, but not the obligation, to participate at its own expense in the defense thereof by counsel of such Indemnified Party's choice and shall in any event cooperate with and assist the Indemnifying Party to the extent reasonably possible. If the Indemnifying Party fails timely to defend, contest or otherwise protect against such Third Party Claim, such Indemnified Party shall have the right to do so, including, without limitation, the right to make any compromise or settlement thereof, and such Indemnified Party shall be entitled to recover the entire Cost thereof from the Indemnifying Party, including, without limitation, attorneys' fees, disbursements and amounts paid (or of which such Indemnified Party has become obligated to pay) as the result of such Third Party Claim. Failure by the Indemnifying Party to notify such Indemnified Party of its or their election to defend any such Third Party Claim within fifteen (15) days after notice thereof shall have been given to the Indemnifying Party shall be deemed a waiver by -63- the Indemnifying Party of its or their right to defend such Third Party Claim. If the Indemnifying Party assumes the defense of the particular Third Party Claim, the Indemnifying Party shall not, in the defense of such Third Party Claim, consent to entry of any judgment or enter into any settlement, except with the written consent of such Indemnified Party. In addition, the Indemnifying Party shall not enter into any settlement of any Third Party Claim (except with the written consent of such Indemnified Party) which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to such Indemnified Party a full release from all liability in respect of such Third Party Claim. Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to control (but shall be entitled to participate at their own expense in the defense of), and the Indemnified Party shall be entitled to have sole control over, the defense or settlement of any Third Party Claim to the extent the Third Party Claim seeks an order, injunction or other equitable relief against the Indemnified Party which, if successful, could materially interfere with the business, operations, assets, condition (financial or otherwise) or prospects of the Indemnified Party. 9.4 LIMITATION ON INDEMNIFICATION. (a) INDEMNIFICATION BY THE STOCKHOLDERS. A UAG Indemnified Party shall be entitled to indemnification in connection with a Stockholder Event of Breach or a Stockholder Third Party Claim only if the aggregate Costs incurred or sustained by all UAG Indemnified Parties exceed Two Hundred Fifty Thousand Dollars ($250,000). In the event that the aggregate Costs incurred or sustained by all UAG Indemnified Parties exceeds Two Hundred Fifty Thousand Dollars ($250,000), then the Stockholder shall be fully liable for all such Costs without regard to such threshold. The provisions of this SECTION 9.4(a) shall not apply to SECTIONS 1.2, 5.1 OR 10.2. (b) INDEMNIFICATION BY UAG. A Stockholder Indemnified Party shall be entitled to indemnification in connection with a UAG Event of Breach or a UAG Third Party claim only if the aggregate Costs incurred or sustained by all Stockholder Indemnified Parties exceed Two Hundred Fifty Thousand Dollars ($250,000). In the event the aggregate Costs incurred or sustained by all Stockholder Indemnified Parties exceeds Two -64- Hundred Fifty Thousand Dollars ($250,000), then UAG shall be fully liable for all such Costs without regard to such threshold. The provisions of this SECTION 9.4(b) shall not apply to SECTIONS 1.2, 5.1 OR 10.2. (c) BENEFITS. If any liability for taxes, with respect to which an Indemnified Party is entitled to indemnification from the Indemnifying Party, results from the disallowance of any claimed deduction or credit, or from the shifting of any item of income from one taxable period to another taxable period, then the amount of indemnification to which the Indemnified Party is entitled shall be computed after taking into consideration any resulting tax benefit accruing to the Indemnified Party. The adjustments for tax benefits and insurance coverage under this ARTICLE 9 shall take into account the time value of money using the then applicable federal rate for federal income tax purposes in determining the amount of reimbursement to which the Indemnified Party is entitled under this Article. (d) CAP. (i) Notwithstanding anything contained in this Agreement to the contrary and except as set forth in SECTION 9.10 hereof, in no event shall the aggregate liability of the Stockholder under this ARTICLE 9 and this Agreement exceed Two Million Dollars ($2,000,000), except that if the transactions contemplated by this Agreement fail to close for any reason, in no event shall the aggregate liability of the Stockholder under this ARTICLE 9 and this Agreement exceed Twenty-Five Thousand Dollars ($25,000). (ii) Notwithstanding anything contained in this Agreement to the contrary, and except for UAG's liability under ARTICLE 1 hereof, including without limitation UAG's liability under the UAG Guaranty of Estate Lease, UAG Guaranty of Argonne Lease and UAG Guaranty of Note, in no event shall the aggregate liability of UAG under this ARTICLE 9 and this Agreement exceed Two Million Dollars ($2,000,00), except that if the transactions contemplated by this Agreement fail to close for any reason, in no event shall the aggregate liability of UAG under this ARTICLE 9 and this Agreement exceed Twenty-Five Thousand Dollars ($25,000). 9.5 OFFSET. -65- (a) Notwithstanding anything in this Agreement to the contrary, the right of UAG, Sub and/or the Company to recover from the Stockholder for any amounts due to UAG, Sub or the Company under this ARTICLE 9 shall be limited to (i) the right to offset such amount against UAG's, Sub's or the Company's obligations under the Note or (ii) to recover any principal amount paid on the Note. (b) If UAG, Sub or the Company (the "Exercising Party") determines in good faith that it has a right to be indemnified and held harmless by the Stockholder under this ARTICLE 9 (the "Offset Claim"), it may, after giving twenty (20) days prior written notice to the Stockholder of its intention to exercise its right of offset or right of recovery under this SECTION 9.5 with respect to any Offset Claim (the "Right of Offset"), exercise such Right of Offset with respect to such Offset Claim. Notwithstanding the foregoing, the exercise of any Right of Offset by any Exercising Party shall not constitute or be construed as a waiver or release of the Stockholder's right to object to any Offset Claim or the exercise of any Right of Offset by any Exercising Party, and the Stockholder shall have all of the rights and remedies available to the Stockholder (whether at law or in equity) with respect thereto. 9.6 REMEDIES. Except as otherwise provided in SECTIONS 5.1 AND 10.2 of this Agreement, the rights of an Indemnified Party under this ARTICLE 9 shall be the exclusive rights and remedies to which such Indemnified Party shall be entitled under this Agreement, applicable law or otherwise. 9.7 DEFINITIONS. For purposes of this ARTICLE 9, "Costs" shall mean, except to the extent covered by insurance, all liabilities, losses, costs, damages (not including consequential damages), expenses, claims, attorney's fees, experts' fees, consultants' fees, and disbursements of any kind or of any nature whatsoever; PROVIDED, HOWEVER, that attorney's fees shall be reasonable and based on time actually spent which shall be charged at not more than the attorney's standard hourly rate and provided further that only one law firm shall be paid on any claim regardless of -66- the number of indemnified parties involved in such claim. For purposes of application of the indemnity provisions of this ARTICLE 9, the amount of any Cost arising from the breach of any representation, covenant or agreement shall be the out-of-pocket amount of any Cost actually paid or legally required to be paid by the Indemnified Party as a result of such breach. 9.8 ADJUSTMENTS. Notwithstanding anything contained in this Agreement to the contrary, the Stockholder shall not have any liability under this Article for any breach of covenant or misrepresentation or otherwise have any liability under this Agreement to the extent that the existence of such liability or the breach of covenant or the falsity of the representation upon which such liability would be based is disclosed in any Schedule or Disclosure Document or in any other contracts, documents, records or instruments delivered to or made available to UAG, Sub or its representatives hereunder or which is disclosed in a written notice furnished to any of them prior to the Closing Date; PROVIDED, HOWEVER, that any such disclosure made between the date of execution of this Agreement and the Closing Date shall not affect the right of Sub to elect not to close the transactions contemplated by this Agreement as provided in SECTION 8.1 hereof; it being understood and agreed that if Sub elects to close after such disclosure (thereby waiving such breach or misrepresentation), UAG and Sub shall thereafter have no claim against the Company or the Stockholder by reason of, in connection with or arising from any such disclosed liability, breach or misrepresentation. -67- 9.9 SUBROGATION. If the Indemnifying Party makes any payment under this Article with respect to any loss, the Indemnifying Party shall be subrogated, to the extent of such payment, to the rights of the Indemnified Party against any insurer or other party with respect to such losses. If the Indemnified Party makes any payments under this Article with respect to any losses, the Indemnified Party shall assign to the Indemnifying Party any and all rights with respect to which and to the extent to which indemnification shall have been sought or made under this Agreement, and the Indemnified Party shall not take any action which directly or indirectly would affect such claims that the Indemnifying Party may have with respect thereto and shall cooperate fully with the Indemnified Party in pursuing such claims. -68- 9.10 CERTAIN ADDITIONAL INDEMNIFICATION. Notwithstanding anything herein to the contrary, the Stockholder and Lynda Jane Hickman, in her individual capacity, jointly and severally, indemnify and agree to fully defend, save and hold harmless each UAG Indemnified Party if a UAG Indemnified Party shall at any time or from time to time be required to pay any Costs or is subject to any other damages or liability arising out of or resulting from, or shall pay or become legally obligated to pay any sum on account of, any untruth or inaccuracy in any representation of the Stockholder or the Company contained in SECTIONS 2.3, 3.1 AND 3.2(a) hereof; PROVIDED, HOWEVER, that in no event shall the aggregate amount of the liability of the Stockholder and Ms. Hickman under this SECTION 9.10 exceed Eleven Million Dollars ($11,000,000) (the "Limitation Amount"), except that after the expiration of the period that commences on the Closing Date and ends on the date that is two (2) years after the Closing Date (the "2-Year Period") such Limitation Amount shall be increased by the amount by which $2,000,000 exceeds the aggregate amount of all claims asserted against the Stockholder during the 2-Year Period under SECTIONS 9.1 AND 9.5 hereof; and, PROVIDED, FURTHER, that (a) the obligations of the Stockholder hereunder shall expire on the later of the date that is (i) five (5) years after the Closing Date or (ii) with respect to any claim asserted with respect to any breach of such representation pursuant to SECTION 9.3 hereof within five (5) years of the Closing Date on the date such claim is finally liquidated or otherwise resolved; and (b) the obligations of Ms. Hickman hereunder shall expire on the later of the date that is (x) seven (7) years after the Closing Date or (y) with respect to any claim asserted with respect to any breach of such representation pursuant to SECTION 9.3 hereof within seven (7) years of the Closing Date on the date such claim is finally liquidated or otherwise resolved. -69- ARTICLE 10 MISCELLANEOUS 10.1 SURVIVAL OF PROVISIONS. (a) The respective representations, covenants and agreements of each of the parties to this Agreement (except covenants and agreements which are expressly required to be performed and are performed in full on or before the Closing Date) shall survive the Closing Date and the consummation of the transactions contemplated by this Agreement, subject to SECTION 10.1(b) below. In the event of a breach of any such representations, or covenants, the party to whom such representations, or covenants have been made shall have all rights and remedies for such breach available to it under the provisions of this Agreement, regardless of any disclosures to, or investigation made by or on behalf of, such party on or before the Closing Date. (b) Each of the representations set forth in ARTICLE 2, ARTICLE 3 and ARTICLE 4 hereof and in any certificate delivered pursuant to ARTICLE 6 or ARTICLE 7 hereof shall survive, and not be affected in any respect by the Closing, for a period terminating on the later of (i) the date that is two (2) years after the Closing Date, and (ii) with respect to any claim asserted with respect to any breach of such representations pursuant to SECTION 9.3 hereof before the expiration of such representation, on the date such claim is finally liquidated or otherwise resolved; PROVIDED, HOWEVER, that with respect to the Stockholder, the representations set forth in SECTIONS 2.3, 3.1 AND 3.2(a) hereof shall survive and not be affected in any respect by the Closing, for a period terminating on the later of (x) the date that is five (5) years after the Closing Date and (y) with respect to any claim asserted with respect to any breach of such representations pursuant to SECTION 9.3 hereof before the expiration of such representations on the date such claim is finally liquidated or otherwise resolved; and PROVIDED, FURTHER, that with respect to Ms. Hickman, the representations set forth in SECTIONS 2.3, 3.1 AND 3.2(a) hereof shall survive and not be affected in any respect by the Closing, for a period terminating on the later of (x) the date that is seven (7) years after the Closing Date and (y) with respect to any claim asserted with respect to any breach of such representations pursuant to SECTION 9.3 hereof before the -70- expiration of such representations on the date such claim is finally liquidated or otherwise resolved. 10.2 FEES AND EXPENSES. Except as otherwise expressly provided in this Agreement, all legal and other fees, costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby through the Closing Date shall be paid by the party incurring such fees, costs or expenses; PROVIDED, HOWEVER, that if the Closing does not occur and SECTION 5.5 hereof is breached, then the Stockholder or the Company shall pay to UAG, within five (5) Business Days after receipt of a request therefor, an amount equal to the lesser of (a) Twenty Thousand Dollars ($20,000), or (b) all of the legal and other fees, costs and expenses incurred by UAG in connection with this Agreement and the transactions contemplated hereby. 10.3 HEADINGS. The section headings herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. 10.4 NOTICES. All notices or other communications required or permitted hereunder shall be given in writing and shall be deemed sufficient if delivered by hand, recognized overnight delivery service or mailed by registered or certified mail, postage prepaid (return receipt requested), as follows: If to the Company before the Closing date: 339 Argonne Drive Atlanta, Georgia 30304 and Neill B. Faucett Faucett, Taylor & Associates, P.C. 2550 Heritage Court, N.W. -71- Atlanta, Georgia 30339 with a copy to: Davis, Matthews & Quigley, P.C. 14th Floor, Lenox Towers II 3400 Peachtree Road Atlanta, Georgia 30326 Attn: William M. Matthews, Esq. If to the Company after the Closing Date: United Auto Group, Inc. 375 Park Avenue New York, New York 10022 Facsimile No.: (212) 223-5148 Attn: George G. Lowrance, Esq., with a copy to: Rogers & Hardin 2700 Cain Tower, Peachtree Center 229 Peachtree Street, N.E. Atlanta, Georgia 30303 Facsimile No.: (404) 525-2224 Attn: Michael Rosenzweig If to the Stockholder: 339 Argonne Drive Atlanta, Georgia 30305 and Neill B. Faucett Faucett, Taylor & Associates, P.C. 2550 Heritage Court, N.W. Atlanta, Georgia 30339 with a copy to: Davis, Matthews & Quigley, P.C. 14th Floor, Lenox Towers II -72- 3400 Peachtree Road Atlanta, Georgia 30326 Attn: William M. Matthews, Esq. If to UAG or Sub: United Auto Group, Inc. 375 Park Avenue New York, New York 10022 Facsimile No.: (212) 223-5148 Attn: George G. Lowrance, Esq., with a copy to: Rogers & Hardin 2700 Cain Tower, Peachtree Center 229 Peachtree Street, N.E. Atlanta, Georgia 30303 Facsimile No.: (404) 525-2224 Attn: Michael Rosenzweig or such other address as shall be furnished in writing by such party, and any such notice or communication shall be effective and be deemed to have been given as of the date so delivered or three (3) days after the date so mailed; PROVIDED, HOWEVER, that any notice or communication changing any of the addresses set forth above shall be effective and deemed given only upon its receipt. -73- 10.5 ASSIGNMENT. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns, and the provisions of ARTICLE 9 hereof shall inure to the benefit of the Indemnified Parties referred to therein; PROVIDED, HOWEVER, that neither this Agreement nor any of the rights, interests, or obligations hereunder may be assigned by any of the parties hereto without the prior written consent of the other parties except with respect to the distribution of the Estate of James Franklin Hickman pursuant to the terms of his Will. Notwithstanding the foregoing, UAG and Sub shall have the unrestricted right to assign this Agreement and to delegate all or any part of their obligations hereunder to any Affiliate of UAG, but in such event UAG shall remain fully liable for the performance of all of such obligations in the manner prescribed in this Agreement. 10.6 ENTIRE AGREEMENT. This Agreement (including the Schedules hereto) and the Lease embody the entire agreement and understanding of the parties with respect to the transactions contemplated hereby and supersede all prior written or oral commitments, arrangements or understandings between the parties with respect thereto and all prior drafts of this Agreement. There are no restrictions, agreements, promises, covenants or undertakings with respect to the transactions contemplated hereby other than those expressly set forth herein or in the Lease. Prior drafts of this Agreement shall not be used as a basis for interpreting this Agreement. 10.7 WAIVER AND AMENDMENTS. The Stockholder, the Company, UAG and Sub may by written notice to the other parties (i) extend the time for the performance of any of the obligations or other actions of the other parties, (ii) waive any inaccuracies in the representations of the other parties contained in this Agreement, (iii) waive compliance with any of the covenants of the other parties contained in this Agreement, (iv) waive performance of any of the obligations of the other parties created under this Agreement, or (v) waive fulfillment of any of the conditions to its own obligations -74- under this Agreement. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach, whether or not similar. This Agreement may be amended, modified or supplemented only by a written instrument executed by the parties hereto. 10.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which shall be considered one and the same agreement and each of which shall be deemed an original. 10.9 GOVERNING LAW. This Agreement shall be governed by the laws of the State of Georgia. 10.10 ACCOUNTING TERMS. All accounting terms used herein which are not expressly defined in this Agreement shall have the respective meanings given to them in accordance with GAAP. 10.11 CERTAIN DEFINITIONS. For purposes of this Agreement: (a) "Affiliate" of a specified Person shall mean a Person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified, and in the case of a specified Person who is a natural person, his spouse, his issue, his parents, his estate and any trust entirely for the benefit of his spouse and/or issue. (b) "best efforts" shall be deemed to not include any obligation on the part of any Person to undertake any liabilities, expend any funds or perform acts (except liabilities, expenditures or performance, other than any best efforts obligations, expressly required to be undertaken by the terms of this Agreement) which are materially burdensome to such Person; PROVIDED, HOWEVER, that notwithstanding the foregoing, the term "best efforts" shall include an obligation to take such actions -75- which are normally incident to or reasonably foreseeable in connection with such obligation or the transactions contemplated hereby. (c) "Business Day" shall mean any day excluding Saturday, Sunday and any day which is a legal holiday under Federal law. (d) "GAAP" shall mean generally accepted accounting principles which are in effect in the United States on the Closing Date. (e) "Liens" shall mean any mortgages, pledges, title defects or objections, liens, claims, security interests, conditional and installment sale agreements, encumbrances or charges of any kind. (f) "Material Adverse Effect" shall mean any change in, or effect on, the Company (including the business thereof) which would, or could reasonably be expected to have a substantial material adverse effect on the financial condition of the Company taken as a whole. (g) "Person" shall mean and include an individual, corporation, limited liability company, partnership, joint venture, association, trust, any other incorporated or unincorporated organization or entity and a governmental entity or any department or agency thereto. (h) "Knowledge" means, with respect to the Stockholder, that Lynda Hickman, President of the Company, knows, or in the exercise of reasonable diligence, would or should have known of the particular matter referred to, and, with respect to UAG, that the President of UAG knows or, in the exercise of reasonable diligence, would or should have known of the particular matter referred to. (i) "Disclosure Documents" means this Agreement, the Schedules and Exhibits attached hereto and all other contracts, documents, records and other instruments delivered to UAG or Sub on or before the Closing Date. 10.12 SCHEDULES. -76- Disclosure of any matter in any Schedule hereto or in the Financial Statements shall be considered as disclosure pursuant to any other provision, subprovision, section or subsection of this Agreement or Schedule to this Agreement. 10.13 SEVERABILITY. If any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected thereby. To the extent permitted by applicable law, each party waives any provision of law which renders any provision of this Agreement invalid, illegal or unenforceable in any respect. 10.14 TIME IS OF THE ESSENCE. Time is of the essence for purposes of this Agreement. 10.14A MS. HICKMAN. The parties hereby acknowledge and agree that the liability of Ms. Hickman in her individual capacity under this Agreement is limited to her obligations under SECTION 9.10 hereof. 10.15 S SHORT YEAR. (a) The parties hereto acknowledge that upon the closing of the transactions contemplated by this Agreement, the Company's status as an S corporation for federal income tax purposes shall cease, that the taxable year of the Company in which such closing occurs shall be divided into two (2) short taxable years (a S short year and a C short year). Each of the parties hereto covenants and agrees to make all elections, consents, statements and filings that may be required by the Internal Revenue Code of 1986 to close the Company's books on the last applicable day of the S short year (the "S Short Year"). (b) The federal and state income tax return for the S Short Year (the "S Tax Returns") shall be prepared, at the Company's expense, by the accounting firm of Faucett, Taylor & -77- Associates, P.C. ("FTA"). The Company, UAG and Sub covenant and agree to cooperate fully with the Stockholder and FTA in the preparation of the S Tax Returns and to make available to FTA -78- during normal business hours all books, records and information that FTA may reasonably request to complete the preparation of the S Tax Returns in a prompt, timely and complete manner. The S Tax Returns shall be prepared on the same basis, and in a manner consistent with, the principles, methods and practices used in preparing the Company's previous federal income tax returns. Upon FTA's delivery of the completed S Tax Returns to the Company, which delivery shall be no less than 30 days prior to the date thereof, in form and substance reasonably satisfactory to the Company, the Company covenants and agrees to execute and file, and UAG and Sub covenant and agree to cause the Company to execute and file, such S Tax Returns with the appropriate taxing authorities on a timely basis. (c) UAG, Sub and the Company covenant and agree that they shall not, without the Stockholder's prior written approval, make any elections or take any action with respect to the S Short Year or any other tax period that precedes the Closing Date which could affect the determination of the Company's or the Stockholder's federal or state income liability for any of such tax periods. 10.16 ESTATE. The parties hereby acknowledge and agree that the Stockholder has executed this Agreement in her capacity as Executrix under the Will of James Franklin Hickman, Jr., Deceased, and that the Stockholder has not made, and does not make, any warranties under this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. UNITED AUTO GROUP, INC. By: /s/ Carl Spielvogel _________________________________ Name: Carl Spielvogel Title: Chief Executive Officer -79- UAG ATLANTA III, INC. By: /s/ Carl Spielvogel _________________________________ Name: Carl Spielvogel Title: Chief Executive Officer -80- HICKMAN NISSAN, INC. By: /s/ Lynda Jane Hickman ________________________________ Name: Lynda Jane Hickman Title: President /s/Lynda Jane Hickman ____________________________________ Lynda Jane Hickman, Individually /s/Lynda Jane Hickman _____________________________________ Lynda Jane Hickman, as Executrix under the Will of James Franklin Hickman, Jr., Deceased EX-10.7-3 53 EXHIBIT 10.7.3 EXHIBIT 10.7.3 NISSAN (LOGO) NISSAN MOTOR ACCEPTANCE CORPORATION AUTOMOTIVE WHOLESALE FINANCING AND SECURITY AGREEMENT NISSAN (LOGO) NISSAN MOTOR ACCEPTANCE CORPORATION AUTOMOTIVE WHOLESALE FINANCING AND SECURITY AGREEMENT This Agreement between Nissan Motor Acceptance Corporation, 990 W. 190th Street, Torrance, California 90502-1001 ("NMAC"), and PEACHTREE NISSAN, INC., located at 5211 PEACHTREE INDUSTRIAL BOULEVARD, CHAMBLEE O_ 30341 ("Dealer"), sets out the basic terms under which NMAC may establish and maintain for Dealer a wholesale line of credit, and make advances to or on behalf of Dealer thereunder, to finance new and used automobiles, trucks, truck-tractors, trailers, semi-trailers, buses, mobile homes, motor homes, other vehicles and other merchandise for Dealer whether held by Dealer for sale, lease or otherwise as inventory, equipment or otherwise (the "Property"). It is therefore agreed as follows: 1. Advances Made by NMAC NMAC at all times shall have the right, in its sole discretion, to determine the extent to which, the terms and conditions on which, and the period for which it will make advances to or on behalf of Dealer, or extend credit to Dealer. NMAC may at any time and from time to time in its sole discretion, establish, rescind or change limits or the extent to which financing accommodations under this Agreement will be made available to Dealer. This Agreement contemplates that NMAC may extend credit and make advances to Dealer by paying the invoice amount of Property ordered by or shipped to Dealer by a manufacturer, distributor or other seller of such Property to Dealer and NMAC may pay to any such person the invoice amount thereof, and NMAC shall be fully protected in relying in good faith upon any invoice or advice from any manufacturer, distributor or seller that the property described therein has been ordered by or shipped to Dealer and the invoice amount therefor is correctly stated. Any such payment made by NMAC to any such manufacturer, distributor or seller shall be an advance made by NMAC to or on behalf of Dealer pursuant hereto and shall be repayable by Dealer in accordance with the terms hereof. In addition, NMAC may make loans or other advances directly to Dealer with respect to property of any type held by Dealer for sale or lease and any such loan or other advance shall be an advance made by NMAC to or on behalf of Dealer pursuant hereto and shall be repayable by Dealer in accordance with the terms hereof. NMAC from time to time shall furnish statements to Dealer of advances made by NMAC to or on behalf of Dealer pursuant hereto. Promptly upon receipt by Dealer of any such statement, Dealer shall review the same and advise NMAC in writing of any discrepancy therein. In the event Dealer shall fail to advise NMAC of any discrepancy in any such -2- statement within ten calendar days from the receipt thereof by Dealer, such statement shall be deemed to be conclusive evidence of advances by NMAC to or on behalf of Dealer pursuant hereto unless Dealer or NMAC establishes by a preponderance of evidence that such advances were not made or were made in different amounts than as set forth in such statement. 2. Interest Rate and Flat Charges All advances made by NMAC to or on behalf of Dealer pursuant hereto shall bear interest from the date of advance by NMAC to the date of repayment in good funds by Dealer at the rate established by NMAC from time to time for Dealer (the "Rate"); provided, however, that any amount not paid when due hereunder shall bear interest at 2% per annum in excess of the Rate, or the maximum contract rate permitted by law of the state where Dealer maintains its business as indicated above, whichever is the lesser. In addition to such interest, the financing of property hereunder shall be subject to service and insurance flat charges ("Flat Charges") established by NMAC from time to time for Dealer. The standard insurance program maintained by NMAC and optional coverages which may be obtained by Dealer, are attached to this Agreement (for information purposes only, and may be changed from time to time and at any time at the sole discretion of NMAC) as Exhibit 1. NMAC shall advise Dealer in writing from time to time of changes in the Rate and Flat Charges. Such changes in the Rate and Flat Charges shall be effective from the date stated in such notice; provided, however, that in the event any such notice advises Dealer of an increase in the Rate or Flat Charges, Dealer shall have the option of terminating this Agreement by paying to NMAC the full unpaid balance outstanding under Dealer's wholesale line of credit and all other amounts due or to become due hereunder in good funds within ten calendar days after receipt of such notice by Dealer, in which event such increased Rate or Flat Charges shall not become effective. Interest shall be calculated daily on the unpaid principal balance outstanding at the close of business each day. In no event shall Dealer be obligated to pay interest for any period which exceeds the maximum interest permitted by the applicable law for that period. 3. Payments by Dealer The aggregate amount outstanding from time to time of all advances made by NMAC to or on behalf of Dealer pursuant hereto shall constitute a single obligation of Dealer, notwithstanding such advances are made from time to time, and such amount, or so much thereof as may be demanded, together with NMAC's interest and Flat Charges with respect thereto, shall be payable by Dealer to NMAC upon demand. Notwithstanding that NMAC shall not have demanded payment therefor, upon any sale, lease, transfer or other disposition of property financed pursuant to this Agreement, Dealer shall, on or before the close of the next business day following such sale, pay over to NMAC an amount -3- equal to the unpaid balance of the amount advanced with respect to the item sold together with interest thereon; provided, however, that if Dealer is in default, Dealer shall, on or before the close of the next business day following such sale, pay over to NMAC the entire proceeds of such sale, but nothing herein contained shall be deemed to authorize any sale of any Collateral (as hereinafter defined) while Dealer is in default. Dealer shall also pay to NMAC, upon demand, the full amount of any rebate, refund or other credit received by Dealer with respect to any property financed by NMAC hereunder. Dealer shall pay NMAC the earned and accrued interest on the unpaid balance of all advances made from time to time upon the earlier of demand by NMAC or the fifteenth day of each calendar month. 4. NMAC's Security Interest As security for (i) all advances now or hereafter made by NMAC to or on behalf of Dealer pursuant hereto, (ii) any other indebtedness of Dealer to NMAC now in existence or hereafter arising and (iii) the observance of performance of all other obligations of Dealer to NMAC in connection with the financing of property for Dealer; Dealer hereby grants to NMAC, its successors and assigns, a security interest in the following: the "Collateral". A. All automobiles, trucks, truck-tractors, trailers, semi-trailers, buses, mobile homes, motor homes, other vehicles and other merchandise, and all parts, accessories and furnishings used in connection therewith, now held or hereafter acquired by Dealer, including all goods hereafter added to or acquired in replacement of the foregoing, and the proceeds of all of the foregoing, whether or not inventory or other and whether or not new, used, repossessed, surrendered or other; B. All goods, including without limitation all machinery, equipment, tools, appliances, trucks, motor vehicles and office furniture and fixtures now held or hereafter acquired by Dealer, and the proceeds of all of the foregoing; C. All accounts receivable, chattel paper, security agreements, instruments, contract rights, policies and certificates of insurance, manufacturers certificates or statements of origin, bills of sale, receipts, journals, records, files, book and ledger sheets, documents and general intangibles now held or hereafter acquired by Dealer, including all monies and credits now due or to become due to Dealer from, and all claims against manufacturers or distributors of inventory or other lending institutions, and the proceeds of all of the foregoing; and D. All other assets now held or hereafter acquired by Dealer, with the exception of real property exclusive of fixtures. -4- 5. Dealer's Possession and Sale of Merchandise Dealer's possession of the Property financed pursuant hereto shall be for the sole purpose of storing and exhibiting the same for sale or lease in the ordinary course of Dealer's business. Dealer shall keep all new Property brand new and all used Property in at least as good condition as when it was acquired by Dealer, all of which shall be subject to inspection by NMAC. Dealer shall keep all such Property free from all taxes, liens and encumbrances. Any sum of money that may be paid by NMAC in release or discharge of any taxes, liens or encumbrances on any Collateral, or on any documents executed in connection therewith, shall become an obligation of Dealer to NMAC upon demand. Dealer shall keep the Collateral at the premises described above or at such other place as NMAC may approve in writing. Dealer shall not, except as expressly permitted under this paragraph 5, sell, transfer, lease, mortgage or otherwise dispose of the Collateral or any part thereof or interest therein, remove the Collateral from such premises or attempt any such sale, transfer, lease, mortgage, removal or other disposition of the Collateral without the prior written consent of NMAC. Unless and until an event of default shall have occurred, Dealer may sell the Property financed pursuant to this Agreement in the ordinary course of the Dealer's business, but nothing herein shall be deemed to waive or release any interest NMAC may have hereunder or under any other agreement and in any proceeds of such Property, including any accounts receivable, chattel paper, security agreements, instruments, contract rights, documents and general intangibles. Except as may be necessary to remove or transport the same from a freight depot to Dealer's place of business, Dealer shall not use or operate, or permit the use or operation of, any Property financed hereunder for demonstration or otherwise without the express prior written consent of NMAC in each case, and Dealer shall not in ???? use such Property illegally, improperly or for hire. Dealer shall not mortgage, pledge or loan any of such Property and shall not transfer or otherwise dispose of the same except by sale or lease in the ordinary course of Dealer's business. Dealer represents and warrants that it has good title to the Collateral, that the Collateral is free and clear of all liens and encumbrances other than those created by this Agreement, that Dealer has authority to convey a security interest in the Collateral, that NMAC need not look behind the Dealer signatories hereto to verify such authority that Dealer will comply with all laws and regulations affecting the Collateral, and that Dealer shall maintain adequate records for the purpose of identifying the disposition of any of the Property. As used in this paragraph 5, "sale in the ordinary course of Dealer's business" shall include only a bona fide retail sale to a purchaser for his own use at the fair market value of the Property sold, and ????? an occasional sale of such Property to another dealer at a price not less than Dealer's cost of the Property sold, provided such sale is not a part of a plan or ???????????? to liquidate all or any portion of Dealer's business; and "lease in the ordinary course of Dealer's business" -5- shall include only a bona fide lease to a lessee for his own use at a fair rental value of the Property leased. 6. Risk of Loss and Insurance Requirements Except to the extent of any insurance proceeds actually received by NMAC with respect thereto under insurance obtained by NMAC pursuant to this Agreement or any other agreement, all Property financed hereunder shall be at Dealer's sole risk or any loss or damage to the same. Dealer hereby indemnifies NMAC against and holds NMAC harmless from all claims for injury or damage to persons or property caused by the use, operation or other holding of the Collateral and if requested to do so by NMAC, Dealer shall maintain, at its own expense, liability insurance in connection therewith in such form and amounts and with such insurers as NMAC may reasonably require from time to time. In addition, Dealer shall insure all Collateral financed hereunder that is or may be used for demonstration or operated for any other purpose against loss due to collision, subject in each case to the deductible amounts and limitations required by NMAC. If Dealer fails to furnish acceptable evidence of any insurance required by NMAC, NMAC may, but shall not be required to, obtain such insurance at Dealer's expense. 7. Credits and Setoffs All funds or other property belonging to NMAC and received by Dealer shall be received by Dealer in trust for NMAC and shall be remitted to NMAC forthwith. NMAC shall at all times have a right to offset and apply any and all credits, monies or properties of Dealer in NMAC's possession or control against any obligation of Dealer to NMAC. 8. Information Concerning Dealer To induce NMAC to extend financing accommodations hereunder, Dealer has submitted information concerning its business organization and financial condition, and Dealer hereby certifies that the information is complete, true and correct in all respects and that the financial information contained therein, and any other financial information that may be furnished to NMAC from time to time hereafter, does and shall fairly present the financial condition of Dealer in accordance with generally accepted accounting principles applied on a consistent basis. Dealer shall submit to NMAC (i) within 120 days after the end of Dealer's fiscal year, a complete statement of Dealer's financial condition for that year in a form which is reasonably satisfactory to NMAC, (ii) within 15 days after the last day of each calendar month, a balance sheet and profit and loss statement for that preceding month, and for any other financial records or reports which NMAC may reasonably request. In addition, Dealer agrees to notify NMAC immediately of any material change in its ownership, control, business organization or financial condition or of any information relating thereto -6- previously furnished to NMAC. Dealer acknowledges and intends that NMAC shall rely, and shall have the right to rely, on such information in extending and continuing to extend financing accommodations to Dealer. Dealer hereby authorizes NMAC from time to time and at all reasonable times to examine, appraise and verify, through contracts with retail purchasers and otherwise, the existence and condition of all inventory, goods, documents, commercial or other paper and other property in which NMAC has or has had any title, title retention, lien, security or other interest, and all of Dealer's books and records in any way relating to its business. 9. Default The happening of any of the following events or conditions shall constitute a default as such term is used herein: A. Dealer defaults in the payment of any indebtedness for advances made hereunder or otherwise due NMAC or in the performance of any of the terms, conditions or obligations of Dealer under this Agreement or any other agreement between NMAC and Dealer; B. Any warranty, representation or statement made or caused to be made by Dealer in connection with this Agreement or any other agreement between NMAC and Dealer is or becomes false or breached in any material respect; C. Loss, theft, damage, destruction, sale (except as permitted in paragraph 5) or encumbrance of the Collateral or the making of any levy, seizure or attachment thereon; D. Inability of Dealer to pay debts as they mature, insolvency, appointment of a receiver, trustee or custodian for Dealer or Dealer's property, assignment for the benefit of creditors by Dealer, commencement of any proceedings under any bankruptcy or insolvency law of the United States, any state or any political subdivision thereof by or against Dealer, or an order of attachment, execution, sequestration or other order in the nature of a writ is levied on the Collateral; E. Death of the Dealer if the Dealer is a natural person, or death of any partner of the Dealer if it is a partnership; F. Dissolution, merger or consolidation of any Dealer which is a corporation or a partnership or a transfer of all or any substantial part of the property of any Dealer; or G. Revocation, surrender, suspension or termination of any license, certificate, franchise, permit or any agreement necessary to allow Dealer to engage in the business which it presently conducts or which materially affects the ability of Dealer to carry on its business as it is presently conducted. -7- Whenever a default shall occur, or at any time thereafter, NMAC at its option and without demand or notice of any kind, may terminate this Agreement and declare the indebtedness to be immediately due and payable. Upon default, NMAC shall have all the remedies of a secured creditor under the Uniform Commercial Code with respect to the Collateral and all other security pursuant to any other agreements between NMAC and Dealer. Dealer grants to NMAC, in any such event, the right to take possession of the Collateral and such other security by any means not involving a breach of the peace and to sell the same. For such purpose, NMAC may enter upon the premises on which the Collateral or other security may be situated and remove the same to such other place as NMAC may determine, and Dealer waives any notice or hearing with respect to such taking of possession. Dealer shall, upon NMAC's demand, assemble and make the Collateral or other security available to NMAC at a place to be designated by NMAC which is reasonably convenient to both parties. Further, NMAC may collect all monies and credits then due or to become due to Dealer from, and all claims against, manufacturers or distributors of inventory or other lending institutions. If any notice is required by law, such notice shall be deemed reasonably and properly given if mailed first class mail, postage prepaid, to the address of Dealer indicated above at least five days before the event with respect to which notice is required. In the event of any default, Dealer shall pay all costs incurred by NMAC in enforcing the terms of this Agreement and collecting any amounts due hereunder, including those incurred in bankruptcy proceedings, expenses of locating the goods, expense of any repairs to any realty or other property to which any of the goods may be affixed or be a part, and reasonable attorney's fees and legal expenses. The security interest granted hereunder shall be deemed to secure, in addition to all other sums of money due hereunder, the repayment of all such costs of collection and enforcement and all amounts expended by NMAC on behalf of the Dealer. Dealer agrees that the sale by NMAC of any new or unused property repossessed by NMAC to the manufacturer, distributor or seller thereof, or to any person designated by such manufacturer, distributor or seller, at the invoice cost to Dealer less any credit granted to Dealer with respect thereto and reasonable costs of transportation and reconditioning, shall be deemed to be a commercially reasonable means of disposing of the same. Dealer further agrees that if NMAC shall solicit bids from three or more other dealers in the type of property repossessed by NMAC hereunder, any sale by NMAC of such property in bulk or in parcels to the bidder submitting the highest cash bid therefor shall also be deemed to be a commercially reasonable means of disposing of the same. Notwithstanding the foregoing, it is expressly understood that such means of disposal shall not be exclusive, and that NMAC shall have the right to dispose of any property repossessed hereunder by any commercially reasonable means. In addition to all other rights and remedies of NMAC, Dealer shall be liable for the amounts by which the indebtedness of Dealer to NMAC hereunder shall exceed the amount realized by -8- NMAC from any of the Collateral and other security, but nothing herein shall require NMAC to look to any or all of the Collateral in satisfaction of Dealer's indebtedness to NMAC. 10. General Time shall be of the essence herein. Any delay on the part of NMAC in the exercise of any right or remedy shall not operate as a waiver thereof, and no single or partial exercise by NMAC of any right or remedy shall preclude any other or further exercise of any other right or remedy. The word "indebtedness" is used herein in its most comprehensive sense and includes any and all advances, debts, obligations and liabilities of Dealer, heretofore, now, or hereafter made, incurred or created, whether voluntary or involuntary, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether Dealer may be liable individually or jointly with others. Any reference herein to NMAC shall include the successors and assigns of NMAC. If more than one party shall execute this Agreement, the term "Dealer" shall mean all parties signing this Agreement (other than NMAC) and each of them, and all such parties shall be jointly and severally obligated and liable hereunder. The covenants and conditions of this Agreement shall apply to and be binding upon the heirs, executors, administrators, successors and assigns of Dealer and shall inure to the benefit of NMAC, its successors and assigns. This Agreement shall not be assignable by Dealer except with the express written consent of NMAC. The neuter pronoun when used herein shall include the masculine and the feminine and also the plural. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. Dealer further agrees that the Collateral is now and shall continue to be personal property, notwithstanding the manner and degree of affixation of the Collateral to any real property. Except as herein provided, no modification hereof may be made except by written instrument duly executed by, or pursuant to the express written authority of, an executive officer of NMAC. Dealer shall execute and deliver to NMAC promissory notes or other evidences of Dealer's indebtedness hereunder, security agreements, trust receipts, chattel mortgages or other security -9- instruments and any other documents which NMAC may reasonably request to confirm Dealer's obligation to NMAC and to confirm NMAC's security interest in any collateral by NMAC, and if NMAC so requests, the terms and conditions hereof shall be deemed to be incorporated therein. NMAC's security or other interest in any Collateral shall not be impaired by the delivery to Dealer of such Collateral or of bills of lading, certificates of origin, invoices or other documents pertaining thereto or by the payment by Dealer of any curtailment, security or other deposit or portion of the amount financed. The execution by Dealer or on Dealer's behalf of any document for the amount of any credit extended shall be deemed evidence of Dealer's obligation and not payment thereof. NMAC may, for and in the name of Dealer, endorse and assign any obligation transferred to NMAC by Dealer and any check or other medium of payment intended to apply upon such obligation. NMAC may complete any blank space and fill in omitted information on any document or paper furnished to it by Dealer. Unless the context clearly requires, the terms used herein shall be given the same meaning as ascribed to them under the provisions of the Uniform Commercial Code. Section headings are inserted for convenience only and shall not affect any construction or interpretation of this Agreement. This Agreement shall be interpreted in accordance with the laws of the state of the Dealer's place of business indicated above. 11. Effective Date and Termination This Agreement shall become effective on the date NMAC first extends credit to Dealer hereunder and shall be binding on Dealer and NMAC and their respective successors and assigns from such date until terminated by receipt of written notice by either party from the other; provided, however, that any such termination shall not relieve either party from any obligation incurred prior to the effective date thereof, nor shall it affect the security interest granted hereunder which shall continue until all outstanding obligations and indebtedness of Dealer to NMAC are satisfied in full. Such termination shall not affect the obligations of any guarantor of the obligations and indebtedness of the Dealer hereunder. -10- Dated: July 12, 1996 PEACHTREE NISSAN, INC. 5211 Peachtree Industrial Boulevard Chamblee, GA 30341 By: /s/ Carl Spielvogel -------------------------- Carl Spielvogel, President NISSAN MOTOR ACCEPTANCE CORPORATION By: /s/ Mark Doi -------------------------- Mark Doi, Senior Manager Commercial Credit -11- ADDENDUM TO AUTOMOTIVE WHOLESALE FINANCING AND SECURITY AGREEMENT This Addendum to Automotive Wholesale Financing and Security Agreement ("Addendum") is made between NISSAN MOTOR ACCEPTANCE CORPORATION ("NMAC") and PEACHTREE NISSAN, INC. ("Dealer") effective as of July 12, 1996. For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, NMAC and Dealer hereby agree to supplement the Automotive Wholesale Financing and Security Agreement between NMAC and Dealer, dated as of July 12, 1996 (the "Agreement"), as follows: Section 8 of the Agreement is amended to add, at the end of the section, the following paragraph: "As a condition of extensions of credit by NMAC, Dealer acknowledges and agrees to maintain tangible net worth, working capital and net cash requirements established by Nissan Motor Corporation in U.S.A. ("NMC") and/or NMAC ("Capitalization Guidelines"). The Capitalization Guidelines are established and modified from time to time, based upon Dealer's total new vehicle unit sales, the Dealer's annual planning unit volume established by NMC, and/or the amount of the Dealer's wholesale inventory floorplan lines of credit approved by NMAC, as the foregoing may be modified from time to time. Dealer shall receive prior written notice from NMC or NMAC regarding any changes to the Capitalization Guidelines." Except as expressly modified in this Addendum, the Agreement shall remain unchanged and in full force and effect. PEACHTREE NISSAN, INC., a Georgia corporation /s/ Carl Spielvogel ------------------------ By: Carl Spielvogel President -12- EX-10.7-4 54 EXHIBIT 10.7.4 EXHIBIT 10.7.4 GUARANTY AGREEMENT TO: NISSAN MOTOR ACCEPTANCE CORPORATION DATE: July 12 96 -------------- COUNTY OF DeKalb ---------------- STATE OF Georgia ----------------- To induce NISSAN MOTOR ACCEPTANCE CORPORATION (hereinafter referred to as "NMAC"), to extend or continue to extend credit to PEACHTREE NISSAN, INC., 5211 Peachtree Industrial Blvd., Chamblee, Georgia 30341 (hereinafter referred to as the "DEALER"), and for and in consideration of good and valuable consideration, the receipt of which is hereby acknowledged, the Undersigned (which term refers both to each of the Undersigned individually and to all or any two or more jointly) hereby jointly and severally unconditionally and irrevocably deliver this Guaranty to NMAC and hereby jointly and severally, unconditionally and irrevocably guarantee to NMAC, and any transferee of this Guaranty or of any liability guaranteed hereby, the full and prompt payment of all present and future liabilities of the DEALER to NMAC irrespective of its nature or the time it arises. If any liability guaranteed hereby is not paid when due, the Undersigned hereby agree to and will immediately pay same, without resort by the holder thereof to any other person or party. The liabilities covered by this Guaranty and hereby guaranteed by the Undersigned (herein referred to collectively and individually as the "liabilities") include all obligations and liabilities of the DEALER to NMAC (whether individually or jointly with others, and whether direct, indirect, absolute or contingent as maker, endorser, guarantor, surety or otherwise) now existing or hereafter coming into existence and renewals or extensions in whole or in part of any of said liabilities and include any and all damages, losses, costs, interest, charges, attorney's fees and expenses of every kind, nature and description suffered or incurred by NMAC, arising in any manner out of or in any way connected with, or growing out of, said liabilities. As used herein, the term person includes natural persons, partnerships, and incorporated and unincorporated entities and associations of every kind. Any payment of the Undersigned hereunder may be applied to any of the liabilities which NMAC may choose. The obligation of the Undersigned hereunder is an addition to and shall not prejudice or be prejudiced by any other agreement, instrument, surety GUARANTY AGREEMENT Page 2 or guaranty (including any agreement, instrument, surety or guaranty signed by the Undersigned) which NMAC may now or hereafter hold relative to any of the liabilities. The obligation of the Undersigned to NMAC hereunder is primary, absolute and unconditional. The Undersigned acknowledges that there may be future advances by NMAC to the DEALER (although NMAC is under no obligation to make such advances) and that the number and amount of the liabilities are unlimited and may fluctuate from time to time hereafter. The Undersigned expressly agree that the Undersigned's obligation hereunder shall remain absolute, primary and conditional notwithstanding such future advances and fluctuations, if any, and agree that, in any event, this agreement is a continuing Guaranty and shall remain in force at all times hereafter, whether there are any liabilities outstanding or not; until a written notice of termination from the Undersigned is received and acknowledged by NMAC stating an effective date of no less than two (2) business days following receipt of such notice by NMAC, but such termination shall not be effective as to any Undersigned who has failed to give such notice, and shall not release the Undersigned from liability for payment of (i) any and all liabilities (as hereinbefore defined) then in existence, (ii) any renewals or extensions thereof, in whole or in part of, whether such renewals or extensions are made before or after such termination, and (iii) any damages, losses, costs, interest, charges, attorney's fees or expenses then or thereafter incurred in connection with said liabilities or any renewals or extensions thereof. The Undersigned hereby consent and agree that, at any time or times, without notice to or further approval of the Undersigned or the DEALER, and without in any way affecting the obligation of the Undersigned hereunder, NMAC may, with or without consideration, (i) release, compromise, or agree not to sue, in whole or in part, the DEALER, any of the Undersigned or any other obligor, guarantor, endorser or surety upon any of the liabilities; (ii) waive, rescind, renew, extend, modify, increase, decrease, delete, terminate, amend, or accelerate in accordance with its terms, either in whole or in part, any of the liabilities, any of the terms thereof, or any agreement, covenant, condition, or obligation of or with the DEALER, any of the Undersigned or any other obligor, guarantor, endorser or surety upon any of the liabilities to any of liabilities which NMAC may choose. The Undersigned hereby consent and agree that NMAC may at any time, either with or without consideration, surrender, release or receive any property or other security of any kind or nature whatsoever held by it or any person on its behalf or for GUARANTY AGREEMENT Page 3 its account securing any indebtedness of the DEALER or any liability, or substitute any collateral so held by NMAC for other collateral of like kind, or any kind, without notice to or further consent from the Undersigned, and such surrender, receipt, release or substitution shall not in any way affect the obligation of the Undersigned hereunder. NMAC shall have full authority to adjust, compromise and receive less than the amount due upon any such collateral, and may enter into any accord and satisfaction agreement with respect to the same as may seem advisable to NMAC without affecting the obligation of the Undersigned hereunder, which shall remain absolute, primary and unconditional. NMAC shall be under no duty to undertake to collect upon such collateral or any part thereof, and shall not be liable for any negligence or mistake in judgment in handling, disposing of, obtaining, or failing to collect upon, or perfecting a security interest in, any such collateral. NMAC may collect or otherwise liquidate any collateral in any manner and bid and purchase at any sale without affecting or impairing the obligation of the Undersigned. This Guaranty covers all liabilities to NMAC purporting to be made on behalf of the DEALER by any officer, agent or partner of said DEALER, without regard to the actual authority of such officer, agent or partner to bind the DEALER, and without regard to the capacity of the DEALER or whether the organization or charter of the DEALER is in any way defective. The Undersigned hereby waive notice of acceptance of this agreement and of the creation, extension or renewal of any liability of the DEALER to which it related and of any default by the DEALER. The Undersigned hereby waive presentment, demand, protest and notice of dishonor of any of the liabilities, and hereby waive any failure to promptly commence suit against any party thereto or liable thereon and give any notice to or make any claim or demand upon the Undersigned or the DEALER. No act, failure to act or omission of any kind on the part of the Undersigned, the DEALER, NMAC or any other person shall be a legal or equitable discharge or release of the Undersigned from their obligation hereunder. This Guaranty shall not be affected by any change which may arise by reason of the death of the Undersigned, or of any partner(s) of the Undersigned, or of the DEALER, or of the accession to any such partnership of any one of more new partners. This agreement shall bind and inure to the benefit of NMAC, its successors and assigns, and likewise shall bind and inure to the benefit of the Undersigned, their heirs, executors, administrators, estates, successors and assigns. GUARANTY AGREEMENT Page 4 If any legal action or actions are instituted by NMAC to enforce any of its rights against the Undersigned hereunder, then the Undersigned, jointly and severally, agree to pay NMAC all expenses incurred by NMAC relative to such legal action or actions, including, but not limited to, court costs plus 15% of the total amount of principal and accrued interest then due NMAC hereunder as attorney's fees. The obligation of the Undersigned hereby created is joint and several, and NMAC is authorized and empowered to proceed against the Undersigned or any of them, without joining the DEALER of any of the others of the Undersigned. All of said parties may be sued together, or any of them may be sued separately without first or contemporaneously suing the others. There shall be no duty or obligations upon NMAC, whether by notice under any applicable stature or otherwise, (i) to proceed against the DEALER or any of the Undersigned, (ii) to initiate any proceeding or exhaust any remedy against the DEALER or any of the Undersigned, or (iii) to give any notice to the Undersigned or the DEALER, whatsoever, before bringing suit, exercising any right to any collateral to security, or instituting proceedings of any kind against the DEALER, the Undersigned or any of them. The Undersigned hereby ratify, confirm, and adopt all the terms, conditions, agreements and stipulations of all notes and other evidences of the liabilities heretofore executed. Without in any way limiting the generality of the foregoing, the Undersigned, and each of them, waive and renounce, each for himself and family, any and all homestead or exemption rights any of them may have under or by virtue of the constitution or laws of any state, or the United States, as against the obligation hereby created, and the Undersigned do hereby each transfer, convey and assign, and direct any Trustee in Bankruptcy or receiver to deliver to NMAC or holder hereof, a sufficient amount of property or money in any homestead or exemption that may be allowed to the Undersigned, or any of them to pay any liability guaranteed hereby in full and all costs of collection. The undersigned also waive and renounce for themselves any defenses to any of the liabilities which may be available to or could be asserted by the DEALER, except for payment, and further waive any setoffs and counterclaims. The undersigned further agree that if at any time all or any part of any payment theretofore applied by NMAC to any of the liabilities is or must be rescinded or returned by NMAC for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of the DEALER), such liabilities shall, for the purposes of the Guaranty, to the extent that such payment is or must be rescinded or returned, be deemed to have GUARANTY AGREEMENT Page 5 continued in existence, notwithstanding such application by NMAC, and this Guaranty shall continue to be effective or be reinstated, as the case may be, as to such liabilities, all as though such application by NMAC had not been continue to be effective or be reinstated, as the case may be, as to such liabilities, all as though such application by NMAC has not been made. All NMAC's rights and remedies are cumulative and those granted hereunder are in addition to any rights and remedies available to NMAC under law. If any provision of this agreement or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this agreement or the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each provision of this agreement shall be valid and enforceable to the full extent permitted by law. The failure or forbearance of NMAC to exercise any right hereunder, or otherwise granted to it by law or another agreement, shall not affect the obligation of the Undersigned hereunder and shall not constitute a waiver of said right. This Guaranty contains the entire agreement between the parties, and no provision hereof may be waived, modified, or altered except by a writing executed by the Undersigned and NMAC. There is no understanding that any person other than or in addition to the Undersigned shall execute this Guaranty. It is contemplated that this is and is intended to be the personal guaranty of payment and performance of each individual who signs this instrument, and any language in connection with any signature indicating a capacity other than personal shall be deemed stricken from and shall not be part of the signature, but this provision shall not apply to the signature of a person who signs as an officer of a corporation which is not the DEALER, and which executes this instrument as its corporate guaranty. THE UNDERSIGNED'S EXECUTION OF THIS GUARANTY WAS NOT BASED UPON ANY FACTS OR MATERIALS PROVIDED BY NMAC NOR WAS THE UNDERSIGNED INDUCED TO EXECUTE THIS GUARANTY BY ANY REPRESENTATION, STATEMENT OR ANALYSIS MADE BY NMAC. THE UNDERSIGNED ACKNOWLEDGE AND AGREE THAT THE UNDERSIGNED ASSUME SOLE RESPONSIBILITY FOR INDEPENDENTLY OBTAINING ANY INFORMATION OR REPORTS DEEMED ADVISABLE BY THE UNDERSIGNED WITH REGARD TO THE DEALER OR ANY OF THE UNDERSIGNED, AND THE UNDERSIGNED AGREE TO RELY SOLELY ON THE INFORMATION OR REPORTS SO OBTAINED IN REACHING ANY DECISION TO EXECUTE OR NOT TO TERMINATE THIS GUARANTY. THE UNDERSIGNED ACKNOWLEDGE AND AGREE THAT NMAC IS AND SHALL BE UNDER NO OBLIGATION NOW OR IN THE FUTURE TO FURNISH ANY INFORMATION TO THE UNDERSIGNED CONCERNING THE DEALER, THE LIABILITIES OR ANY OF GUARANTY AGREEMENT Page 6 THE OTHER UNDERSIGNED, AND THAT NMAC DOES NOT AND SHALL NOT BE DEEMED IN THE FUTURE TO WARRANT THE ACCURACY OF ANY INFORMATION OR REPRESENTATION CONCERNING THE DEALER, THE UNDERSIGNED OR ANY OTHER PERSON WHICH MAY INDUCE THE UNDERSIGNED TO EXECUTE OR NOT TO TERMINATE THIS GUARANTY. EACH PARTY HEREBY WAIVES TRIAL BY JURY IN ANY SUCH ACTION OR PROCEEDING. GUARANTY AGREEMENT Page 7 This agreement and its performance, interpretation and enforcement shall in all respects be governed by the laws of the State where the DEALER is located. IN WITNESS HEREOF, and in agreement hereto the undersigned individual(s) have affixed their signatures and seals and the undersigned corporation(s) have caused their seals to be affixed by their duty authorized officers this 12 day of July, 1996. FOR CORPORATE GUARANTORS: UAG Atlanta III, Inc. 375 Park Ave. Ste. 2201, BY: /s/ Carl Spielvogel New York, NY 10152 -------------------------- ------------------------------ Carl Spielvogel, President Address Attest: /s/ George Lowrance ---------------------- Secretary (CORPORATE SEAL) United Auto Group, Inc. 375 Park Ave, Ste. 2201, BY: /s/ Carl Spielvogel New York, NY 10152 -------------------------- ------------------------------ Carl Spielvogel, President Address Attest: /s/ George Lowrance ---------------------- Secretary (CORPORATE SEAL) EX-10.7-5 55 EXHIBIT 10.7.5 THE SECURITIES REPRESENTED BY THIS NOTE (THE "SECURITIES") HAVE BEEN ISSUED AND SOLD WITHOUT REGISTRATION IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") AND SECTION 10-5-9(13) OF THE OFFICIAL CODE OF GEORGIA (THE "GEORGIA CODE"). SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED OTHER THAN (i) PURSUANT TO AN EFFECTIVE REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE 1933 ACT AND THE GEORGIA CODE AND (ii) UPON RECEIPT BY THE ISSUER OF EVIDENCE SATISFACTORY TO IT OF COMPLIANCE WITH THE 1933 ACT, THE GEORGIA CODE AND THE APPLICABLE SECURITIES LAWS OF ANY OTHER JURISDICTION. THE ISSUER SHALL BE ENTITLED TO REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO IT WITH RESPECT TO COMPLIANCE WITH THE ABOVE LAWS. NOTWITHSTANDING THE FOREGOING, NOTHING CONTAINED HEREIN SHALL RESTRICT THE PAYEE'S RIGHT TO DISTRIBUTE THIS NOTE TO ITS BENEFICIARIES. $2,000,000 July 12, 1996 PROMISSORY NOTE UAG Atlanta III, Inc., a Delaware corporation (hereinafter called "Maker"), for value received, promises and agrees to pay to the order of Lynda Jane Hickman, as Executrix under the Will of James Franklin Hickman, Jr., Deceased (hereinafter called "Payee" and, along with each subsequent holder of this Note, referred to as the "Holder"), in lawful money of the United States of America, the principal sum of TWO MILLION DOLLARS ($2,000,000) (the "Principal Amount") on July 12, 1998 (the "Maturity Date"), together with interest thereon (calculated on the basis of a 360 day year) from and after the date hereof until maturity at a rate per annum equal to nine percent (9%), but in no event in excess of the maximum rate of nonusurious interest allowed from time to time by law (hereinafter called the "Highest Lawful Rate"). All sums due under this Note are payable to Holder at such address as may be designated in writing by Holder to the Maker. ACCRUED INTEREST is due and payable monthly commencing on the first day of the month immediately following the date hereof and on the first day of each and every calendar month thereafter and at maturity; PROVIDED, HOWEVER, that if the principal of this Note is prepaid in whole or in part, all accrued and unpaid interest is due and payable on the date of such prepayment. Maker has the right to prepay this Note in whole or in part at any time and from time to time without premium or penalty upon not less than five days' notice to Holder. INSTALLMENTS not paid when due shall bear interest at the rate of twelve percent (12%) per annum from maturity. Should this Note, or any part of the indebtedness evidenced hereby, be collected by law or through an attorney-at-law, the Holder shall be entitled to collect actual and reasonable attorneys' fees and expenses incurred by Holder in connection with such collection. ALL PAYMENTS hereunder shall be made in lawful money of the United States. FOR PURPOSES of this Note, an "Event of Default" shall occur whenever: (a) default is made in the payment when due of the principal of this Note, (b) default is made in the payment when due of any installment of interest on this Note and such default has not been cured within five days after the date on which Maker receives written notice of the default from Holder, (c) Maker shall fail to perform or observe any other term, covenant or agreement contained in this Note and any such failure shall remain unremedied for 10 days after written notice thereof shall have been given to Maker by Holder, (d) Maker, Hickman Nissan, Inc., a Georgia corporation ("Hickman") or United Auto Group, Inc., a Delaware Corporation ("UAG") institutes proceedings to be adjudicated as bankrupt or insolvent, or consents to institution of bankruptcy or insolvency proceedings against it or the filing by it of a petition or answer or consent seeking reorganization or release under the federal Bankruptcy Act or any other applicable federal or state law, or consents to the filing of any such petition or the appointment of a receiver, liquidator, assignee, trustee or other similar official of Maker, Hickman or UAG, or of any substantial part of its property, or makes an assignment for the benefit of creditors, or takes corporate action in furtherance of any such action, or (e) within 60 days after the commencement of an action against Maker, Hickman or UAG seeking any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such action shall not have been resolved in favor of Maker, Hickman or UAG, as applicable, or if, within 60 days after the appointment without the consent or acquiescence of Maker, Hickman or UAG of any trustee, receiver or liquidator of Maker, Hickman or UAG or all or any substantial part of its properties, such appointment shall not have been vacated. Upon the occurrence of any Event of Default described in clause (a), (b), (c) or (d) of the foregoing paragraph, Holder may declare the entire principal amount then outstanding under this Note, together with interest then accrued thereon, and attorney's fees as specified herein, to be immediately due and payable. Upon the occurrence of any Event of Default described in clause (e) of the foregoing paragraph, the entire principal amount of all indebtedness then outstanding under this Note, together with interest then accrued thereon, shall automatically become immediately due and payable together with attorneys' fees as specified herein. It is the intention of Maker and Holder to conform strictly to applicable usury laws. Accordingly, if the transac- -2- tions contemplated hereby would be usurious under applicable law (including the laws of the State of Georgia and the laws of the United States of America), then, in that event, notwithstanding anything to the contrary herein or in any agreement entered into in connection with or as security for this Note, it is agreed that the aggregate of all consideration which constitutes interest under applicable law that is taken, reserved, contracted for, charged or received under this Note or under any of the other aforesaid agreements or otherwise in connection with this Note shall under no circumstances exceed the maximum amount of interest allowed by applicable law, and any excess shall be cancelled automatically and, if theretofore paid, shall be credited on the Note by the holder hereof (or, to the extent that this Note shall have been or would thereby be paid in full, refunded to the Maker). Maker hereby waives presentment, demand for payment, protest and notice of any kind. Maker hereby, to the extent permitted by applicable law, further conveys and assigns to the holder hereof and waives and renounces any and all exemption rights which it may have under or by virtue of the Constitution or laws of Georgia, or any other state, or the United States, as may be allowed, against this debt or any renewal thereof. This Note is subject to UAG's and Maker's right of offset pursuant to the provisions of Section 9.5 (the "Right of Offset") of that certain Stock Purchase Agreement dated effective as of June 7, 1996, by and among Maker, Payee, Hickman and UAG ("Stock Purchase Agreement"). Notwithstanding anything in this Note to the contrary, the exercise by UAG or Maker of the Right of Offset (including the withholding of any payments otherwise due hereunder) shall not constitute an Event of Default under the terms hereof and shall not constitute or be construed as a waiver or release of Holder's right to object to the exercise of any right of indemnification under Article 9 of the Stock Purchase Agreement or the exercise of any Right of Offset. This Note shall be binding upon Maker and its successors and assigns and shall inure to the benefit of Holder, their legal representatives, successors and assigns. Time is of the essence of this Note. This Note has been executed and delivered in and shall be construed in accordance with and governed by the laws of the State of Georgia (without regard to choice-of-law principles) and of the United States of America. -3- IN WITNESS WHEREOF, the undersigned has executed, sealed and delivered this instrument as of the day and year first above written. UAG ATLANTA III, INC. a Delaware Corporation By: George Lowrance --------------------------- Its: Vice President --------------------- [Corporate Seal] EX-10.7-6 56 EXHIBIT 10.7.6 UAG GUARANTY OF NOTE In order to induce Lynda Jane Hickman, as Executrix under the Will of James Franklin Hickman, Jr., Deceased ("Hickman"), to sell one hundred percent (100%) of the issued and outstanding shares of common stock of Hickman Nissan, Inc., a Georgia corporation ("Hickman Nissan"), to UAG Atlanta III, Inc., a Delaware corporation and a wholly-owned subsidiary of the undersigned ("UAG Atlanta III"), the undersigned hereby irrevocably, unconditionally and absolutely guarantees the due performance and punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of UAG Atlanta III now or hereafter existing under that certain Promissory Note (the "Note") dated July 12, 1996 payable to the order of Estate in the original principal amount of Two Million Dollars ($2,000,000), together with any renewals, modifications, consolidations and extensions thereof (all such obligations being sometimes hereinafter referred to as the "Obligations"). The undersigned further agrees to pay Estate all expenses (including, without limitation, court costs and reasonable attorneys' fees) paid or incurred by Estate in endeavoring to collect the indebtedness evidence by the Note, and in enforcing the obligations of UAG Atlanta III guaranteed hereby, or any portion thereof, and in enforcing this Guaranty. The undersigned hereby waives presentment, protest, demand for payment, notice of acceptance of this guaranty, notice of dishonor, notice of non-payment when due of the Obligations guaranteed hereby and notices of every other kind and hereby consents to any and all forebearances and extensions of time of payment of the Obligations and to any and all of the changes in the terms, covenants and conditions thereof hereafter made or guaranteed. Whenever possible each provision of this Guaranty shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or be invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. This Guaranty shall inure to the benefit of Estate and its successors, successors-in-title and assigns, and shall be binding upon the undersigned and its successors, successors-in-title and assigns. This instrument constitutes the entire agreement as to the subject matter contemplated hereby. The undersigned agrees that, if at anytime all or any part of any payment theretofore applied by Estate for any of the Obligations is rescinded or returned by estate for any reason (whatsoever, including, without limitation, the insolvency, bankruptcy, liquidation or reorganization of any party), such Obligation shall, for the purposes of this Guaranty, be deemed to have continued in existence to the extent of such payment, notwithstanding such application by Estate, and this Guaranty shall continue to be effective or be reinstated, as the case may be, as to such Obligation, all as though such application by Estate had not been made. The undersigned acknowledges and agrees that no change in the nature of terms of the Note (including any novations), whether by operation of law or otherwise, shall discharge all or any part of the liabilities of the undersigned pursuant to this Guaranty. (a) any defense based upon the failure of Estate to give notice of the existence, creation or incurring of any new or additional indebtedness or obligation or the failure of Estate to give notice of any action of non-action on the part of any other person whomsoever, in connection with any obligation hereby guaranteed;(b) any defense based upon election of remedies by Estate which destroys or otherwise impairs any subrogation rights of the undersigned to proceed against UAG Atlanta III for reimbursement, or both;(c) any defense based upon failure of Estate to commence any action against UAG Atlanta III; (d)any duty on the part of Estate to disclose to the undersigned any facts that it may now or hereafter know regarding UAG Atlanta III;(e) acceptance or notice of acceptance of this Guaranty by Estate;(f) notice of presentment and demand for payment of any indebtedness or performance of any of the obligations hereby guaranteed;(g) protest and notice of dishonor or of default to the undersigned or any other party with respect to the indebtedness or performance of obligations hereby guaranteed;(h) any and all other notices whatsoever to which the undersigned might otherwise be entitled;(i) any defense based upon lack of due diligence by Estate in collection, protection or realization upon any collateral securing the obligations; and (j) the provisions of Section 10-7-24 of the Official Code of Georgia Annotated. This is a guaranty of payment and not of collection. The liability of the undersigned under this Guaranty shall be direct and immediate and not conditional or contingent upon the pursuit of any remedies against UAG Atlanta III or any other person (any rights, under Georgia law or any other applicable law to require Estate to bring an action against UAG Atlanta III, being expressly waived hereby), nor against collateral, securities or liens available to Estate, its successors, successors-in-title, endorsees or assigns. The undersigned hereby waives any right to require that an action be brought against UAG Atlanta III or any other person or to require that resort be had to any security. In the event of the occurrence of a default or an event of default under the Note, Estate shall have the right to enforce its rights, powers and remedies thereunder or hereunder or under any other instrument now or hereafter evidencing, securing or otherwise relating to the obligations, in any order, and all - 2 - rights, powers and remedies available to Estate in such event shall be non- exclusive and cumulative of all other rights, powers and remedies provided thereunder or hereunder or by law or in equity. This Guaranty is assignable by Estate, and any assignment hereof or any transfer or assignment of the Note shall operate to vest in any such assignee all rights and powers herein conferred upon and granted to Estate. This Guaranty shall in no event be impaired by any change which may arise by reason of the dissolution or liquidation of UAG Atlanta III. No amendment or waiver of any provision of this Guaranty nor consent to any departure by Estate therefrom shall in any event be effective unless the same shall be in writing and signed by Estate and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. This Guaranty shall be irrevocable by the undersigned until all indebtedness guaranteed hereby has been completely paid. This Guaranty is subject to United Auto Group, Inc.'s ("UAG") and UAG Atlanta III's right of offset against the Note pursuant to the provisions of SECTION 9.5 of that certain Stock Purchase Agreement dated as of June 7, 1996, by and among the undersigned, UAG Atlanta III, Hickman Nissan, Inc. and the Estate. This instrument has been made and delivered in the State of Georgia and shall be governed by the laws of the State of Georgia. IN WITNESS WHEREOF the undersigned has executed, sealed and delivered this instrument as of the 12th day of July, 1996. UNITED AUTO GROUP, INC., a Delaware corporation By: George Lowrance ---------------------------- Its: Executive Vice President ------------------------ [Corporate Seal] - 3 - EX-10.7-7 57 EXHIBIT 10.7.7 COMPANY GUARANTY OF NOTE In order to induce Lynda Jane Hickman, as Executrix under the Will of James Franklin Hickman, Jr., Deceased ("Estate"), to sell one hundred percent (100%) of the issued and outstanding shares of common stock of Hickman Nissan, Inc., a Georgia corporation ("Hickman Nissan"), to UAG Atlanta III, Inc., a Delaware corporation and the parent (after the aforementioned sale) of the undersigned ("UAG Atlanta III"), the undersigned hereby irrevocably, unconditionally and absolutely guarantees the due performance and punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of UAG Atlanta III now or hereafter existing under that certain Promissory Note (the "Note") dated July 12, 1996, payable to the order of Estate in the original principal amount of Two Million Dollars ($2,000,000), together with any renewals, modifications, consolidations and extensions thereof (all such obligations being sometimes hereinafter referred to as the "Obligations"). The undersigned further agrees to pay Estate all expenses (including, without limitation, court costs and reasonable attorneys' fees) paid or incurred by Estate in endeavoring to collect the indebtedness evidence by the Note, and in enforcing the obligations of UAG Atlanta III guaranteed hereby, or any portion thereof, and in enforcing this Guaranty. The undersigned hereby waives presentment, protest, demand for payment, notice of acceptance of this guaranty, notice of dishonor, notice of non-payment when due of the Obligations guaranteed hereby and notices of every other kind and hereby consents to any and all forebearances and extensions of time of payment of the Obligations and to any and all of the changes in the terms, covenants and conditions thereof hereafter made or guaranteed. Whenever possible each provision of this Guaranty shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or be invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. This Guaranty shall inure to the benefit of Estate and its successors, successors-in-title and assigns, and shall be binding upon the undersigned and its successors, successors-in-title and assigns. This instrument constitutes the entire agreement as to the subject matter contemplated hereby. The undersigned agrees that, if at anytime all or any part of any payment theretofore applied by Estate for any of the Obligations is rescinded or returned by Estate for any reason (whatsoever, including, without limitation, the insolvency, bankruptcy, liquidation or reorganization of any party), such Obligation shall, for the purposes of this Guaranty, be deemed to have continued in existence to the extent of such payment, notwithstanding such application by Estate, and this Guaranty shall continue to be effective or be reinstated, as the case may be, as to such Obligation, all as though such application by Estate had not been made. The undersigned acknowledges and agrees that no change in the nature of terms of the Note (including any notations), whether by operation of law or otherwise, shall discharge all or any part of the liabilities of the undersigned pursuant to this Guaranty. The undersigned hereby waives and agrees not to assert or take advantage of any defense based upon the failure of Estate to give notice of the existence, creation or incurring of any new or additional indebtedness or obligation or the failure of Estate to give notice of any action of non-action on the part of any other person whomsoever, in connection with any obligation hereby guaranteed; (a)any defense based upon election of remedies by Estate which destroys or otherwise impairs any subrogation rights of the undersigned to proceed against UAG Atlanta III for reimbursement, or both;(b) any defense based upon failure of Estate to commence any action against UAG Atlanta III;(c) any duty on the part of Estate to disclose to the undersigned any facts that it may now or hereafter know regarding UAG Atlanta III;(d) acceptance or notice of acceptance of this Guaranty by Estate;(e) notice of presentment and demand for payment of any indebtedness or performance of any of the obligations hereby guaranteed;(f) protest and notice of dishonor or of default to the undersigned or any other party with respect to the indebtedness or performance of obligations hereby guaranteed;(g) any and all other notices whatsoever to which the undersigned might otherwise be entitled;(h) any defense based upon lack of due diligence by Estate in collection, protection or realization upon any collateral securing the obligations; and (i) the provisions of Section 10-7-24 of the Official Code of Georgia Annotated. This is a guaranty of payment and not of collection. The liability of the undersigned under this Guaranty shall be direct and immediate and not conditional or contingent upon the pursuit of any remedies against UAG Atlanta III or any other person (any rights, under Georgia law or any other applicable law to require Estate to bring an action against UAG Atlanta III, being expressly waived hereby), nor against collateral, securities or liens available to Estate, its successors, successors-in-title, endorsees or assigns. The undersigned hereby waives any right to require that an action be brought against UAG Atlanta III or any other person or to require that resort be had to any security. In the event of the occurrence of a default or an event of default under the Note, Estate shall have the right to enforce its rights, powers and remedies thereunder or hereunder or under any other instrument now or hereafter evidencing, securing or otherwise relating to the obligations, in any order, and all rights, powers and remedies available to Estate in such event shall be non-exclusive and cumulative of all other rights, powers and remedies provided thereunder or hereunder or by law or in equity. -2- This Guaranty is assignable by Estate, and any assignment hereof or any transfer or assignment of the Note shall operate to vest in any such assignee all rights and powers herein conferred upon and granted to Estate. This Guaranty shall in no event be impaired by any change which may arise by reason of the dissolution or liquidation of UAG Atlanta III. No amendment or waiver of any provision of this Guaranty nor consent to any departure by Estate therefrom shall in any event be effective unless the same shall be in writing and signed by Estate and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. This Guaranty shall be irrevocable by the undersigned until all indebtedness guaranteed hereby has been completely paid. This Guaranty is subject to United Auto Group, Inc.'s ("UAG") and UAG Atlanta III's right of offset pursuant to the provisions of SECTION 9.5 of that certain Stock Purchase Agreement dated as of June 7, 1996, by and among the undersigned, UAG Atlanta III, UAG and the Estate. This instrument has been made and delivered in the State of Georgia and shall be governed by the laws of the State of Georgia. IN WITNESS WHEREOF the undersigned has executed, sealed and delivered this instrument as of the 12th day of July, 1996. HICKMAN NISSAN, INC., a Georgia corporation By: George Lowrance --------------------------- Its: Vice President --------------------- [Corporate Seal] -3- EX-10.7-8 58 EXHIBIT 10.7.8 LEASE AGREEMENT (HICKMAN) THIS LEASE AGREEMENT ("Lease") made this 12th day of July, 1996, by and between LYNDA JANE HICKMAN, AS EXECUTRIX UNDER THE WILL OF JAMES FRANKLIN HICKMAN, JR., DECEASED(referred to herein as "Landlord"), whose address is 339 Argonne Drive, Atlanta, Georgia 30305, and HICKMAN NISSAN, INC., a Georgia corporation ("Tenant"), whose address is 5214 Peachtree Industrial Boulevard, Chamblee, Georgia 30341. W I T N E S S E T H: FOR AND IN CONSIDERATION of the sum of $10.00 Dollars in hand paid and of the mutual covenants and conditions contained herein, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. PREMISES. Landlord leases to Tenant and Tenant leases from Landlord the following property: (See Exhibit "A" attached hereto and incorporated herein by reference.) together with all improvements thereon and all rights, privileges, easements and appurtenances pertaining thereto (collectively, the "Premises") upon the terms contained herein. 2. TERM. The term hereof shall begin on the date hereof and shall end on midnight June 30, 2016, unless extended or sooner terminated as provided herein ("Term"). 3. RENT. (a) From the commencement date through December 31, 1997, Tenant agrees to pay to Landlord, as rent for the Premises ("Rent"), the sum of Thirty-two Thousand Eighty-three and Fifty-two/One Hundredths ($32,083.52) Dollars per month. (b) On January 1, 1998, Rent shall be increased by the percentage increase in the Consumer Price Index between June 30, 1996 and December 31, 1997. (c) Thereafter, during the remainder of the Term, commencing January 1, 1999, Rent shall be increased each January 1st by the percentage increase in the Consumer Price Index between the first day of the previous year and the last day of the previous year. (d) (i) For purposes of this Lease, the following definitions shall apply: (A) The term "CONSUMER PRICE INDEX" shall mean the Consumer Price Index for All Urban Consumers of Atlanta, Georgia (all items, 1982-84=100) published by the Bureau of Labor Statistics, United States Department of Labor. (B) In computing increases in the Consumer Price Index the parties will utilize the Consumer Price Index most recently published prior to the dates called for in this Lease. (C) The increase in Rent shall be calculated by multiplying (i) the Rent then currently in effect by (ii) the percentage increase determined as of such date; provided, 2 however, that the Rent shall never decrease by virtue of this subparagraph. Landlord shall notify Tenant in writing of the new Rent monthly installment amount after the date on which the increase in Rent becomes effective. Tenant shall continue to pay the previous Rent in the interim and shall begin paying based upon the new monthly installment amount commencing with the first monthly installment of Rent which is due after the date of Landlord's notification to Tenant of the increase, and Tenant shall also pay at such time, in a lump sum, any additional amount due with respect to any monthly payments previously made by Tenant after the date on which such increase became effective but for which the increased amount has not been paid. The 'percentage increase' means, when computed for any particular date, a figure stated as a percentage derived by first subtracting from the Consumer Price Index most recently published prior to December 31 of the previous year before which the increase is being calculated the Consumer Price Index most recently published prior to January 1 of such previous year (except under (b) above where the date shall be June 30, 1996), and then dividing the resultant figure by the latter Consumer Price Index. (For example, in determining the Rent to be paid for calendar year 1999, if the Rent for 1998 was $33,000.00 per month and the Consumer Price Index most recently published prior to December 31, 1998 was 110 and the Consumer Price Index most recently published prior to January 1, 1998 was 100, 3 then the percentage increase would be 110 - 100 = 10 DIVIDED BY 100 = 10% and Rent for 1999 would be: $33,000 x 10% = $3,300 + $33,000 = $36,300.) (ii) In the event that (A) the Consumer Price Index ceases to use 1982-84=100 as the basis of calculation, or (B) the Consumer Price Index shall be discontinued for any reason, the Bureau of Labor Statistics shall be requested to furnish a new index comparable to the Consumer Price Index together with information which will make possible the conversion to the new index in computing the adjusted Rent under this paragraph 3 and paragraph 40 of this Lease. If for any reason the Bureau of Labor Statistics does not furnish such an index and such information, the parties hereto shall hereafter accept and use such other index or comparable statistics on the cost of living for the City of Atlanta, Georgia as shall be computed and published by an agency of the United States. (a) Rent during the Term hereof shall be due and payable at Landlord's office at the above address on or before the first day of each calendar month thereof. Any Rent payment not received by the fifth (5th) day after notice of non-payment to Tenant by Landlord shall be subject to a one-time late charge equal to three (3%) percent of that rental installment 4 ("Late Charge") and, beginning with the thirty-second (32nd) day after the due date of such Rent installment, that Rent installment shall bear interest at the prime commercial rate (as quoted on a daily basis by NationsBank, or, if not available, another large banking institution with offices situated in Atlanta, Georgia) plus five (5%) percent per annum ("Interest Rate") to the extent, but only to the extent, that such interest exceeds the Late Charge, which charge the parties agree is a fair estimation of the damages which may reasonably be expected to be incurred by Landlord in connection with receiving such late payment. Notwithstanding the foregoing, Landlord shall not be obligated to give notice of nonpayment of Rent more than two (2) times in any calendar year and upon the failure of Tenant to pay any Rent payment a third (3rd) time in any calendar year, such Late Charge shall accrue after the fifth (5th) of the month without additional notice. The imposition of interest is not the full extent of damages Landlord may incur, time being of the essence of this Lease in all respects. (b) If the Term shall commence or end on a day other than the first day of a calendar month, then the monthly Rent for any fractional months of the Term shall be appropriately prorated. 5 (c) In no event shall the monthly Rent for any year be less than the monthly Rent for the preceding period. (d) Rent and additional rent under this Lease shall be payable without any offset or deduction or demand therefor whatsoever. 2. UTILITIES. Tenant shall have all utilities listed in its name and shall pay all utility bills, including, but not limited to water, sewer, gas, electricity, fuel, light, and heat bills, for the Premises, and Tenant shall pay all charges for garbage collection services or other sanitary services rendered to the Premises or used by Tenant in connection therewith. If Tenant fails to pay for such services, such amount shall be deemed additional rent and, Landlord may, at its option and after providing Tenant with at least ten (10) days prior written notice, pay the same, and the amount of the payment together with interest at the Interest Rate from the date paid by Landlord shall be payable to Landlord upon demand. Pursuant to the terms of this Lease, Landlord shall not be or become liable for damages to Tenant alleged to be caused or occasioned by or in any way connected with or the result of any interruption, defect or breakdown of any utility. 3. USE OF THE PREMISES; ENVIRONMENTAL INDEMNITY. The Premises shall be used only for the operation of a new and/or used automobile dealership, service facility, body shop facility and 6 uses incidental thereto, and for any other purposes which may be agreed to by the parties. The Premises shall not be used for any illegal purpose, nor in violation of any regulation of any governmental body required to be remedied by Tenant hereunder, nor in any manner which may create nuisance or trespass. Furthermore, Tenant shall not, by its actions, violate any federal or state environmental law, and Tenant agrees to indemnify and hold harmless Landlord from any and all damages, costs, fines and expenses that might arise as a result of any such violation and from its placement upon the Premises of hazardous wastes and toxic substances that are placed on the Premises after the date hereof. Notwithstanding anything to the contrary contained in this Paragraph 5, there shall not be deemed to be a nuisance or trespass and Tenant's obligation to indemnify and hold Landlord harmless shall not extend to any damages, claims, or liabilities arising as a result of contaminants existing on the Premises on the date hereof or migrating onto or beneath the Premises after the date hereof, where such contamination is not caused by or attributable to Tenant. 4. NO REPAIRS BY LANDLORD. Landlord shall not be obligated to repair or maintain the Premises after the date of this Lease, and all repairs, replacements, and maintenance of any kind shall be the sole responsibility of Tenant, but Tenant's obligation 7 shall not encompass such matters to the extent the necessity therefor arose on or prior to the date hereof. 5. REPAIRS BY TENANT. Tenant accepts the condition of the Premises as of the date hereof and agrees that the Premises are suited for the uses specified herein. Tenant shall, throughout the Term, at its expense, maintain the Premises in good order and repair, including but not limited to repair and maintenance and, if necessary, replacement of the electrical, heating, ventilation and air conditioning and plumbing systems, as well as the roof and all structural components of buildings located on the Premises. Tenant further agrees to care for all landscaping on the Premises, including the mowing of grass, paving, policing, care of shrubs and general landscaping. If Tenant fails to properly maintain and repair any portion of the Premises, Landlord may, following at least twenty (20) days prior written notice to Tenant, maintain the same including replacing of components and Tenant shall pay to Landlord within thirty (30) days after demand the costs thereof together with interest on said amount from the date of payment by Landlord at a rate equal to the Interest Rate, which amount shall be deemed additional rent. Subject to the provisions of Paragraphs 9 and 13 hereof, Tenant agrees to return the Premises to Landlord in as good condition and repair as when first received by Tenant, natural wear and tear excepted. 8 6. TAX AND INSURANCE. Tenant shall promptly and on a timely basis pay during the Term all charges for taxes (including, but not limited to, ad valorem taxes, special assessments and any other governmental charges) on the Premises, which amounts shall be prorated between Tenant and Landlord for all periods partially but not entirely within the Term. Tenant shall also maintain, at all times during the Term of this Lease, fire and extended insurance coverage on the Premises in amounts equal to the full replacement value of the Premises, and written on policies issued by underwriters reasonably acceptable to Landlord. Landlord agrees that such coverages may be provided by blanket policies of insurance covering other locations in addition to the Premises. All policies shall insure Landlord and Tenant as their respective interests shall appear and shall contain a replacement cost endorsement. Should Tenant fail to pay such tax expenses or fail to provide certificates evidencing the required insurance coverage, such amounts shall be deemed to be additional rent hereunder and Landlord may, following at least ten (10) days prior written notice to Tenant, pay any such charges or secure such coverage, and Tenant shall pay to Landlord within thirty (30) days after demand all amounts so expended by Landlord together with interest on said amount from the date of payment by Landlord at a rate equal to the Interest Rate. 9 7. DESTRUCTION OF OR DAMAGE TO THE PREMISES. If the Premises should be damaged or destroyed by any insured peril whatsoever, all insurance proceeds shall be delivered to Landlord and Tenant shall proceed with reasonable diligence to rebuild and repair the Premises to substantially the condition in which it existed prior to such damage or destruction; provided, however, that Landlord agrees to disburse such proceeds to Tenant for such reconstruction within five (5) days of submission of request for payment together with Tenant's architect's certification that the work for which payment is requested has been accomplished. If, however, the damage or destruction shall occur within the last two (2) years of the Term, then Tenant may terminate this Lease as of the date that such damage or destruction occurs by giving written notice to Landlord of such election to terminate within sixty (60) days after the date of such damage or destruction. If this Lease is terminated by Tenant, insurance proceeds with respect to the building shall be paid to Landlord. If this Lease is not terminated, the rent payable under this Lease shall not be abated as a result of damage or destruction. 8. INDEMNITY; WAIVER OF SUBROGATION. Tenant agrees to indemnify and hold harmless Landlord against all claims and expenses resulting therefrom, including attorneys' fees actually reasonably incurred and court costs, for damage to persons or property by reason of the use or occupancy of the Premises by 10 Tenant, except for any claims with respect to violations of laws for conditions existing at the date of this Lease. Tenant shall periodically provide Landlord with certificates of general liability insurance naming Landlord as an additional insured, in an amount of not less than $5,000,000 and with an insurance carrier reasonably satisfactory to Landlord. The dollar amount of such insurance coverage shall be adjusted annually as of the first of each year by the percentage increase in the Consumer Price Index calculated as provided in Section 3(d)(i)(c) hereof. Landlord and Tenant each hereby release and waive any right of recovery against the other for any loss, claim, liability, or damage occurring on or to the Premises, whether wholly or contributorily caused by the negligence of the other party, to the extent that the same is compensated by actual receipt of proceeds from insurance policies covering such loss, claim, liability, or damage. Waiver of subrogation between Landlord and Tenant under this paragraph shall be evidenced by waiver of subrogation endorsements on the respective policies of the Landlord and the Tenant. Provided, however, Landlord shall not be obligated to carry any such insurance but may do so at its sole discretion. 9. ALTERATIONS. Tenant shall make no structural alterations, additions or improvements to the Premises without the express prior written consent of Landlord which consent shall not be unreasonably withheld. Tenant may make non-structural 11 alterations, additions and improvements to the Premises without Landlord's approval. In the event Landlord has not responded to Tenant's written request for alterations, additions or improvements, which request shall be accompanied by preliminary drawings of such proposed changes, within twenty (20) days of when received, such alterations, additions or improvements shall be deemed to have been approved by Landlord. Tenant agrees to save Landlord harmless on account of any claim or lien of mechanics, materialmen or other party, in connection with any alterations, additions or improvements of or to the Premises performed by Tenant. Tenant shall furnish such waivers of liens and appropriate affidavits from the general contractor or subcontractors as Landlord may reasonably require. Notwithstanding the foregoing, Tenant shall also be entitled to make the following changes without necessity of Landlord's consent: (i) any alterations required to be made by it pursuant to governmental orders, rules, laws, regulations, ordinances or requirements, and (ii) any changes in its signage or alterations, additions and improvements recommended or required by the automobile manufacturer whose automobiles are sold on the Premises. Tenant shall have the right to finance any alterations, additions or improvements permitted hereunder and may pledge its interest in this Lease as security therefor; provided, however, that any pledges or liens granted in connection with such financings shall be subordinate to the rights of Landlord under 12 this Lease and the instrument evidencing such pledge or lien shall not contain insurance provisions contrary to those contained herein. 10. GOVERNMENTAL ORDERS. Tenant agrees, at its own expense, to promptly comply with all requirements of any public authority made necessary by reason of Tenant's occupancy of the Premises from and after the date hereof or which may be necessary for Tenant's occupancy to continue if the requirement to comply arises after the date of this Lease. Landlord shall have no obligation of any kind for such compliance. 11. CONDEMNATION. If all or a substantial part of the Premises is condemned for any public use or purpose, then the Term shall cease and this Lease shall be terminated from the date when possession thereof is taken, and rent shall be prorated as of that date; provided, however, that Tenant may elect to continue this Lease in full force and effect notwithstanding any such taking. Any termination shall be without prejudice to the rights of either Landlord or Tenant to recover compensation and damage caused by such condemnation from the condemnor. Except as provided herein, neither Tenant nor Landlord shall have any rights in any award made solely to the other by any condemnation authority notwithstanding the termination of the Lease as herein provided. If the Lease is not terminated as provided above, then (i) this Lease shall continue in effect with respect to the remaining portion of the 13 Premises, in which event the Rent payable hereunder during the unexpired portion of the Term of this Lease shall be adjusted proportional to the ratio of the value of the remaining portion of the Premises (after reconstruction as provided below) to the total value of the Premises prior to the taking, and (ii) Tenant shall proceed with reasonable diligence to rebuild and repair the untaken portions of the Premises to as nearly as reasonably possible their value, condition, and character as such existed immediately prior to such taking and Landlord shall pay to Tenant the amount necessary for reconstruction and repair of the Premises to complete architectural units for Tenant's conduct of its business within the time and under the conditions provided in Paragraph 9 hereof. The phrase "substantial part," for purposes of this section shall mean so much of the Premises, the improvements located thereon, access to the Premises, or any combination of the foregoing, such that the taking thereof would prevent or substantially impair the ability of Tenant to operate its business in a manner consistent with the operation of its business prior to such taking. Notwithstanding anything contained in this Paragraph 13 to the contrary, if the cost to reconstruct and repair the Premises to complete architectural units is more than the LESSER of (i) the condemnation award payable to Landlord; or (ii) one year's rent under this Lease at the time of such condemnation, then Landlord shall only pay such lesser amount to Tenant for such purpose and Tenant shall have the 14 right, but not the obligation, to (x) pay the additional amount of such cost, in which event this Lease shall continue with rent payable as provided above; or (y) terminate this Lease by giving notice to Landlord, in which event this Lease shall terminate and Tenant shall have no further obligations under this Lease. 12. ASSIGNMENT AND SUBLETTING. Tenant shall not, without the prior written consent of Landlord (which consent shall not be unreasonably withheld or delayed), assign this Lease or any interest hereunder, or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant, or pledge or hypothecate this lease except as provided elsewhere in this Agreement. All requests for assignment or subletting shall be made in writing and delivered to Landlord and include the most recent balance sheet and cash flow statement of the proposed assignee or subtenant. Failure by Landlord to disapprove of any proposed assignment or subletting with reasons therefor within THIRTY (30) days after receipt of Tenant's written request shall result in such request being deemed approved. Consent to any assignment or sublease shall not invalidate this provision, and all later assignments or subleases shall be made only on the prior written consent of Landlord. Any assignee of Tenant, at the option of Landlord, shall become directly liable to Landlord for all obligations of Tenant hereunder, but no sublease or assignment by Tenant shall relieve Tenant of any liability hereunder. Notwith- 15 standing the foregoing, Tenant shall be entitled to freely assign or sublet its interest in this Lease to any parent, subsidiary or other entity under common control with Tenant or Tenant's parent, without the prior written consent of Landlord. Moreover, the sale or transfer of all or any part of the capital stock of Tenant shall not be deemed to be an assignment hereunder. 13. REMOVAL OF FIXTURES. Tenant may (so long as no Event of Default has occurred and is continuing hereunder), prior to the end of the Term, remove all trade fixtures and equipment which Tenant has purchased or placed in the Premises subsequent to the date hereof, provided that Tenant repairs all damage to the Premises caused by the removal. However, any buildings, fixtures, or other attached property installed by Tenant as replacements of existing items, or anything that cannot be removed without substantially changing the character of the Premises, shall become the property of Landlord. 14. EVENTS OF DEFAULT. It shall be an "Event of Default" hereunder if, (a) Tenant fails to pay rent, including additional rent herein reserved, when due, and fails to cure the failure to pay within five (5) days after written notice thereof from Landlord; provided, however, Landlord shall not be obligated to give Tenant more than two (2) such notices in any calendar year and upon any third (3rd) failure to make a payment hereunder in 16 such calendar year, no such notice shall be required, prior to Landlord's exercise of its remedies; (b) Tenant fails to perform any of the terms or provisions of this Lease other than the provision requiring the payment of rent, and fails to cure the default within thirty (30) days after the date of receipt of written notice of default from Landlord; provided, however, that if the nature of the default is such that the same cannot reasonably be cured within said thirty (30) day period, Tenant shall not be deemed to be in default if Tenant shall, within such period, commence such cure and thereafter diligently prosecute the same to completion; (c) Tenant is adjudicated bankrupt; (d) a permanent or temporary receiver is appointed for Tenant's property and the receiver is not removed within sixty (60) days after written notice from Landlord to Tenant to obtain the removal; (e) Tenant or any guarantor of Tenant's obligations under this Lease files a petition seeking an order for relief under Title 11 of the United States Code, as amended, or under any similar law or statute of the United States or any state thereof, or a petition seeking an order for relief under Title 11 of the United States Code, or any similar law or statute of the United States or any state thereof, is filed against Tenant 17 or any guarantor of Tenant's obligations under this Lease and such petition is not dismissed within sixty (60) days from the date of filing; (f) Tenant makes an assignment for the benefit of creditors; or (g) Tenant's effects should be levied upon or attached under process against Tenant and not satisfied or dissolved within thirty (30) days after such levy or attachment. Upon the occurrence of an Event of Default, Landlord may pursue any right or remedy against Tenant available at law or in equity. Without limitation to the foregoing, Landlord, at its option, may elect to terminate this Lease by written notice to Tenant; whereupon this Lease shall terminate. Any notice provided in this section may be given by Landlord, or its attorney, or agent herein named. Upon termination of the Lease by Landlord, Tenant shall at once surrender possession of the Premises to Landlord and remove all of Tenant's effects therefrom, or Landlord shall be entitled to remove all persons and effects therefrom, using such force as may be necessary without being guilty of trespass, forcible entry or detainer or other tort. Landlord may, at its option, remove all or part of any Tenant property left on the Premises after Tenant loses its right to possession, and Landlord may store the same without liability to Tenant for loss thereof, and Tenant shall be liable to 18 Landlord for all expenses incurred in such removal and also storage of said effects. 15. REMEDIES. If, after an Event of Default, Landlord has not elected to terminate this Lease, Landlord may (but shall not be obligated to), without terminating this Lease, enter upon and rent the Premises at the best price obtainable by reasonable effort, for any term Landlord deems proper. Landlord shall have the right to terminate the Tenant's possession of the Premises without terminating this Lease, and termination of possession shall not release Tenant, in whole or in part. Landlord may collect the rents from any such reletting and apply the same first to the payment of the expenses of reentry, repair and the expenses of reletting (including without limitation standard broker's commissions and attorney's fees actually reasonably incurred), second, to the reasonable cost of refurbishing the Premises in order to facilitate the reletting, including performing of deferred maintenance, and third, to the payment of annual rent herein provided to be paid by Tenant. Tenant shall be liable to Landlord for any deficiency between rent as due hereunder and the rent received by Landlord upon reletting. The foregoing remedies are not exclusive and Landlord shall have all remedies available to it at law or equity if there is an Event of Default by Tenant. 16. FINANCIAL STATEMENTS. Within fifteen (15) days after such are prepared, but no later than September 30 of each calendar 19 year, commencing in 1997, Tenant shall deliver to Landlord audited consolidated financial statements of United Auto Group, Inc. ("UAG") prepared in accordance with generally accepted accounting principles consistently applied by an independent certified public accountant. 17. FOR RENT SIGNS. Landlord may place "FOR RENT" or "FOR SALE" signs in the Premises one hundred eighty (180) days before the end of the Term. Landlord may enter the Premises at reasonable hours, and after reasonable notice, to show the Premises to prospective purchasers or tenants and to inspect the Premises to see that Tenant is complying with all its obligations hereunder. Landlord shall have the right to enter the Premises without notice in the case of an emergency. 18. EFFECT OF TERMINATION OF LEASE. No termination of this Lease prior to the normal ending thereof, by lapse of time or otherwise, shall affect Landlord's right to collect rent for the period prior to termination thereof. 19. REPRESENTATIONS OF TITLE AND QUIET POSSESSION. Landlord represents that it has good and marketable title to the Premises and has full right to make this Lease and that Tenant shall have quiet and peaceable possession of the Premises during the Term so long as no Event of Default is in existence and continuing hereunder. 20 20. SUBORDINATION ATTORNMENT. Landlord represents that there is no indebtedness secured by the Premises. This Lease is subject and subordinate to any deed of trust, mortgage, or other security instrument, which may in the future cover the Premises, and to any increases, renewals, modifications, consolidations, replacements, and extensions of any of such deed of trust, mortgage, or security instrument, provided, however, that Tenant's subordination shall be conditioned upon Landlord's delivery to Tenant of a non-disturbance agreement in form reasonably satisfactory to Tenant containing the substantive provisions of the Subordination, Non-Disturbance and Attornment Agreement ("SNDA") in the form attached hereto and incorporated herein by reference executed by the Lender and Landlord in recordable form. Notwithstanding the generality of the foregoing, any mortgagee shall have the right at any time to subordinate any deed of trust, mortgage, or other security instrument to this Lease. At any time, before or after the institution of any proceedings for the foreclosure of any deed of trust, mortgage, or other security instrument or sale of the Premises under any such deed of trust, mortgage, or other security instrument, Tenant shall attorn to such purchaser upon any such sale or the grantee under any deed in lieu of such foreclosure and shall recognize such purchaser or grantee as Landlord under this Lease. The agreement of Tenant to attorn contained in the immediately preceding sentence shall survive any 21 such foreclosure sale, trustee's sale, or conveyance in lieu thereof. Tenant shall, upon demand at any time, before or after any foreclosure sale, trustee's sale, or conveyance in lieu thereof, execute, acknowledge, and deliver to Landlord's mortgagee any written instruments and certificates evidencing such attornment as Landlord's mortgagee may reasonably require. Upon Tenant's written request and notice to Landlord, Landlord shall obtain from any such mortgagee a written agreement that the rights of Tenant shall remain in full force and effect during the Term of this Lease so long as there shall be no Event of Default hereunder. 21. ESTATE CREATED; FUTURE GRANTS. Landlord and Tenant intend for and agree that this Lease shall create a leasehold estate in the Premises for the Term. Landlord agrees that, during the Term of this Lease, it will not execute or join in any conveyances of easements or restrictive covenants or other agreements restricting or affecting Tenant's use of the Premises without the prior written consent of Tenant, which may be withheld in Tenant's sole discretion. 22. HOLDING OVER. If Tenant remains in possession of the Premises after expiration of the Term, with Landlord's acquiescence and without any express agreement of parties, Tenant shall be a tenant at sufferance, subject to ejectment for trespass. There shall be no month to month tenancy and there shall be no renewal of this Lease by operation of law. 22 23. ATTORNEY'S FEES AND HOMESTEAD. If the Rent or any additional rent or other sums owed by Tenant to Landlord under this Lease is collected by law or through an attorney at law, Landlord shall be entitled to collect attorney's fees actually reasonably incurred. 24. RIGHTS CUMULATIVE. All rights hereunder shall be cumulative but not restrictive to those given by law. 25. SERVICE OF NOTICE. Any notice required or permitted to be delivered hereunder may be delivered in person or by United States certified mail, postage prepaid, return receipt requested, or by recognized overnight courier (e.g. Federal Express or DHL), next business day delivery, charges prepaid, addressed to the parties at the addresses indicated above or at such other addresses as may be specified by written notice delivered in accordance herewith. Such notices shall be deemed effective three (3) business days after deposited in the U.S. mail, or on the next business day if delivered by overnight courier, or immediately upon delivery in person. 26. WAIVER OF RIGHTS. Neither party's failure to exercise any power given to them hereunder, or to insist upon strict compliance by the other party with its obligations hereunder, nor any custom or practice of the parties at variance with the terms hereof, shall constitute a waiver of such party's right to demand exact compliance with the terms hereof. 23 27. TIME OF ESSENCE. Time is of the essence under this Lease. 28. SUCCESSORS AND ASSIGNS. This Lease shall apply to, inure to the benefit of, and be binding upon the parties hereof and their respective successors, permitted assigns, and legal representatives except as otherwise expressly provided herein. 29. TRIPLE NET LEASE. This Lease shall be considered a "triple net lease" so that, except as expressly set forth herein, Tenant shall bear all responsibility as additional rent for all payments of any kind or nature relating to the Premises, including but not limited to payment of all taxes (except for income, estate, inheritance or gift taxes of Landlord), insurance, repairs and maintenance arising after the date of this Lease to the extent Tenant is obligated therefor under the terms of this Lease. 30. ENTIRE AGREEMENT; CONFLICT. This Lease and that certain Stock Purchase Agreement dated as of June 7, 1996 by and among Landlord, UAG Atlanta III, Inc., United Auto Group, Inc. and Tenant (the "SPA"), including any attachments made a part hereof or thereof, contains the entire agreement between the parties and no representations, inducements, promises or agreements, oral or otherwise, between the parties, not embodied herein or in the SPA, shall be of any force or effect. To the extent there is any conflict between the provisions of this Lease and the SPA or the SPA provides remedies for the breach of any representations or 24 warranties contained therein relating to the Premises or otherwise, the provisions of the SPA and Tenant's and other parties' rights thereunder shall control and be in full force and effect for two (2) years after the date hereof; provided, however, that Rent and additional rent hereunder shall be payable without regard to any claims under the SPA. 31. SEVERABILITY. If any term, provision or clause of this Lease, or if the application thereof to any person or circumstances, shall to any extent be invalid or unenforceable, then the remainder of this Lease or the application of such term, provision or clause to persons or circumstances other than those to which it is invalid or unenforceable shall not be affected thereby, and each and every remaining term, provision, clause and application of this Lease shall be valid and enforceable to the fullest extent permitted by law. 32. EXECUTION IN COUNTERPARTS. This Lease may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 33. AMENDMENT. This Lease may not be altered, waived, amended or extended except by an instrument in writing signed by Landlord and Tenant. 25 34. HEADINGS. The headings used in this Lease are for the purposes of convenience only. They shall not be construed to limit or to extend the meaning of any part of this Lease. 35. GOVERNING LAW. This Lease shall be construed in accordance with the laws of the State of Georgia, and all obligations of the parties created hereunder are performable in DeKalb County, Georgia. 36. FORCE MAJEURE. Except for the payment of Rent and additional rent, wherever a period of time is herein prescribed for action to be taken by either Landlord or Tenant, such party shall not be liable or responsible for, and there shall be excluded from the computation of any such period of time, any delays due to strikes, riots, acts of God, shortages of labor or materials, wars, governmental laws, regulations or restrictions or other causes which are beyond the control of Landlord or Tenant, as the case may be. 37. EXTENSION OPTIONS. Tenant shall have two (2) separate five (5) year options to extend the Term of this Lease upon the following terms and provisions: (a) Notice of the exercise of an option to extend shall be given no less than one hundred eighty (180) days prior to the then expiration of the Term of this Lease; (b) The Term shall be extended under all terms and provisions of this Lease except the Rent to be paid hereunder which 26 shall be determined as follows: The Rent for the first year of both the first and second five-year extensions shall be determined by the following, and the Rent for the second and subsequent lease years of either the first or second five-year extension shall be increased by the "percentage increase" in the Consumer Price Index: At the commencement of any extension of this Lease, the monthly Rent under this Lease shall be the then "fair market rental rate" as hereinafter defined, as agreed upon by Landlord and Tenant not later than four (4) months prior to the expiration of the initial term of this Lease or the first Extended Term, as the case may be, or in the event Landlord and Tenant cannot agree, an amount equal to the "fair market rental rate" as hereinafter defined and established. The phrase "fair market rental rate" shall mean the monthly rental rate (projected to the date of the commencement of the Extended Term to which it applies) which Tenant would expect to pay and Landlord would expect to receive under a lease for premises of comparable size and quality as the Premises used as automobile dealerships in Northern DeKalb County, Georgia. If Landlord and Tenant have not reached agreement on a fair market rental rate and executed an amendment to this Lease setting forth such agreement on or before the date four (4) months prior to the commencement of such extended Term, then, within ten (10) days after that date each party shall appoint and employ, at its cost, a real estate appraiser (who shall be a member of the American Institute of Real 27 Estate Appraisers (MAI) with at least ten (10) years of full-time commercial real estate appraisal experience, with substantial experience relative to comparable premises in metropolitan Atlanta, Georgia) to appraise and establish the "fair market rental rate" and notify the other party of the name and qualification of such appraiser. If either party fails to so appoint its appraiser, the other party may apply to a judge of the Superior Court of DeKalb County for such appointment. The two appraisers, thus appointed, shall meet promptly and attempt to agree upon and establish said rate, or, upon failing to do so, shall then jointly designate a third appraiser meeting the qualifications set forth above, all within ten (10) days after the date of appointment of the last two appraisers. If they are unable to agree on the third appraiser, either of the parties, after giving five (5) days notice to the other, may apply to a judge of the Superior Court of DeKalb County (to whose jurisdiction for this limited purpose both Landlord and Tenant hereby consent) for the selection of a third appraiser meeting the qualifications stated above. Each of the parties shall bear one-half of the cost of the appointment of the third appraiser and of the third appraiser's fee. Within thirty (30) days after the selection of a third appraiser, a majority of the appraisers shall agree upon the "fair market rental rate." If a majority of the appraisers are unable to agree within the stipulated time, the third appraiser shall select one of the determinations of the first 28 two appraisers (either Landlord's or Tenant's) originally selected, without modification or qualification. In any of said events, the determination shall be final, conclusive and binding upon both Landlord and Tenant. PROVIDED, HOWEVER, in no event shall Rent payable to Landlord under this Lease be less than that payable in any previous lease year of the initial term or any extended term and in determining fair market rental rate the appraisers shall take into account that each year of each Extended Term the Rent is to be increased by the percentage increase in the Consumer Price Index. (c) Upon the request of either party, Landlord and Tenant shall execute an acknowledgment setting forth the dates of the extended Term of the Lease and the amount of the Rent for the applicable extension term, but the failure to execute such acknowledgment shall not affect Tenant's exercise of its option to extend the Term as provided herein. 38. RECORDATION. This Lease will not be recorded unless Landlord fails to execute upon request, in recordable form, a Memorandum of Lease in form required by Tenant's title insurance company. 39. RECOURSE. Recourse against the Landlord in connection with Landlord's obligations and liability to Tenant with respect to this Lease shall be limited solely to Landlord's fee simple interest in the Premises, and neither Landlord nor any 29 partner of landlord, nor any officer, director, or shareholder, executor, executrix, personal representative or assigns shall have any personal liability whatsoever with respect to this Lease. In the event of any sale, transfer or distribution of the Premises by the Landlord, the Landlord shall be and hereby is entirely freed and relieved of all covenants and obligations of Landlord hereunder accruing thereafter. 40. ESTOPPEL CERTIFICATE. Tenant agrees, at any time and from time to time, to deliver within ten (10) days from the date of receipt of a request therefor, a statement in writing certifying (a) that this Lease is unmodified and in full force and effect and contains the full agreement between the parties (or, if there have been modifications or additional agreements, that the Lease is in full force and effect as modified and identifying the modifications thereof or additional agreements), (b) the date to which the Rent, additional rent and other charges due under this Lease have been paid, and (c) that insofar as Tenant knows, Landlord is not in default under any provision of this Lease and has performed all of the obligations to be performed by a Landlord to date (or, if Tenant has knowledge of any default or of any unperformed obligations, a statement of the nature thereof). 41. CROSS DEFAULT. The Tenant is also the tenant under that certain Lease Agreement, dated the date hereof, with ARGONNE 30 ENTERPRISES, INC., demising premises used in conjunction with the business conducted on the Premises. The Landlord under this Lease is affiliated with the landlord under such other Lease Agreement, and, a default by the Tenant under such other Lease Agreement shall be deemed to be a default by the Tenant under this Lease. IN WITNESS WHEREOF, the parties herein have hereunto caused their duly authorized representatives to set their hands and seals the day and year first above written. LANDLORD: Signed Sealed and Delivered /s/ Lynda Jane Hickman (SEAL) ------------------------- in the presence of: Lynda Jane Hickman, as Executrix Under the Will of James Franklin Hickman, Jr., Deceased Illegible - ------------------------------ Unofficial Witness Illegible - ------------------------------ Notary Public [Notarial Seal] My Commission Expires: Illegible - ----------------------------- TENANT: Signed Sealed and Delivered HICKMAN NISSAN, INC., a in the presence of: Georgia Corporation Illegible - ------------------------------ Unofficial Witness By: /s/ George Lowrance ---------------------------------------- Name: George Lowrance ----------------------------------- Title: Vice President ----------------------------------- Illegible - ----------------------------- Notary Public 31 [Notarial Seal] My Commission Expires: - ----------------------------- 32 EX-10.7-9 59 EXHIBIT 10.7.9 LEASE AGREEMENT (ARGONNE) THIS LEASE AGREEMENT ("Lease") made this 12th day of July, 1996, by and between ARGONNE ENTERPRISES, INC., a Georgia corporation (referred to herein as "Landlord"), whose address is 339 Argonne Drive, Atlanta, Georgia 30305, respectively and HICKMAN NISSAN, INC., a Georgia corporation ("Tenant"), whose address is 5214 Peachtree Industrial Boulevard, Chamblee, Georgia 30341. W I T N E S S E T H: FOR AND IN CONSIDERATION of the sum of $10.00 Dollars in hand paid and of the mutual covenants and conditions contained herein, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. PREMISES. Landlord leases to Tenant and Tenant leases from Landlord the following property: (See Exhibit "A" attached hereto and incorporated herein by reference.) together with all improvements thereon and all rights, privileges, easements and appurtenances pertaining thereto (collectively, the "Premises") upon the terms contained herein. 2. TERM. The term hereof shall begin on the date hereof and shall end on midnight June 30, 2016, unless extended or sooner terminated as provided herein ("Term"). 3. RENT. (a) From the commencement date through December 31, 1997, Tenant agrees to pay to Landlord, as rent for the Premises ("Rent"), the sum of Two Thousand Five Hundred ($2,500) Dollars per month. (b) On January 1, 1998, Rent shall be increased by the percentage increase in the Consumer Price Index between June 30, 1996 and December 31, 1997. (c) Thereafter, during the remainder of the Term, commencing January 1, 1999, Rent shall be increased each January 1st by the percentage increase in the Consumer Price Index between the first day of the previous year and the last day of the previous year. (d) (i) For purposes of this Lease, the following definitions shall apply: (A) The term "CONSUMER PRICE INDEX" shall mean the Consumer Price Index for All Urban Consumers of Atlanta, Georgia (all items, 1982-84=100) published by the Bureau of Labor Statistics, United States Department of Labor. 2 (B) In computing increases in the Consumer Price Index the parties will utilize the Consumer Price Index most recently published prior to the dates called for in this Lease. (C) The increase in Rent shall be calculated by multiplying (i) the Rent then currently in effect by (ii) the percentage increase determined as of such date; provided, however, that the Rent shall never decrease by virtue of this subparagraph. Landlord shall notify Tenant in writing of the new Rent monthly installment amount after the date on which the increase in Rent becomes effective. Tenant shall continue to pay the previous Rent in the interim and shall begin paying based upon the new monthly installment amount commencing with the first monthly installment of Rent which is due after the date of Landlord's notification to Tenant of the increase, and Tenant shall also pay at such time, in a lump sum, any additional amount due with respect to any monthly payments previously made by Tenant after the date on which such increase became effective but for which the increased amount has not been paid. The 'percentage increase' means, when computed for any particular date, a figure stated as a percentage derived by first subtracting from the Consumer Price Index most recently published prior to December 31 of the previous year before which the increase is being calculated the Consumer Price Index most recently published prior to January 1 3 of such previous year (except under (b) above where the date shall be June 30, 1996), and then dividing the resultant figure by the latter Consumer Price Index. (For example, in determining the Rent to be paid for calendar year 1999, if the Rent for 1998 was $2,600.00 per month and the Consumer Price Index most recently published prior to December 31, 1998 was 110 and the Consumer Price Index most recently published prior to January 1, 1998 was 100, then the percentage increase would be 110 - 100 = 10 DIVIDED BY 100 = 10% and Rent for 1999 would be: $2,600 x 10% = $260 + $2,600 = $2,860.) (ii) In the event that (A) the Consumer Price Index ceases to use 1982-84=100 as the basis of calculation, or (B) the Consumer Price Index shall be discontinued for any reason, the Bureau of Labor Statistics shall be requested to furnish a new index comparable to the Consumer Price Index together with information which will make possible the conversion to the new index in computing the adjusted Rent under this paragraph 3 and paragraph 40 of this Lease. If for any reason the Bureau of Labor Statistics does not furnish such an index and such information, the parties hereto shall hereafter accept and use such other index or comparable statistics on the cost of living for the City of Atlanta, Georgia as shall be computed and published by an agency of the United States. 4 (a) Rent during the Term hereof shall be due and payable at Landlord's office at the above address on or before the first day of each calendar month thereof. Any Rent payment not received by the fifth (5th) day after notice of non-payment to Tenant by Landlord shall be subject to a one-time late charge equal to three (3%) percent of that rental installment ("Late Charge") and, beginning with the thirty-second (32nd) day after the due date of such Rent installment, that Rent installment shall bear interest at the prime commercial rate (as quoted on a daily basis by NationsBank, or, if not available, another large banking institution with offices situated in Atlanta, Georgia) plus five (5%) percent per annum ("Interest Rate") to the extent, but only to the extent, that such interest exceeds the Late Charge, which charge the parties agree is a fair estimation of the damages which may reasonably be expected to be incurred by Landlord in connection with receiving such late payment. Notwithstanding the foregoing, Landlord shall not be obligated to give notice of nonpayment of Rent more than two (2) times in any calendar year and upon the failure of Tenant to pay any Rent payment a third (3rd) time in any calendar year, such Late Charge shall accrue after the fifth (5th) of the month without additional notice. The imposition of interest is not the full extent of damages 5 Landlord may incur, time being of the essence of this Lease in all respects. (b) If the Term shall commence or end on a day other than the first day of a calendar month, then the monthly Rent for any fractional months of the Term shall be appropriately prorated. (c) In no event shall the monthly Rent for any year be less than the monthly Rent for the preceding period. (d) Rent and additional rent under this Lease shall be payable without any offset or deduction or demand therefor whatsoever. 2. UTILITIES. Tenant shall have all utilities listed in its name and shall pay all utility bills, including, but not limited to water, sewer, gas, electricity, fuel, light, and heat bills, for the Premises, and Tenant shall pay all charges for garbage collection services or other sanitary services rendered to the Premises or used by Tenant in connection therewith. If Tenant fails to pay for such services, such amount shall be deemed additional rent and, Landlord may, at its option and after providing Tenant with at least ten (10) days prior written notice, pay the same, and the amount of the payment together with interest at the Interest Rate from the date paid by Landlord shall be payable to Landlord upon demand. Pursuant to the terms of this Lease, Landlord shall not be or become liable for damages to Tenant 6 alleged to be caused or occasioned by or in any way connected with or the result of any interruption, defect or breakdown of any utility. 3. USE OF THE PREMISES; ENVIRONMENTAL INDEMNITY. The Premises shall be used only for the operation of a new and/or used automobile dealership, service facility, body shop facility and/or uses incidental thereto, and for any other purposes which may be agreed to by the parties. The Premises shall not be used for any illegal purpose, nor in violation of any regulation of any governmental body required to be remedied by Tenant hereunder, nor in any manner which may create nuisance or trespass. Furthermore, Tenant shall not, by its actions, violate any federal or state environmental law, and Tenant agrees to indemnify and hold harmless Landlord from any and all damages, costs, fines and expenses that might arise as a result of any such violation and from its placement upon the Premises of hazardous wastes and toxic substances that are placed on the Premises after the date hereof. Notwithstanding anything to the contrary contained in this Paragraph 5, there shall not be deemed to be a nuisance or trespass and Tenant's obligation to indemnify and hold Landlord harmless shall not extend to any damages, claims, or liabilities arising as a result of contaminants existing on the Premises on the date hereof or migrating onto or beneath the Premises after the date hereof, 7 where such contamination is not caused by or attributable to Tenant. 4. NO REPAIRS BY LANDLORD. Landlord shall not be obligated to repair or maintain the Premises after the date of this Lease, and all repairs, replacements, and maintenance of any kind shall be the sole responsibility of Tenant, but Tenant's obligation shall not encompass such matters to the extent the necessity therefor arose on or prior to the date hereof. 5. REPAIRS BY TENANT. Tenant accepts the condition of the Premises as of the date hereof and agrees that the Premises are suited for the uses specified herein. Tenant shall, throughout the Term, at its expense, maintain the Premises in good order and repair, including but not limited to repair and maintenance and, if necessary, replacement of the electrical, heating, ventilation and air conditioning and plumbing systems, as well as the roof and all structural components of buildings located on the Premises. Tenant further agrees to care for all landscaping on the Premises, including the mowing of grass, paving, policing, care of shrubs and general landscaping. If Tenant fails to properly maintain and repair any portion of the Premises, Landlord may, following at least twenty (20) days prior written notice to Tenant, maintain the same including replacing of components and Tenant shall pay to Landlord within thirty (30) days after demand the costs thereof together with interest on said amount from the date of payment by 8 Landlord at a rate equal to the Interest Rate, which amount shall be deemed additional rent. Subject to the provisions of Paragraphs 9 and 13 hereof, Tenant agrees to return the Premises to Landlord in as good condition and repair as when first received by Tenant, natural wear and tear excepted. 6. TAX AND INSURANCE. Tenant shall promptly and on a timely basis pay during the Term all charges for taxes (including, but not limited to, ad valorem taxes, special assessments and any other governmental charges) on the Premises, which amounts shall be prorated between Tenant and Landlord for all periods partially but not entirely within the Term. Tenant shall also maintain, at all times during the Term of this Lease, fire and extended insurance coverage on the Premises in amounts equal to the full replacement value of the Premises, and written on policies issued by underwriters reasonably acceptable to Landlord. Landlord agrees that such coverages may be provided by blanket policies of insurance covering other locations in addition to the Premises. All policies shall insure Landlord and Tenant as their respective interests shall appear and shall contain a replacement cost endorsement. Should Tenant fail to pay such tax expenses or fail to provide certificates evidencing the required insurance coverage, such amounts shall be deemed to be additional rent hereunder and Landlord may, following at least ten (10) days prior written notice to Tenant, pay any such charges or secure such coverage, and Tenant 9 shall pay to Landlord within thirty (30) days after demand all amounts so expended by Landlord together with interest on said amount from the date of payment by Landlord at a rate equal to the Interest Rate. 7. DESTRUCTION OF OR DAMAGE TO THE PREMISES. If the Premises should be damaged or destroyed by any insured peril whatsoever, all insurance proceeds shall be delivered to Landlord and Tenant shall proceed with reasonable diligence to rebuild and repair the Premises to substantially the condition in which it existed prior to such damage or destruction; provided, however, that Landlord agrees to disburse such proceeds to Tenant for such reconstruction within five (5) days of submission of request for payment together with Tenant's architect's certification that the work for which payment is requested has been accomplished. If, however, the damage or destruction shall occur within the last two (2) years of the Term, then Tenant may terminate this Lease as of the date that such damage or destruction occurs by giving written notice to Landlord of such election to terminate within sixty (60) days after the date of such damage or destruction. If this Lease is terminated by Tenant, insurance proceeds with respect to the building shall be paid to Landlord. If this Lease is not terminated, the rent payable under this Lease shall not be abated as a result of damage or destruction. 10 8. INDEMNITY; WAIVER OF SUBROGATION. Tenant agrees to indemnify and hold harmless Landlord against all claims and expenses resulting therefrom, including attorneys' fees actually reasonably incurred and court costs, for damage to persons or property by reason of the use or occupancy of the Premises by Tenant, except for any claims with respect to violations of laws for conditions existing at the date of this Lease. Tenant shall periodically provide Landlord with certificates of general liability insurance naming Landlord as an additional insured, in an amount of not less than $5,000,000 and with an insurance carrier reasonably satisfactory to Landlord. The dollar amount of such insurance coverage shall be adjusted annually as of the first of each year by the percentage increase in the Consumer Price Index calculated as provided in Section 3(d)(i)(c) hereof. Landlord and Tenant each hereby release and waive any right of recovery against the other for any loss, claim, liability, or damage occurring on or to the Premises, whether wholly or contributorily caused by the negligence of the other party, to the extent that the same is compensated by actual receipt of proceeds from insurance policies covering such loss, claim, liability, or damage. Waiver of subrogation between Landlord and Tenant under this paragraph shall be evidenced by waiver of subrogation endorsements on the respective policies of the Landlord and the 11 Tenant. Provided, however, Landlord shall not be obligated to carry any such insurance but may do so at its sole discretion. 9. ALTERATIONS. Tenant shall make no structural alterations, additions or improvements to the Premises without the express prior written consent of Landlord which consent shall not be unreasonably withheld. Tenant may make non-structural alterations, additions and improvements to the Premises without Landlord's approval. In the event Landlord has not responded to Tenant's written request for alterations, additions or improvements, which request shall be accompanied by preliminary drawings of such proposed changes, within twenty (20) days of when received, such alterations, additions or improvements shall be deemed to have been approved by Landlord. Tenant agrees to save Landlord harmless on account of any claim or lien of mechanics, materialmen or other party, in connection with any alterations, additions or improvements of or to the Premises performed by Tenant. Tenant shall furnish such waivers of liens and appropriate affidavits from the general contractor or subcontractors as Landlord may reasonably require. Notwithstanding the foregoing, Tenant shall also be entitled to make the following changes without necessity of Landlord's consent: (i) any alterations required to be made by it pursuant to governmental orders, rules, laws, regulations, ordinances or requirements, and (ii) any changes in its signage or alterations, additions and improvements recommended or 12 required by the automobile manufacturer whose automobiles are sold on the Premises. Tenant shall have the right to finance any alterations, additions or improvements permitted hereunder and may pledge its interest in this Lease as security therefor; provided, however, that any pledges or liens granted in connection with such financings shall be subordinate to the rights of Landlord under this Lease and the instrument evidencing such pledge or lien shall not contain insurance provisions contrary to those contained herein. 10. GOVERNMENTAL ORDERS. Tenant agrees, at its own expense, to promptly comply with all requirements of any public authority made necessary by reason of Tenant's occupancy of the Premises from and after the date hereof or which may be necessary for Tenant's occupancy to continue if the requirement to comply arises after the date of this Lease. Landlord shall have no obligation of any kind for such compliance. 11. CONDEMNATION. If all or a substantial part of the Premises is condemned for any public use or purpose, then the Term shall cease and this Lease shall be terminated from the date when possession thereof is taken, and rent shall be prorated as of that date; provided, however, that Tenant may elect to continue this Lease in full force and effect notwithstanding any such taking. Any termination shall be without prejudice to the rights of either Landlord or Tenant to recover compensation and damage caused by 13 such condemnation from the condemnor. In addition, if the Hickman Lease (as hereinafter defined) is terminated under Paragraph 13 thereof, Tenant shall have the right, within thirty (30) days after the date of such termination, to terminate this Lease by notice to Landlord. Except as provided herein, neither Tenant nor Landlord shall have any rights in any award made solely to the other by any condemnation authority notwithstanding the termination of the Lease as herein provided. If the Lease is not terminated as provided above, then (i) this Lease shall continue in effect with respect to the remaining portion of the Premises, in which event the Rent payable hereunder during the unexpired portion of the Term of this Lease shall be adjusted proportional to the ratio of the value of the remaining portion of the Premises (after reconstruction as provided below) to the total value of the Premises prior to the taking, and (ii) Tenant shall proceed with reasonable diligence to rebuild and repair the untaken portions of the Premises to as nearly as reasonably possible their value, condition, and character as such existed immediately prior to such taking and Landlord shall pay to Tenant the amount necessary for reconstruction and repair of the Premises to complete architectural units for Tenant's conduct of its business within the time and under the conditions provided in Paragraph 9 hereof. The phrase "substantial part," for purposes of this section shall mean so much of the Premises, the improvements located thereon, access to the premises, or any 14 combination of the foregoing, such that the taking thereof would prevent or substantially impair. 12. ASSIGNMENT AND SUBLETTING. Tenant shall not, without the prior written consent of Landlord (which consent shall not be unreasonably withheld or delayed), assign this Lease or any interest hereunder, or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant, or pledge or hypothecate this lease except as provided elsewhere in this Agreement. All requests for assignment or subletting shall be made in writing and delivered to Landlord and include the most recent balance sheet and cash flow statement of the proposed assignee or subtenant. Failure by Landlord to disapprove of any proposed assignment or subletting with reasons therefor within THIRTY (30) days after receipt of Tenant's written request shall result in such request being deemed approved. Consent to any assignment or sublease shall not invalidate this provision, and all later assignments or subleases shall be made only on the prior written consent of Landlord. Any assignee of Tenant, at the option of Landlord, shall become directly liable to Landlord for all obligations of Tenant hereunder, but no sublease or assignment by Tenant shall relieve Tenant of any liability hereunder. Notwithstanding the foregoing, Tenant shall be entitled to freely assign or sublet its interest in this Lease to any parent, subsidiary or other entity under common control with Tenant or Tenant's parent, 15 without the prior written consent of Landlord. Moreover, the sale or transfer of all or any part of the capital stock of Tenant shall not be deemed to be an assignment hereunder. 13. REMOVAL OF FIXTURES. Tenant may (so long as no Event of Default has occurred and is continuing hereunder), prior to the end of the Term, remove all trade fixtures and equipment which Tenant has purchased or placed in the Premises subsequent to the date hereof, provided that Tenant repairs all damage to the Premises caused by the removal. However, any buildings, fixtures, or other attached property installed by Tenant as replacements of existing items, or anything that cannot be removed without substantially changing the character of the Premises, shall become the property of Landlord. 14. EVENTS OF DEFAULT. It shall be an "Event of Default" hereunder if, (a) Tenant fails to pay rent, including additional rent herein reserved, when due, and fails to cure the failure to pay within five (5) days after written notice thereof from Landlord; provided, however, Landlord shall not be obligated to give Tenant more than two (2) such notices in any calendar year and upon any third (3rd) failure to make a payment hereunder in such calendar year, no such notice shall be required, prior to Landlord's exercise of its remedies; 16 (b) Tenant fails to perform any of the terms or provisions of this Lease other than the provision requiring the payment of rent, and fails to cure the default within thirty (30) days after the date of receipt of written notice of default from Landlord; provided, however, that if the nature of the default is such that the same cannot reasonably be cured within said thirty (30) day period, Tenant shall not be deemed to be in default if Tenant shall, within such period, commence such cure and thereafter diligently prosecute the same to completion; (c) Tenant is adjudicated bankrupt; (d) a permanent or temporary receiver is appointed for Tenant's property and the receiver is not removed within sixty (60) days after written notice from Landlord to Tenant to obtain the removal; (e) Tenant or any guarantor of Tenant's obligations under this Lease files a petition seeking an order for relief under Title 11 of the United States Code, as amended, or under any similar law or statute of the United States or any state thereof, or a petition seeking an order for relief under Title 11 of the United States Code, or any similar law or statute of the United States or any state thereof, is filed against Tenant or any guarantor of Tenant's obligations under this Lease and 17 such petition is not dismissed within sixty (60) days from the date of filing; (f) Tenant makes an assignment for the benefit of creditors; or (g) Tenant's effects should be levied upon or attached under process against Tenant and not satisfied or dissolved within thirty (30) days after such levy or attachment. Upon the occurrence of an Event of Default, Landlord may pursue any right or remedy against Tenant available at law or in equity. Without limitation to the foregoing, Landlord, at its option, may elect to terminate this Lease by written notice to Tenant; whereupon this Lease shall terminate. Any notice provided in this section may be given by Landlord, or its attorney, or agent herein named. Upon termination of the Lease by Landlord, Tenant shall at once surrender possession of the Premises to Landlord and remove all of Tenant's effects therefrom, or Landlord shall be entitled to remove all persons and effects therefrom, using such force as may be necessary without being guilty of trespass, forcible entry or detainer or other tort. Landlord may, at its option, remove all or part of any Tenant property left on the Premises after Tenant loses its right to possession, and Landlord may store the same without liability to Tenant for loss thereof, and Tenant shall be liable to 18 Landlord for all expenses incurred in such removal and also storage of said effects. 15. REMEDIES. If, after an Event of Default, Landlord has not elected to terminate this Lease, Landlord may (but shall not be obligated to), without terminating this Lease, enter upon and rent the Premises at the best price obtainable by reasonable effort, for any term Landlord deems proper. Landlord shall have the right to terminate the Tenant's possession of the Premises without terminating this Lease, and termination of possession shall not release Tenant, in whole or in part. Landlord may collect the rents from any such reletting and apply the same first to the payment of the expenses of reentry, repair and the expenses of reletting (including without limitation standard broker's commissions and attorney's fees actually reasonably incurred), second, to the reasonable cost of refurbishing the Premises in order to facilitate the reletting, including performing of deferred maintenance, and third, to the payment of annual rent herein provided to be paid by Tenant. Tenant shall be liable to Landlord for any deficiency between rent as due hereunder and the rent received by Landlord upon reletting. The foregoing remedies are not exclusive and Landlord shall have all remedies available to it at law or equity if there is an Event of Default by Tenant. 16. FINANCIAL STATEMENTS. Within fifteen (15) days after such are prepared, but no later than September 30 of each calendar 19 year, commencing in 1997, Tenant shall deliver to Landlord audited consolidated financial statements of United Auto Group, Inc. ("UAG") prepared in accordance with generally accepted accounting principles consistently applied by an independent certified public accountant. 17. FOR RENT SIGNS. Landlord may place "FOR RENT" or "FOR SALE" signs in the Premises one hundred eighty (180) days before the end of the Term. Landlord may enter the Premises at reasonable hours, and after reasonable notice, to show the Premises to prospective purchasers or tenants and to inspect the Premises to see that Tenant is complying with all its obligations hereunder. Landlord shall have the right to enter the Premises without notice in the case of an emergency. 18. EFFECT OF TERMINATION OF LEASE. No termination of this Lease prior to the normal ending thereof, by lapse of time or otherwise, shall affect Landlord's right to collect rent for the period prior to termination thereof. 19. WARRANTIES OF TITLE AND QUIET POSSESSION. Landlord represents and warrants that it has good and marketable title to the Premises and has full right to make this Lease and that Tenant shall have quiet and peaceable possession of the Premises during the Term so long as no Event of Default is in existence and continuing hereunder. 20 20. SUBORDINATION ATTORNMENT. Landlord represents and warrants that there is no indebtedness secured by the Premises. This Lease is subject and subordinate to any deed of trust, mortgage, or other security instrument, which may in the future cover the Premises, and to any increases, renewals, modifications, consolidations, replacements, and extensions of any of such deed of trust, mortgage, or security instrument, provided, however, that Tenant's subordination shall be conditioned upon Landlord's delivery to Tenant of a non- disturbance agreement in form reasonably satisfactory to Tenant containing the substantive provisions of the Subordination, Non-Disturbance and Attornment Agreement ("SNDA") in the form attached hereto and incorporated herein by reference executed by the Lender and Landlord in recordable form. Notwithstanding the generality of the foregoing, any mortgagee shall have the right at any time to subordinate any deed of trust, mortgage, or other security instrument to this Lease. At any time, before or after the institution of any proceedings for the foreclosure of any deed of trust, mortgage, or other security instrument or sale of the Premises under any such deed of trust, mortgage, or other security instrument, Tenant shall attorn to such purchaser upon any such sale or the grantee under any deed in lieu of such foreclosure and shall recognize such purchaser or grantee as Landlord under this Lease. The agreement of Tenant to attorn 21 contained in the immediately preceding sentence shall survive any such foreclosure sale, trustee's sale, or conveyance in lieu thereof. Tenant shall, upon demand at any time, before or after any foreclosure sale, trustee's sale, or conveyance in lieu thereof, execute, acknowledge, and deliver to Landlord's mortgagee any written instruments and certificates evidencing such attornment as Landlord's mortgagee may reasonably require. Upon Tenant's written request and notice to Landlord, Landlord shall obtain from any such mortgagee a written agreement that the rights of Tenant shall remain in full force and effect during the Term of this Lease so long as there shall be no Event of Default hereunder. 21. ESTATE CREATED; FUTURE GRANTS. Landlord and Tenant intend for and agree that this Lease shall create a leasehold estate in the Premises for the Term. Landlord agrees that, during the Term of this Lease, it will not execute or join in any conveyances of easements or restrictive covenants or other agreements restricting or affecting Tenant's use of the Premises without the prior written consent of Tenant, which may be withheld in Tenant's sole discretion. 22. HOLDING OVER. If Tenant remains in possession of the Premises after expiration of the Term, with Landlord's acquiescence and without any express agreement of parties, Tenant shall be a tenant at sufferance, subject to ejectment for trespass. There 22 shall be no month to month tenancy and there shall be no renewal of this Lease by operation of law. 23. ATTORNEY'S FEES AND HOMESTEAD. If the Rent or any additional rent or other sums owed by Tenant to Landlord under this Lease is collected by law or through an attorney at law, Landlord shall be entitled to collect attorney's fees actually reasonably incurred. 24. RIGHTS CUMULATIVE. All rights hereunder shall be cumulative but not restrictive to those given by law. 25. SERVICE OF NOTICE. Any notice required or permitted to be delivered hereunder may be delivered in person or by United States certified mail, postage prepaid, return receipt requested, or by recognized overnight courier (e.g. Federal Express or DHL), next business day delivery, charges prepaid, addressed to the parties at the addresses indicated above or at such other addresses as may be specified by written notice delivered in accordance herewith. Such notices shall be deemed effective three (3) business days after deposited in the U.S. mail, or on the next business day if delivered by overnight courier, or immediately upon delivery in person. 26. WAIVER OF RIGHTS. Neither party's failure to exercise any power given to them hereunder, or to insist upon strict compliance by the other party with its obligations hereunder, nor any custom or practice of the parties at variance 23 with the terms hereof, shall constitute a waiver of such party's right to demand exact compliance with the terms hereof. 27. TIME OF ESSENCE. Time is of the essence under this Lease. 28. SUCCESSORS AND ASSIGNS. This Lease shall apply to, inure to the benefit of, and be binding upon the parties hereof and their respective successors, permitted assigns, and legal representatives except as otherwise expressly provided herein. 29. TRIPLE NET LEASE. This Lease shall be considered a "triple net lease" so that, except as expressly set forth herein, Tenant shall bear all responsibility as additional rent for all payments of any kind or nature relating to the Premises, including but not limited to payment of all taxes (except for income, estate, inheritance or gift taxes of Landlord), insurance, repairs and maintenance arising after the date of this Lease to the extent Tenant is obligated therefor under the terms of this Lease. 30. ENTIRE AGREEMENT; CONFLICT. This Lease and that certain Stock Purchase Agreement dated as of June 7, 1996 by and among LYNDA JANE HICKMAN, AS EXECUTRIX, UAG ATLANTA, III, INC., UNITED AUTO GROUP, INC., and TENANT (the "SPA"), including any attachments made a part hereof or thereof, contains the entire agreement between the parties and no representations, inducements, promises or agreements, oral or otherwise, between the parties, not embodied herein or in the SPA, shall be of any force or effect. To 24 the extent there is any conflict between the provisions of this Lease and the SPA or the SPA provides remedies for the breach of any representations or warranties contained therein relating to the Premises or otherwise, the provisions of the SPA and Tenant's and other parties' rights thereunder shall control and be in full force and effect for two (2) years after the date hereof; provided, however, that Rent and additional rent hereunder shall be payable without regard to any claims under the SPA. 31. SEVERABILITY. If any term, provision or clause of this Lease, or if the application thereof to any person or circumstances, shall to any extent be invalid or unenforceable, then the remainder of this Lease or the application of such term, provision or clause to persons or circumstances other than those to which it is invalid or unenforceable shall not be affected thereby, and each and every remaining term, provision, clause and application of this Lease shall be valid and enforceable to the fullest extent permitted by law. 32. EXECUTION IN COUNTERPARTS. This Lease may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 33. AMENDMENT. This Lease may not be altered, waived, amended or extended except by an instrument in writing signed by Landlord and Tenant. 25 34. HEADINGS. The headings used in this Lease are for the purposes of convenience only. They shall not be construed to limit or to extend the meaning of any part of this Lease. 35. GOVERNING LAW. This Lease shall be construed in accordance with the laws of the State of Georgia, and all obligations of the parties created hereunder are performable in DeKalb County, Georgia. 36. FORCE MAJEURE. Except for the payment of Rent and additional rent, wherever a period of time is herein prescribed for action to be taken by either Landlord or Tenant, such party shall not be liable or responsible for, and there shall be excluded from the computation of any such period of time, any delays due to strikes, riots, acts of God, shortages of labor or materials, wars, governmental laws, regulations or restrictions or other causes which are beyond the control of Landlord or Tenant, as the case may be. 37. EXTENSION OPTIONS. Tenant shall have two (2) separate five (5) year options to extend the Term of this Lease upon the following terms and provisions: (a) Notice of the exercise of an option to extend shall be given no less than one hundred eighty (180) days prior to the then expiration of the Term of this Lease; (b) The Term shall be extended under all terms and provisions of this Lease except the Rent to be paid hereunder which 26 shall be determined as follows: The Rent for the first year of both the first and second five-year extensions shall be determined by the following, and the Rent for the second and subsequent lease years of either the first or second five-year extension shall be increased by the "percentage increase" in the Consumer Price Index: At the commencement of any extension of this Lease, the monthly Rent under this Lease shall be the then "fair market rental rate" as hereinafter defined, as agreed upon by Landlord and Tenant not later than four (4) months prior to the expiration of the initial term of this Lease or the first Extended Term, as the case may be, or in the event Landlord and Tenant cannot agree, an amount equal to the "fair market rental rate" as hereinafter defined and established. The phrase "fair market rental rate" shall mean the monthly rental rate (projected to the date of the commencement of the Extended Term to which it applies) which Tenant would expect to pay and Landlord would expect to receive under a lease for premises of comparable size and quality as the Premises used as automobile dealerships in Northern DeKalb County, Georgia. If Landlord and Tenant have not reached agreement on a fair market rental rate and executed an amendment to this Lease setting forth such agreement on or before the date four (4) months prior to the commencement of such extended Term, then, within ten (10) days after that date each party shall appoint and employ, at its cost, a real estate appraiser (who shall be a member of the American Institute of Real 27 Estate Appraisers (MAI) with at least ten (10) years of full-time commercial real estate appraisal experience, with substantial experience relative to comparable premises in metropolitan Atlanta, Georgia) to appraise and establish the "fair market rental rate" and notify the other party of the name and qualification of such appraiser. If either party fails to so appoint its appraiser, the other party may apply to a judge of the Superior Court of DeKalb County for such appointment. The two appraisers, thus appointed, shall meet promptly and attempt to agree upon and establish said rate, or, upon failing to do so, shall then jointly designate a third appraiser meeting the qualifications set forth above, all within ten (10) days after the date of appointment of the last two appraisers. If they are unable to agree on the third appraiser, either of the parties, after giving five (5) days notice to the other, may apply to a judge of the Superior Court of DeKalb County (to whose jurisdiction for this limited purpose both Landlord and Tenant hereby consent) for the selection of a third appraiser meeting the qualifications stated above. Each of the parties shall bear one-half of the cost of the appointment of the third appraiser and of the third appraiser's fee. Within thirty (30) days after the selection of a third appraiser, a majority of the appraisers shall agree upon the "fair market rental rate." If a majority of the appraisers are unable to agree within the stipulated time, the third appraiser shall select one of the determinations of the first 28 two appraisers (either Landlord's or Tenant's) originally selected, without modification or qualification. In any of said events, the determination shall be final, conclusive and binding upon both Landlord and Tenant. PROVIDED, HOWEVER, in no event shall Rent payable to Landlord under this Lease be less than that payable in any previous lease year of the initial term or any extended term and in determining fair market rental rate the appraisers shall take into account that each year of each Extended Term the Rent is to be increased by the percentage increase in the Consumer Price Index. (c) Upon the request of either party, Landlord and Tenant shall execute an acknowledgment setting forth the dates of the extended Term of the Lease and the amount of the Rent for the applicable extension term, but the failure to execute such acknowledgment shall not affect Tenant's exercise of its option to extend the Term as provided herein. 38. RECORDATION. This Lease will not be recorded unless Landlord fails to execute upon request, in recordable form, a Memorandum of Lease in form required by Tenant's title insurance company. 39. RECOURSE. Recourse against the Landlord in connection with Landlord's obligations and liability to Tenant with respect to this Lease shall be limited solely to Landlord's fee simple interest in the Premises, and neither Landlord nor any 29 partner of landlord, nor any officer, director, or shareholder, executor, executrix, personal representative or assigns shall have any personal liability whatsoever with respect to this Lease. In the event of any sale, transfer or distribution of the Premises by the Landlord, the Landlord shall be and hereby is entirely freed and relieved of all covenants and obligations of Landlord hereunder accruing thereafter. 40. ESTOPPEL CERTIFICATE. Tenant agrees, at any time and from time to time, to deliver within ten (10) days from the date of receipt of a request therefor, a statement in writing certifying (a) that this Lease is unmodified and in full force and effect and contains the full agreement between the parties (or, if there have been modifications or additional agreements, that the Lease is in full force and effect as modified and identifying the modifications thereof or additional agreements), (b) the date to which the Rent, additional rent and other charges due under this Lease have been paid, and (c) that insofar as Tenant knows, Landlord is not in default under any provision of this Lease and has performed all of the obligations to be performed by a Landlord to date (or, if Tenant has knowledge of any default or of any unperformed obligations, a statement of the nature thereof). 41. CROSS DEFAULT. The Tenant is also the tenant under that certain Lease Agreement, dated the date hereof, with Lynda Jane Hickman, as Executrix, demising premises used in conjunction 30 with the business conducted on the Premises ("Hickman Lease"). The Landlord under this Lease is affiliated with the landlord under such other Lease Agreement, and, a default by the Tenant under such other Lease Agreement shall be deemed to be a default by the Tenant under this Lease. IN WITNESS WHEREOF, the parties herein have hereunto caused their duly authorized representatives to set their hands and seals the day and year first above written. LANDLORD: Signed Sealed and Delivered in the presence of: ARGONNE ENTERPRISES, INC. By: /s/ Ashley L. Hickman ___________________________ __________________________ Unofficial Witness Name: Ashley L. Hickman ________________________ Title: President ___________________________ _______________________ Notary Public [Notarial Seal] Attest: By: /s/ Lynda M. Hickman __________________________ My Commission Expires: Name: Lynda M. Hickman ________________________ Title: Secretary _______________________ ___________________________ [Corporate Seal] TENANT: Signed Sealed and Delivered HICKMAN NISSAN, INC. a in the presence of: Georgia Corporation ___________________________ Unofficial Witness By: /s/ George Lowrance ___________________________ Name: ________________________ Title: ________________________ ___________________________ 31 Notary Public Attest: [Notarial Seal] By: __________________________ Name: __________________________ My Commission Expires: Title ________________________ ____________________________ [CORPORATE SEAL] 32 EX-10.7-11 60 EXHIBIT 10.7.11 EXHIBIT 10.7.11 UAG GUARANTY OF ARGONNE LEASE THIS GUARANTY OF LEASE ("Guaranty"), made as of the 12th day of July, 1996, by UNITED AUTO GROUP, INC. ("Guarantor") to and for the benefit of ARGONNE ENTERPRISES, INC., a Georgia corporation, its successors, successors-in-title and assigns ("Argonne"). WITNESSETH: WHEREAS, Argonne, as "Landlord," and Hickman Nissan, Inc., a Georgia corporation and second-tier subsidiary of Guarantor (hereinafter referred to as the "Corporation,") as Tenant, have entered into a Lease Agreement of even date herewith (the "Lease"), demising the Premises commonly known as 3393 Malone Drive, Chamblee, Georgia, 30341; and WHEREAS, Argonne has required, as a condition precedent to the effectiveness of the Lease, that Guarantor execute and deliver this Guaranty; and WHEREAS, the Guarantor, as the corporate parent of the Corporation, and, having a financial interest in the Corporation, has agreed to execute and deliver this Guaranty. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, Guarantor agrees as follows: 1. GUARANTY. Guarantor absolutely, unconditionally and irrevocably guarantees to Argonne: (a) the full and prompt payment of any amounts required to be paid by Corporation, or for which the Corporation shall be liable, under the Lease, including without limitation Rent, Base Rent, additional rent, real estate taxes, assessments, maintenance and repair, governmental charges, interest, attorneys' fees and premiums for insurance policies payable by the Corporation under the Lease, including all interest and other charges with respect thereto; (b) the payment of all Enforcement Costs (as hereinafter defined); (c) the full, complete and punctual observance, performance and satisfaction of the obligations, duties and agreements of the Corporation under the Lease. All amounts due, debts, liabilities and payment obligations described in subparagraphs (a) and (b) of this Paragraph 1 are referred to herein as the "Indebtedness." All obligations described in subparagraph (c) of this Paragraph 1 are referred to herein as the "Obligations." The Obligations of the Guarantor hereunder are primary and unconditional and shall be enforceable before, concurrently or after any claim or demand made or suit filed against the Corporation. 2. DEFAULT. All sums guaranteed hereby shall be deemed to become immediately due and payable to Argonne if: (a) there is an Event of Default (as defined in the Lease) by the Corporation under the Lease; or (b) the Guarantor becomes insolvent or unable to pay debts as they mature or admits in writing to such effect, makes a conveyance fraudulent as to creditors under any state or federal law, makes an assignment for the benefit of creditors, or any proceeding is instituted by or against the Guarantor alleging that the Guarantor is insolvent or unable to pay debts as they mature, or a petition under any provision of Title 11 of the United States Code, as amended, is brought by or against the Guarantor, or a receiver is appointed for any part of the property or assets of the Corporation or the Guarantor. 3. REMEDIES REGARDING INDEBTEDNESS. If there is an Event of Default by Corporation under the Lease, the Guarantor's liability and obligation for payment of the outstanding balance of the Indebtedness hereunder shall not be limited in any respect. Guarantor agrees to pay the amount of such Indebtedness, regardless of any defense, right of set-off or claims which the Corporation or the Guarantor may have against Argonne. Argonne shall have the option of joining the Guarantor as a party to any such enforcement proceeding. This is an absolute, irrevocable, present and continuing guaranty of payment and not of collection. 4. REMEDIES REGARDING OBLIGATIONS. If there is an Event of Default by the Corporation under the Lease, then, in any such event, Guarantor agrees to immediately (i) perform the Obligations; (ii) pay any and all costs and expenses necessary for said timely performance; and (iii) indemnify and hold Argonne harmless from and against any and all loss, damage, cost, expense, injury, or liability Argonne may suffer or incur in connection with the exercise of its rights under this Guaranty. 5. RETURN OF PAYMENTS. Guarantor agrees that, if at any time all or any part of any payment theretofore applied by Argonne to any Indebtedness is rescinded or returned by Argonne for any reason whatsoever (including, without limitation, the insolvency, bankruptcy, liquidation or reorganization of any party), such Indebtedness shall, for the purposes of this Guaranty, be deemed to have continued in existence to the extent of such payment, notwithstanding such application by Argonne, and this Guaranty shall continue to be effective or be reinstated, as -2- the case may be, as to such Indebtedness, all as though such application by Argonne had not been made. 6. NO DISCHARGE. Guarantor agrees that the obligations, covenants and agreements of Guarantor under this Guaranty shall not be affected or impaired by any act of Argonne, or any event or condition except full performance (as called for herein) of the Obligations and repayment of the Indebtedness and any other sums due hereunder. Guarantor agrees that, without full performance (as called for herein) of the Obligations and payment in full of the Indebtedness (as called for herein), the liability of Guarantor hereunder shall not be discharged by: (i) the renewal or extension of time for the payment of the Indebtedness or performance of the Obligations under the Lease or any other agreement relating to the Indebtedness or the Obligations, whether made with or without the knowledge or consent of Guarantor; or (ii) any transfer, waiver, compromise, settlement, modification, surrender, or release of the Lease; or (iii) the existence of any defenses to enforcement of the Lease; (iv) any failure, omission, delay or inadequacy, whether entire or partial, of Argonne to exercise any right, power or remedy regarding the Lease; (v) the existence of any set- off, claim, reduction, or diminution of the Indebtedness, or any defense or any kind or nature, which Guarantor may have against the Corporation or which any party has against Argonne; (vi) the addition of any and all other endorsers, guarantors, obligors, and other persons liable for the payment of the Indebtedness and performance of the Obligations; all whether or not Guarantor shall have had notice or knowledge or any act or omission referred to in the foregoing clauses (i) through (vi) of this Paragraph. Guarantor intends that Guarantor shall remain liable hereunder as a principal until all Indebtedness shall have been paid in full and all Obligations have been performed, notwithstanding any fact, act, event or occurrence which might otherwise operate as a legal or equitable discharge of a surety or guarantor. 7. APPLICATION OF AMOUNTS RECEIVED. Any amounts received by Argonne from whatsoever source on account of any Indebtedness may be applied by Argonne to the payment of such Indebtedness, and in such order or application, as Argonne may from time to time elect. Notwithstanding any payments made by or for the account of Guarantor on account of the Indebtedness, such Guarantor shall not be subrogated to any rights of Argonne until such time as Argonne shall have received payment of the full amount of all Indebtedness and the Obligations shall have been performed to Argonne's satisfaction. 8. WAIVER. Guarantor expressly waives: (i) notice of the acceptance by Argonne of this Guaranty; (ii) notice of the existence, creation, payment or nonpayment of the Indebtedness; (iii) presentment, demand, notice of dishonor, protest, and all other notices whatsoever; (iv) any failure by Argonne to inform Guarantor of any facts Argonne may now or hereafter know about -3- the Corporation or the Lease, it being understood and agreed that Argonne has no duty to inform and that Guarantor is fully responsible for being and remaining informed by the Corporation of all circumstances bearing on the existence or creation, or the risk of nonpayment of the Indebtedness; and (v) the provisions of O.C.G.A. Section 10-7-24 (or any similar statute of any other jurisdiction) relating to the Guarantor's right to discharge upon giving notice to Argonne to proceed against the Corporation for collection, and the failure or refusal by Argonne to commence an action or foreclose any collateral within a period of time or at any time. Credit may be granted or continued from time to time by Argonne to Corporation without notice to or authorization from Guarantor, regardless of the financial or other condition of the Corporation at the time of any such grant or continuation. No modification or waiver of any of the provisions of this Guaranty will be binding upon Argonne except as expressly set forth in a writing duly signed and delivered on behalf of Argonne. 9. ENFORCEMENT COSTS. If: (i) this Guaranty or the Lease is placed in the hands of an attorney for collection or enforcement through any legal proceeding; (ii) an attorney is retained to represent Argonne in any bankruptcy, reorganization, receivership, or other proceedings affecting creditors' rights and involving a claim under this Guaranty or the Lease; (iii) an attorney is retained to protect or enforce the Lease; or (iv) an attorney is retained to represent Argonne in any other proceedings whatsoever in connection with this Guaranty or the Lease or any property subject thereto, then Guarantor shall pay to Argonne upon demand the costs of collection and the actual reasonable attorneys' fees and expenses incurred by Argonne, including without limitation court costs, filing fees, recording costs, and all other costs and expenses incurred in connection therewith (all of which are referred to herein as "Enforcement Costs"), in addition to all other amounts due hereunder. 10. TRANSFER OF INDEBTEDNESS OR OBLIGATIONS. Notwithstanding any assignment or transfer of the Indebtedness or any Obligations or any interest therein, all portions of the Indebtedness or the Obligations or any interest therein, including those assigned, and each and every immediate and successive assignee or transferee of such Indebtedness or Obligations or interest shall, to the extent of the Indebtedness or Obligations or interests assigned or transferred, be entitled to the benefits of this Guaranty to the same extent as if such assignee or transferee were Argonne; provided, however, that unless the assignor or transferor shall otherwise consent in writing, the assignor or transferor shall have an unimpaired right, prior and superior to that of such assignee or transferee, to enforce this Guaranty for its benefit as to such portions of the Indebtedness or interest therein not assigned or transferred. 11. GOVERNING LAW; INTERPRETATION. This Guaranty and the Lease Agreement has been negotiated and delivered in Atlanta, Georgia, and shall be governed by the laws of the State of -4- Georgia without reference to the conflicts of law principles of that State. The headings of sections and paragraphs in this Guaranty are for convenience only and shall not be construed in any way to limit or define the content, scope, or intent of the provisions hereof. As used in this Guaranty, the singular shall be fully interchangeable, where the context so requires. If any provision of this Guaranty, or any paragraph, sentence, clause, phrase, or word, or the application thereof, in any circumstances, is adjudicated by a court of competent jurisdiction to be invalid, the validity of the remainder of this Guaranty shall be construed as if such invalid part were never included herein. Time is of the essence of the Guaranty. All payments to be made hereunder shall be made in currency and coin of the United States of America which is legal tender for public and private debts at the time of payment. 12. ENTIRE AGREEMENT. This Guaranty and the Lease Agreement constitute the entire agreements among the parties with respect to the subject matter hereof and supersede all prior such agreements and understandings, both written and oral. This Guaranty may not be modified or amended except by a written instrument signed by Argonne and Guarantor. If this Guaranty is executed in several counterparts, each of those counterparts shall deemed an original, and all them together shall constitute one and the same instrument. 13. SUCCESSORS AND ASSIGNS; JOINT AND SEVERAL LIABILITY. This is Guaranty shall bind Guarantor and the heirs, assigns, successors, executors and legal and personal representatives of Guarantor. If this Guaranty is executed by more than one person, it shall be the joint and several undertaking of each of the undersigned. Irrespective of whether this Guaranty is executed by more than one person, it is agreed that the undersigned's liability hereunder is several and independent of any other guaranties or other obligations at any time in effect with respect to the Indebtedness, the Obligation or any part thereof and that Guarantor's liability hereunder may be enforced regardless of the existence, validity, enforcement or non-enforcement of any such other guaranties or other obligations. 14. NOTICES. Any notice, demand or other communication which either party may desire or may be required to give to the other shall be in writing, and shall be deemed given if and when personally delivered, or on the second business day after being deposited in United States registered or certified mail, postage prepaid, addressed to the other party at its address set forth below, or to such other address as either party may have designated to the other party in writing: If to Argonne: Argonne Enterprises, Inc. 3393 Argonne Drive Atlanta, Georgia 30305 -5- with a copy to: Davis, Matthews & Quigley, P.C. 14th Floor, Lenox Towers II 3400 Peachtree Road Atlanta, Georgia 30326 Attn: William M. Matthews, Esq. If to Guarantor: United Auto Group, Inc. 375 Park Avenue New York, New York 10022 Facsimile No.: (212) 223-5148 Attn: Georgia G. Lowrance, Esq. with a copy to: Rogers & Hardin 2700 Cain Tower, Peachtree Center 229 Peachtree Street, NE Atlanta, Georgia 30303 Facsimile No.: (404) 525-2224 Attn: Michael Rosenzweig Except as otherwise specifically required herein, notice of the exercise of any right, option or power granted to Argonne by this Guaranty is not required to be given. IN WITNESS WHEREOF, the undersigned has executed, sealed and delivered this instrument as of the day and year first above written. GUARANTOR: AUTO GROUP, INC. By: /s/ George Lowrance ------------------------------ Its: Executive Vice President ------------------------------ [Corporate Seal] -6- EX-23.1-1 61 EXHIBIT 23.1.1 Exhibit 23.1.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this Registration Statement on Form S-1 of our report dated June 17, 1996, on our audits of the financial statements and financial statement schedule of United Auto Group, Inc. and Subsidiaries. We also consent to the reference to our firm under the captions "Experts" and Selected Consolidated Financial Data. /s/ Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P. Princeton, New Jersey September 12, 1996 EX-23.1-2 62 EXHIBIT 23.1.2 Exhibit 23.1.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this Registration Statement on Form S-1 of our report dated May 31, 1996, on our audits of the financial statements of Landers Auto Sales, Inc. We also consent to the reference to our firm under the caption "Experts". /s/ Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P. Memphis, Tennessee September 12, 1996 EX-23.1-3 63 EXHIBIT 23.1.3 Exhibit 23.1.3 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this Registration Statement on Form S-1 of our report dated June 30, 1996, on our audits of the financial statements of Atlanta Toyota, Inc. We also consent to the reference to our firm under the caption "Experts". /s/ Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P. Atlanta, Georgia September 12, 1996 EX-23.1-4 64 EXHIBIT 23.1.4 Exhibit 23.1.4 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this Registration Statement on Form S-1 of our report dated June 14, 1996, on our audits of the financial statements of Steve Rayman Nissan, Inc. We also consent to the reference to our firm under the caption "Experts". /s/ Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P. Atlanta, Georgia September 12, 1996 EX-23.1-5 65 EXHIBIT 23.1.5 Exhibit 23.1.5 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this Registration Statement on Form S-1 of our report dated August 16, 1996, on our audits of the financial statements of Hickman Nissan, Inc. We also consent to the reference to our firm under the caption "Experts". /s/ Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P. Atlanta, Georgia September 12, 1996 EX-23.1-6 66 EXHIBIT 23.1.6 Exhibit 23.1.6 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this Registration Statement on Form S-1 of our report dated June 12, 1996, on our audits of the financial statements of Sun Automotive Group. We also consent to the reference to our firm under the caption "Experts". /s/ Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P. Phoenix, Arizona September 12, 1996 EX-23.1-7 67 EXHIBIT 23.1.7 Exhibit 23.1.7 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this Registration Statement on Form S-1 of our report dated September 1, 1996, on our audits of the financial statements of Evans Automotive Group. We also consent to the reference to our firm under the caption "Experts". /s/ Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P. Atlanta, Georgia September 12, 1996 EX-23.1-8 68 EXHIBIT 23.1.8 Exhibit 23.1.8 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this Registration Statement on Form S-1 of our report dated August 29, 1996, on our audits of the financial statements of Standefer Motor Sales, Inc. We also consent to the reference to our firm under the caption "Experts". /s/ Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P. Memphis, Tennessee September 12, 1996 EX-27 69 EXHIBIT 27
5 1,000 YEAR 6-MOS DEC-31-1995 DEC-31-1996 JAN-01-1995 JAN-01-1996 DEC-31-1995 JUN-30-1996 4,697 9,301 0 0 27,349 48,209 0 0 101,556 121,289 141,649 186,980 15,924 19,313 3,778 4,704 236,027 311,104 139,447 181,317 24,073 38,694 0 0 1 1 1 1 49,238 66,707 236,027 311,104 805,621 597,939 806,151 598,968 720,344 531,560 720,344 531,560 0 0 0 0 1,612 2,225 (5,921) 8,629 2,089 (2,997) 0 0 0 0 0 0 0 0 (3,466) 3,898 (.70) .49 0 0
-----END PRIVACY-ENHANCED MESSAGE-----