-----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, OtmTBjTsWBL2bV9L879KtDDuXYJk5SGAxxRZa2zC6MUCdHsX8zX3c3PCc/OulY4S 9wMzJxqTO03T4vGpBRXL9w== 0000912057-96-022062.txt : 19961008 0000912057-96-022062.hdr.sgml : 19961008 ACCESSION NUMBER: 0000912057-96-022062 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 46 FILED AS OF DATE: 19961007 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: 96639860 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 OCTOBER 7, 1996 REGISTRATION NO. 333-09429 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 2 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 October 7, 1996 5,000,000 SHARES [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 $26.00 and $29.00 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 Common Stock has been approved for listing on the New York Stock Exchange ("NYSE") under the symbol "UAG," subject to official notice of issuance. 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 $2,610,000. (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 750,000 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 , 1996 Smith Barney Inc. [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. 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 Statements.................................. 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 1996, 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 1,113,841 SHARES OF COMMON STOCK PLUS CERTAIN OTHER CONSIDERATION (THE "MINORITY EXCHANGE") 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 operates six 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. 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. 4 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 has received commitments from Morgan Guaranty Trust Company of New York ("Morgan Guaranty") and The Bank of Nova Scotia for a loan facility in the amount of $50 million for the purpose of financing acquisitions (the "Acquisition Facility"). 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 $62.7 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 $85.8 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........................ 5,000,000 shares Common Stock Outstanding after the Offering 15,028,684 shares (1)........................................ Use of Proceeds............................. The net proceeds from the Offering are estimated to be $125.3 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." NYSE Symbol................................. "UAG"
- ------------------------------ (1) Does not include 873,000 and, assuming an initial public offering price of $27.50 per share, 254,545 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 $1,352,770 $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) 18,425 (5,727) 9,404 16,789 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) 16,152 (5,819) 8,629 16,121 Net income (loss) 96 (1,691) (3,466) 9,112 (4,902) 3,898 9,185 Pro forma net income (loss) per common share $ .05 $ (.44) $ (.63) $ .55 $ (1.05) $ .46 $ .55
---------------------------------------------------------------------- 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 $ 250,847 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 17,975 Intangible assets, net 22,832 23,018 48,774 22,700 66,131 154,214 Long-term debt 4,122 6,735 24,073 6,556 38,694 12,422 Auto Finance Net assets -- 291 3,501 3,714 12,549 27,549 Total Company Total assets 154,218 170,342 236,027 176,945 311,104 464,438 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 66,709 227,603
----------------------------------------------------------------------- Years Ended December 31, Six Months Ended 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, production capabilities and distribution 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. Similarly, the delivery of vehicles from Manufacturers later than scheduled, which may occur particularly during periods of new product introductions, can lead to reduced sales during such periods. This has been experienced at certain of the Company' dealerships from time to time, including in the third quarter of 1996. 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 restrictions, imposed by American Honda Motor Co., Inc. ("Honda"), provide that, under certain circumstances, the Company may be forced to sell or lose its Honda and Acura franchises if a person or entity acquires a 5% ownership interest in the Company if Honda objects to such acquisition within 180 days except that, so long as control of the Company is held by its current non-public stockholders, any bank, mutual fund, insurance company or pension fund may acquire up to a 10% ownership interest (15% ownership interest in the case of any entity in its capacity as investment advisor, trustee or custodian for the benefit of third parties) in the Company without such consent but only if such bank, mutual fund, insurance company or pension fund is not owned or 8 controlled by or owns 15% or more of, or controls, any entity (other than an automobile dealership) that competes with Honda or its affiliates in manufacturing, marketing or selling automotive products or services. Similarly, several Manufacturers have the right to approve the acquisition of 20% ownership interests in the Company. In addition, under the Company's agreement with Honda, no more than 40% of the Common Stock (on a fully diluted basis) may be freely tradable and unrestricted at any time. Upon consummation of the Offering, 32.1% of the Common Stock (on a fully diluted basis and assuming full exercise of the Underwriters' over-allotment option) will be freely tradable and unrestricted. The Company has contractual obligations with its existing equity holders to register their shares of Common Stock under the Securities Act under certain circumstances and a number of such shares are, and more will become with time, eligible for sale pursuant to the terms of Rule 144 under the Securities Act. See "Shares Eligible for Future Sale." Only the Company's three largest stockholders may not sell any of their shares without Honda's consent. See "Principal Stockholders." Similarly, a number of Manufacturers, including Chrysler, continue to prohibit transactions that 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 (on a fully diluted basis) 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. Violations by its stockholders or prospective stockholders of any of the above restrictions are generally outside the control of the Company, and if the Company is unable to renegotiate such restrictions when necessary, it may be forced to terminate or sell 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. Finally, Honda has the right to approve any future public offerings of Common Stock, and the consent of other Manufacturers may be needed, as well. 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 restrict the number of franchises held within certain geographic areas. Similarly, Honda restricts the Company from holding more than seven Honda or more than three Acura franchises and restricts 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, five Nissan franchises and two Honda franchises (of which one is Acura). 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 9 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. In addition, Nissan Motor Corporation U.S. A. ("Nissan") has conditioned the Company's acquisitions of the Nissan franchises held by the Evans Group and Standefer Motor upon the Company's agreeing to grant to Nissan an option to acquire the Evans Group's Nissan franchise. 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. Other than the Acquisition Facility, the Company does not have any commitments with respect to 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 "-- 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." 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 10 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 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. 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 11 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 consummation 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 23.5%, 18.9% and 12.3% 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, such concentration of ownership and such provisions 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 15,028,684 shares of Common Stock. All of the 5,000,000 shares of Common Stock to be sold in the Offering will be eligible for immediate sale in the public 12 market without restriction unless held by affiliates of the Company. Of the remaining 10,028,684 outstanding shares of Common Stock, including the 1,113,841 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 5,774,476 shares, including the 1,113,841 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 254,545 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 66.7% 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 $22.93 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 operates six 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 $62.7 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 $85.8 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 acquisition agreement provides for additional contingent purchase price payments to the sellers based on the future profitability of the acquired dealerships. 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 consummation of 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 consummation of 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 $125.3 million ($144.4 million if the Underwriters' over-allotment option is exercised in full) after deducting underwriting discounts and estimated offering expenses and assuming an initial public offering price of $27.50 per share. 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 $4.2 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, 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 November 1, 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 12,422 --------- ----------- Total long-term debt 38,694 12,422 --------- ----------- 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, 15,029 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 68,319 236,539 Accumulated deficit (1,612) (8,937) --------- ----------- Total stockholders' equity 66,709 227,603 --------- ----------- Total capitalization $ 122,299 $ 240,025 --------- ----------- --------- -----------
- ------------------------ (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 254,545 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 (deficit) of the Common Stock, after giving effect to the Preferred Stock Conversion, the Minority Exchange, the acquisition of Peachtree Nissan, the assumed exercise of the Warrants (as defined herein) and the issuance and exercise of the Additional Warrants (as defined herein), was approximately $(1.9) million, or approximately $(.17) per share. Net tangible book value (deficit) 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 $27.50 per share and after deducting estimated offering expenses), the Contemporaneous Acquisitions, the senior debt repayment and dealerships transferred where Manufacturer approval was not received, the pro forma net tangible book value of the Company at June 30, 1996 would have been approximately $73.4 million, or approximately $4.57 per share. This represents an immediate dilution of approximately $22.93 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 $ 27.50 --------- Pro forma net tangible book value (deficit) per share at June 30, 1996 after giving effect to the Preferred Stock Conversion, the Minority Exchange, the acquisition of Peachtree Nissan, the assumed exercise of the Warrants and the issuance and exercise of the Additional Warrants $ (.17) --------- Increase in pro forma net tangible book value per share attributable to new investors in the Offering 4.74 --------- Pro forma net tangible book value per share as further adjusted for the Offering, the Contemporaneous Acquisitions, the senior debt repayment and dealerships transferred where Manufacturer approval was not received 4.57 --------- Dilution per share to new investors in the Offering $ 22.93 --------- ---------
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 the Warrants and the issuance and exercise of the Additional Warrants) 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 $27.50 per share), the total consideration paid and the average price per share paid:
------------------------------------------------------------------ Shares Total Purchased (1) Consideration (2) Average ------------------------ --------------------------- Price Number Percent Amount Percent Per Share ----------- ----------- -------------- ----------- ----------- Existing stockholders 11,044,783 68.8% $ 114,430,697 45.4% $ 10.36 New investors in the Offering 5,000,000 31.2 137,500,000 54.6 27.50 ----------- --- -------------- --- Total 16,044,783 100% $ 251,930,697 100% ----------- --- -------------- --- ----------- --- -------------- ---
- ------------------------------ (1) Does not include 873,000 and, assuming an initial offering price of $27.50 per share, 254,545 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. (2) 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 $62,672 $85,822 $154,502 $81,669 $65,793 Cost of sales 720,344 147,566 98,969 52,570 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 17,319 7,842 5,192 --------- ---------- --------- --------- --------- ---------- ---------- --------- Operating income (loss) (5,309) 6,670 2,011 1,113 947 3,203 1,368 2,317 Related party interest income 3,039 Other income (expense), net (1,438) 242 17 1 21 (1,181) (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 --------- ---------- --------- --------- --------- ---------- ---------- --------- --------- ---------- --------- --------- --------- ---------- ---------- --------- Pro forma net income (loss) per common share $(.63) --------- --------- Shares used in computing net income (loss) per common share 5,461 --------- --------- Pro Forma Adjustments Pro Forma -------------- --------- Auto Dealerships Total revenues $(100,086) (2) $1,352,770 (79,753) (3) Cost of sales (95,893) (2) 1,197,200 (68,335) (3) --------- Gross profit 155,570 Selling, general and administrative expenses (11,286) (2) 137,145 (9,877) (3) 867 (4) 873 (5) (1,763) (6) 2,016 (7) (3,121) (8) 575 (9) --------- Operating income (loss) 18,425 Related party interest income (3,039) (4) -- Other income (expense), net (1,050) (10) (891) 1,248 (11) 1,100 (12) Equity in (loss) of uncombined investees 831 (4) -- --------- Income (loss) before income taxes -- Auto Dealerships 17,534 Auto Finance Loss before income taxes -- Auto Finance (1,382) --------- Total Company Income (loss) before minority interests and provision for income taxes 16,152 Minority interests (366) (4) -- Benefit (provision) for income taxes (8,076)(13) (7,040) --------- Net income (loss) $ 9,112 --------- --------- Pro forma net income (loss) per common share $ .55 --------- --------- Shares used in computing net income (loss) per common share 11,140(14) 16,601 --------- ---------
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 Rayman Hickman Sun Evans Nissan Nissan Automotive Automotive Standefer Pro Forma UAG (1) (1) Group (1) Group (1) Motor (1) Adjustments --------- --------- --------- ---------- ---------- --------- ----------- Auto Dealerships Total revenues $597,939 $ 19,892 $ 41,320 $ 93,823 $ 46,369 $ 34,994 $ (33,707) Cost of sales 531,560 16,503 36,581 80,389 40,497 31,018 (28,268) --------- --------- --------- ---------- ---------- --------- Gross profit 66,379 3,389 4,739 13,434 5,872 3,976 Selling, general and administrative (450) expenses 56,975 2,481 4,072 9,661 4,664 2,187 (4,837) 433 518 (1,195) 764 288 --------- --------- --------- ---------- ---------- --------- Operating income 9,404 908 667 3,773 1,208 1,789 Related party interest income 1,548 -- -- -- -- -- (1,548) Other income (expense), net (2,049) -- 19 (717) 13 30 (340) 2,025 700 Equity in income of uncombined investees 75 -- -- -- -- -- (75) --------- --------- --------- ---------- ---------- --------- Income 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 before minority interests and provision for income taxes 8,629 908 686 3,056 1,221 1,819 Minority interests (1,734) -- -- -- -- -- 1,734 Provision for income taxes (2,997) -- -- -- (365) (133) (3,441) --------- --------- --------- ---------- ---------- --------- Net income $3,898 $908 $686 $3,056 $856 $1,686 --------- --------- --------- ---------- ---------- --------- --------- --------- --------- ---------- ---------- --------- Pro forma net income per common share $.46 --------- --------- Shares used in computing net income (loss) per common share 8,479 8,122 --------- --------- Total --------- Auto Dealerships Total revenues (3) $800,630 Cost of sales (3) 708,280 --------- Gross profit 92,350 Selling, general and administrative (2) 75,561 expenses (3) (4) (5) (6) (7) (9) --------- Operating income 16,789 Related party interest income (4) -- Other income (expense), net (10) (319) (11) (12) Equity in income of uncombined investees (4) -- --------- Income before income taxes -- Auto 16,470 Dealerships Auto Finance Loss before income taxes -- Auto Finance (349) --------- Total Company Income before minority interests and provision for income taxes 16,121 Minority interests (4) -- Provision for income taxes (13) (6,936) Net income $9,185 --------- --------- Pro forma net income per common share $.55 --------- --------- Shares used in computing net income (loss) per common share (14) 16,601 --------- ---------
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 Automotive 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 Automotive 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 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 $1,611 for the year ended December 31, 1995 and $136 for the six months ended June 30, 1996. (5) Represents change in facility expenses at acquired dealerships due to revised lease agreements upon acquisition. (6) Represents reduction in compensation expense at acquired dealerships related to former owners and employees to contractual amounts. (7) Represents amortization of excess of cost over net assets acquired for the acquired dealerships. (8) Represents reduction for management fees paid to owners of acquired dealerships. (9) Represents adjustment for increase in rental expense under amended leases relating to facilities in the DiFeo Group. (10)Represents additional interest expense from the issuance of notes payable to sellers as part of the acquisitions. (11)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. (12)Represents reduction in interest expense at acquired dealerships due to the repayment of debt in connection with the acquisition of Sun Automotive Group. (13)Represents tax impact of pro forma adjustments at the statutory rate adjusted for non-deductible items of $6,457 for the year ended December 31, 1995 and $(3,351) 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. (14)Represents shares issued in connection with the Offering, the Minority Exchange, the acquisition of Hickman Nissan and the Preferred Stock Conversion. 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 $125,265 (1) 11,531 (2) (11,350) (2) (31,550) (3) (13,350) (4) (18,550) (5) (38,600) (6) (5,000) (7) (15,000) (8) 4,000 (9) (4,000) (9) (1,312) (10) (908) (11) Accounts receivable 48,209 4,442 6,907 5,812 1,431 (1,740) (11) Inventories 121,289 6,272 15,968 8,927 8,430 2,351 (2) 948 (3) 1,926 (4) 3,322 (5) (7,292) (11) Deferred income taxes 5,333 -- -- -- -- 3,216 (6) 125 (10) 110 (12) Other current assets 2,848 264 53 81 -- (227) (11) 100 (12) --------- --------- ---------- ---------- --------- Total current assets 186,980 11,189 23,049 15,521 10,093 Property and equipment, net 14,609 543 11,128 335 226 (8,214) (3) (652) (11) Intangible assets, net 66,131 -- 1,137 -- -- 9,832 (2) 19,799 (3) 7,482 (4) 14,625 (5) 600 (10) (67) (11) 34,675 (13) Due from related parties 15,727 -- -- 699 -- (15,727) (13) Other assets 11,090 64 843 32 150 3,017 (3) (2,608) (6) (198) (9) (137) (11) 200 (12) (3,317) (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 $11,742 Accounts receivable 65,061 Inventories 162,141 Deferred income taxes 8,784 Other current assets 3,119 ---------- Total current assets 250,847 Property and equipment, net 17,975 Intangible assets, net 154,214 Due from related parties 699 Other assets 9,136 ---------- Total Auto Dealership assets 432,871 ---------- Auto Finance Cash and cash equivalents 16,530 Finance assets, net 775 Other assets 14,262 ---------- Total Auto Finance assets 31,567 ---------- Total assets $464,438 ---------- ----------
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 $6,001 (5) (6,421) (11) Short-term debt 15,069 -- -- -- -- (5,000) (7) (4,000) (9) Accounts payable 20,626 916 1,357 1,977 741 (1,094) (11) Accrued expenses 14,150 646 2,946 766 798 (400) (10) (576) (11) 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 (2) 5,480 (2) (12,905) (3) (33,167) (6) (785) (11) 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) (13) --------- --------- ---------- ---------- --------- Stock purchase warrants 1,597 -- -- -- -- (1,597) (14) --------- --------- ---------- ---------- --------- Commitments and contingent liabilities Stockholders' equity Convertible Preferred Stock 1 -- -- -- -- (1) (15) Common Stock 1 50 7,228 2 1 (50) (2) (7,228) (3) (2) (4) (1) (5) Non-voting Common Stock -- -- -- -- 9 (9) (5) Additional paid-in capital 68,319 1 -- 897 -- 125,265 (1) (1) (2) 6,051 (2) (897) (4) 3,802 (9) 575 (12) 30,929 (13) 1,597 (14) 1 (15) Retained earnings (accumulated (1,116) (2) deficit) (1,612) 1,116 (3,926) 3,042 6,594 3,926 (3) (3,042) (4) (6,594) (5) (4,825) (6) (187) (10) (2,148) (11) (165) (12) --------- --------- ---------- ---------- --------- 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 12,422 Due to related party 1,191 Deferred income taxes 3,493 ---------- Total Auto Dealership liabilities 232,817 ---------- 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 236,539 Retained earnings (accumulated (8,937) deficit) ---------- Total stockholders' equity 227,603 ---------- Total liabilities, minority interests subject to repurchase, stock purchase warrants and stockholders' equity $464,438 ---------- ----------
24 Footnotes to Pro Forma Condensed Consolidated Balance Sheet (1) Represents the net proceeds from the Offering. (2) 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. (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 of 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 issuance of additional equity, the reclassification of deferred issuance costs and the repayment of short-term debt in July 1996. (10) Represents adjustment for retroactive increase in rental expense under amended leases relating to facilities in the DiFeo Group. (11) Represents adjustment to eliminate the impact of dealerships transferred or not acquired because Manufacturer approval was not received. (12) Represents the purchase of a 5% equity interest in Atlanta Toyota by its current general manager in exchange for a note. (13) 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. (14) 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. (15) Represents the Preferred Stock Conversion. 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 56,975 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 Pro forma net income (loss) per common share -- -- -- $ .05 $ (.44) $ (.63) $ (1.05) $ .46
------------------------------------------------------------------------------------- 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 operates six 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. During the six months ended June 30, 1996, the Company sold 17,509 new vehicles (67.2% of total vehicle sales) and 8,542 used vehicles (32.8% of total vehicle sales). During the six months ended June 30, 1995, the Company sold 11,088 new vehicles (75.1% of total vehicle sales) and 3,674 used vehicles (24.9% of total vehicle sales). The increase in the relative proportion of used vehicle sales to new vehicle sales was due principally to the expansion of existing used car facilities and the establishment of two additional stand-alone used car retail centers. 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. Included in the above gross profit figures is gross profit from finance and insurance activities, which increased by $5.4 million, or 50.5%, from $10.7 million to $16.1 million due principally to the acquisitions of Landers Auto, Atlanta Toyota and United Nissan. Gross profit from finance and insurance activities at the continuing franchises of the DiFeo Group increased by $1.2 million, or 12.5%, from $9.6 million to $10.8 million. Gross profit from finance and insurance activities consists principally of fees for placing financing contracts with consumer finance companies and also includes fees for placing extended service contracts and amounts earned on the sale of accessories such as radios, cellular phones and alarms. 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. 29 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. 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. During 1995, the Company sold 25,138 new vehicles (73.7% of total vehicle sales) and 8,953 used vehicles (26.3% of total vehicle sales). During 1994, the Company sold 22,464 new vehicles (72.9% of total vehicle sales) and 8,340 used vehicles (27.1% of total vehicle sales). The decrease in the relative proportion of used vehicle sales to new vehicle sales was due principally to stronger demand for new vehicles 30 as opposed to used vehicles at the DiFeo Group operations offset by the acquisition of Landers Auto, which sells a higher proportion of used vehicles to new vehicles than the DiFeo Group. 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. Included in the above gross profit figures is gross profit from finance and insurance activities, which decreased by $1.1 million, or 4.5%, from $24.5 million to $23.4 million due principally to the DiFeo Restructuring offset by the acquisition of Landers Auto. Gross profit from finance and insurance activities at the continuing franchises of the DiFeo Group decreased by $0.9 million, or 4.2%, from $21.4 million to $20.5 million. 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. 31 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. During 1994, the Company sold 22,464 new vehicles (72.9% of total vehicle sales) and 8,340 used vehicles (27.1% of total vehicle sales). During 1993, the Company sold 18,608 new vehicles (70.2% of total vehicle sales) and 7,891 used vehicles (29.8% of total vehicle sales). The decline in the relative proportion of used vehicle sales to new vehicle sales was due to stronger new vehicle demand. 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. 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. Included in the above gross profit figures is gross profit from finance and insurance activities, which increased by $7.1 million, or 40.8%, from $17.4 million to $24.5 million due to the full-year contributions of dealerships acquired during 1993 and a significant increase in the profitability of the finance and insurance products sold. 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. 32 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. 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. During such period, the Company sought and obtained waivers of non-compliance with, and amendments to, certain covenants under its Securities Purchase Agreements and Credit Agreement, including covenants regarding fixed charge coverage ratios and delivery of certain collateral to secure the indebtedness thereunder. 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 June 30, 1996, $16.3 million and $29.5 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. 33 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. The Company has received commitments from Morgan Guaranty and The Bank of Nova Scotia for an Acquisition Facility in the amount of $50 million. There can be no assurance that the Acquisition Facility will be successfully consummated or that required additional capital will be available on reasonable terms, if at all, at such times as required by the Company. 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 operates six 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 has received commitments from Morgan Guaranty and The Bank of Nova Scotia for an Acquisition Facility in the amount of $50 million. 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 retail purchases (exclusive of private sales) 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 and new vehicle operations (including fleet sales) generated $841.7 million in revenues, or 62.2% 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 and used vehicle operations (including sales at wholesale) generated $368.8 million in revenues, or 27.3% 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 six 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 six stand-alone used car centers. Two operate in the DiFeo Group, three operate as part of the Landers Auto division and one operates at Peachtree Nissan. 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 $40.0 million in revenues, or 2.9% 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 $102.3 million in revenues, or 7.6% 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, and the Company expects to renew any expiring agreements in the ordinary course of business. The typical franchise agreement 45 provides for early termination or non-renewal by the Manufacturer under certain circumstances 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 United 20570 I-30 Used car sales April 30, 2002, AutoMart Benton, AR renewable to 2012 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 (a) 6905 E. McDowell New and used car October 31, 2016 Scottsdale, AZ sales; service (b) 6905 E. McDowell New and used car December 31, 2005, Scottsdale, AZ sales; service renewable to 2010 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 June 30, 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. 47 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." 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. 54 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. Spielvogel, Cogan and Sallay are members of Class I, Messrs. Kroll, Nelson and Sinkfield are members of Class II and Messrs. Eisenson and Hannan 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 and Hannan and is responsible for administering the Company's Stock Option Plan and granting options thereunder. Compensation Committee Interlocks and Insider Participation Mr. Cogan, Chairman of the Company's Compensation Committee, also serves as Chairman of the Board and Chief Executive Officer of Foamex International Inc., on whose compensation committee Mr. Spielvogel serves. 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, $1,000 for each Board of Directors meeting attended in person, $750 for each Board of Directors committee meeting attended in person, and $500 for each such meeting participated in by telephone. Such fees are payable at the option of the director in cash or in Common Stock at the current market price. 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 $325 million in annual loan purchases.
51 STEVEN KNAPPENBERGER Mr. Knappenberger serves as President and Chief Operating Officer of the Sun Group, which he joined in 1980. He will become a member of the Operating Committee upon consummation of the Contemporaneous Acquisitions. STEVE LANDERS Steve Landers serves as Chief Executive Officer and President of Landers Auto. He began his career in the automotive retailing industry in 1969. In 1972, Mr. Landers, with his father, Bob Landers, opened a used car operation, which was the predecessor to Landers Auto. JOHN SMITH Mr. Smith serves as President of Atlanta Toyota, which he joined in 1988. He began his career in the automotive retailing industry in 1983.
Summary Compensation Table The following Summary Compensation Table sets forth information concerning the compensation for services paid to the officers named below (the "Named Executive Officers") during fiscal years 1995, 1994 and 1993.
----------------------------------------------- Long Term Compensation ------------- Annual Compensation Securities Name and --------------------- Underlying Principal Position Year Salary($) 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. 52 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. 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 53 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 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 54 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 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 2,067,595 5,027,210 100,000(3) 8.8 (3) (3) 1,729,460 4,382,792 Ezra P. Mager -- -- -- -- -- -- Arthur J. Rawl 34,000(4) 3.0 10.00 4/23/06 213,824 541,872 George G. Lowrance 34,000(5) 3.0 10.00 4/23/06 213,824 541,872 Robert W. Thompson 3,500(5) 0.3 10.00 4/23/06 22,011 55,781
- ------------------------------ (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. The values in these columns assume that the fair market value on the date of grant of each option was equal to the exercise price thereof. (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 54,545 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 subsidiaries subject thereto 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% 216,079 Landers Auto 20% 750,808 Atlanta Toyota 5% 146,954
The Company has agreed 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 $500 per share, or $400,000 in the aggregate. 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. In addition, the Company has agreed to grant such officers options to purchase common stock of Atlantic Finance in such amounts as to enable them to retain their percentage ownership of Atlantic Finance after the Company's contribution out of the proceeds of 56 the Offering. Such options will vest and become exercisable in five equal annual installments beginning on the first anniversary of the consummation of the Offering at an exercise price increasing at a rate equal to $500 plus an amount equal to 10% per year, compounded annually from the date of grant, on $500. 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. 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, the exercise of the Additional Warrants 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 23.5 375 Park Avenue New York, New York 10152 Aeneas Venture Corporation........................ 2,843,656 18.9 (an affiliate of Harvard Private Capital) 600 Atlantic Avenue Boston, Massachusetts 02210 AIF II, L.P....................................... 1,843,656 12.3 c/o Apollo Advisors, L.P. Two Manhattanville Road Purchase, New York 10577 Carl Spielvogel (2)............................... 226,118 1.5 Ezra P. Mager..................................... 163,240 1.1 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 23.5 Michael R. Eisenson (5)........................... 2,843,656 18.9 John J. Hannan (6)................................ 1,843,656 12.3 Jules Kroll....................................... 104,474 * Robert H. Nelson (7).............................. 3,544,756 23.6 John M. Sallay (8)................................ 2,843,656 18.9 Richard Sinkfield................................. 10,000 * All directors and Named Executive Officers, 8,764,500 58.3 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 upon consummation of the Offering at a nominal exercise price and expire on September 22, 58 2003. 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 upon consummation of the Offering 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 restrictions, imposed by Honda, provide that, under certain circumstances, the Company may be forced to sell or lose its Honda and Acura franchises if a person or entity acquires a 5% ownership interest in the Company if Honda objects to such acquisition within 180 days, except that, so long as control of the Company is held by its current non-public stockholders, any bank, mutual fund, insurance company or pension fund may acquire up to a 10% ownership interest (15% ownership interest in the case of any entity in its capacity as investment advisor, trustee or custodian for the benefit of third parties) in the Company without such consent but only if such bank, mutual fund, insurance company or pension fund is not owned or controlled by or owns 15% or more of, or controls, any entity (other than an automobile dealership) that competes with Honda or its affiliates in manufacturing, marketing or selling automotive products or services. Similarly, several Manufacturers have the right to approve the acquisition of 20% ownership interests in the Company. In addition, under the Company's agreement with Honda, no more than 40% of the Common Stock (on a fully diluted basis) may be freely tradable and unrestricted at any time. Similarly, a number of Manufacturers, including Chrysler, prohibit transactions that 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 eight directors upon consummation of the Offering and thereafter as may be fixed from time to time by resolution of the Board of Directors. 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 consummation of the Offering, there will be approximately 22.0 million 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. 59 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 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 15,028,684 shares of Common Stock outstanding immediately after the consummation of the Offering, the 5,000,000 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 10,028,684 shares of Common Stock outstanding, including the 1,113,841 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 5,774,476 Restricted Shares, including the 1,113,841 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 150,287 shares upon consummation 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. 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. Options to purchase up to 54,545 shares of Common Stock have been granted as part of the consideration for the DiFeo Group Minority Interest, which shares are subject to registration rights. Further, upon consummation of the Offering, 1,016,099 shares of Common Stock will be issuable upon the exercise of the Warrants at a nominal exercise price. 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 61 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. 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 1,113,841 shares of Common Stock. The Warrants to purchase 1,016,099 shares of Common Stock and Additional Warrants to purchase 93,747 shares of Common Stock 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. 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............................................... 5,000,000 --------------- ---------------
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 750,000 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 Common Stock has been approved for listing on the NYSE under the symbol "UAG," subject to official notice of issuance. 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 250,000 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, directors and persons having business relationships with 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 and has committed to lend up to $25,000,000 to the Company under the Acquisition Facility. 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 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Pro forma net income (loss) per common share (see note 2 for historical net income (loss) per common share) $ .05 $ (.44) $ (.63) $ (1.05) $ .46 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Shares used in computing pro forma net income (loss) per common share 1,873 3,852 5,461 4,661 8,479 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
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) AND PRO FORMA NET INCOME (LOSS) PER COMMON SHARE: The computations of historical 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) 2. Summary of Significant Accounting Policies: (Continued) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin Topic 4-D, all stock options and warrants granted by the Company during the twelve months preceding the Company's initial public offering have been included in the calculation of pro forma net income (loss) per common shares outstanding as if they were outstanding for all periods presented, using the treasury stock method at an assumed public offering price of $27.50 per share. Historical net income (loss) per common share data is as follows:
----------------------------------------------------- For the Years Six Months Ended Ended December 31, June 30, ------------------------------- -------------------- 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- Net loss per common share........................................... $ .07 $ (.51) $ (.71) $ (1.19) $ .49 Weighted average shares outstanding (In thousands).................. 1,317 3,296 4,905 4,105 7,923
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 ---------- ---------- ----------- ---------- ---------- -----------
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) 4. Inventories: (Continued) 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. 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. 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: 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. 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 47 -- 285 --- --- --------- Deferred tax liability (asset): Federal -- -- (2,374) State and local -- -- -- --- --- --------- Total deferred -- -- (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 franchises, 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. No goodwill had been allocated to the terminated franchises. 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 Pro forma net income (loss) per common share $(.72) $(.34) $.17 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 Pro forma 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 pro forma 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 pro forma 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 service contracts thereon. The Company also earns a commission on the sale of finance and insurance contracts. 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 and service contracts thereon. The Company also earns a commission on the sale of finance and insurance contracts. 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 March ended December 31, December 31, 31, April 30, ------------ -------------------- ------------ ----------- 1993 1994 1995 1995 1996 ------------ --------- --------- ------------ ----------- Sales $ 27,750 $ 46,637 $ 62,672 $ 13,072 $ 19,892 Cost of sales, including floor plan interest of $164, $262 and $434 for 1993, 1994 and 1995, respectively 23,415 40,036 52,570 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 and service contracts thereon. The Company also earns a commission on the sale of finance and insurance contracts. 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. 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) 2. Summary of Significant Accounting Policies: (Continued) 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. 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 and vehicle service and parts. The Company also earns a commission on the sale of finance and insurance contracts. 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 13,194 14,301 17,319 8,030 9,661 --------- --------- --------- --------- --------- Income from operations 1,178 1,826 3,203 2,064 3,773 Other income (expense), net (748) (536) (1,181) (500) (717) --------- --------- --------- --------- --------- 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 and service contracts thereon. The Company also earns a commission on the sale of finance and insurance contracts. 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. 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) 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 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. 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) 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 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 --------- --------- ----------- --------- --------- -----------
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) 4. Inventories: (Continued) 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. 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 $1,150, 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 1,309 2,186 ---------- --------- --------- Retained earnings, end of period $ 2,186 $ 1,800 $ 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 and service contracts thereon. The Company also earns a commission on the sale of finance and insurance contracts. 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 (unaudited) (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 and service contracts thereon. The Company also earns a commission on the sale of finance and insurance contracts. 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........................................................ 140,000 Transfer Agent and Registrar Fees and Expenses.......................... 12,000 Printing and Engraving Expenses......................................... 485,000 Legal Fees and Expenses................................................. 1,000,000 Accounting Fees and Expenses............................................ 850,000 Blue Sky Fees and Expenses.............................................. 40,000 Miscellaneous Expenses.................................................. 5,767 ---------- Total........................................................... $2,610,000 ---------- ----------
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 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. II-1 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
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. II-2 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. *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, as amended September 6, 1996 (standard provisions are in Exhibit 10.2.5.2)
II-3
No. Description - ------------ ------------------------------------------------------------------------------------------ 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, dated August 16, 1995, between Fair Chrysler Plymouth Partnership and Chrysler Corporation, (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 September 18, 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 Isuzu Dealer Sales and Service Agreement, dated as of September 16, 1996 between American Isuzu Motors Inc. and Fair Cadillac--Oldsmobile--Isuzu Partnership (standard provisions are in Exhibit 10.2.22 hereto). 10.2.22 Isuzu Dealer Sales and Service Agreement Additional Provisions.
II-4
No. Description - ------------ ------------------------------------------------------------------------------------------ *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 18, 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. *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).
II-5
No. Description - ------------ ------------------------------------------------------------------------------------------ *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. 10.4.21 Agreement, dated July 31, 1995, between the Company and General Motors Corporation, Oldsmobile Division. *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. 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).
II-6
No. Description - ------------ ------------------------------------------------------------------------------------------ *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, 6905 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. 10.9.1 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. Standefer for the primary benefit of children, dated December 21, 1992. 11.1 Statement re computation of per share earnings. 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.
II-7
No. Description - ------------ ------------------------------------------------------------------------------------------ 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 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-8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to be signed on its behalf by the undersigned, thereunto duly authorized, in New York, New York on October 7, 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. 2 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 Officer October 7, 1996 Carl Spielvogel (Principal Executive Officer) /s/ ARTHUR J. RAWL --------------------------------- Executive Vice President and Chief Financial October 7, 1996 Arthur J. Rawl Officer (Principal Financial Officer) /s/ ROBERT W. THOMPSON --------------------------------- Vice President-Finance (Principal Accounting October 7, 1996 Robert W. Thompson Officer) /s/ MARSHALL S. COGAN --------------------------------- Director October 7, 1996 Marshall S. Cogan * --------------------------------- Director October 7, 1996 Michael R. Eisenson * --------------------------------- Director October 7, 1996 John J. Hannan * --------------------------------- Director October 7, 1996 Jules B. Kroll /s/ ROBERT H. NELSON --------------------------------- Director October 7, 1996 Robert H. Nelson
Signature Title Date - ------------------------------------------ --------------------------------------------------- ---------------- * --------------------------------- Director October 7, 1996 John M. Sallay * --------------------------------- Director October 7, 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 as amended September 6, 1996 (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.
No. Description - ------------ ------------------------------------------------------------------------------------------ *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 dated August 16, 1995 (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 September 18, 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 Isuzu Dealer Sales and Service Agreement, dated as of September 16, 1996 between American Isuzu Motors Inc. and Fair Cadillac--Oldsmobile--Isuzu Partnership (standard provisions are in Exhibit 10.2.22 hereto). 10.2.22 Isuzu Dealer Sales and Service Agreement Additional Provisions. *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 18, 1996, in favor of Atlantic Auto Second Funding Corporation.
No. Description - ------------ ------------------------------------------------------------------------------------------ *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. *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.
No. Description - ------------ ------------------------------------------------------------------------------------------ 10.4.21 Agreement, dated July 31, 1995, between the Company and General Motors Corporation, Oldsmobile Division. *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. 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.
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, 6905 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. 10.9.1 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. Standefer for the primary benefit of children, dated December 21, 1992. 11.1 Statement re computation of per share earnings. 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-1.1 2 UNDERWRITING AGREEMENT UNITED AUTO GROUP, INC. ____________ Shares of Common Stock Underwriting Agreement , 1996 J.P. Morgan Securities Inc. Montgomery Securities Smith Barney Inc. As Representatives of several underwriters listed in Schedule I hereto c/o J.P. Morgan Securities Inc. 60 Wall Street New York, New York 10260 Ladies and Gentlemen: United Auto Group, Inc., a Delaware corporation (the "COMPANY"), proposes to issue and sell to the several Underwriters listed in Schedule I hereto (the "UNDERWRITERS"), for whom you are acting as representatives (the "REPRESENTATIVES"), an aggregate of ___________ shares of Voting Common Stock, par value $0.0001 per share (the "VOTING COMMON STOCK"), of the Company (the "UNDERWRITTEN SHARES") and, for the sole purpose of covering over-allotments in connection with the sale of the Underwritten Shares, at the option of the Underwriters, up to an additional ________ shares of Voting Common Stock of the Company (the "OPTION SHARES"). The Underwritten Shares and the Option Shares are herein referred to as the "SHARES." The shares of Voting Common Stock of the Company to be outstanding after giving effect to the sale of the Shares are herein referred to as the "STOCK." The Company has prepared and filed with the Securities and Exchange Commission (the "COMMISSION") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "SECURITIES ACT"), a registration statement on Form S-1 (No. 333-09429), including a prospectus, relating to the Shares. The registration statement as amended at the time of its effectiveness, including information (if any) deemed to be part of the registration statement at the time of effectiveness -2- pursuant to Rule 430A under the Securities Act, is referred to in this Agreement as the "REGISTRATION STATEMENT," and the prospectus in the form first used to confirm sales of Shares is referred to in this Agreement as the "PROSPECTUS." If the Company has filed an abbreviated registration statement pursuant to Rule 462(b) under the Securities Act (the "RULE 462 REGISTRATION STATEMENT"), then any reference herein to the term "Registration Statement" shall be deemed to include such Rule 462 Registration Statement. The Company hereby agrees with the Underwriters as follows: 1. The Company agrees to issue and sell the Underwritten Shares to the several Underwriters as hereinafter provided, and each Underwriter, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees to purchase, severally and not jointly, from the Company the respective number of Underwritten Shares set forth opposite such Underwriter's name in Schedule I hereto at a purchase price per share (the "PURCHASE PRICE") of $____________. The public offering price of the Shares is not in excess of the price recommended by Smith Barney Inc. ("SMITH BARNEY"), acting as a "qualified independent underwriter" within the meaning of the Conduct Rules of the National Association of Securities Dealers, Inc. (the "NASD"). In addition, the Company agrees to issue and sell the Option Shares to the several Underwriters as hereinafter provided, and the Underwriters on the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, shall have the option to purchase, severally and not jointly, from the Company up to an aggregate of ________ Option Shares at the Purchase Price, for the sole purpose of covering over-allotments (if any) in the sale of Underwritten Shares by the several Underwriters. If any Option Shares are to be purchased, the number of Option Shares to be purchased by each Underwriter shall be the number of Option Shares which bears the same ratio to the aggregate number of Option Shares being purchased as the number of Underwritten Shares set forth opposite the name of such Underwriter in Schedule I hereto (or such number increased as set forth in Section 9 hereof) bears to the aggregate number of Underwritten Shares being purchased from the Company by the several Underwriters, subject, however, to such adjustments to eliminate any fractional shares as the Representatives in their sole discretion shall make. -3- The Underwriters may exercise the option to purchase the Option Shares at any time (but not more than once) on or before the thirtieth day following the date of this Agreement, by written notice from the Representatives to the Company. Such notice shall set forth the aggregate number of Option Shares as to which the option is being exercised and the date and time when the Option Shares are to be delivered and paid for, which may be the same date and time as the Closing Date (as hereinafter defined) but shall not be earlier than the Closing Date or later than the tenth full Business Day after the date of such notice (unless such time and date are postponed in accordance with the provisions of Section 9 hereof). Any such notice shall be given at least two Business Days prior to the date and time of delivery specified therein. As used herein, the term "BUSINESS DAY" means any day other than a day on which banks are permitted or required to be closed in New York City. 2. The Company understands that the Underwriters intend (i) to make a public offering of the Shares as soon after (A) the Registration Statement has become effective and (B) the parties hereto have executed and delivered this Agreement, as in the judgment of the Representatives is advisable and (ii) initially to offer the Shares upon the terms set forth in the Prospectus. 3. Payment for the Shares shall be made by wire transfer in immediately available funds to the account specified by the Company to the Representatives (which account shall be specified no later than noon the Business Day prior to the Closing Date), in the case of the Underwritten Shares, on , 199_, or at such other time on the same or such other date, not later than the fifth Business Day thereafter, as the Representatives and the Company may agree upon in writing or, in the case of the Option Shares, on the date and time specified by the Representatives in the written notice of the Underwriters' election to purchase such Option Shares. The time and date of such payment for the Underwritten Shares is referred to herein as the "CLOSING DATE," and the time and date for such payment for the Option Shares, if other than the Closing Date, is herein referred to as the "ADDITIONAL CLOSING DATE." Payment for the Shares to be purchased on the Closing Date or the Additional Closing Date, as the case may be, shall be made against delivery to the Representatives for the respective accounts of the several Underwriters of the Shares to be purchased on such date registered in such names and in such denominations as the Representatives shall request in writing not later than two full Business Days prior to the Closing Date or the Additional Closing Date, as the case may be, with any transfer taxes payable in connection with the transfer to the -4- Underwriters of the Shares duly paid by the Company. The certificates for the Shares will be made available for inspection and packaging by the Representatives at the office of J.P. Morgan Securities Inc. ("J.P. MORGAN SECURITIES") set forth above not later than 1:00 P.M., New York City time, on the Business Day prior to the Closing Date or the Additional Closing Date, as the case may be. 4. The Company represents and warrants to each Underwriter that: (a) no order preventing or suspending the use of any preliminary prospectus has been issued by the Commission, and each preliminary prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Securities Act, complied when so filed in all material respects with the Securities Act, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use therein; (b) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted or, to the best of the Company's knowledge, threatened by the Commission; and the Registration Statement and Prospectus and any amendment or supplement thereto comply, or will comply, as the case may be, in all material respects with the Securities Act and do not and will not, as of the applicable effective date as to the Registration Statement and any amendment thereto and as of the date of the Prospectus and any amendment or supplement thereto, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectus, at the Closing Date or Additional Closing Date, as the case may be, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that the foregoing representations and warranties shall not apply to statements or omissions in the Registration Statement or the Prospectus made in reliance upon and in conformity with information relating to any Underwriter -5- furnished to the Company in writing by such Underwriter through the Representatives expressly for use therein; (c) the financial statements, and the related notes thereto, included in the Registration Statement and the Prospectus present fairly (i) the consolidated financial position of the Company and its consolidated subsidiaries as of the dates indicated and the results of their operations and changes in their consolidated cash flows and stockholders' equity for the periods specified and (ii) the financial position or the consolidated financial position, as the case may be, of the other entities listed in the "Index to Financial Statements" in the Prospectus as of the dates indicated and the results of their operations and changes in their cash flows or consolidated cash flows, as the case may be, and, if applicable, stockholders' equity; said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis, and the supporting schedule included in the Registration Statement presents fairly the information required to be stated therein; and the pro forma financial statements, and the related notes thereto, and other pro forma financial information included in the Registration Statement and the Prospectus have been prepared in accordance with the applicable requirements of the Securities Act and are based upon good faith estimates and assumptions believed by the Company to be reasonable; (d) the statistical and market-related data included in the Prospectus are based on or derived from sources that the Company believes are reliable and accurate; (e) since the respective dates as of which information is given in the Prospectus, there has not been any change in the capital stock or long-term debt of the Company or any of the Subsidiaries (as defined below), or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, business, prospects, management, financial position, stockholders' equity or results of operations of the Company and the Subsidiaries, taken as a whole (a "MATERIAL ADVERSE CHANGE" or a "PROSPECTIVE MATERIAL ADVERSE CHANGE"), otherwise than as set forth or contemplated in the Prospectus; and except as set forth or contemplated in the Prospectus neither the Company nor any of the Subsidiaries has entered into any transaction or agreement (whether or not in the ordinary course of business) material to the Company and the Subsidiaries taken as a whole; (f) the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws -6- of its jurisdiction of incorporation, with power and authority (corporate and other) to own and lease its properties and conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, other than where the failure to be so qualified or in good standing, singly or in the aggregate with all other such failures, would not have a material adverse effect on the general affairs, business, prospects, management, financial position, stockholders' equity or results of operations of the Company and the Subsidiaries, taken as a whole (a "MATERIAL ADVERSE EFFECT"); (g) each of the subsidiaries of the Company after giving effect to the Contemporaneous Acquisitions (the "SUBSIDIARIES") has been duly incorporated and is validly existing as a corporation under the laws of its jurisdiction of incorporation, with power and authority (corporate and other) to own and lease its properties and conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, other than where the failure to be so qualified or in good standing, singly or in the aggregate with all other such failures, would not have a Material Adverse Effect; and all of the outstanding shares of capital stock of each Subsidiary have been duly authorized and validly issued, are fully paid and non-assessable, and (except as otherwise set forth in the Prospectus) will be owned, as of the Closing Date, by the Company, directly or indirectly, free and clear of all material liens, encumbrances, security interests or claims, except that 19% of the Common Stock of SK Motors, Ltd. (d/b/a Scottsdale Porsche) will be owned by [ ]. (h) this Agreement has been duly authorized, executed and delivered by the Company; (i) each of the agreements (collectively, the "TRANSACTION DOCUMENTS") governing the acquisitions that are contemplated to occur on the Closing Date (the "CONTEMPORANEOUS ACQUISITIONS") or the exchange of the minority interests in certain of the Subsidiaries (the "MINORITY EXCHANGE") has been duly authorized, executed and delivered by each of the parties thereto, and constitutes a legally valid and binding obligation of each such party and is enforceable against each such party in accordance with its terms; except as described in the Prospectus, each of the representations and warranties of the Company and its -7- subsidiaries and, to the best of the Company's knowledge, of each of the other parties set forth in the Transaction Documents was true and correct at the time such representations and warranties were made and will be true and correct at and as of the Closing Date or the Additional Closing Date, as the case may be, as if made at and as of such date (other than to the extent any such representation or warranty is expressly made as to only a certain other date), except to the extent that the failure of any such representation or warranty to be true, singly or in the aggregate, would not have a Material Adverse Effect; (j) as of the Closing Date, the Company will have an authorized capitalization as set forth in the Prospectus and such authorized capital stock will conform as to legal matters to the description thereof set forth in the Prospectus; all of the outstanding shares of capital stock of the Company have been duly authorized and validly issued, are fully paid and non-assessable and are not subject to any preemptive or similar rights; and, except as described in or expressly contemplated by the Prospectus, there are no outstanding rights (including, without limitation, preemptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in the Company or any of the Subsidiaries, or any contract, commitment, agreement, understanding or arrangement of any kind to which the Company or any of the Subsidiaries is a party relating to the issuance of any capital stock of the Company or any such Subsidiary, any such convertible or exchangeable securities or any such rights, warrants or options; (k) the Shares have been duly authorized and, when issued and delivered to and paid for by the Underwriters in accordance with the terms of this Agreement, will be validly issued and will be fully paid and non-assessable and will conform to the descriptions thereof in the Prospectus; and the issuance of the Shares is not subject to any preemptive or similar rights; (l) except as described in the Prospectus, neither the Company nor any of the Subsidiaries is, or with the giving of notice or lapse of time or both would be, in violation of or in default under, its Certificate or Articles of Incorporation or By-Laws or any indenture, mortgage, deed of trust, loan agreement, franchise agreement or other agreement or instrument to which the Company or any of the Subsidiaries is a party or by which it or any of them or any of their respective properties is bound, except for violations and defaults which singly and in the aggregate are not material to the Company and the Subsidiaries taken as a whole; the issuance and sale of the Shares and the performance by the Company of its obligations under this -8- Agreement and the Transaction Documents and the consummation of the transactions contemplated herein and therein will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, franchise agreement or other agreement or instrument to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries is bound or to which any of the property or assets of the Company or any of the Subsidiaries is subject, and will not result in any violation of any applicable law or statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company, the Subsidiaries or any of their respective properties, except any such conflicts, breaches and defaults resulting from the performance by the Company of its obligations under the Transaction Documents and the consummation of the transactions contemplated therein that, singly or in the aggregate, would not have a Material Adverse Effect, and will not result in any violation of the provisions of the Certificate of Incorporation or By-Laws of the Company; and no consent, approval, authorization, order, license, registration or qualification of or with any such court or governmental agency or body is required for the issuance and sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement, except such consents, approvals, authorizations, orders, licenses, registrations or qualifications as have been obtained under the Securities Act and as may be required under state securities or Blue Sky Laws in connection with the purchase and distribution of the Shares by the Underwriters; (m) other than as set forth or contemplated in the Prospectus, there are no legal or governmental investigations, actions, suits or proceedings (collectively, "PROCEEDINGS") pending or, to the best of the Company's knowledge, threatened against or affecting the Company or any of the Subsidiaries or any of their respective properties or to which the Company or any of the Subsidiaries is or may be a party or to which any property of the Company or any of the Subsidiaries is or may be the subject which, singly or in the aggregate, could have, or reasonably could be expected to have, a Material Adverse Effect and, to the best of the Company's knowledge, no such Proceedings are threatened or contemplated by governmental authorities or threatened by others; and there are no statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required; (n) the Company and the Subsidiaries have good and marketable title in fee simple to all items of real property and -9- good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described or referred to in the Prospectus and except to the extent as would not, singly or in the aggregate, have a Material Adverse Effect; and any real property and buildings held under lease by the Company and the Subsidiaries are held by them under valid, existing and enforceable leases with such exceptions as would not, singly or in the aggregate, have a Material Adverse Effect; (o) no relationship, direct or indirect, exists between or among the Company or any of the Subsidiaries on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company or any of the Subsidiaries on the other hand, which is required by the Securities Act to be described in the Prospectus which is not so described; (p) no person has the right to require the Company to register any securities of the Company or any of the Subsidiaries for offering and sale under the Securities Act by reason of the filing of the Registration Statement with the Commission or the issuance and sale of the Shares or the transactions in connection therewith, except for such rights as have been duly waived; (q) the Company is not and, after giving effect to the offering and sale of the Shares, will not be an "investment company" or entity "controlled" by an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT"); (r) the Company has complied with all provisions of Section 517.075, Florida Statutes (Chapter 92 198, Laws of Florida, relating to doing business with the Government of Cuba or with any person or affiliate located in Cuba; (s) Coopers & Lybrand, L.L.P., who have certified certain financial statements of the Company and the Subsidiaries, are independent public accountants as required by the Securities Act; (t) the Company and the Subsidiaries have filed all federal, state, local and foreign tax returns which have been required to be filed and have paid all taxes shown thereon and all assessments received by them or any of them to the extent that such taxes have become due and are not being contested in good faith, except such amounts that are not, singly or in the aggregate, material to the Company and the Subsidiaries taken as a whole; and there is no tax deficiency which has been or might reasonably be expected to be asserted or threatened against the -10- Company or any Subsidiary, other than such tax deficiencies in such amounts that are not, singly or in the aggregate, material to the Company and the Subsidiaries taken as a whole; (u) the Company has not taken nor will it take, directly or indirectly, any action designed to, or that might be reasonably expected to, cause or result in stabilization or manipulation of the price of the Stock; (v) each of the Company and the Subsidiaries owns, possesses or has obtained all licenses, franchises, permits, certificates, consents, orders, approvals and other authorizations (collectively, "PERMITS") from, and has made all declarations and filings with, all federal, state, local and other governmental authorities (including foreign regulatory agencies), all self- regulatory organizations, all domestic or foreign courts and other tribunals and all automobile manufacturers and distributors necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as conducted as of the date hereof and as proposed to be conducted, and neither the Company nor any such Subsidiary has received any actual notice of any proceeding relating to revocation or modification of any such Permit, except as described in the Prospectus; and each of the Company and the Subsidiaries is in compliance with all laws and regulations relating to the conduct of its business as conducted as of the date hereof, except to the extent that failure to so comply would not, singly or in the aggregate, have a Material Adverse Effect; (w) there are no existing or, to the best of the Company's knowledge, threatened labor disputes with the employees of the Company or any of the Subsidiaries which, singly or in the aggregate, would have a Material Adverse Effect; (x) the Company and the Subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except, in each case, where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a Material Adverse Effect; and -11- (y) each employee benefit plan, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is maintained, administered or contributed to by the Company or any of its affiliates for employees or former employees of the Company and its affiliates has been maintained in compliance with its terms and the requirements of any applicable statutes, orders, rules and regulations, including but not limited to ERISA and the Internal Revenue Code of 1986, as amended (the "CODE"), except to the extent non-compliance, singly or in the aggregate, would not have a Material Adverse Effect. No prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any such plan excluding transactions effected pursuant to a statutory or administrative exemption. For each such plan which is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA, no "accumulated funding deficiency" as defined in Section 412 of the Code has been incurred, whether or not waived, and the fair market value of the assets of each such plan (excluding for these purposes accrued but unpaid contributions) exceeded the present value of all benefits accrued under such plan determined using reasonable actuarial assumptions. 5. The Company covenants and agrees with each of the several Underwriters as follows: (a) to use its best efforts to cause the Registration Statement to become effective at the earliest possible time and, if required, to file the Prospectus with the Commission within the time periods specified by Rule 424(b) and Rule 430A under the Securities Act; and to furnish copies of the Prospectus to the Underwriters in New York City prior to 10:00 a.m., New York City time, on the Business Day next succeeding the date of this Agreement in such quantities as the Representatives may reasonably request; (b) to deliver, at the expense of the Company, to the Representatives four copies of the Registration Statement (as originally filed) and each amendment thereto, in each case including exhibits, and to each other Underwriter a copy of the Registration Statement (as originally filed) and each amendment thereto, in each case without exhibits, and, during the period mentioned in paragraph (e) below, to each of the Underwriters as many copies of the Prospectus (including all amendments and supplements thereto) as the Representatives may reasonably request; (c) before filing any amendment or supplement to the Registration Statement or the Prospectus, whether before or after -12- the time the Registration Statement becomes effective, to furnish to the Representatives a copy of the proposed amendment or supplement for review and not to file any such proposed amendment or supplement to which the Representatives reasonably object; (d) to advise the Representatives promptly, and to confirm such advice in writing (i) when the Registration Statement has become effective, (ii) when any amendment to the Registration Statement has been filed or becomes effective, (iii) when any supplement to the Prospectus or any amended Prospectus has been filed and to furnish the Representatives with copies thereof, (iv) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for any additional information, (v) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the Prospectus or the initiation or threatening of any proceeding for that purpose, (vi) of the occurrence of any event, within the period referenced in paragraph (e) below, as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, and (vii) of the receipt by the Company of any notification with respect to any suspension of the qualification of the Shares for offer and sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and to use its best efforts to prevent the issuance of any such stop order, or of any order preventing or suspending the use of any preliminary prospectus or the Prospectus, or of any order suspending any such qualification of the shares, or notification of any such order thereof and, if issued, to obtain as soon as possible the withdrawal thereof; (e) if, during such period of time after the first date of the public offering of the Shares as in the opinion of counsel for the Underwriters a prospectus relating to the Shares is required by law to be delivered in connection with sales by the Underwriters or any dealer, any event shall occur as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the Prospectus to comply with law, forthwith to prepare and furnish, at the expense of the Company, to the Underwriters and to the dealers (whose names and addresses the Representatives will furnish to the Company) to which Shares may have been sold by the Representatives on behalf of the Underwriters and to any other -13- dealers upon request, such amendments or supplements to the Prospectus as may be necessary so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus will comply with law; (f) to endeavor to qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Representatives shall reasonably request and to continue such qualification in effect so long as reasonably required for distribution of the Shares; PROVIDED, HOWEVER, that the Company shall not be required to file a general consent to service of process in any jurisdiction; (g) to make generally available to its security holders and to the Representatives as soon as practicable an earnings statement covering a period of at least twelve months beginning with the first fiscal quarter of the Company occurring after the effective date of the Registration Statement, which shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 of the Commission promulgated thereunder; (h) until December 31, 2000, to furnish to the Representatives copies of all reports or other communications (financial or other) furnished to holders of the Shares, and copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange; (i) for a period of 180 days after the date of the initial public offering of the Shares not to (x) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of Stock or any securities convertible into or exercisable or exchangeable for Stock or (y) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Stock, whether any such transaction described in clause (x) or (y) above is to be settled by delivery of Stock or such other securities, in cash or otherwise, or (z) permit the registration under the Securities Act of any shares of capital stock of the Company, in each case, without the prior written consent of J.P. Morgan Securities; PROVIDED, HOWEVER, that the foregoing shall not prohibit (i) the issuance and sale of the Shares hereunder and the shares of Stock issued in the Minority Exchange, (ii) the issuance of stock options granted under existing director or employee stock option plans, (iii) the issuance of any shares of Stock issued upon the exercise of -14- options, warrants or convertible securities outstanding on the date hereof or granted under existing director or employee stock option plans, (iv) registration of the Shares and registration of shares of Voting Common Stock pursuant to the Form S-8 Registration Statement of the Company to be filed with the Commission on or about the Closing Date (the "S-8 REGISTRATION STATEMENT") and (v) the issuance of any shares of Stock or options, warrants or rights to purchase shares of Stock or securities convertible into shares of Stock, in each case, in respect of an acquisition of an operating business so long as the persons receiving the same agree to execute lock-up agreements substantially similar to those being executed in connection with the offering of the Shares; (j) to use the net proceeds received by the Company from the sale of the Shares pursuant to this Agreement in the manner specified in the Prospectus under the caption "Use of Proceeds" and to file with the Commission such reports on Form SR as may be required by Rule 463 under the Securities Act; (k) to use its best efforts to list, subject to notice of issuance, the Shares on the New York Stock Exchange (the "EXCHANGE"); (l) whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all costs and expenses incident to the performance of its obligations hereunder, including without limiting the generality of the foregoing, all costs and expenses (i) incident to the preparation, issuance, execution and delivery of the Shares, (ii) incident to the preparation, printing and filing under the Securities Act of the Registration Statement, the Prospectus and any preliminary prospectus (including in each case all exhibits, amendments and supplements thereto), (iii) incurred in connection with the registration or qualification of the Shares under the laws of such jurisdictions as the Representatives may designate (including fees of counsel for the Underwriters and its disbursements), (iv) in connection with the listing of the Shares on the Exchange, (v) related to the filing with, and clearance of the offering by, the NASD (including the fees and expenses of Smith Barney acting as a "qualified independent underwriter" within the meaning of the aforementioned Conduct Rules), (vi) in connection with the printing (including word processing and duplication costs) and delivery of the Blue Sky Survey and the furnishing to the Underwriters and dealers of copies of the Registration Statement and the Prospectus, including mailing and shipping, as herein provided, (vii) any expenses incurred by the Company in connection with a "road show" presentation to potential investors, (viii) the cost of preparing -15- stock certificates and (ix) the cost and charges of any transfer agent and any registrar. 6. The several obligations of the Underwriters hereunder to purchase the Shares on the Closing Date or the Additional Closing Date, as the case may be, are subject to the performance by the Company of its obligations hereunder and to the following additional conditions: (a) The Registration Statement shall have become effective (or if a post-effective amendment is required to be filed under the Securities Act, such post-effective amendment shall have become effective) not later than 5:00 P.M., New York City time, on the date hereof; and no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment shall be in effect, and no proceedings for such purpose shall be pending before or threatened by the Commission; the Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations under the Securities Act and in accordance with Section 5(a) hereof; and all requests from the Commission for additional information shall have been complied with to the satisfaction of the Representatives. (b) The representations and warranties of the Company contained herein are true and correct in all material respects on and as of the Closing Date or the Additional Closing Date, as the case may be, as if made on and as of the Closing Date or the Additional Closing Date, as the case may be, and the Company shall have complied in all material respects with all agreements and all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date or the Additional Closing Date, as the case may be. (c) subsequent to the execution and delivery of this Agreement and prior to the Closing Date or the Additional Closing Date, as the case may be, there shall not have occurred any downgrading, nor shall any notice have been given of (i) any downgrading, (ii) any intended or potential downgrading or (iii) any review or possible change that does not indicate an improvement, in the rating accorded any securities of or guaranteed by the Company or any of the Subsidiaries by any "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Securities Act; (d) Since the respective dates as of which information is given in the Prospectus, there shall not have been any change in the capital stock or long-term debt of the Company or any of -16- the Subsidiaries or any Material Adverse Change, or any development involving a Prospective Material Adverse Change, otherwise than as set forth or contemplated in the Prospectus, the effect of which in the judgment of the Representatives makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares on the Closing Date or the Additional Closing Date, as the case may be, on the terms and in the manner contemplated in the Prospectus; and neither the Company nor any of the Subsidiaries has sustained since the date of the latest audited financial statements included material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus. (e) The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, a certificate of two executive officers of the Company (such certificate not to impose personal liability on such officer), with specific knowledge about the Company's financial matters, satisfactory to the Representatives, to the effect set forth in subsections (a) through (d) of this Section and to the further effect that there has not occurred any Material Adverse Change, or any development involving a Prospective Material Adverse Change. (f) Willkie Farr & Gallagher, counsel for the Company, shall have furnished to the Representatives their written opinion, dated the Closing Date or the Additional Closing Date, as the case may be, in form and substance satisfactory to the Representatives, to the effect that: (i) the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, with power and authority (corporate and other) to own and lease its properties and conduct its business as described in the Prospectus; (ii) each of the Subsidiaries has been duly incorporated and is validly existing as a corporation under the laws of its jurisdiction of incorporation, with power and authority (corporate and other) to own and lease its properties and conduct its business as described in the Prospectus; and all of the outstanding shares of capital stock of each Subsidiary have been duly authorized and validly issued, are fully paid and non-assessable, and (except as otherwise set forth in the Prospectus) are owned by the Company, directly or indirectly, free and clear (to the best of such counsel's knowledge) of all liens, encumbrances, security interests or claims; -17- (iii) other than as set forth or contemplated in the Prospectus, to the best of such counsel's knowledge, there are no Proceedings pending or threatened against or affecting the Company or any of the Subsidiaries or any of their respective properties or to which the Company or any of the Subsidiaries is or may be a party or to which any property of the Company or any of the Subsidiaries is or may be the subject which, singly or in the aggregate, could have a Material Adverse Effect and, to the best of such counsel's knowledge, no such Proceedings are threatened or contemplated by governmental authorities or threatened by others; and to the best of such counsel's knowledge, there are no statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required; (iv) this Agreement has been duly authorized, executed and delivered by the Company; (v) each of the Transaction Documents has been duly authorized, executed and delivered by the Company and each Subsidiary which is a party thereto, and constitutes a legally valid and binding obligation of each such party and is enforceable against each such party in accordance with its terms; (vi) all of the shares of capital stock of the Company (other than the Shares) issued or to be issued (including by conversion or exchange) and outstanding on the Closing Date have been duly authorized and if issued, are validly issued, fully paid and non-assessable or when issued, will be validly issued, fully paid and non-assessable; all of such shares of capital stock of the Company (other than shares of Stock covered by the S-8 Registration Statement) have been, or will have been, issued without registration under the Securities Act pursuant to an exemption therefrom; (vii) the Shares to be issued and sold by the Company hereunder have been duly authorized, and when delivered to and paid for the Underwriters in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of the Shares is not subject to any preemptive or similar rights under any contract, agreement or instrument known to such counsel or under applicable law; (viii) to the best of such counsel's knowledge, neither the filing of the Registration Statement nor the offer and sale of the Shares to the Underwriters in the manner contemplated in this Agreement and the transactions in connection -18- therewith give rise to any rights for or relating to the registration under the Securities Act of any other securities of the Company or any of the Subsidiaries, except for such rights as have been duly waived; (ix) the statements in the Prospectus under "Business -- Franchise Agreements," "Description of Capital Stock," "Shares Eligible for Future Sale" and "Underwriting" and in Items 14 and 15 of Part II of the Registration Statement, insofar as such statements constitute a summary of the terms of the capital stock of the Company, legal matters, documents or proceedings referred to therein, fairly present the information called for with respect to such terms, legal matters, documents or proceedings; (x) based on a telephone call with the Staff of the Commission, the Registration Statement has been declared effective under the Securities Act and to the best of such counsel's knowledge, no stop order proceedings with respect thereto are pending or threatened under the Securities Act; the registration statement on Form 8-A registering the Stock under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), has been declared effective by the Commission; (xi) the issuance and sale of the Shares and the performance by the Company of its obligations under this Agreement and the Transaction Documents and the consummation of the transactions contemplated herein and therein will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, franchise agreement or other agreement or instrument, in each case, known to such counsel, to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries is bound or to which any of the property or assets of the Company or any of the Subsidiaries is subject, or the terms of any applicable law or statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company, the Subsidiaries or any of their respective properties, except for such conflicts, breaches, or defaults that, singly or in the aggregate, would not have a Material Adverse Effect, nor will any such action result in any violation of the provisions of the Certificate of Incorporation or By-Laws of the Company; (xii) no consent, approval, authorization, order, license, registration or qualification of or with any court or governmental agency or body is required for the issuance and sale of the Shares or the consummation of the other transactions contemplated by this Agreement, except such consents, approvals, -19- authorizations, orders, licenses, registrations or qualifications as have been obtained under the Securities Act and as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters; (xiii) the Company is not and, after giving effect to the offering and sale of the Shares, will not be an "investment company" or entity "controlled" by an "investment company," as such terms are defined in the Investment Company Act; (xiv) each of the Company and the Subsidiaries owns, possesses or has obtained all required consents and approvals from all automobile manufacturers and distributors with respect to the Contemporaneous Acquisitions and the issuance and sale of the Shares hereunder; and (xv) such counsel is of the opinion that the Registration Statement and the Prospectus and any amendments and supplements thereto (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) appear on their face to be appropriately responsive in all material respects with the requirements of the Securities Act and believes that (other than the financial statements and related schedule therein, as to which such counsel need express no belief) the Registration Statement and the prospectus included therein at the time the Registration Statement became effective did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that neither the Prospectus nor any amendment or supplement thereto contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering such opinions, such counsel may rely (A) as to matters involving the application of laws other than the laws of the United States and the State of New York and the General Corporation Law of the State of Delaware, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to Underwriters' counsel) of other counsel reasonably acceptable to Underwriters' counsel, familiar with the applicable laws; (B) as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Company and certificates or other written statements of officials of jurisdictions having custody of documents respecting -20- the corporate existence or good standing of the Company; and (C) the opinion of Rogers & Hardin being delivered on or prior to the Closing Date. The Representatives understand that such counsel's opinion may be limited in scope in respect of certain customary matters, including, without limitation, the availability of equitable remedies, the limitation on enforceability arising from bankruptcy and insolvency laws, that such counsel is only qualified to opine on the laws of the United States and the State of New York and the General Corporation Law of the State of Delaware, that such counsel is not rendering any opinion as to breaches of agreements arising from breaches of financial covenants or from breaches of cross-default provisions triggered by breaches in any agreements not known to such counsel, that the opinion in clause (xiii) and (insofar as it relates to the application of any law, statute, order, rule or regulation) clause (xi) is limited to laws, statutes, orders, rules or regulations usually applicable to transactions such as the offering of the Shares, the Minority Exchange, the Contemporaneous Acquisitions and the Preferred Stock Conversion and that opinions made to the knowledge of such counsel are limited to the actual knowledge of those lawyers regularly engaged on matters for the Company. The opinion of such counsel for the Company shall state that the opinion of any such other counsel upon which they relied is in form satisfactory to such counsel and, in such counsel's opinion, the Underwriters and they are justified in relying thereon. With respect to the matters to be covered in subparagraph (xv) above counsel may state their opinion and belief is based upon their participation in the preparation of the Registration Statement and the Prospectus and any amendment or supplement thereto and review and discussion of the contents thereof but is without independent check or verification except as specified. The opinion of Willkie Farr & Gallagher described above shall be rendered to the Underwriters at the request of the Company and shall so state therein. (g) Philip N. Smith, Jr., general counsel of the Company, shall have furnished to the Representatives his written opinion, dated the Closing Date or the Additional Closing Date, as the case may be, in form and substance satisfactory to the Representatives, to the effect that: (i) the Company and each of the Subsidiaries has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, other than where the failure to be so qualified or in good standing, singly or in the -21- aggregate with all other such failures, would not have a Material Adverse Effect; (ii) neither the Company nor any of the Subsidiaries is, or with the giving of notice or lapse of time or both would be, in violation of or in default under, its Certificate or Articles of Incorporation or By-Laws or any indenture, mortgage, deed of trust, loan agreement, franchise agreement or other agreement or instrument, in each case, known to such counsel, to which the Company or any of the Subsidiaries is a party or by which it or any of them or any of their respective properties is bound, except for violations and defaults which singly and in the aggregate are not material to the Company and the Subsidiaries taken as a whole; (iii) except as described in the Prospectus, each of the Company and the Subsidiaries owns, possesses or has obtained all Permits from all automobile manufacturers and distributors necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as conducted as of the Closing Date and as proposed to be conducted, and neither the Company nor any such Subsidiary has received any actual notice of any proceeding relating to revocation or modification of any such Permit, in each case, other than any Permit that is material to the Company and the Subsidiaries taken as a whole; to the best of such counsel's knowledge, except as described in the Prospectus, each of the Company and the Subsidiaries owns, possesses or has obtained all Permits from, and has made all declarations and filings with, all federal, state, local and other governmental authorities (including foreign regulatory agencies), all self-regulatory organizations and all domestic or foreign courts and other tribunals necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as conducted as of the Closing Date and as proposed to be conducted, and neither the Company nor any such Subsidiary has received any actual notice of any proceeding relating to revocation or modification of any such Permit, in each case, other than any Permit that is material to the Company and the Subsidiaries taken as a whole; and to the best of such counsel's knowledge, each of the Company and the Subsidiaries is in compliance with all laws and regulations relating to the conduct of its business as conducted as of the date of the Prospectus, except as described in the Prospectus and except to the extent failure to so comply would not, singly or in the aggregate, have a Material Adverse Effect; (iv) to the best of such counsel's knowledge, each of the Company and the Subsidiaries owns, possesses or has the right to use the intellectual property employed by it in connection with the business conducted by it as of the date hereof other than -22- any such intellectual property that is not material to the Company and the Subsidiaries taken as a whole; (v) to the best of such counsel's knowledge, the Company and the Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described or referred to in the Prospectus and except to the extent as would not simply or in the aggregate, have any Material Adverse Effect; and to the best of such counsel's knowledge, any real property and buildings held under lease by the Company and the Subsidiaries are held by them under valid, existing and enforceable leases with such exceptions as would not have a Material Adverse Effect; (vi) to the best of such counsel's knowledge, each of the Company and the Subsidiaries is in compliance with all Environmental Laws, except, in each case, where noncompliance, singly or in the aggregate, would not have a Material Adverse Effect; there are no Proceedings pending or, to the best of such counsel's knowledge, threatened against or affecting the Company or any of the Subsidiaries under any Environmental Law which, singly or in the aggregate, would have a Material Adverse Effect; and (vii) such counsel believes that (other than the financial statements and related schedule therein, as to which such counsel need express no belief) the Registration Statement and the prospectus included therein at the time the Registration Statement became effective did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that neither the Prospectus nor any amendment or supplement thereto contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (h) On the effective date of the Registration Statement and the effective date of the most recently filed post-effective amendment to the Registration Statement and also on the Closing Date or Additional Closing Date, as the case may be, Coopers & Lybrand, L.L.P. shall have furnished to you letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you, containing statements and information of the type customarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus. -23- (i) The Representatives shall have received on and as of the Closing Date or Additional Closing Date, as the case may be, an opinion of Cahill Gordon & Reindel, counsel to the Underwriters, with respect to the due authorization and valid issuance of the Shares, the Registration Statement, the Prospectus and other related matters as the Representatives may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters. (j) The Shares to be delivered on the Closing Date or Additional Closing Date, as the case may be, shall have been approved for listing on the Exchange, subject to official notice of issuance. (k) The "lock-up" agreements, each substantially in the form of Exhibit A hereto, of each of the Company's officers, directors and stockholders and certain other equity holders relating to sales and certain other dispositions of shares of Stock or certain other securities, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date or Additional Closing Date, as the case may be. (l) Each of the conditions to closing of the Contemporaneous Acquisitions and the Minority Exchange shall have been satisfied or waived at the date hereof, and the Contemporaneous Acquisitions and the Minority Exchange shall be consummated prior to or simultaneously with the consummation of the offering of Shares hereunder. (m) On or prior to the Closing Date or Additional Closing Date, as the case may be, the Company shall have furnished to the Representatives such further certificates and documents as the Representatives shall reasonably request. 7. The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, the legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any preliminary prospectus or the Prospectus or any amendment or supplement thereto, or caused by 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 losses, claims, damages or -24- liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use therein. The Company also agrees to indemnify and hold harmless Smith Barney and each person, if any, who controls Smith Barney within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities incurred as a result of Smith Barney's participation as a "qualified independent underwriter" within the meaning of the Conduct Rules of the NASD in connection with the offering of the Shares. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to each Underwriter, but only with reference to information relating to such Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in the Registration Statement, the Prospectus, any amendment or supplement thereto, or any preliminary prospectus. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnity may be sought pursuant to any of the three preceding paragraphs, such person (the "INDEMNIFIED PERSON") shall promptly notify the person against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in writing, and the Indemnifying Person, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing -25- interests between them. It is understood that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred; PROVIDED, HOWEVER, that if indemnity may be sought pursuant to the second paragraph of this Section 7 in respect of such proceeding, then in addition to such separate firm of the Underwriters and such control persons of the Underwriters the indemnifying party shall be liable for the fees and expenses of not more than one separate firm (in addition to any local counsel) for Smith Barney in its capacity as a "qualified independent underwriter" and all persons, if any, who control Smith Barney within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act. Any such separate firm for the Underwriters and such control persons of Underwriters shall be designated in writing by J.P. Morgan Securities and any such separate firm for the Company, its directors, its officers who sign the Registration Statement and such control persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested an Indemnifying Person to reimburse the Indemnified Person for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the Indemnifying Person agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such Indemnifying Person of the aforesaid request and (ii) such Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. If the indemnification provided for in the first, second or third paragraphs of this Section 7 is unavailable to an Indemnified Person in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person -26- thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters and Smith Barney in its capacity as a "qualified independent underwriter" on the other hand from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters and Smith Barney in its capacity as a "qualified independent underwriter" on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters and Smith Barney in its capacity as a "qualified independent underwriter" on the other hand shall be deemed to be in the same respective proportions as the net proceeds from the offering (before deducting expenses) received by the Company and the total underwriting discounts and the commissions received by the Underwriters, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate public offering price of the Shares. The relative fault of the Company on the one hand and the Underwriters and Smith Barney in its capacity as a "qualified independent underwriter" on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, by the Underwriters or by Smith Barney in its capacity as a "qualified independent underwriter" and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by PRO RATA allocation (even if the Underwriters were treated as one entity for such purposes) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall an Underwriter be required to contribute any amount in excess of the amount by which the total price at which the Shares -27- underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. 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 Underwriters' obligations to contribute pursuant to this Section 7 are several in proportion to the respective number of Shares set forth opposite their names in Schedule I hereto, and not joint. The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter or by or on behalf of the Company, its officers or directors or any other person controlling the Company and (iii) acceptance of and payment for any of the Shares. 8. Notwithstanding anything herein contained, this Agreement (or the obligations of the several Underwriters with respect to the Option Shares) may be terminated in the absolute discretion of the Representatives, by notice given to the Company, if after the execution and delivery of this Agreement and prior to the Closing Date (or, in the case of the Option Shares, prior to the Additional Closing Date) (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the Exchange or the American Stock Exchange, the Nasdaq National Market, the Chicago Board Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities of or guaranteed by the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either federal or New York State authorities, or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in the judgment of the Representatives, is material and adverse and which, in the judgment of the Representatives, makes it impracticable to market the Underwritten Shares or the Option Shares, as the case may be, on the terms and in the manner contemplated in the Prospectus. -28- 9. This Agreement shall become effective upon the later of (x) execution and delivery hereof by the parties hereto and (y) release of notification of the effectiveness of the Registration Statement (or, if applicable, any post- effective amendment) by the Commission. If on the Closing Date or the Additional Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares which it or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of Shares to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of Shares set forth opposite their respective names in Schedule I bears to the aggregate number of Underwritten Shares set forth opposite the names of all such non- defaulting Underwriters, or in such other proportions as the Representatives may specify, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; PROVIDED, HOWEVER, that in no event shall the number of Shares that any Underwriter has agreed to purchase pursuant to Section 1 be increased pursuant to this Section 9 by an amount in excess of one-ninth of such number of Shares without the written consent of such Underwriter. If on the Closing Date or the Additional Closing Date, as the case may be, any Underwriter or Underwriters shall fail or refuse to purchase Shares which it or they have agreed to purchase hereunder on such date, and the aggregate number of Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Shares to be purchased on such date, and arrangements satisfactory to the Representatives and the Company for the purchase of such Shares are not made within 36 hours after such default, this Agreement (or the obligations of the several Underwriters to purchase the Option Shares, as the case may be) shall terminate without liability on the part of any non-defaulting Underwriter or the Company. In any such case either you or the Company shall have the right to postpone the Closing Date (or, in the case of the Option Shares, the Additional Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 10. If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of the Company to comply with its covenants or to fulfill any of the conditions of this Agreement, or if for any reason the -29- Company shall be unable to perform its obligations under this Agreement or any condition of the Underwriters' obligations cannot be fulfilled, the Company agrees to reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees and expenses of their counsel) reasonably incurred by such Underwriters in connection with this Agreement or the offering contemplated hereunder. 11. This Agreement shall inure to the benefit of and be binding upon the Company, the Underwriters, any controlling persons referred to herein and their respective successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person, firm or corporation any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. No purchaser of Shares from any Underwriter shall be deemed to be a successor by reason merely of such purchase. 12. Any action by the Underwriters hereunder may be taken by the Representatives jointly or by J.P. Morgan Securities alone on behalf of the Underwriters, and any such action taken by the Representatives jointly or by J.P. Morgan Securities alone shall be binding upon the Underwriters. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be given to the Representatives, c/o J.P. Morgan Securities Inc., 60 Wall Street, New York, New York 10260 (telecopy: 212/648-5121 or 212/648-5951); Attention: Syndicate Department. Notices to the Company shall be given to it at 375 Park Avenue, New York, New York 10152, (telecopy: 212/223-5148); Attention: Chief Executive Officer. 13. This Agreement may be signed in counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. 14. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the conflicts of laws provisions thereof. If the foregoing is in accordance with your understanding, please sign and return four counterparts hereof. Very truly yours, UNITED AUTO GROUP, INC. By:______________________ Name: Title: Accepted as of the date first written above: J.P. MORGAN SECURITIES INC. MONTGOMERY SECURITIES SMITH BARNEY INC. Acting severally on behalf of themselves and the several Underwriters listed in Schedule I hereto. By: J.P. MORGAN SECURITIES INC. By: ________________________ Name: Title: SCHEDULE I Underwritten Underwriter Shares - ----------- ------------ J.P. Morgan Securities Inc. Montgomery Securities Smith Barney Inc. Total EX-3.1 3 EXHIBIT 3.1 THIRD RESTATED CERTIFICATE OF INCORPORATION OF UNITED AUTO GROUP, INC. * * * * * * ARTICLE I NAME The name of the corporation is: United Auto Group, Inc. (the "Corporation"). ARTICLE II REGISTERED OFFICE AND AGENT The address of the Corporation's registered office in the State of Delaware is 32 Loockerman Square, Suite L-100 in the City of Dover, County of Kent. The name of the Corporation's registered agent at such address is The Prentice Hall Corporation System, Inc. ARTICLE III PURPOSE The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "DGCL"). ARTICLE IV CAPITAL 1. DESIGNATION. The total number of shares of capital stock which the Corporation shall have the authority to issue is 41,225,000, consisting of: (i) 40,000,000 shares of Voting Common Stock, par value $0.0001 per share (the "VOTING COMMON STOCK"), (ii) 1,125,000 shares of Non-voting Common Stock, par value $0.0001 per share (the "NON-VOTING COMMON STOCK" and, collectively with the Voting Common Stock, the "COMMON STOCK"); and (iii) 100,000 shares of Preferred Stock, par value $0.0001 per share. All shares of Common Stock issued and outstanding shall be identical and shall entitle the holders thereof to the same rights and privileges, except as otherwise provided in this Article IV. Holders of shares of Common Stock shall not have preemptive or other rights to subscribe for additional shares of Common Stock or for any other securities of the Corporation. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Corporation (the "Board") is expressly authorized at any time, and from time to time, to provide for the issuance of shares of Preferred Stock in one or more series, for such consideration (not less than its par value) and with such designations, powers, preferences and relative, participating, optional or other special rights, and such qualifications, limitations or restrictions, as shall be determined by the Board and fixed by resolution or resolutions adopted by the Board providing for the number of shares in each such series. 2. VOTING POWER OF COMMON STOCK. Except as otherwise required by law, each holder of Voting Common Stock shall be entitled to vote on all matters and shall be entitled to one vote for each share of Voting Common Stock standing in such holder's name on the books of the Corporation determined as of the record date for the determination of stockholders entitled to vote on such matters or, if no such record date is established, at the date such vote is taken. Except as provided in this Section 2 or as otherwise required by law, no holder of Non-voting Common Stock shall be entitled to vote such stock on any matter on which the stockholders of the Corporation shall be entitled to vote, and shares of Non-voting Common Stock shall not be included in determining the number of shares voting or entitled to vote on any such matters. Except as otherwise provided in this Section 2 or as otherwise required by law, the holders of shares of Voting Common Stock and, on any matter on which the holders of shares of Non-voting Common Stock are entitled to vote, the holders of shares of Non-voting Common Stock, shall vote together as a single class; PROVIDED, HOWEVER, that the holders of shares of Non-voting Common Stock shall be entitled to vote as a separate class on any amendment, repeal or modification of any provision of this Certificate of Incorporation that adversely affects the powers, preferences or special rights of the holders of the Non-voting Common Stock. 3. CONVERSION OF COMMON STOCK. (a) Subject to and upon compliance with the provisions of this Section 3, any Regulated Stockholder (as hereinafter defined) shall be entitled to convert, at any time and from time to time, any or all of the shares of Voting Common Stock held by such stockholder into an equal number of shares of Non-voting Common Stock. (b) Subject to and upon compliance with the provisions of this Section 3, each holder of Non-voting Common Stock shall be entitled to convert, at any time and from time to time, any or -2- all of the shares of Non-voting Common Stock held by such stockholder into an equal number of shares of Voting Common Stock; PROVIDED HOWEVER, that no holder of shares of Non-Voting Common Stock shall be entitled to convert any such shares to the extent that, as a result of such conversion, such holder and its Affiliates (as hereinafter defined), directly or indirectly, would own, control or have the power to vote (i) a greater number of shares of Voting Common Stock or other securities of any kind issued by the Corporation than such holder and its Affiliates shall be permitted to own, control or have power to vote under any law, regulation, rule or other requirement of any governmental authority at the time applicable to such holder or its Affiliates or (ii) with respect to a holder or Affiliate that is subject to regulation under the insurance laws of any jurisdiction, 5% or more of the outstanding voting capital stock of the Corporation. (c) To exercise its conversion privilege, a holder of Common Stock shall surrender the certificate or certificates representing the shares of Common Stock being converted (the "CONVERTING SHARES") to the Corporation's transfer agent and shall give written notice to the Corporation and its transfer agent that such holder elects to convert the Converting Shares into an equal number of shares of the class into which such shares may be converted (the "CONVERTED SHARES"). Such notice shall also state the name or names (with address or addresses) and denominations in which the certificate or certificates for Converted Shares are to be issued. The Corporation shall promptly notify each Regulated Stockholder (that has previously informed the Corporation in writing of its status as a Regulated Stockholder) of its receipt of such notice. The certificate or certificates for Converting Shares shall be accompanied by proper assignment thereof to the Corporation or in blank. The date when such written notice is received by the Corporation's transfer agent, together with the certificate or certificates representing the Converting Shares, shall be the "CONVERSION DATE." As promptly as possible after the Conversion Date, the Corporation shall issue and deliver to the holder of the Converting Shares, or on its written order, such certificate or certificates as it may request for the Converted Shares issuable upon such conversion, and the Corporation shall deliver to the converting holder a certificate (which shall contain such legends as were set forth on the surrendered certificate or certificates) representing any shares which were represented by the certificate or certificates that were delivered to the Corporation in connection with such conversion but which were not converted, PROVIDED, HOWEVER, that if such conversion is subject to part (d) of this Section 3, the Corporation shall not issue such certificate or certificates until the expiration of the Deferral Period (as hereinafter defined) referred to therein. Such conversion, to the extent permitted by the close of business on the Conversion Date, and at such time the rights of the holder of the Converting Shares as such holder shall cease (except that, in the case of a conversion subject to part (d) of this Section 3, -3- the conversion shall be deemed effective upon the expiration of the Deferral Period referred to therein), and the person or persons in whose name or names the certificate or certificates for the Converted Shares shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the Converted Shares. Upon the issuance of shares in accordance with this Section 3, such Converted Shares shall be deemed to be duly authorized, validly issued, fully paid and non-assessable. (d) The Corporation shall not convert or directly or indirectly redeem, purchase or otherwise acquire any shares of Voting Common Stock or any other class of capital stock of the Corporation or take any other action affecting the voting rights of such shares if such action will increase the percentage of any class of outstanding voting securities owned or controlled by any Regulated Stockholder (other than any such stockholder which requested that the Corporation take such action or which otherwise waives in writing its rights under part (d) of this Section 3) unless the Corporation gives written notice (the "DEFERRAL NOTICE") of such action to each Regulated Stockholder (that has previously informed the Corporation in writing of its status as a Regulated Stockholder). The Corporation shall defer making any such conversion, redemption, purchase or other acquisition, or taking any such other action, for a period of 30 days (the "DEFERRAL PERIOD") after giving the Deferral Notice in order to allow each Regulated Stockholder to determine whether it wishes to convert or take any other action with respect to the Common Stock it owns, controls or has the power to vote, and if any such Regulated Stockholder then elects to convert any shares of Voting Common Stock it shall notify the Corporation in writing within 20 days of the issuance of the Deferral Notice, in which case the Corporation shall (i) defer taking the pending action until the end of the Deferral Period, (ii) promptly notify from time to time each other Regulated Stockholder of each proposed conversion and the proposed transactions and (iii) effect the conversions requested by all Regulated Stockholders in response to the notices issued pursuant to part (d) of this Section 3 at the end of the Deferral Period. (e) If the Corporation shall in any manner subdivide (by stock split, stock dividend or otherwise) or combine (by reverse stock split or otherwise) the outstanding shares of the Voting Common Stock or the Non-voting Common Stock, the outstanding shares of each other class of Common Stock shall be subdivided or combined, as the case may be, to the same extent, share and share alike, and effective provision shall be made for the protection of the conversion rights hereunder. If, at any time and from time to time, there shall be a capital reorganization of the Common Stock (other than a change in par value or from par value to no par value or from no par value to par value as a result of any stock dividend or subdivision, split-up or combination of shares) or a merger or consolidation of the Corporation with or into another -4- corporation, or sale of all or substantially all of the Corporation's properties and assets, then, as part of such reorganization, merger, consolidation or sale, provision shall be made so that each holder of any shares of Common Stock, irrespective of class, shall thereafter be entitled to receive upon conversion of any such shares, so long as the conversion right hereunder with respect to such shares would exist had such event not occurred, the number of shares of stock or other securities or property of the Corporation, or of the successor corporation resulting from such merger, consolidation or sale, to which such holder would have been entitled if such holder had converted such shares immediately prior to such capital reorganization, merger, consolidation or sale. In the event of such a merger, consolidation or sale, effective provision shall be made in the certificate of incorporation of the successor corporation or otherwise for the protection of the conversion rights of the shares of Common Stock of each class that shall be applicable, as nearly as reasonably may be, to any such other shares of stock and other securities and property deliverable upon conversion of shares of Common Stock into which such Common Stock could have been converted immediately prior to such event. The Corporation shall not be a party to any reorganization, merger or consolidation pursuant to which any Regulated Stockholder would be required to take (i) any voting securities which would cause such holder to violate any law, regulation or other requirement of any governmental body applicable to such holder or (ii) any securities convertible into voting securities which if such conversion took place would cause such holder to violate any law, regulation or other requirement of any governmental body applicable to such holder, other than securities which are specifically provided to be convertible only in the event that such conversion may occur without any such violation. (f) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Voting Common Stock, Non-voting Common Stock or its treasury shares, solely for the purpose of effecting the conversion of shares of Voting Common Stock and Non-voting Common Stock, such number of shares of such class as shall from time to time be sufficient to effect the conversion of all then outstanding shares of Voting Common Stock that are entitled to so convert and all then outstanding shares of Non-voting Common Stock. (g) The issuance of certificates for shares of any class of Common Stock upon conversion of shares of any other class of Common Stock shall be made without charge to the holders of such shares for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of shares of Common Stock; PROVIDED, HOWEVER, that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Common Stock converted. -5- (h) "AFFILIATE" shall mean with respect to any person, any other person, directly or indirectly controlling, controlled by or under common control with such person. For the purpose of the above definition, the term "control" (including, with correlative meanings, the terms "controlling," "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 or by contract or otherwise. "REGULATED STOCKHOLDER" shall mean (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") and to which shares of Common Stock of the Corporation were issued pursuant to the warrants issued to J.P. Morgan Capital Corporation, so long as such stockholder shall hold such shares of Common Stock or shares issued upon conversion(s) of such shares, (ii) any stockholder that is subject to regulation under the New York Insurance Law and to which shares of Common Stock of the Corporation were issued pursuant to the warrants issued to The Equitable Life Assurance Society of the United States, so long as such stockholder shall hold such shares of Common Stock or shares issued upon conversion(s) of such shares, (iii) any Affiliate of any such Regulated Stockholder that is a transferee of any shares of Common Stock of the Corporation, so long as such Affiliate shall hold, and only with respect to, such shares of Common Stock or shares issued upon conversion of such shares and (iv) any person to which such Regulated Stockholder or any of its Affiliates has transferred such shares, so long as such transferee shall hold, and only with respect to, any shares transferred by such stockholder or Affiliates or any shares issued upon conversion of such shares but only if such person (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. ARTICLE V BOARD OF DIRECTORS Except as otherwise provided by law, the number of directors which shall constitute the Board shall be as set forth in the Bylaws of the Corporation. Elections of directors need not be by written ballot. The directors of the Corporation shall be divided into three classes: Class I, Class II and Class III. The number of directors in each class shall be divided equally so far as possible among the three Classes. The initial Class I, Class II and Class III directors shall be designated and the terms of the Board shall be as follows: (i) Class I directors shall be elected to serve until the 1997 Annual Meeting of Stockholders, -6- (ii) Class II directors shall be elected to serve until the 1998 Annual Meeting of Stockholders, and (iii) Class III directors shall be elected to serve until the 1999 Annual Meeting of Stockholders, and until their successors shall be duly elected and qualified. At each annual election of directors, beginning with the 1997 annual election, the successors to the directors of each class whose term shall expire at such meeting shall be elected to hold office for a term of three years from the date of their election and until their successors shall be duly elected and qualified. In case of any increase or decrease in the number of directors, the increase or decrease shall be apportioned by the directors among the several classes as nearly equally as possible; PROVIDED, HOWEVER, that any decrease in the number of directors which shall cause a director to be removed prior to the expiration of his term shall be subject to the provisions of the next succeeding paragraph of this Article V. Anything herein to the contrary notwithstanding, the provisions of this Article V shall apply only to directors elected by holders of Voting Common Stock together with holders of all other classes of the Corporation's capital stock voting as a single class therewith on the election of directors. If holders of any class of the Corporation's capital stock have the right to elect directors voting as a separate class and such right be then in effect, the maximum number of directors of the Corporation shall be increased by the number of directors which such holders may so elect and upon termination of such right the number shall be reduced to the extent it was previously so increased. Notwithstanding any other provisions of this Certificate of Incorporation or the Bylaws (and notwithstanding the fact that some lesser percentage may be specified by law), the affirmative vote of the holders of 2/3 or more of the outstanding shares of capital stock of the Corporation entitled to vote on such amendment, alteration, change or repeal (considered for this purpose as one class) shall be required to amend, alter, change or repeal this Article V. ARTICLE VI BYLAWS In furtherance and not in limitation of the powers conferred by statute, the Board is expressly authorized to make, alter or repeal Bylaws of the Corporation (except insofar as Bylaws adopted by the stockholders shall otherwise provide). -7- ARTICLE VII AGREEMENT WITH CREDITORS Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of Title 8 of the DGCL or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of Title 8 of the DGCL, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all stockholders or class of stockholders of the Corporation, as the case may be, and also on the Corporation. ARTICLE VIII NO STOCKHOLDER ACTION WITHOUT MEETING Any action required or permitted to be taken at an annual or special meeting of the Corporation's stockholders may be taken only at such duly called annual or special meeting. -8- ARTICLE IX INDEMNIFICATION The Corporation shall indemnify to the fullest extent permitted under and in accordance with the laws of the State of Delaware 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 by reason of the fact that he is or was a director, officer, trustee, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, trustee, employee or agent of or in any other capacity with another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Expenses incurred in defending a civil or criminal action, suit or proceeding shall (in the case of any action, suit or proceeding against a director of the Corporation) or may (in the case of any action, suit or proceeding against an officer, trustee, employee or agent) be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board upon receipt of an undertaking by or on behalf of the indemnified person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article IX. The indemnification and other rights set forth in this Article IX shall not be exclusive of any provisions with respect thereto in the Bylaws or any other contract or agreement between the Corporation and any director, officer, trustee, employee or agent of the Corporation. Neither the amendment nor repeal of this Article IX, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article IX, shall eliminate or reduce the effect of this Article IX in respect of any matter occurring before such amendment, repeal or adoption of an inconsistent provision or in respect of any cause of action, suit or claim relating to any such matter which would have given rise to a right of indemnification or right to receive expenses pursuant to this Article IX, if such provision had not been so amended or repealed or if a provision inconsistent therewith had not been so adopted. -9- ARTICLE X ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS To the fullest extent permitted by the DGCL, as the same presently exists or may hereafter be amended, no director shall be personally liable to the Corporation or to any stockholder for monetary damages for breach of fiduciary duty as a director, except for any matter in respect of which such director (a) shall be liable under Section 174 of the DGCL or any amendment thereto or successor provision thereto, or (b) shall be liable by reason that, in addition to any and all other requirements for liability, he (A) shall have breached his duty of loyalty to the Corporation or its stockholders, (B) shall not have acted in good faith or, in failing to act, shall not have acted in good faith, (C) shall have acted in a manner involving intentional misconduct or a knowing violation of law or, in failing to act, shall have acted in a manner involving intentional misconduct or a knowing violation of law or (d) shall have derived an improper personal benefit. Any repeal or modification of this Article X shall no adversely affect any right or protection of a director with respect to any act or omission occurring prior to such repeal or modification. If the DGCL is amended after the date of incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. ARTICLE XI SEVERABILITY If any provisions contained in this Certificate of Incorporation shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not invalidate this entire Certificate of Incorporation or any other provisions hereof. Such provision shall be deemed to be modified to the extent necessary to render it valid and enforceable and if no such modification shall render it valid and enforceable, then this Certificate of Incorporation shall be construed as if not containing such provision. * * * * * EX-3.2 4 EXHIBIT 3.2 UNITED AUTO GROUP, INC. Incorporated Under the General Corporation Law of the State of Delaware BYLAWS (Amended and Restated as of [IPO closing date]) * * * * * ARTICLE I. OFFICES The registered office of UNITED AUTO GROUP, INC. (the "Corporation") in Delaware shall be at 32 Loockerman Square, Suite L-100 in the City of Dover, County of Kent, in the State of Delaware, and The Prentice Hall Corporation System, Inc. shall be the resident agent of the Corporation in charge thereof. The Corporation may also have such other offices at such other places, within or without the State of Delaware, as the board of directors of the Corporation (the "Board of Directors") may from time to time designate or the business of the Corporation may require. ARTICLE II. STOCKHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of stockholders for the election of directors and the transaction of any other business shall be held on such date, in such city and state and at such time and place as may be designated by the Board of Directors, which shall be set forth in the notice of such meeting. At the annual meeting any business may be transacted and any corporate action may be taken, whether stated in the notice of meeting or not, except as otherwise expressly provided by statute, the Certificate of Incorporation or these Bylaws. SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders for any purpose may be called at any time by the Board of Directors, the Chairman of the Board or the Chief Executive Officer and shall be called by the Chief Executive Officer at the request of the holders of a majority of the outstanding shares of capital stock entitled to vote. Special meetings shall be held at such place or places within or without the State of Delaware as shall from time to time be designated by the Board of Directors and stated in the notice of such meeting. At a special meeting no business shall be transacted and no corporate action shall be taken other than that stated in the notice of the meeting. SECTION 3. NOTICE OF MEETINGS. Written notice of the time and place of any stockholders' meeting, whether annual or special, shall be given to each stockholder entitled to vote thereat, by personal delivery or by mailing the same to him at his address as the same appears upon the records of the Corporation at least ten (10) days but not more than sixty (60) days before the day of the meeting. Notice of any adjourned meeting need not be given except by announcement at the meeting so adjourned, unless otherwise ordered in connection with such adjournment. Such further notice, if any, shall be given as may be required by law. SECTION 4. QUORUM. Any number of stockholders, together holding at least a majority of the capital stock of the Corporation issued and outstanding and entitled to vote, who shall be present in person or represented by proxy at any meeting duly called, shall constitute a quorum for the transaction of all business, except as otherwise provided by law, by the Certificate of Incorporation or by these Bylaws. SECTION 5. ADJOURNMENT OF MEETINGS. If less than a quorum shall attend at the time for which a meeting shall have been called, the meeting may be adjourned from time to time by a majority vote of the stockholders present or represented by proxy and entitled to vote, without notice other than by announcement at the meeting until a quorum shall attend. Any meeting at which a quorum is present may also be adjourned in like manner and for such time or upon such call as may be determined by a majority vote of the stockholders present or represented by proxy and entitled to vote. At any adjourned meeting at which a quorum shall be present, any business may be transacted and any corporate action may be taken which might have been transacted at the meeting as originally called. SECTION 6. VOTING LIST. The officer or agent having charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purposes germane to the meeting, during ordinary business hours, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held, for said ten (10) days. The list shall also be produced and kept at the time and place of meeting during the whole time thereof and subject to the inspection of any stockholder who may be present. -2- SECTION 7. VOTING. Each stockholder entitled to vote at any meeting may vote either in person or by proxy, but no proxy shall be voted on or after three (3) years from its date, unless said proxy provides for a longer period. Each stockholder entitled to vote shall at every meeting of the stockholders be entitled to one vote for each share of stock registered in his name on the record of stockholders. At all meetings of stockholders all matters, except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, shall be determined by the affirmative vote of the majority of shares present in person or by proxy and entitled to vote on the subject matter. Voting at meetings of stockholders need not be by written ballot. SECTION 8. RECORD DATE OF STOCKHOLDERS. The Board of Directors is authorized to fix in advance a date not more than sixty (60) days nor less than ten (10) days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, and, in such case, such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting, and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation, after such record date fixed as aforesaid. SECTION 9. NO ACTION WITHOUT MEETING. Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken only at such duly called annual or special meeting. SECTION 10. CONDUCT OF MEETINGS. The Chief Executive Officer or any Vice President designated by the Chief Executive Officer, shall preside at all regular or special meetings of stockholders. To the maximum extent permitted by law, such presiding person shall have the power to set procedural rules, including but not limited to rules respecting the time allotted to stockholders to speak, governing all aspects of the conduct of such meetings. -3- ARTICLE III. DIRECTORS SECTION 1. NUMBER AND QUALIFICATIONS. On the effective date of these Bylaws, the Board of Directors shall consist of eight (8) directors and thereafter shall consist of such number as may be fixed from time to time by resolution of the Board of Directors. The directors need not be stockholders. SECTION 2. ELECTION OF DIRECTORS. The directors of the Corporation shall be divided into three classes: Class I, Class II and Class III. The number of directors in each class shall be divided equally so far as possible among the three classes. The Class I, Class II and Class III directors shall be designated and terms of the Board of Directors shall be as follows: (i) Class I Directors shall be elected to serve until the 1997 Annual Meeting of Stockholders, (ii) Class II Directors shall be elected to serve until the 1998 Annual Meeting of Stockholders, and (iii) Class III Directors shall be elected to serve until the 1999 Annual Meeting of Stockholders, and until their successors shall be duly elected and qualified. At each annual election of directors, beginning with the 1997 annual election, the successors to the directors of each class whose term shall expire at such meeting shall be elected to hold office for a term of three (3) years from the date of their election and until their successors shall be duly elected and qualified. In case of any increase or decrease in the number of directors, the increase or decrease shall be apportioned by the directors among the several classes as nearly equally as possible; PROVIDED, HOWEVER, that any decrease in the number of directors which shall cause a director to be removed prior to the expiration of his term shall be subject to the provisions of the next succeeding paragraph of this Section 2 of Article III. Anything herein to the contrary notwithstanding, the provisions of this Section 2 of Article III shall apply only to directors elected by holders of Voting Common Stock, together with holders of all other classes of the Corporation's capital stock, voting as a single class therewith on the election of directors. If holders of any class of the Corporation's capital stock have the right to elect directors voting as a separate class and such right be then in effect, the maximum number of directors of the Corporation shall be increased by the number of directors which such holders may so elect and upon termination of such right, the limitation shall be reduced to the extent it was previously so increased. -4- Notwithstanding any other provisions of these Bylaws or the Certificate of Incorporation (and notwithstanding the fact that some lesser percentage may be specified by law or by these Bylaws), the affirmative vote of the holders of two-thirds (2/3) or more of the outstanding shares of capital stock of the Corporation entitled to vote on such amendment, alteration, change or repeal (considered for this purpose as one class) shall be required to amend, alter, change or repeal this Section 2 of Article III. SECTION 3. REMOVAL AND RESIGNATION OF DIRECTORS. Any director may be removed from the Board of Directors only for cause by the holders of a majority of the shares of capital stock entitled to vote, at any special meeting of the stockholders called for that purpose, and the office of such director shall forthwith become vacant. Any director may resign at any time. Such resignation shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the Chief Executive Officer or Secretary. The acceptance of a resignation shall not be necessary to make it effective, unless so specified therein. SECTION 4. FILLING OF VACANCIES. Any vacancy among the directors, occurring from any cause whatsoever, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director; PROVIDED, HOWEVER, that the stockholders removing any director may at the same meeting fill the vacancy caused by such removal; and PROVIDED, FURTHER, that if the directors fail to fill any such vacancy, the stockholders may at any special meeting called for that purpose fill such vacancy. In case of any increase in the number of directors, the additional directors may be elected by the directors in office before such increase. Any person elected to fill a vacancy shall hold office, subject to the right of removal as hereinbefore provided, until the stockholders meeting upon which the term of the directors of such director's class expires and until his successor is elected and qualifies. SECTION 5. REGULAR MEETINGS. The Board of Directors shall hold an annual meeting for the transaction of any business immediately after the annual meeting of the stockholders, provided a quorum of directors is present. Other regular meetings may be held at such times as may be determined from time to time by resolution of the Board of Directors. SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors or by the Chief Executive Officer. SECTION 7. NOTICE AND PLACE OF MEETINGS. Meetings of the Board of Directors may be held at the principal office of the -5- Corporation or at such other place as shall be stated in the notice of such meeting. Notice of any such meeting shall be given in compliance with applicable law. No notice of the annual meeting of the Board of Directors shall be required if it is held immediately after the annual meeting of the stockholders and if a quorum is present. SECTION 8. BUSINESS TRANSACTED AT MEETINGS, ETC. Any business may be transacted and any corporate action may be taken at any regular or special meeting of the Board of Directors at which a quorum shall be present, whether such business or proposed action be stated in the notice of such meeting or not, unless special notice of such business or proposed action shall be required by statute. SECTION 9. QUORUM. A majority of the Board of Directors at any time in office shall constitute a quorum. At any meeting at which a quorum is present, the vote of a majority of the members present shall be the act of the Board of Directors unless the act of a greater number is specifically required by law or by the Certificate of Incorporation or these Bylaws. The members of the Board of Directors shall act only as the Board of Directors and the individual members thereof shall not have any powers as such. SECTION 10. COMPENSATION. The directors shall not receive any salary for their services as directors, but by resolution of the Board of Directors a fee (payable in cash or securities, as determined by the Board of Directors) and expenses of attendance may be allowed for attendance at each meeting. Nothing herein contained shall preclude any director from serving the Corporation in any other capacity, as an officer, agent or otherwise, and receiving compensation therefor. SECTION 11. ACTION WITHOUT A MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee of the Board of Directors (each a "Committee"), may be taken without a meeting if all members of the Board of Directors or Committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board of Directors. SECTION 12. MEETINGS THROUGH USE OF COMMUNICATIONS EQUIPMENT. Members of the Board of Directors, or any Committee, shall, except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, may participate in a meeting of the Board of Directors, or any Committee, by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at the meeting. -6- ARTICLE IV. COMMITTEES SECTION 1. EXECUTIVE COMMITTEE. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one (1) or more of their number to constitute an Executive Committee to hold office at the pleasure of the Board of Directors, which Committee shall, during the intervals between meetings of the Board of Directors, have and exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, subject only to such restrictions or limitations as the Board of Directors may from time to time specify, or as limited by law, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. Any member of the Executive Committee may be removed at any time, with or without cause, by a resolution passed by a majority of the whole Board of Directors. Any person ceasing to be a director shall IPSO FACTO cease to be a member of the Executive Committee. Any vacancy in the Executive Committee occurring from any cause whatsoever may be filled from among the directors by a resolution passed by a majority of the whole Board of Directors. SECTION 2. OTHER COMMITTEES. Other Committees may be appointed by resolution of the whole Board of Directors, which Committees shall hold office for such time and have such powers and perform such duties as may from time to time be assigned to them by the Board of Directors. SECTION 3. RESIGNATION. Any member of a Committee may resign at any time. Such resignation shall be made in writing and shall take effect at the time specified therein, or, if no time be specified, at the time of its receipt by the Chief Executive Officer or Secretary. The acceptance of a resignation shall not be necessary to make it effective unless so specified therein. SECTION 4. QUORUM. A majority of the members of a Committee shall constitute a quorum. The act of a majority of the members of a Committee present at any meeting at which a quorum is present shall be the act of such Committee. The members of a Committee shall act only as a Committee, and the individual members thereof shall not have any powers as such. SECTION 5. RECORD OF PROCEEDINGS, ETC. Each Committee shall keep a record of its proceedings, which record shall be filed with the minutes of the proceedings of the Board of Directors. -7- SECTION 6. ORGANIZATION, MEETINGS, NOTICES, ETC. A Committee may hold its meetings at the principal office of the Corporation, or at any other place which a majority of the Committee may at any time agree upon. Each Committee may make such rules as it may deem expedient for the regulation and carrying on of its meetings and proceedings. Unless otherwise ordered by the Executive Committee, any notice of a meeting of such Committee may be given by the Secretary of the Corporation or by the chairman of the Committee and shall be sufficiently given if mailed to each member at his residence or usual place of business at least five (5) days before the day on which the meeting is to be held, or if sent to him at such place by facsimile, telegraph or cable, or delivered personally or by telephone not later than twenty-four (24) hours before the time at which the meeting is to be held. SECTION 7. COMPENSATION. The members of any Committee shall be entitled to such compensation as may be allowed them by resolution of the Board of Directors. ARTICLE V. OFFICERS SECTION 1. NUMBER. The officers of the Corporation shall be a Chief Executive Officer, one or more Vice Presidents, a Secretary, one or more Assistant Secretaries, a Treasurer, and one or more Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article V. The Board of Directors in its discretion may also elect a Chairman of the Board of Directors and/or a Vice Chairman of the Board of Directors. SECTION 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The officers, except as provided in Section 3 of this Article V, shall be appointed annually by the Board of Directors. Each such officer shall, except as herein otherwise provided, hold office until his successor shall have been chosen and shall qualify. Except as otherwise provided by law, any number of offices may be held by the same person. SECTION 3. OTHER OFFICERS. Other officers, including a president, one or more additional executive vice presidents, vice presidents, assistant secretaries or assistant treasurers, may from time to time be appointed by the Board of Directors or Executive Committee, which other officers shall have such powers and perform such duties as may be assigned to them by authority appointing them. SECTION 4. REMOVAL OF OFFICERS. Any officer of the Corporation may be removed from office, with or without cause, by a vote of a majority of the Board of Directors. -8- SECTION 5. RESIGNATION. Any officer of the Corporation may resign at any time. Such resignation shall be in writing and shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the Chief Executive Officer or Secretary. The acceptance of a resignation shall not be necessary in order to make it effective, unless so specified therein. SECTION 6. FILLING OF VACANCIES. A vacancy in any office shall be filled by the Board of Directors or by the authority appointing the predecessor in such office. SECTION 7. COMPENSATION. The compensation of the officers shall be fixed by the Board of Directors, or by any Committee upon whom power in that regard may be conferred by the Board of Directors. SECTION 8. CHAIRMAN AND/OR VICE CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman and/or Vice Chairman of the Board of Directors shall be a director and shall preside at all meetings of the Board of Directors at which he shall be present, and shall have such power and perform such duties as may from time to time be assigned to him by the Board of Directors. SECTION 9. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall, when present, preside at all meetings of the stockholders. He shall have power to call special meetings of the stockholders or of the Board of Directors at any time. He shall be the chief executive officer of the Corporation, and shall have the general direction of the business, affairs and property of the Corporation, and of its several officers, and shall have and exercise all such powers and discharge such duties as usually pertain to the office of Chief Executive Officer. SECTION 10. VICE PRESIDENTS. The President, if any, or Vice Presidents, or any of them, shall, subject to the direction of the Board of Directors, at the request of the Chief Executive Officer or in his absence, or in case of his inability to perform his duties for any cause, perform the duties of the Chief Executive Officer, and, when so acting, shall have all the powers of, and be subject to all restrictions upon, the Chief Executive Officer. The President, if any, and the Vice Presidents shall also perform such other duties as may be assigned to them by the Board of Directors, and the Board of Directors may determine the order of priority among the Vice Presidents. SECTION 11. SECRETARY. The Secretary shall perform such duties as are usually incident to the office of Secretary, or as may from time to time be assigned to him by the Board of Directors, or as are prescribed by these Bylaws. SECTION 12. TREASURER. The Treasurer shall perform such duties and have powers as are usually incident to the office of -9- Treasurer or may from time to time be assigned to him by the Board of Directors. ARTICLE VI. CAPITAL STOCK SECTION 1. ISSUANCE OF CERTIFICATES OF STOCK. Certificates of capital stock shall be in such form as shall be approved by the Board of Directors. They shall be numbered in the order of their issuance and shall be signed by (i) the Chairman of the Board of Directors, the Chief Executive Officer, the President, if any, or one of the Vice Presidents, and (ii) the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and the seal of the Corporation or a facsimile thereof shall be impressed or affixed or reproduced thereon; PROVIDED, HOWEVER, that where such certificates are signed by a transfer agent or an assistant transfer agent or by a transfer clerk acting on behalf of the Corporation and a registrar, the signature of any such officers of the Corporation may be facsimile. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates, or whose facsimile signature or signatures shall have been used thereon, have not ceased to be such officer or officers of the Corporation. SECTION 2. REGISTRATION AND TRANSFER OF SHARES. The name of each person owning one or more shares of the capital stock of the Corporation shall be entered on the books of the Corporation together with the number of shares held by him, the numbers of the certificates covering such shares and the dates of issuance of such certificates. The shares of stock of the Corporation shall be transferable on the books of the Corporation by the holders thereof in person, or by their duly authorized attorneys or legal representatives, on surrender and cancellation of certificates for a like number of shares, accompanied by an assignment or power of transfer endorsed thereon or attached thereto, duly executed, and with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require. A record shall be made of each transfer. The Board of Directors may make other and further rules and regulations concerning the transfer and registration of certificates for stock and may appoint a transfer agent or registrar or both and may require all certificates of stock to bear the signature of either or both. -10- SECTION 3. LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. The holder of any stock of the Corporation shall immediately notify the Corporation of any loss, theft, destruction or mutilation of the certificates therefor. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it alleged to have been lost, stolen, destroyed or mutilated, and the Board of Directors may, in its discretion, require the owner of the lost, stolen, destroyed or mutilated certificate, or his legal representatives, to give the Corporation a bond, in such sum not exceeding double the value of the stock and with such surety or sureties as they may require, to indemnify it against any claim that may be made against it by reason of the issuance of such new certificate and against all other liability in the premises, or may remit such owner to such remedy or remedies as he may have under the laws of the State of Delaware. ARTICLE VII. DIVIDENDS, SURPLUS, ETC. SECTION 1. GENERAL DISCRETION OF DIRECTORS. The Board of Directors shall have power to fix and vary the amount to be set aside or reserved as working capital of the Corporation, or as reserves, or for other proper purposes of the Corporation, and, subject to the requirements of the Certificate of Incorporation, to determine whether any part of the surplus or net profits of the Corporation shall be declared as dividends and paid to the stockholders, and to fix the date or dates for the payment of any dividends. ARTICLE VIII. MISCELLANEOUS PROVISIONS SECTION 1. FISCAL YEAR. The fiscal year of the Corporation shall commence on the first day of January and end on the last day of December, or such other dates as may be determined by the Board of the Directors. SECTION 2. CORPORATE SEAL. The corporate seal shall be in such form as approved by the Board of Directors and may be altered at their pleasure. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. SECTION 3. NOTICES. Except as otherwise expressly provided, any notice required by these Bylaws to be given shall be sufficient if given by depositing the same in a post office or letter box in a sealed postpaid wrapper addressed to the person entitled thereto at his address, as the same appears upon the books of the Corporation, or transmitted by facsimile, telegraph or cable the same to such person at such address; and such notice -11- shall be deemed to be given at the time it is mailed, transmitted by facsimile, telegraphed or cabled. SECTION 4. WAIVER OF NOTICE. Any stockholder or director may at any time, by writing or by facsimile, telegraph or cable, waive any notice required to be given under these Bylaws, and if any stockholder or director shall be present at any meeting his presence shall constitute a waiver of such notice. SECTION 5. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation, and in such manner, as shall from time to time be designated by resolution of the Board of Directors. SECTION 6. DEPOSITS. All funds of the Corporation shall be deposited from time to time to the credit of the Corporation in such bank or banks, trust companies or other depositories as the Board of Directors may select, and, for the purpose of such deposit, checks, drafts, warrants and other orders for the payment of money which are payable to the order of the Corporation, may be endorsed for deposit, assigned and delivered by any officer of the Corporation, or by such agents of the Corporation as the Board of Directors or the Chief Executive Officer may authorize for that purpose. SECTION 7. VOTING STOCK OF OTHER CORPORATIONS. Except as otherwise ordered by the Board of Directors or the Executive Committee, the Chief Executive Officer or the Secretary shall have full power and authority on behalf of the Corporation to attend and to act and to vote at any meeting of the stockholders of any corporation of which the Corporation is a stockholder and to execute a proxy to any other person to represent the Corporation at any such meeting, and at any such meeting the Chief Executive Officer or the Secretary or the holder of any such proxy, as the case may be, shall possess and may exercise any and all rights and powers incident to ownership of such stock and which rights and powers the Corporation might have possessed and exercised if present. The Board of Directors or the Executive Committee may from time to time confer like powers upon any other person or persons. SECTION 8. INDEMNIFICATION OF OFFICERS AND DIRECTORS. The Corporation shall indemnify any and all of its directors or officers, including former directors or officers, and any employee, who shall serve as an officer or director of any corporation at the request of the Corporation, to the fullest extent permitted under and in accordance with the laws of the State of Delaware. SECTION 9. INTERESTED DIRECTORS; QUORUM. No contract or transaction between the Corporation and one or more of its directors or officers of a corporation, partnership, association, -12- or other organization or entity in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or Committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the Committee, and the Board of Directors or Committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterest directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a Committee which authorizes the contract or transaction. ARTICLE IX. AMENDMENTS SECTION 1. Amendments. The Board of Directors shall have the power to make, rescind, alter, amend and repeal these Bylaws, PROVIDED, HOWEVER, that the stockholders shall have power to rescind, alter, amend or repeal any bylaws made by the Board of Directors, and to enact bylaws which if so expressed shall not be rescinded, altered, amended or repealed by the Board of Directors. * * * * * EX-4.1 5 EXHIBIT 4.1 [VIGNETTE] NUMBER SHARES UAG__________ UNITED AUTO GROUP, INC. ______ INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE VOTING COMMON STOCK SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP 909440 10 9 This CERTIFIES that _______________ is the owner of _____________ FULLY PAID AND NON-ASSESSABLE SHARES OF THE VOTING COMMON STOCK OF THE PAR VALUE $0.0001 PER SHARE OF UNITED AUTO GROUP, INC. transferable on the books of the corporation by the holder hereof in person or by a duly authorized attorney upon surrender of this certificate properly endorsed. This Certificate is not valid until countersigned and registered by the Transfer Agent and Registrar. IN WITNESS WHEREOF, the corporation has caused this Certificate to be signed by the facsimile signatures of its duly authorized officers and to be sealed with the facsimile seal of the corporation. Dated: /s/ Philip N. Smith, Jr. /s/ Carl Spielvogel SECRETARY CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER COUNTERSIGNED AND REGISTERED: THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK TRANSFER AGENT AND REGISTRAR AUTHORIZED SIGNATURE [SEAL] UNITED AUTO GROUP, INC. THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS, THE DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS, ANY SUCH REQUESTS MAY BE MADE TO THE CORPORATION OR TO THE TRANSFER AGENT. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT -- ...........Custodian......... TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of survivorship and not Under Uniform Gifts to Minors as tenants in common Act.......................... (State)
Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, ____________________, hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------- - -------------------------------------- ______________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) ______________________________________________________________________________ ______________________________________________________________________________ ________________________________________________________________________shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ______________________________________________________________________Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated ____________________ X _________________________________ X _________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OF ENLARGEMENT OR ANY CHANGE WHATEVER. SIGNATURE(s) GUARANTEED By _______________________________ THE SIGNATURES SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. EX-5.1 6 EXHIBIT 5.1 [LETTERHEAD OF WILLKIE FARR & GALLAGHER] October 1, 1996 United Auto Group, Inc. 375 Park Avenue New York, New York 10152 Ladies and Gentlemen: You have requested our opinion, as counsel for United Auto Group, Inc., a Delaware corporation (the "Corporation"), in connection with the Registration Statement on Form S-1, as amended (the "Registration Statement"), under the Securities Act of 1933, as amended, filed by the Corporation with the Securities and Exchange Commission. The Registration Statement relates to an offering of up to ________ shares ("Shares") of Voting Common Stock, par value $0.0001 per share, of the Corporation, of which up to ______ Shares are subject to a 30-day over-allotment option granted by the Corporation to the underwriters. In that connection, we have examined drafts of the Corporation's Third Restated Certificate of Incorporation and Bylaws and of the underwriting agreement providing for the issuance and sale of the Shares (the "Underwriting Agreement"), the applicable resolutions of the Corporation's Board of Directors and the Registration Statement. We have also examined such other documents, corporate records, certificates and instruments relating to the Corporation as we have deemed relevant and necessary to the formation of the opinion hereinafter set forth. In such examination, we have assumed the genuineness and authenticity of all documents examined by us and all signatures thereon, the legal capacity of all persons executing such documents, the conformity to originals of all copies of documents submitted to us, the conformity in all material respects of final documents with drafts thereof and the effectiveness of the Third Restated Certificate of Incorporation. Based upon and subject to the foregoing, we are of the opinion that the Shares have been duly authorized United Auto Group, Inc. October 1, 1996 Page 2 and, when issued, sold and delivered pursuant to the terms of the Underwriting Agreement, will be validly issued, fully paid and non-assessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the caption "Legal Matters" in the Registration Statement. Very truly yours, /s/ Willkie Farr & Gallagher 163164 EX-10.1-8 7 EXHIBIT 10.1.8 UNITED AUTO GROUP, INC. STOCK OPTION PLAN * * * ARTICLE I PURPOSE This Stock Option Plan (the "Plan") is intended to encourage stock ownership in United Auto Group, Inc. (the "Company") by employees of the Company and its subsidiaries and affiliates in order to increase their proprietary interest in the Company's success and to encourage such employees to remain in the employ of the Company and its subsidiaries or affiliates. ARTICLE II CERTAIN DEFINITIONS "BOARD" shall mean the Board of Directors of the Company. "CLASS A PREFERRED STOCK" shall mean the Class A Convertible Preferred Stock of the Company, par value $0.0001 per share. "CODE" shall mean the Internal Revenue Code of 1986, as amended. "COMMITTEE" shall mean the Stock Option Committee of the Board. "COMMON STOCK" shall mean the voting common stock of the Company, par value $0.0001 per share. "ELIGIBLE EMPLOYEE" shall mean (i) any person employed on a full-time basis by the Company or any of its subsidiaries or (ii) any person employed by an affiliate of the Company who performs services for the Company or any of its subsidiaries. "EXERCISE PRICE" shall have the meaning assigned to such term in Article VI hereof. "IPO" shall mean a "Qualified Public Offering" as such term is defined in the Company's Restated Certificate of Incorporation as in effect on the date the Plan is adopted by the Board or the completion of a sale of capital stock of the Company (or a subsidiary of the Company) pursuant to a registration statement which has become effective under the Securities Act of 1933, as amended, and which has been deemed to be a Qualified Public Offering by the holders of a majority of the outstanding shares of the Class A Preferred Stock of the Company. "ISO" shall mean an "incentive stock option" within the meaning of Section 422 of the Code. "OPTION" shall mean any option granted under the Plan. "OPTIONEE" shall mean any holder of an Option. "OPTION AGREEMENT" shall mean the agreement between an Optionee and the Company governing Options granted under the Plan, the forms of which shall be consistent with the terms of the Plan but need not be identical. "NON-QUALIFIED OPTION" shall mean an Option which is not an ISO. ARTICLE III STOCK The stock to be issued upon the exercise of Options shall be shares of authorized but unissued Common Stock or previously issued shares of Common Stock reacquired by the Company. The aggregate number of shares of Common Stock as to which Options may be granted under the Plan at any time shall not exceed 1,500,838, subject to adjustment from time to time in accordance with the provisions of Article X hereof. The number of shares of Common Stock available for grant of Options at any time under the Plan shall be decreased by the sum of (i) the number of shares with respect to which Options have been issued and have not lapsed or been cancelled, in each case, prior to such time and (ii) the number of shares issued prior to such time upon exercise of Options. In the event that any outstanding Option under the Plan lapses in accordance with Articles VII or VIII hereof, prior to the end of the period during which Options may be granted, the shares of Common Stock subject to the unexercised portion of such Option shall again be available for the granting of Options under the Plan. -2- ARTICLE IV PARTICIPATION Optionees shall be limited to Eligible Employees who have received written notice of their selection to participate in the Plan and who have entered into an Option Agreement. Each Option Agreement shall state the total number of shares of Common Stock which are subject to the Option granted. No Eligible Employee shall at any time have a right to be selected as a participant. ARTICLE V ADMINISTRATION The Plan shall be administered by the Committee which shall have sole authority, in its absolute discretion: (a) to select which Eligible Employees shall be granted Options; (b) to determine the number of Options to be granted to such Eligible Employees and whether such Options shall be ISOs or Non- Qualified Options; (c) to prescribe the form or forms of the Option Agreements under the Plan; (d) to adopt, amend or rescind such rules and regulations as, in its opinion, may be advisable for the administration of the Plan; and (e) to construe and interpret the Plan, and all such rules and regulations, and to make all other determinations deemed necessary or advisable for the administration of the Plan. All decisions, determinations and interpretations of the Committee made in good faith shall be final and binding on all participants. Neither the Committee nor any member of the Committee shall be liable for any act, omission, interpretation, construction or determination made in connection with the Plan in good faith, and the members of the Committee shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, counsel fees) arising therefrom to the full extent permitted by Delaware law and under any directors' and officers' liability insurance coverage which may be in effect from time to time. ARTICLE VI EXERCISE PRICE The Exercise Price per share of Common Stock covered by Options granted under the Plan shall be established on or prior to the date of grant by the Committee and shall be set forth in -3- the Optionee's Option Agreement. Payment shall be made in full upon exercise of the Option by delivering to the Company at its principal executive offices cash or a certified check, bank draft or money order payable to the order of the Company in the aggregate amount of the Exercise Price, or in accordance with any cashless exercise procedures adopted by the Committee from time to time. ARTICLE VII VESTING OF OPTIONS All Options granted under the Plan shall vest and become exercisable in accordance with vesting schedules established by the Committee at the time of grant. ARTICLE VIII TERMINATION OF EMPLOYMENT Each Option will have a ten-year term from the date of grant, subject to earlier termination upon termination of the Optionee's employment, as determined by the Committee. The Committee may also provide that the Company shall have the right prior to the IPO to repurchase any shares of Common Stock held by an Optionee whose employment has terminated, at such price as shall be established by the Committee at the time of grant. ARTICLE IX TRANSFERABILITY Options shall not be transferable, except by will or the laws of descent and distribution. During the lifetime of the Optionee, Options shall be exercisable only by the Optionee. ARTICLE X ADJUSTMENT FOR RECAPITALIZATION, MERGER, ETC. The aggregate and maximum number of shares of Common Stock which may be purchased or acquired pursuant to Options granted hereunder, the number of shares of Common Stock to which each Option relates and the Exercise Price in respect of such Option shall be appropriately adjusted for any increase or -4- decrease in the number of outstanding shares of Common Stock resulting from a stock split or other subdivision or consolidation of shares of Common Stock or for other capital adjustments or payments of stock dividends or stock distributions or other increases or decreases in the outstanding shares of Common Stock effected without receipt of consideration in any form permitted under Delaware law. Any adjustment shall be conclusively determined by the Committee. Except as otherwise provided in the Optionee's Option Agreement: (i) If the Company is the surviving corporation of any merger, reorganization or other business combination with any person or entity (such merger, reorganization or other business combination referred to as a "Merger Event"), the Optionee shall be entitled to receive, with respect to Options, substitute stock options to purchase shares of the surviving corporation on such terms and conditions, both as to the number of shares and otherwise, which shall substantially preserve the value, rights and benefits of any Option granted hereunder, as of the date of the execution of the agreement evidencing the Merger Event. (ii) If the Company is not the surviving corporation in a Merger Event, the Committee may at its election cause payment to be made to each Optionee, in cash, an amount equal to the excess of the fair market value, on the date of the Merger Event, of the Common Stock subject to such Optionee's Options (whether vested or unvested, as determined by the Committee) over the Exercise Price of such Options on such date, and all such Options shall be cancelled upon receipt by the Optionee of such cash payment, without the need for obtaining the consent of the Optionee. If, upon such a Merger Event, the Committee declines to make such cash payment, the surviving or resulting corporation, as the case may be, or any parent or acquiring corporation thereof, shall, as a condition to the occurrence of the Merger Event, be obligated by the Company to grant substitute options to purchase its shares on such terms and conditions, both as to the number of shares and otherwise, which shall substantially preserve (in the discretion of the Committee) the value, rights and benefits of any Option granted hereunder, as of the date of the execution of the agreement evidencing the Merger Event. Upon receipt by the Optionee of any substituted options in the surviving corporation in any Merger Event, all Options for which substituted options were received shall be cancelled. -5- The foregoing adjustments and the manner of application of the foregoing provisions, including, without limitation, the issuance of any substitute Options and any determination of the fair market value of the Common Stock, shall be determined in good faith by the Committee in its sole discretion. Any such adjustment may provide for the elimination of any fractional share which might otherwise become subject to an Option. ARTICLE XI RIGHTS AS A STOCKHOLDER An Optionee or a transferee of an Option shall have no rights as a stockholder with respect to any shares covered by his Option until he shall have become the holder of record of such shares, and he shall not be entitled to any dividends or distributions or other rights in respect of such shares for which the record date is prior to the date on which he shall have become the holder of record thereof. ARTICLE XII EMPLOYMENT RIGHTS Nothing in the Plan or in any Option Agreement entered into hereunder shall confer on any Optionee who is an employee of the Company or any of its subsidiaries or affiliates any right to continue in the employ of the Company or any of its subsidiaries or affiliates or to interfere in any way with the right of the Company or any of its subsidiaries or affiliates to terminate the Optionee's employment at any time. ARTICLE XIII TRANSFER RESTRICTIONS Appropriate legends shall be placed on the stock certificates evidencing shares issued upon exercise of Options to reflect any relevant transfer restrictions. -6- ARTICLE XIV AMENDMENT OR DISCONTINUANCE OF PLAN The Board may from time to time, to the extent permitted by applicable law, amend, suspend, or discontinue the Plan; provided, however, that the Board may not take any action which would have a material adverse effect on outstanding Options or any unexercised rights under outstanding Options without the consent of the Optionee whose options would be adversely affected thereby. ARTICLE XV CANCELLATION OF OPTIONS The Committee, in its discretion, may, with the express written consent of the Optionee to be affected, cancel any Option held by such consenting Optionee hereunder. ARTICLE XVI MISCELLANEOUS (a) The Company may, in its discretion, require that an Optionee pay to the Company, at the time of exercise, such amount as the Company deems necessary under law to satisfy its obligations to withhold Federal, state, or local income or other taxes incurred by reason of the exercise or the transfer of shares thereupon. (b) Anything in the Plan or any Option Agreement entered into pursuant to the Plan to the contrary notwithstanding, if, at any time specified herein or therein for the making of any issue of shares of Common Stock, any law, regulation or requirement of any governmental authority having jurisdiction in the premises shall require either the Company or the Optionee (or the Optionee's personal legal representative or transferee) to take any action in connection with any such shares to be issued, the issue of such shares shall be deferred until such action shall have been taken, provided, however, that the Company shall not be required to take such action. (c) The Plan shall be governed by and construed in accordance with the laws of the State of Delaware without reference to the principles of conflicts of law thereof. -7- (d) No provision of the Plan shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. (e) Except as otherwise specifically provided in the relevant plan document, no payment under the Plan or other amount required to be reported as income for Federal income tax purposes shall be taken into account in determining any benefits under any pension, retirement, profit sharing, group insurance or other benefit plan of the Company. (f) The expenses of administering the Plan shall be borne by the Company. The proceeds received by the Company from the exercise of any Options pursuant to the Plan will be used for general corporate purposes. (g) Masculine pronouns and other words of masculine gender shall refer to both men and women. (h) The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. ARTICLE XVII SPECIAL PROVISIONS FOR ISOS (a) ISOs must be granted within ten years from the date the Plan is adopted, or the date the Plan is approved by the shareholders of the Company, whichever is earlier. (b) ISOs may not be exercised after the expiration of ten years from the date such ISOs are granted. (c) The Exercise Price of ISOs may not be less than the fair market value of a share of Common Stock at the time such ISOs are granted, as determined by the Committee. In such case, fair market value shall be determined in a manner consistent with the rules and regulations under Section 422 of the Code. -8- (d) ISOs may not be granted to a person who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any "subsidiary corporation" of the Company within the meaning of Section 424(f) of the Code. (e) To the extent the aggregate fair market value of the Common Stock with respect to which ISOs are exercisable for the first time by any Optionee during a calendar year (under all plans of the Company and all "subsidiary corporations" of the Company within the meaning of Section 424(f) of the Code) exceeds $100,000, such ISOs shall be treated as Non-Qualified Options. For purposes of the preceding sentence, the fair market value of the Common Stock shall be determined by the Committee at the time the ISO covering such stock is granted. (f) No ISOs may be granted under the Plan unless the Plan has been approved by the shareholders of the Company within 12 months before or after the date of the Plan's adoption by the Board. * * * * -9- EX-10.1-13 8 EXHIBIT 10.1.13 UNITED AUTO GROUP, INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN 1. PURPOSE. The purpose of this Plan is to promote the interests of United Auto Group, Inc. and its affiliates and stockholders by helping to attract and retain highly qualified non-employee directors. 2. DEFINITIONS. Unless the context clearly indicates otherwise, the following terms, when used in the Plan, shall have the meanings set forth in this section: a. "Annual Meeting" shall mean the Company's regular annual meeting of shareholders. b. "Board" shall mean the Board of directors of the Company. c. "Company" shall mean United Auto Group, Inc., a Delaware corporation, and any successor corporation. d. "Director" shall mean a member of the Board. e. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. f. "Non-Employee Director" shall mean a Director who is not also a salaried employee of the Company or any of its subsidiaries. g. "Plan" shall mean this United Auto Group, Inc. Non-Employee Director Compensation Plan, as set forth herein and as it may be amended from time to time. h. "Stock" shall mean shares of the voting Common Stock of the Company, par value $0.0001 per share. 3. ANNUAL RETAINER. Each Non-Employee Director shall be paid for each year of service a retainer at an annualized rate of $15,000, payable in arrears in four equal quarterly installments on each of June 1, September 1, December 1, and March 1 (each, "Payment Date") following the Annual Meeting at which such director was elected or re-elected to the Board, as the case may be. A Non-Employee Director who becomes a member of the Board between Annual Meetings shall be paid the quarterly installment on each Payment Date which falls between the date he becomes a member of the Board and the date of the next Annual Meeting. A Non-Employee Director who resigns from the Board between Annual Meetings shall be paid the quarterly installment for the Payment Date next following the date of such resignation. Such annual retainer may be increased by the Board from time to time in its discretion. 4. MEETING FEES. Each Non-Employee Director shall be paid $1,000 for each Board meeting and $500 for each Board meeting attended by telephone. In addition, for serving on a committee of the Board, each Non- Employee Director shall receive $750 for each committee meeting attended and $500 for each committee meeting attended by telephone. 5. ELECTION TO RECEIVE FEES IN STOCK. (a) At the election of a Non-Employee Director, but subject to approval by the Board, such Non-Employee Director may receive shares of Stock in lieu of the annual retainer and meeting fees described in Sections 3 and 4. Such elections shall be made once each year by no later than April 1 of such year, and shall relate to each of the next four Payment Dates following such April 1. Once made, such election shall be irrevocable for such year. For the period commencing on the effective date of this Plan and ending on the first Annual Meeting, such election shall be made not later than 30 days following such effective date. (b) If a Non-Employee Director's election is approved by the Board, such Non-Employee Director shall receive a number of shares of Stock determined as follows: As of each Payment Date to which the Non-Employee Director's election relates, a number of shares equal to the quotient obtained by dividing (1) 25% of the annual retainer for such year, plus the aggregate amount of meeting fees which would have been paid to the Non-Employee Director for meetings attended since the last Payment Date if such election had not been made, and (2) the fair market value of the Stock on the current Payment Date based on the closing price of the Stock on the New York Stock Exchange on such date or, if such date is not a trading day, on the last preceding trading day. (c) Such shares of Stock shall not be subject to any transfer or resale restrictions other than those applicable under federal and state securities laws. (d) If a Non-Employee Director becomes a member of the Board between Annual Meetings, such director may elect to receive his fees in Stock for the Payment Dates which precede the next Annual Meeting by making such election within 30 days after becoming a director, provided that such election shall be subject to the approval by the Board. (e) Board approval of Non-Employee Director elections under this Section 5 shall be obtained prior to the first date on which a Non-Employee Director may receive Stock in respect of such election. -2- 6. EFFECTIVE DATE. The Plan shall be effective upon the effective date of the Company's initial public offering. 7. AMENDMENT AND TERMINATION OF THE PLAN. The Board in its discretion may terminate the Plan or alter or amend the Plan or any part thereof from time to time. 8. RULE 16b-3. The terms and conditions each Stock acquisition under the Plan shall be approved in advance by the Board for purposes of the exemption from Section 16(b) of the Exchange Act available under Rule 16b- 3(d)(1) promulgated under the Exchange Act. -3- EX-10.2-4-1 9 EXHIBIT 10.2.4.1 EXHIBIT 10.2.4.1 BMW OF NORTH AMERICA, INC. DEALER AGREEMENT This DEALER AGREEMENT is effective as of the 1st day of January, 1994, by and between BMW of North America, Inc., a Delaware Corporation having its principal place of business at Woodcliff Lake, New Jersey 07675 ("BMW NA") and DEALER NAME: DiFeo BMW Partnership ------------------------------------ DEALER LOCATION: 301 County Road, Tenafly, New Jersey , a ------------------------------------- BUSINESS TYPE: Partnership , ---------------------------------- (if a corporation or partnership) organized or incorporated under the laws of the STATE OF: New Jersey and --------------------------------------- DOING BUSINESS AS: DiFeo BMW ------------------------------ having its principal place of business at ADDRESS: 301 County Road , in ---------------------------------------- CITY/TOWN: Tenafly , in the -------------------------------------- COUNTY OF: Bergen , in the -------------------------------------- STATE OF: New Jersey (as "Dealer"). --------------------------------------- All terms defined in the DEALER STANDARD PROVISIONS (Form 93/B) are incorporated herein by reference. -1- PURPOSE OF AGREEMENT The purpose of this Agreement is to authorize Dealer to operate a BMW automobile dealership and to set forth the responsibilities of both BMW NA and Dealer in providing BMW Products and services to the consuming public. The United States automotive market requires a fluid relationship between BMW NA and authorized BMW dealers who represent BMW Products. Mutual compliance with the terms of this Agreement will promote the interests of both BMW NA and Dealer by providing each party an opportunity to earn a reasonable return on its investment through developing and retaining satisfied customers and by building a spirit of cooperation between BMW NA and authorized BMW dealers (collectively the "BMW Dealers") which will increase the value and customer perception of BMW trademarks. BMW NA and Dealer have entered into this Agreement with confidence in each other's integrity, ability and expressed intention to deal fairly with the other party and the consuming public. Dealer is relying upon BMW NA's commitment to distribute quality BMW Products which meet the needs and expectations of the BMW customers in Dealer's primary market and to provide Dealer with a broad range of support activities to assist Dealer in its retail operations. BMW NA is relying upon Dealer's commitment to perform and carry out the responsibilities of an authorized BMW dealer, as set forth in this Agreement. Each party recognizes that it must rely upon the efforts of the other party in performing successfully under this Agreement. IN CONSIDERATION OF the foregoing and the mutual covenants herein contained, the parties hereto agree as follows: -2- A. APPOINTMENT OF DEALER BMW NA appoints Dealer as a dealer of BMW Products. Subject to the terms of this Agreement, Dealer is granted the non-exclusive right to buy BMW Products. Dealer accepts such appointment and agrees to be bound by this Agreement. While dealer recognizes that its performance will be primarily measured based upon its activities in its Primary Market Area, Dealer agrees that this appointment does not confer upon it the exclusive right to deal in BMW Products in any specific geographic area within the 50 United States, nor does it limit the persons within the 50 United States to whom Dealer may sell BMW Products for use therein. Dealer agrees that it will not sell BMW Products for resale or use outside the 50 United States. Dealer further agrees to abide by any Export Policy established by BMW NA. Dealer acknowledges that BMW NA reserves the right to appoint additional dealers, whether located near Dealer's location or elsewhere, as BMW NA in its sole discretion deems necessary or appropriate. BMW NA agrees that it will not explore additional representation without first conferring individually with the BMW Dealer(s) surrounding the proposed location to determine whether other alternatives to additional representation are satisfactory to BMW NA. If a decision is made to proceed with establishment of additional representation, BMW NA will provide such BMW Dealer(s) no less than thirty (30) days written notice of such decision. -3- B. DEALER STANDARD PROVISIONS AND DEALER OPERATING REQUIREMENTS The accompanying DEALER STANDARD PROVISIONS (Form 93/B), DEALER OPERATING REQUIREMENTS, DEALER FACILITY GUIDELINES, and all currently effective Addenda issued to Dealer by BMW NA, all of which may be amended, cancelled or superseded from time to time, are hereby incorporated into this Dealer Agreement ("Incorporated Documents"). Unless the context otherwise indicates, the term "Agreement" shall mean this document, the Incorporated Documents, and the documents referred to therein. Dealer hereby acknowledges receipt of this Agreement and agrees to become familiar with its terms. While Dealer is not contractually required to comply with the BMW DEALER OPERATING SYSTEM, Dealer agrees to consider conforming its operations to the guidelines and recommendations of the BMW Dealer Operating System. -4- C. DEALER OWNERSHIP AND MANAGEMENT This is a PERSONAL SERVICES AGREEMENT. BMW NA is entering into this Agreement in reliance upon the qualifications, abilities and integrity of the Dealer Operator and upon the representation of the Dealer's Owner(s) that the Dealer Operator will have full managerial authority for operations and activities of Dealer. In order to induce BMW NA to enter into this Agreement, Dealer states that: (i) DEALER'S OWNERS. The beneficial owners, record owners and partners, if any of Dealer are (include Record Owners if different from Beneficial): NAME % RECORD OR BENEFICIAL DiFeo Partnership Inc. 70% DiFeo BMW, Inc. 30% ADDITIONAL NAMES ATTACHED / / -5- (ii) DEALER'S OFFICERS. The following persons are Dealer's Officers: NAME TITLE Ezra P. Mager CEO Joseph C. Herman COO Joseph C. DiFeo Executive Vice President Samual X. DiFeo Executive Vice President Robert J. Cohen Executive Vice President (iii) DEALER'S CORPORATE DIRECTORS. If Dealer is a corporation, the following are its Corporate Directors: NAME TITLE Marshall S. Cogan Chairman of the Board Ezra P. Mager Joseph C. DiFeo Samuel X. DiFeo Joseph C. Herman (iv) DEALER OPERATOR. The following person shall be in complete charge of Dealer's BMW Operations with authority to make all operating decisions on behalf of Dealer with respect to Dealer's BMW Operations and is the person upon whom BMW NA can rely to act on Dealer's behalf: Name: Robert J. Cohen (v) GENERAL MANAGER. The following is Dealer's General Manager (if none, enter "NONE"): Name: Robert J Cohen -6- (vi) SUCCESSOR. The Dealer's Owners have nominated the following individual(s) as proposed Dealer Owner(s) of a Successor Dealer to be established if this Agreement is terminated because of the death or permanent disability of any of the Dealers Owners (if none, enter "NONE"): Name: _________________________________________________________________________ Name: _________________________________________________________________________ Because of the importance that BMW NA places on the statements and representations of the Dealer's Owners and the qualifications of the Dealer Operator, Dealer agrees that there will be no change in the (a) identity of the Dealer's Owners (i above); (b) the Dealer Operator (iv above); or (c) Dealer's name, identity, business organization or structure without the prior written consent of BMW NA. To enable BMW NA to maintain effectively the BMW NA dealer network, Dealer further agrees to provide BMW NA with forty-five (45) days prior written notice of any proposed change in the ownership of Dealer, which would change the majority interest or control of Dealer, or of any proposed disposition of Dealer's BMW assets. Any such change in ownership or disposition of Dealer's BMW assets shall not be effective without the prior written consent of BMW NA which consent shall not be unreasonably withheld. BMW NA shall respond to Dealer's notification within forty-five (45) days after Dealer has furnished to BMW NA all applications and information reasonably requested to evaluate the proposal. Without limiting other considerations in determining whether BMW NA will provide consent, this Agreement may not be transferred, assigned or assumed until all indebtedness of Dealer to BMW NA, its subsidiaries or affiliates has been fully satisfied and unless the transferee, assignee or party assuming this Agreement agrees and commits to fulfill and complete all of the obligations under this Agreement and the Improvement Addendum (if applicable). -7- Dealer recognizes that BMW NA has a vital interest in ensuring that qualified personnel are employed by BMW Dealers. Therefore, Dealer agrees to employ personnel who meet the qualifications for each position. BMW NA agrees that Dealer has the right to decide reasonably all matters concerning management and personnel. Dealer has designated herein certain individuals as officers, directors, managers and/or individuals with responsibility for Dealer's BMW Operations. Dealer agrees to notify BMW NA in writing of any change in the designated individuals (ii, iii and v above) and recognizes that such designation shall not relieve Dealer of its responsibility for performance under this Agreement. Dealer agrees that BMW NA may rely upon the Dealer Operator and General Manager (if applicable) to act on Dealer's behalf and that such reliance will not alter Dealer's responsibilities under this Agreement. -8- D. DEALER'S FACILITIES Dealer agrees that Dealer's Facilities shall satisfy all applicable provisions of this Agreement, including reasonable space, facility and BMW Corporate Identification requirements in the Dealer Operating Requirements Addendum and/or Dealer Facilities Guidelines. BMW NA recognizes the investment Dealer has in its facilities and hereby approves the location of the following Dealer's Facilities for the exclusive purpose of: 1) A showroom and sales facility for BMW Vehicles at: Address: 301 County Road, Tenafly, New Jersey ---------------------------------------------------------------------- 2) Service and Parts facilities for BMW Vehicles at: Address: 301 County Road, Tenafly, New Jersey ---------------------------------------------------------------------- 3) Facilities for the display and sale of used BMW Vehicles at: Address: 301 County Road, Tenafly, New Jersey ---------------------------------------------------------------------- 4) Other facilities (indicate the nature of the facility; e.g., storage facility): Address: None ---------------------------------------------------------------------- Unless otherwise provided herein, Dealer shall conduct Dealer's BMW Operations and keep BMW Products exclusively at Dealer's Facilities designated above. In the event that Dealer desires to (i) change its principal place of business from that first set forth in this Agreement; (ii) change any location of Dealer's Facilities; (iii) establish any additional locations for either operating its business or storage of BMW products; (iv) make any major structural or design change in Dealer's Facilities; or (v) change the usage or function of any locations or facility approved herein or otherwise utilize such locations or facilities for any functions other than the approved functions, Dealer must obtain the prior written approval of BMW NA for any such change or establishment. -9- In the event Dealer desires to establish or add any additional automobile franchise, line, make or dealership at Dealer's Facilities simultaneously with Dealer's BMW Operations, Dealer agrees to provide BMW NA thirty (30) days prior written notice of such establishment or addition. At the time notice is provided, Dealer shall demonstrate in writing to BMW NA that Dealer will continue to comply with the Dealer Operating Requirements Addendum and will not adversely impact the representation or sale of BMW Products. If Dealer is unable to comply, Dealer shall not pursue such establishment or addition, but may submit a detailed plan of compliance with the Dealer Operating Requirements and Dealer Operating Requirements Addendum to BMW NA. If BMW NA approves the detailed plan of compliance, Dealer may proceed with the establishment or addition. Dealer understands that BMW NA may, at its sole option, reject the plan or require issuance or modification of an Improvement Addendum in the event the plan is approved. Such approval shall not be unreasonably withheld. E. EXCLUSION OF WARRANTIES EXCEPT AS SPECIFICALLY PROVIDED FOR IN THE NEW CAR LIMITED WARRANTY, THE LIMITED WARRANTY ON EMISSION CONTROLS, THE LIMITED WARRANTY AGAINST RUST PERFORATION, THE LIMITED WARRANTY ON ORIGINAL BMW PARTS AND THE LIMITED WARRANTY ON ORIGINAL PARTS SOLD OVER THE COUNTER; ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE EXCLUDED. THE EXCLUSION ALSO APPLIES TO INCIDENTAL, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES FOR ANY BREACH OF EXPRESS OR IMPLIED WARRANTY, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND/OR FITNESS, IF ANY, APPLICABLE TO BMW PRODUCTS. -10- F. BMW DEALER FORUM BMW NA and Dealer agree that it is in their mutual interest to have an independent group of BMW dealer representatives serve on the BMW Dealer Forum ("DEALER FORUM"). The DEALER FORUM shall represent BMW Dealers and will communicate the position of BMW Dealers to BMW NA on various common issues. BMW NA and DEALER FORUM shall establish a mechanism to foster open and frequent communication on substantive issues affecting BMW NA and BMW Dealers. Each BMW dealer is entitled and encouraged to serve on the DEALER FORUM or on a committee of the DEALER FORUM pursuant to its by-laws and each BMW dealer is expected to support and participate in the DEALER FORUM. The DEALER FORUM shall adopt by-laws as BMW Dealers deem reasonable and necessary. The DEALER FORUM may establish committees to study various aspects of the retail environment and the BMW NA - BMW Dealers' relationship. Before any material change may be made to this Agreement, BMW NA agrees to notify the DEALER FORUM and consider BMW Dealers' position regarding the proposed change. -11- G. TERM This Agreement shall continue in full force and effect and shall govern all relations and transactions between the parties commencing on the effective date hereof and continuing as follows: - If Dealer has fulfilled all of its obligations hereunder and no Improvement Addendum is currently in force, this Agreement shall expire five years from the effective date hereof, unless terminated earlier in accordance with the applicable provisions of this Agreement. In such event BMW NA will renew this Agreement or offer Dealer an opportunity to enter into a superseding Agreement. - If Dealer has outstanding obligations as of the effective date of this Agreement and/or an Improvement Addendum is in force, this Agreement shall expire on the earlier of three years from the effective date hereof or sixty (60) days following the earliest "Compliance Date" specified in said Addendum, unless otherwise terminated in accordance with the applicable provisions of this Agreement. -12- H. ALTERNATE DISPUTE RESOLUTION BMW NA and Dealer agree to minimize disputes between them. However, in the event that disputes arise, BMW NA and Dealer agree that they will attempt to resolve all matters between them before any formal action is taken to seek any administrative or judicial adjudication or governmental review. A BMW BOARD ("BOARD") will act as the Administrator of all disputes between BMW NA and Dealer arising out of this Agreement. The BOARD will consist of three representatives who will be selected by BMW NA and three representatives of BMW Dealers who will be selected by the DEALER FORUM. The BOARD will determine eligibility requirements, develop procedures to ensure a fair and equitable decision ("ADR PROCEDURES") and select individuals to participate in a DISPUTE RESOLUTION PANEL ("PANEL") to hear an eligible dispute. The PANEL shall consist of at least one BMW NA employee, one BMW dealer and one independent person selected by the BOARD. The BOARD shall also monitor the dispute resolution process, report to BMW NA and the DEALER FORUM annually on the effectiveness of this process and, when required, make recommendations for changes in this process. BMW NA and Dealer agree that the process outlined in this Article H and developed by the BOARD in the ADR PROCEDURES will be mandatory. The PANEL's recommendation will be non-binding, unless the parties agree to be bound by the decision of the PANEL. The purpose of the PANEL will be to recommend a resolution and work with the parties to reach a fair and equitable solution to their dispute in a cost-effective, efficient manner and to avoid formal adjudication or government intervention. If either party to this Agreement initiates any action in court or an administrative agency prior to issuance of a PANEL recommendation on a dispute, that party shall pay all costs, fees and expenses, including attorneys fees, of the other party which arise out of the enforcement of this Article H. -13- I. RIGHT OF FIRST REFUSAL BMW NA recognizes the investment which Dealer has committed to remain a BMW dealer. Dealer recognizes the importance to BMW NA of continuing dealership operations from approved locations to provide for effective sale and service of BMW Products. Accordingly, whenever Dealer intends to dispose of Dealer's BMW assets or to change majority ownership from that listed in Article C(i), BMW NA shall have the first right to purchase Dealer's BMW assets or ownership interests pursuant to this Article. Dealer agrees to disclose to the prospective buyer that any sale or disposition shall be subject to the terms of this Dealer Agreement. BMW NA will advise Dealer if it will exercise the right of first refusal within forty-five (45) days after Dealer has furnished all applications and information in accordance with Article C. If BMW NA exercises the right, BMW NA will assume the proposed buyer's rights and obligations under the written agreement the proposed buyer negotiated with Dealer (the "Buy/Sell Agreement"). The purchase price shall be that set forth in the Buy/Sell Agreement. In the event BMW NA exercises its right of first refusal, BMW NA may assign the Buy/Sell Agreement to any party. BMW NA shall remain responsible to guarantee the purchase price to be paid by the assignee. Dealer shall transfer the assets and any applicable real estate free and clear of all liens and encumbrances. Any property shall be transferred by Warranty Deed, where possible, conveying marketable title. Deeds will be in the proper form for recording. Possession will be deemed transferred when the deed is delivered. Dealer will furnish copies of, and will assign where required, all agreements, licenses, easements, permits or other documents necessary for the conduct of Dealer's BMW Operations. If it exercises its right under this Article, BMW NA will reimburse Dealer for all acceptable expenses, excluding brokerage commissions, incurred by Dealer in connection with the development of the Buy/Sell Agreement. Dealer will supply BMW NA with reasonable documentation to support all those expenses and all copies of materials generated during the negotiation and development of the Buy/Sell Agreement in anticipation of the sale (including environmental reports, accounting reviews, among others.) Any dispute regarding reimbursement shall be presented for review under Article H. This Article shall not apply in the event that Dealer proposes to change majority ownership, dispose of its assets or otherwise enter into a proposed Buy/Sell Agreement with a member of Dealer's immediate family (spouse, child, brother, sister, parent, grandchild, or spouse of child); to an individual who is listed on the Successor Addendum; to an individual who is currently employed by Dealer and has been actively employed by Dealer for at least three consecutive years in the BMW Operations and is otherwise qualified as a Dealer Operator; or to an individual who is currently listed as a Dealer's Owner in Article C and has been so listed for the past three consecutive years and is otherwise qualified as a Dealer Operator. -14- J. CUSTOMER SATISFACTION BMW NA and Dealer agree to conduct their respective businesses to promote and support the image and reputation of BMW NA, BMW Products and BMW Dealers. BMW Products must be perceived as the finest available. BMW NA and BMW Dealers must be recognized as providing the best service in the industry. Dealer, as the direct link to the BMW customer, is responsible for satisfying customers in all matters, except those directly related to product design and manufacturing. Dealer will take reasonable steps to ensure that each customer is satisfied with BMW Products, and with the services and the practices of Dealer. Dealer will recommend to BMW NA methods of reasonably satisfying customers. BMW NA will support Dealer's customer satisfaction efforts through counseling, training opportunities and providing survey results. When requested by BMW NA, Dealer shall submit a plan detailing its customer satisfaction programs. That plan shall include continuous reinforcement to all dealership personnel of the importance of customer satisfaction, necessary training for dealership personnel and methods of conveying to customers that Dealer is committed to their satisfaction. Following consultation with and notice from BMW NA or its authorized representative, Dealer shall remedy to the satisfaction of BMW NA any practice or method of operation which would have a detrimental effect upon customer satisfaction or would impair the reputation or image of BMW NA, BMW Products or Dealer. -15- K. EXECUTION OF AGREEMENT This Agreement shall not become effective until signed by a duly authorized officer of Dealer, if a corporation; or by one of the general partners of Dealer, if a partnership; or by the named individual if a sole proprietorship; and countersigned by authorized representatives of BMW NA. -16- L. MODIFICATION OF AGREEMENT No representative of BMW NA shall have the authority to waive any of the provisions of this Agreement or to make any amendment or modification of or any other change in, addition to, or deletion of any portion of this Agreement or to make any other agreement which imposes any obligation on either BMW NA or Dealer which is not specifically imposed by this Agreement or which renews or extends this Agreement; unless such waiver, amendment, modification, change, addition, deletion or agreement is reduced to writing and signed by two authorized representatives of BMW NA and by the authorized representative of Dealer as set forth in Article K of this Agreement. BMW OF NORTH AMERICA, INC. DIFEO BMW PARTNERSHIP BY: /s/ James J. Ryan BY: /s/ Robert J. Cohen ------------------------ ------------------------------- TITLE: General Manager TITLE: V.P. --------------------- ----------------------------- BY: /s/ Henry J. Schoeler ------------------------ FEDERAL TAX ID# 223186285 -------------------- TITLE: Area Manager ATTEST: (If Dealer is a Corporation) --------------------- ------------------------------------ Secretary WITNESS: (If Partnership or Proprietorship) /s/Illegible ------------------------------------ Name 301 County Rd., Tenafly NJ 07670 ------------------------------------ Address -17- EXHIBIT A % of Ownership Title -------------- ----- Owners of DiFeo Partnership, Inc. United Auto Group, Inc. 100% N/A 12/2/94 Name Owners of EMCO Motor Holdings, Inc. Ezra P. Mager 3% President 40 E. 88th Street EMCO Motor Holdings, Inc. New York, NY 10128 '21 International Holdings 97% N/A 153 E. 53rd Street Suite 5900 New York, New York 10022 Marshall S. Cogan Voting Control Chairman 625 Park Avenue '21 International Holdings New York, NY 10021 Owners of DiFeo BMW, Inc. Joseph C. DiFeo 37.5% President/ 17 Blackpoint Horseshoe Treasurer Rumson, NJ 07760 Robert J. Cohen 25% Vice President 812 Napoleon Street Woodmere, NY 11598 Samuel X. DiFeo 37.5% Secretary 121 Larraine Avenue Spring Lake, NJ 07762 AMENDMENT TO BMW OF NORTH AMERICA, INC. DEALER AGREEMENT This Amendment to the BMW Dealer Agreement is entered into among BMW of North America, Inc. ("BMW NA"), DiFeo BMW ("Dealer"), DiFeo BMW Partnership ("Partnership"), DiFeo Partnership, Inc. ("DPI") and United Auto Group, Inc. ("UAG"). WHEREAS, BMW NA has entered into a BMW Dealer Agreement with Dealer dated January 1, 1994, (the "Dealer Agreement"), pursuant to which Dealer is authorized to operate a BMW automobile dealership; and WHEREAS, the ownership and organization of Dealer are such that the terms of the Dealer Agreement may not be wholly adequate to address the needs and concerns of Dealer, Partnership, DPI and BMW NA; and WHEREAS, Dealer and BMW NA entered into the Dealer Agreement in consideration of and in reliance on certain understandings, assurances and representations which the parties here to wish to document; WHEREAS, BMW NA is relying on the representations of Dealer, Partnership, DPI and UAG contained herein and would not have entered into this Amendment, but for those representations. NOW, THEREFORE, the parties agree as follows: 1. For purposes of the Dealer Agreement, including Article C(iv), Robert Cohen shall be designated Dealer Operator. BMW NA has relied and is relying on the personal qualifications, abilities and integrity of Dealer Operator and the appointment and continued employment of Mr. Cohen as Dealer Operator was and is a material inducement for BMW NA to enter into the Dealer Agreement with Dealer. Dealer, Partnership, DPI and UAG hereby represent and warrant that Dealer Operator is and will be in complete charge of Dealer's BMW Operations with authority to make all operating decisions on behalf of Dealer with respect to those operations and is the person upon whom BMW NA can rely to act on Dealer's behalf. Neither Dealer nor Partnership nor DPI nor UAG will revoke, modify or amend such authority without the prior written approval of BMW NA. 2. The removal or withdrawal of Dealer Operator without the prior written consent of BMW NA shall constitute grounds for termination of the Dealer Agreement, subject to applicable law. However, BMW NA recognizes that Dealer Operator's employment relationship with Dealer may change. In that case, Dealer shall have the opportunity to propose a replacement Dealer Operator in accordance with Article C of the Dealer Agreement. 3. Dealer is a wholly owned subsidiary of Partnership, which, in turn, is a wholly owned subsidiary of DPI, which, in turn, is a wholly owned subsidiary of UAG. Dealer, Partnership, DPI and UAG 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 any of them. The parties hereto acknowledge that the provisions of this Amendment shall not be applicable until such time as UAG completes a public offering of its stock. 4. Any material changes, including the change in 20% of the outstanding shares as described in Paragraph 5, in the ownership of Dealer, Partnership, DPI and UAG shall be considered a change of ownership of Dealer under the terms of the Dealer Agreement, and all applicable terms of the Dealer Agreement shall apply to any such change. BMW NA has executed the Dealer Agreement in reliance upon the ownership and management structure of Dealer, Partnership, DPI and UAG and any change in the majority interest or control of any of those entities, or any disposition of Dealer's BMW assets, without prior written consent of BMW NA shall constitute grounds for the termination of the Dealer Agreement, subject to applicable law. Such consent shall not be unreasonably withheld by BMW NA. With respect to a Public Company (as defined in Paragraph 5) a material change in ownership can only occur as described therein. 5. Given the ultimate control Partnership, DPI, and UAG have over Dealer, the control of Dealer through a Company whose securities are publicly traded which may eventually control Dealer ("public company") and BMW NA's strong interest in assuring that those who own and control their Dealers have interests consistent with those of BMW NA; Dealer, Partnership, DPI and UAG agree that if an ownership interest is acquired in a public company by a person or entity which notifies public company via Schedule 13D filed with the Securities and Exchange Commission, Dealer shall advise BMW NA 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 (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 a 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 BMW NA reasonably concludes that such person or entity does not have interests compatible with those of BMW NA, or is otherwise not qualified to have an ownership interest in a BMW NA dealership, Dealer, DPI, Partnership and UAG agree that within 90 days of receipt of written notice from BMW NA of this fact, it will: (i) transfer the assets associated with Dealer to a third party acceptable to BMW NA, (ii) voluntarily terminate the Dealer Agreements in effect with Dealer, or (iii) provide evidence to BMW NA that such person or entity no longer has such an ownership interest in a public company. Should Dealer enter into an agreement to transfer its assets to a third party, the right of first refusal described in Article I shall apply to any such transfer. Failure of Dealer or public company to comply with this provision shall constitute grounds of termination of the Dealer Agreement. 6. Dealer, Partnership, DPI and UAG stipulate and agree that the alternate dispute resolution process set forth at Article H of the Dealer Agreement shall be the initial and exclusive source -2- of resolution of any dispute regarding the Dealer Agreement and this Amendment, including, but not limited to, involuntary termination of the Dealer Agreement. 7. Dealer, Partnership, DPI and UAG future stipulate and agree that if Dealer, Partnership, DPI, BMW NA and the public are to realize the potential benefits that Dealer, Partnership, DPI and UAG represent to be the result of BMW NA approving the ownership structure proposed by Dealer, then Dealer shall comply fully with the terms and conditions of The BMW Advantage program, the details of which have previously been communicated to Dealer. 8. Dealer, Partnership, DPI and UAG agree that Dealer's Facilities shall be used exclusively for the representation of BMW Products and related services and in no event shall they be used for the display, sale or promotion of any new vehicle other than BMW automobiles. 9. The parties agree that this Amendment shall supplement the terms of the Dealer Agreement in accordance with Article L of the Dealer Agreement. 10. In the event that the policies of BMW NA with regard to the issues addressed herein should be modified, the parties agree to review such modifications to determine whether modifications to this Amendment are appropriate. 11. Nothing in this Amendment 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 Amendment or the Dealer Agreement. Dealer, Partnership and DPI hereby agree to indemnify and hold BMW NA, its parent, directors, officers, employees, subsidiaries, agents and representatives harmless 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 in UAG other than through a derivative stockholder suit authorized by the board of directors of UAG. 12. This Amendment 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 provisions of this Amendment are in conflict with other provisions of the Dealer Agreement, the provisions contained in this Agreement shall govern. 13. Dealer, Partnership, DPI and UAG agree to indemnify BMW NA for any and all costs that BMW NA may incur in defending or enforcing this Amendment, including a challenge brought by any party hereto or any third party arising out of the termination or transfer of the Dealer Agreement under the terms of this Amendment. -3- IN WITNESS WHEREOF, the parties have executed this Amendment this ___ day of July 1996. DiFEO BMW DiFEO BMW PARTNERSHIP By: DiFeo Partnership, Inc., as General Partner /s/ Joseph C. DiFeo /s/ Carl Spielvogel - -------------------------------- -------------------------------------- By: Joseph C. DiFeo By: Carl Spielvogel Title: Vice President Title: Chairman and Chief Executive Date: July 30, 1996 Officer Date: July 30, 1996 DiFEO PARTNERSHIP, INC. UNITED AUTO GROUP, INC. /s/ Carl Spielvogel /s/ Carl Spielvogel - -------------------------------- -------------------------------------- By: Carl Spielvogel By: Carl Spielvogel Title: Chairman and Chief Title: Chairman and Chief Executive Executive Officer Officer Date: July 30, 1996 Date: July 30, 1996 BMW OF NORTH AMERICA, INC. /s/ James J. Ryan - -------------------------------- -------------------------------------- By: James J. Ryan By: Title: Senior Vice President Title: General Manager Eastern Region Date: July 25, 1996 Date: -4- EX-10.2-4-2 10 EXHIBIT 10.2.4.2 EXHIBIT 10.2.4.2 BMW OF NORTH AMERICA, INC. DEALER STANDARD PROVISIONS BMW OF NORTH AMERICA, INC. DEALER STANDARD PROVISIONS APPLICABLE TO DEALER AGREEMENT TABLE OF CONTENTS Page ---- PARAGRAPH 1. DEFINITIONS 1 (a) BMW 1 (b) BMW NA 1 (c) BMW Dealers 1 (d) BMW Products 1 (e) BMW Vehicles 1 (f) Dealer 1 (g) Dealer Agreement 2 (h) Dealer's BMW Operations 2 (i) Dealer Forum 2 (j) Dealer's Officers 2 (k) Dealer Operating Requirements 2 (l) Dealer Operating Requirements Addendum 3 (m) Dealer Operator 3 (n) Dealer's Owners 3 (o) Dealer's Facility 3 (p) General Manager 4 (q) Improvement Addendum 4 (r) Net Purchase Price 4 (s) Original BMW Parts 5 (t) Primary Market Area 5 PARAGRAPH 2. BASIC OBLIGATIONS OF BMW NA 6 (a) Supply of BMW Products to Dealer 6 (b) Assistance to Dealer 6 (c) Allocation of Vehicles 7 PARAGRAPH 3. BASIC OBLIGATIONS OF DEALER 8 (a) BMW Sales, Service and Parts Supply 8 (b) Conduct of Business 8 (c) Compliance with Dealer Operating Requirements and Standards 8 (d) Issuance of Improvement Addendum 9 PARAGRAPH 4. GENERAL REQUIREMENTS FOR DEALER'S OPERATIONS 10 (a) Business Hours 10 (b) Signs 10 (c) Insurance 10 (d) Exclusive Ownership of BMW Trademarks 11 (e) Use of BMW Trademarks by Dealer 11 (f) Evaluation of Dealer's Facility 12 (g) Sales of Used BMW Vehicles 12 (h) Training 12 (i) Advertising 13 (j) Compliance with Laws 13 PARAGRAPH 5. DEALER'S SALES OF BMW VEHICLES 14 (a) Sales Promotion 14 (b) Sales Performance 14 (c) Demonstrators 14 (d) Retail Business Plan 15 (e) Performance Evaluation 15 (f) Down Payments and Trade Ins 16 (g) Price Disclosure 16 PARAGRAPH 6. CUSTOMER SERVICE 17 (a) Scope and Quality 17 (b) Disclosure and Use of Original BMW Parts 17 (c) Pre-Delivery Inspection 19 (d) BMW Service Booklet and BMW Drivers Handbook 19 (e) Compliance with Consumer Protection Statutes 19 PARAGRAPH 7. DEALER RECORDS & REPORTS; ACCESS TO PREMISES 21 (a) Financial Records 21 (b) Management Information Systems Requirements 21 (c) Financial Statements 21 (d) Additional Reports 22 (e) Access to Dealer's Premises and Records 22 (f) Confidentiality 23 PARAGRAPH 8. DEALER'S PURCHASE OF BMW VEHICLES 24 (a) Dealer's Purchase Price 24 (b) Payment 24 (c) Line of Wholesale Credit 24 (d) Shipment to Dealer 24 -ii- (e) Claims Processing 25 (f) Passing of Risk 26 (g) Repair and Sale of Damaged BMW Vehicles 26 (h) Option to Repurchase Damaged Vehicles 26 PARAGRAPH 9. DEALER'S INVENTORY AND PURCHASE OF BMW PARTS 28 (a) Minimum Inventory of Original BMW Parts 28 (b) Dealer's Purchase Price 28 (c) Payment 28 (d) Delivery 29 (e) Claims for Incomplete Delivery 29 (f) Return of Defective Original BMW Parts 29 (g) Right to Return Original BMW Parts 29 (h) No Return of Special Materials 30 PARAGRAPH 10. ADDITIONAL PROVISIONS GOVERNING DEALERS PURCHASE OF BMW PRODUCTS; DEALER'S INVENTORIES 31 (a) State and Local Taxes 31 (b) BMW NA's Purchase Money Security Interest 32 (c) Return or Diversion of BMW Vehicles on Failure to Accept 35 (d) Failure of or Delay in Delivery 35 (e) Changes in Specifications 36 (f) Changes by Dealer on BMW Products; Compliance with Safety, Air Pollution, Noise Control and Consumer Warranty Requirements 36 (g) Inventories 37 PARAGRAPH 11. WARRANTY TO CUSTOMERS 38 (a) BMW Warrantees 38 (b) Incorporation of BMW Warrantees in Dealer's Sales 38 (c) Warranty Procedures 39 PARAGRAPH 12. TERMINATION PRIOR TO EXPIRATION DATE; SUCCESSION 41 (a) Termination by Dealer 41 (b) Immediate Termination by BMW for Cause 41 (c) Termination by BMW NA on 60 Days' Notice 43 (d) No Waiver by Failure to Terminate 46 (e) Termination Upon Death or Permanent Disability 47 (f) Successor to Dealer in Event of Death 48 (g) Successor Nominee 49 -iii- PARAGRAPH 13. CONTINUATION OF BUSINESS RELATIONS 51 (a) Continuation of Business Relations After Expiration or Prior Termination 51 PARAGRAPH 14. RIGHTS AND LIABILITIES UPON EXPIRATION OR PRIOR TERMINATION 52 (a) Pending Orders 52 (b) Purchase of Dealer's Inventory of BMW Products by BMW 54 (c) BMW NA's Right to Specific Performance 58 PARAGRAPH 15. TRANSFER OF AGREEMENT 59 (a) Transfer, Sale or Assignment of Agreement by Dealer 59 PARAGRAPH 16. INDEMNIFICATION 60 (a) Indemnification by BMW NA 60 (b) Indemnification by Dealer 62 (c) Notification 64 (d) Allegation Involving Both BMW NA and Dealer 65 PARAGRAPH 17. MISCELLANEOUS PROVISIONS 67 (a) Approval or Consent by BMW NA 67 (b) Divisibility 67 (c) Termination of Prior Agreements 67 (d) Notices 68 (e) No Implied Waivers 68 (f) Dealer Not an Agent; Disclaimer of Further Liability by BMW 68 (g) Accounts Payable 69 (h) BMW NA's Continuing Security Interest 69 (i) Assignment of BMW NA's Security Interest 70 (j) Headings 70 (k) Entire Agreement; Representations 70 -iv- The following Dealer Standard Provisions are made a part of and are incorporated into the Dealer Agreement. DEFINITIONS PARAGRAPH 1 In addition to the definitions contained in the Dealer Agreement, the following terms shall have the following meanings: BMW (a)"BMW" shall mean Bayerische Motoren Werke AG, a company organized and existing under and by virtue of the laws of Germany, having its principal place of business at Munich, Germany; BMW NA (b)"BMW NA" shall mean BMW of North America, Inc., a corporation organized under the laws of the State of Delaware, the exclusive importer and distributor of BMW Products in the United States; BMW DEALERS (c)"BMW Dealers" shall mean all of the authorized BMW dealers which are signatories to a Dealer Agreement with BMW NA; BMW PRODUCTS (d)"BMW Products" shall mean BMW Vehicles and Original BMW Parts; BMW VEHICLE(S) (e)"BMW Vehicle(s)" shall mean new passenger car(s) manufactured by BMW or one of its manufacturing subsidiaries, sold by BMW NA and bearing the trademarks of BMW; DEALER (f)"Dealer" shall mean a dealer authorized to sell BMW Products as appointed by BMW NA pursuant to this Agreement; -1- DEALER AGREEMENT (g)"Dealer Agreement" or "Agreement" shall have the same meaning as set forth in Article B of the Dealer Agreement; DEALER'S BMW OPERATIONS (h)"Dealer's BMW Operations" or "BMW Operations" shall mean all activities of Dealer relating to the promotion and sale of BMW Products, the supply of Original BMW Parts, customer service for BMW Products, and/or all other operations of Dealer governed by this Agreement, such as sales of used BMW Vehicles; DEALER FORUM (i)"Dealer Forum" shall mean the elected representatives of the BMW Dealers who perform the responsibilities set forth in Article F of the Dealer Agreement; DEALER'S OFFICERS (j)"Dealer's Officers" shall mean all the persons named in Article C of the Dealer Agreement as officers of Dealer, as well as any other person who succeeds to any such executive and/or managerial position in Dealer in accordance with the Agreement; DEALER OPERATING REQUIREMENTS (k)"Dealer Operating Requirements" shall mean the Facility, Personnel, Financial, Equipment and Demonstrator Requirements published by BMW NA, as amended, cancelled or superseded from time to time by BMW NA following review by the Dealer Forum; -2- DEALER OPERATING REQUIREMENTS (l)"Dealer Operating Requirements ADDENDUM Addendum" shall mean the Facility, Personnel, Financial, Equipment and Demonstrator Requirements applicable to Dealer, as amended or superseded from time to time by BMW NA following review with Dealer; DEALER OPERATOR (m)"Dealer Operator" shall mean the person named in Article C of the Dealer Agreement as the person in charge of the Dealer's BMW Operations with authority to make all operating decisions on behalf of Dealer with respect to Dealer's BMW Operations and is the person upon whom BMW NA is relying to represent BMW Products and to act on Dealer's behalf, as well as any person who succeeds to such position in accordance with this Agreement; DEALER'S OWNERS (n)"Dealer's Owners" shall mean all the persons named in Article C of the Dealer Agreement as the beneficial and record owners of Dealer, as well as any other person who acquires or succeeds to any beneficial interest or record ownership of Dealer in accordance with the Agreement; DEALER'S FACILITY (o)"Dealer's Facility" shall mean the land and building(s) which constitute the authorized location established in accordance with the provisions of Article D of the Dealer Agreement for the conduct of the Dealer's BMW Operations; -3- GENERAL MANAGER (p)"General Manager" shall mean the person named in Article C of the Dealer Agreement as the person in charge of Dealer's BMW Operations in the absence of the Dealer Operator, as well as any person who succeeds to such position in accordance with this Agreement; IMPROVEMENT ADDENDUM (q)"Improvement Addendum" shall mean the Addendum to this Dealer Agreement which lists the outstanding obligations of Dealer which must be met to ensure the continuation of this Agreement under Article G of this Agreement; NET PURCHASE PRICE (r)"Net Purchase Price" shall mean the actual price at which Dealer purchased the certain BMW Product from BMW NA, which price shall include the addition or deduction of any and all rebates, refunds, credit allowances, discounts and other payments or adjustments made by BMW NA relative to such BMW Product. "Net Purchase Price" shall not include payments or adjustments in connection with Dealer Advertising Group (DAG) activities; -4- ORIGINAL BMW PARTS BMW (s)"Original BMW Parts" shall mean (i) any parts, accessories, and equipment for BMW Vehicles manufactured and/or sold by BMW and/or BMW NA and/or bearing the authorized trademarks of BMW, which parts, accessories and equipment usually are described as "Original" in packaging; and (ii) any equipment designed for use in BMW Operations (including special BMW tools) and any non- automotive accessories and other equipment including lifestyle items bearing the trademarks of BMW, which are supplied to Dealer by BMW NA; and PRIMARY MARKET AREA (t)"Primary Market Area" shall mean the area designed by BMW NA in which the Dealer is expected to focus its activities under this Dealer Agreement. Evaluation of Dealer's performance shall be primarily based upon Dealer's activities in its Primary Market Area; -5- BASIC OBLIGATIONS OF BMW NA PARAGRAPH 2 SUPPLY OF BMW PRODUCTS TO (a)BMW NA agrees to sell and deliver BMW DEALER Products to Dealer in accordance with this Agreement and the ability of the Dealer to store, display, sell and service BMW Products, as reflected in its Dealer Operating Requirements Addendum. BMW NA shall have no obligations to supply and Dealer shall not be entitled to receive BMW Products which exceed Dealer's ability to store, display, sell or service BMW Products as evidenced by its Dealer Operating Requirements Addendum. ASSISTANCE TO DEALER (b)BMW NA will assist Dealer in Dealer's BMW Operations through such means and upon such terms and conditions as BMW NA considers necessary and appropriate, including, among other things (1) Special training courses and meetings for Dealer's personnel; (2) Sales, service, and parts literature and other printed materials relating to bmw Products; (3) National advertising campaigns for BMW Vehicles; (4) Periodic suggestions and evaluations to assist Dealer in the conduct of its BMW Operations; and (5) Technical Assistance Hotline and Parts Telephone Support. -6- ALLOCATION OF VEHICLES (c) BMW NA agrees to sell and deliver BMW Products to Dealer in accordance with the provisions of this Agreement. (1) In making such sales and deliveries, BMW NA will consider Dealer's preferences, as well as its compliance with the resale and use restrictions of the Dealer Agreement, and will endeavor to make a fair and equitable allocation and distribution of the BMW Products available to it among its BMW dealers. BMW NA reserves the right to reduce allocation of BMW Vehicles to dealers which do not comply with the terms of the Dealer Agreement or the dealer Operating Requirements Addendum. (2) Dealer recognizes the possibility that from time to time BMW Products may not be available in sufficient quantities. In such event, Dealer agrees that BMW NA, in the exercise of its business judgment, may determine the method and manner of the allocation of BMW Products between dealer and BMW NA's other dealers. Upon Dealer's written request, BMW NA agrees to provide dealer with an explanation of the method used to distribute such BMW Products. -7- BASIC OBLIGATIONS OF DEALER PARAGRAPH 3 BMW SALES, SERVICE, AND PARTS (a) Dealer assumes the responsibility for the SUPPLY promotion and sale of BMW Products, the supply of Original BMW Parts, and customer service for BMW Products. CONDUCT OF BUSINESS (b) In the conduct of its business, Dealer will: (1) Safeguard and promote the reputation of BMW Products and the trademarks of BMW; (2) Refrain from negligent or willful conduct which may be harmful to the reputation or to the marketing of BMW Products or inconsistent with the public interest; and (3) Refrain from all deceptive, misleading, or unethical practices COMPLIANCE WITH DEALER (c) Dealer, recognizing that its OPERATING REQUIREMENTS AND responsibilities under this Agreement demand STANDARDS FOR BMW DEALERS the most effective use of its available facilities, capital and personnel, agrees to comply with its Dealer Operating Requirements Addendum. Dealer shall review said Addendum with BMW NA representatives at the Retail Business Plan Review; satisfy outstanding obligations under its Improvement Addendum, if applicable; and further comply with all reasonable standards established by BMW NA from time to time relating to Dealer's BMW Operations. -8- ISSUANCE OF IMPROVEMENT (d) BMW NA will notify Dealer in writing if ADDENDUM Dealer fails to comply with any obligation, responsibility or requirement under the Dealer Agreement or the Dealer Operating Requirements Addendum ("Deficiency") (1) If Dealer fails to remedy the Deficiency following notice, BMW NA will issue to Dealer an Improvement Addendum or amend an existing Improvement Addendum, listing the Deficiency(s) and providing Dealer a reasonable date to satisfy the Deficiency(s). (2) Should Dealer reasonably request an extension of time in writing, a justified request for extension will not be unreasonably withheld; however under no circumstances is BMW NA obligated to grant more than 2 extensions. (3) Dealer's failure to satisfy the Deficiency(s) will jeopardize the Dealer's ability to renew the Dealer Agreement and could subject Dealer to early termination of this Agreement. (4) The Improvement Addendum will be cancelled once Dealer remedies the Deficiency(s). (5) An Improvement Addendum may be superseded by BMW NA at any time to reflect Dealer's progress toward satisfaction of the Deficiency(s). -9- GENERAL REQUIREMENTS FOR PARAGRAPH 4 DEALER'S BMW OPERATIONS BUSINESS HOURS (a) Throughout the term of the Agreement, Dealer shall operate Dealer's Facility during, and for not less than, the customary business hours of the trade. SIGNS (b) Dealer agrees to display conspicuously at and around Dealer's Facility such BMW signs as BMW NA shall reasonably require. INSURANCE (c) Dealer shall maintain comprehensive and excess liability insurance policies in an amount sufficient to meet all reasonably anticipated contingencies, including legal judgments entered against Dealer. In no event shall the aggregate value of the policies be less than Three Million Dollars ($3,000,000.00). The policy must be issued by an insurance company with a Best's insurance rating of "B+" or better. -10- EXCLUSIVE OWNERSHIP OF BMW (d) Dealer acknowledges BMW's exclusive TRADEMARKS ownership, and the validity, of the BMW trademarks (including, without limitation, the BMW logo), both registered and common law, and shall not contest the same during the term of the Agreement or any time thereafter. Dealer and BMW NA agree to cooperate with each other in preventing any acts of trademarks infringement or unfair competition with respect to any BMW trademark, but BMW (or BMW NA, as BMW's agent with respect to trademark matters) shall have sole control over all actions and legal proceedings to suppress infringement of any unfair competition with respect to any BMW trademark. USE OF BMW TRADEMARKS BY (e) BMW NA grants Dealer a non-exclusive DEALER license to use the BMW trademarks subject to the terms and conditions of the Agreement. Dealer agrees that it will use the trademarks in connection with the promotion and sale of BMW Products and consumer service for BMW Products only in such manner, at such location, to such extent, and for such purposes as BMW NA may specify from time to time. No BMW trademark may be used except in the color, size, form and style approved by BMW NA. Moreover, without the express prior written consent of BMW NA, Dealer will not use any BMW trademark as part of its corporate or business name. -11- EVALUATION OF DEALER'S FACILITY (f) Recognizing the Dealer's facilities affect Dealer's ability to discharge properly its responsibilities under this Agreement and the Dealer Operating Requirements Addendum, Dealer will ensure that Dealer's Facility complies with the applicable provisions of this Agreement, including such reasonable requirements and standards as BMW NA may prescribe from time to time. SALES OF USED BMW VEHICLES (g) Recognizing the importance to the success of Dealer's business of a well-operated BMW used car department, Dealer shall use its best efforts to maintain in presentable condition a properly illuminated used car display area in which used BMW Vehicles will be prominently displayed. Dealer shall not use any BMW trademark in connection with the sale of used BMW Vehicles unless Dealer complies fully with all requirements of BMW NA as to the standards, practices, and facilities for used car sales under the BMW trademarks. TRAINING (h) Dealer agrees that its personnel will be trained in such special training courses as may be offered from time to time by BMW NA. Dealer shall require its personnel to meet with BMW NA personnel in the dealership or at other appropriate locations for the purposes of training and to use training materials as may be suggested from time to time by BMW NA. -12- ADVERTISING (i) Dealer agrees to advertise BMW Products and customer service for BMW Products in accordance with the standards set forth in Paragraph 3(b) and such other reasonable standards and guidelines as BMW NA may establish from time to time. Such advertising shall include, among other things, listings in local classified telephone directories identifying Dealer as an authorized dealer in BMW Products. Both BMW NA and Dealer recognize the need of maintaining uniformly high standards of ethical advertising of a quality and dignity consistent with the reputation of BMW Products in order to maintain public confidence and respect in Dealer, BMW NA, and BMW Products. Accordingly, Dealer agrees not to publish or cause to be published any advertising relating to BMW Products and customer service for BMW Products which is likely to deceive and mislead the public or to impair the goodwill of BMW NA or BMW Products. BMW NA reserves the right to require Dealer to cease any advertising inconsistent with this provision including the right to prohibit Dealer from using BMW Trademarks in advertising. COMPLIANCE WITH LAWS (j) Dealer shall comply with all applicable local, state and federal laws and regulations, including, but not limited to, laws and regulations requiring licensing and/or registration. Dealer agrees to disclose information as BMW NA may reasonably request with respect to the foregoing. -13- DEALER'S SALES OF BMW VEHICLES PARAGRAPH 5 SALES PROMOTION (a) Dealer will actively and effectively promote the sale of the full line of BMW Vehicles as it is authorized to promote and sell primarily in its Primary Market Area through regular contacts with owners and prospective owners and users of BMW Products consistent with the terms of this Dealer Agreement, and through such other means as reasonably may be required by BMW NA from time to time. SALES PERFORMANCE (b) Within the limitations, if any, resulting from the quantity of BMW Vehicles made available to Dealer by BMW NA, Dealer shall achieve the best possible sales performance obtainable for BMW Vehicles. Such sales performance shall be evaluated on the basis of such reasonable and equitable criteria as may be determined from time to time by BMW NA. DEMONSTRATORS (c) For purposes of demonstration, Dealer shall have available, at all times, such number of the most current model BMW Vehicles as required pursuant to the Dealer's Operating Requirements Addendum. Dealer shall maintain such BMW Vehicles in first- class operating condition at all times. -14- RETAIL BUSINESS PLAN (d) Each Dealer shall develop a Retail Business Plan with objectives for the following year. The annual Retail Business Plan will be discussed with and presented to the BMW NA representative at an annual retail business plan review. The final Retail Business Plan, as accepted by BMW NA, shall represent the goals and objectives of Dealer and contain the action plans developed by Dealer to achieve those goals and objectives and, in the case of an Improvement Addendum, address the means of complying with the terms of this Agreement. PERFORMANCE EVALUATION (e) Dealer and BMW NA agree that their primary purpose is to satisfy customers by properly servicing and promoting the sale of BMW Products within Dealer's Primary Market Area. Dealer and BMW NA will work together to achieve this purpose. (1) Dealer's compliance with the Retail Business Plan and Dealer's sales service and customer satisfaction performance will be reviewed and evaluated at least annually. BMW NA will provide to Dealer, in writing, its evaluation of Dealer's performance. Any written comments submitted by Dealer to BMW NA shall become part of a performance evaluation report. (2) BMW NA shall evaluate Dealer's performance based on, but not limited to: A. Dealer's sales of BMW Products in Dealer's Primary Market Area; -15- B. Registrations attributable to Dealer in Dealer's Primary Market Area; C. The sales and registrations of competitive vehicles in Dealer's Primary Market Area; D. Feedback from Dealer's customers measured by the results of the customer satisfaction surveys provided to Dealer by BMW NA; E. The trend of Dealer's performance over a reasonable period of time; F. Significant local conditions that may have affected Dealer's performance; G. The general vehicle purchasing trends of the public; and H. Dealer's compliance with its Dealer Operating Requirements Addendum and its Retail Business objectives. DOWN PAYMENTS AND TRADE INS (f) Payments received from customers, whether in money or in kind, which are to be applied towards the subsequent purchase of a new BMW Vehicle, shall be held for such customers in accordance with applicable law until such time as the transaction with respect to which such payments were received is consummated. PRICE DISCLOSURE (g) Dealer shall deliver to any purchaser of a BMW Vehicle an itemized invoice and disclose any other information or give any notice required by law -16- CUSTOMER SERVICE PARAGRAPH 6 SCOPE AND QUALITY (a) Dealer shall provide the best possible customer service for all owners of BMW Vehicles whether or not the BMW Vehicle was sold by Dealer and shall promote its customer service and the sale of Original BMW Parts. Dealer shall not engage in any service practice with respect to any BMW Products if BMW NA has reasonably objected to the nature or quality of such practice. DISCLOSURE AND USE OF ORIGINAL (b) Dealer shall not use any parts other BMW PARTS than genuine Original BMW Parts or parts expressly approved by BMW NA in the performance of warranty service in connection with the BMW New Car Limited Warranty and/or other BMW warranties. -17- (2) Dealer recognizes that its customers have a right to expect that any product that they purchase from Dealer meets the high quality standards associated with BMW Products In order to avoid confusion and minimize potential customer dissatisfaction, in any case where Dealer sells for use in the repair of any BMW Product any parts which are not genuine Original BMW Parts or parts approved by BMW or BMW NA, Dealer shall disclose to the customer that such parts are not genuine Original BMW Parts or parts approved by BMW or BMW NA, and, consequently, that such parts are not warranted by BMW NA. Such disclosure shall be in writing, conspicuous and set forth on the parts invoice, service or repair order. Dealer will also, by appropriate written notice, advise the customer of the source of such parts and extent of any warranty given by the supplier or manufacturer of such parts. (3) Dealer shall not represent in any manner, sell or offer for sale as new, genuine Original BMW Parts or parts approved by BMW or BMW NA, any parts which are not in fact new, genuine Original BMW Parts or parts approved by BMW or BMW NA. -18- PRE-DELIVERY INSPECTION (c) Before delivery to the customer, Dealer shall inspect and condition each new BMW Vehicle in accordance with quality certification and other pre-delivery inspection procedures furnished from time to time by BMW NA to Dealer. Evidence of completion will be determined at the discretion of BMW NA, through customer response to surveys or inspection documents maintained in Dealer's vehicle history file. BMW SERVICE BOOKLET; BMW (d) Upon delivery to a customer of a new BMW DRIVER'S HANDBOOK Vehicle, Dealer will also deliver to the customer the BMW Service Booklet supplied by BMW NA for such BMW Vehicle, properly completed and stamped with Dealer's corporate or business name, the customer warranty information, including notification of any laws, rules or regulations addressed in subparagraph (e) below when required by applicable state law, and the appropriate BMW Driver's Handbook. COMPLIANCE WITH CONSUMER (e) Dealer acknowledges the existence and PROTECTION STATUTES applicability of various "repair or replace" laws or other consumer protection laws, rules and regulations. Dealer agrees to comply fully with the requirements of such laws, rules and regulations and Dealer will take no action which adversely affects BMW NA's rights and duties under these laws, rules and regulations. -19- Moreover, Dealer agrees to use its best efforts to notify BMW NA promptly in writing of all situations in which "repair or replace" laws are or may be applicable. Dealer further agrees to take such other actions as BMW NA may reasonably require. -20- DEALER'S RECORDS AND REPORTS; PARAGRAPH 7 ACCESS TO DEALER'S PREMISES FINANCIAL RECORDS (a) Dealer shall keep accurate and current books of account in accordance with accounting principles reasonably satisfactory to BMW NA so as to enable BMW NA to develop comparative data in order, among other things, to furnish to Dealer, for Dealer's benefit, business management assistance. MANAGEMENT INFORMATION SYSTEMS (b) To facilitate the efficient operation of REQUIREMENTS the BMW NA dealer network and the accurate and prompt disclosure to BMW NA of dealership operations and financial information, Dealer agrees to install and maintain management information system facilities which are compatible with the computer system and software used by BMW NA and comply with the terms of the BMW Information Management Manual. FINANCIAL STATEMENTS (c) Dealer shall deliver or mail to BMW NA the following: (1) On or before the tenth (10th) day of each calendar month, on such forms as BMW NA reasonably may require, a financial and operating statement reflecting Dealer's BMW Operations for the preceding month and Dealer's total BMW Operations from the beginning of the calendar year to the end of the preceding month; and -21- (2) Within three and one-half (3-1/2) months after the end of the calendar year, a financial and operating statement for such year. In the event BMW NA so requests in writing, such statement shall be reviewed by a certified public accountant. ADDITIONAL REPORTS (d) Dealer will furnish to BMW NA, on such forms and at such times as BMW NA reasonably may require, complete and accurate reports of dealer's sales and inventories of new BMW Vehicles, of used BMW Vehicles, of Original BMW Parts, and of other used automobiles. Dealer will also furnish to BMW NA such other reports as BMW NA reasonably may require from time to time. Dealer shall maintain such records for at least three years. ACCESS TO DEALER'S (e) Until the expiration or prior PREMISES AND RECORDS termination of the Agreement and thereafter until consummation of all the transactions referred to in paragraph 14 hereof, BMW NA, through its representatives, employees, and other designees, shall have the right, at all reasonable times during regular business hours, to inspect Dealer's BMW Operations, including the Dealer's Facility, records and accounts of Dealer relating to Dealer's BMW Operations. Dealer shall cooperate fully with, and take all actions necessary to facilitate such inspections. -22- CONFIDENTIALITY (f) BMW NA will not furnish any data submitted to it by Dealer to any third party unless authorized by Dealer, required by law, regulation or judicial, arbitral or administrative process; or pertinent to judicial, arbitral or administrative proceedings. -23- DEALER'S PURCHASES OF BMW VEHICLES PARAGRAPH 8 DEALER'S PURCHASE PRICE (a) BMW NA will sell BMW Vehicles to Dealer at such prices and upon terms as may be established from time to time by BMW NA. Dealer shall be responsible for payment of any and all sales taxes, use taxes, excise taxes and other governmental or municipal charges imposed or levied or based upon the sale of BMW Vehicles by BMW NA to or through Dealer. PAYMENT (b) Payment for each BMW Vehicle purchased by Dealer shall be made in cash at the time of delivery unless the invoice provides otherwise, in which event the terms of the invoice shall govern. Receipt of any check, draft, or other commercial paper shall not constitute payment until BMW NA has received cash in full amount thereof. Dealer shall pay all collection charges. LINE OF WHOLESALE CREDIT (c) During the term of this Agreement, Dealer shall maintain exclusively for BMW Vehicles, an unrestricted line or lines of wholesale credit with a financing institution or institutions satisfactory to BMW NA in amounts as specified in the Dealer Operating Requirements Addendum. SHIPMENT TO DEALER (d) BMW NA will endeavor, whenever practicable, to follow Dealer's requests with regard to route and method of shipment of BMW Vehicles but BMW NA reserves the right to ship BMW Vehicles purchased by Dealer hereunder by whatever mode of transportation, by whatever route, and from whatever point BMW NA may select. All shipping charges for BMW Vehicles will be borne -24- by Dealer. CLAIMS PROCESSING (e) In order to facilitate the processing of claims for damage against the carrier or carrier's insurer, Dealer hereby authorizes BMW NA to process, and BMW NA agrees that it will so process at its own cost and expense, all such claims in BMW NA's name but for Dealer's account in such manner and on such basis as BMW NA may reasonably determine. BMW NA shall not, however, be obliged to retain counsel or commence legal proceedings against carrier or carrier's insurer with respect to any such claims. Dealer also authorizes BMW NA to settle or compromise any such claims for less than the full amount thereof as BMW NA may in its sole judgment determine without the prior approval of Dealer. Immediately upon delivery of any BMW Products to Dealer, Dealer shall make a careful inspection of such Products and shall note any deficiency or damage in the BMW Products so delivered on the appropriate carrier delivery forms, which shall be signed by both the representatives of carrier and the representatives of Dealer. Dealer shall also follow any other pertinent procedures that may be established from time to time by BMW NA and will cooperate with BMW NA in processing any claims. Failure by Dealer to note any deficiency or damage upon delivery to Dealer and failure to follow any other pertinent procedures established by BMW NA shall constitute a waiver by Dealer of BMW NA's obligation to process any claim and Dealer shall be solely responsible for asserting and processing any such claims against the carrier. -25- PASSING OF RISK (f) All BMW Vehicles sold to Dealer shall be at Dealer's risk and peril from the time of delivery at BMW NA's established place of delivery whether to Dealer, Dealer's agent or a common carrier and during all subsequent transportation. It shall be the obligation of Dealer to insure against such risks for its benefit and at its expense. REPAIR AND SALE OF (g) In the event that any BMW Vehicle sold by DAMAGED BMW VEHICLES BMW NA to Dealer should become damaged prior to its delivery by Dealer to a customer, Dealer shall, applying BMW approved repair practices and procedures, repair fully such damage so that such BMW Vehicle shall be placed in first-class salable condition prior to delivery. Dealer shall not market any BMW Vehicle if the quality or condition thereof has been reasonably objected to by BMW NA. Dealer shall comply with all state laws applicable to such sales and shall disclose to the customer all damage in accordance with applicable state law. Dealer will also disclose all damage when processing wholesale or retail trades of BMW Vehicles. OPTION TO REPURCHASE (h) In order to protect the integrity of BMW DAMAGED VEHICLES Vehicles, Dealer's and BMW NA's reputation in the marketplace, Dealer agrees to notify BMW NA whenever any of Dealer's new and unused BMW Vehicles are substantially damaged. For the period of ten (10) business days from BMW NA's receipt of such notice, BMW NA shall have the first option to repurchase from Dealer such damaged BMW Vehicles at a price equal to the Net Purchase Price originally paid by Dealer to BMW NA less any monies or other consideration received by Dealer in connection with or relating to such damaged BMW Vehicles. -26- Dealer agrees to assign its rights under any insurance contract with respect to such BMW Vehicles to BMW NA. In the event BMW NA exercises its option to repurchase as granted above, BMW NA reserves the right to make any payment hereunder directly to any party having a security interest in the BMW Vehicle being repurchased. BMW NA shall not be liable for any interest expense under this Paragraph 8 on returned vehicles, unless repurchased under this subparagraph (h). -27- DEALER'S INVENTORY AND PARAGRAPH 9 PURCHASE OF ORIGINAL BMW PARTS MINIMUM INVENTORY OF (a) Dealer shall acquire and at all times ORIGINAL BMW PARTS maintain a minimum inventory of available Original BMW Parts necessary to satisfy adequately the needs of the market. DEALER'S PURCHASE PRICE (b) BMW NA shall sell Original BMW Parts to Dealer at such prices and upon such terms as may be established from time to time by BMW NA. Dealer is responsible for any and all sales taxes, excise taxes, use taxes and other governmental or municipal charges imposed or levied or based upon the sale of Original BMW Parts by BMW NA to Dealer, except federal excise taxes which may be included in the purchase price of BMW NA to Dealer. In the event of any increase in the prices established by BMW NA for Original BMW Parts, Dealer will have the right to cancel all orders for Original BMW Parts affected by the increase which are pending and unfilled at the time Dealer obtains notice of the increase, provided that BMW NA is notified in writing of such cancellation within ten (10) days from the time Dealer obtains such notice. PAYMENT (c) Dealer's orders for Original BMW Parts will be filled on the basis of payment terms established from time to time by BMW NA for Dealer's account. Such terms may provide for open account, limited open account, C.O.D., or cash. Dealer will be invoiced at the time of shipment through the electronic Dealer Communications System. Dealer shall receive a month-end statement by the tenth day of the month following the date of invoice. Dealer shall render -28- payment for the total amount of the monthly statement in accordance with the terms stated therein. DELIVERY (d) Delivery of Original BMW Parts ordered by Dealer shall be made by common carrier or US mail and/or, if practical, in accordance with Dealer's specific request. If freight charges are to be paid by BMW NA, the most economical transportation will be selected. CLAIMS FOR INCOMPLETE DELIVERY (e) All claims for incomplete delivery of Original BMW Parts must be made by Dealer in writing immediately upon Dealer's receipt of shipment. RETURN OF DEFECTIVE (f) Dealer shall not sell, offer for sale or ORIGINAL BMW PARTS install any Original BMW Parts if the nature or quality thereof has been reasonably objected to by BMW NA. Dealer may, after receipt of written authorization from BMW NA, return defective Original BMW Parts to BMW NA for credit, together with the original invoice indicating Dealer's purchase price of such Original BMW Parts. Such Original BMW Parts shall be shipped, shipping charges prepaid, to the destination specified by BMW NA. Dealer will be reimbursed for shipping charges prepaid by it on authorized returns of defective Original BMW Parts based on the lowest applicable rate of transportation by common carrier. RIGHT TO RETURN (g) Dealer will notify BMW NA of any Original ORIGINAL BMW PARTS BMW Parts ordered by Dealer in error within thirty five (35) days after receipt of shipment. Dealer may return such Original BMW Parts, no later than thirty five(35) days after Dealer's receipt of specific authorization from BMW NA, for -29- credit, which credit shall be applied based on the invoiced price of the returned Original BMW Parts. Such Original BMW Parts shall be returned, shipping charges prepaid, to the destination specified by BMW NA. Dealer may also return, after receipt of written authorization from BMW NA, Original BMW Parts shipped to Dealer due to BMW NA shipping error. Such Original BMW Parts shall be shipped, shipping charges prepaid, to the destination specified by BMW NA and Dealer shall be credited for such prepaid shipping charges as well as for the invoiced prices of the returned Original BMW Parts. NO RETURN OF SPECIAL MATERIAL (h) Dealer will not be entitled to return (1) any materials which have been acquired or specially fabricated by BMW NA upon Dealer's order, or (2) unlisted Original BMW Parts or assemblies. -30- ADDITIONAL PROVISIONS GOVERNING PARAGRAPH 10 DEALER'S PURCHASE OF BMW PRODUCTS; DEALER'S INVENTORIES STATE AND LOCAL TAXES (a) With regard to each purchase of BMW Products, Dealer represents and warrants that: (1) Such BMW Products are being purchased from BMW NA by Dealer for resale in the ordinary course of Dealer's business; (2) Dealer has complied with all of the applicable provisions of local and state laws prerequisite to the collection and payment by Dealer of all sales, use, and excise taxes and other governmental or municipal charges applicable to all such resale transactions; and (3) Dealer has furnished to BMW NA all resale certificates or similar documents required to perfect an exemption from any applicable sales and use tax. Dealer shall be responsible for payment of any and all taxes and other governmental or municipal charges imposed or levied in connection with the sale to Dealer by BMW NA of BMW Products or equipment supplied to Dealer by BMW NA. In the event that any BMW Products are put to a taxable use by Dealer or are in fact purchased by Dealer for purposes other than resale in the ordinary course of Dealer's business, Dealer shall make timely return and payment to the appropriate taxing authorities, as required by Paragraph 8(a), with respect to BMW Vehicles, and Paragraph -31- 9(b), with respect to Original BMW Parts, of all applicable sales, use and excise taxes, and other governmental or municipal charges imposed or levied or based upon the sale of such BMW Products by BMW NA to Dealer, and Dealer shall hold BMW NA harmless from any and all claims and demands which may be made by such taxing authorities against BMW NA with respect thereto. BMW NA'S PURCHASE MONEY (b) In order to assure its prompt and SECURITY INTEREST unconditional payment to BMW NA upon the terms and as and when due of any and all indebtedness, obligations or liabilities of Dealer to BMW NA for the purchase of each BMW Product ("Obligation's"), Dealer hereby grants, assigns and transfers to BMW NA a continuing first and senior lien on and security interest in each such BMW Product sold on credit, open account or limited open account to Dealer by BMW NA, all accessions and additions thereto, and all proceeds and products of each such BMW Product, whether now owned or hereafter acquired as welll as a security interest in cash incentives, holdbacks, bonuses or other BMW NA payables (the "Collateral"). In furtherance thereof and in recognition of BMW NA's status as a secured party having all the rights and remedies of a secured party under Article 9 of the Uniform Commercial Code: (1) In the event Dealer is in default of any Obligations or any of the events described in Paragraph 12(b) and (c) of this Agreement shall occur, and at any time thereafter, BMW NA may declare Dealer in default and may exercise the following rights and remedies, in addition to all other rights -32- and remedies it has a secured party under the Uniform Commercial Code: (i) To declare all Obligations of Dealer to BMW NA immediately due and payable; and (ii) To require Dealer to assemble the Collateral and make it available to BMW NA for possession at a place designated by BMW NA which is reasonably convenient to both parties. (2) With respect to all proceeds of the Collateral, including, without limitation, payments received by Dealer from a customer upon delivery of any BMW Product constituting Collateral and cash deposits received from a customer in anticipation of a future delivery of a BMW Product constituting Collateral to such customer, Dealer grants to BMW NA an irrevocable power of attorney to endorse all cash and non-cash proceeds of the Collateral to effect collection thereof, it being understood and intended by Dealer that such power of attorney is coupled with an interest; and Dealer shall: (i) Upon demand by BMW NA, whether or not Dealer is in default of any Obligations, deposit not later than the business day following receipt, all proceeds of the Collateral or any portion thereof, in a separate bank account designated for that purpose and under the sole control of BMW NA; (ii) Not commingle any proceeds of the Collateral to which BMW NA is entitled with other funds or property of Dealer until delivery of such proceeds to BMW NA has been -33- completed, it being agreed and understood that the proceeds to which BMW NA is entitled shall be that portion of the proceeds upon sale of a BMW Product constituting Collateral which equals the Obligations with respect to such BMW Product; and (iii) Hold any proceeds of the Collateral to which BMW NA is entitled under Paragraph 10(b)(2) hereof separate and apart and upon express trust for BMW NA until such delivery or deposit. (3) Dealer shall hold in trust each deposit of cash received from a customer in anticipation of a future delivery of a BMW Product constituting Collateral to such customer until such delivery is consummated. (4) Dealer shall not sell, pledge, assign, transfer, lease, resell or otherwise dispose of any type of Collateral herein described or any interest in Collateral except in the ordinary course of Dealer's business or as may be authorized in writing by BMW NA. (5) Dealer shall execute and deliver promptly to BMW NA one or more financing statements pursuant to the Uniform Commercial Code in form suitable for filing to perfect a purchase money security interest in the Collateral and otherwise satisfactory to BMW NA. Dealer irrevocably appoints BMW NA as its attorney in fact, to sign and file, in Dealer's name, financing statements at any time with respect to the Collateral and the proceeds thereof, it being understood and intended by Dealer that such power of attorney is coupled with an interest. -34- (6) The remedies provided in this Paragraph 10(b) shall be in addition to any other rights and remedies provided in this Agreement or under applicable law. RETURN OR DIVERSION OF BMW (c) In the event Dealer should fail or VEHICLES ON DEALER'S FAILURE refuse for any reason (other than an error by TO ACCEPT BMW NA) to accept any BMW Vehicle delivered to Dealer's Facility, Dealer will reimburse BMW NA for all expenses incurred by BMW NA in returning such BMW Vehicle to the original point or in diverting it to another destination, as the case may be; but in no event shall Dealer be required to pay BMW NA an amount in excess of the expense of returning such BMW Vehicle to its original point of delivery to Dealer. Dealer forfeits any further rights it may have with respect to such rejected BMW Vehicle(s). FAILURE OF OR DELAY IN DELIVERY (d) BMW NA will not be under any liability to Dealer for failure to deliver or for delay in making delivery if such failure or delay results from any event brought by causes other than willful or grossly negligent conduct of BMW NA, such as, for example, any event in the nature of force majeure, acts of God, acts of any government, foreign or civil wars, riots, interruptions of navigation, shipwrecks, strikes, lockouts, other labor troubles, embargoes, blockades, fires, explosions, sabotage, failures of BMW or of any other supplier of BMW NA to deliver, or delay of BMW or of any other supplier of BMW NA in making delivery. -35- CHANGES IN SPECIFICATIONS (e) BMW Products will be delivered by BMW NA to Dealer in accordance with standards applicable at the time of their manufacture. BMW NA and Dealer recognize and agree that BMW and/or BMW NA shall have the right, without limitation, at any time and from time to time, to make changes or modifications in the design specifications of BMW Products without notice to BMW NA or Dealer. BMW NA shall have no obligation to Dealer to make such change or modification with respect to BMW Products previously delivered to or ordered by Dealer or to make any refund or other adjustment for any BMW Products previously purchased by Dealer or being imported, manufactured or sold, whether or not the price of such BMW Products is affected thereby. No change shall be considered a model year change unless so specified by BMW. CHANGES BY DEALER ON BMW (f) Dealer agrees not to make any PRODUCTS; COMPLIANCE WITH modifications or alterations to BMW Vehicles SAFETY, AIR POLLUTION, which alters the original engineering and/or NOISE CONTROL AND CONSUMER operating specifications of the vehicle. BMW WARRANTY REQUIREMENTS NA may request Dealer to make such changes or refrain from making such changes on BMW Products as may be prescribed from time to time by BMW, and Dealer agrees to comply promptly with such requests. Dealer also agrees to take such steps and render such reports in connection with the National Traffic and Motor Vehicle Safety Act of 1966, the Consumer Product Safety Act, the Magnuson-Moss Warranty Act, or any other legislation or regulation pertaining to safety, air pollution, noise control or warranties to consumers, as may be required of automobile dealers or -36- manufacturers or as BMW or BMW NA may request from time to time, and to comply with all such legislation and regulations in conducting Dealer's BMW Operations. BMW NA will reimburse Dealer for the reasonable cost of any Original BMW Parts, and labor in accordance with current warranty rates and procedures, which may be used by Dealer in making changes on BMW Products requested by BMW NA and/or BMW. Dealer agrees to indemnify and hold harmless BMW and BMW NA from and against any and all claims and liabilities arising from Dealer's failure or alleged failure to comply, in whole or in part, with any obligation assumed by Dealer pursuant to this paragraph. Dealer will communicate to BMW NA all suggestions with respect to improvements in BMW Products it may have or develop as a result of its experience. INVENTORIES (g) Dealer agrees that, in addition to maintaining the minimum inventory of Original BMW Parts required under Paragraph 9(a), Dealer will acquire, and at all times maintain, such inventory of available BMW Products as is necessary in accordance with the current and reasonably foreseeable volume of Dealer's business and to further Dealer's sales activities and to assure satisfactory customer service and supply of Original BMW Parts. -37- WARRANTY TO CUSTOMERS PARAGRAPH 11 BMW WARRANTEES (a) Each BMW Vehicle supplied by BMW NA will be warranted to the customer by BMW NA in accordance with the New Car Limited Warranty and the Limited Warranty on Emission Control and the Limited Warranty Against Rust Perforation. Each Original BMW Part supplied by BMW NA will be warranted to the customer by BMW NA in accordance with the Limited Warranty on Original BMW Spare Parts or the Limited Warranty on Original BMW Spare Parts Purchased Over the Counter, as the case may be. INCORPORATION OF BMW (b) Dealer agrees to make all sales of BMW WARRANTEES IN DEALER'S SALES Vehicles and Original BMW Parts in such a way that its customers acquire all rights in accordance with the New Car Limited Warranty, the Limited Warranty on Emission Controls, the Limited Warranty against Rust Perforation, the Limited Warranty on Original BMW Spare Parts or the Limited Warranty on Original BMW Spare Parts Purchased Over the Counter, as the case may be. Dealer will supply consumers with a copy of such warranties in such fashion as may from time to time be required by BMW NA or by applicable law. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EXCEPT FOR THE NEW CAR LIMITED WARRANTY, THE LIMITED WARRANTY ON EMISSION CONTROLS, THE LIMITED WARRANTY AGAINST RUST PERFORATION, THE LIMITED WARRANTY ON ORIGINAL BMW SPARE PARTS AND THE LIMITED WARRANTY ON ORIGINAL BMW SPARE PARTS PURCHASED OVER THE COUNTER, BMW NA MAKES NO OTHER WARRANTIES, EXPRESS OR IMPLIED, TO CONSUMERS. -38- WARRANTY PROCEDURES (c) Dealer agrees to comply with the provisions of the current Warranty Policies and Procedures Manual supplied by BMW NA to Dealer and to follow the procedures established from time to time by BMW NA for the processing and disposition of warranty claims and the return and disposition of Original BMW Parts claimed to be defective. Dealer will also comply with all requests of BMW NA for the performance of service in response to warranty claims and will maintain detailed records of time and parts consumption as prescribed by BMW NA. Upon complying with such procedures and requests and maintaining such records, Dealer will be entitled to reimbursement for warranty claims at the current rate of reimbursement specified by BMW NA for Dealer provided that Dealer has the necessary equipment and qualified service personnel, as specified by BMW NA, to effect necessary warranty repairs. Strict adherence to the procedures established for processing warranty claims is necessary in order for BMW NA to process such claims fairly and expeditiously. BMW NA will be under no obligation with respect to warranty claims not made strictly in accordance with such procedures. Dealer's obligation hereunder extends to all BMW Vehicles and BMW Products under warranty presented to Dealer by a customer, regardless of whether Dealer sold the BMW Vehicle or BMW Product to such customer. Dealer is not authorized to assume or incur any other or additional warranty obligations or liabilities on behalf of either BMW or BMW NA. Any such other or additional obligations -39- assumed or incurred by Dealer shall be solely the responsibility of Dealer, including the disclosure of the identity of the supplier or warrantor, the existence of a warranty, and the specific terms and conditions of such warranty to the consumer. -40- TERMINATION PRIOR TO EXPIRATION PARAGRAPH 12 DATE; SUCCESSION TERMINATION BY DEALER (a) Dealer shall have the right to terminate the Agreement at any time by sending notice of such termination to BMW NA, by certified mail, return receipt requested, telegram, or overnight mail service sixty (60) days in advance of the effective date thereof. IMMEDIATE TERMINATION BY BMW (b) Except to the extent a greater notice NA FOR CAUSE period is required by any applicable statute, in which case the minimum notice period shall be deemed to be the minimum period required by such law, BMW NA shall have the right to terminate the Agreement for cause, with immediate effect, by sending notice of such termination to Dealer by certified mail return receipt requested, telegram, or overnight mail service, if any of the following events should occur: (1) Any material misrepresentation by any of the persons listed in Article C of the Dealer Agreement as to any fact relied upon by BMW NA in entering into this Agreement or approving such persons; (2) Conviction of Dealer or of any of the persons listed in Article C of the Dealer Agreement, or pleading guilty or pleading nolo contendre by any of the foregoing, of any felony or for any material violation of law if BMW NA has reason to believe that such conviction or plea may adversely affect the conduct of Dealer's BMW Operations or would tend to be harmful to -41- BMW, BMW NA, the reputation of BMW Products or the marketing of BMW Products; (3) Submission by Dealer to BMW NA of a false or fraudulent report or statement or of a false or fraudulent claim for reimbursement, refund or credit, such as, for example, a false or fraudulent warranty claim; (4) Grossly negligent or willful conduct on the part of Dealer that BMW NA determines, in the reasonable exercise of its discretion, to be harmful to the goodwill of BMW or BMW NA, the reputation of BMW Products or the marketing of BMW Products; (5) Closure or cessation of Dealer's BMW Operations for a period of six (6) consecutive business days, unless such closure or cessation of operation is caused by some event beyond the control of the Dealer, such as strikes, civil war, riots, fires, floods, earthquakes, or other acts of God, and Dealer immediately resumes its customary operations after the cause of the closure or cessation of operations is removed; (6) Dissolution or liquidation of Dealer, if a partnership or corporation; (7) Insolvency or business failure of Dealer, Dealer's inability to pay its debts as such debts become due; appointment of a receiver or custodian for all or any part of the property of Dealer; assignment for the benefit of creditors by Dealer; the commencement of a case or proceeding under any bankruptcy -42- or insolvency laws by or against Dealer or any person or entity owning or holding, beneficially or otherwise, a majority or controlling interest in Dealer; or the subjection of all or any BMW Products to execution or other judicial process; (8) Termination of BMW NA's authorization as a BMW importer; (9) The conduct, directly or indirectly, of any dealership operation at any location, other than that specifically approved herein for such operation, without the prior written approval of BMW NA; or (10) 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 without the prior written approval of BMW NA. TERMINATION BY BMW NA ON (c) Except to the extent a greater notice 60 DAYS' NOTICE period is required by any applicable statute, in which case the notice period shall be deemed to be the period required by such statute, BMW NA shall have the right to terminate the Agreement, on sixty (60) days notice, if any of the following situations exist and BMW NA has previously sent a written notice to Dealer with respect thereto: -43- (1) Any disagreement or personal difficulties between or among any of the persons listed in Article C of the Dealer Agreement which BMW NA has a reasonable basis to believe would have a materially adverse effect on the conduct of Dealer's BMW Operations or the presence in the management of Dealer of any person who BMW NA has a reasonable basis to believe does not have the requisite qualifications for the position; (2) Impairment of the reputation or financial standing of Dealer or any of the persons listed in Article C of the Dealer Agreement or ascertainment by BMW NA of any facts existing at or prior to the time of execution of the Agreement which tend to impair such reputation or financial standing; (3) Any reduction in value of Dealer's BMW Products or any act on the part of the Dealer, including without limitation, the existence of any liens or encumbrances upon BMW Products, which to any degree imperils the prospect of full performance or satisfaction of the Obligations of Dealer to BMW NA; or any change in the financial or other condition of Dealer which BMW NA has reason to believe unreasonably impairs BMW NA's security or increases its risk hereunder. By way of example such impairments might include failure to pay for BMW Products in accordance with the terms and conditions of sales and failure to establish and/or maintain for the duration of the Agreement, net working capital, adequate exclusive unrestricted wholesale lines of credit; -44- (4) The importation, distribution or sale of BMW vehicles which are not originally manufactured or designed for use in the United States or the sale of BMW Products for resale or use outside the 50 United States or other violation of any BMW NA Export Policy established by BMW NA; (5) Refusal to permit BMW NA to examine or audit Dealer's accounts and records as provided herein upon receipt by Dealer from BMW NA of written notice requesting such permission or information; (6) Failure of Dealer to furnish accurate sales or financial information and related supporting data in a timely fashion; (7) Subject to provisions contained herein with regard to any change in ownership occurring by reason of the death or permanent disability of Dealer's Owner(s), any change in Dealer's Owner(s) holding a majority or controlling ownership interest in Dealer, or any change, whether voluntary or by operation of law, in the ownership of beneficial interests in Dealer, or any appointment of Dealer Operator, without the prior written consent of BMW NA; -45- (8) Dealer's failure to take any actions pursuant to the National Traffic and Motor Vehicle Safety Act of 1966, the Consumer Product Safety Act, the Magnuson-Moss Warranty Act, or any other legislation or regulation pertaining to safety, air pollution, noise control, or warranties to consumers which may be required of automobile dealers or which BMW NA may request in implementing any action undertaken by BMW NA or BMW; or (9) Any breach or violation of any material obligation contained in the Agreement or in connection with any transaction between BMW NA and Dealer; or the failure of Dealer to satisfy any deficiency(s) contained in the Improvement Addendum, or any material failure by Dealer to comply with a requirement established by BMW NA and communicated to Dealer in accordance with this Agreement. During the period such a situation continues to exist, BMW NA may modify its terms of payment with respect to Dealer to such extent as BMW NA may consider appropriate, irrespective of Dealer's credit standing or payment record. NO WAIVER BY FAILURE (d) In the event BMW NA shall be entitled to TO TERMINATE terminate the Agreement pursuant to the provisions of Paragraph 12(b) or Paragraph 12(c) but shall fail to do so, such failure shall not be considered a waiver of the rights of BMW NA to so terminate the Agreement. -46- TERMINATION UPON DEATH (e) Death or permanent disability of any of OR PERMANENT DISABILITY Dealer's Owners holding a majority or controlling ownership interest in Dealer or the permanent disability of Dealer Operator may, at BMW NA's option, result in the termination of this Agreement, upon written notice by BMW NA to Dealer. BMW NA shall provide such notice within a reasonable time after such death or permanent disability. Termination hereunder shall be effective sixty (60) days from the date of such notice. -47- SUCCESSOR TO DEALER (f) Notwithstanding the above Paragraph IN EVENT OF DEATH 12(e), in the event of the death of any of the Dealer's Owners, if the beneficial interest in Dealer passes directly to the surviving spouse and children, or to any of them, and if: (1) Either or both of the persons included in Article C(iv) and (v) of the BMW Dealer Agreement remain(s) unchanged; or (2) Within ninety (90) days after the death of such Owner, arrangements are completed for the assumption of the management of Dealer by persons acknowledged in writing by BMW NA to be satisfactory to it, then BMW NA will not terminate the Agreement by reason of such death before the end of twelve (12) months after the death of such Owner and, if the Agreement expires sooner than twelve (12) months after the death of such Owner, BMW NA will offer to enter into a new Agreement with Dealer for an extension period equal to the difference between twelve months and the number of days between the date of death of such Owner and the expiration date of this Agreement. Such new Agreement will be in substantially the same form as the Agreement then currently offered by BMW NA to its Dealers. Prior to the expiration of such extension period and after completion of BMW NA's evaluation of the performance of Dealer's management during such period, BMW NA will review with Dealer the changes, if any, in the management or equity interests of Dealer required by BMW NA as a condition to renewing or extending the aforementioned new Agreement with Dealer. -48- SUCCESSOR NOMINEE (g) Dealer may amend the Dealer Agreement to nominate a Successor, designating proposed Dealer Owner(s) of a Successor Dealer to be established if this Agreement is terminated because of death or permanent disability. Dealer may also cancel a Successor Nominee by providing notice to BMW NA that it intends to amend the Dealer Agreement to delete and/or substitute a new Successor Nominee. The request to amend the Dealer Agreement or to cancel a Successor Nominee must be executed by all Dealer's Owners and be received by BMW NA prior to such death or permanent disability. In the case of the nomination of a Successor, any proposed Dealer Owner(s) must be acceptable to BMW NA. If Successor Nominee is not acceptable to BMW NA, Dealer and BMW NA will create a developmental plan which, if successfully accomplished, will qualify the Successor Nominee to eventually become a Dealer Owner. In the case of cancellation of a Successor Nominee, BMW NA agrees to delete the name of the party listed in Article C(iv) upon receipt of that notice. If, due to changed circumstances, BMW NA believes or has a reasonable basis to believe the Successor Nominee is or should be disqualified, BMW NA will notify Dealer that the proposed owner is no longer acceptable. A subsequent Successor Nominee will be designated or a developmental plan will be created by mutual agreement between BMW NA and Dealer. -49- If BMW NA has notified Dealer Owner's in writing before the death or permanent disability of such owners that BMW NA does not plan to continue to have a dealer at Dealer's location, BMW NA shall accept a Successor Nominee upon the Successor's written commitment to relocate Dealer's BMW Operation within a reasonable time to a mutually acceptable location. -50- CONTINUATION OF PARAGRAPH 13 BUSINESS RELATIONS CONTINUATION OF BUSINESS (a) The Agreement can be extended or renewed RELATIONS AFTER EXPIRATION only through an express written instrument to OR PRIOR TERMINATION that effect executed in accordance with Article I of the Dealer Agreement. Any business relations of any nature whatsoever between BMW NA and Dealer after the expiration of the Agreement, or after its prior termination pursuant to Paragraph 12, without such written instrument shall not operate as an extension or renewal of the Agreement. Nevertheless, all such business relations, so long as they are continued, shall be governed by terms identical with the provisions of the Agreement. -51- RIGHTS AND LIABILITIES UPON PARAGRAPH 14 EXPIRATION OR PRIOR TERMINATION PENDING ORDERS (a) Upon the expiration or prior termination of the Agreement, all pending orders of Dealer for BMW Products previously accepted by BMW NA will be considered canceled and Dealer will immediately do the following: BMW SIGNS (1) Remove, at its own expense, all BMW signs displayed at Dealer's Facility and sell and deliver the same to BMW NA at Dealer's Facility in suitable condition and packing for transportation. Promptly following such delivery, BMW NA will pay to Dealer, Dealer's purchase price for such signs reduced by straight-line depreciation on the basis of a seven-year useful life; -52- DISCONTINUANCE OF USE OF BMW (2) Dealer acknowledges that the license and TRADEMARKS right to the use of the BMW trademarks ceases upon Dealer's voluntary resignation or termination as a Dealer, or upon the expiration of this Agreement, whichever occurs first. In such event, Dealer will immediately cease holding itself out as a BMW dealer and refrain from the use of BMW trademarks in any fashion whatsoever. Moreover, Dealer agrees not to use any similar trademarks and refrain from any other activity which states or implies that it is authorized to deal in or service BMW Products. If Dealer shall refuse or neglect to comply with the provisions of Paragraph 14(a)(1) and (2), Dealer shall reimburse BMW NA for all costs and expenses (including attorneys' fees) incurred by BMW NA in connection with legal proceedings to require Dealer's compliance; ORDERS AND FILES (3) Transfer to BMW NA, or BMW NA's designee or designees, all orders for sale by Dealer of BMW Vehicles and Original BMW parts then pending with Dealer, all deposits made thereon, whether in cash or in kind, and all of its warranty files and files of prospective customers for BMW Products, or complete copies of all such files; CUSTOMER LISTS (4) Provide BMW NA with the names and addresses of all customers who purchased BMW Vehicles from or by Dealer and the service records of all current and active service customers; and -53- LITERATURE (5) Deliver to BMW NA at BMW NA's place of business, or to BMW NA's designee or designees, free of charge, any and all technical or service literature, advertising and other printed material relating to BMW Products then in Dealer's possession which were acquired or obtained by Dealer from BMW NA, such as, for example, sales instruction manuals and promotional materials. PURCHASE OF DEALER'S INVENTORY (b) Within 90 days of the expiration or OF BMW PRODUCTS BY BMW NA prior termination of this Agreement and provided further that all Dealer's Obligations to BMW NA have been paid or satisfied in full, BMW NA, upon Dealer's compliance with the provisions hereinafter set forth, will purchase from Dealer and Dealer will sell and deliver to BMW NA, the following: NEW BMW VEHICLE INVENTORY (1) All new, unused, undamaged and unmodified BMW Vehicles then unsold in Dealer's inventory which are in first-class salable condition and of the then current model year or the immediately preceding model year, provided that such BMW Vehicles were purchased by Dealer from BMW NA (or in the ordinary course of business, from other Dealers). The price for such BMW Vehicles shall be the Net Purchase Price at which they were originally purchased from BMW NA; -54- NEW ORIGINAL BMW PARTS INVENTORY (2) All new, unused and undamaged Original BMW Parts (other than the special BMW tools specifically covered in Paragraph 14(b)(3) below), in original packaging not classified as obsolete or "special" by BMW NA, and listed in the then current BMW Parts Price List, then unsold in Dealer's inventory which are in first-class, salable condition; provided such Original BMW Parts were purchased by Dealer from BMW NA. The price at which BMW NA will purchase such Original BMW Parts shall be the price last established by BMW NA under the BMW NA standard parts order for the sale of identical Original BMW Parts to Dealers, less a 15% handling and restocking charge; and SPECIAL BMW TOOLS (3) All required special BMW tools applicable to BMW Vehicles including electronic testing equipment (Suntester Model 2013) and computer hardware and software, if any, provided that such tools were purchased by Dealer from BMW NA, and provided any sets of such tools are complete and no parts or components are missing or otherwise unusable. The price at which BMW NA will purchase such special BMW tools shall be reasonably determined by BMW NA, but in no event will such price be less than Dealer's purchase price for such tools reduced by straight-line depreciation on the basis of a three-year useful life. -55- Any and all items to be sold by Dealer to BMW NA pursuant to the provisions of this Paragraph 14(b) shall be delivered by Dealer to BMW NA at Dealer's Facilities in suitable condition and boxed and/or packed for transportation, which transportation shall be at BMW NA's expense. In the event Dealer fails to so box and pack any Original BMW Parts or special BMW tools to be sold hereunder, BMW NA may do so and deduct the expenses of such boxing and packing from the applicable price thereof. As a condition precedent to the obligations of BMW NA under this Paragraph 14(b) to repurchase any BMW Vehicles, Original BMW Parts or special BMW tools, Dealer shall permit BMW NA and BMW NA's designee or designees, at such time and for such periods of time as BMW NA reasonably shall determine, to enter Dealer's Facility for the purpose of inspection and/or taking an inventory of all or any part of Dealer's stock of BMW Vehicles, Original BMW Parts and special BMW tools. At the request of BMW NA, Dealer shall comply in all respects with the provisions of all applicable bulk sales acts or similar statutes protecting a transferee of personal properly with respect to liabilities of the transferor. In making payments in accordance with this Paragraph 14(b), BMW NA reserves the right to do the following: -56- (i) To pay any financial institution retaining a security interest in any of the items to be repurchased by BMW NA such sums as are necessary to obtain good, unencumbered and marketable title to such items; (ii) To pay any claimant, in accordance with any applicable statute, such sums as may be necessary to acquire good, unencumbered and marketable title, free of any interest, right or claim of such claimant, to the items being repurchased by BMW NA; and (iii) To set off the amount due Dealer including, without limitation, amounts due Dealer from BMW NA for the repurchase of BMW Products hereunder against any amount which may be due BMW NA from Dealer, including, without limitation, reimbursement of expenses incurred by BMW NA pursuant to (i) or (ii) above. Notwithstanding anything to the contrary contained in this Paragraph 14(b), in no event will BMW NA be required to purchase any item from Dealer unless Dealer is able to convey title to such item free and clear of all liens, claims, encumbrances and security interests. -57- BMW NA's RIGHT TO SPECIFIC (c) Since Dealer's performance of its PERFORMANCE obligations under this Paragraph 14 is of such a nature that it is impossible to measure, in money, the damages which will be suffered by BMW NA in the event Dealer should fail to perform any of these obligations, Dealer agrees that, in the event of any such failure or performance on its part, BMW NA will be entitled to maintain an action or proceeding to compel the specific performance by Dealer of these obligations and Dealer agrees not to urge in any such action or proceedings the claim or defense that BMW NA has an adequate remedy at law. -58- TRANSFER OF AGREEMENT PARAGRAPH 15 TRANSFER, SALE OR ASSIGNMENT (a) Dealer shall not transfer, sell or OF AGREEMENT BY DEALER assign, or attempt to transfer, sell or assign, the Agreement or sell or transfer any right or delegate any duty, or obligation or responsibility of Dealer under the Agreement. If a transfer, sale or assignment of Dealer's BMW Operations is approved by BMW NA, then BMW NA shall offer the transferee or assignee of Dealer the right to enter into a new Agreement in substantially the same form as the Agreement then currently offered by BMW NA to its dealers. -59- INDEMNIFICATION PARAGRAPH 16 INDEMNIFICATION BY BMW NA (a) Subject to the provisions of this Paragraph 16, BMW NA shall indemnify and hold Dealer harmless against any judgment which may be rendered against Dealer, plus reasonable attorney fees and court costs, resulting from lawsuits seeking monetary damages commenced against Dealer by third parties concerning: (1) Bodily injury or property damage (including damage to BMW Products) claimed to have been caused by an alleged defect in the design, manufacture or assembly of BMW Products; provided, however, that any claimed defect in manufacture or assembly was not such as should have been detected by Dealer in a reasonable inspection of the BMW Products, whether in the performance of the Dealer's pre-delivery inspection and conditions or otherwise; (2) Failure of BMW Products to conform, because of changes in standard equipment or material component parts, to any description thereof set forth in advertisements or product brochures made available to Dealer by BMW NA and allegedly relied on by the first retail purchaser thereof, unless Dealer shall have received written notice of such changes from BMW NA prior to the date of delivery of the affected BMW Product to such purchaser, or (3) Any substantial damage to BMW Products repaired by BMW NA prior to the time any affected -60- BMW Product is delivered to the Dealer, unless Dealer shall have received written notice of such damage and repair from BMW NA prior to the date of delivery of the affected BMW Product to the first retail purchaser thereof. In the event that any lawsuit making allegations as set forth in (1) through (3) above is brought naming Dealer as a defendant, BMW NA will, following receipt of notice as provided in subparagraph (c) of this Paragraph 16, undertake at its sole expense and through counsel selected or approved by BMW NA, the defense of said action on behalf of Dealer. BMW NA is specifically authorized by Dealer to settle or to continue to defend any such lawsuit brought against Dealer, provided that BMW NA shall be solely liable for the payment of the amount of any settlement which it effects or judgment that is rendered. Should BMW NA for any reason refuse to undertake the defense of Dealer when it is otherwise obligated to do so under this subparagraph, Dealer may conduct its own defense and, in that event, BMW NA's liability shall be limited solely to the costs of such defense, including reasonable attorney fees, court costs and the amount of any judgment or final settlement paid by Dealer (provided, however, that Dealer shall notify BMW NA within twenty (20) days of such judgment or settlement). BMW NA shall have the right to decline to accept Dealer's -61- defense or, after accepting the defense but prior to trial, to tender the defense back to Dealer, and Dealer shall accept such tender if BMW NA reasonably concludes that the allegations or claims being pursued are no longer those set forth in (1) through (3) above. INDEMNIFICATION BY DEALER (b) Subject to the provisions of this Paragraph 16, Dealer shall indemnify and hold BMW NA harmless against any judgment which may be rendered against BMW NA, plus reasonable attorney fees and court costs, resulting from lawsuits seeking monetary damages commenced against BMW NA by third parties concerning: (1) Dealer's alleged failure to perform or negligent or willfully malfeasant performance of (1) the service obligations assumed by it pursuant to Paragraph 6 of the Dealer Standard Provisions, or (2) any maintenance or repair service on BMW Products or such other motor vehicles or products as may be sold or serviced by Dealer: (2) Dealer's alleged breach of any contract between Dealer and Dealer's customer, provided, however, that the breach was not caused by any act or omission on the part of BMW NA concerning which BMW NA unreasonably failed to notify Dealer prior to the date of Dealer's entering into the contract with its customer: (3) Dealer's alleged independent warranties, misleading statements, misrepresentations, or unfair or deceptive acts or practices, -62- whether through advertisements or otherwise, affecting any individual or entity; provided, however, that the alleged warranties, statements, representations, deceptive acts or practices or advertisements are-not based on information or material produced or supplied by BMW NA and not subsequently superseded or withdrawn by BMW NA upon written notification to Dealer. In the event that any lawsuit making allegations as set forth in (1) through (3) above is brought naming BMW NA as a defendant, Dealer will, following receipt of notice as provided in subparagraph (c) of this Paragraph 16, undertake at its sole expense and through counsel selected by Dealer and approved by BMW NA, the defense of said action on behalf of BMW NA. Dealer is specifically authorized by BMW NA to settle or to continue to defend any such lawsuit brought against BMW NA, provided that Dealer shall be solely liable for the payment of the amount of any settlement which it effects or judgment that is rendered. Should Dealer for any reason refuse to undertake the defense on behalf of BMW NA when it is otherwise obligated to do so under this subparagraph, BMW NA may conduct its own defense and, in that event, Dealer's liability shall be limited solely to the costs of such defense including reasonable attorney fees, court costs and the amount of any judgment or final settlement paid by BMW NA (provided, however, that BMW NA shall notify Dealer within twenty (20) days of such judgment or settlement). -63- Dealer shall have the right to decline to accept BMW NA's defense or, after accepting the defense but prior to trial, to tender the defense back to BMW NA, and BMW NA shall accept such tender, if Dealer reasonably concludes that the allegations being pursued are no longer those set forth in (1) through (3) above. NOTIFICATION (c) Whenever a lawsuit is commenced against either BMW NA or Dealer or both of them, each shall, within fifteen (15) days after service of the complaint, notify the other in writing of any request to assume its defense and to indemnify it, and shall provide at the time copies of any pleadings or any other court papers which have been served upon the party giving notice, as well as all information then available regarding the first customer, the plaintiff and the circumstances giving rise to the suit. IN THE EVENT THIS PROVISION IS FOR ANY REASON NOT COMPLIED WITH, SUBPARAGRAPHS (a) AND (b) OF THIS PARAGRAPH 16 SHALL NOT APPLY FOR PURPOSES OF THAT LAWSUIT OR WITH RESPECT TO ANY CLAIM OR LAWSUIT ARISING OUT OF ALLEGATIONS OR TRANSACTIONS ANTEDATING THE FIRST CLAIM OR LAWSUIT INVOLVING THE AFFECTED BMW PRODUCT. The request to assume the defense and to indemnify shall be accepted or rejected, in writing, by the party to whom it is delivered within thirty (30) days following its receipt. Prior to receipt of a response to its request, each party agrees to take all -64- reasonable steps to ensure that the defense to the action is in no way prejudiced, whether by action or inaction. If the request is accepted, the party making the request shall cooperate fully in the defense of the suit in such manner and to such extent as the party assuming the defense may reasonably require; provided, however, that subparagraphs (a) and (b) of this Paragraph 16 shall be applicable commencing with the date on which the request is accepted and any expenses or other obligations incurred prior to such acceptance by the party making the request shall be borne solely by such Party. ALLEGATIONS INVOLVING BOTH BMW (d) If at any time in a lawsuit it is NA AND DEALER alleged that there is liability on the part of both BMW NA (on any or all of the bases set forth in subparagraph (a) of this Paragraph 16) and Dealer (on any or all of the bases set forth in subparagraph (b) of this Paragraph 16), each party shall be responsible for its own defense, including costs and attorneys fees, unless at any time after the commencement of such suit one party offers to undertake the total defense and the other party agrees thereto in writing, in which event the provisions of subparagraphs (a) and (b) hereof shall be controlling, as appropriate to the circumstances of such agreement. -65- The responsibility of BMW NA or Dealer for its own defense pursuant to this sub-paragraph (d), or pursuant to any other circumstances not within the scope of this Paragraph 16, shall in no way affect or alter the legal rights, if any, either may have to indemnification or contribution from the other. -66- MISCELLANEOUS PROVISIONS PARAGRAPH 17 APPROVAL OR CONSENT BY BMW NA (a) Any approval or consent given by BMW NA must be in writing and signed by duly authorized representatives of BMW NA. DIVISIBILITY (b) If any provision of this Agreement contravenes or is prohibited by the laws of any state or other jurisdiction which are held to be applicable to this Agreement, such provision shall be limited to the extent necessary so that it will not render this Agreement invalid, unlawful or unenforceable, in whole or part, under such laws, but all other provisions of this Agreement shall remain in full force and effect. TERMINATION OF PRIOR AGREEMENTS (c) This Agreement terminates and supersedes all prior written or oral agreements, if any, between BMW NA (or any predecessor of BMW NA) and Dealer relating to the subject matter hereof, except with respect to any trade indebtedness which may be owing by either BMW NA or Dealer to the other and except that this Agreement shall not operate to cancel any of Dealer's unfilled orders with BMW NA for any BMW Products placed with BMW NA pursuant to the provisions of any agreement terminated or superseded by this Agreement. -67- NOTICES (d) Any notices under or pursuant to the provisions of this Agreement shall be directed to the respective addresses of the parties as stated in the Dealer Agreement or, if either of the parties shall have specified another address by notice in writing to the other party, to the address thus last specified. The parties shall advise each other promptly, in writing, of any change of address. NO IMPLIED WAIVERS (e) Except as otherwise provided in this Agreement, the 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 the 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 or constitute a waiver of the provision itself. DEALER NOT AN AGENT; (f) Dealer will conduct its BMW Operations on DISCLAIMER OF FURTHER its own behalf and for its own account. LIABILITY BY BMW NA AND BMW Dealer has no power or authority to act for or to bind BMW and/or BMW NA Except as expressly provided in the Agreement, BMW NA will not be liable for any expenditure made or incurred by Dealer in connection with Dealer's performance of its obligations pursuant to the Agreement. Dealer is not an agent of BMW NA, and BMW NW owes no fiduciary duty to dealer. -68- Dealer agrees that it has no rights, without limitation, arising from or in connection with any agreement between BMW NA and any other BMW dealer and that Dealer is not a third party beneficiary of any such agreement. Nothing herein grants Dealer any rights to enforce any such agreement. Dealer also agrees that no third party shall have any enforceable rights under this Agreement. ACCOUNTS PAYABLE (g) All monies or accounts due Dealer shall be net of Dealer's indebtedness to BMW NA, its subsidiaries and affiliates. Following thirty (30) days written notice to Dealer, BMW NA may: (1) deduct any amounts due or to become due from Dealer to BMW NA, its subsidiaries and affiliates, and/or (2) set-off any amounts due from Dealer which are being held by BMW NA, its subsidiaries and affiliates, relating to this Dealer Agreement or any other agreement between dealer and any of those parties. BMW NA'S CONTINUING SECURITY (h) Except as specifically provided by any INTEREST other provision of this Agreement, the security interest granted to BMW NA hereunder shall not be affected by any provision in any other instrument, including, but not limited to, invoices, purchase orders, purchase order acknowledgments and other forms; and the terms of this Agreement relating to such security interest may only be modified, amended or changed by a writing signed by both parties and specifically referring to this Agreement. -69- ASSIGNMENT OF BMW NA'S (i) BMW NA may assign the security interest SECURITY INTEREST granted to it under this Agreement or any part thereof, including its security interest in particular items of Collateral and, upon notifying the Dealer, the assignee shall be entitled to the full performance of the covenants, rights and remedies contained in Paragraph 10 of the Agreement in so far as they apply to the Collateral assigned. Dealer will not assert any claims, defenses or offsets against the assignee that it may have against BMW NA. HEADINGS (j) The headings contained in this Agreement have been inserted for convenient reference only and shall not in any way affect the construction, interpretation or meaning of the text. ENTIRE AGREEMENT; (k) This Agreement contains the entire REPRESENTATIONS agreement between BMW NA and Dealer. Dealer acknowledges that no representation or statement has been made to it on behalf of BMW, BMW NA and/or any agents, representatives or employees of either BMW or BMW NA that in any way tend to change or modify any of the terms or provisions of the Agreement or that in any manner prevents this Agreement from becoming effective. Dealer further acknowledges that there is no other agreement or understanding, except those specifically provided for in this Agreement, either oral or written, between Dealer and BMW and/or BMW NA affecting this Agreement or relating to the subject matter hereof. -70- EX-10.2-5-1 11 EXHIBIT 10.2.5.1 EX 10.2.5.1 TERM DEALER SALES AND SERVICE AGREEMENT THIS AGREEMENT, effective the 3rd day of July, 1996 is entered into by and between AMERICAN SUZUKI MOTOR CORPORATION, Automotive Division, a California Corporation (hereinafter referred to as "SUZUKI"), having its principal office at 3251 East Imperial highway, Brea, California, and Fair Hyundai Partnership, partnership duly registered under the laws of the State of Connecticut, and trading as Danbury Suzuki, (hereinafter referred to as "DEALER"), having its principal office at 100C Federal Road, Danbury, CT 06810. PURPOSE OF AGREEMENT It is acknowledged by both SUZUKI and DEALER that the purpose of this Agreement is to establish DEALER as an authorized dealer of Suzuki products and to provide for the sale, lease and servicing of Suzuki products by DEALER. It is of utmost importance to SUZUKI that Suzuki products are sold and serviced in a manner which promotes consumer satisfaction and confidence. It is hereby understood and acknowledged that DEALER desires an opportunity to qualify for a three-year American Suzuki Motor Corporation Dealer Sales and Service Agreement for Suzuki Four Wheel Vehicle Products. DEALER understands, acknowledges and accepts that DEALER must first fulfill all of DEALER's undertakings as hereinafter set forth. In furtherance of the purpose of this Agreement, the parties acknowledge that SUZUKI is the exclusive distributor in the United States (except Hawaii) of Suzuki Four Wheel Vehicles and Parts and Accessories therefor manufactured by Suzuki Motor Co., Ltd., a corporation incorporated under the laws of Japan. It is of utmost important to SUZUKI that Suzuki Products are sold and serviced in a manner which promotes consumer satisfaction and confidence. DEALER desires to become one SUZUKI's authorized dealers. SUZUKI, based on the representations and promises of DEALER, and in reliance on DEALER's integrity, ability and expressed intention to deal fairly with SUZUKI and the consumer, has accepted DEALER as an authorized retail dealer of Suzuki Products. DEALER acknowledges that SUZUKI has selected DEALER as an authorized SUZUKI dealer and has granted to it a Dealership for Suzuki Products and related rights pursuant to this Agreement solely in reliance upon the undertaking of DEALER to fulfill its responsibilities to any third party or parties. This Agreement sets forth the rights and responsibilities of SUZUKI and DEALER. The relationship between SUZUKI and DEALER shall be that of vendor and purchaser. DEALER is not the agent or legal representative of SUZUKI or Suzuki Motor Co., Ltd. for any purpose whatsoever. DEALER does not have any express or implied rights of authority to assume or create any obligations or responsibilities on behalf of, or in the name of, SUZUKI or Suzuki Motor Co., Ltd. THEREFORE, subject to the terms and conditions of this Agreement, based on the foregoing facts and in consideration of the mutual promises and other valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: I. RIGHTS GRANTED TO DEALER Subject to the terms of this Agreement, SUZUKI hereby appoints DEALER as a nonexclusive authorized dealer for Suzuki Products and grants DEALER the right to: A. Sell, lease and service Suzuki Products to the satisfaction of SUZUKI from the Dealership Facilities and Locations as set forth in the Facility Standards Addendum and Section X herein. B. Identify itself as an authorized Suzuki Dealer utilizing Suzuki-approved signage at the Dealership Facilities; and C. Use the name "Suzuki" and the Suzuki trademarks in the advertising, promotion, sales, leasing and servicing of Suzuki Products in the manner herein provided. SUZUKI hereby reserves the unrestricted right to sell Suzuki Products and to grant the privilege of using the Suzuki name and trademarks to other dealers and entities, wherever they may be located. II. RESPONSIBILITIES ACCEPTED BY DEALER DEALER accepts its appointment as an authorized Suzuki Dealer and, in consideration of its appointment and subject to other conditions and provisions of the Agreement, agrees to: A. Establish and maintain Dealership Facilities to the satisfaction of SUZUKI as set forth herein and in the Facility Standards Addendum and the Dealer Minimum Standards Addendum at the location(s) set forth herein; B. Sell, lease and promote Suzuki Products subject to, and in accordance with, the terms and conditions of this Agreement; C. Service, in a manner satisfactory to SUZUKI, Suzuki Products subject to, and in accordance with, the terms and conditions of this Agreement; and D. Build and maintain public confidence and respect in DEALER, SUZUKI and Suzuki Products by maintaining the highest ethical standards of advertising, business practices and conduct. III. TERM This Agreement shall come into full force and effect at SUZUKI headquarters in Brea, California when executed by SUZUKI and, subject to its earlier termination, in accordance - 2 - with the provisions of this Agreement, shall continue in full force and effect for six months, expiring on 1/3/97 subject to the provisions of Section 11.00 of the Standard Provisions only upon the condition that DEALER complies and completes all the terms and conditions of this Agreement. IV. OWNERSHIP OF DEALER DEALER represents and warrants and this Agreement is conditioned upon, and is entered into by SUZUKI upon the representations and warranties of DEALER that: A. Dealer is a Connecticut Partnership (indicate whether a sole proprietor, a partnership, a corporation or other type of organization) B. The following person(s) and only said person(s) own and will continue to own, throughout the term of this Agreement, the following interest in ownership of the Dealership:
Percentage of State Whether Partner Name Interest Officer or Director ---- ------------ --------------------- Fair Hyundai Corporation 30% DiFeo Partnerships 70%
C. DEALER intends to carry on business under the name(s) of Fair Hyundai Partnership T/A Danbury Suzuki. DEALER warrants that the appropriate registration or fictitious business name statement reflecting the name in Paragraph (C) above has been filed with the proper state authorities for the conduct of business under the name by DEALER. V. MANAGEMENT OF DEALERSHIP A. SUZUKI enters into this Agreement on DEALER's representation that William Comastro and no other person, shall be General manager and shall have full managerial authority and responsibility for the operation and management of all phases of the business of the Dealership with authority to make all decisions on behalf of DEALER with respect to the operation of the Dealership and the performance of this Agreement. VI. CHANGE IN OWNERSHIP OR MANAGEMENT SUZUKI has entered into this Agreement in reliance on DEALER's representation that the persons identified as Owners and/or General Manager in Sections IV and V herein possess the ability, experience and other personal qualifications requisite for the performance of this Agreement. Therefore, if there is to be a change in the person(s) named as having full ownership and/or full managerial authority as General Manager and responsibility for the - 3 - operation and management of the Dealership, DEALER must give prior written notice of the change to SUZUKI, (except a change caused by death, in which case DEALER or the DEALER's legal representative shall give immediate written notice to SUZUKI). No such change or notice shall alter or modify any of the provisions in this Agreement until embodied in an appropriate written amendment and executed by all parties. SUZUKI will not unreasonably withhold consent to a change in ownership or management, provided that SUZUKI receives all information requested by it concerning the prospective owner(s) and/or General Manager, and provided that the prospective owner(s) and/or General Manager meet(s) all SUZUKI financial qualifications and other qualifications in effect at the time of the proposed change. VII. LICENSING OF DEALER If any state, city or other jurisdiction where the Dealership operations are to be located and conducted requires DEALER to obtain and maintain a license for the conduct of Dealership operations as set forth herein, this Agreement shall not be valid until and unless DEALER shall have first provided to SUZUKI certification of the issuance of such license(s) to DEALER. DEALER shall immediately notify SUZUKI in writing of failure to obtain or maintain any such licenses or renewal thereof. DEALER shall further notify SUZUKI in writing if any license that DEALER has obtained pursuant to this Paragraph is suspended or revoked and the date and reasons therefor. VIII. INCORPORATION OF STANDARD PROVISIONS The Suzuki Dealer and Service Agreement Standard Provisions accompanying this Agreement are incorporated herein by this reference and made a part of this Agreement with the same force and effect as if fully set forth at this point. IX. INCORPORATION OF DOCUMENTS AS PART OF AGREEMENT The Dealer Application, Facility Standards Addendum, Dealer Minimum Standards Addendum and Dealer Updates are incorporated by this reference and made a part of this Agreement with the same force and effect as if all the representations and warranties in the Dealer Application, and all terms and conditions of the Facility Standards Addendum, Dealer Minimum Standards Addendum and Dealer Updates were set forth in full herein. The DEALER represents and warrants and SUZUKI enters into this Agreement in reliance upon those representations and warranties that all representations and warranties made by the DEALER in the Dealer Application, Facility Standards Addendum and Dealer Minimum Standards Addendum are true and correct as of the date of execution of this Agreement. X. CONDITIONS OF SUZUKI'S OFFER If this Agreement is not terminated prior to its expiration date as set forth above, SUZUKI hereby offers to enter into a three-year American Suzuki Corporation Dealer Sales and Service Agreement with DEALER in such form as shall be in use by SUZUKI at that time. - 4 - This offer may be accepted by DEALER fulfilling all of the following conditions during the term of this Agreement and at the expiration thereof, each of which DEALER recognizes, understands and agrees as being reasonable and necessary: (a) Provide through acquisition or construction, and maintain the following facilities for the Suzuki Dealership and for the state, leasing and servicing of Suzuki Products: Dealer shall not establish or conduct any Dealership operations which are the subject of this Agreement, including the display, sale, leasing or servicing of Suzuki Products, at any location or facility other than as set forth above or in the Facility Standards Addendum. (b) Complete the acquisition and installation, at the Dealership Facilities, of improvements, signs, furniture and furnishings, tools and equipment as recommended by SUZUKI for the Dealership; (c) Employ such personnel, in qualification and number, as recommended by SUZUKI for the Dealership; (d) Furnish SUZUKI, on forms or in the format designated by SUZUKI, by the tenth (10th) day of each month, with the financial and operating statements set forth in Section 3.04 of the Standard Provisions; (e) Comply with all other of SUZUKI's standards of DEALER to operate the Dealership and qualify in all other respects for a Suzuki three-year Dealer Sales and Service Agreement; (f) Comply with all federal, state and local governmental statutes, ordinances, rules, regulations and standards to conduct business as an authorized Suzuki Dealer at the Dealership Facilities; (g) Other Conditions: - Install and maintain approved Suzuki signage in accordance with paragraph 2.02 of the Standard Provisions of the Dealer Sales and Service Agreement. - Maintain a minimum of two (2) Suzuki trained technicians in Product intro and EFI to service the Suzuki product line during the term of this agreement. - Maintain Suzuki Information Center during the term of this agreement. - Maintain Suzuki SCAT System during the term of this agreement. - Utilize Suzuki Financial Statement and submit by the 20th of each month to National AND Regional Offices during the term of this agreement. --- - Maintain average monthly District, Regional, or National total sales per dealer, whichever is highest, during the entire term of the Dealer Sales and Service Agreement. - 5 - - Pursuant to Section 5.02 of the Suzuki Standard Provisions, dealer agrees to maintain adequate flooring arrangements conforming to the requirements established and approved by Suzuki, in no event less than $500,000. Should DEALER fail to fulfill each and every condition set forth in this Paragraph during the term of the Agreement and prior to the expiration thereof, the above offer made by SUZUKI shall be automatically revoked on the expiration date set forth in Paragraph III without further notice to dealer. XI. EFFECT OF LEGAL PROCEEDINGS ON SUZUKI'S OFFER TO DEALER Should a proceeding of any nature be filed with or initiated in any court or administrative body seeking to prevent or delay SUZUKI from entering into a Dealer Sales and Service Agreement with DEALER and/or seeking damages resulting from SUZUKI doing so, SUZUKI shall be under no obligation to enter into such Agreement during the pendency of such proceeding. Furthermore, if, as a result of such proceeding, SUZUKI shall be ordered or prevented from entering into such an Agreement with Dealer, the offer contained in Section X herein shall be void and SUZUKI shall have no liability to DEALER whatsoever for any damages which DEALER may incur as a result thereof. XII. BREACH OF AGREEMENT BY DEALER Should DEALER fail to comply with and fully and completely carry out all of the terms and conditions of this Agreement, including those incorporated by reference, such failure shall constitute a material breach of this Agreement, and SUZUKI shall be under no obligation whatsoever to DEALER to extend this Agreement in whole or in part, to enter into a regular three year Dealer Sales and Service Agreement with DEALER or be under any other obligation or have any liability to DEALER whatsoever. XIII. ONLY AGREEMENT Unless expressly referred to and incorporated herein, this Agreement cancels and supersedes all previous contracts, agreements and understandings between SUZUKI and DEALER with respect to Suzuki Products, and there are no promises, representations, understandings or agreements except as stated herein. - 6 - IN WITNESS WHEREOF the parties hereto have executed this Agreement this 3rd day of July, 1996. AMERICAN SUZUKI MOTOR CORPORATION Automotive Division BY: /S/ M. NAQURA ----------------------------- M. NAQURA, PRESIDENT ----------------------------- Name and Title Fair Hyundai Partnership T/A DANBURY SUZUKI ----------------------------- Dealer Entity Name BY /S/ JAMES G. HETHERINGTON ----------------------------- President BY /S/ GEORGE LOWRANCE ----------------------------- Secretary - 7 - DEALER MINIMUM STANDARDS ADDENDUM - --------------------------------------------------------------------------------------------------- Dealer Dealer Code James G. Hetherington 406090 - --------------------------------------------------------------------------------------------------- Plan Name Region Fair Hyundai Partnership New York - --------------------------------------------------------------------------------------------------- Trading As Sales District Service District Danbury Suzuki CO2 CO2 - --------------------------------------------------------------------------------------------------- Address City State Zip Code 100C Federal Road Danbury CT 06810 - --------------------------------------------------------------------------------------------------- Mailing Address City State Zip Code Same - --------------------------------------------------------------------------------------------------- Sales Phone Service Phone Fax Number 203-730-5680 203-730-5680 203-730-4782 - --------------------------------------------------------------------------------------------------- Management Office - --------------------------------------------------------------------------------------------------- Business Name Phone Fax Number Fair Hyundai Partnership 203-730-5600 203-730-5723 - --------------------------------------------------------------------------------------------------- Address Mailing Address 102 Federal Road Same - --------------------------------------------------------------------------------------------------- City State Zip Code City State Zip Code Danbury CT 06810 - --------------------------------------------------------------------------------------------------- Floorline Source - --------------------------------------------------------------------------------------------------- Credit Institution Phone Credit Limit General Motors Acceptance Corporation 201-560-2022 $600,000 - --------------------------------------------------------------------------------------------------- Address City State Zip Code 120 Eagle Rock Avenue, Suite 310 East Hanover NJ 07936 - --------------------------------------------------------------------------------------------------- PERSONNEL STANDARD ACTUAL REQUIREMENTS ORDERED COMPLETE - --------------------------------------------------------------------------------------------------- Sales Manager 1 1 Advertising Materials X - --------------------------------------------------------------------------------------------------- Salesmen 4 4 General Workshop Equipment X - --------------------------------------------------------------------------------------------------- Service Manager 1 1 Initial Parts Order X - --------------------------------------------------------------------------------------------------- Parts Manager 1 1 Initial Accessories Order X - --------------------------------------------------------------------------------------------------- Technicians 2 2 SCAT Plus System X - --------------------------------------------------------------------------------------------------- Special Tool Kit X ---------------------------------------------------- Temporary Signage X - --------------------------------------------------------------------------------------------------- COPY OF DOCUMENTS FILED WITH DEALER ENTITY Signage X STATE - --------------------------------------------------------------------------------------------------- X Articles of Incorporation X Corporation Suzuki Information Center X - --------------------------------------------------------------------------------------------------- Partnership Agreement Partnership - --------------------------------------------------------------------------------------------------- Proprietorship - ---------------------------------------------------------------------------------------------------
AMERICAN SUZUKI MOTOR CORPORATION FAIR HYUNDAI PARTNERSHIP T/A DANHURY SUZUKI Automotive Division - ----------------------------------------------------- Dealer By: /S/ JAMES G. HETHERINGTON By: /S/ M. NAQURA ------------------------------------------------- --------------------------------- Signature Signature JAMES G. HETHERINGTON, EXECUTIVE VICE PRESIDENT M. NAQURA, PRESIDENT - ----------------------------------------------------- ------------------------------------- Name and Title Name and Title MARCH 29, 1996 JULY 3, 1996 - ----------------------------------------------------- ------------------------------------- Date Date
- 8 - FACILITY STANDARDS ADDENDUM Fair Hyundai Partnership T/A Danbury Suzuki Danbury, CT 06810 406090 -------------- ----------------- ------ ---------- Dealer Name City, State, Zip Dealer Code Date
- ------------------------------------------------------------------------------------------------------------------------------- FACILITIES LOCATION FACILITY - ------------------------------------------------------------------------------------------------------------------------------- DISTANCE FROM SHOWROOM GENERAL DEDICATED MAIN INCLUSIVE OFFICE & DEDICATED SUZUKI ADDRESS LOCATION OF CLOSING CUSTOMER SUZUKI STALLS/ BODY LOCATION LOCATION UNE (MILES) OFFICES* LOUNGE* PARTS* PARTS SERVICE* HOISTS SHOP* - ------------------------------------------------------------------------------------------------------------------------------- A. Main 100C Federal Road 3,640 540 1,975 600 6,685 2/2 N/A - ------------------------------------------------------------------------------------------------------------------------------- Location Sales/ Use Service/Parts - ------------------------------------------------------------------------------------------------------------------------------- B. Additional Location Use - ------------------------------------------------------------------------------------------------------------------------------- C. Additional Location Use - ------------------------------------------------------------------------------------------------------------------------------- D. Additional Location Use - ------------------------------------------------------------------------------------------------------------------------------- E. Additional Location Use - ------------------------------------------------------------------------------------------------------------------------------- Total Land and TOTALS Building Land Building 12,840 141,000 153,840 3,640 540 1,975 6,685 2/2 N/A - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------ LAND - ------------------------------------------------------------------------------------ NEW NEW SERVICE USED VEHICLE VEHICLE CUSTOMER CUSTOMER CAR DISPLAY* STORAGE* PARKING* PARKING* DISPLAY* - ------------------------------------------------------------------------------------ A. Main 20,000 90,000 5,000 5,000 21,000 - ------------------------------------------------------------------------------------ Location Use - ------------------------------------------------------------------------------------ B. Additional Location Use - ------------------------------------------------------------------------------------ C. Additional Location Use - ------------------------------------------------------------------------------------ D. Additional Location Use - ------------------------------------------------------------------------------------ E. Additional Location Use - ------------------------------------------------------------------------------------ TOTALS 20,000 90,000 5,000 5,000 21,000 - ------------------------------------------------------------------------------------
*TOTAL FACILITY Fair Hyundai Partnership T/A AMERICAN SUZUKI MOTOR CORPORATION FACILITIES OWNED BY: FACILITIES ARE: Danbury Suzuki Automotive Division ---------------------------- Dealer [ ] Dealer [ ] Permanent By: /S/ JAMES G. HETHERINGTON By: /S/ M. NAQURA [ ] Dealership [ ] Temporary -------------------------------------- ------------------------------- [ ] Dealer Realty Signature Signature JAMES G. HETHERINGTON, EXECUTIVE VICE PRESIDENT M. NAQURA, PRESIDENT ----------------------------------------------- ----------------------------------- Name and Title Name and Title Corporation or Similar Entity [ ] If Facilities are MARCH 29, 1996 JULY 3 1996 leased, -------------------------------------- --------------------------------- complete section on back Date Date
SUZUKI AMERICAN SUZUKI MOTOR CORPORATION SUPPLEMENTAL AGREEMENT TO AMERICAN SUZUKI MOTOR CORPORATION DEALER SALES AND SERVICE AGREEMENT This Supplemental Agreement ("Supplemental Agreement") is entered into among Fair Hyundai Partnership, trading as Danbury Suzuki, ("Dealer"), Di Feo Partnership, Inc. and Fair Hyundai Corp. (collectively "Dealer Owner"), United Auto Group, Inc. ("Public Company") and American Suzuki Motor Corporation ("Suzuki"). WHEREAS, Suzuki and Dealer have entered into the Term Dealer Sales and Service Agreement, dated July 25, 1996, ("Dealer Agreement") permitting Dealer to conduct its circumscribed business activities on behalf of Suzuki from the approved location identified in the Dealer Agreement; and WHEREAS, the contemplated future organization and ownership structure of Dealer and Dealer Owner 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 Owner and Suzuki; and WHEREAS, Dealer and Suzuki have entered into the Dealer Agreement 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 Sections IV, V and VI, James G. Hetherington shall be considered the Dealer's General Manager, as the term is used in Sections V and VI of the Dealer Agreement ("Dealer Principal"). Suzuki has relied and will reply upon the personal qualifications and management skills of Dealer Principal. Dealer and Dealer Owner hereby represent that Dealer Principal has complete and irrevocable authority to make all decisions, and to enter into any and all necessary business commitments required in the normal course of conducting the Dealer's business activities and may take all actions normally required of a Dealer Principal pursuant to Section IV, V and VI of the Dealer Agreement. Neither Dealer nor Dealer Owner will revoke, modify or amend such authority without the prior written approval of Suzuki. 2. The removal or withdrawal of Dealer Principal without Suzuki's prior written consent shall constitute grounds for termination of the Dealer Agreement, subject to applicable law. However, Suzuki recognizes that employment responsibilities of the Dealer Principal with Dealer and/or Dealer Owner may change, making it impractical for the Dealer Principal to continue to fulfill his responsibilities as Dealer Principal. In that case, or in the event Dealer Principal leaves the employ of Dealer and/or Dealer Owner, Dealer shall have the opportunity to propose a replacement Dealer Principal. Suzuki will not unreasonably withhold approval of any such proposal, provided the proposed replacement has the skills and qualifications to act as Dealer Principal pursuant to the standard policies and procedures of Suzuki. 3. Dealer shall make every effort to obtain the consent of Suzuki to a proposed replacement Dealer Principal prior to the removal or withdrawal of the approved Dealer Principal. If that is not practical, Dealer shall notify Suzuki in writing within 10 days following the withdrawal of the approved Dealer Principal. Within 60 days of that withdrawal, Dealer will submit to Suzuki a plan and appropriate applications to replace Dealer Principal with a qualified replacement acceptable to Suzuki. The replacement Dealer Principal must assume his responsibilities no later than 90 days following the withdrawal of the approved Dealer Principal. 4. Dealer is a partnership of Dealer Owner, which, in turn, is controlled by Public Company. Dealer, Dealer Owner and Public Company hereby warrant that the responsibilities and assurances of each herein are within their respective authority to make and do not contravene any directive, policy or procedure of Dealer, Dealer Owner or Public Company. 5. Any material change in ownership of Dealer, or any event with respect to Public Company described in Paragraph 6 below, shall be considered a change in ownership of Dealer under the terms of the Dealer Agreement, and all applicable provisions of the Dealer Agreement will apply to any such change. Suzuki has executed the Dealership Agreement in reliance upon Dealer's 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 constitute grounds for termination of the Dealer Agreement, subject to applicable law. 6. Given the ultimate control Dealer Owner has over Dealer, the control of Dealer Owner by Public Company, and Suzuki's strong interest in assuring that those who own and control their Dealers have interests consistent with those of Suzuki, Dealer, Dealer Owner and Public Company agree that if an ownership interest is acquired (after completion of the IPO of Public Company's Common Shares) 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 Suzuki in writing, and -2- attach a copy of that Schedule. In the event Item 4 of the 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 the Public Company's business or corporate structure or (f) any action similar to those noted above, then, if Suzuki reasonably concludes that such person or entity does not have interests compatible with those of Suzuki, or is otherwise not qualified to have an ownership interest in a Suzuki dealership, Dealer and Dealer Owner agree that within 90 days of receipt of written notice from Suzuki of this fact, they will: (i) transfer the assets associated with Dealer to a third party acceptable to Suzuki, (ii) voluntarily terminate the Dealer Agreement in effect with Dealer, or (iii) provide evidence to Suzuki that such person or entity no longer has such an ownership interest in Public Company. 7. Dealer, Dealer Owner and Public Company 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 Suzuki consistent with the normal practices and procedures of Suzuki. Dealer and Dealer Owner shall provide such documentation as reasonably requested by Suzuki to assure compliance with the requirement. 8. The parties agree that this Supplemental Agreement shall supplement the terms of the Dealer Agreement in accordance with paragraph 13.15 of the Dealer Agreement, Standard Provisions. Nothing in this Supplemental 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 Supplemental Agreement or the Dealer Agreement. 9. Dealer, Dealer Owner and Public Company hereby agree to indemnify and hold Suzuki, its parent company and its affiliates, directors, officers, employees, 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 or Public Company other than through a derivative stockholder suit authorized by the Board of Directors of Public Company. -3- 10. This Supplemental Agreement is intended to supplement and modify certain provisions of the Dealer Agreement and is intended to be incorporated as part of the Dealer Agreement. Dealer Owner and Dealer hereby reaffirm all provisions of the Dealer Agreement. In the event that any provisions of this Supplemental Agreement are in conflict with other provisions of the Dealer Agreement, the provisions contained in this Supplemental Agreement shall govern. IN WITNESS WHEREOF, the parties have executed this Agreement this 6th day of September, 1996. Fair Hyundai Partnership Di Feo Partnership, Inc. /s/ Carl Spielvogel /s/ Carl Spielvogel ----------------------- -------------------------- ----------------------- -------------------------- By: Carl Spielvogel By: Carl Spielvogel Title: Chairman & CEO Title: Chairman & CEO Date: 9/18/96 Date: 9/18/96 Fair Hyundai Corporation United Auto Group, Inc. /s/ Carl Spielvogel ----------------------- -------------------------- /s/ Samuel X. DiFeo ----------------------- -------------------------- By: Samuel X. DiFeo By: Carl Spielvogel Title: Partner Title: Chairman & CEO Date: 9/17/96 Date: 9/18/96 American Suzuki Motor Corporation /s/ M. Nagura ----------------------- ----------------------- By: M. Nagura Title: President Date: September 6, 1996 -4- EX-10.2-5-2 12 EXHIBIT 10.2.5.2 EXHIBIT 10.2.5.2 SUZUKI DEALER SALES AND SERVICE AGREEMENT STANDARD PROVISIONS TABLE OF CONTENTS Page ---- 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. PLACE OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.1 Location . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.2 Identification and Signs.. . . . . . . . . . . . . . . . . . . 3 2.3 Business Hours.. . . . . . . . . . . . . . . . . . . . . . . . 3 3. RETAIL SALES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.1 Suzuki Products and Tradenames.. . . . . . . . . . . . . . . . 4 3.2 Personnel. . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.3 Inventory Responsibility.. . . . . . . . . . . . . . . . . . . 4 3.4 Standard Accounting System.. . . . . . . . . . . . . . . . . . 4 3.5 Sales Records and Reports. . . . . . . . . . . . . . . . . . . 4 3.6 Retail Delivery Report.. . . . . . . . . . . . . . . . . . . . 5 3.7 Dealer Reports.. . . . . . . . . . . . . . . . . . . . . . . . 5 3.8 Electronic Data Processing Requirements. . . . . . . . . . . . 5 3.9 Dealer Directives. . . . . . . . . . . . . . . . . . . . . . . 5 3.10 Promotions.. . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.11 Suzuki Product Orders. . . . . . . . . . . . . . . . . . . . . 5 3.12 Distribution and Delivery. . . . . . . . . . . . . . . . . . . 6 3.13 Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . . 6 3.14 Suggested Retail Prices. . . . . . . . . . . . . . . . . . . . 6 3.15 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.16 Security Interest. . . . . . . . . . . . . . . . . . . . . . . 7 3.17 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 7 4. SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 4.1 Service Records. . . . . . . . . . . . . . . . . . . . . . . . 7 4.2 Recommended Service Procedures . . . . . . . . . . . . . . . . 7 4.3 Records and Manuals. . . . . . . . . . . . . . . . . . . . . . 7 4.4 Service Schools. . . . . . . . . . . . . . . . . . . . . . . . 7 4.5 Service Personnel. . . . . . . . . . . . . . . . . . . . . . . 7 4.6 Recall Procedures. . . . . . . . . . . . . . . . . . . . . . . 8 4.7 Dealer Distributed Literature. . . . . . . . . . . . . . . . . 8 4.8 Notice of Complaints.. . . . . . . . . . . . . . . . . . . . . 8 5. CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 5.1 Net Working Capital. . . . . . . . . . . . . . . . . . . . . . 8 5.2 Flooring and Lines of Credit . . . . . . . . . . . . . . . . . 8 6. CREDIT, FINANCE AND PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . 9 6.1 Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 6.2 Payment for Suzuki Vehicles. . . . . . . . . . . . . . . . . . 9 6.3 Open Account.. . . . . . . . . . . . . . . . . . . . . . . . . 9 6.4 Security Interest. . . . . . . . . . . . . . . . . . . . . . . 9 6.5 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 6.6 Costs of Return. . . . . . . . . . . . . . . . . . . . . . . . 9 6.7 Effect of Termination. . . . . . . . . . . . . . . . . . . . . 9 7. ADVERTISING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 7.1 Advertising Standards. . . . . . . . . . . . . . . . . . . . .10 7.2 Participation. . . . . . . . . . . . . . . . . . . . . . . . .10 7.3 Voluntary Dealer Cooperative Advertising Association.. . . . .10 8. TRANSPORTATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 8.1 Delivery.. . . . . . . . . . . . . . . . . . . . . . . . . . .10 8.2 Refusal of Delivery. . . . . . . . . . . . . . . . . . . . . .11 8.3 Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . .11 8.4 Risk of Loss.. . . . . . . . . . . . . . . . . . . . . . . . .11 8.5 Product Return.. . . . . . . . . . . . . . . . . . . . . . . .11 9. PRODUCT WARRANTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 9.1 Warranty Records.. . . . . . . . . . . . . . . . . . . . . . .11 9.2 Warranty Responsibility. . . . . . . . . . . . . . . . . . . .12 9.3 Dealer Obligation. . . . . . . . . . . . . . . . . . . . . . .12 9.4 Warranty Service and Credit. . . . . . . . . . . . . . . . . .12 9.5 No Other Warranties. . . . . . . . . . . . . . . . . . . . . .12 10. PARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 10.1 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . .12 10.2 Genuine Suzuki Replacement Parts . . . . . . . . . . . . . . .12 10.3 Shipment Acceptance. . . . . . . . . . . . . . . . . . . . . .12 11. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 11.1 Termination by DEALER. . . . . . . . . . . . . . . . . . . . .13 11.2 Termination by SUZUKI. . . . . . . . . . . . . . . . . . . . .13 11.3 Sixty (60) Days' Notice. . . . . . . . . . . . . . . . . . . .13 11.4 Fifteen (15) Days' Notice. . . . . . . . . . . . . . . . . . .14 11.5 Operation of the Law.. . . . . . . . . . . . . . . . . . . . .15 11.6 Termination Liability. . . . . . . . . . . . . . . . . . . . .15 11.7 SUZUKI Option to Repurchase. . . . . . . . . . . . . . . . . .16 11.8 Application of Credit. . . . . . . . . . . . . . . . . . . . .17 12. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 12.1 Indemnification by SUZUKI. . . . . . . . . . . . . . . . . . .17 12.2 Indemnification by DEALER. . . . . . . . . . . . . . . . . . .18 13. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . .18 13.1 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . .18 13.2 Expenses.. . . . . . . . . . . . . . . . . . . . . . . . . . .19 13.3 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 13.4 Set Off. . . . . . . . . . . . . . . . . . . . . . . . . . . .19 13.5 No Assignment. . . . . . . . . . . . . . . . . . . . . . . . .19 13.6 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 13.7 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 13.8 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . .19 13.9 Modification . . . . . . . . . . . . . . . . . . . . . . . . .20 13.10 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . .20 13.11 Partial Invalidity.. . . . . . . . . . . . . . . . . . . . . .20 13.12 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . .20 Suzuki Dealer Sales and Service Agreement STANDARD PROVISIONS The following Standard Provisions have been made a part of, and are incorporated by reference, in the American Suzuki Motor Corporation Dealer Sales and Service Agreement and shall apply to and govern the transactions, dealings, and relations between SUZUKI and DEALER. 1. DEFINITIONS For the purpose of this Agreement the following terms set forth below shall be defined as indicated: (a) "Accessories": All accessories for Suzuki Vehicles as defined in (o) herein below, distributed in the United States by SUZUKI. (b) "Agreement": This Agreement and the Dealer Application, Facility Standards Addendum, Dealer Minimum Standards Addendum and Dealer Updates as may be issued from time to time. (c) "Dealership": The business of the DEALER located at the designated Dealer Premises. (d) "Dealer Application": The signed application of the DEALER presented to SUZUKI which will become part of this Agreement when approved by SUZUKI. (e) "Dealer Minimum Standards Addendum": The written requirements executed by DEALER and SUZUKI, as amended from time to time by SUZUKI, setting forth the minimum qualifications required by SUZUKI for appointment as a Suzuki Dealer and DEALER's representations as to its fulfillment of those qualifications relied upon SUZUKI for DEALER's appointment as an authorized Suzuki Dealer. In conjunction with the Facility Standards Addendum, it constitutes the criteria by which SUZUKI shall evaluate DEALER's performance to determine whether DEALER qualifies for renewal(s) of its Suzuki Dealership. The Dealer Minimum Standards Addendum has been incorporated by reference and is part of this Agreement as though set forth in full herein. (f) "Dealer Premises": The specific premises approved for the Dealership by SUZUKI. (g) "Dealer Prices": The prices in effect at the time of delivery of Suzuki Products as set forth in the Dealer Price Lists that will be charged by SUZUKI to the DEALER exclusive of any charges for transportation, taxes or any other charges. (h) "Dealer Price Lists": The price lists issued by SUZUKI for Suzuki Products as defined in (n) herein below, as amended from time to time by SUZUKI. (i) "Dealer Updates": Addendums to the Agreement pursuant to the terms of this Agreement, issued from time to time by SUZUKI to clarify and explain procedures and programs to be followed by the DEALER in the operation of the Suzuki Dealership. The Updates shall be incorporated as part of this Agreement as they are issued. (j) "Facility Standards Addendum": The written standards for facilities, as amended from time to time by SUZUKI, setting forth the criteria with respect to the physical facilities which DEALER is required to establish and maintain and which was relied upon by SUZUKI in its appointment of DEALER as an authorized Suzuki Dealer. The Facility Standards Addendum, in conjunction with the Dealer Minimum Standards Addendum constitutes the criteria by which SUZUKI shall evaluate DEALER's performance to determine whether DEALER qualifies for renewal(s) of its Suzuki Dealership. Said Facility Standards Addendum shall become part of this Agreement upon execution of the Agreement by SUZUKI. (k) "Manufacturer's Suggested Retail Price": Any suggested retail price for any Suzuki Product as issued by SUZUKI from time to time. (l) "Owner(s)": The beneficial owner(s) of the Dealership, listed in this Agreement. (m) "Parts": All parts for the Four Wheel Vehicles, which are the subject of this Agreement, and/or accessories therefor distributed in the United States by SUZUKI. (n) "Suzuki Products": Suzuki Four Wheel Vehicles manufactured for highway use by Suzuki Motor Co., Ltd. including automobiles, trucks, vans, and four wheel drive vehicles and their successors and the parts and accessories therefor distributed in the United States -2- (except Hawaii) by SUZUKI. Whenever the term "Suzuki Products" is used in this Agreement, it shall be construed as defined herein. (o) "Suzuki Vehicles": All Suzuki automobiles, trucks, vans and four wheel drive vehicles for highway use and their successors manufactured by Suzuki Motor Co., Ltd. and distributed in the United States (except Hawaii) by SUZUKI. This term specifically excludes all ATV recreational vehicles manufactured and distributed by SUZUKI. Whenever the term "Suzuki Vehicles" is used in this Agreement, it shall be construed as defined herein. (p) "Suzuki Warranty": The warranty issued from time to time by SUZUKI with respect to Suzuki Products and any revisions or supplements thereto. 2. PLACE OF BUSINESS 2.1 LOCATION. The DEALER shall be responsible for selling, leasing and servicing at retail the Suzuki Products, but only at the Dealer Premises described in this Agreement by the Facility Standards Addendum and the Dealer Minimum Standards Addendum. If the DEALER desires to change the location of the Dealership, or any part of its operation, prior written approval from SUZUKI must be obtained. Failure to obtain such prior approval shall be a material breach of this Agreement and shall constitute grounds for its termination. 2.2 IDENTIFICATION AND SIGNS. Subject to applicable government statutes, ordinances, rules and regulations, DEALER shall buy from SUZUKI, or from sources designated by SUZUKI, and erect and maintain in good working order on the Dealership Premises, entirely at DEALER's expense, authorized sales and service signs conforming to the requirements established and approved by SUZUKI. DEALER shall obtain and maintain any licenses or permits necessary to erect and maintain such signs. Failure to obtain, erect, maintain, repair, illuminate and prominently display such signs in a manner approved by SUZUKI shall constitute grounds for termination of this Agreement. 2.3 BUSINESS HOURS. The DEALER shall operate the Dealership in an efficient and businesslike manner during the retail and service hours customary for the DEALER's trade and the area in which the Dealership is located. -3- 3. RETAIL SALES 3.1 SUZUKI PRODUCTS AND TRADENAMES. Subject to and in accordance with the terms and conditions of this Agreement, the DEALER shall have the nonexclusive right to: (a) Purchase from SUZUKI, for sale at retail only, Suzuki Products; and (b) Identify itself as an authorized Suzuki Dealer by displaying the various tradenames, trademarks and service marks and any other word or design marks that SUZUKI uses in connection with or with respect to the Suzuki Products. 3.2 PERSONNEL. The DEALER shall at all times employ competent and adequate personnel to sell and service the Suzuki Products in a manner satisfactory to SUZUKI. Upon request to do so by SUZUKI, the DEALER, at its own expense, shall send its personnel to any training seminars organized and carried out by SUZUKI. 3.3 INVENTORY RESPONSIBILITY. The DEALER shall maintain at all times an adequate stock of new, undamaged, and marketable Suzuki Products for display, demonstration, sale and servicing. Further, the DEALER shall maintain an adequate supply of tools for servicing the Suzuki Products. 3.4 STANDARD ACCOUNTING SYSTEM. It is mutually beneficial to DEALER and SUZUKI that DEALER keep and maintain standard accounting systems and practices. Therefore, DEALER agrees to maintain its records based upon commonly accepted accounting principles and to establish and maintain a standard accounting system and practices in accordance with the Suzuki Automotive Standard Accounting System established and designated by SUZUKI for use by all Suzuki Dealers, as the same may from time to time be amended, revised or supplemented. DEALER further agrees to provide to SUZUKI by the tenth (10th) day of each month, in the manner and form prescribed by SUZUKI, complete and accurate financial and operating statements covering the preceding month and showing calendar year-to-date operations of the Suzuki Dealership. 3.5 SALES RECORDS AND REPORTS. DEALER shall keep an accurate record of its sales of Suzuki Products, in conformity with any statutory and regulatory requirements. -4- 3.6 RETAIL DELIVERY REPORT. DEALER shall immediately upon delivery of a Suzuki Vehicle to a retail purchaser complete and transmit to SUZUKI a report of the retail sale called the "Retail Delivery Report" and furnish SUZUKI with other reports or records as may be reasonably required by SUZUKI in its sole discretion. 3.7 DEALER REPORTS. DEALER shall furnish reports of its sales and inventory at intervals no greater than ten (10) days each for each calendar month on the forms provided by SUZUKI. DEALER shall also furnish such reports concerning its financial condition as SUZUKI may reasonably request, including monthly financial statements, accurately reflecting Suzuki Dealership operations. 3.8 ELECTRONIC DATA PROCESSING REQUIREMENTS. In order to promote prompt and accurate reporting of relevant Dealership operational and financial information as SUZUKI may require hereunder, DEALER agrees to install and maintain electronic data processing equipment which is compatible with SUZUKI's computer network as it may from time to time be modified, updated or supplemented. 3.9 DEALER DIRECTIVES. DEALER shall faithfully comply with SUZUKI's existing and future directives, bulletins and manuals pertaining to the sale and servicing of Suzuki Products. 3.10 PROMOTIONS. To further expose and popularize the name "Suzuki" and the "Suzuki" Vehicles, SUZUKI may from time to time sell Suzuki Products directly to non-dealers for use in promotions of unrelated merchandise through "give away", "premium", and other forms of promotional programs or in payment for media advertising. DEALER shall cooperate by rendering pre-delivery inspections, delivery and warranty services in connection with such sales, for which DEALER will be compensated at the rates established therefor by SUZUKI. 3.11 SUZUKI PRODUCT ORDERS. All orders for Suzuki Products shall be submitted in writing by the DEALER to SUZUKI in accordance with Suzuki directives and on the forms that SUZUKI shall supply. All orders are subject to acceptance by SUZUKI's home office in whole or in part. All orders submitted by DEALER shall be binding upon DEALER unless and until they are rejected in writing by SUZUKI; provided, however, that in the event of a partial acceptance by SUZUKI, it is understood that DEALER shall no longer be bound in respect to the part of the order not accepted. -5- SUZUKI will attempt to fill all pre-sold retail orders but cannot be held responsible for its failure to do so, nor for any lost profits or loss of business experienced by DEALER from SUZUKI's inability to supply any pre-sold order. 3.12 DISTRIBUTION AND DELIVERY. SUZUKI shall endeavor, to the extent practicable, to deliver the new Suzuki Products ordered by DEALER and required in the fulfillment of DEALER's responsibilities under this Agreement. DEALER acknowledges that SUZUKI also has an obligation to endeavor to deliver Suzuki Products to other Suzuki Dealers who are also required by SUZUKI to fulfill their responsibilities under their Dealer Agreements with SUZUKI. Because of numerous factors that affect the distribution of the Suzuki Products and the relevance of such factors at any given time, SUZUKI does hereby reserve to itself discretion in applying such factors and in processing orders for Suzuki Products from its authorized Dealers. The judgment and decisions of SUZUKI, therefore, shall be final in all matters relating to the distribution and delivery of Suzuki Products to DEALER. 3.13 FORCE MAJEURE. SUZUKI shall not be liable for failure to process or for any delay in processing orders for any Suzuki Products where such failure or delay is due, in whole or in part, to any of the following: 1) labor, material, transportation or utility shortage or curtailment; 2) Japanese or United States governmental regulation; 3) any import or export restriction; 4) discontinuance of sale by SUZUKI of the Suzuki Products ordered; 5) any labor trouble in the plants of Suzuki Motor Co., Ltd., or its suppliers or the transportation and distribution system used by SUZUKI; 6) any curtailment of production due to economic or trade conditions; or 7) any cause beyond the control of, or without the fault or negligence of, SUZUKI. 3.14 SUGGESTED RETAIL PRICES. SUZUKI's Dealer Price Lists will set forth Suggested Retail Prices for the Suzuki Products. The DEALER is under no obligation to accept these Suggested Retail Prices and may sell for a different retail price. If DEALER sells at prices less than, or more than, those suggested, those sales will not affect its business relations with SUZUKI or any other person over whom SUZUKI has control or influence. 3.15 TITLE. Title to Suzuki Products shall pass to the DEALER from SUZUKI only upon payment in full for the Suzuki Products shipped to DEALER. Until payment in -6- full for Suzuki Products is made. SUZUKI retains all right, title, and a security interest in the Suzuki Products. 3.16 SECURITY INTEREST. DEALER grants to SUZUKI a security interest in all Suzuki Products delivered to DEALER to secure repayment of any indebtedness owing from DEALER to SUZUKI. SUZUKI shall have all the rights of a secured creditor under the Uniform Commercial Code, including the right to take possession of Suzuki Products, without the necessity of legal process, to satisfy outstanding indebtedness. DEALER shall execute all documents and notices as may be required to perfect the security interest of SUZUKI under applicable laws. 3.17 TERMINATION. Upon termination of this Agreement, SUZUKI may cancel any or all pending orders of DEALER for Suzuki Products, whether or not previously accepted by SUZUKI. 4. SERVICE 4.1 SERVICE RECORDS. DEALER shall keep an accurate record of its servicing, in conformity with any requirements in the Suzuki Warranty Manual, Dealer Updates and any statutory and regulatory requirements. 4.2 RECOMMENDED SERVICE PROCEDURES. DEALER shall faithfully comply with SUZUKI's existing and future directives, bulletins and manuals pertaining to the sale and servicing of Suzuki Products. 4.3 RECORDS AND MANUALS. DEALER shall maintain and keep updated all manuals, bulletins and records received from SUZUKI. DEALER and its service personnel will have available and be familiar with all service and maintenance manuals provided by SUZUKI. 4.4 SERVICE SCHOOLS. DEALER will send Dealer personnel to and participate in, service training classes, service schools, seminars and other dealer employee training courses as provided by SUZUKI from time to time. DEALER acknowledges the need for such school and training to keep current on all Suzuki Products for the protection of DEALER's customers. 4.5 SERVICE PERSONNEL. Service personnel in the Dealership will be competent and adequate to handle all service work of the DEALER's customers. DEALER accepts the responsibility to provide fast, efficient and accurate service work to its customers. From time to time, SUZUKI will make suggestions regarding -7- the improvement and upgrading of DEALER's Service Department and personnel; however, DEALER is solely responsible for all work performed in its Service Department by its service personnel. 4.6 RECALL PROCEDURES. If at any time DEALER receives from SUZUKI a notification of certain procedures that DEALER is to follow concerning a recall of any Suzuki Product in conformance with the requirements of the National Highway Traffic Safety Act or Consumer Product Safety Commission or any other governmental agency, DEALER shall comply with it. If for any reason DEALER fails or refuses to comply with the procedures outlined in any Suzuki recall notice, DEALER shall be in violation of this Agreement. DEALER acknowledges the necessity of complying with recall notices to insure the protection of the consumer and to comply with government laws, rules and regulations. 4.7 DEALER DISTRIBUTED LITERATURE. If the state in which the DEALER is franchised institutes programs which require distribution of material such as Lemon Law disclosures, Consumer Rights brochures or general notices, the DEALER shall in accordance with SUZUKI instructions complete, execute and deliver said material. 4.8 NOTICE OF COMPLAINTS. If at any time the DEALER receives any customer complaints which apply to any consumer protection laws, rules or regulations, the DEALER agrees to provide prompt notice to SUZUKI of such complaints and take steps that SUZUKI may reasonably require. The DEALER agrees to perform in a manner that will not adversely affect SUZUKI's rights under such laws, rules and regulations. 5. CAPITALIZATION 5.1 NET WORKING CAPITAL. Dealer agrees to establish and maintain actual net working capital which in SUZUKI's judgment is sufficient to allow the DEALER to effectively perform his obligations under the Agreement. 5.2 FLOORING AND LINES OF CREDIT. At all times during the term of this Agreement, it is DEALER's sole responsibility, which DEALER hereby accepts and to which he agrees, to obtain and maintain adequate flooring arrangements and lines of credit with a reputable financial institution acceptable to SUZUKI to ensure the availability of sufficient funds to meet DEALER's needs for payment of Suzuki Products ordered by DEALER from SUZUKI. -8- 6. CREDIT, FINANCE AND PAYMENTS. 6.1 SALES. All sales to DEALER will be at Dealer Prices published by SUZUKI in the Dealer Price Lists. 6.2 PAYMENT FOR SUZUKI VEHICLES. Unless financing is arranged with respect to a particular shipment in advance, all payments for Suzuki vehicles shall be made in full at the time of shipment. 6.3 OPEN ACCOUNT. DEALER may order Suzuki Products, promotional and miscellaneous items, other than Suzuki Vehicles, on open account, so long as SUZUKI determines DEALER is credit qualified. DEALER agrees to pay for all items billed to its open account per monthly itemized statements. DEALER agrees to pay all late charges, interest, attorneys' fees, court costs and expenses that may be incurred as a result of default on DEALER's open account obligations. Upon default, SUZUKI may suspend or terminate DEALER's open account. SUZUKI may offset any credits due DEALER against debits for sums due SUZUKI. 6.4 SECURITY INTEREST. DEALER grants to SUZUKI a security interest in all Suzuki Products delivered to DEALER to secure repayment of any indebtedness owing from DEALER to SUZUKI. SUZUKI shall have all the rights of a secured creditor under the Uniform Commercial Code, including the right to take possession of Suzuki Products, without the necessity of legal process, to satisfy outstanding indebtedness. DEALER shall execute all documents and notices as may be required to perfect the security interest of SUZUKI under applicable laws. 6.5 TITLE. Title to Suzuki Products passes to DEALER from SUZUKI only upon payment in full for the Suzuki Products shipped to DEALER. 6.6 COSTS OF RETURN. In the event DEALER's inventory of Suzuki Products is repossessed or returned to SUZUKI or to a financial institution for repurchase by SUZUKI, DEALER agrees to pay reasonable handling costs incurred by SUZUKI according to SUZUKI policy in effect at the time of the return. 6.7 EFFECT OF TERMINATION. Termination of this Agreement, in whatever manner, shall not release DEALER from any obligations or indebtedness owing to SUZUKI. 7. ADVERTISING -9- 7.1 ADVERTISING STANDARDS. SUZUKI and DEALER recognize the need to maintain at all times the highest ethical standards in advertising and which evoke an image consistent with the quality and reputation that SUZUKI and Suzuki Products enjoy in order to maintain public confidence in, and respect for, DEALER, SUZUKI and Suzuki Products. Accordingly, DEALER shall not publish, nor cause or permit to be published, advertising relating to Suzuki Products which is not in compliance with all federal, state and local laws, ordinances, rules and regulations or that is likely to mislead or deceive the public or impair the goodwill, good name and reputation of SUZUKI, Suzuki Motor Co., Ltd. or Suzuki Products. If SUZUKI, in its sole judgment, determines that any of DEALER's advertising is inappropriate or which may be injurious to SUZUKI's reputation or to the business of SUZUKI or DEALER, it shall so advise DEALER. Upon receipt of such notice, DEALER agrees to immediately discontinue all such inappropriate advertising. 7.2 PARTICIPATION. DEALER shall participate in any existing or future cooperative advertising program with SUZUKI. DEALER shall use its best efforts to promote and sell Suzuki Products. In that regard, DEALER shall also maintain an effective advertising program aimed at enhancing the sale of Suzuki Products. 7.3 VOLUNTARY DEALER COOPERATIVE ADVERTISING ASSOCIATION. SUZUKI and DEALER recognize the benefits which may be derived from a comprehensive, joint advertising effort by Suzuki dealers. Accordingly, DEALER may, if DEALER elects to do so on a completely voluntary basis, participate in the formation and effective operation of a voluntary cooperative dealer advertising association. Each Suzuki Dealer Advertising association will finance its advertising programs through the voluntary assessment of a fixed charge of no less than 2% or $150.00 of the total dealer price per vehicle, excluding freight, for each new Suzuki vehicle purchased by Suzuki Dealers who voluntarily choose to participate as members of an advertising association. As a service to the dealer association, SUZUKI will collect the agreed upon charge, provided that the dealer association maintains control over both the amount of the assessment and manner in which such funds will be expended. 8. TRANSPORTATION 8.1 DELIVERY. SUZUKI shall select the distribution points, carriers and methods of transportation in -10- effecting delivery of Suzuki Products to DEALER. DEALER agrees to reimburse SUZUKI for any delivery, freight handling and other charges which appear on SUZUKI's invoice to DEALER. 8.2 REFUSAL OF DELIVERY. If SUZUKI is required to divert any Suzuki Products ordered by DEALER because of DEALER's failure or refusal to accept such product, DEALER assumes responsibility for, and will pay charges incurred by SUZUKI as a result of such diversion. In addition, DEALER shall pay all charges for storage and other charges related to such diversion. 8.3 FORCE MAJEURE. Although SUZUKI will use due diligence to promptly ship orders accepted by it, SUZUKI shall not be liable for any delay in shipment caused by a shortage of supply, riot, war, government regulation, willful acts of a third party, labor problems, import or export restriction, acts of God, or any other cause beyond SUZUKI's control. It is understood and agreed that SUZUKI will attempt to fill all orders accepted by it, but SUZUKI takes no responsibility for failure to fill any of DEALER's orders. 8.4 RISK OF LOSS. Notwithstanding the reservation of title in SUZUKI as provided in Paragraphs 3.15, 6.04 and 6.05, all risks with respect to the Suzuki Products shall pass to and be assumed by DEALER at the time of delivery to the DEALER, or its agents, or to the carrier of the Suzuki Products. DEALER shall insure Suzuki Products upon delivery to DEALER against all risks and perils at DEALER's own expense. 8.5 PRODUCT RETURN. SUZUKI will not accept the return of Suzuki Products except in cases where SUZUKI has agreed in writing to do so where required by State law. Upon receipt of such written authorization from SUZUKI, DEALER may return Suzuki Products under the following conditions: (a) DEALER shall pay all transportation and handling charges; and (b) DEALER shall pay to SUZUKI a restocking charge in accordance with the terms and conditions of SUZUKI policy in effect at the time of return. 9. PRODUCT WARRANTY 9.1 WARRANTY RECORDS. DEALER shall keep an accurate record of its warranty servicing of Suzuki Products, in conformity with any requirement in the Dealer -11- Updates, Warranty Manual and any statutory and regulatory requirements. 9.2 WARRANTY RESPONSIBILITY. DEALER shall diligently perform all warranty and servicing obligations in accordance with the scale of remuneration established by SUZUKI from time to time, whether or not the DEALER sold the Suzuki Products to the customer requiring such servicing. 9.3 DEALER OBLIGATION. DEALER acknowledges its obligation to, and shall provide all warranty service, consistent with the Suzuki Limited Warranty applicable to each Suzuki Product, regardless of the origin of purchase of said Suzuki Product. 9.4 WARRANTY SERVICE AND CREDIT. DEALER will install any replacement parts and make certifications or verifications, perform maintenance and service, and do all other things that may be required under the terms of the Suzuki Limited Warranty, or inspection, correctional, or recall campaigns. SUZUKI will credit DEALER's account for warranty service and inspection, corrections or recalls DEALER performs at the request of SUZUKI. 9.5 NO OTHER WARRANTIES. DEALER acknowledges that the Suzuki Limited Warranty is the only warranty made or deemed to have been made by SUZUKI or Suzuki Motor Co., Ltd. and that neither DEALER, nor its agents or employees, are authorized to extend or enlarge upon the Suzuki Limited Warranty by any oral or written means. DEALER further acknowledges that SUZUKI will not assume nor authorize any person to assume on its behalf, any other obligation of liability in regard to the Suzuki Products. 10. PARTS 10.1 INVENTORY. DEALER agrees to maintain an adequate inventory of Suzuki Parts to fulfill customer service and warranty requirements. If, in the sole judgment of SUZUKI, DEALER fails to maintain an adequate inventory of Suzuki Parts to satisfy customer needs, such failure will constitute a violation of this Agreement. 10.2 GENUINE SUZUKI REPLACEMENT PARTS. DEALER will not sell any part to a customer as a Suzuki Part, unless it is a genuine Suzuki Part. If DEALER does so, it shall be a violation of this Agreement. 10.3 SHIPMENT ACCEPTANCE. DEALER will accept all shipments of Suzuki Parts ordered by it. In the -12- event of an error in a shipment by SUZUKI, the DEALER must submit a parts discrepancy report and receive prior written approval of SUZUKI before returning the parts. 11. TERMINATION 11.1 TERMINATION BY DEALER. DEALER may terminate this Agreement by serving thirty (30) days' written notice of termination on SUZUKI. 11.2 TERMINATION BY SUZUKI. In the event that DEALER breaches or violates any of the duties, obligations or responsibilities set forth herein or any of the terms, conditions or undertakings in the Dealer Application, Dealer Updates, the Facility Standards Addendum or the Dealer Minimum Standards Addendum, SUZUKI may terminate this Agreement by giving the DEALER written notice as provided below. SUZUKI need not state all grounds on which it relies for its termination of DEALER. SUZUKI's failure to refer to additional grounds for termination shall not constitute a waiver of its right to rely on such grounds. 11.3 SIXTY (60) DAYS' NOTICE. SUZUKI may terminate this Agreement with sixty (60) days' notice after the occurrence of any of the following events: (a) A disagreement or personal difficulty between or among the owners, partners, shareholders, officers or managers of DEALER that, in the opinion of SUZUKI, may adversely affect the ownership, operation, management or business of DEALER, or the presence in the management of DEALER of any person who, in the opinion of SUZUKI, does not have or no longer has the requisite qualifications for his position; (b) Any change in the legal or beneficial ownership or control of DEALER without the prior written consent of SUZUKI to such changes, or any misrepresentation thereof; (c) The death, incapacity, removal, resignation, withdrawal, elimination or disassociation from DEALER of any owner, partner, shareholder, officer or manager identified herein; (d) Failure of DEALER to properly obtain, erect, maintain, repair and illuminate signs and other displays in a manner approved by SUZUKI as required under the provisions of this Agreement; -13- (e) DEALER's failure to honor any commitment made to SUZUKI including, but not limited to, those made in the Facility Standards Addendum, Dealer Minimum Standards Addendum, Dealer Updates or any other document incorporated by reference herein; (f) DEALER's failure to submit any reports, financial or otherwise, required by SUZUKI hereunder, or in any Update; (g) DEALER's financial condition becoming such that, in the opinion of SUZUKI, DEALER is unable to carry out his obligations hereunder satisfactorily; (h) The failure on the part of DEALER to pay any account, including any monies for Suzuki Satisfaction System Contracts sold, owing to SUZUKI when due; (i) (Any agreement, understanding or contract entered into by DEALER, oral or written, with any other Dealer or Dealers for the purpose of fixing retail prices of Suzuki Products; (j) (The imposition of a levy against DEALER under attachment, garnishment, execution or other similar process, except those garnishments or executions pertaining to obligations of DEALER's employees; or (k) Any assignment or attempted assignment of this Agreement or any part thereof without the prior written consent of SUZUKI. 11.4 FIFTEEN (15) DAYS' NOTICE. SUZUKI may terminate this Agreement with fifteen (15) days' written notice after the occurrence of any of the following events: (a) DEALER or any of its owners, partners, shareholders, officers or managers engaging in any practice or conduct or being convicted of any felony or the violation of any law that, in the opinion of SUZUKI, may adversely affect the operation or business of the DEALER or be injurious to the goodwill or reputation of SUZUKI, Suzuki Products or other Suzuki Dealers; (b) The closure of the Dealership for any reason for a period in excess of ten (10) days; -14- (c) Any change in the location of the Dealer Premises or any portion of its operation without the prior written consent of SUZUKI; (d) Any submission by DEALER of a false or fraudulent application, and/or any supporting claim or statement of SUZUKI, for payment by SUZUKI related to warranty repairs, special or recall adjustments performed by the DEALER, or for any other discount, allowance, refund, or credit under any plan, provision or program offered by SUZUKI to the DEALER whether or not the DEALER offers or makes to SUZUKI or SUZUKI seeks or obtains from the DEALER restitution of any payment made to the DEALER on the basis of any false or fraudulent applications, claims or statements; (e) Any sale or attempted sale of Dealership by DEALER without the prior written approval of SUZUKI; (f) The insolvency of the DEALER, the filing of a voluntary petition in bankruptcy by the DEALER, the filing of an involuntary petition to have DEALER declared bankrupt, the appointment of receiver or trustee for the DEALER, or the execution by DEALER of any assignment for the benefit of creditors; (g) Any bulk sale or the attempted sale of the Dealership assets; or (h) The dissolution of the Dealership if the Dealership is a corporation or a partnership. 11.5 OPERATION OF THE LAW. Notwithstanding the provisions above, the Agreement will terminate automatically and without notice from either party in the event of the occurrence of any of the following: (a) The failure of DEALER to obtain any license required for the operation of the Dealership in any jurisdiction where this Agreement is performed; or (b) The failure of DEALER to secure or maintain the license or renewal thereof, or the suspension or revocation or the license, irrespective of the cause or reason. 11.6 TERMINATION LIABILITY. Upon termination, DEALER shall cease to be an authorized Suzuki Dealer and shall: -15- (a) Pay forthwith to SUZUKI all sums then outstanding and owing by DEALER to SUZUKI; (b) Allow SUZUKI to audit DEALER's records with regard to its sales of the Suzuki Satisfaction System contracts and pay forthwith to SUZUKI all sums due and owing for any and all Suzuki Satisfaction System contracts sold for which monies have not been paid by DEALER. DEALER agrees that SUZUKI shall have the right to debit DEALER's parts account for any such sums due and owing on Suzuki Satisfaction System contracts sold by DEALER; (c) Remove forthwith, at its own expense, all SUZUKI signs which are displayed at Dealer's Premises; (d) Refrain from all further use whatsoever of any tradename, trademark, logo, service mark, or any word or design that SUZUKI has used or uses in connection with or with respect to Suzuki Products, including in its stationery and other printed material and, if necessary, including changing its corporate or business name; (e) Cease representing itself as an authorized Suzuki Dealer for Suzuki Products; and (f) Return to SUZUKI all technical and/or service literature, advertising and other printed material in DEALER's possession which relate to Suzuki Products. 11.7 SUZUKI OPTION TO REPURCHASE. Upon the termination of this Agreement, SUZUKI shall have the option to purchase from DEALER, free and clear of all liens, charges and encumbrances, any of the following: (a) New, unused, unaltered, undamaged, unlicensed and marketable current model Suzuki Vehicles, with mileage of 100 miles or less, which were purchased by DEALER from SUZUKI, and are in DEALER's inventory, at DEALER's vehicle price less destination charges and any voluntary advertising associated assessments made on behalf of a Suzuki Advertising Association. SUZUKI shall pick up said Suzuki Vehicles and pay all transportation charges for return of said vehicles; and (b) The new, current model Suzuki Parts and Accessories at SUZUKI's invoice price to DEALER, less SUZUKI's prevailing restocking charge, but only if delivered by DEALER at DEALER's expense, -16- to SUZUKI's Parts Warehouse located nearest DEALER provided however, that these Suzuki Parts and Accessories must be in a new, unused, undamaged and saleable condition and in the original package and original package quantity; provided further, that SUZUKI will not purchase any Suzuki Parts or Accessories which SUZUKI deems to be obsolete. 11.8 APPLICATION OF CREDIT. If SUZUKI exercises its option to repurchase, any indebtedness owed by DEALER to SUZUKI may be applied against the purchase price and the balance if any, owing to DEALER shall be paid to DEALER only after verification by SUZUKI of the inventory of purchased Suzuki Products. 12. INDEMNIFICATION 12.1 INDEMNIFICATION BY SUZUKI. SUZUKI 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 Suzuki Product when the lawsuit involves allegation of: (a) Breach of Suzuki warranty, or bodily injury or property damage arising out of any occurrence allegedly caused solely by a defect in design, manufacture or assembly of a Suzuki Product (except for tires), provided that the defect could not reasonably have been discovered by DEALER during the required pre-delivery service of the Suzuki Product; Provided: (b) The DEALER delivers to SUZUKI, within ten (10) days of the service of any summons or complaint, copies of such documents, and requests in writing a defense and/or indemnification; (c) 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; (d) That the Suzuki Product which is the subject of the lawsuit was not altered by or for DEALER; (e) The DEALER agrees to cooperate fully in the defense of such action as SUZUKI may reasonably required; and -17- (f) The DEALER agrees that SUZUKI may offset any recovery on DEALER's behalf against any indemnification that may be required hereunder. 12.2 INDEMNIFICATION BY DEALER. DEALER agrees to assume the defense of SUZUKI and to indemnify and hold it harmless in any lawsuit naming SUZUKI as a defendant when the lawsuit involves allegations of: (a) DEALER's alleged failure to comply, in whole or in part, with any obligation assumed by DEALER pursuant to this Agreement; (b) DEALER's alleged negligent or improper repair or servicing of a new or used Suzuki Vehicle or equipment, or such other motor vehicles or equipment as may be sold or serviced by DEALER; (c) DEALER's alleged breach of any contract or warranty other than that provided by SUZUKI; (d) DEALER's alleged misleading statements, misrepresentations, or deceptive or unfair trade practices; and (e) Any modification or alteration made by or on behalf of DEALER to Suzuki Product, except those made pursuant to the express instruction or with the express approval of SUZUKI. Provided: (f) That SUZUKI delivers to DEALER, within ten (10) days of the proper service of any summons or complaint, copies of such documents, and requests in writing a defense and/or indemnification; (g) That SUZUKI agrees to cooperate fully in the defense of such action as DEALER may reasonably require; and (h) That the complaint does not involve allegations of liability premised upon separate SUZUKI conduct or omissions. 13. MISCELLANEOUS PROVISIONS 13.1 INSURANCE. DEALER shall maintain at its own expense adequate insurance against all types of risk and liability, including without limitation, personal liability insurance. Such insurance shall be with an accredited and reputable company. DEALER shall annually furnish SUZUKI with certification for such -18- insurance with evidence showing that premiums have been paid in full. 13.2 EXPENSES. Except as set forth herein, SUZUKI shall not be under any liability whatsoever for any expenditure made or expense incurred by DEALER with respect to DEALER's performance of its obligations pursuant to this Agreement. 13.3 TAXES. DEALER agrees that it shall be responsible for and shall pay any and all sales taxes, use taxes, excise taxes, and other governmental charges whenever imposed, levied or based upon the sale of Suzuki Products by SUZUKI to DEALER and DEALER shall keep accurate and current records of the foregoing for reporting purposes. 13.4 SET OFF. In addition to any other specific rights of set off otherwise provided in documents affecting DEALER and SUZUKI, SUZUKI shall have the right to set off any sums or accounts due or to become due from DEALER to SUZUKI against any sums or accounts due or to become due from SUZUKI to DEALER. 13.5 NO ASSIGNMENT. This Agreement, based on mutual trust between DEALER and SUZUKI, may not be assigned or transferred by DEALER without the prior written consent of SUZUKI. Any purported assignment without the prior written consent of SUZUKI is null and void. 13.6 WAIVER. The waiver by either party of any breach or violation or any provision of this Agreement shall not be deemed to be a waiver by that party of any subsequent breach or violation of any other provision herein. 13.7 NOTICE. Whenever a notice, demand or other document is required or permitted to be given by the terms of the Agreement, or any document incorporated by reference, it shall be deemed sufficiently given if delivered personally or by prepaid ordinary mail at the addresses set forth for SUZUKI and DEALER on page one (1) of this Agreement. The addresses set forth may be changed from time to time by notice in writing. Any notice or other document, if sent by mail, shall be deemed to have been given to, and received by the party to whom it was sent as of the date of mailing. 13.8 SURVIVAL. The obligations of DEALER upon termination as set forth in Section 11.00 of this Agreement shall survive the termination of this Agreement. Any termination of this Agreement shall be without prejudice to rights accruing hereunder, provided -19- however, that DEALER agrees that SUZUKI shall not by reason of any termination, be liable to DEALER for any compensation, reimbursement, damages or expenses arising from such termination. 13.9 MODIFICATION. Any modification or amendment to this Agreement, other than by amendments to the Facility Standards Addendum, the Dealer Minimum Standards Addendum and Dealer Updates and transactions under which credit is extended by SUZUKI to DEALER, must be executed in the same manner as the Agreement itself. 13.10 ARBITRATION. All disputes between the parties arising out of or in any way related to this Agreement or the business relationship between the parties shall be subject to and resolved by binding arbitration according to the rules and under the administration of the American Arbitration Association. The site of the arbitration shall be in any federal judicial district where venue would be appropriate under federal law, without regard to the amount allegedly in controversy. The law of the State of California shall apply; however, the arbitrator shall not have the power to award exemplary or punitive damages. Nothing in this Agreement to arbitrate shall be construed to prevent either party's use of a court forum for receivership, injunction, repossession, replevin, sequestration, seizure, attachment or other provisional remedies allowed in law or equity. Any award shall be enforceable in any state or federal court having jurisdiction thereof. 13.11 PARTIAL INVALIDITY. If any provision of this Agreement is invalid under or in conflict with the laws of any jurisdiction where this Agreement is to be performed, such provision shall be deemed to be deleted and the remaining provisions of this Agreement shall remain valid and binding. 13.12 ATTORNEYS' FEES. If SUZUKI is required to retain an attorney to enforce its rights under the terms of this Agreement, SUZUKI shall be entitled to reasonable attorneys' fees. -20- EX-10.2-6-1 13 EXHIBIT 10.2.6.1 Exhibit 10.2.6.1 TOYOTA DEALER AGREEMENT This is an Agreement between Toyota Motor Distributors, Inc. (DISTRIBUTOR), and Hudson Motors Partnership t/a Hudson Toyota (DEALER), a(n) / / individual, /X/ partnership, / / corporation. If a corporation, DEALER is duly incorporated in the State of New Jersey and doing business as HUDSON TOYOTA. PURPOSES AND OBJECTIVES OF THIS AGREEMENT DISTRIBUTOR sells Toyota Products which are manufactured or approved by Toyota Motor Corporation (FACTORY) and imported and/or sold to DISTRIBUTOR by Toyota Motor Sales, U.S.A., Inc. (IMPORTER). It is of vital importance to DISTRIBUTOR that Toyota Products are sold and serviced in a manner which promotes consumer confidence and satisfaction and leads to increased product acceptance. Accordingly, DISTRIBUTOR has established a network of authorized Toyota dealers, operating at approved locations and pursuant to certain standards, to sell and service Toyota Products. DEALER desires to become one of DISTRIBUTOR's authorized dealers. Based upon the representations and promises of DEALER, set forth herein, DISTRIBUTOR agrees to appoint DEALER as an authorized Toyota dealer and welcomes DEALER to DISTRIBUTOR's network of authorized dealers of Toyota Products. This Agreement sets forth the rights and responsibilities of DISTRIBUTOR as seller and DEALER as buyer of Toyota Products. DISTRIBUTOR enters into this Agreement in reliance upon DEALER's integrity, ability, assurance of personal services, expressed intention to deal fairly with the consuming public and with DISTRIBUTOR, and promise to adhere to the terms and conditions herein. Likewise, DEALER enters into this Agreement in reliance upon DISTRIBUTOR's promise to adhere to the terms and conditions herein. DISTRIBUTOR and DEALER shall refrain from conduct which may be detrimental to or adversely reflect upon the reputation of the FACTORY, IMPORTER, DISTRIBUTOR, DEALER or Toyota Products in general. The parties acknowledge that the success of the relationship between DISTRIBUTOR and DEALER depends upon the mutual understanding and cooperation of both DISTRIBUTOR and DEALER. 1 I. RIGHTS GRANTED TO THE DEALER Subject to the terms of this Agreement, DISTRIBUTOR hereby grants DEALER the nonexclusive right: A. To buy and resell the Toyota Products identified in the Toyota Product Addendum hereto which may be periodically revised by IMPORTER; B. To identify itself as an authorized Toyota dealer utilizing approved signage at the location(s) approved herein; C. To use the name Toyota and the Toyota Marks in the advertising, promotion, sale and servicing of Toyota Products in the manner herein provided. DISTRIBUTOR reserves the unrestricted right to sell Toyota Products and to grant the privilege of using the name Toyota or the Toyota Marks to other dealers or entities, wherever they may be located. II. RESPONSIBILITIES ACCEPTED BY THE DEALER DEALER accepts its appointment as an authorized Toyota dealer and agrees to: A. Sell and promote Toyota Products subject to the terms and conditions of this Agreement; B. Service Toyota Products subject to the terms and conditions of this Agreement; C. Establish and maintain satisfactory dealership facilities at the location(s) set forth herein; and D. Make all payments to DISTRIBUTOR when due. III. TERM OF AGREEMENT This Agreement is effective this 5th day of May, 1995, and shall continue for a period of Six (6) Years, and shall expire on May 4, 2001, unless ended earlier by mutual agreement or terminated as provided herein. This Agreement may not be continued beyond its expiration date except by written consent of DISTRIBUTOR and IMPORTER. IV. OWNERSHIP OF DEALERSHIP This Agreement is a personal service Agreement and has been entered into by DISTRIBUTOR in reliance upon and in consideration of DEALER's representation that only the following named persons are the Owners of DEALER, that such persons will serve in the capacities indicated, and that such persons are committed to achieving the purposes, goals and commitments of this Agreement: 2 OWNER'S PERCENT OF NAMES TITLE OWNERSHIP DiFeo Partnership HCT, Inc. Partner 70% ---------------------------- -------------- ----------- Hudson Toyota, Inc. Partner 30% ---------------------------- -------------- ----------- ---------------------------- -------------- ----------- ---------------------------- -------------- ----------- ---------------------------- -------------- ----------- V. MANAGEMENT OF DEALERSHIP DISTRIBUTOR and DEALER agree that the retention of qualified management is of critical importance to satisfy the commitments made by DEALER in this Agreement. DISTRIBUTOR, therefore, enters into this Agreement in reliance upon DEALER's representation that Richard King, Jr., and no other person, will exercise the function of General Manager, be in complete charge of DEALER's operations, and will have authority to make all decisions on behalf of DEALER with respect to DEALER's operations. DEALER further agrees that the General Manager shall devote his or her full efforts to DEALER's operations. VI. CHANGE IN MANAGEMENT OR OWNERSHIP This is a personal service contract. DISTRIBUTOR has entered into this Agreement because DEALER has represented to DISTRIBUTOR that the Owners and General Manager of DEALER identified herein possess the personal qualifications, skill and commitment necessary to ensure that DEALER will promote, sell and service Toyota Products in the most effective manner, enhance the Toyota image and increase market acceptance of Toyota Products. Because DISTRIBUTOR has entered into this Agreement in reliance upon these representations and DEALER's assurances of the active involvement of such persons in DEALER operations, any change in ownership, no matter what the share or relationship between parties, or any changes in General Manager from the person specified herein, requires the prior written consent of DISTRIBUTOR, which DISTRIBUTOR shall not unreasonably withhold. DEALER agrees that factors which would make DISTRIBUTOR's withholding of consent reasonable would include, without limitation, the failure of a new Owner or General Manager to meet DISTRIBUTOR'S standards with regard to financial capability, experience and success in the automobile dealership business. 3 VII. APPROVED DEALER LOCATIONS In order that DISTRIBUTOR may establish and maintain an effective network of authorized Toyota dealers, DEALER agrees that it shall conduct its Toyota operation only and exclusively 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 Toyota Products and the display of Toyota Marks: NEW VEHICLE SALES AND SHOWROOM USED VEHICLE DISPLAY AND SALES 585 Route 440 599 Route 440 Jersey City, NJ 07304 Jersey City, NJ 07304 SALES AND GENERAL OFFICE BODY AND PAINT 585 Route 440 N/A Jersey City, NJ 07304 PARTS SERVICE 585 Route 440 585 Route 440 Jersey City, NJ 07304 Jersey City, NJ 07304 OTHER FACILITIES - STORAGE 585 Route 440 Jersey City, NJ 07304 DEALER may not, either directly or indirectly, display Toyota Marks or establish or conduct any dealership operations contemplated by this Agreement, including the display, sale and servicing of Toyota Products, at any location or facility other than those approved herein without the prior written consent of DISTRIBUTOR. DEALER may not modify or change the usage or function of any location or facility approved herein or otherwise utilize such locations or facilities for any functions other than the approved function(s) without the prior written consent of DISTRIBUTOR. VIII. PRIMARY MARKET AREA DISTRIBUTOR will assign DEALER a geographic area called a Primary Market Area ("PMA"). The PMA is used by DISTRIBUTOR to evaluate DEALER's performance of its obligations, among other things. DEALER agrees that it has no exclusive right to any such PMA. DISTRIBUTOR may add new dealers, relocate dealers, or adjust DEALER's PMA as it reasonably determines is necessary. DEALER's PMA is set forth on the PMA Addendum hereto. Nothing contained in this Agreement, with the exception of Section XIV(B), shall limit or be construed to limit the geographical area in which, or the persons to whom, DEALER may sell or promote the sale of Toyota products. 4 IX. STANDARD PROVISIONS The "Toyota Dealer Agreement Standard Provisions" are incorporated herein and made part of this Agreement as if fully set forth herein. X. ADDITIONAL PROVISIONS In consideration of DISTRIBUTOR's agreement to appoint DEALER as an authorized Toyota dealer, DEALER further agrees: These Additional Provisions to Toyota Dealer Agreement ("Additional Provisions") are entered into as of , 1995 among DISTRIBUTOR, DEALER, DIFEO PARTNERSHIP HCT, INC., a Delaware corporation (hereinafter "DP"), HUDSON TOYOTA, INC., a New Jersey corporation (hereinafter "HTI"; DP and HTI are hereinafter collectively referred to as the "Partners"), UNITED AUTO GROUP, INC., a Delaware corporation formerly known as EMCO Motor Holdings, Inc. (hereinafter "UNITED"), "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 Toyota Dealer Agreement (the "Dealer Agreement") dated as of _____________, 1995. 2. The Partners are the sole partners of DEALER; UNITED is the sole shareholder of DP; TIHI is the Majority (defined below) shareholder of UNITED; Cogan is the Majority shareholder of TIHI; and the DiFeos are the sole shareholders (including ownership by related persons or entities) of HTI. 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 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. UNITED, DEALER, the Partners, TIHI, Cogan and the DiFeos are hereinafter collectively referred to as the "UNITED Parties". DISTRIBUTOR and the UNITED Parties are hereinafter collectively referred to as the "Parties". 5 ADDITIONAL PROVISIONS (CONTINUED) 4. 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 UNITED, DP, HTI, TIHI, DEALER, the DiFeos and others, the Partnership Agreement of DEALER dated as of October 5, 1992, the Management Agreement among DEALER, UNITED and others dated as of October 5, 1992 (the "Management Agreement") and certain other documentation relating to the relationships between the UNITED Parties and others (collectively the "Underlying Documentation"). The UNITED 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 UNITED 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 UNITED Parties acknowledge and agree that if any provision of these Additional Provisions is violated in any material respect by any of the UNITED 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 Toyota dealership and activities related thereto. 2. SINGLE PURPOSE PARTNERS. DP and HTI 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. 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. 6 ADDITIONAL PROVISIONS (CONTINUED) C. PROVISIONS RELATING TO MANAGEMENT 1. ROLE OF THE 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 to the DiFeos. c) Subject to Section C.2., the DiFeos will at all times be the sole shareholders of HTI (including ownership by related persons or entities), and HTI will at all times own at least a 25% interest in the profits and capital of DEALER, provided, that if HTI's interest falls below 30%, any interest below 30% will be transferred to DP. 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.l., (b) the DiFeos wish to cease being the sole shareholders of HTI (including ownership of related persons or entities) or (c) HTI 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. 7 ADDITIONAL PROVISIONS (CONTINUED) 3. ROLE OF THE GENERAL MANAGER. a) Richard King, Jr., 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 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. 8 ADDITIONAL PROVISIONS (CONTINUED) 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 UNITED Parties and any other dealerships directly or indirectly owned or controlled by any of the UNITED 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 UNITED 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 UNITED Parties. 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 UNITED Party will be treated as a distribution by DEALER to the Partners for purposes of determining compliance with Section D.l. 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 UNITED 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, HTI and UNITED, 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. 2. NO PUBLIC OFFERING. (a) The UNITED 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 9 ADDITIONAL PROVISIONS (CONTINUED) 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 an 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 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 UNITED 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 Toyota 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. d) (i) Any person or entity who owns or will own ten percent (10%) of the outstanding stock or of the voting rights of DEALER, UNITED, DP or HTI, shall file an ownership application with DISTRIBUTOR, which application shall be subject to approval of DISTRIBUTOR. (ii) Any corporation or other entity holding or obtaining ten percent (10%) or more of the ownership or voting rights of any class of stock in UNITED shall provide its most recent annual statement, financial statement or 10 ADDITIONAL PROVISIONS (CONTINUED) equivalent to DISTRIBUTOR; in the event the corporation is submitting an ownership application to DISTRIBUTOR, such statement shall be submitted with the application. (iii) UNITED shall provide a list of all current members of its Board of Directors, and resumes for each Director, to DISTRIBUTOR, and provide such information for each new member. (iv) There shall be no change in the management function of Samuel X. and Joseph C. DiFeo without the prior written approval of DISTRIBUTOR. (v) In approving the current ownership structure, DISTRIBUTOR is specifically not approving any future ownership change which could result from a public offering of the stock of UNITED or any other entity. The UNITED Parties hereby acknowledge that certain provisions of the documentation provided to DISTRIBUTOR in connection with the sale of preferred stock of UNITED, including the Registration Rights Agreement, are potentially in conflict with Section E.2 of these Additional Provisions to Dealer Agreement, and agree that any violation of such Section E.2 will constitute a material breach of this Dealer Agreement. 3. SUCCESSORS AND ASSIGNS. In the event that any interest in any of the UNITED 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 UNITED Parties be transferred to an entity which is directly or indirectly engaged in the business of manufacturing and/or distributing automobiles, or an affiliate thereof. F. CUSTOMER SATISFACTION DEALER agrees to achieve, within twelve (12) months of the effective date of this Agreement and to thereafter maintain throughout the duration of this Agreement, a satisfactory customer satisfaction performance, as measured by all applicable standards established by Toyota Motor Sales, U.S.A., Inc., and which are modified from time to time. 11 IN WITNESS WHEREOF, the Parties have executed these Additional Provisions as of the date first above written. TOYOTA MOTOR SALES, U.S.A., INC. HUDSON MOTORS PARTNERSHIP By: /s/ Ezra P. Mager ------------------------------- General Partner By: /s/ Shinji Sakai -------------------------- Title: ----------------------- By: /s/ Samuel X. DiFeo ------------------------------- Title: ---------------------------- DIFEO PARTNERSHIP HCT, INC. HUDSON TOYOTA, INC. By: /s/ Ezra P. Mager - ------------------------------ Title: ----------------------- By: /s/ Samuel X. DiFeo ------------------------------- Title: ---------------------------- UNITED AUTO GROUP, 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 12 XI. EXECUTION OF AGREEMENT Notwithstanding any other provision herein, the parties to this Agreement, DISTRIBUTOR and DEALER, agree that this Agreement shall be valid and binding only if it is signed: A. On behalf of DEALER by a duly authorized person; B. On behalf of DISTRIBUTOR by the President and/or an authorized General Manager, if any, of DISTRIBUTOR; and C. On behalf of IMPORTER, solely in connection with its limited undertaking herein, by President of IMPORTER. XII. CERTIFICATION By their signatures hereto, the parties agree that they have read and understand this Agreement, including the Standard Provisions incorporated herein, are committed to its purposes and objectives and agree to abide by all of its terms and conditions. Hudson Motors Partnership t/a HUDSON TOYOTA DEALER - ------------------------------------------------------------ (Dealer Entity Name) Date: By: /s/ Sam C. DiFeo President - Hudson Toyota, Inc. ----- ----------------------- ------------------------------- Sam C. DiFeo Signature Title Chief Executive Officer Date: By: /s/ Ezra Mager DiFeo Partnership HCT, Inc. ----- ----------------------- ------------------------------- Ezra Mager Signature Title Date: By: ----- ----------------------- ------------------------------- Signature Title Toyota Motor Distributors, Inc. DISTRIBUTOR - ------------------------------------------------------- (Distributor Name) Date:3/2/95 By: /s/ Marshall Johnson General Manager ------ ------------------------ --------------------------- Marshall Johnson Signature Title Date: By: ----- ----------------------- ------------------------------- Signature Title 13 Undertaking by IMPORTER: In the event of termination of this Agreement by virtue of termination or expiration of DISTRIBUTOR's contract with IMPORTER, IMPORTER, through its designee, will offer DEALER a new agreement of no less than one year's duration and containing the terms of the Toyota Dealer Agreement then prescribed by IMPORTER. TOYOTA MOTOR SALES, U.S.A., INC. Date: May 05, 1995 By: /s/ Shinji Sakai President ------------- ------------------------ ------------------ Shinji Sakai Signature Title EX-10.2-6-2 14 EXHIBIT 10.2.6.2 TOYOTA DEALER AGREEMENT STANDARD PROVISIONS The following Standard Provisions are expressly incorporated in and made a part of the Toyota Dealer Agreement. XIII. ACQUISITION, DELIVERY AND INVENTORY OF TOYOTA PRODUCTS A. ACQUISITION OF TOYOTA PRODUCTS DEALER shall have the right to purchase Toyota Products from DISTRIBUTOR in accordance with the provisions set forth herein and such other requirements as may be established from time to time by DISTRIBUTOR. B. AVAILABILITY AND ALLOCATION OF PRODUCT DISTRIBUTOR agrees to use its best efforts to provide Toyota Products to DEALER in such quantities and types as may be required by DEALER to fulfill its obligations with respect to the sale and servicing of Toyota Products under this Agreement, subject to available supply from IMPORTER, DISTRIBUTOR's requirements, and any change or discontinuance with respect to any Toyota Product. DISTRIBUTOR will endeavor to allocate Toyota Products among its dealers in a fair and equitable manner, which it shall determine in its sole discretion. DISTRIBUTOR agrees to provide DEALER with an explanation of the method used to distribute such products and, upon written request, will advise DEALER of DISTRIBUTOR's total wholesale sales of new motor vehicles, by series, in DISTRIBUTOR's area and to DEALER individually, for a reasonable time frame. C. PRICES AND TERMS OF SALE DISTRIBUTOR shall have the right to establish and revise prices and other terms for the sale of Toyota Products to DEALER. Ownership and title of Toyota Products sold by DISTRIBUTOR to DEALER shall pass upon payment therefor by DEALER to DISTRIBUTOR and DEALER shall have no ownership interest in such Products until such payment is received. Risk of loss for Toyota Products sold by DISTRIBUTOR to DEALER shall pass upon delivery of such Products to DEALER. Revised prices and terms shall apply to any Toyota Products not invoiced to DEALER by DISTRIBUTOR at the time the notice of such change is given to -2- DEALER (in the case of Toyota 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. Payment for all Toyota Products shall be made when billed, unless other terms are established by DISTRIBUTOR in writing. 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 TRANSPORTATION of Toyota Products to DEALER. DEALER shall pay DISTRIBUTOR such charges as DISTRIBUTOR in its sole discretion establishes for such transportation services. E. INVENTORY DAMAGE CLAIMS AND LIABILITY DEALER shall promptly notify DISTRIBUTOR of any damage occurring during transit and shall, if so directed by DISTRIBUTOR, file claims on DISTRIBUTOR's behalf against transportation carrier for damage. DEALER agrees to assist DISTRIBUTOR in obtaining recovery against any transportation carrier or insurer for loss or damage to Toyota Products shipped hereunder. 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 Toyota 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, IMPORTER or FACTORY, including but not limited to fire, floods, storms or other acts of God, any law or regulation of any governmental entity, foreign or civil wars, riots, interruptions of navigation, shipwrecks, strikes, lockouts or other labor troubles, embargoes, blockades, or delay or failure of FACTORY to deliver Toyota Products. -3- G. DIVERSION CHARGES If after delivery DEALER fails or refuses to accept Toyota Products that it has agreed to purchase, DEALER shall pay all charges incurred by DISTRIBUTOR as a result of such refusal. 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 refusal. 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 point of original shipment. H. CHANGES OF DESIGN, OPTIONS OR SPECIFICATIONS DISTRIBUTOR, IMPORTER or FACTORY may change the design or specifications of any Toyota Product or the options in any Toyota 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, IMPORTER and/or DISTRIBUTOR may discontinue the manufacture, importation or distribution of all or part of any Toyota Product, whether motor vehicle, parts, options, or accessories, including any model, series, or body style of any Toyota Motor Vehicle at any time without any obligation or liability to DEALER by reason thereof. J. MINIMUM VEHICLE INVENTORIES Subject to the ability of DISTRIBUTOR to supply Toyota Motor Vehicles to DEALER, DEALER agrees that it shall, at all times, maintain at least the minimum inventory of Toyota Motor Vehicles as may be established by DISTRIBUTOR from time to time. DEALER also agrees that it shall have available at all times, for purposes of display and demonstration, the number of Toyota Motor Vehicles of the most current models as may be established by DISTRIBUTOR from time to time, and shall, at all times, maintain such Motor Vehicles in showroom ready condition. -4- K. PRODUCT MODIFICATIONS DEALER agrees that it will not make any modifications to Toyota Products that may impair or adversely affect a vehicle's safety, emissions or structural integrity. XIV. DEALER MARKETING OF TOYOTA PRODUCTS A. DEALER'S SALES RESPONSIBILITIES DEALER recognizes that customer satisfaction and the successful promotion and sale of Toyota Products are significantly dependent on DEALER's advertising and sales promotion activities. DEALER shall actively and effectively promote, through DEALER's own advertising and sales promotion activities, the purchase of Toyota Products by customers. Therefore, DEALER at all times shall: 1. Actively and effectively advertise, merchandise, promote and sell Toyota Products; 2. Maintain an adequate, stable and trained sales organization, and, to that end, make all reasonable efforts to ensure that its sales personnel attend all sales training courses prescribed by DISTRIBUTOR at DEALER's expense; 3. Maintain high standards of ethics in advertising, promoting and selling Toyota Products and avoid engaging in any misrepresentation or unfair or deceptive practices; and 4. Accurately represent to customers the total selling price of Toyota Products. DEALER agrees to explain to customers of Toyota Products the items that make up the total selling price and to give the customers itemized statements and all other information required by law. DEALER understands and hereby acknowledges that it may sell Toyota Products at whatever price DEALER desires. B. EXPORT PROHIBITION DEALER is authorized to sell Toyota Motor Vehicles only to customers located in the continental United States. DEALER agrees that it will not sell Toyota Motor Vehicles for resale or use outside the continental United States. DEALER agrees to abide by any export policy established by DISTRIBUTOR. -5- C. USED VEHICLES DEALER agrees to display, promote and sell used vehicles at the Approved Location. DEALER shall maintain for resale an inventory of used vehicles. D. ASSISTANCE PROVIDED BY DISTRIBUTOR 1. SALES TRAINING ASSISTANCE To assist DEALER in the fulfillment of its sales responsibilities under this Agreement, DISTRIBUTOR agrees to offer general and specialized sales management and sales training programs for the benefit and use of DEALER's sales organization. When requested by DISTRIBUTOR, DEALER's personnel shall participate in such programs at DEALER's expense. 2. SALES PROMOTION ASSISTANCE In order that authorized Toyota dealers may be assured of the benefits of comprehensive advertising and promotion of Toyota Products, DISTRIBUTOR agrees to establish and maintain general advertising and promotion programs and will from time to time make sales promotion and campaign materials available to DEALER to promote the sales of such Toyota Products at a reasonable charge where applicable. 3. FIELD SALES PERSONNEL ASSISTANCE To assist DEALER in handling its sales responsibilities under this Agreement, DISTRIBUTOR agrees to provide trained field sales personnel to advise and counsel DEALER on sales-related subjects, including merchandising, training and sales management. XV. DEALER SERVICE OBLIGATIONS A. CUSTOMER SERVICE STANDARDS DEALER and DISTRIBUTOR agree that the success and future growth of DISTRIBUTOR and DEALER are substantially dependent upon the customer's ability to obtain high-quality vehicle servicing. Therefore, DEALER agrees to: 1. Take all reasonable steps to provide service of the highest quality for all Toyota Motor Vehicles, regardless of where purchased and whether or not under warranty; -6- 2. Ensure that the customer is advised of the necessary repairs and that his or her consent is obtained prior to the initiation of any repairs; 3. Ensure that problems on Toyota Motor Vehicles are accurately diagnosed and repairs are promptly and professionally performed; and 4. Ensure 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 Toyota Motor Vehicle to a customer it shall perform, as directed by DISTRIBUTOR, pre-delivery service on each Toyota Motor Vehicle in accordance with Toyota standards. DISTRIBUTOR shall pay DEALER for such pre-delivery service according to such directives and the applicable provisions of the TOYOTA WARRANTY POLICY AND PROCEDURES MANUAL. C. WARRANTY AND POLICY SERVICE DEALER acknowledges that the only warranties of DISTRIBUTOR or FACTORY applicable to Toyota Products shall be the New Vehicle Limited Warranty or such other written warranties that may be expressly furnished or sold 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, IMPORTER or FACTORY. Any such additional obligations assumed by DEALER shall be the sole responsibility of DEALER. Any extended service contract sold by IMPORTER, DISTRIBUTOR or Toyota-affiliated entity shall be governed by its own terms. DEALER shall perform warranty service specified by DISTRIBUTOR in accordance with the TOYOTA WARRANTY POLICY AND PROCEDURES MANUAL. DISTRIBUTOR agrees to compensate DEALER for all warranty work, including labor, diagnosis and Genuine Toyota Parts and Accessories, in accordance with procedures and at rates to be announced from time to time by DISTRIBUTOR. Unless otherwise approved in writing in advance by DISTRIBUTOR, DEALER shall use only Genuine Toyota Parts and Accessories when performing Toyota warranty repairs. Warranty service is provided for the benefit of customers and DEALER agrees that the customer shall not be obligated to pay any charges -7- for warranty work or any other services for which DEALER is reimbursed or paid by DISTRIBUTOR. D. USE OF PARTS AND ACCESSORIES IN NON-WARRANTY SERVICING Subject to the provisions set forth below, DEALER has the right to sell, install or use, for making non-warranty repairs, products that are not Genuine Toyota 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 Toyota Motor Vehicles are, or meet the high quality standards of, Genuine Toyota Parts or Accessories. DEALER agrees that in sales, repairs or servicing where DEALER does not use Genuine Toyota Parts or Accessories, DEALER will only utilize such other parts or accessories that will not adversely affect the mechanical operation of the Toyota Motor Vehicle being sold, repaired or serviced, and that are equivalent in quality and design to Genuine Toyota Parts or Accessories. E. WARRANTY DISCLOSURES AS TO NON-GENUINE PARTS AND ACCESSORIES In order to avoid confusion and to minimize potential customer dissatisfaction, in any instance where DEALER sells, installs or uses other than Genuine Toyota Parts or Accessories, DEALER shall disclose such fact to the customer and shall advise the customer that these items are not included in warranties furnished by DISTRIBUTOR. 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. F. SERVICE CAMPAIGN INSPECTIONS AND CORRECTIONS DEALER agrees to perform service campaign inspections and/or corrections for owners or users of all Toyota 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 TOYOTA WARRANTY POLICY 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 -8- work and for labor according to such directives and the applicable provisions of the TOYOTA WARRANTY POLICY AND PROCEDURES MANUAL. G. 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 Toyota Motor Vehicle on which such installations are required, shall properly install such devices or equipment on such Toyota Motor Vehicles. DISTRIBUTOR agrees to reimburse DEALER for all parts and/or other materials required and used in connection with such work and for labor according to the applicable provisions of the TOYOTA WARRANTY POLICY AND PROCEDURES MANUAL. 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. H. COMPLIANCE WITH CONSUMER PROTECTION STATUTES, RULES AND REGULATIONS Because certain customer complaints may impose liability upon DISTRIBUTOR under various repair or 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 reasonably require. DEALER -9- 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. XVI. SERVICE AND PARTS OPERATIONS A. ORGANIZATION AND STANDARDS DEALER agrees to organize and maintain an adequate, stable and trained service and parts organization of the highest quality, including a qualified Service Manager and a qualified Parts Manager, and a number of competent customer relations, service and parts personnel sufficient to meet the needs of the marketplace in the reasonable opinion of DISTRIBUTOR. DEALER's personnel will meet the educational, management and technical training standards established by DISTRIBUTOR. 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 INVENTORY DEALER and DISTRIBUTOR recognize that the owners and users of Toyota Motor Vehicles may reasonably expect that DEALER will have Genuine Toyota Parts or Accessories immediately available for purchase or installation. DEALER, therefore, agrees to carry in stock at all times during the term of this Agreement an adequate inventory of Genuine Toyota Parts or Accessories, as listed in DISTRIBUTOR's current inventory guide, to enable DEALER to meet its customers' needs and to fulfill its service responsibilities under this Agreement. -10- D. ASSISTANCE PROVIDED BY DISTRIBUTOR 1. SERVICE TRAINING ASSISTANCE To Assist DEALER in fulfilling its service and parts responsibilities under this Agreement, DISTRIBUTOR agrees to offer general and specialized service and parts training programs for the benefit and use of DEALER's service and parts organizations. When requested by DISTRIBUTOR, DEALER's personnel shall participate in such programs at DEALER's expense. 2. MANUALS AND MATERIALS DISTRIBUTOR agrees to make available to DEALER, at DEALER's expense, copies of such dealer manuals, catalogs, 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. 3. FIELD PERSONNEL ASSISTANCE To assist DEALER in handling its parts and service responsibilities under this Agreement, DISTRIBUTOR agrees to make available qualified field parts and service personnel who will, from time to time, advise and counsel DEALER on parts and service-related subjects, including parts and service policies, product quality, technical adjustments, repair and replacement of product components, customer relations, warranty administration, service and parts merchandising, and personnel/management training. XVII. CUSTOMER SATISFACTION RESPONSIBILITIES A goal of DISTRIBUTOR and DEALER is to be recognized as marketing the finest products and providing the best service in the automobile industry. The Toyota name should be synonymous with the highest level of customer satisfaction. DEALER will take all reasonable steps to ensure that each customer is completely satisfied with his or her Toyota Products and the services and practices of Dealer. -11- Whenever requested by DISTRIBUTOR, DEALER shall: A. Designate an employee responsible for customer satisfaction commensurate with the needs of the marketplace; and B. Provide a detailed written plan of DEALER's customer satisfaction program to DISTRIBUTOR and implement such program on a continuous basis. This plan shall include an ongoing system for: 1. Emphasizing customer satisfaction to all DEALER's employees; 2. Training DEALER's employees, including participation in DISTRIBUTOR's customer satisfaction training at DEALER's expenses; and 3. Responding immediately to, and resolving promptly, requests for customer assistance, and conveying to customers that DEALER is committed to the highest possible level of customer satisfaction. XVIII. DEALERSHIP FACILITIES AND IDENTIFICATION A. FACILITIES 1. In order for DISTRIBUTOR to establish an effective network of authorized Toyota 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, identification and other factors established by DISTRIBUTOR. DEALER shall meet the minimum facility standards and policies established by DISTRIBUTOR which can be amended from time to time. 2. To assist DEALER in planning, building, or remodeling dealership facilities, DISTRIBUTOR will provide DEALER upon request, a TOYOTA DEALER FACILITY PLANNER and will assist in identifying sources from which DEALER may purchase architectural materials and furnishings that meet Toyota standards and guidelines. In addition, representatives of DISTRIBUTOR will be available to DEALER from time to time to counsel and advise DEALER in connection with DEALER's planning and equipping the dealership premises. B. DEALER'S OPERATING HOURS DEALER agrees to keep all of its dealership operations open for business during all days and -12- 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. The dealership shall not be considered open unless all sales, service and parts operations are open to the public and dealership personnel are present to assist customers. C. SIGNS Subject to applicable governmental ordinances, regulations, and statutes, DEALER agrees to comply with IMPORTER's signage program and to display only standard authorized signage which conforms to the approved corporate identification program. D. USE OF TOYOTA MARKS 1. USE BY DEALER DISTRIBUTOR grants to DEALER the non-exclusive privilege of displaying or otherwise using authorized Toyota Marks as specified in the TOYOTA BRAND GRAPHIC STANDARDS MANUALS at the Approved Location(s) in connection with the selling or servicing of Toyota Products. DEALER further agrees that it promptly shall discontinue the display and use of any Toyota Marks, or shall change the manner in which any Toyota Marks are displayed and used, when for any reason it is requested to do so by DISTRIBUTOR. DEALER may use the Toyota Marks as specified in the TOYOTA BRAND GRAPHIC STANDARDS MANUAL only at Approved Location(s) and for such purposes as are specified in this Agreement. DEALER agrees that such Toyota Marks may be used as part of the name under which DEALER's business is conducted only with the prior written approval of DISTRIBUTOR. DEALER shall discontinue any advertising that DISTRIBUTOR may find to be injurious to DISTRIBUTOR's business or reputation or the Toyota Marks. 2. DISCONTINUANCE OF USE Upon termination, non-renewal, or expiration of this Agreement, DEALER agrees that it shall immediately: a. Discontinue the use of Toyota Marks, or any semblance of same, including without limitation, the use of all stationery, -13- telephone directory listing, and other printed material referring in any way to Toyota or bearing any Toyota Mark; b. Discontinue the use of the Toyota 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 Toyota Marks. Product signs owned by DEALER shall be removed and disposed of at DEALER's sole cost and expense. Product signs leased to DEALER by or through IMPORTER or its representative shall be removed from DEALER's premises at IMPORTER's sole cost and expense. DEALER hereby grants permission for DISTRIBUTOR to enter upon DEALER's premises to remove signs leased to DEALER by IMPORTER; d. Cease representing itself as an authorized Toyota Dealer; and e. Refrain from any action, including without limitation, any advertisement, statement or implication that it is authorized to sell or distribute Toyota Products. In the event DEALER fails to comply promptly with the terms and conditions of this Section, DISTRIBUTOR shall have the right to enter upon DEALER's premises and remove, without notice or liability, all such product signs and identification bearing the Toyota Marks. DEALER agrees that it shall reimburse DISTRIBUTOR for any costs and expenses incurred in the removal of signs owned by DEALER bearing the Toyota Marks, including reasonable attorney fees. XIX. EVALUATION OF DEALER'S PERFORMANCE DEALER acknowledges the importance of its overall performance in relation to the purposes and objectives of this Agreement. DISTRIBUTOR will periodically evaluate DEALER's performance of its responsibilities in the areas of sales, service and parts, facilities and customer satisfaction, based upon such reasonable criteria as DISTRIBUTOR may establish from time to time. DISTRIBUTOR agrees to review all such evaluations with DEALER and will provide DEALER a copy thereof. Where performance is below acceptable standards of DISTRIBUTOR. DEALER agrees to take prompt action to improve its performance and, if requested by DISTRIBUTOR, to notify DISTRIBUTOR in -14- writing of its detailed plans and timetables for accomplishing those improvements. A. SALES PERFORMANCE EVALUATION Pursuant to Section XIV herein, DISTRIBUTOR will evaluate DEALER's sales performance under criteria established by DISTRIBUTOR, which may include, but is not limited to, the achievement of reasonable sales objectives as DISTRIBUTOR may establish; comparisons of DEALER's sales and/or registrations to those of comparable Toyota dealers and other line makes within DEALER's Primary Market Area or such area(s) which DISTRIBUTOR believes is a reasonable basis for comparison; sales performance trends over a reasonable period of time; and the manner in which DEALER has conducted its sales and marketing operations. B. SERVICE PERFORMANCE EVALUATION Pursuant to Sections XV and XVI herein, DISTRIBUTOR will evaluate DEALER's service performance in such areas as, without limitation, warranty management, compliance with the TOYOTA WARRANTY POLICY AND PROCEDURES MANUAL, service management, service operating procedures, service staffing and training, administration, service facilities and equipment, new vehicle pre-delivery service, customer handling and customer retention. C. PARTS PERFORMANCE EVALUATION Pursuant to Section XVI herein, DISTRIBUTOR will evaluate DEALER's parts performance in such areas as, without limitation, general parts management, parts operating procedures, parts staffing and training, parts facilities, parts inventory management, parts sales, accessory sales, parts merchandising and parts availability to customers. D. CUSTOMER SATISFACTION PERFORMANCE EVALUATION Pursuant to Section XVII herein, DISTRIBUTOR will evaluate DEALER's performance of its responsibilities in the area of customer satisfaction based on the following considerations: 1. DISTRIBUTOR will provide DEALER with customer satisfaction 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 -15- customer satisfaction reports or other data it receives. 2. DEALER agrees to develop, implement and review with DISTRIBUTOR specific action plans for improving results in the event that DEALER is below the average customer satisfaction levels for other Toyota dealers in such areas that DISTRIBUTOR believes are a reasonable basis for comparison. DEALER shall 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, and DEALER shall remedy those deficiencies. DISTRIBUTOR reserves the right to establish reasonable, uniform criteria to be used to evaluate DEALER. E. DEALERSHIP FACILITIES EVALUATION Pursuant to Section XVIII, herein, DISTRIBUTOR will evaluate DEALER's performance of its responsibilities in the area of dealership facilities. XX. CAPITAL, CREDIT, RECORDS AND UNIFORM SYSTEMS A. NET WORKING CAPITAL The amount and structure of the net working capital required to properly conduct the business of DEALER depends upon many factors, including the nature, size and volume of DEALER's vehicle sales, service and parts operations. Therefore, DEALER agrees to establish and maintain actual net working capital in an amount not less than the minimum net working capital specified in a separate Minimum Net Working Capital Agreement executed by DEALER and DISTRIBUTOR concurrently with this Agreement. If, either because of changed conditions or because DISTRIBUTOR adopts a new net working capital formula, DISTRIBUTOR shall have the right to revise DEALER's minimum net working capital requirement to be used in DEALER's operation. If so revised, DEALER agrees to enter into the revised Minimum Net Working Capital Agreement and to meet the new standard within a reasonable period of time as established by DISTRIBUTOR. B. FLOORING LINE DEALER recognizes that its ability to fulfill its obligations under this Agreement is dependent upon its maintenance of flooring which is sufficient to sustain its ongoing operations. DEALER agrees to -16- 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. 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 AND SETTLEMENT OF ACCOUNTS All monies or accounts due DEALER from DISTRIBUTOR will be considered net of DEALER's obligations to DISTRIBUTOR on DEALER's parts/open account. 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. Payments by DEALER to DISTRIBUTOR shall be made by electronic bank draft or in any other manner prescribed by DISTRIBUTOR and shall be applied against DEALER's indebtedness in accordance with DISTRIBUTOR's policies and practices. DISTRIBUTOR shall have the right to apply payments received from DEALER to any amount owed to DISTRIBUTOR, in DISTRIBUTOR's sole discretion. All obligations owed by DEALER to DISTRIBUTOR shall be due and payable when billed, unless other terms are established by DISTRIBUTOR in writing. Under no circumstances will DISTRIBUTOR enter into a new Agreement with a proposed transferee unless DEALER first makes arrangements acceptable to DISTRIBUTOR to satisfy any outstanding obligations to DISTRIBUTOR on DEALER's parts/open account. D. UNIFORM ACCOUNTING SYSTEM DEALER agrees to maintain its financial books and records in accordance with the TOYOTA DEALER ACCOUNTING MANUAL, as amended from time to time by DISTRIBUTOR. In addition, DEALER shall furnish to DISTRIBUTOR, who may also furnish it to IMPORTER and FACTORY, complete and accurate financial and operating information by the tenth (10th) of each month in a format prescribed by DISTRIBUTOR. This information shall include, without limitation, a complete and accurate financial and operating statement covering the preceding month and calendar year-to-date operations, including any adjusted year-end statements, showing the true condition of DEALER's business. All such information shall be furnished by DEALER to DISTRIBUTOR via DISTRIBUTOR's -17- electronic communications network and/or in hard copy and/or in any other manner designated by DISTRIBUTOR. E. RECORDS MAINTENANCE DEALER agrees to keep complete, accurate and current records regarding its sale, lease and servicing of Toyota Products for a minimum of FIVE (5) years, regardless of any retention period required by any governmental entity. DEALER shall prepare, keep current and retain records in support of requests for reimbursement for warranty and policy work performed by DEALER in accordance with the IMPORTER's TOYOTA WARRANTY POLICY AND PROCEDURES MANUAL. F. EXAMINATION OF DEALERSHIP ACCOUNTS AND RECORDS DISTRIBUTOR, in its sole discretion, without notice and for any reason whatsoever, shall have the right 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, sales reporting, service and repair of Toyota Products by DEALER. If requested by DEALER, DISTRIBUTOR agrees to review any report with DEALER and to provide a copy of any report of the examination or audit of DEALER. G. TAXES DEALER shall be responsible for and duly pay all taxes of any kind, including, but not limited to, sales taxes, use taxes, excise taxes and other governmental municipal charges imposed, levied or based upon the sale of Toyota Products by DEALER, and shall maintain accurate records of the same. H. CONFIDENTIALITY Except as provided in Sections XX(D) above and XXI(A), below, DISTRIBUTOR agrees that it shall not provide any financial information, documents or other information submitted to it by DEALER to any third party, other than subsidiary and parent corporations of DISTRIBUTOR, unless authorized by DEALER, required by law, required to effectuate the terms and conditions of this Agreement, 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. -18- I. INFORMATION COMMUNICATION SYSTEMS To facilitate the accurate and prompt reporting of such relevant dealership operational and financial information as DISTRIBUTOR may require, DEALER agrees to install and maintain electronic communication processing facilities which are compatible with and which will facilitate the transmission and reception of such information on the electronic communications network utilized by DISTRIBUTOR. J. SALES REPORTING DEALER agrees to report accurately to DISTRIBUTOR, together with such 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 in such form as DISTRIBUTOR may reasonably require from time to time. XXI. RIGHT OF FIRST REFUSAL OR OPTION TO PURCHASE A. 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 interests or realty. DISTRIBUTOR's exercise of its right or option under this Section supersedes any right or attempt by DEALER 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 successor in interest of DEALER or purchaser of DEALER's assets or stock. B. EXERCISE OF DISTRIBUTOR'S RIGHTS DISTRIBUTOR shall have thirty (30) days from the following events within which to exercise its right of first refusal or option to purchase: (i) DISTRIBUTOR's receipt of all data and documentation customarily required by it to evaluate a proposed -19- transfer of ownership; (ii) DISTRIBUTOR's receipt of written notice from DEALER of the death of the majority Owner of DEALER; or (iii) DISTRIBUTOR's disapproval of any application submitted by an Owner's heirs pursuant to Section XXII. DISTRIBUTOR'S exercise of its right of first refusal under this Section shall neither be dependent upon nor require its prior consideration of or refusal to approve the proposed buyer or transferee. C. RIGHT OF FIRST REFUSAL If DEALER has entered into a bona fide written agreement to sell its dealership stock 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 agreement, and to terminate 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 understanding between the parties to the buy/sell agreement. Refusal to provide such documentation or to state in writing that no such documents exist shall create the presumption that the buy/sell agreement is not a bona fide agreement. D. OPTION TO PURCHASE In the event of the death of the majority Owner of DEALER or if DEALER submits a proposal which DISTRIBUTOR reasonably believes is not bona fide, DISTRIBUTOR has the option to purchase the principal assets of DEALER utilized in the dealership business, including real estate and leasehold interests, and to cancel this Agreement and the rights granted DEALER. The terms and conditions of the purchase of the dealership assets will be determined by good faith negotiations between the parties. If an agreement cannot be reached, those terms will be exclusively determined by 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. E. DEALER'S OBLIGATIONS Upon DISTRIBUTOR's exercise of its right or option and tender of performance hereunder, DEALER shall forthwith transfer the affected real property by -20- warranty deed or its equivalent, conveying marketable title free and clear of all liens, claims, mortgages, encumbrances, interests and occupancies. The warranty deed or its equivalent 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 dealership operations. DEALER shall also forthwith execute and deliver to DISTRIBUTOR instruments satisfactory to DISTRIBUTOR conveying title to all affected personal property and 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. F. NO APPLICABILITY TO NOMINATED SUCCESSOR Section XXI shall not apply to any DEALER whose proposed transfer of assets or ownership is to a candidate who is currently approved by DISTRIBUTOR to be DEALER's nominated successor pursuant to Section XXII(C). XXII. 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 XXIII(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 may reasonably and customarily require in connection -21- 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 Toyota Dealer Agreement with Owner's Heir(s) in the form then currently in use, subject to such additional conditions and for such a term as DISTRIBUTOR deems appropriate. In the event that DISTRIBUTOR does not approve the designated Heir(s) or designated candidate for General 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 constitute a waiver of DISTRIBUTOR's right under Section XXI to exercise its right of first refusal or option to purchase. 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. -22- 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 and 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. Approval by DISTRIBUTOR will not be unreasonably withheld. In the event of the death or incapacity of the nominating Owner, DISTRIBUTOR will enter into a new Toyota Dealer Agreement with the approved nominee of a length to be determined by DISTRIBUTOR. DISTRIBUTOR agrees that DEALER may renominate the candidate after the expiration of this Agreement, and DISTRIBUTOR will approve such nomination provided: (1) DISTRIBUTOR and DEALER have entered into a new Toyota Dealer Agreement; and (2) 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. XXIII. 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. -23- B. TERMINATION FOR CAUSE 1. IMMEDIATE TERMINATION DEALER and DISTRIBUTOR agree that the following conduct is within DEALER's control and is so 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 during DEALER's customary business hours, except in the event such closure or cessation of operation is caused by some physical event beyond the control of DEALER, such as 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 or parent company 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, including, but not limited to, any misrepresentations made by DEALER to DISTRIBUTOR in applying for this Agreement or for approval as Owner or General Manager of DEALER; 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; or f. If DEALER makes any attempted or actual sale, transfer or assignment by DEALER of this -24- Agreement or any of the rights granted DEALER hereunder, or upon any attempted or actual transfer, assignment or delegation by DEALER of any of the responsibilities assumed by it under this Agreement without the prior written approval of DISTRIBUTOR. 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. Appointment of a new General Manager without the prior written approval of DISTRIBUTOR; b. Conducting, directly or indirectly, any Toyota dealership operation at any location other than at the Approved Location(s); c. Failure of DEALER to make any payments to DISTRIBUTOR when due; d. Failure of DEALER to establish or maintain during the existence of this Agreement the required net working capital or adequate flooring line; e. Any dispute, disagreement or controversy among Owners, partners, 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; f. Impairment of the reputation or financial standing of DEALER, Owner, officer or parent company subsequent to the execution of this Agreement; g. 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; h. Failure of DEALER to furnish all required sales or financial information and related supporting information in a timely manner; -25- i. Any civil, criminal or administrative liability found against DEALER or any Owner, officer or parent company of DEALER for any automotive-related matter which adversely affects the ownership, operation, management, reputation, business or interests of DEALER, or impairs the goodwill associated with the Toyota Marks; or j. Breach or violation by DEALER of any other term or provision of this Agreement. 3. TERMINATION FOR FAILURE OF PERFORMANCE If, upon evaluation of DEALER's performance pursuant to Section XIX, herein, DISTRIBUTOR concludes that DEALER has failed to perform adequately its sales, service, parts 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. Section XXIII(B)(3) shall not be applicable where DEALER has relocated without DISTRIBUTOR's approval. 4. TERMINATION UPON DEATH OR INCAPACITY 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/or such Owner's legal representative. Termination upon either of these events shall be effective ninety (90) days from the date of such notice. C. NOTICE OF TERMINATION Any notice of termination under this Agreement shall be in writing and shall be mailed to DEALER or its General Manager at DEALER's Approved Location by certified mail, return receipt requested, or shall be delivered in person to the dealership. Such notice shall be effective upon the date of receipt. DISTRIBUTOR need not state all grounds on which it -26- relies in its termination of DEALER, and shall have the right to amend such notice as appropriate. DISTRIBUTOR's failure to refer to any 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 Toyota Marks or DISTRIBUTOR. E. REPURCHASE PROVISIONS 1. DISTRIBUTOR'S OBLIGATIONS Upon the expiration or termination of this Agreement (other than pursuant to an approved agreement to sell the dealership business or assets or to otherwise transfer the ownership of DEALER), DISTRIBUTOR shall repurchase from DEALER the following: a. New, unused, never titled, unmodified, undamaged, current model year Toyota Motor Vehicles with less than 100 miles, then unsold in DEALER's inventory. The prices 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 Toyota parts and accessories, contained in the original packaging, 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 that are especially designed for servicing Toyota 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. -27- d. Signs that DISTRIBUTOR has recommended for identification of DEALER and are owned by 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 to 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. 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. e. DEALER will remove, at its own expense, all signage bearing Toyota marks which it owns from DEALER's Approved Location(s) before it is eligible for payment for any repurchased items pursuant to Section XXIII(E). 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 -28- 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 any existing Alternative Dispute Resolution program established by DISTRIBUTOR that is binding on DISTRIBUTOR. If no Alternative Dispute Resolution program is then existing, DEALER's exclusive remedy shall be by resort to arbitration in accordance with the commercial arbitration rules of the American Arbitration Association (AAA). The site of the arbitration shall be the office of the AAA in the locality of DISTRIBUTOR's principal place of business. XXIV. MANAGEMENT OF DISPUTES A. ALTERNATIVE DISPUTE RESOLUTION PROGRAMS DISTRIBUTOR and DEALER acknowledge that disputes involving the performance of this Agreement may from time to time arise that cannot be resolved at the DISTRIBUTOR level. In order to minimize the effects of such disputes on their business relationship, the parties agree to participate in such Alternative Dispute Resolution programs, including mediation, as may be established by DISTRIBUTOR in its sole discretion. 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, but shall be binding upon DISTRIBUTOR. The parties' commitment to support and participate in Alternative Dispute Resolution programs specifically is not a waiver of DEALER's right to later resort to litigation before any judicial or administrative forum. -29- 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 Toyota 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. XXV. DEFENSE AND INDEMNIFICATION A. DEFENSE AND INDEMNIFICATION BY DISTRIBUTOR DISTRIBUTOR agrees to assume the defense of DEALER and to indemnify and hold harmless DEALER, expressly conditioned and subject to all provisions of Section XXV(C), against loss in any lawsuit or claim naming DEALER for bodily injury, property damage or breach of warranty caused solely by an alleged defect in design, manufacture or assembly of a Toyota Product (except for tires not manufactured by FACTORY) sold by DISTRIBUTOR to DEALER for resale that has not been altered, converted or modified by or for DEALER, provided that the alleged defect could not reasonably have been discovered by DEALER during pre-delivery inspection or service or installation of Toyota Products, less any offset. DISTRIBUTOR agrees to defend, to indemnify and hold harmless DEALER for alleged misrepresentations, misleading statements, unfair or deceptive trade practices of DISTRIBUTOR, IMPORTER or FACTORY or any substantial damage to a Toyota Product purchased by DEALER from DISTRIBUTOR which was improperly repaired by DISTRIBUTOR unless DEALER has been notified of such damage in writing prior to retail delivery of the affected Toyota Product. Notwithstanding any provision of this Agreement, DISTRIBUTOR shall not be required to defend, to indemnify or hold harmless DEALER against loss resulting from any claim, complaint, or action alleging DEALER misconduct, including but not limited to, improper or unsatisfactory service or repair, or misrepresentations, or any claim of DEALER's unfair -30- or deceptive trade practices or any claim of improper environmental or work place practices or conditions. B. DEFENSE AND INDEMNIFICATION BY DEALER DEALER agrees to assume the defense of DISTRIBUTOR, IMPORTER or FACTORY and to indemnify and hold them harmless, expressly conditioned and subject to all provisions of Section XXV(C), against loss in any lawsuit or claim naming DISTRIBUTOR, IMPORTER or FACTORY, or their subsidiaries or affiliates, when the claim or lawsuit directly or indirectly involves any allegations of: (1) DEALER's alleged failure to comply, in whole or in part, with any obligation assumed by DEALER pursuant to this Agreement; or (2) DEALER's alleged negligent or improper repairing or servicing or installation of a new or used Toyota Motor Vehicle or Toyota Product, or any loss related to other motor vehicles or equipment, other than Toyota Motor Vehicles or Products, as may be sold, serviced, repaired or installed by DEALER; or (3) DEALER's alleged breach of any contract or warranty other than that provided by DISTRIBUTOR, IMPORTER or FACTORY; or (4) DEALER's alleged misleading statements, misrepresentations, or deceptive or unfair trade practices; or (5) any modification, conversion or alteration made by or for DEALER to a Toyota Product, except those made pursuant to the express written approval and instruction of DISTRIBUTOR, IMPORTER or FACTORY; or (6) any and all claims arising out of or in any way connected to the hiring, retention or termination of any person by DEALER, including but not limited to, claims of employment discrimination, age, race or sex discrimination or harassment, wrongful discharge or termination, breach of the covenant of good faith and fair dealing, breach of contract, interference with contractual relations, intentional and/or negligent infliction of emotional distress, defamation, negligent hiring, violations of or non-compliance with: the Occupational Safety and Health Act, the Fair Labor Standards Act, or the Employment Retirement Income and Security Act ("ERISA") or any similar state or local laws. C. CONDITIONAL DEFENSE AND/OR INDEMNIFICATION The obligations of the DEALER, DISTRIBUTOR, IMPORTER or FACTORY to defend, to indemnify and hold harmless are expressly conditioned and subject to all of the following terms: 1. The party initially requesting defense and/or indemnification shall make such request in writing -31- and deliver to the other party within twenty (20) days of service of any legal process or within twenty (20) days of discovery of facts giving rise to indemnification, whichever is sooner. 2. The party requesting defense and/or indemnification covenants, represents and warrants that it, its agents or employees have not permitted a default judgment to be entered and have not made any direct or indirect admissions of liability, and are not aware of any credible evidence to support any independent claim of liability or lack of unity of interest. Said party further agrees to cooperate fully in the defense of such action as may be reasonably required. 3. The party requested to defend and/or indemnify shall have sixty (60) days from receipt of a request in writing to conduct an investigation or otherwise determine whether or not, or under what conditions, it will agree to defend and/or indemnify. 4. During the tendency of a request for defense and/or indemnification, and thereafter, the requesting party shall have a continuing duty to avoid undue prejudice to the other party and to mitigate damages. The party requesting indemnification shall protect its own interests until a decision has been made to assume the defense and/or provide indemnification. 5. The party accepting the request for defense and/or indemnification shall have the right to engage and direct counsel of its own choosing and shall have the obligation to reimburse the requesting party for all reasonable costs and expenses, including reasonable attorneys' fees, incurred prior to such assumption except where the request is made under the circumstances described in XXV(C)(6), and subject to the provisions of XXV(C)(9). 6. If subsequent developments in a case, supported by credible evidence, cause a party to reasonably conclude that the allegations which initially preclude a request or acceptance of a request for defense and/or indemnification are meritless or no longer at issue, then the request may be retendered. 7. No party shall be required to agree to such a subsequent request or retender of defense and/or indemnification where that party would be unduly -32- prejudiced by such delay. Initial acceptance by any party of defense and/or indemnification is not a waiver of the right to retender timely. 8. A party agreeing to defend and/or indemnify may make its written agreement conditioned upon the continued existence of the state of facts as then known as well as such other reasonable conditions as may be dictated by the particular allegations or claims. 9. Any party withdrawing from its agreement to defend and/or indemnify, shall give timely written notice which shall be effective upon receipt. The withdrawing party shall be responsible for all costs and expenses of defense prior to receipt of notice of withdrawal, except for those reasonable costs and expenses, including reasonable attorneys' fees, incurred solely for the benefit of the other party. 10. The defense, indemnification and hold harmless obligations of this Agreement shall survive the termination of this Agreement. XXVI. 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 to the dealership or by certified mail, return receipt requested, and shall be effective on the date of receipt. 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 DISTRIBUTOR. 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. Any continuation of business relations between the parties following expiration of this Agreement shall not be deemed a waiver of the expiration nor shall it imply that either party has committed to continue to -33- do business with the other at any time in the future. Should this Agreement be renewed or any other form of agreement be offered to DEALER, DISTRIBUTOR reserves the right to offer an agreement of a length and upon such additional terms and conditions as it deems reasonable. 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 Toyota 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 herein 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. No change or addition to, or deletion of, any portion of this Agreement (except as provided in Section III) shall be valid or binding upon the parties hereto unless the same is approved in writing by an officer of each of the parties hereto. D. DEALER NOT AN AGENT OR REPRESENTATIVE DEALER is an independent business. This Agreement is not a property right and does not constitute DEALER, Owners or employees of DEALER as the agent or legal representatives of DISTRIBUTOR for any purpose whatsoever. DEALER, Owners and employees of DEALER or any other persons acting on behalf of DEALER are 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 to bind DISTRIBUTOR in any manner whatsoever. E. ASSIGNMENT OF RIGHTS OR DELEGATION OF DUTIES This a personal service 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. -34- 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 or any other party in consideration of entering into this Agreement. The sole consideration for DISTRIBUTOR's entering into this Agreement is DEALER's ability, integrity, assurance or 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 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 Toyota 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 specific provision contained in it is intended or shall be construed to be for the benefit of any third party. J. NO FIDUCIARY RELATIONSHIP This Agreement shall not be construed to create a fiduciary relationship between DEALER and DISTRIBUTOR. K. NO JOINT EMPLOYMENT DEALER acknowledges that it has assumed obligations under this Agreement to use its best efforts to sell and service Toyota Products, to increase the future -35- growth in Toyota Product sales through increased customer satisfaction and other obligations related to the operation of the dealership and recognizes the necessity to employ and train qualified personnel to satisfy these commitments. To this end, DEALER agrees to employ only qualified persons who will fulfill the commitments made by DEALER to DISTRIBUTOR in this Agreement. Notwithstanding the foregoing, DEALER retains the sole and exclusive right to determine whom to hire and their qualifications, to direct, control and supervise DEALER's employees, and to establish all terms and conditions of employment of DEALER's employees. All supervision, control and direction of DEALER's employees shall be the sole and exclusive responsibility of DEALER. DEALER shall at all times remain the sole employer of persons employed by DEALER and, to this end, DEALER and DISTRIBUTOR agree that no act or omission of DEALER or DISTRIBUTOR shall be construed to make or render them joint employer, co-employer or alter ego of each other. L. CONSENT OF DISTRIBUTOR Any time that this Agreement provides that DEALER must obtain DISTRIBUTOR's consent to any proposed conduct or change, DEALER must provide all information requested by DISTRIBUTOR concerning the proposal, and DISTRIBUTOR shall have a reasonable amount of time in which to evaluate the proposal. M. DISTRIBUTOR'S POLICIES This Agreement, from time to time, refers to certain policies and standards. DEALER acknowledges that these policies and standards are prepared by DISTRIBUTOR in its sole discretion based upon DISTRIBUTOR's evaluation of the marketplace. DISTRIBUTOR may reasonably amend its policies and standards as the marketplace changes from time to time. XXVII. DEFINITIONS As used in this Agreement, the parties agree that the following terms shall be denied as exclusively set forth below. -36- A. OWNER: The persons identified in Section IV hereof. B. GENERAL MANAGER: The person identified in Section V hereof. C. DEALER FACILITIES: The buildings, improvements, fixtures, and equipment situated at the Approved Location(s). D. APPROVED LOCATION(S): The location(s) and any facilities thereon, designated in Section VII that DISTRIBUTOR has approved for the dealership operation(s) specified therein. E. TOYOTA MARKS: The various Toyota trademarks, service marks, names, logos and designs that DEALER is authorized by DISTRIBUTOR to use in the sale and servicing of Toyota Products as specified in the current TOYOTA BRAND GRAPHIC STANDARDS MANUAL. F. TOYOTA PRODUCTS: All Toyota Motor Vehicles, parts, accessories and equipment which IMPORTER, in its sole discretion, sells to DISTRIBUTOR for resale to authorized Toyota dealers. G. TOYOTA MOTOR VEHICLES: All motor vehicles identified in the current Toyota Product Addendum that DISTRIBUTOR sells to DEALER for resale. H. GENUINE TOYOTA PARTS AND ACCESSORIES: All Toyota 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 Toyota Motor Vehicles and sold by DISTRIBUTOR to DEALER for resale. -37- EX-10.2-10-1 15 EXHIBIT 10.2.10.1 Chrysler Corporation TERM SALES AND SERVICE AGREEMENT Fair Chrysler Plymouth Partnership t/a Danbury Fair Dodge located at 100B Federal Road, Danbury, Connecticut a(n) Partnership hereinafter called DEALER, and Chrysler Corporation, a Delaware corporation, hereinafter sometimes referred to as "CC", agree as follows: INTRODUCTION The purpose of the relationship established by this Term Sales and Service Agreement ("Term Agreement") is to provide a means for the sale and service of specified CC 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 result of such considerations, CC has entered into this Term 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 Term 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. DEALER acknowledges that CC is relying upon DEALER to provide representation which conforms to the standards set forth herein and in the Additional Terms and Provisions of the Chrysler Corporation Sales and Service Agreement (Terms and Provisions), which are incorporated herein by reference in Paragraph 5 of this Term Agreement. DEALER wishes an opportunity to qualify for the standard Chrysler Corporation Sales and Service Agreement for specified CC vehicle and understands that, for this purpose, DEALER must first fulfill all of DEALER's undertakings hereinafter described. 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 Term Agreement. 2. DEALERS'S MANAGEMENT CC has entered into this Term Agreement relying on the active, substantial and continuing personal participation in the management of DEALER's organization by: NAME POSITION Thomas Campbell General Manager/Dealer Principal 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 will 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 warrants that the persons named below own beneficially the capital stock or partnership interest of DEALER in the percentages indicated below. DEALER warrants that 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. Name Voting Non-Voting Partnership Active Stock Stock Interest Yes/No DiFeo Partnership, Inc. 70% No JS2, Inc. 30% No Total 100% -2- 4. SALES LOCALITY DEALER shall have the non-exclusive right, subject to the provisions of this Term 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 specified 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 specified 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 (C-P-D)," as may hereafter be amended from time to time, insofar as they are not inconsistent with the terms, provisions and conditions of this Term Agreement, constitute a part of this Term Agreement with the same force and effect as if set forth at length herein, and the term "this Term Agreement" includes said Additional Terms and Provisions. 6. FORMER AGREEMENTS, REPRESENTATIONS, WAIVERS, STATEMENTS, MODIFICATIONS OR AMENDMENT This Chrysler Corporation Term Agreement and other documents, (or their successors as specifically provided for herein) which are specifically incorporated herein by reference is the entire agreement between the parties 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 specified CC 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 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 Term Agreement submitted to CC by DEALER or DEALER's representatives, are made or relied upon by any party hereto in entering into this Term Agreement. -3- No waiver, modification or change of any of the terms of this Term Agreement or change or erasure of any printed part of this Term 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. DEALER and CC 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 Sales and Service Agreements pertaining to specified CC vehicles. Therefore, CC will have the right to amend this Term Agreement to the extent that CC deems advisable, provided that CC makes the same amendment in Chrysler Corporation Sales and Service Agreements pertaining to specified CC vehicles 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 Term Agreement will be deemed amended in the manner and to the extent set forth in the notice. 7. ARBITRATION Any and all disputes arising out of or in connection with the interpretation, performance or non-performance of this Term Agreement or any and all disputes arising out of or in connection with transaction in any way related to this Term Agreement (including, but not limited to, the validity, scope and enforceability of this arbitration provisions, or disputes under rights granted pursuant to the statutes of the state in which DEALER is licensed) shall be finally and completed 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 Term 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 Arbitrator 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 -4- 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 7, the provisions of this Paragraph 7 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 proceeding 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. 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 provisions is invoked when the dispute between the parties is either the legality of terminating this Term 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 implementing of the decision to terminate this Term 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 7, in which the 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 -5- 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 Term 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 damages whatsoever beyond or in addition to the compensatory damages allowed to be awarded under this Term 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 circumstances. The fees of DEALER's arbitrator shall be paid by DEALER. The fees of CC's arbitrator shall be paid by CC. 8. EFFECTIVE DATE, NECESSARY CONDITIONS, TERMINATION This Term Agreement will become effective on the date of execution hereof and, if not previously terminated as provided herein or in Paragraph 28 of said Terms and Provisions, will continue in effect until ______________________, at which time this Term Agreement will terminate automatically without notice to or by either party. If the Term Agreement is not terminated as provided herein or in Paragraph 28 of said Terms and Provisions, and thus continues in effect for the period set forth in the immediately foregoing Paragraph, CC, at the expiration of such period, will enter into the standard Chrysler Corporation Sales and Service Agreement current at the date of said expiration, for such specified CC vehicles with DEALER, provided that DEALER has fulfilled each and every condition set forth in subparagraphs 8(A) through 8(F) set forth below, which Dealer understands and agrees to be reasonable and necessary and DEALER has otherwise complied with all of the provisions of this Term Agreement. Furthermore, DEALER fully understands and agrees that DEALER's failure to meet any of the conditions set forth in subparagraphs 8(A) through 8(F) including, without limiting the generality of the foregoing, failure to meet those conditions within the time period, if any, specifically set forth in each condition, is grounds for termination of this Term Agreement upon sixty (60) days' written -6- notification to DEALER by CC as if failure to meet said conditions were specifically set forth under Paragraph 28 of said Terms and Provisions. 8(A) DEALER shall provide CC regularly, on forms satisfactory to CC, a monthly financial statement of DEALER's vehicle business by the tenth (10th) day of the month following the month covered by each statement. SEE ATTACHMENT TO SALES AGREEMENT INCORPORATED HEREIN BY REFERENCE. 8(F) DEALER is otherwise qualified for such (a) standard CC Sales and Service Agreement(s). 9. NO OBLIGATION OR TERMINATION If DEALER fails to carry out fully the terms, provisions, obligations, and conditions of this Term Agreement, then CC, whether or not it has pursued other remedies, shall have not obligation to DEALER to extend this Term Agreement in whole or in part or to enter into any standard Chrysler corporation Sales and Service Agreement with DEALER or any other obligation of any kind. The termination or expiration of this Term Agreement in any manner shall not impose upon CC any liability or obligations under Paragraph 30 ("Disposition of Dealer's Premises"), Paragraph 32 ("Successors to Dealer") and Paragraph 33 ("Surviving Spouse's Financial Interest") of said Terms and Provisions or any liability or obligation of any kind. DEALER acknowledges that DEALER has read each and every term, provision and condition of this Term Agreement and that DEALER understands and accepts all such terms, provisions and conditions. 10. SIGNATURE This Term 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 -7- partners of DEALER if a partnership; or by DEALER if an individual. IN WITNESS WHEREOF, the parties hereto have signed this Term Agreement which is finally executed at Detroit, Michigan, in triplicate, on August 16,1995. Fair Chyrsler Plymouth Partnership b/a Danbury Fair Dodge - -------------------------------------------- (DEALER Firm Name and D/B/A, if applicable) By /s/ Carl Spielvogel ------------------------------------------ (Individual Duly Authorized to Sign) - -------------------------------------------- (Title) CHRYSLER CORPORATION By /s/ Illegible ------------------------------------------ National Dealer Placement Manager - -------------------------------------------- (Title) -8- ATTACHMENT TO TERM AGREEMENT FAIR CHRYSLER PLYMOUTH PARTNERSHIP T/A DANBURY FAIR DODGE PARAGRAPH 8 (B) DEALER shall (a) within twenty-four (24) months after this Agreement becomes effective, achieve a three (3) month Customer Satisfaction Index ("CSI") score which is equal to or greater than the average rating for the National Sales level group in which each dealership is included within its dealership's sales zone, and (b) after DEALER has achieved the above rating at any of its dealerships within the time period allowed, DEALER will maintain or exceed that rating at its dealership for the following consecutive twelve (12) months. (C) DEALER shall make a good faith effort to ensure that by December 31, 1995, all service personnel have completed forty (40) hours of technical training program(s) offered to Chrysler dealers. For service personnel hired late in 1995, DEALER shall make a goof faith effort to begin and complete as much of the technical training as possible by December 31, 1995. Subsequent to 1995, DEALER shall act in good faith to train all of its service personnel in accordance with the standard objectives set by Chrysler Corporation for the training of all dealer service personnel. A good faith effort as used in this paragraph is to be determined by the Chrysler Zone Manager. (D) DEALER shall make a good faith effort to ensure the ninety (90) percent of the sales attend sales training and complete sales certification by July 31, 1995. Subsequent to July 31, 1995, DEALER shall act in good faith to ensure that ninety (90) percent of its sales personnel maintain and/or update their sales certification on a continuous basis. A good faith effort as used in this paragraph is to be determined by the Chrysler Zone Manager. (E) DEALER shall continue with the Ryan CSI program throughout 1995, and continue with the program thereafter throughout the duration of the Term Agreement whenever it is unable to maintain Customer Satisfaction Index ("CSI") scores, and Sales Satisfaction Index ("SSI") scores as defined by Chrysler Corporation programs. ________________________ Signature December 15, 1993 Mr. James G. Hetherington Fair Chrysler Plymouth Partnership t/a Fair Dodge 100 Federal Road Danbury, Connecticut 06810 Dear Mr. Hetherington: As you know, Chrysler Corporation ("CC") entered into a Dodge Dealer Agreement with your company on June 9, 1993. Paragraph 3 of this Agreement shows the beneficial ownership of all of the capital stock or partnership interest in your company as follows: NAME OWNERSHIP INTEREST - ---- ------------------ JS2, Inc. 30% DiFeo Partnership, Inc. 70% In this regard, you have requested that CC make an exception to its policy that the controlling ownership interest in a dealer corporation or partnership with which it enters into Dealer Agreements must be vested in natural persons, and not corporations or partnerships. This is to advise you that CC hereby approved the above described ownership of FAIR CHRYSLER PLYMOUTH PARTNERSHIP T/A FAIR DODGE subject to, and in reliance upon Fair Chrysler Plymouth Partnership t/a Fair Dodge JS2, Inc. DiFeo Partnership, Inc. EMCO Motor Holdings, Inc. '21' International Holdings, Inc. agreeing that the provisions of Paragraph 28 of the Dodge Agreement executed between Fair Chrysler Plymouth Partnership t/a Fair Dodge and CC, concurrent with the signing of this letter by CC and to the extent that it refers to changes in controlling ownership interests, shall be deemed to refer to the ownership of '21' International Holdings, Inc. and EMCO Motor Holdings, Inc. and DiFeo Partnership, Inc. and JS2, Inc. as well as the ownership of Fair Chrysler Plymouth Partnership t/a Fair Dodge. The beneficial ownership of all the capital stock or partnership interest in JS2, Inc. is as follows: NAME % OF OWNERSHIP - ---- -------------- Samuel X. DiFeo 37.5% Joseph C. DiFeo 37.5% James G. Hetherington 25.0% The beneficial ownership of all the capital stock or partnership interest of DiFeo Partnership, Inc. is as follows: NAME % OF OWNERSHIP - ---- -------------- EMCO Motor Holdings, Inc. 100.0% The beneficial ownership of all the capital stock or partnership interest of EMCO Motor Holdings, Inc. is as follows: NAME % OF OWNERSHIP - ---- -------------- '21' International 34.36% Ezra P. Mager 1.56% Harvard 27.48% Lion Advisors 17.49% BNP 1.20% Jeremy Grantham 1.00% Jules Kroll 1.00% Andrea Farace .50% Carl Spielvogel .25% Jerome Markowitz .05% Philip Halperin .05% Derek Lemke-von Ammon .025% Frank Dunlevy .025% Thomas Sullivan .01% Options 15.00% ------- 100.000% The beneficial ownership of all the capital stock or partnership interest of '21' International Holdings, Inc. is as follows: NAME % OF OWNERSHIP % OF VOTING CONTROL - ---- -------------- ------------------- 51 Individuals, trusts and corporations 54.7580% 23.4851% Marshall S. Cogan 45.2420% 76.5149% If all the above is agreeable to you, please indicate your understanding and acceptance thereof by signing the copies of this letter in the space provided below: -2- ACCEPTED: JS2, INC. By: /s/ [Illegible] ------------------------------------- DiFEO PARTNERSHIP, INC. By: /s/ E.P. Mager ------------------------------------- EZRA P. MAGER, President EMCO MOTOR HOLDINGS, INC. By: /s/ E.P. Mager ------------------------------------- EZRA P. MAGER, President '21' INTERNATIONAL HOLDINGS, INC. By: /s/ M.S. Cogan ------------------------------------- MARSHALL S. COGAN Chairman of the Board FAIR CHRYSLER PLYMOUTH PARTNERSHIP t/a FAIR DODGE By: /s/ E.P. Mager ------------------------------------- EZRA P. MAGER, Chief Executive Officer CHRYSLER CORPORATION By: /s/ [Illegible] ------------------------------------- Title: National Dealer Placement Manager ---------------------------------- Date: ----------------------------------- EX-10.2-15-1 16 EXHIBIT 10.2.15.1 EXHIBIT 10.2.15.1 HYUNDAI MOTOR AMERICA DEALER SALES AND SERVICE AGREEMENT This is an Agreement between HYUNDAI MOTOR AMERICA (HMA), a California corporation, and FAIR HYUNDAI PARTNERSHIP (DEALER), a(n)_____ individual, X partnership, _____ corporation, duly incorporated in the state of CONNECTICUT, and doing business as FAIR HYUNDAI. INTRODUCTION HMA sells Hyundai Products which are manufactured or approved by Hyundai Motor Company (FACTORY). HMA has established a network of authorized Hyundai Dealers, operating at approved locations and according to Hyundai standards, to sell and service Hyundai Products. HMA has selected its Dealers based on their experience and commitment that they will sell and service Hyundai Products in a manner which promotes and maintains Customer confidence and satisfaction, and increases product acceptance and awareness. DEALER represents that its Owner(s) and General Manager identified herein have the skill, experience, capital and facilities to ensure that DEALER operates a first-class dealership. HMA enters into this Agreement upon DEALER's assurances of the continued personal services of said Owner(s) and General Manager. The purpose of this Agreement is to memorialize such assurances, to appoint DEALER as an authorized Hyundai Dealer, to provide for the effective representation of Hyundai Products and to set forth the rights and obligations of HMA and DEALER hereunder. Accordingly, the parties agree as follows: 1. APPOINTMENT OF DEALER Subject to the terms of this Agreement, HMA hereby grants DEALER the non- exclusive right: To buy the Hyundai Products identified in the Hyundai Product Addendum attached hereto which HMA, in its sole discretion, may revise from time to time; and To identify itself as an authorized Hyundai Dealer using Hyundai Marks in the promotion, sale and servicing of Hyundai Products and at the location(s) approved herein. DEALER accepts its appointment as an authorized Hyundai Dealer and agrees to: -1- Conduct its business in a manner which will engender Customer confidence and satisfaction and reflect positively upon HMA; Effectively promote and sell Hyundai Products; Professionally service Hyundai Products; and Establish and maintain satisfactory dealership facilities at the location(s) approved by HMA. 2. TERM OF THIS AGREEMENT This Agreement will become effective on the date it is executed by HMA and will continue in effect for a period of THREE (3) YEARS, unless terminated as provided herein. This Agreement may not be extended or renewed except in writing signed by the President and Executive Vice President of HMA. 3. DEALER OWNERSHIP HMA enters into this Agreement in reliance upon the personal qualifications and representations of the persons identified below and upon DEALER's assurances that the following persons, and only the following persons, will be the Owner(s) of DEALER. NAME ADDRESS TITLE OWNERSHIP INTEREST Fair Hyundai Corp. 30% - ----------------------- -------------- ---------------- ------------- DiFeo Partnership, Inc. 70% - ----------------------- -------------- ---------------- ------------- - ----------------------- -------------- ---------------- ------------- - ----------------------- -------------- ---------------- ------------- 4. DEALER MANAGEMENT DEALER recognizes that the effective performance of its obligations hereunder requires that experienced DEALER management be actively involved at all times. HMA enters into this Agreement in reliance upon the qualifications of JAMES HETHERINGTON to manage DEALER's operations and upon DEALER's assurance that such person, and no other person, will at all times function as General Manager and be considered as Dealer Operator with complete authority to make all decisions on behalf of DEALER with respect to DEALER's operations. DEALER further agrees that the General Manager shall devote full time (100%) to the management of DEALER's operations. -2- 5. CHANGE IN DEALER OWNERSHIP OR MANAGEMENT This is a personal services agreement. HMA has entered into this Agreement in reliance upon DEALER's assurances of the active involvement of the Owners and General Manager identified herein in DEALER's operations. Accordingly, any change in ownership, regardless of the share or relationship between parties, or any change in General Manager, from the person(s) identified herein, requires the prior written consent of HMA, which HMA shall not unreasonably withhold. 6. DEALER LOCATION DEALER is free to sell Hyundai Products to Customers wherever they may be located. However, in order for HMA to establish and maintain an effective network of authorized Hyundai Dealers for the sale and servicing of Hyundai Products and to maximize Customer convenience, HMA has approved the following facilities as the exclusive location(s) for the sale and servicing of Hyundai Products and for the display of Hyundai Marks: HYUNDAI NEW VEHICLE SALES AND SHOWROOM PARTS AND SERVICE 102D Federal Road Same - ------------------------------------------- ------------------------------ Danbury, CT 06813 - ------------------------------------------- ------------------------------ SALES AND GENERAL OFFICES USED VEHICLE DISPLAY AND SALES Same Same - ------------------------------------------- ------------------------------ - ------------------------------------------- ------------------------------ BODY AND PAINT Same - ------------------------------------------- ------------------------------ DEALER agrees not to display Hyundai Marks or to conduct any dealership operations, including the display, sale and/or service of Hyundai Products, at any location other than at the location(s) approved herein, without the prior written consent of HMA. Moreover, each location is approved only for the activity indicated. DEALER may not alter the activity of any location approved herein or otherwise use such location for any activities -3- other than the approved activity, without the prior written consent of HMA. 7. STANDARD PROVISIONS The HMA Dealer Sales and Service Agreement Standard Provisions are incorporated herein and made a part of this Agreement as if fully set forth herein. 8. ADDITIONAL PROVISIONS In consideration of HMA's agreement to appoint DEALER as an authorized Hyundai Dealer, DEALER further agrees: Pursuant to Paragraph 12A of this Agreement, DEALER agrees to establish and maintain a dealership facility in accordance with HMA's minimum facility standards, as amended from time to time, and that such facility will at all times reflect a distinctive first-class appearance in common with all other authorized Hyundai dealers. DEALER further agrees to operate the Showroom facility, located at 102D Federal Road, in Danbury, Connecticut, exclusively for the display and sale of Hyundai products. DEALER acknowledges that HMA's approval of DEALER's current facility, does not, in any way, constitute a promise by HMA that it will sell DEALER any particular number of vehicles or an assurance by HMA that DEALER will achieve any particular level of sales, operate at a profit or realize any return on his investment. The actual profits to be realized will depend to a great extent on the management of the dealership, as well as on business and economic conditions. DEALER acknowledges that, as in any investment in competitive industry, there are no guarantees. DEALER is a General Partnership owned by two corporate entities known as Fair Hyundai Corp ("FAIR") (30%) and DiFeo Partnership, Inc. ("DIFEO") (70%) (collectively "Corporate Partners"). DEALER has represented to HMA that no individual owner of FAIR holds a majority interest, i.e., more than 50% in FAIR, including, but not limited to, a majority of voting stock. By the signatures of its owners hereto, FAIR agrees that Samuel X. DiFeo has complete authority to make all decisions and enter into all commitments on behalf of all owners of FAIR and that HMA may rely completely on the authority of such person to do so. DEALER has further represented to HMA that DIFEO is 100% owned by a corporate entity known as EMCO Motor Holdings, Inc. ("EMCO"). A majority of all voting shares of EMCO are held by a corporate entity known as 21 International Holdings, Inc. ("TIHI"), and TIHI, in turn, is controlled by Marshall Cogan -4- ("COGAN"), who owns a majority of all voting shares of TIHI. By his signature hereto, COGAN, on behalf of DIFEO, EMCO and TIHI, agrees that there will be no change in majority ownership of Corporate Partner, DIFEO, without the prior written consent of HMA. COGAN further acknowledges that TIHI is approved as an owner for investment purposes only and will not be active in the day-to-day management of DEALER's operations. Pursuant to Article 3, Paragraph 3.1 of the Partnership Agreement between DIFEO and FAIR, dated __________, 1992, the Executive Committee of DEALER shall have full and complete authority to make all day-to-day management decisions and enter into all commitments on behalf of DEALER. The following individuals are currently members of the Executive Committee of DEALER: Marshall Cogan, Erza P. Mager, Joseph C. Herman, Joseph C. DiFeo and Samuel X. DiFeo. HMA has entered into this Agreement with DEALER in reliance upon the personal qualifications and representation of, and assurances of the active involvement of, Samuel X. DiFeo in DEALER's management. The foregoing persons agree, individually and on behalf of the Executive Committee, to appoint Samuel X. DiFeo as Dealer Principal of DEALER with complete authority to make all decisions and enter into all commitments on behalf of all Corporate Partners and that HMA may rely completely on the authority of such person to do so. The foregoing persons also agree that there will be no change in Dealer Principal without the prior written consent of HMA. DEALER recognizes that failure to obtain such consent shall be grounds for termination under Paragraph 16 of this Dealer Agreement. Finally, DEALER acknowledges that the following persons are approved for investment purposes only and will not be active in the day-to-day management of DEALER's operations. DEALER acknowledges that in order to be approved as an operator, the following persons would have to apply separately to HMA for approval: Marshall Cogan and Erza Mager. DEALER recognizes that the obligations incurred herein are material terms of this Agreement. Failure to comply with any or all of the provisions shall be grounds for termination of this Agreement. HMA has established a minimum Net Working Capital requirement in order to ensure that there is sufficient capital available for the operation and growth of the dealership. DEALER's Net Working Capital needs may vary, however, DEALER must maintain the established minimum as set forth by HMA at all times. DEALER and HMA mutually agree that, as currently determined, it is necessary for the proper operation of DEALER's business that DEALER maintain a minimum of $212,519 in Net Working -5- Capital. As of the date this Agreement is executed, DEALER is substantially deficient in Net Working Capital. 9. EXECUTION OF AGREEMENT This Agreement shall be valid and binding only if it is signed: On behalf of DEALER by a duly authorized person; and On behalf of HMA by the President, the Executive Vice President and the General and/or Regional Manager, if any, of HMA. By their signatures hereto, the parties agree to abide by the terms and conditions of this Agreement, including the Standard Provisions incorporated herein, in good faith and for their mutual benefit. FAIR HYUNDAI PARTNERSHIP dba FAIR HYUNDAI (Dealer Entity Name) DATE: 9/24/92 By: /s/ illegible Exec. Comm. ------------- ---------------------------- --------------- Signature Title DATE: 9/21/92 By: /s/ illegible LEO ------------- ---------------------------- --------------- Signature Title DATE: 9/21/92 By: /s/ illegible C.O.O. ------------- ---------------------------- --------------- Signature Title DATE: 9/23/92 By: /s/ illegible Exec. V.P. ------------- ---------------------------- --------------- Signature Title DATE: 9/21/92 By: /s/ illegible Exec. V.P. ------------- ---------------------------- --------------- Signature Title DATE: 9/21/92 By: /s/ illegible Exec. V.P. ------------- ---------------------------- --------------- Signature Title HYUNDAI MOTOR AMERICA General Manager DATE: 10/12/92 By: /s/ illegible Eastern Region ------------- ---------------------------- --------------- Signature Title DATE: 10/12/92 By: /s/ illegible ------------- ---------------------------- --------------- Signature Title DATE: 10/12/92 By: /s/ illegible ------------- ---------------------------- --------------- Signature Title -6- PRODUCT ADDENDUM TO HYUNDAI MOTOR AMERICA DEALER SALES AND SERVICE AGREEMENT 10/12/92 ---------------- Date Pursuant to Paragraph 1 of the Hyundai Motor America (HMA) Dealer Sales and Service Agreement, HMA grants DEALER the non-exclusive right to buy the Hyundai Products identified below: Elantra, Excel, Scoupe, Sonata and all parts, accessories and equipment for such vehicle(s). This Hyundai Product Addendum shall remain in effect unless and until superseded by a new Hyundai Product Addendum furnished by HMA. AMENDMENT TO HYUNDAI DEALER SALES AND SERVICE AGREEMENT THIS AMENDMENT (the "Amendment") to the Hyundai Dealer Sales and Service Agreement, executed on 10/12/95 (the "Agreement"), is hereby made and entered into by and between Hyundai Motor America ("HMA") and FAIR HYUNDAI PARTNERSHIP ("Dealer"). The parties desire to extend and modify the Agreement under the terms and conditions of this Amendment. In consideration of the mutual covenants herein contained, the parties agree to amend the Agreement, effective as of the date of execution of this Amendment, as follows: Paragraph 2 of the Agreement which provides: This Agreement will become effective on the date it is executed by HMA and will continue in effect for a period of 3 YEARS, unless terminated as provided therein. This Agreement may not be extended or renewed except in writing signed by the President and Executive Vice President of HMA. it is hereby amended to state: This Agreement will become effective on the date it is executed by HMA and will continue in effect for a period of 4 YEARS, unless terminated as provided herein. This Agreement may not be extended or renewed except in writing, signed by HMA. The terms and conditions of the Agreement, to the extent not modified herein, shall remain in full force and effect and shall continue to bind the parties hereto. HMA hereby covenants and agrees that the signature of the HMA representative below is an authorized representative of HMA as defined by the Agreement, paragraph 19(b). IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date stated below. FAIR HYUNDAI PARTNERSHIP dba FAIR HYUNDAI DATED: 9/25/95 By: /s/ illegible Chairman ------------ -------------------- --------------- Name Title HYUNDAI MOTOR AMERICA DATED: 9/29/95 By: /s/illegible ----------- -------------------- General Manager Region Eastern ----------------- AMENDMENT TO HYUNDAI DEALER SALES AND SERVICE AGREEMENT Hyundai Motor America ("HMA") and FAIR HYUNDAI PARTNERSHIP ("Dealer") hereby agree to amend Paragraph 6 of the Hyundai Dealer Sales and Service Agreement between HMA and Dealer which was executed by the President of HMA on OCTOBER 12, 1992 ("Current Agreement") as follows: Paragraph 6 of the Current Agreement which provides in pertinent part that HMA has approved the following facilities as the exclusive location(s) for the sale and servicing of Hyundai Products and for the display of Hyundai Marks: HYUNDAI NEW VEHICLE SALES PARTS AND SERVICE AND SHOWROOM 102 D Federal Road Same - ------------------------------------------ ------------------------------ Danbury, CT 06813 - ------------------------------------------ ------------------------------ SALES AND GENERAL OFFICES USED VEHICLE DISPLAY AND SALES Same Same - ------------------------------------------ ------------------------------ - ------------------------------------------ ------------------------------ BODY AND PAINT Same - ------------------------------------------ ------------------------------ is hereby amended to state HMA has approved the following facilities as the exclusive location(s) for the sale and servicing of Hyundai Products and for the display of Hyundai Marks: HYUNDAI NEW VEHICLE SALES PARTS AND SERVICE AND SHOWROOM 100 C Federal Road Same - ------------------------------------------ ------------------------------ Danbury, CT 06813 - ------------------------------------------ ------------------------------ SALES AND GENERAL OFFICES USED VEHICLE DISPLAY AND SALES Same Same - ------------------------------------------ ------------------------------ - ------------------------------------------ ------------------------------ BODY AND PAINT Same - ------------------------------------------ - ------------------------------------------ AMENDMENT TO HYUNDAI DEALER SALES AND SERVICE AGREEMENT Hyundai Motor America ("HMA") and FAIR HYUNDAI PARTNERSHIP ("DEALER") hereby agree to amend Paragraph 8 (Additional Provisions) of the Hyundai Dealer Sales and Service Agreement between HMA and DEALER which was executed by the President of HMA on OCTOBER 12, 1992 ("Current Agreement"). The provisions of Paragraph 8 of the Current Agreement are hereby deleted in their entirety and are replaced by the following: HMA has entered into this Agreement based upon DEALER's promise to provide representation in the Hyundai/Isuzu facility, located at 100 C Federal Road, in Danbury, Connecticut. In recognition of his responsibilities hereunder, DEALER agrees to divide the showroom of the proposed facility, by means of a permanent barrier, and hereby agrees to provide exclusive representation for the display and sale of Hyundai products. In addition, DEALER agrees to relocate and install within 90 days of the execution of this Agreement the existing HP-100 Hyundai freestanding sign and one set each of 15" dealer name (DN-15) letters and 24" Hyundai (HL-24) letters. DEALER acknowledges that HMA's approval of DEALER's current facility, does not, in any way, constitute a promise by HMA that it will sell DEALER any particular number of vehicles or an assurance by HMA that DEALER will achieve any particular level of sales, operate at a profit or realize any return on his investment. The actual profits to be realized will depend to a great extent on the management of the dealership, as well as on business and economic conditions. DEALER acknowledges that, as in any investment in competitive industry, there are no guarantees. DEALER is a General Partnership owned by two corporate entities known as Fair Hyundai Corp. ("FAIR") (30%) and DiFeo Partnership, Inc. ("DIFEO") (70%) (collectively "Corporate Partners"). DEALER has represented to HMA that no individual Owner of FAIR owns a majority interest, i.e., more than 50% in FAIR, including, but not limited to, a majority of voting stock. By the signatures of its Owners hereto, FAIR agrees that Samuel X. DiFeo has complete authority to make all decisions and enter into all commitments on behalf of all Owners of FAIR and that HMA may rely completely on the authority of such person to do so. DEALER has further represented to HMA that DIFEO is 100% owned by a corporate entity known as United Auto Group, Inc. ("UNITED"). A majority of all voting shares of UNITED are held by a corporate entity known as 21 International Holdings, Inc. ("TIHI) and TIHI, in turn is controlled by Marshall Cogan ("COGAN"), who owns a majority of all voting shares of TIHI. By his signature hereto, COGAN, on behalf of DIFEO, UNITED and TIHI, agrees that there will be no change in majority ownership of Corporate Partner, DIFEO, without the prior written consent of HMA. COGAN further acknowledges that TIHI is approved as an owner for investment purposes only and will not be active in the day-to-day management of DEALER's operations. Pursuant to Article 3, Paragraph 3.1 of the Partnership Agreement between DIFEO and FAIR, dated October 11, 1992, the Executive Committee of DEALER shall have full and complete authority to make all day-to-day management decisions and enter into all commitments on behalf of DEALER. The following individuals are currently members of the Executive Committee of DEALER: Marshall Cogan, Ezra P. Mager, Carl Spielvogel, Joseph C. DiFeo and Samuel X. DiFeo. HMA has entered into this Agreement with DEALER in reliance upon the personal qualifications and representation of, and assurances of the active involvement of, Samuel X. DiFeo in DEALER's management. HMA requires FAIR and DEALER to appoint a single individual to act as dealer principal with full and complete authority to make all management decisions. The foregoing persons agree, individually and on behalf of the Executive Committee, to appoint Samuel X. DiFeo as Dealer Principal of DEALER with complete authority to make all decisions and enter into all commitments on behalf of all Corporate Partners and that HMA may rely completely on the authority of such person to do so. The foregoing persons also agree that there will be no change in Dealer Principal without the prior written consent of HMA. DEALER recognizes that failure to obtain such consent shall be grounds for termination under Paragraph 16 of the Dealer Agreement. DEALER recognizes that the obligations incurred herein are material terms of this Agreement. The foregoing amendment shall be effective on the date executed by an authorized officer of HMA. FAIR HYUNDAI PARTNERSHIP dba FAIR HYUNDAI (Dealer Entity Name) DATE: By: /s/ Carl Spielvogel --------- ------------------------------ ------------------- Signature Title DATE: By: /s/ Marshall S. Cogan --------- ------------------------------ ------------------- Signature Title DATE: By: /s/ Jospeh D. DiFeo --------- ------------------------------ ------------------- Signature Title DATE: By: /s/ Samuel X. DiFeo --------- ------------------------------ ------------------- Signature Title APPROVED: HYUNDAI MOTOR AMERICA General Manager DATE: 3/1/96 By: /s/ Illegible Eastern Region ------------ ---------------------------- ------------------ Signature Title DATE: 3/10/96 By: /s/ Illegible E.V.P./C.O.O. ------------ ---------------------------- ------------------ Signature Title DATE: 3/14 By: /s/ Illegible ------------ ---------------------------- ------------------ Signature Title AMENDMENT TO HYUNDAI DEALER SALES AND SERVICE AGREEMENT Hyundai Motor America ("HMA") and Fair Hyundai Partnership ("DEALER") hereby agree to amend Paragraph 8 of the Hyundai Dealer Sales and Service Agreement between HMA and DEALER which was executed on October 12, 1992 and amended from time to time prior to the date hereof (the "Current Agreement"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, as of the date hereof, a majority of the partnership interests of DEALER are indirectly owned by United Auto Group, Inc. ("UNITED"); WHEREAS, UNITED is contemplating an offering of shares of its capital stock to be registered pursuant to the Securities Act of 1933 (the "Public Offering"); WHEREAS, in connection with the Public Offering, it is contemplated that UNITED will acquire indirect ownership of all the remaining partnership interests of DEALER; and WHEREAS, the parties hereto desire to amend the Current Agreement to permit the foregoing; NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: Effective upon consummation of the Public Offering, the final six paragraphs of Section 8 of the Current Agreement shall be deleted and replaced with the following: DEALER is a general partnership owned by two corporate entities know as DiFeo Partnership, Inc. ("DPI") (70%) and UAG Northeast, Inc. ("UNI") (30%) (collectively, "Coorporate Parteners"). DEALER has represented to HMA that each of the Corporate Partners is 100% owned by a corporate entity known as United Auto Group, Inc. ("UNITED"). UNITED is a publicly traded company in which no single entity or individual owns the majority of voting shares. UNITED furthur warrants that control of UNITED will be vested in a Board of Directors. Pursuant to this Agreement, UNITED shall appoint Samuel X. DiFeo as Dealer Operator of DEALER with complete authority to make all decisions and enter into all commitments on behalf of DEALER with respect to DEALER's operations, and HMA will rely completely on the authority of such person. UNITED and the Corporate Partners further agree that there will be no change in majority direct ownership of DEALER without prior written consent of HMA. DEALER recognizes that the failure to obtain such consent shall be grounds for termination under paragraph 16 of this Agreement. The foregoing amendment is agreed upon on the date executed by an authorized officer of HMA. FAIR HYUNDAI PARTNERSHIP Date: By: --------------- ------------------------------ Carl Spielvogel Member, Executive Committee Date: By: --------------- ------------------------------ Samuel X. DiFeo Member, Executive Committee DIFEO PARTNERSHIP, INC. Date: By: --------------- ------------------------------ Carl Spielvogel Chairman of the Board and Chief Executive Officer UAG NORTHEAST, INC. Date: By: --------------- ------------------------------ Carl Spielvogel Chairman of the Board and Chief Executive Officer UNITED AUTO GROUP, INC. Date: By: --------------- ------------------------------ Carl Spielvogel Chairman of the Board and Chief Executive Officer -2- APPROVED: HYUNDAI MOTOR AMERICA Date: By: --------------- ------------------------------ Name: Title: Date: By: --------------- ------------------------------ Name: Title: Date: By: --------------- ------------------------------ Name: Title: -3- AMENDMENT TO HYUNDAI DEALER SALES AND SERVICE AGREEMENT Hyundai Motor America ("HMA") and DIFEO HYUNDAI PARTNERSHIP ("Dealer") hereby agree to amend Paragraph 3 of the Hyundai Dealer Sales and Service Agreement between HMA and Dealer which was executed by the President of HMA on NOVEMBER 22, 1993 ("Current Agreement"). Paragraph 3 of the Current Agreement which provides in pertinent part that only the following persons, will be the Owner(s) of DEALER. OWNERSHIP NAME ADDRESS TITLE INTEREST DiFeo Hyundai, Inc. 30% - ------------------------- ---------------- ---------------- --------------- DiFeo Partnership, Inc. 70% - ------------------------- ---------------- ---------------- --------------- - ------------------------- ---------------- ---------------- --------------- - ------------------------- ---------------- ---------------- --------------- is hereby amended to state that only the following persons, will be the Owner(s) of DEALER. OWNERSHIP NAME ADDRESS TITLE INTEREST DiFeo Partnership, Inc. 70% - ------------------------- ---------------- ---------------- --------------- UAG Northeast, Inc. 30% - ------------------------- ---------------- ---------------- --------------- - ------------------------- ---------------- ---------------- --------------- - ------------------------- ---------------- ---------------- --------------- AMENDMENT TO HYUNDAI DEALER SALES AND SERVICE AGREEMENT Hyundai Motor America ("HMA") and DIFEO HYUNDAI PARTNERSHIP ("DEALER") hereby agree to amend Paragraph 8 (Additional Provisions) of the Hyundai Dealer Sales and Service Agreement between HMA and DEALER which was executed by the President of HMA on NOVEMBER 22, 1993 ("Current Agreement"). The provisions of Paragraph 8 of the Current Agreement are hereby deleted in their entirety and are replaced by the following: HMA has entered into this Agreement based upon DEALER's promise to provide representation in the current Hyundai/Chrysler-Plymouth/Jeep- Eagle facility, located at Route 440 at Hudson Mall in Jersey City, New Jersey. DEALER acknowledges that its decision to combine its Hyundai, Chrysler-Plymouth and Jeep-Eagle dealership operations, including the Showroom facility, substantially reduces the space available for representation of the Hyundai franchise. DEALER acknowledges that Jersey City, New Jersey is part of the larger Newark, New Jersey metro market area. DEALER further acknowledges that it is HMA's policy to require exclusive sales representation in metro market areas. In recognition of his responsibilities hereunder, DEALER has divided the existing Hyundai/Chrysler-Plymouth/Jeep-Eagle facility, in a manner acceptable to HMA, and hereby agrees to provide exclusive representation for the display and sale of Hyundai products, including a minimum of four (4) Hyundai vehicles, in the resulting 1,600 sq. ft. Showroom. DEALER acknowledges, however, that the divided Showroom does not meet HMA's minimum facility requirements. DEALER acknowledges that HMA's approval of DEALER's current facility, does not, in any way, constitute a promise by HMA that it will sell DEALER any particular number of vehicles or an assurance by HMA that DEALER will achieve any particular level of sales, operate at a profit or realize any return on his investment. The actual profits to be realized will depend to a great extent on the management of the dealership, as well as on business and economic conditions. DEALER acknowledges that, as in any investment in competitive industry, there are no guarantees. DEALER is a general partnership collectively owned 100% by two corporate entities known as DiFeo Partnership, Inc. ("DPI") and UAG Northeast, Inc. ("UNI) (collectively "Corporate Partners"). DEALER has represented to HMA that each of the Corporate Partners is 100% owned by a corporate entity known as United Auto Group, Inc. ("UNITED"). UNITED is a publicly traded company in which no single entity or individual owns the majority of voting shares. UNITED further warrants that control of UNITED will be vested in a Board of Directors. Pursuant to this Agreement, UNITED, through its Board of Directors, shall appoint Joseph C. DiFeo as dealer principal of DEALER with complete authority to make all decisions and enter into all commitments on behalf of DEALER, and HMA will rely completely on the authority of such person. UNITED agrees that the foregoing person shall not be changed as dealer principal without the prior written consent of HMA. UNITED and the Corporate Partners further agree that there will be no change in majority direct ownership of DEALER without prior written consent of HMA. DEALER recognizes that the failure to obtain such consent shall be grounds for termination under Paragraph 16 of this Dealer Agreement. DEALER recognizes that the obligations incurred herein are material terms of this Agreement. The foregoing amendment shall be effective on the date executed by an authorized officer of HMA. DiFeo Hyundai Partnership dba DiFeo Hyundai (Dealer Entity Name) DATE: By: /s/ Illegible ---------------------- ----------------------- ------------------- SIGNATURE TITLE DATE: By: ---------------------- ----------------------- ------------------- SIGNATURE TITLE DATE: By: ---------------------- ----------------------- ------------------- SIGNATURE TITLE DATE: By: ---------------------- ----------------------- ------------------- SIGNATURE TITLE APPROVED: HYUNDAI MOTOR AMERICA General Manager DATE: By: /s/ Illegible Eastern Region ---------------------- ----------------------- ------------------- SIGNATURE TITLE DATE: By: ---------------------- ----------------------- ------------------- SIGNATURE TITLE DATE: By: ---------------------- ----------------------- ------------------- SIGNATURE TITLE EX-10.2-15-2 17 EXHIBIT 10.2.15.2 EXHIBIT 10.2.15.2 HYUNDAI MOTOR AMERICA DEALER SALES AND SERVICE AGREEMENT TABLE OF CONTENTS Page INTRODUCTION 1. APPOINTMENT OF DEALER. . . . . . . . . . . . . . . . . . . . . . . . . 2. TERM OF THIS AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . 3. DEALER OWNERSHIP 4. DEALER MANAGEMENT 5. CHANGE IN DEALER OWNERSHIP OR MANAGEMENT . . . . . . . . . . . . . . . 6. DEALER LOCATION 7. STANDARD PROVISIONS 8. ADDITIONAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . 9. EXECUTION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . 10. SALE OF HYUNDAI PRODUCTS . . . . . . . . . . . . . . . . . . . . . . 1 A. DEALER'S AGREEMENT TO PURCHASE HYUNDAI PRODUCTS . . . . . . . . 1 1. Quantities . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Prices and Other Terms of Sale . . . . . . . . . . . . . . 1 3. Payment For Hyundai Products . . . . . . . . . . . . . . . 2 4. Delivery of Hyundai Products . . . . . . . . . . . . . . . 2 a. Mode and Place of Delivery . . . . . . . . . . . . . . 2 b. Title and Risk of Loss . . . . . . . . . . . . . . . . 2 c. Diversion of Deliveries. . . . . . . . . . . . . . . . 2 d. Failure or Delay of Delivery . . . . . . . . . . . . . 2 e. Damage Claims. . . . . . . . . . . . . . . . . . . . . 3 f. Option to Repurchase Damaged Motor Vehicles. . . . . . . . . . . . . . . . . . . . . . . 3 5. Warranties on Hyundai Products . . . . . . . . . . . . . . 3 6. Effect of Change of Design, Specifications or Options . . . . . . . . . . . . . . . . . . . . . . . 3 7. Effect of Discontinuance of Manufacture. . . . . . . . . . 4 B. DEALER'S AGREEMENT TO PROMOTE AND SELL HYNDAI PRODUCTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1. Best Efforts . . . . . . . . . . . . . . . . . . . . . . . 4 2. Adequate Vehicle Inventory . . . . . . . . . . . . . . . . 4 3. Hyundai Dealer Advertising Association . . . . . . . . . . 4 4. Primary Market Area. . . . . . . . . . . . . . . . . . . . 5 5. Appointment of New Dealers . . . . . . . . . . . . . . . . 5 C. DEALER'S SALES OPERATIONS . . . . . . . . . . . . . . . . . . . 5 1. Sales Organization . . . . . . . . . . . . . . . . . . . . 5 2. Fair Dealing . . . . . . . . . . . . . . . . . . . . . . . 5 3. Disclosure as to Prices of Hyundai Products. . . . . . . . 5 4. Disclosure as to Parts or Accessories. . . . . . . . . . . 6 D. ASSISTANCE PROVIDED BY HMA. . . . . . . . . . . . . . . . . . . 6 1. Sales Training Assistance. . . . . . . . . . . . . . . . . 6 2. Sales Promotion Assistance . . . . . . . . . . . . . . . . 6 3. Field Sales Personnel Assistance . . . . . . . . . . . . . 7 E. EVALUATION OF DEALER'S SALES PERFORMANCE. . . . . . . . . . . . 7 11. SERVICE AND PARTS. . . . . . . . . . . . . . . . . . . . . . . . . . 7 A. DEALER RESPONSIBILITIES . . . . . . . . . . . . . . . . . . . . 7 1. New Motor Vehicle Predelivery Service. . . . . . . . . . . 8 2. Warranty and Policy Service. . . . . . . . . . . . . . . . 8 3. Campaign Inspections . . . . . . . . . . . . . . . . . . . 8 i 4. Reimbursement Rates. . . . . . . . . . . . . . . . . . . . 8 5. Independent Warranty or Service Contract . . . . . . . . . 9 6. Installation and Use of Non-Genuine Parts or Accessories . . . . . . . . . . . . . . . . . . 9 7. Safety and Emission Control Laws . . . . . . . . . . . . .10 B. SERVICE AND PARTS OPERATIONS. . . . . . . . . . . . . . . . . .11 1. Service and Parts Personnel. . . . . . . . . . . . . . . .11 2. Handling of Service Complaints . . . . . . . . . . . . . .11 3. Service Equipment and Special Tools. . . . . . . . . . . .11 4. Parts Inventory. . . . . . . . . . . . . . . . . . . . . .11 C. ASSISTANCE PROVIDED BY HMA. . . . . . . . . . . . . . . . . . .12 1. Service Training Assistance. . . . . . . . . . . . . . . .12 2. Service Manuals and Materials. . . . . . . . . . . . . . .12 3. Field Service Personnel Assistance . . . . . . . . . . . .12 D. EVALUATION OF DEALER'S SERVICE AND PARTS PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . .12 12. DEALER LOCATION . . . . . . . . . . . . . . . . . . . . . . . . . .13 A. RESPONSIBILITIES OF DEALER. . . . . . . . . . . . . . . . . . .13 B. OPERATING HOURS . . . . . . . . . . . . . . . . . . . . . . . .13 C. SIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 D. DATA PROCESSING SYSTEMS . . . . . . . . . . . . . . . . . . . .14 E. FACILITY PLANNING ASSISTANCE. . . . . . . . . . . . . . . . . .14 F. EVALUATION OF DEALERSHIP FACILITIES . . . . . . . . . . . . . .14 13. CAPITAL STANDARDS. . . . . . . . . . . . . . . . . . . . . . . . . .14 A. NET WORKING CAPITAL . . . . . . . . . . . . . . . . . . . . . .14 B. WHOLESALE CREDIT. . . . . . . . . . . . . . . . . . . . . . . .15 14. ACCOUNTS, RECORDS AND REPORTS. . . . . . . . . . . . . . . . . . . .15 A. UNIFORM ACCOUNTING SYSTEM . . . . . . . . . . . . . . . . . . .15 B. SALES REPORTING . . . . . . . . . . . . . . . . . . . . . . . .15 C. SALES AND SERVICE RECORDS . . . . . . . . . . . . . . . . . . .16 D. AUDIT OF DEALER RECORDS . . . . . . . . . . . . . . . . . . . .16 E. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . .16 15. TRADEMARKS, SERVICE MARKS AND TRADE NAMES. . . . . . . . . . . . . .16 A. USE BY DEALER 16 B. DISCONTINUANCE OF USE . . . . . . . . . . . . . . . . . . . . .17 16. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . .17 A. TERMINATION BY DEALER . . . . . . . . . . . . . . . . . . . . .17 B. TERMINATION FOR CAUSE . . . . . . . . . . . . . . . . . . . . .17 1. Immediate Termination. . . . . . . . . . . . . . . . . . .17 2. Termination Upon Sixty Days Notice . . . . . . . . . . . .18 3. Termination For Failure of Performance . . . . . . . . . .20 4. Termination of HMA . . . . . . . . . . . . . . . . . . . .20 5. Termination Upon Death or Incapacity . . . . . . . . . . .21 a. Succession to Majority Ownership by Designated Successor. . . . . . . . . . . . . . . .21 b. Succession to Ownership After Death of Owner. . . . . . . . . . . . . . . . . . . . . .22 c. Succession Upon Incapacity of Owner . . . . . . . . .22 d. HMA's Investigation and Determination . . . . . . . .23 C. EFFECTIVE DATE OF TERMINATION . . . . . . . . . . . . . . . . .23 D. EFFECT OF TERMINATION . . . . . . . . . . . . . . . . . . . . .24 1. DEALER's Conduct . . . . . . . . . . . . . . . . . . . . .24 2. The Right to Purchase. . . . . . . . . . . . . . . . . . .24 3. Repurchase of Hyundai Products . . . . . . . . . . . . . .24 ii a. HMA's Obligations . . . . . . . . . . . . . . . . . .24 b. DEALER's Responsibilities . . . . . . . . . . . . . .25 c. Payment by HMA. . . . . . . . . . . . . . . . . . . .25 d. Disagreement Regarding Valuation. . . . . . . . . . .26 17. RIGHT OF FIRST REFUSAL OR OPTION TO PURCHASE . . . . . . . . . . . .26 A. HMA'S RIGHTS 26 B. PURCHASE PRICE 27 C. TRANSFER CONDITIONS . . . . . . . . . . . . . . . . . . . . . .27 18. DEFENSE AND INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . .27 A. DEFENSE AND INDEMNIFICATION BY HMA. . . . . . . . . . . . . . .27 B. DEFENSE AND INDEMNIFICATION BY DEALER . . . . . . . . . . . . .28 C. EXTENT OF RESPONSIBILITY. . . . . . . . . . . . . . . . . . . .29 D. CONDITIONAL DEFENSE AND/OR INDEMNIFICATION. . . . . . . . . . .29 E. THE EFFECT OF SUBSEQUENT DEVELOPMENTS . . . . . . . . . . . . .30 F. TIME TO RESPOND AND RESPONSIBILITIES OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . .30 G. SURVIVAL OF OBLIGATION. . . . . . . . . . . . . . . . . . . . .30 19. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . .31 A. ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . .31 B. AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .31 C. RELEASE OF CLAIMS . . . . . . . . . . . . . . . . . . . . . . .31 D. ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . .31 E. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . .31 F. CAPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .32 G. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . .32 H. WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 I. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 J. NEW AND SUPERSEDING DEALER AGREEMENTS . . . . . . . . . . . . .32 K. INDEPENDENT ENTITY. . . . . . . . . . . . . . . . . . . . . . .32 L. FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . .33 M. NO FRANCHISE FEE. . . . . . . . . . . . . . . . . . . . . . . .33 N. WAIVER OF TRIAL BY JURY . . . . . . . . . . . . . . . . . . . .33 O. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 20. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 iii HYUNDAI MOTOR AMERICA DEALER SALES AND SERVICE AGREEMENT STANDARD PROVISIONS The Standard Provisions set forth below are expressly incorporated in and made a part of the HMA Dealer Sales and Services Agreement. 10. SALE OF HYUNDAI PRODUCTS A. DEALER'S AGREEMENT TO PURCHASE HYUNDAI PRODUCTS 1. QUANTITIES DEALER agrees to purchase Hyundai Products in such quantities and varieties as may be necessary to fulfill its obligations under this Agreement. HMA will distribute such products pursuant to such procedures as HMA may deem appropriate from time to time. HMA's agreement to sell may only be established by written confirmation by HMA that the product will be shipped. HMA will use its best efforts to provide Hyundai Products to DEALER subject to available supply from FACTORY, HMA's marketing requirements, and any change or discontinuance with respect to any Hyundai Product. HMA and DEALER recognize that certain Hyundai Products may be in short supply from time to time because of factors which are beyond the control of HMA or FACTORY. Where such a shortage is determined by HMA to exist, HMA will endeavor to allocate the affected Hyundai Product(s) among its dealers in a fair and equitable manner, as it may determine in its sole discretion. HMA agrees to provide DEALER with an explanation of the method used to distribute such products and, upon written request, will advise DEALER of total sales by model to all Dealers collectively in the Region and to DEALER individually. DEALER acknowledges that certain products manufactured by or for FACTORY may be distributed in the United States by distributors other than HMA. Entering into this Agreement, therefore, confers no rights or benefits upon DEALER with respect to the sale or servicing of such products. 2. PRICES AND OTHER TERMS OF SALE HMA reserves the right, without prior notice to DEALER, to establish and revise prices and other terms of sale for all Hyundai Products sold to DEALER under this Agreement. HMA, however, will provide notice to DEALER of any revision in prices and other terms of sale before shipping any Hyundai Product subject to such revision. 3. PAYMENT FOR HYUNDAI PRODUCTS DEALER agrees to pay for Hyundai Products pursuant to such procedures as HMA may designate from time to time. Such procedures may include electronic funds transfer and other automatic collection systems. Automatic collections will be against DEALER's then applicable wholesale credit line. HMA will advise DEALER in writing of the implementation of such systems. DEALER in writing of the implementation of such systems. DEALER will make arrangements with its designated financial institution to accommodate the use of such systems. 4. DELIVERY OF HYUNDAI PRODUCTS a. MODE AND PLACE OF DELIVERY HMA will select the distribution points, carriers and the mode of transportation and will be responsible for all charges in effecting delivery of Hyundai Products to DEALER. DEALER agrees to reimburse HMA for all delivery, freight and other related charges as they appear on HMA's invoice to DEALER. b. TITLE AND RISK OF LOSS Subject to the terms of sale which HMA may establish from time to time, title and risk of loss of Hyundai Products will pass to DEALER upon tender of the Hyundai Products to DEALER or its authorized agent. HMA will retain, and DEALER hereby grants to HMA, a security interest in, and the right to retain or repossess, all Hyundai Products sold to DEALER by HMA until HMA is paid in full therefor. c. DIVERSION OF DELIVERIES If DEALER should fail or refuse or for any reason be unable to take delivery of any Hyundai Products, or if DEALER should request diversion of a shipment from HMA, DEALER will be responsible, and will pay HMA promptly upon demand, for all costs and expenses incurred by HMA as a result of such diversion. HMA may direct that the returned Hyundai Products be delivered to another destination. The amount charged DEALER, however, will not exceed the charge of returning the products to the original point of shipment plus any demurrage, storage or related charges. d. FAILURE OR DELAY OF DELIVERY DEALER will not be liable for any delay or failure to accept delivery and HMA will not be liable for delay or failure to deliver Hyundai Products, where such delay or failure to deliver is due, in whole or in part, to any event of Force Majeure, or any delay or failure of FACTORY or other supplier of HMA or any carrier to deliver Hyundai Products. -2- e. DAMAGE CLAIMS As between HMA and DEALER, HMA assumes responsibility for damage to Hyundai Products occurring prior to delivery to DEALER or its authorized agent. DEALER agrees, however, to submit such claims in the manner required in the Hyundai Warranty Policies and Procedures Manual. f. OPTION TO REPURCHASE DAMAGED MOTOR VEHICLES DEALER agrees to notify HMA promptly if any new motor vehicle(s) in DEALER's inventory, other than those used as demonstrators, should for any reason be substantially damaged. To preserve the quality and value of new Hyundai Motor Vehicles offered to the public, HMA will have the option to repurchase any or all such vehicles at a price equal to the net purchase price paid by DEALER to HMA. HMA will make appropriate payment for repurchased vehicles directly to any lienholder. DEALER agrees to assign its rights under any insurance contract relating to the repurchase vehicle(s) to HMA. 5. WARRANTIES ON HYUNDAI PRODUCTS DEALER understands and agrees that the only warranties that will be applicable to each new Hyundai Product sold to DEALER by HMA will be the written limited warranty or warranties expressly furnished by FACTORY or HMA or as stated in the Hyundai Warranty Policies and Procedures Manual, as it may be revised from time to time. With respect to DEALER, such limited warranties are in lieu of all other warranties, express or implied, including any implied warranty of merchantability or fitness for a particular purpose or any liability for commercial losses based on negligence or strict liability. Except for its limited liability under such written warranty or warranties, neither FACTORY nor HMA assumes any other warranty obligation or liability. DEALER is not authorized to assume any additional warranty obligations or liabilities on behalf of HMA or FACTORY. Any such additional obligations or liabilities assumed by DEALER will be solely the responsibility of DEALER. 6. EFFECT TO CHANGE OF DESIGN, SPECIFICATIONS OR OPTIONS HMA reserves the right at any time in its sole discretion and without notice to change the design or specifications of any Hyundai Product or the availability of options in any Hyundai Product. HMA is under no obligation to make any similar change upon any product previously purchased by or shipped to DEALER. No change will be considered a model year change unless so specified by HMA. -3- 7. EFFECT OF DISCONTINUANCE OF MANUFACTURE The manufacture and production of all or part of any Hyundai Product, whether motor vehicle, parts, options, or accessories, including any model, series, or body style of any Hyundai Motor Vehicle, may be discontinued at any time without any obligation or liability to DEALER on the part of FACTORY or HMA by reason thereof. B. DEALER'S AGREEMENT TO PROMOTE AND SELL HYUNDAI PRODUCTS 1. BEST EFFORTS DEALER is an integral part of a network of authorized Hyundai Dealers dedicated to the vigorous and effective promotion and sale of Hyundai Products. Accordingly, DEALER agrees to use its best efforts to effectively promote and sell Hyundai Products to Customers in DEALER's primary market area. 2. ADEQUATE VEHICLE INVENTORY As a duly authorized Hyundai Dealer, DEALER recognizes that its Customers will expect DEALER to stock a reasonable quantity and variety of current model Hyundai Motor Vehicles. Accordingly, DEALER agrees to stock and sell, subject to available supply, all models and types of Hyundai Motor Vehicles in the Hyundai Product Addendum and that it will, at all times, maintain at least the minimum inventory of Hyundai Motor Vehicles requested by HMA. DEALER will maintain all Hyundai Motor Vehicles for display and demonstration purposes in showroom ready condition. 3. HYUNDAI DEALER ADVERTISING ASSOCIATION HMA and DEALER recognize the benefits which may be derived from a comprehensive joint advertising effort by Hyundai Dealers. Accordingly, HMA agrees to assist Hyundai Dealers, including DEALER, in the establishment of a cooperative advertising association. DEALER agrees to cooperate with HMA in the formation of such association and, once it is established, to participate actively and to contribute to it in accordance with the by-laws of the association. The Hyundai Dealer Advertising Association will finance its advertising programs through the assessment of a fixed amount for each new Hyundai Motor Vehicle purchased by Hyundai Dealers. As a service to the Dealer Association, HMA will collect the agreed amount, provided that the Association maintains control over the amount of the assessment and the manner in which the funds are expended and so long as such funds are expended for the promotion of Hyundai Products which may also include Parts and Service advertising campaigns from time to time. -4- 4. PRIMARY MARKET AREA While DEALER is required to vigorously develop its primary market area, nothing contained in this Agreement will limit or be construed to limit the geographical area in which DEALER may promote, or the persons to whom DEALER may sell, Hyundai Products. The primary market area is a geographic area which HMA will designate from time to time for the sole purpose of evaluating DEALER's performance of its sales and service obligations hereunder. DEALER recognizes that the designation of a primary market area is not intended to be permanent and that HMA may, in its sole discretion, change DEALER's primary market area from time to time. 5. APPOINTMENT OF NEW DEALERS DEALER agrees that HMA will have the right, from time to time, to appoint or to relocate new or additional authorized Hyundai Dealers in or near the primary market area served by DEALER based upon such reasonable criteria as HMA may establish in its sole discretion. C. DEALER'S SALES OPERATIONS 1. SALES ORGANIZATION To enable DEALER to fulfill its responsibilities satisfactorily under this Agreement DEALER agrees to organize and maintain an adequate and trained sales organization. 2. FAIR DEALING HMA has selected DEALER because of the reputation of its Owner(s) and the General Manager, identified herein, for integrity and their commitment to fair dealing. DEALER will at all times maintain a high standard of ethics in advertising, promoting and selling Hyundai Products and will not engage in any misrepresentation or unfair or deceptive trade practices. DEALER will not advertise Hyundai Products in a manner likely to mislead or deceive the public or to impair the good will of HMA or DEALER or the reputation of Hyundai Products. Furthermore, DEALER will deal with its Customers in a courteous, fair and forthright manner and will not engage in any deceptive or fraudulent practices, including without limitation, bait and switch and improper retention of deposits. 3. DISCLOSURE AS TO PRICES OF HYUNDAI PRODUCTS DEALER agrees to explain to purchasers of Hyundai Products the items which make up the purchase price and to give such purchasers itemized invoices and any other information required by law. DEALER further agrees that it will not make any -5- misleading statements as to the items which make up the total selling price of any Hyundai Motor Vehicle, or as to the prices related to such items including destination or other charges paid to HMA. DEALER also agrees not to charge Customers for any services for which DEALER is reimbursed by HMA, including predelivery inspection and adjustment services, without disclosing the fact of such reimbursement to the Customer. 4. DISCLOSURE AS TO PARTS OR ACCESSORIES DEALER recognizes that its Customers have a right to expect that any product that they purchase from DEALER meets the high quality standards associated with HMA, FACTORY, the Hyundai Marks and Hyundai Products in general. Accordingly, DEALER agrees that, if it sells or installs any part or accessory that is not a Hyundai Genuine Part or Accessory, it will disclose such fact to the Customer and will advise the Customer that the time is not included in warranties furnished by HMA or Factory. In all cases, the purchaser's contract of purchase and sale will include written notice of such disclosure. In addition, DEALER will clearly explain to the Customer the extent of any warranty covering the equipment, part or accessory involved and will deliver a copy of such warranty to the Customer at the time of sale. DEALER agrees that it will not represent or offer to sell as new Hyundai Genuine Parts or Accessories, any parts or accessories used by it in the repair or servicing of Hyundai Motor Vehicles which are not in fact Hyundai Genuine Parts or Accessories. D. ASSISTANCE PROVIDED BY HMA 1. SALES TRAINING ASSISTANCE To assist DEALER in the fulfillment of its sales responsibilities under this Agreement, HMA will offer general and specialized sales management and sales training programs for the benefit and use of DEALER's sales organization. DEALER recognizes the importance of having a well trained sales staff to meet its obligations hereunder and agrees to require its sales personnel to participate in such programs as HMA may offer from time to time for their benefit. 2. SALES PROMOTION ASSISTANCE In order that authorized Hyundai Dealers may be assured of the benefits of comprehensive advertising and promotion of Hyundai Products, HMA agrees to establish and maintain general advertising and promotion programs and will from time to time make sales promotion and campaign materials available to DEALER to promote the sale of such Hyundai Products at a reasonable charge where applicable. DEALER agrees to cooperate in HMA's -6- advertising programs and to fully utilize the materials offered DEALER by HMA. 3. FIELD SALES PERSONNEL ASSISTANCE To assist DEALER in handling its sales responsibilities under this Agreement, HMA agrees to provide trained field sales personnel to advise and counsel DEALER on sales-related subjects, including but not limited to merchandising, training and sales management. E. EVALUATION OF DEALER'S SALES PERFORMANCE HMA will evaluate DEALER's sales performance at least annually and agrees it review such evaluations with DEALER so that DEALER may take prompt action if necessary to improve its sales performance to such satisfactory levels as HMA may reasonably require. HMA will provide DEALER with a copy of such evaluation upon request. HMA may, at its discretion, evaluate DEALER's sales performance based on one or more of the following criteria: 1. Achievement of fair and reasonable sales objectives as HMA may establish at its discretion; 2. A comparison of sales and/or registrations of Hyundai Motor Vehicles to sales and/or registrations of other line makes: (i) in DEALER's primary market area; (ii) in HMA's Region or any area thereof as HMA may reasonably establish; or (iii) nationally; 3. The trend of DEALER's sales performance over a reasonable period of time; 4. The manner in which DEALER has conducted its sales operations, including advertising, sales promotions and Customer relations; 5. The availability of new motor vehicles to DEALER from HMA; or 6. Significant local conditions that may have affected DEALER's performance. 11. SERVICE AND PARTS A. DEALER RESPONSIBILITIES DEALER recognizes that its Customers are entitled to prompt, courteous and professional service and that Customer satisfaction is vital to the mutual success of DEALER and HMA. DEALER agrees, therefore: to take all reasonable steps to provide service and parts for all Hyundai Motor Vehicles, regardless of where purchased, and whether or not under warranty; to ensure -7- that necessary repairs on Customer vehicles are accurately diagnosed and performed in accordance with the highest professional standards; to advise the Customer and obtain his or her consent prior to the initiation of any repairs; and, to treat the Customer courteously and fairly at all times. 1. NEW MOTOR VEHICLE PREDELIVERY SERVICE DEALER will perform predelivery service on each new Hyundai Motor Vehicle prior to delivery to the retail Customer according to HMA's instructions. Any required campaign or policy service will also be completed at the time of predelivery service. 2. WARRANTY AND POLICY SERVICE DEALER will perform warranty service on each Hyundai Motor Vehicle at the time of predelivery service and when requested by the owner according to the requirements of the Hyundai Warranty Policies and Procedures Manual. DEALER will perform policy service as HMA may require from time to time. DEALER will provide each owner for whom warranty or policy service is performed with a copy of the repair order stating all services performed. 3. CAMPAIGN INSPECTIONS HMA may, from time to time, require DEALER to inspect and correct conditions in Hyundai Motor Vehicles. DEALER agrees to perform such campaign inspections regardless of where or from whom the subject Hyundai Motor Vehicles were purchased. Because of the importance of campaign inspections to the overall reputation of Hyundai Motor Vehicles for their high quality standards, HMA may ship parts and other materials to DEALER without DEALER's authorization. DEALER will accept such shipments and upon completion of the campaign, HMA will credit DEALER for any extra parts and materials so shipped provided DEALER returns or otherwise disposes of such parts and materials according to HMA's instructions. 4. REIMBURSEMENT RATES HMA agrees to compensate DEALER for all warranty, policy, and campaign inspection work, including labor and diagnosis, in accordance with procedures and at rates to be announced from time to time by HMA and in accordance with applicable law. DEALER agrees that such rates will constitute full and complete payment to DEALER for such work. Both parties agree that warranty and policy service is provided for the benefit of Customers and DEALER agrees that the Customer will not be obligated to pay any charges for warranty or policy work, except as required by law. -8- HMA will reimburse DEALER for predelivery service at an authorized labor and/or diagnosis rate and according to the predelivery service time allowances as established by HMA as is required by law. If DEALER wishes to adjust the established reimbursement rate for labor and diagnosis in connection with warranty, policy or predelivery service performed on Customer's vehicles, DEALER agrees to make the appropriate written application to HMA and to comply with such applicable procedures or policies as may be set forth in the Hyundai Warranty Policies and Procedures Manual. 5. INDEPENDENT WARRANTY OR SERVICE CONTRACT DEALER recognizes that HMA's limited warranties are provided to Customer at no additional expense. HMA recognizes that DEALER is free to sell warranty or service contract protection for Hyundai Motor Vehicles which is different from and independent of HMA's warranties. In order to avoid any misconception among its Customers, however, DEALER agrees that if it elects to sell such independent warranties or service contracts to Customers: a. DEALER will conspicuously disclose in writing upon the Customer's purchase order the extent to which the independent warranty or service contract protection purchased by the Customer overlaps that provided by HMA or Factory; and b. Whenever a Customer purchases such independent warranty or service contract protection and seeks service on a Hyundai Product during the period of time that such Product is also covered by the limited warranty provided by HMA or FACTORY, DEALER will not apply for, and agrees that it will not be entitled to, reimbursement under such limited warranty unless DEALER has advised the Customer in writing, on all copies of the repair order, that the service was provided pursuant to HMA's limited warranty and not the independent warranty or service contract protection that the Customer purchased. 6. INSTALLATION AND USE OF NON-GENUINE PARTS OR ACCESSORIES DEALER understands that it has the right to sell, install or use products which are not Hyundai Genuine Parts or Accessories. DEALER agrees, however, that its Customers may reasonably expect that any part or accessory which DEALER sells, installs or uses in the repair or servicing of Hyundai Motor Vehicles meets the high quality standards of Hyundai Genuine Parts or Accessories. Therefore, in cases where DEALER does not sell, install or use a Hyundai Genuine Part or Accessory, DEALER will only utilize such other parts or accessories as: -9- Will not adversely affect the mechanical operation of the Hyundai Motor Vehicle being serviced or repaired; or Are equivalent in quality and design to Hyundai Genuine Parts or Accessories. In the event any disagreement arises between HMA and DEALER regarding the use by DEALER of parts other than Hyundai Genuine Parts or Accessories or parts expressly approved by HMA, DEALER agrees that it will have the burden of proving either: That the parts replaced will not adversely affect the mechanical operation of the Hyundai Motor Vehicle being serviced or repaired; or That parts used by it are equivalent in quality and design to Hyundai Genuine Parts or Accessories or parts expressly approved by HMA. If DEALER uses parts or accessories which are not Hyundai Genuine Parts or Accessories or are not approved in writing by HMA for use in Hyundai Motor Vehicles, DEALER does so at its own risk and neither HMA nor FACTORY will be responsible to DEALER or to any third party for any products liability, warranty or other claim which may arise as a consequence of the installation and/or use of such parts. 7. SAFETY AND EMISSION CONTROL LAWS DEALER agrees to comply and operate consistently with all applicable provisions of federal, state and local motor vehicle safety and emission control laws, rules and regulations. In addition, HMA and DEALER will each provide the other with such information and assistance as may reasonably be requested by the other in connection with the performance of obligations imposed on either party by any 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 FACTORY or HMA, then DEALER, prior to its sale of any Hyundai Motor Vehicles on which such installations are so required, will properly install such devices or equipment on such Hyundai Motor Vehicles. DEALER will comply with state and local laws pertaining to installation of such equipment, including without limitation, the reporting thereof. -10- B. SERVICE AND PARTS OPERATIONS 1. SERVICE AND PARTS PERSONNEL DEALER agrees to establish and maintain a complete service and parts organization, including a service manager, a parts manager and a sufficient number of Customer relations, service and parts personnel who meet such educational, management, technical training and competency standards as HMA may establish or approve. 2. HANDLING OF SERVICE COMPLAINTS DEALER understands that the development and maintenance of Customer confidence and satisfaction in Hyundai Products requires DEALER's full support. DEALER, therefore, agrees to investigate and handle all complaints from Customers according to procedures prescribed by HMA and in a manner calculated to secure and maintain the Customers' good will towards DEALER, HMA and Hyundai Products. Moreover, DEALER agrees to cooperate with HMA and to provide such information as HMA may in its judgment require to comply with any federal or state consumer protection law, rule or regulation, including without limitation, warranty and repair or replace laws or to avoid any liability thereunder. Furthermore, DEALER agrees to participate in and cooperate with such Customer complaint resolution procedures as HMA may designate from time to time. 3. SERVICE EQUIPMENT AND SPECIAL TOOLS DEALER agrees to procure such service equipment and special tools as HMA may require from time to time, and to maintain the same in good repair and in proper calibration to enable DEALER to fulfill its service responsibilities under this Agreement. 4. PARTS INVENTORY DEALER will stock a sufficient quantity and variety of parts and accessories to meet Customer demand and to perform warranty repairs and special policy work. DEALER recognizes, however, that its Customers may reasonably expect that DEALER will have Hyundai Genuine Parts or Accessories immediately available for purchase or installation. DEALER, therefore, agrees to carry in stock at all times during the term of this Agreement a complete inventory of Hyundai Genuine Parts or Accessories, as listed in HMA's current inventory guide, to enable DEALER to meet its Customers' needs and to fulfill its service responsibilities under this Agreement. HMA reserves the right to audit DEALER's inventory from time to time and may require DEALER to supplement its inventory to meet its obligations hereunder. -11- DEALER will install and maintain a parts inventory control system approved by HMA to track availability and sales of parts. C. ASSISTANCE PROVIDED BY HMA 1. SERVICE TRAINING ASSISTANCE DEALER recognizes the importance of providing consistent, dependable and high quality service to its Customers. DEALER agrees that frequent training and refresher courses are a necessary prerequisite to providing such service. To assist DEALER in fulfilling its service and parts responsibilities hereunder, HMA from time to time will offer general and specialized service and technical training programs and materials. DEALER will require its service and/or parts personnel to participate in such programs. 2. SERVICE MANUALS AND MATERIALS HMA agrees to provide DEALER with copies of such DEALER service manuals and bulletins, publications and technical data as HMA deems necessary for the effective operation of DEALER's service and parts organization. DEALER will have responsibility for keeping such manuals, publications and data current and available for consultation by its parts and service employees. 3. FIELD SERVICE PERSONNEL ASSISTANCE To assist DEALER in handling its parts and service responsibilities under this Agreement, HMA agrees to make available field service personnel who will, from time to time, advise and counsel DEALER on parts and service related subjects, including product quality, technical adjustment, repair and replacement of product components, parts inventory, parts sales, Customer relations, warranty administration, and service and parts merchandising, training and management. D. EVALUATION OF DEALER'S SERVICE AND PARTS PERFORMANCE DEALER's service and parts performance is extremely important to the effective representation of Hyundai Products. Therefore, under this Agreement, HMA will periodically evaluate DEALER's performance of its service and parts responsibilities, including without limitation: warranty service; Customer relations; service and parts merchandising, management and operations; new vehicle predelivery service; parts inventory; tools and equipment; competency of service and parts personnel; participation of DEALER's personnel in various training programs; and the adequacy of service and parts facilities. HMA agrees to review such evaluations with DEALER so that DEALER may take prompt action if necessary to improve its service and parts performance to satisfactory levels as HMA may reasonably require. -12- HMA will provide DEALER with a copy of the evaluation upon request. 12. DEALER LOCATION A. RESPONSIBILITIES OF DEALER HMA has entered into this Agreement in reliance upon DEALER's representation that it will establish and maintain dealership facilities and operations only at the location(s) identified in paragraph 6. DEALER agrees, therefore, that it will not, under any circumstances, conduct Dealer operations at any other location, whether as a satellite operation, subdealership, through an associate Dealer or otherwise, without the prior written consent of HMA. Moreover, it is the mutual desire of DEALER and HMA that DEALER's facilities reflect a distinctive first-class appearance in common with all other duly authorized Hyundai Dealers. Accordingly, DEALER agrees to procure from approved sources and install all items necessary to insure that DEALER's retail environment complies in all respects with such distinctive first-class appearance. In addition, DEALER agrees that all of its facilities will be satisfactory as to space, appearance, amenities, layout, equipment, and signage and will at all times be in accordance with HMA's minimum facilities standards, as amended from time to time. B. OPERATING HOURS DEALER agrees that the transportation, service and maintenance needs of its Customers can be met properly only if DEALER keeps its dealership premises open for business during hours which are reasonable and convenient for such Customers. Accordingly, DEALER will maintain its respective dealership operations open for business during days and hours which are customary and lawful for such operations in the community or locality in which DEALER is located and in accordance with industry standards. C. SIGNS Subject to applicable law, DEALER agrees to purchase from sources designated by HMA and to erect and maintain at the dealership location(s), entirely at DEALER's expense, standard product and service signs of types authorized by HMA, as well as such other authorized signs as are necessary to identify the dealership operations effectively and as recommended by HMA. DEALER shall in no way alter or modify such authorized signs without obtaining prior written approval from HMA. -13- D. DATA PROCESSING SYSTEMS To facilitate the accurate and prompt reporting of relevant DEALER operational and financial data including, without limitation, sales reports, warranty claims and parts purchasing and to ensure rapid communication with authorized Hyundai Dealers, HMA requires DEALER, and DEALER agrees, to acquire, install, maintain and upgrade at DEALER's sole expense, electronic data processing systems, compatible with HMA's data systems, from a source designated by HMA. The computer terminals for such system will be installed and maintained at the DEALER location(s) identified herein. Furthermore, DEALER agrees to utilize said system in accordance with HMA's instructions. E. FACILITY PLANNING ASSISTANCE To assist DEALER in planning, building and maintaining the dealership facilities, HMA will make available to DEALER, upon request, sample copies of building layout plans, facility planning recommendations, and an applicable identification program covering the placement, installation and maintenance of authorized signs. In addition, representatives of HMA will be available to DEALER from time to time to counsel and advise DEALER regarding the proper organization and maintenance of the dealership's exterior and interior facilities and any expansion or alteration thereof. F. EVALUATION OF DEALERSHIP FACILITIES HMA will periodically evaluate the adequacy of DEALER's facilities pursuant to its responsibilities under this Agreement. In making such evaluations, HMA will consider: the actual building and land space provided by DEALER for the performance of its responsibilities under this Agreement; compliance with HMA's then current requirements for dealership operations; the appearance, condition, layout and signage of the dealership facilities; and such other factors, if any, which in HMA's judgment may directly relate to DEALER's performance of its responsibilities under this Agreement. HMA will discuss such evaluations with DEALER, so that DEALER may take prompt action, if necessary, to comply with HMA's minimum facility standards. HMA will provide DEALER with a copy of the evaluation upon request. 13. CAPITAL STANDARDS A. NET WORKING CAPITAL The net working capital required to conduct the business of DEALER properly depends upon many factors, including the nature, size and volume of DEALER's vehicle sales, service and parts operations. Therefore, DEALER agrees to establish and maintain actual net working capital in an amount not less than the minimum net working capital specified in a separate Minimum -14- Net Working Capital Agreement made between DEALER and HMA and executed by DEALER and HMA concurrently with this Agreement. If HMA determines, in its sole discretion, that changed circumstances require it to adjust the net working capital requirement hereunder, DEALER agrees to revise its minimum net working capital to be used in the dealership's operation accordingly and within a reasonable period of time. B. WHOLESALE CREDIT DEALER recognizes that in order to operate its dealership successfully and to fulfill its responsibilities hereunder, it must maintain flooring and lines of credit adequate to meet its ongoing obligations. Accordingly, DEALER agrees to obtain, maintain and increase as HMA may require, adequate flooring and lines of credit from any reputable financial institution or other credit source. Subject to the foregoing obligations, DEALER is free to do its financing business, wholesale or retail or both, with whomever it chooses and to the extent it desires. 14. ACCOUNTS, RECORDS AND REPORTS A. UNIFORM ACCOUNTING SYSTEM HMA uses the operating information provided by its Dealers to develop composite operating statistics which are useful to Dealers and to HMA in business management. In order for such information to be useful, however, Hyundai Dealers must submit data which is accurate and based on uniform accounting procedures. Accordingly, DEALER agrees to maintain a uniform accounting system designated by HMA, and in accordance with the Hyundai Accounting Manual, as amended from time to time. In addition, DEALER will furnish to HMA, by the tenth (10th) of each month, in a format prescribed by HMA, a complete and accurate financial and operating statement covering the preceding month and calendar year-to-date operations. DEALER will also promptly furnish to HMA a copy of any adjusted financial or operating statement prepared by or for DEALER. B. SALES REPORTING HMA requires timely sales information to evaluate correctly current market trends and to maintain a fair and equitable vehicle distribution system. In addition, such data is necessary for HMA to evaluate DEALER's sales performance and to provide meaningful advice and recommendations to DEALER. Accordingly, DEALER agrees to: 1. Accurately report to HMA, with such relevant information as HMA 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 -15- 2. Furnish HMA with such other reports as HMA may reasonably require from time to time. C. SALES AND SERVICE RECORDS DEALER agrees to keep complete and up-to-date records regarding the sale and servicing of Hyundai Products for a minimum of five (5) years, exclusive of any retention period required by any governmental entity. In order that the policies and procedures relating to the application for reimbursement for warranty, policy work and predelivery service may be applied uniformly to all 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 Hyundai Warranty Policies and Procedures Manual and standards established by HMA consistent with said manual. D. AUDIT OF DEALER RECORDS DEALER agrees that HMA will have the right, at all reasonable times and during DEALER's regular business hours, to examine, audit and reproduce all records, accounts and all other data relating to the sale and service of Hyundai Products by DEALER. HMA will provide a copy of the report of the examination or audit to DEALER upon request. E. CONFIDENTIALITY HMA agrees that it will not provide any data or documents submitted to it by DEALER to any third party, except FACTORY, unless authorized by DEALER, required by law, or otherwise pertinent to legal proceedings. DEALER agrees, however, that HMA may use such data or documents to generate composite data which HMA believes will be useful to assist its Dealers in improving dealership operations. Such composite data will not specifically identify any Dealer. 15. TRADEMARKS, SERVICE MARKS AND TRADE NAMES A. USE BY DEALER HMA is the exclusive owner of, or is authorized to use and to permit DEALER and others to use, the Hyundai Marks. HMA grants to DEALER the nonexclusive privilege of displaying or otherwise using the Hyundai Marks in connection with the promotion and sale of Hyundai Products and the conduct of DEALER operations at the location(s) approved herein. DEALER agrees, however, that it will promptly discontinue the display and use of any such Hyundai Marks, and will change the manner in which any Hyundai Marks are displayed and used, when for any reason, it is requested to do so by HMA. DEALER further agrees that it will do nothing to impair the value -16- of or contest the right of HMA to the exclusive use of any trademark, design mark, service mark or trade name at any time acquired, claimed or adopted by HMA. In addition, no company owned by or affiliated with DEALER or any of its Owners may use any Hyundai Mark or product name without the prior written consent of HMA. B. DISCONTINUANCE OF USE Upon termination, non-renewal or expiration of this Agreement, DEALER agrees that it will immediately discontinue all use of the word Hyundai and the Hyundai Marks, or any semblance thereof and cease representing itself as an authorized Hyundai Dealer. Thereafter, DEALER will not use, either directly or indirectly, any Hyundai Marks or any other similar marks in a manner likely to cause confusion or mistake or to deceive the public. In addition, DEALER will promptly remove all product signs bearing the word Hyundai or the Hyundai Marks from its facilities at DEALER's sole cost and expense. In the event DEALER fails to comply with its obligations herein within thirty (30) days of termination, non-renewal or expiration, HMA will have the right to enter upon DEALER's premises and remove, without liability, all signs bearing the word Hyundai or any Hyundai Marks. DEALER will reimburse HMA for any costs and expenses incurred in connection with the enforcement of this paragraph, including reasonable attorney's fees. 16. TERMINATION OF AGREEMENT A. TERMINATION BY DEALER DEALER may voluntarily terminate this Agreement at any time by written notice to HMA. Termination will be effective thirty (30) days after HMA receives such notice unless otherwise mutually agreed in writing. B. TERMINATION FOR CAUSE 1. IMMEDIATE TERMINATION HMA will have the right to terminate this Agreement immediately in any of the following situations: a. Any misrepresentation to HMA by DEALER or any Owner or General Manager in applying for this Agreement or for approval as Owner or General Manager of DEALER; b. If DEALER, or any Owner, officer, or General Manager of DEALER, is convicted of any felony or for any violation or law which in HMA's sole opinion tends to adversely affect the operation, management, reputation, business or interests of DEALER or HMA, or to impair the -17- good will associated with the Hyundai Marks. Such violations of law may include, without limitation, any finding or adjudication by any court of competent jurisdiction or government agency that DEALER has engaged in any misrepresentation or unfair or deceptive trade practice; c. Submission by DEALER to HMA of: (i) false claims for reimbursement, sales incentives, refunds, rebates or credits; (ii) false financial information, sales reports or other data required by HMA; or (iii) false statements relating to predelivery preparation, testing, warranties, servicing, repairing, or maintenance required by HMA; d. If the dealership is closed for a period of seven (7) consecutive days, except when due to an event of Force Majeure; e. 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 f. If DEALER becomes insolvent, or files any voluntary petition under any bankruptcy law, or executes an assignment for the benefit of creditors, or any petition is filed by any third party to have DEALER declared bankrupt or to appoint a receiver or trustee, or another officer having similar power, and such filing or appointment is not vacated within thirty (30) days 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. 2. TERMINATION UPON SIXTY DAYS NOTICE If HMA learns that any of the following events have occurred and determines, in its sole discretion, that the matter may require termination of this Agreement, HMA will so advise DEALER in writing. If DEALER does not correct the condition or explain the matter to HMA's satisfaction within thirty (30) days of such notice, then HMA will have the right to terminate this Agreement upon sixty (60) days notice. Events which may result in such termination include: a. Any sale or transfer of ownership interest by DEALER without the prior written consent of HMA; b. Any removal, withdrawal or change, whether voluntary or involuntary, of a General Manager having an ownership interest in DEALER without the prior written consent of HMA; c. Any attempted or actual sale, transfer or assignment by DEALER of this Agreement or any of the -18- 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, without the prior written consent of HMA; d. The conduct, directly or indirectly, of any dealership operation at any location other than those specifically approved herein, without the prior written consent of HMA; e. Any sale or transfer, by operation of law or otherwise, or any relinquishment or discontinuance of use by DEALER, of any of the locations approved herein or of other principal assets required in the conduct of dealership operations, without the prior written consent of HMA; f. Any dispute, disagreement or controversy between or among partners, managers, officers or stockholders of DEALER which, in the sole opinion of HMA, adversely affects DEALER's operations or the interests of DEALER or HMA; g. Retention by DEALER of any General Manager, who in HMA's reasonable opinion is not competent, whether or not such person was previously approved by HMA as General Manager of DEALER; h. Any conduct which in HMA's opinion impairs the reputation of DEALER or HMA; i. Any refusal to permit HMA to examine or audit DEALER's accounts and records as provided herein upon receipt by DEALER of written notice from HMA requesting such permission or information; j. Repeated failure of DEALER to furnish timely sales or financial information and related data; k. Failure of DEALER to establish or maintain required net working capital or adequate wholesale credit; l. Failure of DEALER to pay HMA for any Hyundai Products in accordance with the terms and conditions of sale; m. Failure of DEALER to comply with the provisions of any laws or regulations relating to the sale or service of Hyundai Products; n. Repeated failure of DEALER's sales, service or parts personnel, including but not limited to -19- management, to fully participate in any training program offered by HMA to DEALER; o. Failure of DEALER to properly obtain, erect, maintain, repair and illuminate signs and other displays in a manner approved by HMA; p. Failure to maintain an adequate supply of general and special tools and equipment designated by HMA; q. Failure by DEALER to maintain good relations with its Customers including but not limited to failure to notify HMA of complaints by Customers, as HMA may require, and repeated failure to properly resolve Customer complaints; r. Failure to maintain the required minimum inventory of Hyundai Motor Vehicles, whether for showroom display, demonstration or immediate sale; s. Failure to maintain an adequate parts inventory; t. Repeated failure to use proper parts and accessories in the repair and servicing of Hyundai Motor Vehicles; or u. Breach or violation by DEALER of any other term or provision of this Agreement. 3. TERMINATION FOR FAILURE OF PERFORMANCE If, upon evaluation of Dealer's performance pursuant to paragraphs 10(E), 11(D) and/or 12(F) herein, HMA determines that DEALER has failed to perform adequately its sales, service or parts responsibilities or to provide adequate dealership facilities, HMA will endeavor to review promptly with DEALER the nature and extent of such failure(s). As soon as practicable thereafter, HMA will notify DEALER in writing of DEALER's failure of performance and will grant DEALER 180 days from the date of such notice 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, HMA may terminate this Agreement upon sixty (60) days notice or such other notice as may be required by law. 4. TERMINATION OF HMA This Agreement will terminate upon the effective date of the termination or expiration of HMA's right to distribute Hyundai Products. -20- 5. TERMINATION UPON DEATH OR INCAPACITY HMA has entered into this Agreement in reliance upon the personal services of Owner(s) and General Manager and is concerned that DEALER continues to be owned and operated by persons who meet HMA's requirements. In order to ensure that it is represented by qualified persons, and to protect its interests, and subject to paragraphs 16(B)(5)(a)-(c), HMA will have the right to 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. HMA will provide such notice within a reasonable time after Owner's death or incapacity. Termination hereunder will be effective ninety (90) days from the date of such notice. a. SUCCESSION TO MAJORITY OWNERSHIP BY DESIGNATED SUCCESSOR Notwithstanding its right to terminate upon the death of any Owner, HMA agrees to permit succession to majority ownership by any person approved as a Successor Owner as provided herein. Accordingly, at any time during the term of this Agreement, any Majority Owner may nominate a candidate to assume his or her ownership interest in the dealership upon the death or incapacity of the requesting Owner. Such nomination must be made on a form provided by HMA. In the event that the Majority Owner is also the General Manager, such Owner may also nominate the candidate to succeed as General Manager. As soon as practicable after such nomination, HMA will request such personal and financial information from the Majority Owner and/or the candidate as it reasonably and customarily may require in evaluating candidates for ownership and/or management. Owner agrees that HMA may apply criteria then currently used by HMA in qualifying Owners and/or General Managers of authorized dealers. Upon receipt of all requested information, HMA will either approve or disapprove such candidate. If HMA initially approves the candidate, said approval will remain in effect for the term of this Agreement. HMA agrees that the Majority Owner may renominate a candidate after the expiration of this Agreement and HMA will review such nomination: (i) so long as HMA and DEALER have entered into a new Hyundai Dealer Sales and Service Agreement; and (ii) the proposed candidate continues to comply with the then current criteria used by HMA in qualifying such candidates. If HMA does not initially qualify the candidate, HMA agrees to review its decision with the Majority Owner. The Majority Owner is free at any time to renew his or her nomination. However, in such instance, the candidate must again qualify pursuant to HMA's then current criteria. The Majority Owner may, by written notice, withdraw a nomination at any time, even if HMA previously has qualified said candidate. -21- In the event that the Majority Owner has obtained approval of his or her candidate as Successor Owner, and upon the death of the Majority Owner, HMA agrees to enter into a new Hyundai Dealer Sales and Service Agreement promptly with the Successor Owner and any remaining Owner(s). The term of the new agreement shall be for one year. The Majority Owner recognizes, however, that before HMA shall be obligated to appoint the approved Successor Owner as the new Majority Owner, HMA shall have the right to request assurances from the legal representative of the Majority Owner's estate that there is no conflict between the appointment of the Successor Owner hereunder and any valid will executed by the Majority Owner. In any case where a Successor Owner has been designated pursuant to this paragraph but the beneficial interest of the deceased Majority Owner in DEALER has passed by will or by the laws of interstate succession to another person, then HMA will proceed as though the Majority Owner had withdrawn his or her nomination of the Successor Owner pursuant to this paragraph. b. SUCCESSION TO OWNERSHIP AFTER DEATH OF OWNER Except for those cases in which a Successor Owner is appointed pursuant to the foregoing paragraph 16(B)(5)(a), if any Owner's interest in DEALER passes by will (or in the absence of a will, if such interest would pass by the laws of interstate succession) to any person (heir), HMA agrees to review the qualifications of such heir to succeed as Owner of DEALER. Such right to be considered will not arise until the legal representative of the Owner's estate notifies HMA within ninety (90) days of the date of notice of termination hereunder of the heir's interest in succeeding Owner and provided that: (i) there has been no change in the General Manager of DEALER; or (ii) the notice from the legal representative proposes a new DEALER General Manager candidate for HMA's approval. The effect of notice from the legal representative will be to suspend the notice of termination issued hereunder. Upon receipt of such notice, HMA will investigate and make a determination as to the proposed new Owner's qualifications as provided in paragraph 16(B)(5)(d) herein. HMA expressly retains the right to terminate this Agreement if the proposed new Owner fails to meet HMA's then current ownership and/or General Manager qualification requirements. c. SUCCESSION UPON INCAPACITY OF OWNER The parties agree that, as used herein, incapacity will refer to any physical or mental ailment which, in HMA's opinion, adversely affects Owner's ability to meet his or her obligations -22- under this Agreement. Termination for incapacity will apply only where the incapacitated Owner is also the General Manager identified herein. Prior to the effective date of any notice of termination hereunder, an incapacitated Owner, or his or her legal representative, may propose a new candidate for the position of General Manager to HMA. Such proposal must be in writing and will suspend the pending notice of termination until HMA advises DEALER of its approval of disapproval of the new candidate. Upon receipt of the notice, HMA will investigate and make a determination as to the qualifications of the proposed General Manager as provided in paragraph (16)(B)(5)(d) herein. d. HMA'S INVESTIGATION AND DETERMINATION Any heir wishing to succeed to ownership pursuant to paragraph 16(B)(5)(b) or any person seeking to be a General Manager pursuant to either paragraph 16(B)(5)(b) or (c) must complete such application and submit such personal and financial information in such form as HMA may reasonably and customarily require in connection with its review. All requested information must be provided promptly and in no case later than thirty (30) days after receipt of such request. Upon the submission of all requested information, HMA agrees to review the qualifications of the applicant pursuant to the then current criteria generally applied by HMA in qualifying Dealer Owners and/or General Managers. HMA will either approve or disapprove the application within ninety (90) days of full compliance with all of HMA's requests for information. If HMA approves the application, it will offer to enter into a new Hyundai Dealer Sales and Service Agreement with DEALER or its successor in interest in the form then currently in use, except that the newly approved applicants will be identified as new Owner and/or General Manager as appropriate. Except in cases involving the death of a Minority Owner, discussed in the next sentence, the new agreement will be for a term of one (1) year. In cases involving the death of a Minority Owner, which does not result in a change in General Manager, if HMA approves the heir as new Minority Owner, then HMA and DEALER will simply amend the current Agreement to reflect the new minority ownership. In the event that HMA disapproves the applicant or the applicant withdraws his or her application to be approved as Owner or General Manager or fails to provide the required information in a timely fashion, HMA may reinstate the notice of termination by written notice to DEALER and to the proposed new Owner, candidate for General Manager and/or incapacitated Owner. C. EFFECTIVE DATE OF TERMINATION If any period of notice of termination required under this paragraph 16 is less than that required by applicable law, -23- the period of notice required hereunder will be deemed to be the minimum period required by such law. D. EFFECT OF TERMINATION 1. DEALER'S CONDUCT Upon receipt of any notice of termination, expiration or non-renewal, Dealer agrees to conduct itself and its operations until the effective date of termination, expiration or non-renewal in a manner which will not injure the reputation or good will of the Hyundai Marks or HMA and is consistent with its obligations hereunder. 2. THE RIGHT TO PURCHASE Upon sending any notice of termination, expiration or non-renewal hereunder, HMA will have no further obligation whatsoever to sell and DEALER will have no right to purchase any Hyundai Products. Any decision to permit DEALER to purchase Hyundai Products thereafter will be in HMA's sole discretion and will not be construed as a waiver of the termination or renewal, extension or continuation of this Agreement. Upon the expiration or prior termination of this Agreement, HMA will have the right to cancel any and all pending requests by DEALER to purchase Hyundai Products and any shipments of same scheduled for delivery to DEALER. 3. REPURCHASE OF HYUNDAI PRODUCTS a. HMA'S OBLIGATIONS Upon expiration, non-renewal or termination of this Agreement, HMA will repurchase from DEALER the following products which DEALER initially purchased from HMA or from a source designated by HMA: (i) New, unused, unmodified and undamaged current Hyundai Motor Vehicles then in DEALER's inventory. The prices of such Motor Vehicles will be the price at which they were originally purchased by DEALER, less all prior refunds or other allowances made by HMA to DEALER with respect thereto. (ii) New, unused and undamaged Hyundai Genuine Parts or Accessories then unsold in DEALER's inventory which are in good and saleable condition, provided that they are listed in the then current Hyundai Dealer Parts Price List. The prices for such parts and accessories will be the prices last established by HMA for the sale of identical parts or accessories to Dealers in the area in which DEALER is located. (iii) Tools and equipment required or recommended by HMA and then owned by DEALER which are especially designed for -24- servicing Hyundai Motor Vehicles. The prices for such tools and equipment will be the price paid by DEALER less appropriate depreciation or such other price as the parties may negotiate. (iv) Signs which HMA has required or recommended for identification of DEALER. The price of such signs will be the price paid by DEALER less appropriate depreciation or such other price as the parties may negotiate. HMA shall have no obligation to repurchase products as provided herein in the event it agrees to enter into a new Hyundai Dealer Sales and Service Agreement with DEALER. b. DEALER'S RESPONSIBILITIES DEALER's right to reimbursement hereunder is contingent upon the following: (i) Within thirty (30) days after the date of expiration or the effective date of termination of this Agreement, DEALER will request HMA in writing to purchase its qualifying inventory and will provide HMA with a detailed and accurate list of such inventory. After receiving such list, HMA may, in its discretion, enter upon DEALER's premises to verify such inventory as qualifying under Paragraph 16(D)(3)(a) herein. If DEALER does not provide HMA with a list of inventory, then HMA may enter upon DEALER's premises, without liability, to take inventory and DEALER will reimburse HMA for any costs and expenses incurred in connection therewith. (ii) Upon HMA's instructions, DEALER will deliver such products as HMA will agree to repurchase hereunder to HMA's place of business at DEALER's expense. If DEALER fails to do so, HMA may transport such products and deduct the cost therefor from the repurchase price. (iii) DEALER agrees to execute and deliver to HMA instruments satisfactory to HMA conveying good and marketable title to such property as HMA may require. If such property is subject to any lien or charge of any kind, DEALER agrees to secure the discharge and satisfaction thereof prior to the repurchase of such property by HMA. DEALER further agrees to comply with the requirements of any federal or state laws which relate to the repurchase including bulk sales or transfer laws. (iv) DEALER agrees that it must remove, at its own expense, all signage bearing the Hyundai Marks before it is eligible for payment hereunder. c. PAYMENT BY HMA HMA will pay DEALER for such items as DEALER may request repurchase and which qualify hereunder as soon as practicable upon DEALER's compliance with the obligations set -25- forth herein and upon computation of any outstanding indebtedness of DEALER to HMA, which indebtedness HMA may offset from any amounts due to DEALER hereunder. d. DISAGREEMENT REGARDING VALUATION If DEALER disagrees with HMA's valuation of any item herein, and DEALER and HMA have not resolved their disagreement within sixty (60) days of the effective date of termination or expiration of this Agreement, HMA will pay to DEALER the amount to which it reasonably believes DEALER is entitled. DEALER's exclusive remedy to recover any additional sums which it believes is due under this paragraph will be by arbitration in accordance with the commercial arbitration rules of the American Arbitration Association. The site of the arbitration will be the office of the American Arbitration Association in the locality of HMA's principal place of business or Regional Office. 17. RIGHT OF FIRST REFUSAL OR OPTION TO PURCHASE HMA has entered into this Agreement to secure market representation at the location(s) identified herein. The vitality of HMA's authorized Dealer network and the effective sale and servicing of Hyundai Products nationwide is dependent upon the continued representation of HMA by its authorized Dealers at their approved location(s). Accordingly, DEALER agrees that in the event that HMA refuses to approve a transfer or sale of any ownership interest in the dealership, pursuant to paragraph 5, HMA will have the right of first refusal or an option to purchase the dealership assets, including any leasehold interest or realty, as provided herein. A. HMA'S RIGHTS HMA must advise DEALER in writing of its decision to exercise its right of first refusal or option to purchase the dealership within thirty (30) days of its refusal to approve any sale or transfer pursuant to paragraph 5. DEALER agrees that HMA will have the right to assign its rights hereunder to any third party it may select. HMA hereby guarantees the full payment of the purchase price by such assignee. DEALER may render HMA's exercise of its rights hereunder null and void if it withdraws its buy/sell proposal within thirty (30) days following receipt of HMA's notice exercising such rights. If DEALER has entered into a bona fide arm's length written buy/sell agreement regarding ownership of DEALER or its rights under this Agreement, HMA's right under this paragraph will be a right of first refusal, permitting HMA to assume the buyer's rights and obligations under such written agreement. If DEALER has not entered into a bona fide arm's length written buy/sell agreement governing such transfer or sale, then HMA's rights hereunder will be the option to purchase the -26- principal assets of DEALER utilized in the dealership operations, including real estate and/or leasehold interest, and to terminate this Agreement. B. PURCHASE PRICE If DEALER has entered into a bona fide arm's length buy/sell agreement as provided herein, the purchase price and other terms of sale will be those set forth in such agreement and any related documents. HMA may request and DEALER agrees to provide any and all supporting documents relating to the transfer which HMA may require to assess the bona fides of the agreement. Refusal to provide such documentation or to state that no such documents exist will create the presumption that the buy/sell agreement is not a bona fide agreement. In the absence of a bona fide arm's length buy/sell agreement, the purchase price will be the fair market value as negotiated by the parties. If the parties are unable to reach a negotiated sale in a reasonable time, the price and other terms of sale will be established exclusively by arbitration in accordance with the commercial arbitration rules of the American Arbitration Association. The site of the arbitration will be the office of the American Arbitration Association in the locality of HMA's principal place of business or Regional Office. C. TRANSFER CONDITIONS Upon HMA's exercise of its rights and tender of the purchase price hereunder, DEALER will 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 will be in proper form for recording and DEALER will deliver complete possession of the property and the deed at time of closing, DEALER will also furnish to HMA copies of any easements, licenses or other documents affecting the property or dealership operations and will assign any permits or licenses which are necessary for the use of the property or the conduct of such DEALER operations. DEALER also agrees to execute and deliver to HMA instruments satisfactory to HMA conveying title to all personal property, including leasehold interests, involved in the transfer or sale to HMA. If any personal property is subject to any lien or charge of any kind, DEALER agrees to secure the discharge and satisfaction thereof prior to the transfer or sale of such property to HMA. 18. DEFENSE AND INDEMNIFICATION A. DEFENSE AND INDEMNIFICATION BY HMA HMA will assume the defense of DEALER and agrees to indemnify and hold DEALER harmless in any legal proceeding naming -27- DEALER as a defendant and involving any Hyundai Product when the proceeding also involves allegations of: (1) Breach of any Hyundai warranty related to the Hyundai Product, bodily injury or property damage allegedly caused solely by a defect in design, manufacture or assembly of a Hyundai Product (except for tires not manufactured by FACTORY), provided that the defect could not reasonably have been discovered by DEALER by reasonable inspection or during the predelivery service on the Hyundai Product required hereunder; (2) Any misrepresentation or misleading statement or unfair or deceptive trade practice of HMA; or (3) Any substantial damage to a Hyundai Product purchased by DEALER from HMA which was repaired by HMA 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 promptly delivers to HMA, in a manner to be designated by HMA, copies of any summons and complaint and requests in writing a defense and/or indemnification as provided herein; (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 Hyundai 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 HMA may reasonably require; and (8) That DEALER agrees that HMA may offset any recovery on DEALER's behalf against any indemnification that may be required hereunder. B. DEFENSE AND INDEMNIFICATION BY DEALER DEALER will assume the defense of HMA and FACTORY and indemnify and hold them harmless in any legal proceeding naming HMA or FACTORY as a defendant when the legal proceeding involves allegations of: -28- (1) DEALER's alleged failure to comply, in whole or in part, with any obligation assumed by DEALER pursuant to this Agreement; (2) DEALER's alleged negligent or improper repairing or servicing of a new or used Hyundai 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 HMA or FACTORY; (4) DEALER's alleged misleading statements, misrepresentations, or deceptive or unfair trade practices; or (5) Any modification or alteration made by or on behalf of DEALER to a Hyundai Product, except those made pursuant to the express instruction of HMA; and Provided: (6) That HMA or FACTORY promptly delivers to DEALER, copies of any summons and complaint and request in writing a defense and/or indemnification as provided herein; (7) That HMA or FACTORY agree 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 HMA or FACTORY conduct or omissions. C. EXTENT OF RESPONSIBILITY The assumption of the defense of a party includes the obligation of selecting counsel and paying all attorney's fees, court costs and expenses (including expert's fees). The assumption of the obligation to indemnify and hold harmless will include payment of any judgment amount awarded on any claim subject to the indemnity and hold harmless provision and any settlement amount as the indemnifying party may agree to pay to resolve such claim. D. CONDITIONAL DEFENSE AND/OR INDEMNIFICATION In agreeing to defend and/or indemnify each other, DEALER and HMA each 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 -29- indemnification at such time as facts arise which, if known at the time of the original request for a defense and/or indemnification, would have caused either DEALER or HMA to refuse such request. The party withdrawing from its agreement to defend and/or indemnify will give timely notice of its intent to withdraw. Such notice will be in writing and will be effective upon receipt. Moreover, the withdrawing party will be responsible for all costs and expenses of defense up to the date of receipt of the notice of withdrawal. E. THE EFFECT OF SUBSEQUENT DEVELOPMENTS In any case where a request for a defense and/or indemnification is rejected, or is not made at the outset of any legal proceeding, and subsequent developments in the case make clear that the allegations which initially precluded a request or an acceptance of a request for a defense and/or indemnification are not longer at issue therein or are without foundation, then any party having a right to a defense and/or indemnification hereunder may still tender such request for a defense and/or indemnification to the other party. Neither DEALER nor HMA, however, will be required to agree to such subsequent request for a defense and/or indemnification where that party would be unduly prejudiced by such a delay. F. TIME TO RESPOND AND RESPONSIBILITIES OF THE PARTIES DEALER and HMA will have thirty (30) 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 paragraph 18. 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 will take all steps necessary, including obtaining counsel, to protect its own interest in the lawsuit until DEALER or HMA assumes the requested defense and/or indemnification. In the event that HMA or DEALER agrees to assume defense and/or indemnification obligations hereunder, such party will have the right to engage and direct counsel of its own choosing and, except in cases where the request is made pursuant to paragraph 18(E) herein, will have the obligation to reimburse the requesting party for all reasonable costs and expenses, including attorney fees, incurred prior to such assumption. G. SURVIVAL OF OBLIGATION The obligations of the parties set forth in this Paragraph 18 shall survive the termination of this Agreement. -30- 19. MISCELLANEOUS PROVISIONS A. ENTIRE AGREEMENT Except as otherwise specifically provided for herein, this Agreement constitutes the entire agreement of the parties and contains all covenants, warranties or representations made by the parties to each other and supersedes any and all previous agreements, either oral or in writing, between the parties and relating to the subject matters covered herein. B. AMENDMENT No amendment of any portion of this Agreement will be valid or binding upon the parties hereto unless the same is approved in writing by an authorized representative of each of the parties. C. RELEASE OF CLAIMS Upon execution of this Agreement by DEALER, and in consideration of HMA entering into this Agreement, DEALER hereby releases HMA from any and all claims, demands, contracts and liabilities (including, but not limited to, statutory liabilities) known or unknown, of any kind whatsoever, arising out of or in connection with any prior agreements, business transactions, course of dealing, discussions or negotiations between the parties prior to the effective date hereof and regardless of whether DEALER knows or suspects the claim to exist in its favor at the time of executing the release and whether or not if known to it, it would have materially affected its release hereunder. Notwithstanding any other provision herein, however, this release does not extend to any accounts payable by one party to the other as a result of the purchase of any Hyundai Products, audit adjustments or reimbursement for any services. D. ASSIGNMENT Except as provided in this Agreement, neither this Agreement nor the rights or obligations of either party hereunder may be sold, assigned, delegated or otherwise transferred without the prior written consent of the other party. E. SEVERABILITY If any term or provision of this Agreement, or the application thereof to any person or circumstance, will be contrary to any law or will be adjudged by any court or government agency to be invalid, void or unenforceable, such term or provision will be deemed deleted from this Agreement and the remaining provisions and any application thereof will continue in full force and effect without being impaired or invalidated in any way. -31- F. CAPTIONS The various captions used in the Agreement are for organizational purposes only and may not be used to interpret the provisions hereof. In any case where the caption and the related text conflict, the text will govern. G. GOVERNING LAW This Agreement will be governed and construed to the laws of the state in which DEALER is located. H. WAIVERS Any failure of either party at any time to require performance by the other party of any provision herein will not be deemed to be a waiver by such party of any subsequent breach or violation of the same or any other provision. I. NOTICES Unless otherwise specifically provided herein, any notice required to be given by either party to the other under or in connection with this Agreement will be in writing and delivered personally or by certified mail, return receipt requested and will be effective from the date of receipt. Notices to DEALER will be directed to DEALER or its representative at DEALER's place of business identified herein. Notices to HMA will be directed to the President of HMA at its national headquarters. In the event that any party refuses to accept delivery of notices hereunder, such notice will be effective on the date delivery is refused. J. NEW AND SUPERSEDING DEALER AGREEMENTS In the event any new and superseding form of Dealer agreement is offered by HMA to authorized Hyundai Dealers in general at any time prior to the expiration of the term of this Agreement, HMA may, by written notice to DEALER, terminate this Agreement and replace it with a new agreement in the new and superseding form for a term not less than the then unexpired term of this Agreement. Unless otherwise agreed in writing, the rights and obligations of DEALER that may otherwise become applicable upon any termination or expiration of the term of this Agreement will not be applicable in the event of the execution by HMA and DEALER of any new or superseding Dealer agreement and the matured rights and obligations of either party hereunder will continue under the new agreement. K. INDEPENDENT ENTITY DEALER is an independently owned entity. This Agreement does not make DEALER the agent or legal representative of HMA or FACTORY for any purpose whatsoever. DEALER is not -32- 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 HMA or FACTORY or to bind it (or them) in any manner whatsoever. L. FORCE MAJEURE Neither party will be liable for any breach of this Agreement to the extent caused by or resulting from prohibition or restriction by law or regulation of any government, fire, flood, storm, war, strike, lockout or other labor troubles, accident, riot, act of God or other events beyond that party's control. M. NO FRANCHISE FEE DEALER warrants and agrees that it has paid no fee, nor has it provided any goods or services in lieu of same, to HMA in consideration of entering into this Agreement and that the sole consideration for HMA's entering into this Agreement was DEALER's ability, integrity, assurance of personal services and expressed intention to deal fairly and equitably with HMA and the public and any other promises recited herein. N. WAIVER OF TRIAL BY JURY HMA and DEALER hereby waive, to the extent permitted by law, the right to trial by jury for all disputes, controversies or claims which may arise between DEALER and HMA out of or in connection with this Agreement, or its construction, interpretation, effect, performance or non-performance, termination or the consequences thereof, or in connection with any transaction contemplated between the parties. O. TAXES DEALER will pay all local, state, federal or other applicable taxes, including without limitation, sales taxes, use taxes, excise taxes, levied or based upon the sale of Hyundai Products by HMA to DEALER and will maintain accurate records of same for reporting purposes. 20. DEFINITIONS The following terms, as used in this Agreement, will be defined exclusively as set forth below: A. AGREEMENT: This Agreement consists of the HMA Dealer Sales and Service Agreement entered into by DEALER and HMA and includes the Standard Provisions. B. AUTHORIZED HYUNDAI DEALER: Dealers who are authorized by HMA to sell and service Hyundai Products, and to use the Hyundai Marks in connection therewith, pursuant to a duly executed Hyundai Dealer Sales and Service Agreement. -33- C. DEALER FACILITIES: The buildings, improvements, fixtures and equipment situated at the approved DEALER location(s). D. DEALER LOCATION: The location or locations, and any facilities located thereon, identified in paragraph 6, which HMA has approved for dealership operations. E. DEALERSHIP OPERATIONS: All Dealer operations contemplated by this Agreement, including, without limitation, sale and servicing of Hyundai Products, use and display of Hyundai Marks, advertising and promotion of Hyundai Products, rental and leasing of Hyundai Motor Vehicles, sale of used cars, body shop work, and financing or insurance services, whether conducted directly or indirectly by DEALER. F. GENERAL MANAGER: The person identified in paragraph 4 of the Agreement considered to be a "Dealer Operator" with full operational responsibility and authority for dealership operations. G. HYUNDAI GENUINE PARTS OR ACCESSORIES: All new or remanufactured Hyundai parts, accessories and equipment marketed by HMA and listed in HMA's parts catalog, or the functional equivalent thereof, as amended from time to time. H. HYUNDAI MARKS: The various Hyundai trademarks, service marks, names, logos and designs used by HMA in connection with Hyundai Products and which HMA authorizes DEALER to use in the sale and servicing of Hyundai Products. I. HYUNDAI MOTOR VEHICLES: All automobiles, trucks, vans, cab/chassis or other motor vehicles which FACTORY, in its sole discretion, sells to HMA for resale to authorized Hyundai Dealers. J. HYUNDAI PRODUCTS: All Hyundai Motor Vehicles, parts, accessories and equipment which FACTORY, in its sole discretion, and/or authorized suppliers sell to HMA for resale to authorized Hyundai Dealers. K. HYUNDAI WARRANTY POLICIES AND PROCEDURES MANUAL: The current publication issued by HMA known as the Hyundai Warranty Policies and Procedures Manual, or its functional equivalent, as it may be revised or supplemented from time to time. L. OWNER: The person(s) identified in paragraph 3 of this Agreement. M. STANDARD PROVISIONS: The Standard Provisions are a part of all Hyundai Sales and Service Agreements and are fully incorporated therein by the express provision of paragraph 7 of the Agreement. The Standard Provisions commence with paragraph 10 to reflect continuity with the first nine paragraphs of the Agreement. -34- EX-10.2-21 18 EXHIBIT 10.2.21 ISUZU DEALER SALES AND SERVICE AGREEMENT AGREEMENT effective the 16th day of September, 1996, by and between AMERICAN ISUZU MOTORS INC., a California corporation (hereinafter called "Distributor") and Fair Cadillac-Oldsmobile-Isuzu Partnership [an individual][partnership formed in the State of Connecticut ] [corporation incorporated in the State of ______________________] [doing business as Fair Isuzu ] whose business location is 100 Federal Road, Danbury, CT 06813 (hereinafter called "Dealer"). PURPOSE The purpose of this Agreement is to set forth the basic rights, duties and procedures that apply to the relationship and business transactions between Distributor and Dealer, and to provide for the sale and servicing of Isuzu Products in a manner that will best serve the interests of Distributor, Dealer, and owners and purchasers of Isuzu Products. This Agreement sets forth the rights which Dealer will enjoy as an Authorized Isuzu Dealer; the responsibilities which Dealer assumes in consideration of these rights; and the respective rights and obligations of Distributor and Dealer to each other. The parties recognize that the success of Distributor and Dealer depends upon mutual understanding and cooperation between Distributor and Dealer and how well they each fulfill their respective responsibilities. Distributor's basic responsibility is to promote and market Isuzu Products in the United States and to endeavor to establish a sales network of dealers that can provide effective sales and service efforts at the retail level. Dealer's basic responsibility is to actively and effectively promote the retail sale of Isuzu Products and to provide courteous and efficient service of Isuzu Products. Distributor and Dealer will endeavor to fulfill their respective responsibilities through aggressive, sound, ethical selling practices and through conscientious regard for customer service. Distributor and Dealer shall refrain from engaging in conduct or activities which might be detrimental to or reflect adversely upon the reputation of Distributor, Manufacturer, Dealer or Isuzu Products and shall engage in no discourteous, deceptive, misleading or unethical practices or activities. NOW THEREFORE, in consideration of the foregoing and the promises and agreements herein contained, it is hereby mutually agreed between the parties hereto as follows: SECTION 1. APPOINTMENT OF DEALER Subject to the conditions and provisions set forth in this Agreement, Distributor hereby: (1) appoints Dealer as an Authorized Isuzu Dealer; (2) grants Dealer the non-exclusive right to buy Isuzu Cars, Isuzu Trucks and Isuzu Parts and Accessories from Distributor for resale at or from Dealer's Dealership Location; and (3) grants Dealer a non-exclusive right, subject to and in accordance with the provisions of this Agreement, to identify itself as an Isuzu Dealer and to use and to display, in the conduct of its dealership operations, the various trademarks, tradenames, service marks and other word and design marks that Distributor uses or will use in connection with the promotion or sale of or are or will be applied to Isuzu Products. SECTION 2. ACCEPTANCE BY DEALER Dealer hereby accepts and grants and acknowledges that: (1) Except as otherwise provided by applicable laws, Distributor shall have the absolute right to appoint other persons to conduct dealership operations in connection with Isuzu Products and to contract with such persons in connection therewith; (2) Except as expressly provided in this Agreement or with the prior written consent of Distributor (which consent shall not be unreasonably withheld), neither said appointment, said grants nor this Agreement may be transferred, assigned or sold to any third party, whether separately or in -2- connection with any sale of the assets of or ownership interests in Dealer, by Dealer or its management or owners; (3) No fee or other monetary consideration has been paid by Dealer to Distributor for said appointment or grants or as consideration for Distributor's entering into this Agreement and no property right or interest, direct or indirect, is sold, conveyed or transferred to Dealer by this Agreement. SECTION 3. ASSUMPTION OF RESPONSIBILITY BY DEALER In consideration of said appointment and grants and subject to the conditions and provisions of this Agreement, Dealer agrees to: (1) establish and maintain at Dealer's Dealership Location the Dealership Facilities described in this Agreement in the manner set forth in this Agreement; (2) actively and effectively promote the sale at retail (and, if Dealer elects, the leasing and rental) of Isuzu Products at and from Dealer's Dealership Location in accordance with the provisions of this Agreement; (3) conduct quality service for Isuzu Vehicles in accordance with the provisions of this Agreement; (4) perform all additional responsibilities specified in this Agreement; (5) secure and maintain all licenses required for the conduct of an Isuzu dealership at and from Dealer's Dealership Location and to furnish Distributor with written notice of securing such licenses. This Agreement will not be valid until and unless Dealer shall have furnished Distributor with written notice specifying the date and the identifying number, if any, of each such license secured by Dealer. Dealer shall notify Distributor immediately in writing if Dealer shall fail to secure any such license or if any such license shall expire and Dealer shall fail to obtain a renewal thereof or if any such license is suspended or revoked, specifying the effective date of any such expiration, suspension or revocation. SECTION 4. OWNERSHIP AND MANAGEMENT (a) This Agreement has been entered into by Distributor in reliance upon: -3- (i) DEALER'S REPRESENTATION AND AGREEMENT THAT THE FOLLOWING NAMED PERSONS ARE ALL OF THE PERSONS WHO HAVE AN OWNERSHIP INTEREST IN DEALER: Percentage Interest. 1. (Name) Fair Cadillac-Oldsmobile Corp. 30(%) (Residence Address) 100 Federal Road, Danbury, CT 06813 2. (Name) DiFeo Partnership, Inc. 70% (Residence Address) 153 East 53 Street, New York, NY 3. (Name) % (Residence Address) 4. (Name) % (Residence Address) 5. (Name) % (Residence Address) 6. (Name) % (Residence Address) (ii) DEALER'S REPRESENTATION AND AGREEMENT THAT THE FOLLOWING NAMED PERSON, AND ONLY THE FOLLOWING NAMED PERSON SHALL BE DEALER'S EXECUTIVE MANAGER AND SHALL HAVE FULL AUTHORITY AND RESPONSIBILITY FOR THE OPERATING MANAGEMENT OF DEALER IN PERFORMANCE PURSUANT TO THIS AGREEMENT: (Name) James D. Evans Title: Executive Manager (Residence Address) 10 Pilgrim's Way, Gaylordville, CT 06755 (b) This Agreement has been entered into by Distributor in reliance upon, and in consideration of, the personal qualifications and representations with respect thereto of the above-named persons. In view of the personal nature of this Agreement and its objectives and purposes, this Agreement and the rights and privileges conferred on Dealer hereunder are not assignable, transferable or saleable by Dealer. Dealer agrees that any change in the ownership or -4- operating management of Dealer specified herein requires the prior written consent of Distributor. Dealer shall give Distributor prior notice of any proposed change in said ownership or management and immediate notice of the death or incapacity of any Owner or Executive Manager. No such change, and no assignment of this Agreement or of any right or interest herein, shall be effective against Distributor unless and until embodied in an appropriate amendment to or assignment of this Agreement, as the case may be, duly executed and delivered by Distributor and by Dealer. Distributor shall not unreasonably withhold its consent to any such change. SECTION 5. PROVISIONS The "ISUZU DEALER SALES AND SERVICE AGREEMENT ADDITIONAL PROVISIONS" are hereby incorporated herein and made a part of this Agreement with the same force and effect as if set forth at length herein and the term "this Agreement" as used herein, includes said "ISUZU DEALER SALES AND SERVICE AGREEMENT ADDITIONAL PROVISIONS". Dealer agrees to be bound by and comply with the provisions of the Service Policies and Procedures Manual, the Parts Policies and Procedures Manual and all other manuals heretofore or hereafter issued by Distributor to Dealer and all amendments, revisions and supplements thereto, and all bulletins and instructions heretofore or hereafter issued by Distributor to Dealer. SECTION 6. ENTIRE AGREEMENT Unless expressly referred to and incorporated herein, this Agreement cancels, supersedes and annuls all prior agreements, contracts and understandings between Distributor and Dealer, and there are no representations, promises, agreements or understandings except as described herein, all negotiations, representations and understandings being merged herein. SECTION 7. WAIVER OR MODIFICATION OF THIS AGREEMENT (a) The failure of either party at any time to require performance by the other party of any provisions hereof shall in no way affect the full right to require such performance at any time thereafter. Nor shall the waiver by either party of a breach of any provision hereof constitute a waiver of any succeeding breach of the same or any other such provisions nor constitute a waiver of the provision itself. (b) 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 filling of blank -5- spaces and lines) will be valid or binding on Distributor unless approved in writing by the President or the Senior Vice President and General Manager of Distributor. SECTION 8. TERM This Agreement shall have a term commencing on the effective date hereof and shall continue in effect until terminated in accordance with the provisions of this Agreement. SECTION 9. APPLICABLE LAW This Agreement shall be deemed to have been made in and shall be governed by and construed in accordance with the laws of the State of California; provided, however, (a) Unless Dealer's Dealership Location is situated in California, Dealer shall have none of the rights or duties provided for in the California Statutes regulating the relationship between motor vehicle manufacturers, distributors and dealers, but shall have the rights and duties provided in the like laws, if any, of the state in which Dealer's Dealership Location is situated; and (b) If performance by either Distributor or Dealer of any provision of this Agreement contravenes a law of any state or jurisdiction where such performance is to take place, the performance of such provision shall be in accordance with the requirements of such law to the extent, and only to the extent, that such performance contravenes such law and only to the extent and while such law is deemed or held to be valid and applicable to such performance. SECTION 10. EXECUTION OF AGREEMENT This Agreement, and any addendum or amendment, or notice with respect thereto, shall be valid and binding on Distributor only when it bears the signature of either the President or the Senior Vice President and General Manager of Distributor. This Agreement shall bind Dealer only when signed by a duly authorized officer of Dealer if a corporation; by one or more of the general partners of Dealer if a partnership; or by Dealer if an individual. -6- IN WITNESS WHEREOF, the parties have executed this Agreement in triplicate as of the day and year first above written at Whittier, California. DEALER DISTRIBUTOR FAIR CADILLAC-OLDSMOBILE-ISUZU AMERICAN ISUZU MOTORS INC PARTNERHSIP By /s/ Carl Spielvogel By /s/ J.T. Maloney --------------------------- -------------------------- Title Chairman & CEO Title Sr. V.P. and Gen Mgr., ------------------------- Light Vehicles ---------------------- -7- DEALERSHIP STANDARDS ADDENDUM FOR FAIR CADILLAC-OLDSMOBILE-ISUZU PARTNERSHIP DBA: FAIR ISUZU EFFECTIVE FROM AND AFTER SEPTEMBER 16, 1996 UNTIL AMENDED In accordance with Section 5 of our Isuzu Dealer Sales and Service Agreement with you dated September 16, 1996, and Article III of the Isuzu Dealer Sales and Service Agreement Additional Provisions thereto, you agree to: 1. Furnish to us, on or before the tenth day of each month, on such forms or by such means as we may designate, complete and accurate financial and operating statements reflecting your true financial condition of the fiscal year then ended. 2. Maintain a satisfactory flooring arrangement with an approved bank or financial institution providing a minimum flooring line of $600,000 exclusively for the purchase of Isuzu vehicles. 3. Maintain a separate and exclusive Isuzu new vehicle showroom located at 100 Federal Road, Danbury, CT 06813, solely for the display and sale of Isuzu vehicles. Said showroom to be a minimum of 1,500 square feet, and sufficient in design to display at least three (3) Isuzu vehicles. 4. Install and maintain standard signs as required by us for an Isuzu dealership, including brand, fascia, exterior service and parts, and interior parts signs, where allowable under the current local sign ordinance. In the event the installation of the Isuzu pillar brand sign is not allowable by local sign ordinance after all reasonable efforts have been exhausted to obtain a variance, it is agreed the existing Hyundai brand sign will be refaced equally dividing the area of the sign for Isuzu and Hyundai. 5. Have your service management and technicians attend specified Isuzu sponsored service training programs. 6. Have your sales and management personnel attend Isuzu sponsored product training sessions. 7. Maintain a designated area in the service department located at 100 Federal Road, Danbury, CT 06813 for servicing Isuzu vehicles. this shall be coordinated with our designated representative and subject to our approval. 8. Maintain a specified area in the parts department located at 100 Federal Road, Danbury, CT 06813 for storage of Isuzu parts. This shall be coordinated with our designated representative and subject to our approval. 9. Maintain net working capital of $94,850 in excess of the combined current net working capital requirement of other manufacturers you may also represent or, alternatively, having and maintaining net working capital in the amount required by Isuzu as determined by any revised standard working capital formula which we may employ. 10. Maintain and utilize the Isuzu Dealer Communication System for submission of required monthly financial statements, parts orders, warranty claims, retail sales reports, and all other functions which from to time American Isuzu Motors Inc. may deem necessary. American Isuzu Motors Inc. reserves the right to amend the foregoing Dealership Standards at any time upon written notice to you. Fair Cadillac-Oldsmobile-Isuzu Partnership DBA: Fair Isuzu 100 Federal Road Danbury, CT 06813 By /s/ Carl Spielvogel ----------------------------- Its Chairman & CEO ---------------------------- AMERICAN ISUZU MOTORS INC. By /s/ J.T. Maloney ----------------------------- J.T. Maloney Its Sr. Vice President and General Manager, Light Vehicles -2- SUPPLEMENTAL AGREEMENT TO DEALER SALES AND SERVICE AGREEMENT (PUBLICLY TRADED COMPANY) FAIR CADILLAC-OLDSMOBILE-ISUZU PARTNERSHIP THIS SUPPLEMENTAL AGREEMENT (this "Supplemental Agreement"), dated as of September 16, 1996, is entered into among Fair Cadillac-Oldsmobile- Isuzu Partnership ("Dealer"), DiFeo Partnership and Fair Cadillac-Oldsmobile Corp. ("Owners"), United Auto Group, Inc. ("Public Company") and American Isuzu Motors Inc. ("Distributor"). WHEREAS, contemporaneously herewith, Distributor and Dealer are entering into a Dealer Sales and Service Agreement (the "Dealer Agreement") which authorizes Dealer to conduct dealership operations from the Dealership Locations identified in the Dealer Agreement; WHEREAS, the organization and ownership of Dealer is such that the terms of the Dealer Agreement are not wholly adequate to address the legitimate business needs and concerns of Distributor and Dealer; and WHEREAS, Distributor and Dealer have entered into the Dealer Agreement in consideration for and in reliance upon certain understandings, assurances and representations which the parties wish to document; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereby agree as follows: 1. LIMITATIONS UPON CHANGE OF EXECUTIVE MANAGER A. DESIGNATION OF EXECUTIVE MANAGER. As set forth in Section 4 of the Dealer Agreement, James D. Evans shall be Executive Manager of Dealer. Dealer and Owners agree that Executive Manager shall have 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. Neither Dealer nor Owners will revoke, modify or otherwise impose limitations upon such authority without the prior written consent of Distributor. B. CHANGE OF EXECUTIVE MANAGER. Without limiting the restrictions set forth in the Dealer Agreement, the removal or withdrawal of Executive Manager without Distributor's prior written consent shall constitute grounds for termination of the Dealer Agreement, subject to applicable law. 2. LIMITATIONS UPON CHANGES IN OWNERSHIP A. CHANGE IN OWNERSHIP OF DEALER OR OWNERS. Dealer, Owners and Public Company hereby represent and warrant that all of the partnership interests of Dealer are owned by Owners, and that Fair Cadillac-Oldsmobile Corp. is a wholly-owned subsidiary of Public Company. Any change in ownership of Dealer or of Owners, or any event with respect to Public Company described in subparagraph B below, shall be considered a change in ownership of Dealer under the terms of the Dealer Agreement, and all applicable provisions of the Dealer Agreement will apply to any such change. B. CHANGE IN OWNERSHIP OF PUBLIC COMPANY. Given the ultimate control Owners have over Dealer, the control of Fair Cadillac- Oldsmobile Corp. by Public Company, and Distributor's strong interest in assuring that those who own and control Distributor's dealerships have interests consistent with those of Distributor, Dealer, Owners and Public Company agree that if any person or entity hereinafter acquires or controls more than 20% of the issued and outstanding common stock of Public Company at any time and Distributor reasonably concludes that such person or entity does not have interests compatible with those of Distributor or is otherwise not qualified to have an ownership interest in the dealerships at the Dealership Locations, then within 90 days of receipt of written notice from Distributor, Dealers and Owners will: (i) transfer the assets associated with Dealer to a third party acceptable to the Distributor, (ii) voluntarily terminate the Dealer Agreement, or (iii) provide evidence to Distributor that such person or entity no longer has such an ownership interest in Public Company. In the event that Dealer enters into an agreement to transfer its assets to a third party as set forth in (i) above, Distributor shall have a right of first refusal to purchase such assets in accordance with the terms and procedures set forth in subparagraph C below. 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 Distributor in writing, and attach a copy of that Schedule. C. EXERCISE OF RIGHT OF FIRST REFUSAL. Prior to exercising its right of first refusal pursuant to subparagraph B above, Distributor shall have a reasonable opportunity to inspect the assets, including real estate, before making its decision. 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 Distributor agree to other terms. Upon Distributor's request, Dealer agrees to provide all documents relating to the proposed transfer. If Dealer refuses to provide such documentation or states that such documents do not exist, it will be presumed that the agreement is not bona fide. 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 Distributor. 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 -2- the American Arbitration Association. Dealer agrees to transfer the assets by Warranty Deed where possible, conveying marketable title free and clear of liens and encumbrances. The Deed will be in proper form for recording and Dealer will deliver complete possession of the assets 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 Dealer's operations. Distributor's rights under this section may be assigned to any third party and in connection with any such assignment, Distributor will guarantee full payment of the purchase price by the assignee. 3. LIMITATIONS UPON NUMBER AND LOCATIONS OF DEALERSHIPS Dealer, Owners and Public Company agree to be bound by the provisions of Distributor's standard policies in effect from time to time which limit the number and locations of Distributor's dealerships which may be owned by Dealer and/or its parent companies, subsidiary companies and companies under common control with it. Dealer and Owners shall provide such documentation as is reasonably requested by Distributor regarding the ownership interests of all such persons and entities in Distributor's dealerships. In the event that Dealer, Owners or Public Company shall acquire ownership or control of more than one of Distributor's dealerships, then Dealer, Owners and/or Public Company shall obtain separate motor vehicle licenses, and shall maintain separate financial statements, for each dealership. 4. WORKING CAPITAL REQUIREMENTS Dealer and Owners agree that Dealer shall maintain, at all times, sufficient working capital to meet or exceed the minimum net working capital standards for Dealer as determined from time to time by Distributor consistent with its standard policies. Dealer and Owners shall provide such documentation as is reasonably requested by Distributor to assure compliance with this requirement. Owners agree to submit an annual consolidated balance sheet for the combined dealership operations of Owners. Public Company agrees, upon Distributor's request, to provide Distributor with copies of the materials filed by Public Company with the Securities and Exchange Commission. 5. INDEMNITY Public Company agrees to indemnify and hold Distributor harmless from and against any and all claims, liabilities, losses, damages, costs and expenses arising out of or in connection with the sale of stock in Public Company. Public Company further agrees to indemnify and hold Distributor harmless from and against any and all claims of the shareholders of Public Company, and all liabilities, losses, damages, costs and expenses incurred in connection therewith, unless a final determination is -3- made that Distributor was in fact liable for such claims, liabilities, losses, damages, costs or expenses. 6. MISCELLANEOUS A. EFFECT OF SUPPLEMENTAL AGREEMENT. The parties agree that this Supplemental Agreement is intended to supplement the terms of the Dealer Agreement and not to limit the rights and obligations of the parties contained therein. This Supplemental Agreement is hereby incorporated into the Dealer Agreement and made a part thereof. In the event that any of the provisions of this Supplemental Agreement are in actual conflict with other provisions of the Dealer Agreement, the provisions contained in this Supplemental Agreement shall govern. In the event that the policies of Distributor with regard to the issues addressed herein are hereinafter modified, the parties agree to review such modifications to determine whether modifications of this Supplemental Agreement are appropriate. B. CONSTRUCTION. This Supplemental Agreement shall be governed by and construed in accordance with the laws of the State of California. The failure of either party to enforce any of the provisions of this Supplemental Agreement or the failure to exercise any election provided for herein shall in no way be considered to be a waiver of such provisions or elections. All capitalized terms used herein and not defined herein shall have the meanings set forth in the Dealer Agreement. C. ALTERNATIVE DISPUTE RESOLUTION. In the event of any dispute between the parties regarding the Dealer Agreement or this Supplemental Agreement, Dealer, Owners and Public Company agree to participate in any alternative dispute resolution procedures specified in the standard policies of Distributor. 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. D. NO THIRD PARTY BENEFICIARIES. Nothing in this Supplemental 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 Supplemental Agreement or the Dealer Agreement. Dealer and Owners hereby agree to indemnify and hold harmless Distributor, its affiliates, subsidiaries, directors, officers, employees, agents and representatives from and against all claims, actions, liabilities, damages, costs and expenses (including reasonable attorneys' fees) 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 -4- stockholder suit authorized by the Board of Directors of Public Company. E. CONDITION PRECEDENT. Notwithstanding anything to the contrary contained herein, the parties acknowledge that the provisions of this Supplemental Agreement shall not be applicable until such time as Public Company completes a public offering of its stock. IN WITNESS WHEREOF, the parties have executed this Supplemental Agreement effective as of the date set forth in the introductory paragraph hereof. FAIR CADILLAC-OLDSMOBILE-ISUZU DIFEO PARTNERSHIP PARTNERSHIP By: /s/ Carl Spielvogel By: /s/ Carl Spielvogel -------------------------- ---------------------------- Name: Carl Spielvogel Name: Carl Spielvogel -------------------------- ---------------------------- Title: Chairman & CEO Title: Chairman & CEO -------------------------- ---------------------------- FAIR CADILLAC-OLDSMOBILE CORP. UNITED AUTO GROUP, INC. By:___/s/ Samuel X. DiFeo By: /s/ Carl Spielvogel -------------------------- ---------------------------- Name: Samuel X. DiFeo Name: Carl Spielvogel -------------------------- ---------------------------- Title: CEO Title: Chairman & CEO -------------------------- ---------------------------- AMERICAN ISUZU MOTORS INC. By: /s/ J.T. Maloney - ----------------------------- Name: J.T. Maloney - ----------------------------- Title: Sr. Vice President, General Manager - LV - ----------------------------- -5- EX-10.2-22 19 EXHIBIT 10.2.2 ISUZU DEALER SALES AND SERVICE AGREEMENT ADDITIONAL PROVISIONS The following Additional Provisions have by reference been incorporated in and made a part of the ISUZU DEALER SALES AND SERVICE AGREEMENT which they accompany and which has been executed on behalf of Distribution and Dealer. ARTICLE I. DEFINITIONS As used in this Agreement, the following terms shall have the following meanings: A. "Authorized Isuzu Dealers" shall mean dealers located in the United States that are authorized by Distributor to conduct dealership operations in connection with the sale of Isuzu Products. B. "Isuzu Cars" shall mean such new passenger cars manufactured by or on behalf of Manufacturer as are from time to time offered for sale by Distribution to Dealer for resale. C. "Isuzu Trucks" shall mean such new light duty trucks and chassis manufactured by or on behalf of Manufacturer as are from time to time offered for sale by Distributor to Dealer for resale. D. "Isuzu Vehicles" shall mean Isuzu Cars and Isuzu Trucks. E. "Isuzu Parts and Accessories" shall mean such parts and accessories manufactured by or on behalf of Manufacturer or Distributor as are from time to time offered for sale by Distributor to Dealer. F. "Isuzu Products" shall mean Isuzu Vehicles and Isuzu Parts and Accessories. G. "Competitive Cars" shall mean those new cars which are designated by Distributor as directly competitive with Isuzu Cars. H. "Import Industry Cars" shall mean all new cars manufactured other than within the United States which are imported into the United States for sale to the extent data relating to registration thereof are reasonably available. I. "Industry Cars" shall mean all new cars of manufacturers which are sold and distributed within the United States, to the extent data relating to registration thereof are reasonably available. J. "Competitive Trucks" shall mean those new light duty trucks which are designated by Distributor as directly competitive with Isuzu Trucks. K. "Import Industry Trucks" shall mean all new light duty trucks manufactured other than within the United States which are imported into the United States for sale, to the extent data relating to registration thereof are reasonably available. L. "Industry Trucks" shall mean light duty trucks of all manufacturers which are sold and distributed within the United States, to the extent data relating to registration thereof are reasonably available. -2- M. "Dealership Location" shall mean the business location of Dealer described in the initial paragraph of this Agreement. N. "Dealership Facilities" shall mean the land areas at the Dealership Location and the buildings and improvements erected thereon. O. "Dealer's Market" shall mean the geographical area within which potential purchasers and owners of Isuzu Products which Dealer can most readily serve are located. Such area, or portions thereof, may at any time be a part of the Market of other Authorized Isuzu Dealers as well as Dealer. P. "Owner(s)" shall mean the person(s) named as Owner(s) in Section 4 of this Agreement. Q. "Executive Manager" shall mean the person named as Executive Manager in Section 4 of this Agreement. R. "Successor Addendum" shall mean the Successor Addendum, if any, executed by Distributor and Dealer pursuant to the provisions of Article VII of this Agreement. S. "Dealership Standards" shall mean such reasonable standards as may be established by Distributor for Authorized Isuzu Dealers from time to time under its standard procedures with respect to such matters as dealership facilities, tools, equipment, capitalization, inventories and personnel. T. "Service Policies and Procedures Manual" shall mean the publication or publications of Distributor, as the same may from time to time be amended, revised or supplemented, which -3- set forth Distributor's policies and procedures concerning and administration of Distributor's warranties and related matters. U. "Manufacturer" shall mean ISUZU MOTORS LIMITED. ARTICLE II. SALES TO DEALER A. DEALER'S ORDERS At such times as Distributor may from time to time designate, Dealer shall submit to Distributor orders for Isuzu Products in such quantities and varieties as may be reasonably necessary for Dealer to fulfill its obligations under this Agreement. All orders shall be on forms supplied by Distributor, shall be subject to acceptance by Distributor, and may be accepted in whole or in part. Orders may be accepted by written notice to Dealer or by actual delivery of the products ordered to Dealer or to a carrier for transportation to Dealer. Except as otherwise provided in this Agreement, orders shall not be cancellable by Dealer after acceptance by Distributor. Distributor will process and fill Dealer's orders in accordance with procedures relating thereto established by Distributor. Because of the number of factors that affect the distribution of products and the relevancy thereof at any given time. Distributor necessarily reserves to itself discretion in applying such factors and in processing orders for Isuzu Products it receives from Dealer. The judgment and decisions of Distributor shall be final in all matters relating to the distribution and delivery of Isuzu Products to Dealer. -4- B. SHIPMENT AND RISK OF LOSS Distributor will ship Isuzu Products by whatever mode of transportation, by whatever route, and from whatever point Distributor may select. Distributor will, if requested by Dealer in such manner and within such time as Distributor shall from time to time specify, prosecute claims for loss of or damage to Isuzu Products during transportation from said point of shipment against the responsible carrier for and on behalf of Dealer. C. PASSAGE OF TITLE Title to Isuzu Products shall pass from Distributor to Dealer, or, if applicable, to the financial institution designated by Dealer, upon delivery of said product to Dealer or to a carrier for transportation to Dealer, whichever occurs first. Distributor shall retain a security interest in, and the right to repossess, any such product until paid in full therefor. D. FREIGHT In addition to the prices and charges otherwise provided for herein, Dealer will pay Distributor in connection with Isuzu Vehicles delivered to Dealer the applicable destination charges that are in effect at the time of shipment. Dealer shall pay such transportation charges for Isuzu Parts and Accessories as may be in effect at the time of shipment. E. DIVERSIONS Dealer shall pay all charges accruing after delivery of Isuzu Products to Dealer or to carrier for transportation to Dealer, including, but not limited to, charges for demurrage and storage. If diversions of shipments are made upon Dealer's -5- request or because of Dealer's failure or refusal to accept delivery thereof, Dealer shall be responsible for and pay any additional costs or expenses thereby incurred. ARTICLE III. DEALERSHIP OPERATIONS A. DEALERSHIP LOCATION AND FACILITIES 1. DEALERSHIP FACILITIES Dealer shall provide, at the Dealership Location, Dealership Facilities that will enable Dealer to effectively perform its responsibilities under this Agreement. The Dealership Facilities shall be satisfactory as to appearance and layout, properly equipped and substantially in accordance with the applicable Dealership Standards. 2. CHANGE IN DEALERSHIP LOCATION OR FACILITIES Dealer shall not move, relocate, modify or change the Dealership Location or any of the Dealership Facilities, nor shall Dealer or any Owner or Manager directly or indirectly establish or operate any other locations or facilities for the sale or servicing of Isuzu Products or for the conduct of any other of the dealership operations contemplated by this Agreement without the prior written consent of Distributor. 3. HOURS OF BUSINESS In order to serve the needs of potential purchasers and the service requirements of owners and users of Isuzu Products, Dealer shall keep its Dealership Facilities open and operating for business during such days and hours as automobile dealers' sales, parts and service facilities are customarily open in the community wherein the Dealership Location is situated. -6- 4. IDENTIFICATION OF DEALERSHIP FACILITIES Insofar as permitted by local laws and regulations, Dealer shall display at its Dealership Location, in such number and at such locations as Distributor may reasonably require, signs which are compatible with the design standards established by Distributor from time to time. Dealer shall maintain all such signs in good condition at all times. 5. EVALUATION OF DEALER'S PERFORMANCE WITH RESPECT TO DEALERSHIP FACILITIES Distributor shall periodically evaluate Dealer's performance of its responsibilities with respect to Dealership Facilities and shall discuss its evaluation with Dealer. Dealer shall promptly take such action as may be required to correct any deficiencies in its performance of these responsibilities. B. VEHICLE SALES OPERATIONS 1. RESPONSIBILITY OF DEALER Dealer shall actively and effectively promote the sale at retail (and, if Dealer elects, the leasing and rental) of Isuzu Vehicles to potential customers located in Dealer's Market. However, nothing contained in this Agreement shall limit or be construed to limit the geographical area within which or the persons to whom Dealer may sell or promote the sale of Isuzu Vehicles. 2. SALES PERSONNEL Dealer shall at all times employ the number of trained and competent new vehicle managerial and sales personnel reasonably required to fulfill its responsibilities with respect to the sales of Isuzu Vehicles. -7- Dealer shall, without expense to Distributor, have its said employees attend such vehicle sales training sessions as Distributor may from time to time conduct. 3. INVENTORY Subject to the ability of the Distributor to supply the same, Dealer shall maintain at all times stocks of Isuzu Vehicles of an assortment and in quantities adequate to meet its responsibilities with respect to sales of Isuzu Vehicles. Dealer shall also have available at all times an adequate number and variety of Isuzu Vehicles for purposes of display and demonstration and shall, at all times, maintain the same in first class condition. 4. MODIFICATION OF ISUZU VEHICLES If the laws of the state in which the Dealership Location is situated or of the states in which customers of Dealer are located require the installation on vehicles of equipment not installed or supplied as standard equipment by Distributor, Dealer shall, prior to its sale of the Isuzu Vehicles on which such installation is required, install at its own expense such additional equipment. Dealer shall indemnify and hold Distributor harmless from and against any and all liabilities arising from Dealer's failure to install such additional equipment on said vehicles. 5. EVALUATION OF DEALER'S SALES PERFORMANCE Distributor shall periodically evaluate Dealer's performance of its responsibilities with respect to sales of Isuzu Cars and shall discuss its evaluation with Dealer. Dealer -8- shall promptly take such action as may be required to correct any deficiencies in its performance of these responsibilities. Dealer's performance of these responsibilities shall be evaluated by Distributor on the basis of such reasonable factors as Distributor shall establish and furnish Dealer from time to time. Such factors shall include: (a) Reasonable sales objectives for Isuzu Cars which may be established from time to time by Distributor for Dealer; (b) Dealer's sales of Isuzu Cars as compared to: (i) registrations of Isuzu Cars in Dealer's Market; (ii) registrations of Competitive Cars in Dealer's Market; (iii) registrations of Import Industry Cars in Dealer's Market; (iv) registrations of Industry Cars in Dealer's Market; and (v) the average sale of Isuzu Cars by comparable groupings of Authorized Isuzu Dealers. 6. EVALUATION OF SALES OF ISUZU TRUCKS Distributor shall periodically evaluate Dealer's performance of its responsibilities with respect to sales of Isuzu Trucks and shall discuss its evaluation with Dealer. Dealer shall promptly take such action as may be required to -9- correct any deficiencies in its performance of these responsibilities. Dealer's performance of these responsibilities shall be evaluated by Distributor on the basis of such reasonable factors as Distributor shall establish and furnish Dealer from time to time. Such factors shall include: (a) Reasonable sales objectives for Isuzu Trucks which may be established from time to time by Distributor for Dealer; (b) Dealer's sales of Isuzu Trucks as compared to: (i) registrations of Isuzu Trucks in Dealer's Market; (ii) registrations of Competitive Trucks in Dealer's Market; (iii) registrations of Import Industry Trucks in Dealer's Market; (iv) registrations of Industry Trucks in Dealer's Market; and (v) the average sales of Isuzu Trucks by comparable groupings of Authorized Isuzu Dealers. C. USED VEHICLE SALES OPERATIONS To enhance Dealer's opportunities to operate successfully, Dealer will engage in such used vehicle operations as Dealer may deem appropriate. Dealer shall be entitled to identify such used vehicle operations as a part of its dealership operations and to apply the trademarks, tradenames and service -10- marks of Distributor relating to used vehicle operations, but only as and to the extent Dealer subscribes to and fulfills all requirements of programs relating thereto offered Dealer by Distributor. D. RENTAL AND LEASING OPERATIONS Since the rental and leasing of Isuzu Vehicles will offer Dealer additional opportunities to improve its effectiveness in fulfilling its responsibilities with respect to sales of Isuzu Vehicles, Dealer will explore such opportunities and will establish rental and leasing operations if such additional opportunities are apparent. Dealer shall be entitled to identify such rental and leasing operations as a part of its dealership operations and to apply the trademarks, tradenames and service marks of Distributor relating to rental and leasing operations, but only as and to the extent Dealer subscribes to and fulfills all requirements of programs relating thereto offered Dealer by Distributor. E. PARTS AND ACCESSORIES SALES OPERATIONS 1. RESPONSIBILITY OF DEALER Dealer shall actively and effectively promote the sale of Isuzu Parts and Accessories to service, wholesale and other customers located in Dealer's Market. However, nothing contained in this Agreement shall limit or be construed to limit the geographical area within which or the person to whom Dealer may sell Isuzu Parts and Accessories. -11- 2. SALES PERSONNEL Dealer shall at all times employ the number of trained and competent parts and accessories managerial and sales personnel reasonably required to fulfill its responsibilities with respect to the sales of Isuzu Parts and Accessories. Dealer shall, without expense to Distributor, have its said employees attend such parts and accessories sales training sessions as Distributor may from time to time conduct. 3. INVENTORY Dealer shall maintain at all times stocks of parts and accessories adequate to meet its responsibilities with respect to service of Isuzu Products. Dealer shall also amintain, subject to the ability of Distributor to supply the same, stocks of Isuzu Parts and Accessories of an assortment and in quantities adequate to meet customer demands and for warranty repairs, special policy service and campaign corrections. Dealer shall maintain a proper and adequate system of parts and accessories inventory control. 4. REPRESENTATIONS CONCERNING PARTS AND ACCESSORIES In connection with its ale or offering for sale or use in the repair or service of Isuzu Products, Dealer shall not represent as an Isuzu Part or Accessory any part or accessory that in fact is not an Isuzu Part or Accessory. 5. EVALUATION OF DEALER'S PARTS AND ACCESSORIES SALES PERFORMANCE Distributor shall periodically evaluate Dealer's performance of its responsibilities with respect to the sale of Isuzu Parts and Accessories and shall discuss its evaluation with -12- Dealer. Dealer shall promptly take such action as may be required to correct any deficiencies in its performance of these responsibilities. F. SERVICE OPERATIONS 1. GENERAL SERVICE RESPONSIBILITIES OF DEALER Dealers shall provide prompt efficient and courteous service to owners and users of Isuzu Products regardless of the origin of purchase thereof, including, without limitation, the specific obligations described below. All service performed by Dealer pursuant to this Agreement shall be performed in a good and workmanlike manner and in accordance with the requirements, specifications and instructions relating thereto set forth in the Service Policies and Procedures Manual and bulletins and instructions furnished Dealer by Distributor from time to time. 2. SPECIFIC SERVICE OBLIGATIONS OF DEALER (a) NEW VEHICLE PRE-DELIVERY INSPECTIONS AND ADJUSTMENTS. Dealer shall perform pre-delivery inspections and adjustments on each Isuzu Vehicle prior to sale and delivery thereof by Dealer. Such inspections and adjustments shall be performed by Dealer without charge to the purchaser and in accordance with the provisions relating thereto set forth in the Service Policies and Procedures Manual and bulletins and instructions furnished Dealer by Distributor from time to time. The completion of such inspections and adjustments on each such Vehicle shall be verified by Dealer on forms supplied or approved by Distributor for this purpose, a copy of which -13- shall be retained in Dealer's files and a copy of which shall be furnished to the purchaser. (b) COMPLIMENTARY MAINTENANCE SERVICE Dealer shall perform or be responsible for the performance of such complimentary maintenance or other services following delivery of Isuzu Vehicles (including labor for lubrication) as may be prescribed for such vehicle in Distributor's applicable service bulletins, in accordance with the provisions relating thereto set forth in the Service Policies and Procedures Manual or in bulletins or instructions issued by Distributor to Dealer from time to time. Dealer will perform such services as and when required and requested by the owner or user of the vehicle, without regard to its origin of purchase. (c) WARRANTY REPAIRS Dealer shall perform (i) warranty repairs on each Isuzu Product which qualifies for such repairs under the provisions of any warranty furnished therewith by Distributor or by the manufacturer thereof and (ii) such other inspections, repairs or adjustments as may be approved or authorized by Distributor. Dealer shall perform such repairs and adjustments on each such Isuzu Product as and when required thereon and requested by the owner, without regard to its origin of purchase, and in accordance with the provisions relating thereto set forth in the Service Policies and Procedures Manual and in bulletins and instructions furnished by Distributor to Dealer from time to time. -14- Dealer shall provide each owner or user for whom Dealer performs such repairs or adjustments with a copy of the repair order covering the same. (d) CAMPAIGN INSPECTIONS AND CORRECTIONS Dealer shall perform campaign inspections and/or corrections, including those described in owner notifications and recall campaigns conducted by Distributor in furtherance of Federal or state laws or regulations, on Isuzu Products that qualify for such inspections and/or corrections and those on which such campaign inspections and corrections are requested by Distributor, regardless of their origin of purchase. Dealer shall perform such campaign inspections and/or corrections and shall advise Distributor as and when the same are performed, all in accordance with the bulletins and instructions relating thereto furnished Dealer by Distributor and as set forth in the Service Policies and Procedures Manual. To enable Dealer to perform required corrections as promptly as practical, and for the convenience of Dealer, parts and/or other materials required for each such campaign may be pre-shipped to Dealer. Dealer will accept and retain such parts and/or materials for use in such campaign. Upon completion of the campaign, Dealer may return or dispose of any such parts and/or materials that are in excess of Dealer's requirements for the campaign in accordance with disposition instructions relating thereto furnished by Distributor and Dealer shall receive credit therefor. -15- (e) DISPOSITION OF REPLACED PARTS Dealer shall comply with the instructions set forth in the Service Policies and Procedures Manual with respect to retention and disposition of parts replaced by Dealer in the performance of repairs, adjustments and services pursuant to Article III F 2 (a), (b), (c) and (d) of this Agreement. (f) MAINTENANCE AND REPAIR SERVICE Dealer shall provide, at its Dealership Facilities, prompt maintenance and repair service to owners and users of Isuzu Products. Such service shall include only those services specifically requested by the owner or user that are discussed in advance by the Dealer with the owner or user as being required. Dealer shall provide all owners and users for whom Dealer provides maintenance and repair service itemized invoices covering the details thereof. (g) PAYMENTS BY DISTRIBUTOR TO DEALER For Dealer's performance of pre-delivery inspections and adjustments, complimentary maintenance service, warranty repairs, special policy adjustments, and campaign inspections and corrections under and pursuant to the above provisions, Distributor shall pay Dealer for the Parts and Accessories and/or other materials or shall provide Dealer with the Parts and Accessories and/or other materials required in connection therewith and shall pay for labor in accordance with the provisions relating thereto set forth in the Service Policies and Procedures Manual. -16- 3. OTHER SERVICE RESPONSIBILITIES OF DEALER (a) COMPLIANCE WITH LAWS REGULATING VEHICLES AND OTHER PRODUCTS Dealer will comply with all applicable provisions of Federal, state and local laws and governmental orders, rules and regulations, including but not limited to laws, orders, rules and regulations relating to safety, emission, noise control, damageability and customer service. In furtherance of facilitating compliance with such laws, orders, rules and regulations by Distributor and Dealer, Distributor will provide to Dealer, and Dealer will provide to Distributor, as the case may be, such information and assistance as may reasonably be requested by the other in connection with the performance of their respective obligations under such laws, orders, rules and regulations. (b) SERVICE PERSONNEL Dealer shall at all times employ the number of trained and competent service managerial and technical personnel reasonably required to fulfill its responsibilities with respect to the service of Isuzu Products. Dealer shall, without expense to Distributor, have its said employees attend such service training sessions as Distributor may from time to time conduct. (c) SERVICE EQUIPMENT AND SPECIAL AND ESSENTIAL TOOLS Dealer shall provide adequate service equipment and such special and essential tools as are required to fulfill its responsibilities for service of Isuzu Products. -17- 4. EVALUATIONS OF DEALER'S SERVICE PERFORMANCE Distributor shall periodically evaluate Dealer's performance of its responsibilities with respect to the servicing of Isuzu Products and shall discuss its evaluation with Dealer. Dealer shall promptly take such action as may be required to correct any deficiencies in its performance of these responsibilities. G. ADVERTISING, PROMOTIONAL AND PUBLIC RELATIONS OPERATIONS 1. ADVERTISING STANDARDS In order to secure and maintain the confidence and respect of the public in Dealer, Distributor, Manufacturer and Isuzu Products, Dealer will at all times maintain the highest standards of ethical advertising and will not publish or cause or permit to be published any advertising relating to any of its dealership operations or to any Isuzu Product which is not in compliance with all applicable federal, state and local laws, rules, regulations and orders or that is likely to mislead or deceive the public or impair the goodwill of Dealer, Distributor or Manufacturer or the good reputation of Isuzu Products. 2. DEALER'S ADVERTISING PROGRAMS Dealer shall develop and utilize advertising and promotion programs, including, but not limited to effective displays of Isuzu Products and use of demonstration Isuzu Vehicles. -18- 3. PARTICIPATION IN DISTRIBUTOR'S ADVERTISING PROGRAMS Dealer shall participate in advertising and promotion programs developed from time to time by Distributor, as and when requested by Distributor. 4. CUSTOMER RELATIONS (a) INFORMING CUSTOMERS AS TO DETAILS OF CHARGES In effecting sales or service of Isuzu Products, Dealer will inform the customers of details covering the items which make up the purchase price or charges, will give them itemized invoices covering the details thereof and will provide them with such other information and documents relating thereto as may be required under any applicable laws, rules, regulations or orders. Dealer will not make any false, misleading or deceptive representations as to the items making up the purchase price or charges, nor will Dealer make any statements intended to lead any purchaser to believe that a greater portion of the selling price of a Vehicle represents destination, factory delivery and handling, or other charges than the amounts thereof actually charged to and paid for by Dealer. (b) RIGHT OF RETAIL PURCHASER TO BUY VEHICLE WITHOUT PURCHASING OPTIONAL EQUIPMENT OR ACCESSORIES Dealer shall not include, in any retail order for an Isuzu Vehicle taken by Dealer nor in any order covering an Isuzu Vehicle submitted by Dealer to Distributor, any item of optional equipment or accessories, unless the retail purchaser thereof has requested such item and has knowledge that such item will be -19- included in such order or unless such item is required on such vehicle under applicable laws, rules, regulations or orders. (c) INFORMING RETAIL PURCHASERS AS TO OPTIONAL EQUIPMENT OR ACCESSORIES INSTALLED BY DEALER In order to avoid disparagement of any trademark that is applied by Distributor to items of optional equipment and accessories manufactured by or for Distributor and in order to avoid misleading any retail purchasers who may assume that all items of optional equipment and accessories included in Isuzu Vehicles have been manufactured by or for Distributor, Dealer shall, if it installs on any Isuzu Vehicle any item of optional equipment or accessory that has not been manufactured by or for Distributor, disclose to the retail purchaser thereof that such item of optional equipment or accessory has not been manufactured by or for Distributor and that it is not included in any warranty furnished by Distributor. Such disclosure by Dealer shall be included in writing by Dealer on the retail purchaser's order for any such Isuzu Vehicle, if one is signed by the retail purchaser thereof, but in any event in the itemized invoice covering the details of such purchase furnished the retail purchaser by Dealer. H. CAPITAL Dealer shall at all times maintain and employ in the operations of its dealership at least that amount and allocation of net working capital needed for Dealer to effectively fulfill its responsibilities under this Agreement, as agreed upon in writing by Distributor and Dealer from time to time. -20- I. ACCOUNTING SYSTEM Dealer will install and maintain an accounting system of a type designated by Distributor. Dealer will maintain said system in accordance with instructions to be issued by Distributor from time to time. J. RECORDS AND REPORTS 1. FINANCIAL STATEMENTS Dealer shall furnish to Distributor, on or before the tenth day of each month, on such forms as Distributor may designate, complete and accurate financial and operating statements reflecting Dealer's true and financial condition as of the end of the preceding month and the results of Dealer's operations during the preceding month and for that portion of Dealer's fiscal year then ended, with supporting data, and shall, within two (2) months after the closing date of Dealer's fiscal year, furnish to Distributor complete and accurate financial and operating statements for said fiscal year. Distributor shall not furnish to any third party any financial statements or data submitted to it hereunder, except as an unidentified part of a composite or coded report, unless authorized by Dealer or required to do so by law or unless they are pertinent to judicial or governmental administrative proceedings. 2. OWNERSHIP AND MANAGEMENT RECORDS Dealer shall keep and maintain complete and up-to-date records covering (a) the names of all persons who are Owner(s) of Dealer and the dates and manner in which any such ownership interests of such persons are transferred or changed in any -21- manner whatsoever; (b) the election, appointment or selection of each person having a management position with Dealer, including the duly elected officers and directors of Dealer if Dealer is a corporation; and (c) the persons or parties who have either directly or indirectly supplied funds, on either a secured or unsecured basis, to those having any ownership interests in Dealer in connection with their acquisition of such ownership interests. 3. SALES AND SERVICE RECORDS AND REPORTS Dealer shall prepare and maintain complete and up-to-date records covering its sales of and service performed by it on Isuzu Products. Promptly upon the sale of each Isuzu Vehicle, Dealer shall accurately and fully complete and send to Distributor the vehicle retail delivery report supplied by Distributor with respect to said vehicle. Dealer will furnish Distributor with such other and further reports covering sales and service of Isuzu Products by Dealer in such form or forms and within such times as is specified in notices or bulletins relating thereto furnished Dealer by Distributor. 4. RECORDS CONCERNING APPLICATIONS AND CLAIMS FOR PAYMENTS Dealer shall prepare and retain, for a minimum period of two (2) years, in accordance with the procedures set forth in the Service Policies and Procedures Manual, records in support of applications for payment for pre- delivery inspections and adjustment, warranty repairs and policy adjustments and campaign inspections and corrections performed by Dealer, claims for parts -22- compensation and applications for discounts, allowances, refunds or credits. K. INSPECTION OF ACCOUNTS AND RECORDS Distributor shall have the right at any reasonable time during Dealer's regular business hours to inspect the Dealership Facilities and to examine, audit and make copies of all accounts and records relating to the sale and service of Isuzu Products. L. TRADEMARKS AND SERVICE MARKS Distributor grants Dealer the non-exclusive privilege to identify itself as an Authorized Isuzu Dealer and to display and otherwise use in connection with the sale and service of Isuzu Products, the various trademarks, tradenames, service marks and other word and design marks which Manufacturer or Distributor may use in connection with or apply to Isuzu Products during the term of this Agreement. Except as provided herein, Dealer shall make no use of any such trademark, tradename, service mark, or other word and design mark. Dealer shall not use any mark, word or name which is similar to any of the various trademarks, tradenames, service marks and other word and design marks which Manufacturer or Distributor may use in connection with or apply to Isuzu Products. Dealer shall neither have nor claim to have any rights in or to any such trademark, tradename, service mark or other word and design mark. Upon Distributor's request and, in any case, upon termination of this Agreement, Dealer shall promptly discontinue, or cause to be discontinued, the display and use of all such trademarks, tradenames, service marks and other word and design marks. Dealer shall promptly change the -23- manner in which such trademarks, tradenames, service marks and other word and design marks are displayed and used when requested to do so by Distributor. No such trademark, tradename, service mark or other word and design mark may be used as part of the name under which Dealer's business is conducted, except with Distributor's prior written consent. ARTICLE IV. INDEMNIFICATION A. INDEMNIFICATION OF DISTRIBUTOR Dealer shall: 1. Upon Distributor's written request defend Distributor against claims that during the term of this Agreement may arise, commence or be asserted against Distributor in an action concerning: (a) Dealer's failure or alleged failure to comply, in whole or in part, with any obligation of Dealer under this Agreement; (b) Any actual or alleged negligence, error, omission or act or Dealer in connection with the preparation, repair or service (including warranty service) by Dealer of Isuzu Products; (c) Any modification made by or on behalf of Dealer to Isuzu Products, except those made pursuant to the express instruction or with the express approval of Distributor; (d) Dealer's breach or alleged breach of any agreement between Dealer and Dealer's customer or other third party; or (e) Misleading statements, misrepresentations or deceptive or unfair practices or allegations of misleading statements, misrepresentations or deceptive or unfair practices -24- by Dealer, directly or indirectly, to Distributor, a customer or other third party. 2. Indemnify and hold Distributor harmless from any and all settlements made and final judgments rendered with respect to any of the claims described in Section A.1 of this Article IV. B. INDEMNIFICATION OF DEALER Distributor shall, upon Dealer's written request: 1. Defend Dealer against claims that during the term of this Agreement may arise, commence or be asserted against Dealer in an action concerning bodily injury or property damage arising out of an occurrence caused solely by a defect or alleged defect existing or claimed to have existed in an Isuzu Product at the time title to said product passed to Dealer, provided: (i) that the defect could not have reasonably been discovered by Dealer during the pre-delivery inspection of the product required by this Agreement; and (ii) Distributor did not notify Dealer in writing of such defect prior to delivery of the product to the first retail customer. 2. Indemnify and hold Dealer harmless from any and all settlements made which are approved by Distributor and final judgments rendered with respect to any of the claims described in Section B.1 of this Article IV; provided, however, Dealer promptly notifies Distributor in writing of the assertion of such claim and the commencement of such action against Dealer and -25- cooperates fully in the defense of such action in such manner and to such extent as Distributor may require. C. EXCEPTION TO INDEMNIFICATION If the allegations asserted in any action or if any facts established during or with respect to any action would require Dealer to defend and indemnify Distributor under Section A, above, and Distributor to defend and indemnify Dealer under Section B, above, Distributor and Dealer shall each be responsible for its own defense in such an action and there shall be no obligation or responsibility in connection with any defense, judgment, settlement or expenses of such action as between Distributor and Dealer, except to the extent that such an obligation or responsibility may be imposed by applicable law. ARTICLE V. TERMINATION A. TERMINATION AGREEMENT 1. VOLUNTARY TERMINATION BY DEALER Dealer may terminate this Agreement at any time upon 30 days' written notice to Distributor. 2. TERMINATION DUE TO ACTS OR EVENTS CONTROLLED BY DEALER, ITS OWNER(S) OR MANAGERS Each of the following represents an act or event that is within the control of or originates from action taken by Dealer or its Owner(s) or Manager(s) and over which Distributor has no control, but which, when contrary to the spirit, nature, purpose or objectives of this Agreement, warrant its termination: (a) Any misrepresentation to Distributor by Dealer or by its Owner(s) or Executive Manager in applying for this Agreement or any misrepresentation to Distributor by Dealer or -26- any such person as to the persons who are or will be Owner(s) or Manager(s) of Dealer. (b) Any attempted sale, transfer or assignment by Dealer of this Agreement or any of the rights or privileges granted Dealer by this Agreement; or any attempted transfer, assignment or delegation by Dealer under this Agreement, without in either case the prior written consent of Distributor, which consent shall not be unreasonably withheld. (c) Any sale, transfer, relinquishment, voluntary or involuntary, by operation of law or otherwise, of any ownership interest in Dealer without the prior written consent of Distributor, which consents shall not be unreasonably withheld. (d) Any change of the Dealer's Executive Manager without the prior written consent of Distributor, which consent shall not be unreasonably withheld. (e) Any attempt by Dealer to conduct either directly or indirectly, any of the dealership operations contemplated by this Agreement at any facilities other than the Dealership Facilities. (f) Any sale or other transfer, by operation of law or otherwise, to any third party or parties, or any relinquishment or discontinuance of use by Dealer, of any of the Dealership Facilities or other principal assets that are employed and required by Dealer in the conduct of the dealership operations without the prior written consent of Distributor, which consent shall not be unreasonably withheld. -27- (g) Any dispute, disagreement, or controversy between or among the Owner(s) or Executive Manager (or, if Dealer is a corporation, its directors or officers) of Dealer relating to the ownership or management of Dealer or to its dealership operations which, in the opinion of Distributor, may adversely affect the dealership operations or the interest of Dealer or Distributor. (h) Insolvency of Dealer; filing of a voluntary petition in bankruptcy by Dealer; filing of a petition to have Dealer declared bankrupt, provided that it is not vacated within one (1) month after filing; appointment of a receiver or trustee for Dealer, provided such appointment is not vacated within one (1) month after such appointment; or execution by Dealer of an assignment for the benefit of creditors. (i) Failure of Dealer to maintain the Dealership Facilities open for business as required under the provisions of this Agreement, for seven (7) consecutive business days. (j) Conviction of Dealer or any Owner(s) Executive Manager or, if Dealer is a corporation, any of its directors or officers, of any crime which, in the opinion of Distributor, may adversely affect the reputation of interests of Dealer or Distributor. (k) Any submission by Dealer to Distributor of a false or fraudulent application, or any claim or statement in support thereof, for payment related to predelivery inspection or adjustment, or warranty repairs, special policy or campaign adjustments performed by Dealer, or for parts compensation or for any other discount, allowance, refund or credit whether or not -28- Dealer offers or makes to Distributor or Distributor seeks or obtains from Dealer restitution of any payments made to Dealer on the basis of any such false or fraudulent applications, claims or statements. (l) Failure to Dealer to furnish Distributor with the financial and operating statements or reports required to be furnished under this Agreement or refusal by Dealer to permit Distributor to make any inspection or audit of Dealer's facilities, accounts and records as provided in this Agreement, if such failure or refusal shall continue for a period of one (1) month after receipt by Dealer from Distributor of a written request for such statements or reports or permission to make any such inspection or audit. (m) Willful failure of Dealer to comply with the provisions of any laws, rules, regulations or orders of a government body relating to Isuzu Products or the advertising, promoting, sale or service thereof. When Distributor has established to its satisfaction that any such act or event has occurred, Distributor may terminate this Agreement by giving Dealer written notice of termination, such termination to be effective upon receipt by Dealer of such notice. 3. TERMINATION BY DISTRIBUTOR FOR FAILURE OF PERFORMANCE BY DEALER If, based on the evaluations thereof made by Distributor, Distributor determines that Dealer has failed to fulfill any one or more of the responsibilities assumed by Dealer under Article III of this Agreement by failing to fulfill the -29- responsibilities and obligations of Dealer relating thereto set forth in said Article, Distributor will endeavor to review with Dealer the nature and extent of such failure(s) and the reasons which, in Distributor's opinion, account for such failure(s). Thereafter, based upon such plan or plans of action as may be proposed by Dealer to remedy such failure or failures and upon such other factors as Distributor deems relevant in the circumstances. Distributor will determine whether it can be reasonably expected that Dealer can and will remedy such failure or failures and the period of time that Dealer may reasonably require to effect such remedy or remedies. As soon as practicable thereafter, Distributor will notify Dealer in writing of the nature and extent of Dealer's failure or failures of performance and of the period of time, if any, during which Dealer will be expected to remedy such failure or failures of performance. If, at the expiration of the period, if any, specified in such notice, such failure or failures of performance have not been substantially remedied by Dealer, Distributor may terminate this Agreement by giving Dealer written notice of termination, with such termination to be effective three (3) months after receipt by Dealer of such notice. In the interest of providing continuing service to owners of Vehicles, Distributor may, if it elects, process during such three (3) month period applications for an Isuzu Dealer Sales and Service Agreement to replace Dealer; provided, however, that such Isuzu Dealer Sales and Service Agreement shall not -30- become effective until after the effective date of termination of this Agreement. During such three (3) month period, Distributor and Dealer will commence such actions such actions as may be necessary or desirable so that the termination obligations of Distributor and Dealer set forth in this Agreement may be fulfilled as promptly as practicable. 4. TERMINATION BECAUSE OF DEATH OR INCAPACITY OF OWNER AND/OR EXECUTIVE MANAGER Since this Agreement is in the nature of a personal service agreement and its continuation is conditioned upon Dealer being owned and managed as provided in Section 4 hereof, Distributor (subject to the provisions of Article VII of this Agreement) may terminate this Agreement by written notice to Dealer in the event of the death of an Owner or the Executive Manager or in the event Distributor determines that the Executive Manager is physically or mentally incapacitated so as to be unable to actively exercise full managerial authority for the operating management of Dealer. The effective date of any such termination shall be the date set forth in such written notice, which shall be not less than three (3) months after receipt by Dealer of such notice. In the interest of providing continuing service to owners of Vehicles, Distributor may, if it elects, process, during the period from the receipt by Dealer of such notice to the effective date of such termination applications for an Isuzu Dealer Sales and Service Agreement to replace Dealer; provided, however, that such Isuzu Dealer Sales and Service Agreement shall -31- not become effective until after the effective date of termination of this Agreement. During the period from Dealer's receipt of such notice to the effective date of such termination, Distributor and Dealer will commence such actions as may be necessary or desirable so that the termination obligations of Distributor and Dealer set forth in this Agreement may be fulfilled as promptly as practicable. 5. TERMINATION FOR FAILURE OF DEALER OR DISTRIBUTOR TO BE LICENSED If Distributor or Dealer requires a license for the performance of any obligation under or in connection with this Agreement in any state or jurisdiction where this Agreement is to be performed and if either of the parties shall fail to secure or maintain such license or a renewal thereof or if such license shall be suspended or revoked, irrespective of the cause or reason therefor, either party may immediately terminate this Agreement by giving to the other party written notice of such termination. 6. TERMINATION BY MUTUAL AGREEMENT This Agreement may be terminated at any time by written mutual agreement between Distributor and Dealer in the event (1) any person named as an Owner or Executive Manager wishes to retire, (2) Distributor and Dealer desire to effect either a discontinuance or a relocation of Dealer's Dealership facilities or (3) Distributor and Dealer deem it desirable for any other cause or reason. -32- The Provisions of Section B of this Article V shall be deemed applicable to a termination under this Section A.6. only to the extent and in the manner set forth in such written mutual agreement of termination. 7. RIGHT TO RELY ON ANY APPLICABLE TERMINATION PROVISION Because the notice periods may be different with respect to, and the rights and obligations of the parties may vary depending upon, the particular provisions under which this Agreement is terminated, the terminating party shall have the right to select the provision of this Section A under which it elects to terminate this Agreement without reference in its notice of termination to any other provision of this Section A that may also be applicable in the circumstances. The exercise of such right shall not preclude the terminating party from at any time asserting or establishing that the termination of this Agreement is also supportable under another provision of this Section A. B. TRANSACTIONS AFTER TERMINATION 1. EFFECT OF TERMINATION ON ORDERS In the event that this Agreement is terminated in accordance with any provision of Section A of this Article V (other than Section A.6.), Distributor may cancel all unshipped orders received from Dealer for Isuzu Products. Termination of this Agreement shall not release Dealer, however, from the obligation to pay any sum which may then be owing Distributor. -33- 2. EFFECT OF TRANSACTIONS AFTER TERMINATION Neither the processing by Distributor or orders from Dealer nor the continuation of sales of Isuzu Products or any other products to Dealer nor any other act of Distributor after termination of this Agreement shall be construed as a waiver of the termination, or as a renewal, extension or continuation of this Agreement. 3. PURCHASES OF ELIGIBLE ITEMS Distributor shall purchase, subject to and upon compliance with the provisions hereinafter set forth in subsections 4 and 5 of this Section B, all or any of the following Eligible Items from Dealer: (i) Vehicles All new, unused, unlicensed, undamaged Isuzu Vehicles of the then current model year purchased by Dealer from Distributor then unsold which are the unencumbered property and in the possession of Dealer or of Dealer's financing institution at Dealer's net cost or the price last established by Distributor for the sale of identical vehicles by Distributor to Authorized Isuzu Dealers, whichever is lower, plus destination charges paid by Dealer thereon, less all refunds or allowances paid thereon by Distributor, any amount paid by Distributor for pre-delivery inspection and service thereon and any costs required to place said vehicles in new condition. (ii) Parts All new, unused, undamaged, resalable Isuzu Parts (except Publications and parts listed in Distributor's Parts List -34- as "non-returnable"), which are still in the original and undamaged package, are for the then current and three (3) immediately preceding vehicle model years and are the unencumbered property of and in the possession of Dealer at the dealer prices set forth in Distributor's then-current price list. (iii) Accessories All new, unused, undamaged, resalable Isuzu Accessories which are still in the original and undamaged package, are for the then current vehicle model year and are the unencumbered property of and in the possession of Dealer at the dealer prices set forth in Distributor's then current price list. (iv) Signs Any signs owned by Dealer of a type recommended in writing by Distributor at a price established in accordance with Distributor's pricing formula then in effect. (v) Special Tools Any special tools of a type recommended by Distributor and designed specifically for service of any Isuzu Vehicles that were offered for sale by Distributor to Isuzu Dealers during the three (3) year period immediately preceding termination and were purchased by Dealer from Distributor, at prices therefor established in accordance with the pricing formula set forth in the then current Service Policies and Procedures Manual. 4. RESPONSIBILITIES OF DEALER Immediately following the effective date of a termination of this Agreement, Dealer shall furnish Distributor with a list of the identification numbers of and such other -35- information as Distributor may require concerning eligible vehicles to be purchased by Distributor in accordance with subsection 3 of this Section B. Dealer will deliver all such vehicles in accordance with Distributor's instructions. Within one (1) month following the effective date of a termination of this Agreement, Dealer shall mail or deliver to Distributor a list of eligible special tools and eligible signs. Within two (2) months following effective date of a termination of this Agreement, Dealer shall mail or deliver to Distributor a complete list of eligible parts and accessories. Dealer shall retain possession of all such eligible items until receipt of written shipping instructions from Distributor. Within one (1) month after receipt of such instructions, Dealer shall tag, pack and ship such eligible items, transportation charges prepaid, to the destinations) specified in such instructions. Dealer shall take such action and shall execute and deliver such instruments as may be necessary (a) to convey to Distributor good marketable title to all eligible items to be purchased hereunder, (b) to comply with the requirements of any applicable state law relating to bulk sales or transfers and (c) to satisfy and discharge any liens or encumbrances on such eligible items prior to delivery thereof to Distributor. 5. PAYMENT BY DISTRIBUTOR Subject to its right to offset any amounts owing Distributor from Dealer, Distributor shall pay Dealer for the eligible items purchased by it under the provisions of this Section B as soon as practicable following delivery thereof to -36- Distributor; provided, however, that any payment for such eligible items may be made by Distributor, at its option, directly to any financing institution or other person or concern which shall have a security or ownership interest therein. ARTICLE VI. SUCCEEDING AND NEW AND SUPERSEDING SALES AND SERVICE AGREEMENTS A. SUCCEEDING AGREEMENTS So that the dealer sales and service agreements offered to Authorized Isuzu Dealers will reflect changes in conditions applicable to the sales and service of Isuzu Products as well as changes in applicable laws or regulations, or in the interpretations thereof, Distributor will review the provisions of its current forms of Isuzu Dealer Sales and Service Agreement on a periodic basis and will prepare new forms of Isuzu Dealer Sales and Service Agreements that will be offered to those Authorized Isuzu Dealers who receive an offer from Distributor of a succeeding Isuzu Dealer Sales and Service Agreement. Dealer acknowledges, therefore, that any new form of Isuzu Dealer Sales and Service Agreement that may be offered Dealer may reflect therein any changes and modifications that are deemed necessary or desirable by Distributor. B. NEW AND SUPERSEDING DEALER AGREEMENTS In the event a new and superseding form of Isuzu Dealer Sales and Service Agreement is offered by Distributor to Authorized Isuzu Dealers generally at any time, Distributor may terminate this Agreement upon prior written notice to Dealer, provided that, at the same time, Distributor offers Dealer such -37- new and superseding form of Isuzu Dealer Sales and Service Agreement. C. EFFECT OF NEW OR SUPERSEDING AGREEMENT ON RESPONSIBILITIES AND OBLIGATIONS UNDER THIS AGREEMENT Although the execution by Distributor and Dealer of any new or superseding Dealer Sales and Service Agreement, whether it is executed in accordance with the provisions of Section A and B of this Article VI or for any other reason, will, by the terms thereof, cancel and supersede this Agreement, such succeeding or new and superseding Isuzu Dealer Sales and Service Agreement generally contemplates continuation of the business relations contemplated by this Agreement. Accordingly, unless otherwise expressly agreed in writing by Distributor and Dealer, the rights and obligations of Dealer that may otherwise become applicable upon any termination of this Agreement shall not be applicable in the event of the execution by Distributor and Dealer of any such new or superseding Isuzu Dealer Sales and Service Agreement. Any evaluation of the effectiveness of Dealer's performance of any of its responsibilities under this Agreement may be reflected and considered together with any evaluation made of the effectiveness of Dealer's performance of similar responsibilities under any such succeeding or new and superseding form of Isuzu Dealer Sales and Service Agreement. Except insofar as they may be inconsistent with the provisions of such succeeding or new and superseding form of Isuzu Dealer Sales and Service Agreement, any outstanding rights and obligations of Distributor and Dealer that arose under this Agreement, or under any separate agreements -38- executed by Distributor and Dealer under this Agreement, shall be deemed continued under such succeeding or new and superseding form of Isuzu Dealer Sales and Service Agreement. ARTICLE VII. ESTABLISHMENT OF SUCCESSOR DEALER A. BECAUSE OF DEATH OF OWNER In the event of termination of this Agreement by Distributor pursuant to Section A.4 of Article V because of the death of an Owner, the following provisions shall apply: 1. Subject to the other provisions of this Article, Distributor shall offer a provisional Sales and Service Agreement the term of which shall not exceed two (2) years to a successor dealer ("Successor Dealer") comprised of the person nominated by such deceased Owner as his or her successor, together with the surviving Owner(s), provided that: (a) the nomination was submitted to Distributor on a Successor Addendum, was consented to by the remaining Owner(s) and was approved by Distributor prior to the death of the deceased Owner; (b) Either (i) there has been no change in the Executive Manager of Dealer or (ii) the provisions of Section B, below, have been complied with; and (c) The successor Dealer has capital and facilities substantially in accordance with Distributor's Standards therefor at the time the provisional Sales and Service Agreement is offered. 2. If the deceased Owner has not nominated a successor in accordance with the provisions of Section A.1.(a), -39- above, but all of the beneficial interest of the deceased owner has passed by will or the laws of interstate succession directly to the deceased Owner's spouse and/or children or to one or more surviving Owners who each held not less than a twenty-five percent (25) beneficial ownership interest in the dealership prior to the death of the deceased Owner (collectively "Proposed New Owners"), subject to the other provisions of this Article, Distributor shall offer a provisional Sales and Service Agreement the term of which shall not exceed two (2) years to Successor Dealer ("Successor Dealer") composed of the Proposed New Owners, together with the surviving Owners provided that: (a) Either (i) there has been no change in the Executive Manager of Dealer or (ii) the provisions of Section B, below, have been complied with; and (b) The Successor Dealer has capital and facilities substantially in accordance with Distributor's Standards therefor at the time the provisional Sales and Service Agreement is offered. B. BECAUSE OF DEATH OR INCAPACITY OF EXECUTIVE MANAGER In the event of the termination of this Agreement by Distributor pursuant to Section A.4. of Article V because of the death, physical or mental incapacity ("Disability Event") of the Executive Manager ("Disabled Executive Manager"), subject to the other provisions of this Article, Distributor shall offer a provisional Sales and Service Agreement the term of which shall not exceed two (20 years to a Successor Dealer composed of the Owner(s), provided that: -40- 1. Either (i) the Owner(s) had nominated, in a Successor Addendum, which was approved by Distributor prior to such Disability Event, a person to succeed the Disabled Executive manager or (ii) not later than two (2) months after the occurrence of such Disability Event a new Executive Manager is proposed to Distributor Event a new Executive Manager is proposed to Distributor by all of the Owner(s) and such a person is approved by Distributor; 2. The new Executive Manager owns in the aggregate beneficial interests in the Successor Dealer of not less than twenty-five percent (25%) or is given the right to acquire and does acquire and does acquire within twelve (12) months beneficial interests in the Successor Dealer of not less than twenty-five percent (25%); and 3. The Successor Dealer has capital and facilities substantially in accordance with Distributor's Standards therefor at the time the provisional Sales and Service Agreement is offered. C. EVALUATION OF SUCCESSOR DEALER During the term of the provisional Sales and Service Agreement, Distributor will evaluate the performance of the Successor Dealer and periodically review with the Successor Dealer this evaluation. If the Successor Dealer's performance is deemed to be satisfactory to Distributor continuously during the last three (3) months of the provisional Sales and Service Agreement, Distributor will give first consideration to such -41- Successor Dealer with respect to a new Sales and Service Agreement. D. TERMINATION OF MARKET REPRESENTATION Notwithstanding anything stated or implied to the contrary in this Article, Distributor shall not be obligated to offer a provisional or new Sales and Service Agreement to any Successor Dealer if Distributor notified Dealer in writing prior to the event causing the termination of this Agreement that Distributor's market representation plans do not provide for continuation of representation in Dealer's Market. E. TERMINATION OF OFFER If the person or persons comprising a proposed Successor Dealer to which any offer of a provisional or new Sales and Service Agreement shall have been made pursuant to this Article shall not accept same within thirty (30) days after notification to them of such offer, such offer shall automatically expire. ARTICLE VIII. GENERAL PROVISIONS A. DEALER NOT MADE AGENT OR LEGAL REPRESENTATIVE An Agreement does not constitute Dealer the Agent or legal representative of Distributor or Manufacturer for any purpose whatsoever. Dealer is not granted any express or implied right or authority to assume or to create any obligation in behalf of or in the name of Distributor or Manufacturer or to bind Distributor or Manufacturer in any manner or thing whatsoever. -42- B. DEALER'S RESPONSIBILITY FOR ITS OPERATIONS, EXPENDITURES, LIABILITIES AND OBLIGATIONS Dealer acknowledges that, as an independently owned and operated enterprise, its success will be determined substantially by how effectively its management manages and conducts its operations and affairs. This Agreement, therefore, contemplates that all investments made by or in Dealer shall be made, and Dealer shall fulfill its responsibilities and obligations under this Agreement, in conformity with the provisions hereof, but otherwise at the discretion of Dealer, its management and Owner(s). Nothing herein contained shall impose any liability on Distributor or Manufacturer in connection with the establishment or conduct of Dealer's facilities or operations, and Dealer shall be solely responsible for any and all expenditures, liabilities and obligations made, incurred or assumed by Dealer in preparation for performance or in the performance of Dealer's responsibilities and obligations under this Agreement. C. NOTICES All notices required or permitted to be given by either party to the other under or in connection with this Agreement shall be in writing and delivered personally or by mail to Dealer at its Dealership Location and to Distributor at its national headquarters, or to such other address as the party to receive the notice may have previously designated by written notice to the other party. Notices shall be effective upon receipt. If mailed, such notices shall be postage prepaid and sent by registered or certified mail, return receipt requested. -43- D. OFFSETS AND SET OFFS In addition to any other specific rights of offset or set off provided for otherwise in any documents affecting Dealer and Distributor, Distributor shall have the right to offset or set off any sums or accounts due or to become due from Dealer to Distributor against any sums or accounts due or to become due from Distributor to Dealer. E. CHANGES REQUIRED BY LAW Should Distributor at any time determine that Federal or state laws, or regulations adopted thereunder, or any new interpretation thereof, as any thereof may be validly applied, require changes in any of the provisions of this Agreement, Distributor may offer Dealer a new and superseding Isuzu Dealer Sales and Service Agreement that has been appropriately modified to reflect changes that are required by such new laws, regulations or interpretations, or, in lieu thereof. Distributor may offer Dealer an amendatory agreement to this Agreement reflecting such changes. If Dealer shall fail to execute such new and superseding Isuzu Dealer Sales and Service Agreement or such amendatory agreement and return it to Distributor within thirty (30) days after it is offered Dealer, this Agreement may be terminated by Distributor upon written notice thereof to Dealer, with such termination to be effective upon receipt by Dealer of such notice. -44- DEALER SALES AND SERVICE AGREEMENT ISUZU DEALER SALES AND SERVICE AGREEMENT ADDITIONAL PROVISIONS TABLE OF CONTENTS ARTICLE I. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .1 ARTICLE II. SALES TO DEALER . . . . . . . . . . . . . . . . . . . . . . . . .4 A. Dealer's Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 B. Shipment and Risk of Loss . . . . . . . . . . . . . . . . . . . . . . .5 C. Passage of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . .5 D. Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 E. Diversions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 ARTICLE III. DEALERSHIP OPERATIONS. . . . . . . . . . . . . . . . . . . . . .6 A. Dealership Location and Facilities. . . . . . . . . . . . . . . . . . .6 1. Dealership Facilities. . . . . . . . . . . . . . . . . . . . . . .6 2. Change in Dealership Location or Facilities. . . . . . . . . . . .6 3. Hours of Business. . . . . . . . . . . . . . . . . . . . . . . . .6 4. Identification of Dealership Facilities. . . . . . . . . . . . . .7 5. Evaluation of Dealer's Performance with Respect to Dealership Facilities. . . . . . . . . . . . . . . . . . . . . . .7 B. Vehicle Sales Operations. . . . . . . . . . . . . . . . . . . . . . . .7 1. Responsibility of Dealer . . . . . . . . . . . . . . . . . . . . .7 2. Sales Personnel. . . . . . . . . . . . . . . . . . . . . . . . . .8 3. Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 4. Modification of Isuzu Vehicles . . . . . . . . . . . . . . . . . .8 (i) 5. Evaluation of Dealer's Sales Performance . . . . . . . . . . . . .9 6. Evaluation of Sales of Isuzu Trucks. . . . . . . . . . . . . . . 10 C. Used Vehicle Sales Operations . . . . . . . . . . . . . . . . . . . . 11 D. Rental and Leasing Operations . . . . . . . . . . . . . . . . . . . . 11 E. Parts and Accessories Sales Operations. . . . . . . . . . . . . . . . 12 1. Responsibility of Dealer . . . . . . . . . . . . . . . . . . . . 12 2. Sales Personnel. . . . . . . . . . . . . . . . . . . . . . . . . 12 3. Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4. Representations Concerning Parts and Accessories . . . . . . . . 12 5. Evaluation of Dealer's Parts and Accessories Sales Performance . 13 F. Service Operations. . . . . . . . . . . . . . . . . . . . . . . . . . 13 1. General Service Responsibilities of Dealer . . . . . . . . . . . 13 2. Specific Service Obligations of Dealer . . . . . . . . . . . . . 14 (a) New Vehicle Pre-Delivery Inspections and Adjustments . . . 14 (b) Complimentary Maintenance Service. . . . . . . . . . . . . 14 (c) Warranty Repairs . . . . . . . . . . . . . . . . . . . . . 15 (d) Campaign Inspections and Corrections . . . . . . . . . . . 15 (e) Disposition of Replaced Parts. . . . . . . . . . . . . . . 16 (f) Maintenance and Repair Service . . . . . . . . . . . . . . 16 (g) Payments by Distributor to Dealer. . . . . . . . . . . . . 17 3. Other Service Responsibilities of Dealer . . . . . . . . . . . . 17 (ii) (a) Compliance with Laws Regulating Vehicles and Other Products. . . . . . . . . . . . . . . . 17 (b) Service Personnel. . . . . . . . . . . . . . . . . . . . . 18 (c) Service Equipment and Special and Essential Tools. . . . . 18 4. Evaluations of Dealer's Service Performance. . . . . . . . . . . 18 G. Advertising, Promotional and Public Relations Operations. . . . . . . 19 1. Advertising Standards. . . . . . . . . . . . . . . . . . . . . . 19 2. Dealer's Advertising Programs. . . . . . . . . . . . . . . . . . 19 3. Participation in Distributor's Advertising Programs. . . . . . . 19 4. Customer Relations . . . . . . . . . . . . . . . . . . . . . . . 20 (a) Informing Customers as to Details of Charges . . . . . . . 20 (b) Right of Retail Purchaser to Buy Vehicle Without Purchasing Optional Equipment or Accessories . . . . . . . 20 (c) Informing Retail Purchasers as to Optional Equipment or Accessories Installed by Dealer. . . . . . . . . . . . . . 21 H. Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 I. Accounting System . . . . . . . . . . . . . . . . . . . . . . . . . . 22 J. Records and Reports . . . . . . . . . . . . . . . . . . . . . . . . . 22 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . 22 2. Ownership and Management Records . . . . . . . . . . . . . . . . 22 3. Sales and Service Records and Reports. . . . . . . . . . . . . . 23 4. Records Concerning Applications and Claims for Payments. . . . . 23 K. Inspection of Accounts and Records. . . . . . . . . . . . . . . . . . 24 (iii) L. Trademarks and Service Marks. . . . . . . . . . . . . . . . . . . . . 24 ARTICLE IV. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 25 A. Indemnification of Distributor. . . . . . . . . . . . . . . . . . . . 25 B. Indemnification of Dealer . . . . . . . . . . . . . . . . . . . . . . 26 C. Exception to Indemnification. . . . . . . . . . . . . . . . . . . . . 27 ARTICLE V. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 27 A. Termination Agreement . . . . . . . . . . . . . . . . . . . . . . . . 27 1. Voluntary Termination by Dealer. . . . . . . . . . . . . . . . . 27 2. Termination Due to Acts or Events Controlled by Dealer, its Owner(s) or Managers . . . . . . . . . . . . . . . . . . . . . . 27 3. Termination by Distributor for Failure of Performance by Dealer. 31 4. Termination Because of Death or Incapacity of Owner and/or Executive Manager. . . . . . . . . . . . . . . . . . . . . . . . 32 5. Termination for Failure of Dealer or Distributor to be Licensed. 33 6. Termination by Mutual Agreement. . . . . . . . . . . . . . . . . 34 7. Right to Rely on Any Applicable Termination Provision. . . . . . 34 B. Transactions After Termination. . . . . . . . . . . . . . . . . . . . 35 1. Effect of Termination on Orders. . . . . . . . . . . . . . . . . 35 2. Effect of Transactions After Termination . . . . . . . . . . . . 35 3. Purchases of Eligible Items. . . . . . . . . . . . . . . . . . . 35 4. Responsibilities of Dealer . . . . . . . . . . . . . . . . . . . 37 5. Payment by Distributor . . . . . . . . . . . . . . . . . . . . . 38 ARTICLE VI. SUCCEEDING AND NEW AND SUPERSEDING SALES AND SERVICE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 A. Succeeding Agreements . . . . . . . . . . . . . . . . . . . . . . . . 38 (iv) B. New and Superseding Dealer Agreements . . . . . . . . . . . . . . . . 39 C. Effect of New or Superseding Agreement on Responsibilities and Obligations under this Agreement. . . . . . . . . . . . . . . . . . . 39 ARTICLE VII. ESTABLISHMENT OF SUCCESSOR DEALER. . . . . . . . . . . . . . . 40 A. Because of Death of Owner . . . . . . . . . . . . . . . . . . . . . . 40 B. Because of Death or Incapacity of Executive Manager . . . . . . . . . 42 C. Evaluation of Successor Dealer. . . . . . . . . . . . . . . . . . . . 43 D. Termination of Market Representation. . . . . . . . . . . . . . . . . 43 E. Termination of Offer. . . . . . . . . . . . . . . . . . . . . . . . . 44 ARTICLE VIII. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 44 A. Dealer Not Made Agent or Legal Representative . . . . . . . . . . . . 44 B. Dealer's Responsibility for Its Operations, Expenditures, Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . . 44 C. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 D. Offsets and Set Offs. . . . . . . . . . . . . . . . . . . . . . . . . 45 E. Changes Required by Law . . . . . . . . . . . . . . . . . . . . . . . 45 (v) EX-10.3-6 20 EXHIBIT 10.3.6 Exhibit 10.3.6 EXECUTION COPY SUPPORT AGREEMENT THIS SUPPORT AGREEMENT ("Agreement") is executed as of this 18th day of June, 1996 by United Auto Group, Inc., a Delaware corporation ("UAG") in favor of Atlantic Auto Second 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 Purchase Agreement of even date herewith (the "AAFC Purchase Agreement") pursuant to which AFC may, from time to time, purchase 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 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 meaning 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 2.3, 2.4., 2.6, 2.7, 2.9 and 3.2 and Articles V (other than Sections 5.1(e)) and VI of the AAFC Purchase Agreement and Sections 2.2, 2.5, 2.8 (other than Section 2.8(b)), 2.10, 2.11, 5.3 (other than Section 5.3(i)) and 5.4 and Article VI of the Transfer and Administration 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 Sections 3.2 and 2.6(b) of the AAFC Purchase Agreement to repurchase any Receivable if the request to make such repurchase occurs more than 12 months after the breach of a representation and warranty as described in Section 3.2 or after the failure to deliver the Custodian Confirmation as described in Section 2.6(b), as the case may be, except there shall be no such time limit applicable with respect to any breach of the representation and warranty contained in Section 3.2(c) and (d) of the AAFC Purchase Agreement, (b) Atlantic's obligations to repurchase any Receivable under Section 2.7(ii) of the AAFC Purchase Agreement, (c) any obligation of Atlantic under Section 6.1(f) of the AAFC Purchase Agreement to provide indemnification for its failure to perform in accordance with any provision of the AAFC Purchase Agreement or any agreement contemplated by the AAFC Purchase Agreement other than the provisions contained in those Sections of the AAFC Purchase Agreement and the Transfer and Administration Agreement enumerated above in this sentence and (d) any obligation of Atlantic under Section 6.2 or 6.3 of the AAFC Purchase Agreement to provide indemnification to any entity other than the Buyer, Morgan Guaranty Trust Company of New York, any Affiliate of Morgan Guaranty Trust Company of New York and the officers, directors and agents of any of the foregoing. 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 obligations of Atlantic to repurchase the Receivables acquired by AFC under the AAFC Purchase Agreement, -2- except as described in Sections 2.6, 2.7 or 3.2 of the AAFC Purchase Agreement or (ii) create recourse against Atlantic or UAG for the payment of any uncollectible Receivable. ARTICLE III. REPRESENTATIONS AND WARRANTIES Section 3.1 REPRESENTATIONS AND WARRANTIES. 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 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 character 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 not 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'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 5.07, 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 -3- 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 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 5.07, 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 5.07, 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, 1996 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 Receivable or the AAFC Purchase Agreement, (ii) the absence of any attempt to collect any 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 Receivable, (iv) any change of the time, manner or place of performance of, -4- or in any other term of any of the Atlantic Obligations or any 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 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 Receivable or other property acquired by any of the AFC Parties from Atlantic or in any security or collateral related to the Atlantic Obligations, (vii) any exchange or release of any 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 Obligations 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. -5- 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 AFC's address set forth on the signature page hereof. Any such revocation shall not affect the right of any of the AFC Parties to enforce their 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 Receivable which was a Receivable on the date the aforementioned revocation was received by AFC. If any of the AFC Parties acquire 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. 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 Receivables, and that it is 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 -6- 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. 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 upon the earlier to occur of (a) 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 and (b) the termination of that certain Support Agreement dated as of June 28, 1995 by and among UAG and Atlantic Auto Funding Corporation. 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 -7- 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 ARISING 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 BENCH TRIAL WITHOUT A JURY. 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 the Agreement. Section 5.11. EXECUTION IN COUNTERPARTS. This Agreement may be executed in counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original which when taken together shall constitute one and the same agreement. -8- 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/ Carl Spielvogel ------------------------------------- Name: Carl Spielvogel Title: Chairman and CEO 375 Park Avenue, 22nd Floor New York, New York 10152 Acknowledged and accepted this 14th day of June, 1996. ATLANTIC AUTO SECOND 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.: 716-421-1954 -9- EX-10.4-19 21 EXHIBIT 10.4.19 EX 10.4.19 The Benton State Bank - ---------- 146 West South Street Benton, Arkansas 72015 "LENDER" ------------------------------------- BORROWER LANDERS OLDSMOBILE-GMC, INC. COMMERCIAL ADDRESS LOAN 17821 I-30 AGREEMENT BENTON, AR 72015 TELEPHONE NO. IDENTIFICATION NO. 778-8262 71-0678428 --------------------------------------------------------------------------- MORTGAGOR OWNER OF COLLATERAL ADDRESS ADDRESS TELEPHONE NO. IDENTIFICATION NO. TELEPHONE NO. IDENTIFICATION NO. --------------------------------------------------------------------------- AGREEMENTS 1. FINANCING. Subject to the following conditions, Lender shall provide Borrower with the advances, loans and/or other financial accommodations identified in Schedule A, as amended from time to time, which is incorporated into this Agreement by this reference, as well as any other advances, loans and/or financial accommodations that Borrower and Lender may agree to in writing. Such advances, loans and/or other financial accommodations shall be evidenced and, if applicable, guarantied by guarantors pursuant to and/or secured by collateral set forth in loan documents that are acceptable to Lender including, but not limited to, the documents identified in Schedule B, as amended from time to time (collectively "Loan Documents"), which is incorporated into this Agreement by this reference. Borrower shall pay to Lender the principal, interest, fees, expenses and any other amounts pertaining to the advances, loans and/or other financial accommodations as described in this Agreement and the Loan Documents. 2. GUARANTIES. [X] If checked, Borrower shall cause the Guarantor(s) listed on the Guaranty Schedule attached to this Agreement (collectively "Guarantor") to deliver to Lender executed Guaranties on Lender's guaranty forms, and in such amounts as Lender shall require, that jointly and severally, absolutely and unconditionally, guaranty the payment and performance of all of the Borrower's present and future, joint and/or several, direct and indirect, absolute and contingent, express and implied, indebtedness, liabilities, obligations, and covenants to Lender as described in this Agreement and the Loan Documents. In addition, the Guarantor must agree to provide Lender with appropriate financial information including tax returns, a balance sheet and income information satisfactory to the Lender from time to time as the Lender requires but not less than annually. 3. COLLATERAL. Borrower shall grant and/or cause: Owner of Collateral identified above whose tax identification and/or social security number(s) is ______________________ and who is a resident of the State(s) of _________________________________ or a ________________________ duly organized, validly existing, and in good standing under the laws of the State(s) of ________________________________________ ; and/or Mortgagor identified above whose tax identification and/or social security number(s) is _________________________________ and who is a resident of the State(s) of ____________________________________ or a ___________________________________ , duly organized, validly existing, and in good standing under the laws of the State(s) of _________________________________; (COLLECTIVELY OWNER OF COLLATERAL AND MORTGAGOR IDENTIFIED ABOVE WILL BE REFERRED TO AS "DEBTOR") to grant Lender a lien, security interest or other encumbrance upon the collateral (collectively "Collateral") belonging to the Borrower and/or any Debtors, as described in the Loan Documents, to secure the payment and performance of all of the Borrower's present and future, joint and/or several, direct and indirect, absolute and contingent, express and implied, indebtedness, liabilities, obligations and covenants to Lender as described in this Agreement and the Loan Documents. 4. SUPERIOR AND CONTINUING LIENS AND GUARANTIES. a. Superiority of Lender's Lien. The liens, security interests and other encumbrances granted to Lender shall be superior to any other liens, security interests, encumbrances and claims with respect to the Collateral (unless specifically noted otherwise in the Loan Documents). b. Guaranties, Liens and Other Encumbrances. The guaranties and liens, security interests, and other encumbrances described in the Loan Documents shall continue and not be released until all of the indebtedness, liabilities, obligations and covenants guarantied or secured thereby shall have been paid and/or performed in full and Lender shall not be obligated to provide any additional advances, loans or other financial accommodations to or for the benefit of Borrower (or, if applicable, any of the Debtors) of any kind. 5. CONDITIONS PRECEDENT. Lender's obligation to provide Borrower with any advances, loans and/or other financial accommodations shall be subject to the following conditions precedent. All of the information, Uniform Commercial Code financing statement lien searches and any other lien searches, insurance policies, environmental risk assessments, opinion letter(s), appraisals, credit information, and other materials and documents provided or to be provided to Lender and all of the actions taken or to be taken for the attachment, creation, perfection, recording, maintenance, subordination, release, termination, and giving of notice with respect to the liens, security interests, and other encumbrances in the Collateral shall be provided or taken at Borrower's expense: a. Evidence of Good Standing. Lender shall be provided with such written evidence of the Borrower and any Guarantors' and Debtors' legal names and good standing, authorization to conduct business, and authorization to execute and perform their respective obligations under this Agreement and the Loan Documents as required by Lender; b. Execution and Delivery. Borrower shall execute and deliver this Agreement and the necessary Loan Documents and cause any Guarantors and Debtors to execute and deliver to Lender the necessary Loan Documents, and all other documents relating thereto, each in form and substance acceptable to Lender; c. Authorization. Lender shall be provided with such written evidence as required by Lender that the representatives of the Borrower and any Guarantors and Debtors are authorized to execute this Agreement and the Loan Documents on behalf of those parties and bind the Borrower and any Guarantors and Debtors to the terms and conditions set forth therein; d. Liens. Lender's liens, security interests, and other encumbrances upon the Collateral shall be attached, created, filed, perfected and recorded in accordance with applicable law and notice of such liens, security interests and encumbrances shall be provided to such parties as required by Lender; e. Lien Searches. Lender shall be provided with UCC searches, title insurance policies, or other written evidence as required by Lender with respect to the validity, enforceability and priority of its liens, security interests and other encumbrances upon the Collateral; f. Environmental Assessments. Lender shall be provided with environmental risk assessments and indemnifications as required by Lender with respect to the existence of and indemnification for any past, present or future environmental hazard pertaining to the Borrower or any Guarantors' and Debtors' business and assets (including, but not limited to, the Collateral); g. Legal Opinions. A signed opinion of counsel for the Borrower addressed to the Lender (i) to the effect that no litigation is pending or threatened against the Borrower, except such as has been disclosed to the Lender or is covered by insurance, (ii) to the effect that the Loan Documents have been duly and validly authorized, executed and delivered by the Borrower and are enforceable, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and except to the extent that general equitable principles may limit the right to obtain specific performance, (iii) the representations and warranties of the Borrower in this Agreement are true, (iv) the loan transactions entered into pursuant to this Agreement are not usurious, (v) no registration with, consent of, approval of, or other action by any Federal, State, or other governmental authority or regulatory body to the execution and delivery of the Loan Documents is required by law, or if so required, such registration has been made, and consent or approval given or such other appropriate action taken, and (vi) addressing such other matters as the Lender may reasonably request; h. Financial Information. Borrower shall provide and cause any Guarantors and Debtors to provide Lender with such financial information and business records as required by Lender. Such financial information and business records shall be acceptable to Lender and shall not cause Lender to believe in good faith that the Borrower or any Guarantors or Debtors shall not be able to perform its respective obligations under this Agreement or the Loan Documents; i. Absence of Breach. All of the respective representations and warranties of the Borrower or any Guarantor or Debtor under this Agreement or the Loan Documents shall be true and correct on and as of the date of the execution of those documents or the date of any advances and/or extensions of the loans and/or other financial accommodations described therein; j. Absence of Events of Default. No event of default shall exist under this Agreement or the Loan Documents nor shall any circumstances exist that would constitute such an event of default except for giving of notice or the passage of time or both on or before the date of execution of those documents or the date of any advances and/or extensions of the loans and/or other financial accommodations described therein; k. Borrower shall have paid or cause to have been paid to Lender all fees and expenses due and payable under this Agreement or any other Loan Document on or before the date of execution of those documents or the date of any advances and/or extensions of the loans and/or other financial accommodations described therein; and l. Other: 6. REPRESENTATIONS, WARRANTIES AND COVENANTS. Borrower represents and warrants to and covenants with Lender that: a. Tax Identification. The tax identification and/or social security numbers of Borrower are as follows: TAX I.D. #71-0678428 b. Borrower's Residency. Borrower is a resident of the State(s) of N/A or a CORPORATION duly organized, validly existing and in good standing under the laws of the State(s) of ARKANSAS and licensed to conduct business in all of the jurisdictions in which its business is conducted; c. Guarantor's Tax Identification and Residency. Guarantors are residents of the State(s) or duly organized, validly existing and in good standing under the laws of the State(s) shown in the Guaranty Schedule attached to this Agreement and licensed to conduct business in all of the jurisdictions in which their business is conducted. Guarantors' tax identification and/or social security numbers are those shown in the Guaranty Schedule attached to this Agreement; d. Debtor's Tax Identification and Residency. Debtors are residents of the State(s) or duly organized, validly existing and in good standing under the laws of the State(s) shown in Section 3 of this Agreement and licensed to conduct business in all of the jurisdictions in which their business is conducted. Guarantors' tax identification and/or social security numbers are those shown in Section 3 of this Agreement; e. Ownership of Collateral. Borrower and any Debtors are and shall remain sole owners of their respective Collateral free of all tax and other liens, security interests, encumbrances and claims of any kind except for those specifically described in this Agreement and the Loan Documents without Lender waiving the event of default as a result thereof, Borrower shall take and cause any Debtors to take any action and execute any document needed to discharge any unauthorized liens, security interests, encumbrances and claims; f. Location of Offices. The sole executive offices, places of business, offices where their business records are located, residences and domiciles of the Borrower and any Guarantors and Debtors are specifically described in this Agreement and the Loan Documents. Borrower shall immediately advise and cause any Guarantors and Debtors to immediately advise Lender in writing of any change in or addition to the foregoing addresses; g. Restructuring. Neither Borrower nor any Guarantor or Debtor shall become a party to any restructuring of its form of business or participate in any consolidation, merger, liquidation or dissolution without obtaining Lender's prior written consent thereto; h. Beneficiaries. Each of the Guarantors and Debtors, if any, by virtue of their interest in or relation to Borrower, shall receive a substantial benefit from Lender's advances, loans and/or other financial accommodations to Borrower and such benefit shall constitute adequate consideration for the obligations assumed by any Guarantor and Debtors under this Agreement and the Loan Documents; i. Change of Name. Borrower shall provide and cause any Guarantors and Debtors to provide Lender with thirty (30) or more days' prior written notice of the nature of any intended change in their respective names, or the use of any tradename, and when such change or use shall become effective; j. Location of Collateral. All of Borrower's and any Debtors' property constituting a portion of the Collateral is and shall be located at Borrower's and such Debtors' respective executive offices, places of business, residences and domiciles specifically described in this Agreement and the Loan Documents or at such locations to which Borrower and such Debtors have obtained Lender's prior written consent; k. Use of Collateral. Borrower shall use and cause any Debtors to use the Collateral solely in the ordinary course of their respective businesses, for the usual purposes intended by the manufacturer (if applicable), with due care, and in compliance with the laws, ordinances, regulations, requirements and rules of all federal, state, county and municipal authorities and insurance policies. Borrower shall not make or cause any Debtors to refrain from making any alterations, additions or improvements to the Collateral without the prior written consent of Lender. Without limiting the foregoing, all alterations, additions and improvements made to the Collateral shall be subject to the security interest belonging to Lender, shall not be removed without the prior written consent of Lender, and shall be made at Borrower's and the Debtors' sole expense. Borrower shall take and cause any Debtors to take all actions and make any repairs or replacements needed to maintain the Collateral in good condition and working order; l. Insurance. Borrower shall maintain and cause any Debtors to maintain insurance on the Collateral in an amount and form and from such companies as are acceptable to Lender and/or specifically provided in the Loan Documents. The insurance policies shall require the insurance companies to provide Lender with at least 10 days' written notice before such policies are altered or cancelled in any manner. The insurance policies shall name Lender as a loss payee and provide that no act or omission of Borrower, any Debtor, or any other person shall affect the right of Lender to be paid the insurance proceeds pertaining to the loss or damage of the Collateral; m. Possession of Chattel Paper. Borrower shall provide and cause any Debtors to provide Lender with possession of all chattel paper and instruments constituting a portion of the Collateral and mark such chattel paper and instruments to reflect Lender's security interest therein; n. Enforceability of Certain Collateral. All of Borrower's and any Debtors' accounts, contract rights, chattel paper, documents, general intangibles, instruments, and other rights and agreements constituting a portion of the Collateral are and shall be valid, genuine and legally enforceable obligations and rights belonging to Borrower and such Debtors against one or more third parties and are not and shall not be subject to any claim, defense, setoff or counterclaim of any kind; o. Substitution of Certain Collateral. Borrower shall not amend, modify, replace or substitute and shall cause any Debtors not to amend, modify, replace or substitute any account, contract right, chattel paper, document, general intangible, instrument, or other right or agreement constituting the Collateral without the prior written consent of Lender; p. Collection Practices. Borrower shall continue to apply and cause any Debtors to continue to apply their established credit policies with respect to all future credit transactions. Borrower shall use and cause any Debtors to use their best efforts to collect from their account debtors and other third parties, as and when due, any and all amounts owing under or with respect to each account, contract right, document, general intangible, instrument or other agreement (including, without limitation, engaging legal assistance to collect delinquent obligations from their account debtors and other third parties) and apply the collected amounts against the outstanding balances on those obligations and agreements; q. Records. Borrower shall maintain and cause any Guarantors and Debtors to maintain complete and accurate books and records of their respective financial conditions, businesses and properties and with respect to the Collateral and such records shall be maintained in accordance with generally accepted accounting principles ("GAAP") consistently applied, and reflecting all financial transactions; r. Financial Information. Borrower will, and shall cause any Guarantors and Debtors to, at all times keep proper books of record and account in which full, true and correct entries shall be made in accordance with generally accepted accounting principles and will deliver to Lender, within ninety (90) days after the end of each fiscal year of Borrower, Guarantor, and Debtor a copy of the annual financial statements of Borrower, Guarantor, and Debtor relating to such fiscal year, such statements to include (i) the balance sheet of Borrower, Guarantor, and Debtor as at the end of such fiscal year and (ii) the related income statement, statement of retained earnings and statement of changes in the financial position of Borrower, Guarantor, and Debtor for such fiscal year, prepared by such certified public accountants as may be reasonably satisfactory to Lender. Borrower also agrees to deliver, and shall cause any Guarantors and Debtors to deliver, to Lender within fifteen (15) days after filing same, a copy of Borrower's, Guarantors', and Debtors' income tax returns and also, from time to time, such other financial information with respect to Borrower, Guarantor and Debtor as Lender may request; s. Inspection of Records. Borrower shall permit and cause any Guarantors and Debtors to permit officers, agents and employees of Lender to examine their business and financial records and properties and the Collateral and to discuss any issues pertaining to their business operations, financial conditions or the Collateral with their officers, employees, accountants and other representatives and agents; t. Information. All information that has been provided to Lender by or on behalf of Borrower or any Guarantor or Debtor is true and correct and does not and shall not omit any material fact necessary to make such information not misleading. All information that will be provided to Lender by or on behalf of Borrower or any Guarantor or Debtor shall be true and correct and shall not omit any material fact necessary to make such information not misleading. Neither Borrower nor any Guarantor or Debtor is aware of any fact which has or might have a material and adverse effect on their business operations, financial conditions, or assets or the Collateral or have failed or shall fail to disclose any material facts to Lender that might be relevant to Lender's decision to enter into or continue to advance funds, make loans or provide financial accommodations under this Agreement or any of the Loan Documents; u. Obligations. This Agreement and each Loan Document constitutes the Borrower's legal and binding obligations to Lender that are fully enforceable in accordance with their respective terms and conditions; v. Conflict of Laws. Borrower's and any Guarantors' and Debtors' execution of this Agreement and the Loan Documents and performance of their respective obligations thereunder does not and shall not conflict with the provisions of any statute, regulation, ordinance, rule of law, contract or other agreement which may now or hereafter be binding on those entities; w. Repayment. Borrower and any Guarantors and Debtors shall duly and punctually repay the advances, loans and/or other financial accommodations evidenced by this Agreement and the Loan Documents in accordance with the terms of the Loan Documents and perform all of their other respective obligations hereunder or thereunder; x. Default in Other Obligations. Neither Borrower nor any Guarantor or Debtor are or shall be in default under any material loan agreement, indenture, mortgage, security agreement or other agreement or obligation to which they are a party or by which any of their respective properties may be bound; y. Litigation and Claims. No action, suit, or proceeding governmental investigation or arbitration is or shall be pending or, to the knowledge of Borrower, threatened against Borrower or any Guarantor or Debtor which might result in any material and adverse change in their respective business operations or financial conditions or materially affect the Collateral and there are and shall be no outstanding judgments against Borrower or any Guarantor or Debtor; z. Transfer/Sale of Collateral. Borrower shall not transfer, sell, lease, assign, convey or otherwise dispose of any of the Collateral or the properties or assets used in connection with or incidental to the operation of its business without the prior written consent of Lender except for inventory sold in the ordinary course of its business. No Guarantor, if any, shall transfer, sell, lease, assign, convey or otherwise dispose of any of its properties or assets that would materially and adversely affect its financial condition or ability to satisfy it obligations under this Agreement and the Loan Documents without the prior written consent of Lender. No Debtor, if any, shall transfer, sell, lease, assign, convey or otherwise dispose of any of the Collateral without the prior written consent of Lender except for inventory sold in the ordinary course of its business; aa. Guaranties. Neither Borrower nor any Guarantor shall assume, guaranty or otherwise become liable for the obligations of any person or entity except for such Guarantor's guaranty of Borrower's obligations to Lender or by virtue of Borrower's or such Guarantor's endorsement of commercial paper or similar instruments in the ordinary course of business or except as follows: ab. Insider Loans. Borrower shall not make a loan to any of its shareholders, directors, officers or employees or any other person outside the ordinary course of Borrower's business without the prior written consent of Lender; ac. Solvency. Borrower and any Guarantors and Debtors are Solvent and shall continue to be Solvent after the execution of this Agreement and the Loan Documents and the creation of Lender's security interest in the Collateral. "Solvent" shall mean, with respect to the Borrower and any Guarantor and Debtor, at the time of determination, that the fair market value of its assets is in excess of the total amounts of its liabilities including contingent liabilities, that it is able and shall be able to pay its debts as they mature, and that it has and shall have sufficient capital to conduct its business and other financial transactions; ad. Tax Returns. Borrower and each Guarantor and Debtor have filed and shall file all tax returns required to be filed by federal, state or local law (including, but not limited to, all income, franchise, employment, property and sales tax returns) and have paid and shall pay all of the tax liabilities and other fees and assessments charged against that entity or its property when due. Neither Borrower nor any Guarantor or Debtor knows of any pending investigation of those entities by any taxing or other governmental authority or of any pending but unassessed tax liability or other fee or assessment owing by those entities; ae. Margin Stock. Neither Borrower nor any Guarantor or Debtor is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations G, T, U or X of the Board of Governors of the Federal Reserve System), and no part of the advances, loans and/or other financial accommodations provided by Lender under this Agreement or any of the Loan Documents shall be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying margin stock. Neither Borrower, any Guarantor or Debtor, nor any person acting on their behalf has taken or shall take any action that might cause the transactions contemplated by this Agreement or the Loan Documents to violate Regulations G, T, U or X or to violate the Securities Exchange Act of 1934, as amended; af. Compliance with ERISA. Borrower and any Guarantors and Debtors have complied and shall comply with all applicable minimum funding and other requirements of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and there are and shall be no existing conditions that would give rise to liability thereunder including, without limitation, any current or potential withdrawal liability from a multiemployer plan (as defined in Section 3(37) of ERISA). No reportable event (as defined in Section 4043 of ERISA) has occurred or shall occur in connection with any employee benefit plan of those entities that might constitute grounds for the termination thereof by the Pension Benefit Guaranty Corporation or for the appointment of a trustee to administer that plan. Borrower shall immediately notify and cause such Guarantors and Debtors to immediately notify Lender of any fact (including, but not limited to, any "reportable event" as that term is defined in Section 4043 of ERISA) arising in connection with any employee benefit plan belonging to those entities which might constitute grounds for the termination thereof by the Pension Benefit Guaranty Corporation or for the appointment of a trustee to administer that plan and, following such notification, Borrower shall provide or cause such Guarantors and Debtors to provide Lender with any additional information or documents as may be requested by Lender with respect thereto; ag. Investment Company. Neither Borrower nor any Guarantor or Debtor is or shall be an "investment company" within the meaning of the Investment Company Act of 1940, as amended; ah. Holding Companies and Affiliates. Neither Borrower nor any Guarantor or Debtor is or shall be a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended; ai. Compliance with Applicable Environmental Law. Borrower, each Guarantor and Debtor, and their respective properties are and shall be in compliance with all environmental, health and safety laws, rules and regulations and neither Borrower nor any Guarantor or Debtor is or shall be subject to any liability or obligation for remedial action thereunder. No investigation or inquiry by any governmental authority is or shall be pending or, to the knowledge of Borrower, threatened against Borrower, any Guarantor or Debtor, or any of their respective properties with respect to any toxic waste, toxic substance or Hazardous Material as defined herein. No Hazardous Materials are or shall be located on or under Borrower or any Guarantor or Debtor's properties. Neither Borrower, nor any Guarantor or Debtor has caused or permitted or shall cause or permit any toxic or hazardous waste or substance to be stored, transported, or disposed of on or under or released from any of its properties. The term "Hazardous Materials" shall mean any substance, material, or waste which is or becomes regulated by any governmental authority including, but not limited to: (i) petroleum, (ii) asbestos, (iii) polychlorinated biphenyls, (iv) those substances, materials or wastes designated as a "hazardous substance" pursuant to Section 311 of the Clean Water Act or listed pursuant to Section 307 of the Clean Water Act or any amendments or replacements to these statutes, (v) those substances, materials or wastes defined as a "hazardous waste" pursuant to Section 1004 of the Resource Conservation and Recovery Act or any amendments or replacements to that statute, or (vi) those substances, materials or wastes defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act, or any amendments or replacements to that statute; aj. Compliance with Other Laws. Neither Borrower nor any Guarantor or Debtor has violated or shall violate any applicable federal, state, county or municipal statute, regulation or ordinance which may materially and adversely affect its respective business operations or financial condition or the Collateral. No event of default (or circumstances which, with notice or the passage of time or both, would constitute an event of default) has occurred or shall occur under this Agreement or the Loan Documents; ak. Notification Regarding Events of Default. Without limiting any of the representations, warranties and covenants contained herein, Borrower shall immediately notify and cause any Guarantors and Debtors to immediately notify Lender of: (i) the occurrence of any event of default (or circumstances which, with notice or the passage of time or both, would constitute an event of default) under this Agreement or the Loan Documents, (ii) the commencement of any action, suit, or proceeding or any other matter that might have a material adverse effect on the Borrower, any Guarantor or Debtor, or the Collateral, (iii) any change in the management of Borrower; al. Commercial Purpose. This Agreement and the Loan Documents and the obligations herein and therein are executed and incurred for commercial and not consumer purposes and all proceeds of Lender's advances, loans and/or other financial accommodations to Borrower shall be used exclusively in the Borrower's business and for no other purpose; am. Lender's Influence. Lender has not exercised or attempted to exercise, directly or indirectly, any degree of control or influence of any kind whatsoever over the internal business operations or financial affairs of Borrower, or to the best of Borrower's knowledge, any Guarantor or Debtor. Borrower shall immediately notify and cause any Guarantors and Debtors to immediately notify Lender in writing of any actions that they consider to constitute an exercise or attempt to exercise such control or influence in the future. Lender has not acted as a business, investment or financial consultant or advisor to Borrower or any Guarantor or Debtor. Borrower shall notify and cause such Guarantors and Debtors to notify Lender in writing of any attempt by Lender to act as a consultant or advisor to those entities in the future; an. Lender's Duty. Lender does not have and shall not have any fiduciary or similar duty to Borrower, any Guarantor or Debtor; ao. Lender's Relationship. Lender has not participated and shall not participate in any type of joint venture or partnership with Borrower, or any Guarantor or Debtor and the execution and consummation of this Agreement and the Loan Documents and the transactions contemplated therein do not and shall not constitute or amount to a joint venture or partnership; ap. Lender Not an Agent. Except as expressly set forth in this Agreement or the Loan Documents, Lender has not acted and shall not act in any respect as the agent of Borrower or any Guarantor or Debtor for any purpose and no agency relationship has been or shall be created by the execution of this Agreement and the Loan Documents or the consummation of the transactions contemplated thereby; aq. Borrower's Agreement to Take Action. Borrower shall execute and deliver and cause any Guarantors and Debtors to execute and deliver to Lender any documents and take any actions as may be requested by Lender to carry out the intent and purposes of this Agreement and the Loan Documents and the transactions contemplated thereby and to preserve and perfect Lender's liens, security interests and other encumbrances in the Collateral; ar. Fiscal Year. Borrower or any Guarantor or Debtor shall not change its fiscal year without the express written consent of Lender, which shall not be unreasonably withheld; as. Prepayments. Borrower or any Guarantors or Debtor shall not make any voluntary or optional prepayment of any indebtedness for borrowed money incurred or permitted to exist under the terms of this Agreement, other than indebtedness evidenced by the Notes; at. Lock Box. If Lender so requests at any time (whether or not Borrower is in default of this Agreement), Borrower shall direct, and shall cause Debtors to direct, each of its account debtors to make payments due under the relevant account or chattel paper directly to a special lock box to be under the control of Lender. Borrower hereby authorizes and directs Lender to deposit into a special collateral account to be established and maintained with Lender all checks, drafts, and cash payments received in said lock box. All deposits in said collateral account shall constitute proceeds of Collateral and shall not constitute payment of any indebtedness under the Loan Documents. At its option, Lender may, at any time, apply finally collected funds on deposit in said collateral account to the payment of the indebtedness in such order of application as Lender may determine, or permit Borrower or Debtors to withdraw all or any part of the balance on deposit in said collateral account. If the collateral account is so established, Borrower agrees, and Borrower shall cause Debtors to agree, promptly to deliver to Lender, for deposit into said collateral account, all payments on accounts and chattel paper received by Borrower or Debtors. All such payments shall be delivered to Lender in the form received (except for any necessary endorsement). Until so deposited all payments on accounts and chattel paper received by Borrower or Debtors shall be held in trust by the recipient for and as the property of Lender and shall not be commingled with any other funds or property of the recipient; and au. 7. FINANCIAL COVENANTS. [ ] If checked, the Borrower covenants and agrees that from the date hereof until payment in full of all indebtedness and the performance of all obligations under the Loan Documents, the Borrower shall at all times maintain the financial positions and ratios in accordance with GAAP (unless otherwise specified) as stated on the Financial Covenants Schedule attached to this Agreement. 8. PRESENTMENT, DEMANDS AND NOTICES. Borrower hereby waives and shall cause any Guarantors and Debtors to waive all of their respective rights to diligence, presentment, demand, protest, and notice (including, but not limited to, notice of dishonor, default, non-payment, and the creation, existence and extension of any and all indebtedness and obligations under this Agreement and the Loan Documents and of any security and collateral therefor) to the maximum extent permitted by law. 9. DEFAULT. Borrower shall be in default under this Agreement and the Loan Documents in the event that Borrower, any Guarantor and Debtor, or any other party guarantying or securing the advances, loans and/or other financial accommodations described therein: a. fails to pay any obligation to Lender when due; b. fails to perform or observe any term, condition or covenant, or any warranty or representation by or on behalf of Borrower should prove to be false or misleading in any material respect; c. allows or causes the Collateral to be damaged in any material respect, destroyed, lost, stolen, seized, or confiscated; d. seeks to revoke, terminate or otherwise limit its liability to Lender; e. files a petition in voluntary bankruptcy or seeking relief under any provision of any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law, or consents to the filing of any petition against such entity under such law, or a petition is filed against such entity under any such law, or such entity admits insolvency or bankruptcy or becomes insolvent or bankrupt or makes an assignment for the benefit of creditors, or a custodian (including, without limitation, a receiver, liquidator or trustee) of such entity or any of its property is appointed by court order or takes possession thereof; f. any report, certificate, financial statement or other document furnished prior to the execution of or pursuant to the terms of this Agreement shall prove to be false or misleading in any material respect; g. permits the entry or service of any garnishment, judgment, tax levy, attachment or lien against Borrower, or any Guarantor or any Debtor; or h. causes Lender to deem itself insecure in good faith for any reason. 10. RIGHTS OF LENDER ON DEFAULT. If there is a default under this Agreement or any of the Loan Documents, Lender shall be entitled to exercise one or more of the following remedies without notice, presentment or demand (except as required by law): a. Acceleration - to declare Borrower's and any Guarantors' or Debtors' obligations to Lender to be immediately due and payable in full (such acceleration shall be automatic and immediate in the event Borrower is in default under paragraph 9, part (e) above) b. Collection Without Judicial Process - to collect Borrower's and any Guarantors' or Debtors' outstanding obligations with or without resorting to judicial process; c. Delivery of Collateral - to require Borrower and any Debtors to deliver and make available to Lender any Collateral at a place reasonably convenient to Lender and those entities; d. Take Possession - to take possession, management and control of the Collateral without seeking the appointment of a receiver; e. Collection of Proceeds - to collect all rents, issues, income, profits and proceeds from the Collateral until Borrower's and any Guarantors' and Debtors' obligations to Lender are satisfied in full; f. Appointment of Receiver - to apply for and obtain, without notice and upon ex parte application, the appointment of a receiver for the Collateral without regard to Borrower's or any Guarantors' and Debtors' financial condition or solvency, the adequacy of the Collateral to secure the payment or performance of the obligations of those entities to Lender, or the existence of any waste to the Collateral; g. Foreclosure - to foreclose any deed of trust, mortgage, lien, security interest or other encumbrance on the Collateral; h. Setoff - to setoff Borrower's and any Guarantors' and Debtors' obligations to Lender against any amounts due to those entities including, but not limited to, the Borrower's and Guarantors' and Debtors' monies, instruments, and deposit accounts maintained with Lender; i. Additional Collateral - require Borrower or Guarantor or any Debtor to pledge additional collateral to the Lender from the Borrower's or Guarantor's or any Debtor's assets, the acceptability and sufficiency of such collateral to be determined in the Lender's sole discretion; and j. Lender's Contractual Rights - to exercise all other rights available to Lender under the Loan Documents, any other written agreement, or applicable law. Lender's rights and remedies are cumulative and may be exercised together, separately, and in any order. In the event that Lender institutes an action seeking recovery of any of the Collateral by way of a prejudgment remedy in an action against Borrower or Debtors, Borrower hereby waives and shall cause Debtors to waive the posting of any bond which might otherwise be required. 11. BORROWING CERTIFICATE. [ ] If checked, every request for an advance made by Borrower shall be made by mailing or telecopying to Lender a completed Borrowing Certificate (each a "Borrowing Certificate") in the form attached hereto as Exhibit A. In addition to the Borrowing Certificate, Borrower shall submit to Lender such other documents and certifications as may from time to time be required together with such other information as Lender may request. Lender is hereby authorized by Borrower to make advances upon the receipt of a Borrowing Certificate executed by an individual purporting to be an officer of Borrower, unless the Lender has actual knowledge that the individual executing such Borrowing Certificate is not so authorized. 12. HOLD HARMLESS AND INDEMNIFICATION. Lender shall not be responsible for the performance of any of Borrower's or any Debtors' obligations with respect to the Collateral under any circumstances. Borrower hereby indemnifies and holds Lender harmless, and shall cause any Guarantors and Debtors to indemnify and hold Lender harmless, from all claims, damages, liabilities (including attorneys' fees and legal expenses), causes of action, actions, suits and other legal proceedings (cumulatively, "Claims") in any matter relating to or arising out of this Agreement or any Loan Documents or any act, event or transaction related or attendent thereto or pertaining to their respective businesses or the Collateral (including, but not limited to, those Claims involving Hazardous Materials). Borrower shall immediately provide and cause any Guarantors and Debtors to immediately provide Lender with written notice of any such Claim. Borrower, upon the request of Lender, shall defend or cause such Guarantors and Debtors to defend Lender from such Claims, and pay the attorneys' fees, legal expenses and other costs incurred in connection therewith. In the alternative, Lender shall be entitled to employ its own legal counsel to defend such Claims at Borrower's and/or such Guarantors' and Debtors' cost. 13. REIMBURSEMENT FOR EXPENSES. Upon demand, Borrower shall immediately reimburse or cause any Guarantors and Debtors to immediately reimburse Lender for all amounts (including reasonable attorneys' fees and legal expenses) expended by Lender, to the extent permitted by applicable law, in the: (i) negotiation, preparation, amendment, extension, modification, replacement or substitution of this Agreement or the Loan Documents, (ii) attachment, creation, filing, perfection, and recording of Lender's liens, security interests, and other encumbrances in the Collateral or any UCC and other searches and title or insurance policies in connection therewith, (iii) defense of the validity and priority of Lender's liens, security interests and other encumbrances against the Collateral, and (iv) enforcement or defense of any obligation or the exercise of any right or remedy described in this Agreement or the Loan Documents, and (v) refinancing or restructuring of the advances, loans and/or financial accommodations provided under this Agreement in the nature of a "work out" or in any insolvency or bankruptcy proceedings. These sums shall bear interest at the lower of the highest rate described in any of the Loan Documents or the highest rate allowed by law from the date of payment until the date of reimbursement and be secured by the Collateral. 14. APPLICATION OF MONIES. All payments to Lender made by or on behalf of Borrower or any Guarantors and Debtors or monies received by Lender from the Collateral or otherwise may be applied against any amounts paid by Lender in connection with the exercise of its rights or remedies described in this Agreement and the Loan Documents (including attorneys' fees and legal expenses together with interest at the rate described in the foregoing paragraph) and then to the payment of the remaining obligations under this Agreement and the Loan Documents in whatever order Lender chooses. 15. POWER OF ATTORNEY. Borrower hereby appoints and shall cause any Guarantors and Debtors, jointly and severally, to appoint Lender as their attorney-in-fact to endorse their names on all instruments and other documents payable to those entities. In addition, Lender shall be entitled, but not required, to perform any action or execute any document required to be taken or executed by Borrower or any Guarantors and Debtors under this Agreement or the Loan Documents. Lender's performance of such action or execution of such documents shall not relieve Borrower or any Guarantors and Debtors from any obligation to cure any default under this Agreement and the Loan Documents. The powers of attorney described in this paragraph are coupled with an interest and are irrevocable. 16. ESSENCE OF TIME. Borrower and Lender agree that time is of the essence with respect to this Agreement and the Loan Documents. 17. MODIFICATION AND WAIVER. The modification or waiver of any Borrower's or any Guarantors' and Debtors' obligations or Lender's rights under this Agreement or the Loan Documents must be contained in a writing signed by Lender. Lender may perform any of Borrower's or any Guarantors' and Debtors' obligations or delay or fail to exercise any of its rights without causing a waiver of those obligations or rights. A waiver on one occasion shall not constitute a waiver on any other occasion. Borrower's and any Guarantors' and Debtors' obligations to Lender under this Agreement and the Loan Documents shall not be affected if Lender amends, compromises, exchanges, fails to exercise, impairs or releases any of the obligations belonging to any co-borrower, Guarantor or obligor or any of its rights against any co-borrower, Guarantor, obligor or Collateral. 18. SUCCESSORS AND ASSIGNS. This Agreement and the Loan Documents shall be binding upon and inure to the benefit of Borrower, Lender and their respective successors, assigns, trustees, receivers, administrators, personal representatives, legatees and devisees. 19. ASSIGNMENT AND PARTICIPATIONS. Borrower and any Guarantors and Debtors shall not be entitled to assign any of their rights, remedies or obligations described in this Agreement or the Loan Documents without the prior written consent of Lender which may be withheld by Lender in its sole discretion. Lender shall be entitled to grant participations in or assign some or all of its rights and remedies described in this Agreement and the Loan Documents without notice to or the prior consent of Borrower or any Guarantors and Debtors in any manner. 20. NOTICES. Any notice or other communication to be provided under this Agreement or the Loan Documents shall be in writing and sent to the parties at the addresses described in this Agreement or the Loan Documents or such other address as the parties may designate in writing from time to time. 21. SEVERABILITY. If any provision of this Agreement or the Loan Documents is invalid, illegal or unenforceable, the remaining provisions of this Agreement and the Loan Documents shall continue to be valid, legal and enforceable in all respects. 22. CHOICE OF LAW AND CONSENT TO JURISDICTION AND VENUE. This Agreement and the Loan Documents shall be governed by the laws of the state indicated in the Lender's address (unless specified otherwise in such documents). Borrower hereby consents and shall cause any Guarantors and Debtors to consent to the jurisdiction and venue of any court located in the state indicated in the Lender's address in the event of any legal proceeding with respect to the negotiation, execution, or delivery of this Agreement or the Loan Documents, the enforcement of any obligation, right or remedy thereunder, or the assertion of any claim, defense, setoff or counterclaim in connection therewith. 23. WAIVER OF JURY TRIAL. LENDER AND BORROWER KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN CONJUNCTION WITH THE FINANCIAL ACCOMMODATIONS DESCRIBED HEREIN, THIS AGREEMENT AND ANY OTHER AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER MAKING THE LOAN EVIDENCED BY THE PROMISSORY NOTE. 24. MISCELLANEOUS. All references to Borrower shall refer to all of the parties signing below. Borrower's obligations to Lender, if there be more than one Borrower signing below, shall be joint and several. This Agreement, the Loan Documents and other documents delivered in connection therewith represent the entire complete and integrated understanding between Borrower, any Guarantors or Debtors, and Lender pertaining to the terms and conditions of those documents and the advances, loans and/or other financial accommodations described therein and supersedes all prior agreements and commitments, written and oral, relating to the subject matter hereof. 25. ADDITIONAL TERMS. DATED THIS 5TH DAY OF DECEMBER, 1994. LENDER: THE BENTON STATE BANK /s/ Harry McCormick ---------------------------------------------- HARRY MCCORMICK SENIOR VICE PRESIDENT BORROWER: LANDERS OLDSMOBILE-GMC, INC. BORROWER: LANDERS OLDSMOBILE-GMC, INC. /s/ Steve Landers - ------------------------------------------------- STEVE LANDERS /s/ John Landers PRESIDENT ---------------------------------------------- JOHN LANDERS VICE PRESIDENT BORROWER: LANDERS OLDSMOBILE-GMC, INC. BORROWER: /s/ Bob Landers - ------------------------------------------------- BOB LANDERS SECRETARY ---------------------------------------------- BORROWER: BORROWER: - ------------------------------------------------- ---------------------------------------------- BORROWER: BORROWER: - ------------------------------------------------- ---------------------------------------------- SCHEDULE A
- ------------------------------------------------------------------------------------------- PRINCIPAL FUNDING/ TYPE OF INTEREST AMOUNT/ CREDIT AGREEMENT MATURITY CUSTOMER LOAN LOAN RATE LIMIT DATE DATE NUMBER NUMBER - ------------------------------------------------------------------------------------------- DRAW 8.500% $2,800,000.00 12/05/94 02/03/95 11125003 119512 - -------------------------------------------------------------------------------------------
SCHEDULE B EX-10.4-20 22 EXHIBIT 10.4.20 The Benton State Bank -------------------------- 146 West South Street Benton, Arkansas 72015 "LENDER" COMMERCIAL SECURITY AGREEMENT - -------------------------------------------------------------------------------- BORROWER OWNER OF COLLATERAL LANDERS OLDSMOBILE-GMC, INC. LANDERS AUTO SALES, INC. ADDRESS ADDRESS 17821 I-30 17821 I-30 Benton, AR 72015 Benton, AR 72015 TELEPHONE NO. IDENTIFICATION NO. TELEPHONE NO IDENTIFICATION NO. 778-8268 71-0678428 778-8268 ###-##-#### - -------------------------------------------------------------------------------- 1. SECURITY INTEREST. For good and valuable consideration, Owner of Collateral ("Owner") grants to Lender identified above a continuing security interest in the Collateral described below to secure the obligations described in this Agreement. 2. OBLIGATIONS. The Collateral shall secure the payment and performance of all of Borrower's and Owner's present and future, joint and/or several, direct and indirect, absolute and contingent, express and implied, indebtedness, (including costs of collection, legal expenses and attorneys' fees, incurred by Lender upon the occurrence of a default under this Agreement, in collecting or enforcing payment of such indebtedness, or preserving, protecting or realizing on the Collateral herein), liabilities, obligations and covenants (cumulatively "Obligations") to Lender including those arising under or pursuant to: a. this Agreement and the following promissory notes and agreements:
- ------------------------------------------------------------------------------------ INTEREST PRINCIPAL FUNDING/ MATURITY CUSTOMER LOAN RATE AMOUNT/ AGREEMENT DATE NUMBER NUMBER CREDIT LIMIT DATE 8.500% $2,800,000.00 12/05/94 02/03/95 11125003 119512 - ------------------------------------------------------------------------------------
(b) [ ] and all other evidences of indebtedness, agreements, instruments, guaranties, or otherwise of Borrower or Owner to Lender of every type or description that now exists or arises in the future (WHETHER INCURRED FOR THE SAME OR DIFFERENT PURPOSES THAN THE FOREGOING); (c) all renewals, extensions, amendments, modifications, replacements or substitutions to any of the foregoing; and (d) applicable law. 3. COLLATERAL. The Collateral shall consist of all of the following- described property and Owner's rights, title and interest in such property whether now or hereafter existing or now owned or hereafter acquired by Owner and wheresoever located (collectively the "Collateral"): [ ] All accounts and contract rights including, but not limited to, the accounts and contract rights described on Schedule A attached hereto and incorporated herein by this reference; [ ] All chattel paper including, but not limited to, the chattel paper described on Schedule A attached hereto and incorporated herein by this reference; [ ] All documents including, but not limited to, the documents described on Schedule A attached hereto and incorporated herein by this reference; [ ] All equipment, including, but not limited to, the equipment described on Schedule A attached hereto and incorporated herein by this reference; [ ] All fixtures, including, but not limited to, the fixtures located or to be located on the real property described on Schedule B attached hereto and incorporated herein by this reference; [ ] All general intangibles including, but not limited to, the general intangibles described on Schedule A attached hereto and incorporated herein by this reference; [ ] All instruments including, but not limited to, the instruments described on Schedule A attached hereto and incorporated herein by this reference; [ ] All inventory including, but not limited to, the inventory described on Schedule A attached hereto and incorporated herein by this reference; [ ] All minerals or the like located on or related to the real property described on Schedule B attached hereto and incorporated herein by this reference; [ ] All standing timber located on the real property described on Schedule B attached hereto and incorporated herein by this reference; [X] Other: PRIOR COUNTY FILINGS 45126 & 25572 AND PRIOR SECRETARY OF STATE FILINGS 783662 & 333151 All monies, instruments, and savings, checking or other deposit accounts that are now or in the future in Lender's custody or control (excluding IRA, Keogh, trust accounts, and deposits subject to tax penalties if so assigned); All accessions, accessories, additions, amendments, attachments, modifications, replacements and substitutions to any of the above; All proceeds and products of any of the above; All policies of insurance pertaining to any of the above as well as any proceeds and unearned premiums pertaining to such policies; and All books and records pertaining to any of the above. 4. OWNER'S TAXPAYER IDENTIFICATION. Owner's social security number or federal taxpayer identification number is: 71-0678428 5. RESIDENCY/LEGAL STATUS. Owner is an individual(s) and a resident of the state of: n/a. Owner is a: [X] Corporation; [ ] Partnership; [ ] Non- Profit Association; duly organized, validly existing and in good standing under the laws of the state of: Arkansas. 6. REPRESENTATIONS, WARRANTIES, AND COVENANTS. Owner represents, warrants and covenants to Lender that: (a) Owner is and shall remain the sole owner of the Collateral; (b) Neither Owner nor, to the best of Owner's knowledge, has any other party used, generated, released, discharged, stored, or disposed of any hazardous material, toxic substance, or related material on any of the Collateral. Owner shall not commit or permit such actions to be taken in the future. The term "Hazardous Materials" shall mean any substance, material, or waste which is or becomes regulated by any governmental authority including, but not limited to, (i) petroleum; (ii) asbestos; (iii) polychlorinated biphenyls; (iv) those substances, materials or wastes designated as a "hazardous substance" pursuant to Section 311 of the Clean Water Act or listed pursuant to Section 307 of the Clean Water Act or any amendments or replacements to these statutes; (v) those substances, materials or wastes defined as a "hazardous waste" pursuant to Section 1004 of the Resource Conservation and Recovery Act or any amendments or replacements to that statute; or (vi) those substances, materials or wastes defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act, or any amendments or replacements to that statute; (c) Owner's chief executive office, chief place of business, office where its business records relating to the Collateral and the Collateral is located, or residence is the address identified above and have been such during the four (4) month period prior to the date hereof. Owner's other executive offices, places of business, locations of its business records, or domiciles are described on Schedule C attached hereto and incorporated herein by this reference. Owner shall immediately advise Lender in writing of any change in or addition to the foregoing addresses; (d) Owner shall not become a party to any restructuring of its form of business or participate in any consolidation, merger, liquidation or dissolution without Lender's prior written consent; (e) Owner shall notify Lender of the nature of any intended change of Owner's name, or the use of any trade name, and the effective date of such change; (f) The Collateral is and shall at all times remain free of all tax and other liens, security interests, encumbrances and claims of any kind except for those belonging to Lender and those described on Schedule D attached hereto and incorporated herein by this reference. Without waiving the event of default as a result thereof, Owner shall take any action and execute any document needed to discharge the foregoing liens, security interests, encumbrances and claims; (g) Owner shall defend the Collateral against all claims and demands of all persons at any time claiming any interest therein; (h) All of the goods, fixtures, minerals or the like, and standing timber constituting the Collateral is and shall be located at Owner's executive offices, places of business, residence and domiciles specifically described in this Agreement. Owner shall not change the location of any Collateral without the prior written consent of Lender; (i) Owner shall provide Lender with possession of all chattel paper and instruments constituting the Collateral, and Owner shall promptly mark all chattel paper, instruments, and documents constituting the Collateral to show that the same are subject to Lender's security interest; (j) All of Owner's accounts or contract rights; chattel paper; documents; general intangibles; instruments; and federal, state, county, and municipal government and other permits and licenses; trusts, liens, contracts, leases, and agreements constituting the Collateral are and shall be valid, genuine and legally enforceable obligations and rights belonging to Owner against one or more third parties and not subject to any claim, defense, set-off or counterclaim of any kind; (k) Owner shall not amend, modify, replace, or substitute any account or contract right; chattel paper; document; general intangible; or instrument constituting the Collateral without the prior written consent of Lender; (l) Owner has the right and is duly authorized to enter into and perform its obligations under this Agreement. Owner's execution and performance of these obligations do not and shall not conflict with the provisions of any statute, regulation, ordinance, rule of law, contract or other agreement which may now or hereafter be binding on Owner; (m) No action or proceeding is pending against Owner which might result in any material or adverse change in its business operations or financial condition or materially affect the Collateral; (n) Owner has not violated and shall not violate any applicable federal, state, county or municipal statute, regulation or ordinance (including but not limited to those governing Hazardous Materials) which may materially and adversely affect its business operations or financial condition or the Collateral; (o) Owner shall, upon Lender's request, deposit all proceeds of the Collateral into an account or accounts maintained by Owner or Lender at Lender's institution; (p) Owner will, upon receipt, deliver to Lender as additional Collateral all securities distributed on account of the Collateral such as stock dividends and securities resulting from stock splits, reorganizations and recapitalizations; and (q) This Agreement and the obligations described in this Agreement are executed and incurred for business and not consumer purposes. 7. SALE OF COLLATERAL. Owner shall not assign, convey, lease, sell or transfer any of the Collateral to any third party without the prior written consent of Lender except for sales of inventory to buyers in the ordinary course of business. 8. FINANCING STATEMENTS AND OTHER DOCUMENTS. Owner shall at any time and from time to time take all actions and execute all documents required by Lender to attach, perfect and maintain Lender's security interest in the Collateral and establish and maintain Lender's right to receive the payment of the proceeds of the Collateral including, but not limited to, executing any financing statements, fixture filings, continuation statements, notices of security interest and other documents required by the Uniform Commercial Code and other applicable law. Owner shall pay the costs of filing such documents in all offices wherever filing or recording is deemed by Lender to be necessary or desirable. Lender shall be entitled to perfect its security interest in the Collateral by filing carbon, photographic or other reproductions of the aforementioned documents with any authority required by the Uniform Commercial Code or other applicable law. Owner authorizes Lender to execute and file any financing statements, as well as extensions, renewals and amendments of financing statements in such form as Lender may require to perfect and maintain perfection of any security interest granted in this Agreement. 9. INQUIRIES AND NOTIFICATION TO THIRD PARTIES. Owner hereby authorizes Lender to contact any third party and make any inquiry pertaining to Owner's financial condition or the Collateral. In addition, Lender is authorized to provide oral or written notice of its security interest in the Collateral to any third party and, following a default hereunder, to make payment to Lender. 10. LOCK BOX, COLLATERAL ACCOUNT. If Lender so requests at any time (whether or not Owner is in default of this Agreement), Owner will direct each of its account debtors to make payments due under the relevant account or chattel paper directly to a special lock box to be under the control of Lender. Owner hereby authorizes and directs Lender to deposit into a special collateral account to be established and maintained with Lender all checks, drafts and cash payments received in said lock box. All deposits in said collateral account shall constitute proceeds of Collateral and shall not constitute payment of any Obligation. At its option, Lender may, at any time, apply finally collected funds on deposit in said collateral account to the payment of the Obligations in such order of application as Lender may determine, or permit Owner to withdraw all or any part of the balance on deposit in said collateral account. If a collateral account is so established, Owner agrees that Owner will promptly deliver to Lender, for deposit into said collateral account, all payments on accounts and chattel paper received by Owner. All such payments shall be delivered to Lender in the form received (except for Owner's endorsement if necessary). Until so deposited, all payments on accounts and chattel paper received by Owner shall be held in trust by Owner for and as the property of Lender and shall not be commingled with any funds or property of Owner. 11. COLLECTION OF INDEBTEDNESS FROM THIRD PARTIES. Lender shall be entitled to notify, and upon the request of Lender, Owner shall notify any account debtor or other third party (including, but not limited to, insurance companies) to pay any indebtedness or obligation owing to Owner and constituting the Collateral (cumulatively "Indebtedness") to Lender whether or not a default exists under this Agreement. Owner shall diligently collect the Indebtedness owing to Owner from its account debtors and other third parties until the giving of such notification. In the event that Owner possesses or receives possession of any instruments or other remittances with respect to the Indebtedness following the giving of such notification or if the instruments or other remittances constitute the prepayment of any Indebtedness or the payment of any insurance proceeds, Owner shall hold such instruments and other remittances in trust for Lender apart from its other property, endorse the instruments and other remittances to Lender, and immediately provide Lender with possession of the instruments and other remittances. Lender shall be entitled, but not required, to collect (by legal proceedings or otherwise), extend the time for payment, compromise, exchange or release any obligor or collateral upon, or otherwise settle any of the Indebtedness whether or not an event of default exists under this Agreement. Lender shall not be liable to Owner for any action, error, mistake, omission or delay pertaining to the actions described in this paragraph or any damages resulting therefrom. 12. POWER OF ATTORNEY. Owner hereby appoints Lender as its attorney-in- fact to endorse Owner's name on all instruments and other remittances payable to Owner with respect to the Indebtedness, including any items received by Lender in any lockbox account, or other documents pertaining to Lender's actions in connection with the Indebtedness. In addition, Lender shall be entitled, but not required, to perform any action or execute any document required to be taken or executed by Owner under this Agreement. Lender's performance of such action or execution of such documents shall not relieve Owner from any obligation or cure any default under this Agreement. The powers of attorney described in this paragraph are coupled with an interest and are irrevocable. 13. USE AND MAINTENANCE OF COLLATERAL. Owner shall use the Collateral solely in the ordinary course of its business, for the usual purposes intended by the manufacturer (if applicable), with due care, and in compliance with the laws, ordinances, regulations, requirements and rules of all federal, state, county and municipal authorities including environmental laws and regulations and insurance policies. Owner shall not make any alterations, additions or improvements to the Collateral without the prior written consent of Lender. Owner shall ensure that Collateral which is not now a fixture does not become a fixture. Without limiting the foregoing, all alterations, additions and improvements made to the Collateral shall be subject to the security interest belonging to Lender, shall not be removed without the prior written consent of Lender, and shall be made at Owner's sole expense. Owner shall take all actions and make any repairs or replacements needed to maintain the Collateral in good condition and working order. 14. LOSS OR DAMAGE. Owner shall bear the entire risk of any loss, theft, destruction or damage (cumulatively "Loss or Damage") to all or any part of the Collateral. In the event of any Loss or Damage, Owner will either restore the Collateral to its previous condition, replace the Collateral with similar property acceptable to Lender in its sole discretion, or pay or cause to be paid to Lender the decrease in the fair market value of the affected Collateral. 15. INSURANCE. The Collateral will be kept insured for its full value against all hazards including loss or damage caused by fire, collision, theft or other casualty. If the Collateral consists of a motor vehicle, Owner will obtain comprehensive and collision coverage in amounts at least equal to the actual cash value of the vehicle with deductibles not to exceed $n/a. Insurance coverage obtained by Owner shall be from a licensed insurer subject to Lender's approval. Owner shall assign to Lender all rights to receive proceeds of insurance not exceeding the amount owned under the obligations described above, and direct the insurer to pay all proceeds directly to Lender. The insurance policies shall require the insurance company to provide Lender with at least 10 days' written notice before such policies are altered or cancelled in any manner. The insurance policies shall name Lender as a loss payee and provide that no act or omission of Owner or any other person shall affect the right of Lender to be paid the insurance proceeds pertaining to the loss or damage of the Collateral. In the event Owner fails to acquire or maintain insurance, Lender (after providing notice as may be required by law) may in its discretion procure appropriate insurance coverage upon the Collateral and charge the insurance cost as an advance of principal under the promissory note. Owner shall furnish Lender with evidence of insurance indicating the required coverage. Lender may act as attorney-in-fact for Owner in making and settling claims under insurance policies, cancelling any policy or endorsing Owner's name on any draft or negotiable instrument drawn by any insurer. 16. INDEMNIFICATION. Lender shall not assume or be responsible for the performance of any of Owner's obligations with respect to the Collateral under any circumstances. Owner shall immediately provide Lender with written notice of and indemnify and hold Lender and its shareholders, directors, officers, employees and agents harmless from all claims, damages, liabilities (including attorneys' fees and legal expenses), causes of action, actions, suits and other legal proceedings (cumulatively "Claims") pertaining to its business operations or the Collateral including, but not limited to, those arising from Lender's performance of Owner's obligations with respect to the Collateral. Owner, upon the request of Lender, shall hire legal counsel to defend Lender from such Claims, and pay the attorneys' fees, legal expenses and other costs to the extent permitted by applicable law, incurred in connection therewith. In the alternative, Lender shall be entitled to employ its own legal counsel to defend such Claims at Owner's cost. 17. TAXES AND ASSESSMENTS. Owner shall execute and file all tax returns and pay all taxes, licenses, fees and assessments relating to its business operations and the Collateral (including, but not limited to, income taxes, personal property taxes, withholding taxes, sales taxes, use taxes, excise taxes and workers' compensation premiums) in a timely manner. 18. INSPECTION OF COLLATERAL AND BOOKS AND RECORDS. Owner shall allow Lender or its agents to examine, inspect and make abstracts and copies of the Collateral and Owner's books and records pertaining to Owner's business operations and financial condition or the Collateral during normal business hours. Owner shall provide any assistance required by Lender for these purposes. All of the signatures and information pertaining to the Collateral or contained in the books and records shall be genuine, true, accurate and complete in all respects. Owner shall note the existence of Lender's security interest in its books and records pertaining to the Collateral. 19. DEFAULT. Owner shall be in default under this Agreement in the event that Owner, Borrower or any guarantor: (a) fails to make any payment under this Agreement or any other indebtedness to Lender when due; (b) fails to perform any obligation or breaches any warranty or covenant to Lender contained in this Agreement or any other present or future written agreement regarding this or any other indebtedness to Lender; (c) provides or causes any false or misleading signature or representation to be provided to Lender; (d) allows the Collateral to be destroyed, lost or stolen, damaged in any material respect, or subjected to seizure or confiscation; (e) seeks to revoke, terminate or otherwise limit its liability under any continuing guaranty; (f) permits the entry or service of any garnishment, judgment, tax levy, attachment or lien against Owner, any guarantor, or any of their property; (g) dies, becomes legally incompetent, is dissolved or terminated, ceases to operate its business, becomes insolvent, makes an assignment for the benefit of creditors, fails to pay any debts as they become due, or becomes the subject of any bankruptcy, insolvency or debtor rehabilitation proceeding; (h) allows the Collateral to be used by anyone to transport or store goods, the possession, transportation, or use of which, is illegal; or (i) causes Lender in good faith to deem itself insecure for any reason. 20. RIGHTS OF LENDER ON DEFAULT. If there is a default under this Agreement, Lender shall be entitled to exercise one or more of the following remedies without notice or demand (except as required by law): (a) to declare the Obligations immediately due and payable in full; (b) to collect the outstanding Obligations with or without resorting to judicial process; (c) to change Owner's mailing address, open Owner's mail, and retain any instruments or other remittances constituting the Collateral contained therein; (d) to take possession of any Collateral in any manner permitted by law; (e) to apply for and obtain, without notice and upon ex parte application, the appointment of a receiver for the Collateral without regard to Owner's financial condition or solvency, the adequacy of the Collateral to secure the payment or performance of the obligations, or the existence of any waste to the Collateral; (f) to require Owner to deliver and make available to Lender any Collateral at a place reasonably convenient to Owner and Lender; (g) to sell, lease or otherwise dispose of any Collateral and collect any deficiency balance with or without resorting to legal process; (h) to set-off Owner's obligations against any amounts due to Owner including, but not limited to, monies, instruments, and deposit accounts maintained with Lender; and (i) to exercise all other rights available to Lender under any other written agreement or applicable law. Lender's rights are cumulative and may be exercised together, separately, and in any order. If notice to Owner of intended disposition of Collateral is required by law, Lender will provide reasonable notification of the time and place of any sale or intended disposition as required under the Uniform Commercial Code. In the event that Lender institutes an action to recover any Collateral or seeks recovery of any Collateral by way of a prejudgment remedy in an action against Owner, Owner waives the posting of any bond which might otherwise be required. Upon any default, Owner shall segregate all proceeds of Collateral and hold such proceeds in trust for Lender. Lender's remedies under this paragraph are in addition to those available at common law, such as setoff. 21. APPLICATION OF PAYMENTS. Whether or not a default has occurred under this Agreement, all payments made by or on behalf of Owner and all credits due to Owner from the disposition of the Collateral or otherwise may be applied against the amounts paid by Lender (including attorneys' fees and legal expenses) in connection with the exercise of its rights or remedies described in this Agreement and any interest thereon and then to the payment of the remaining Obligations in whatever order Lender chooses. 22. REIMBURSEMENT OF AMOUNTS EXPENDED BY LENDER. Owner shall reimburse Lender for all amounts (including attorneys' fees and legal expenses) expended by Lender in the performance of any action required to be taken by Owner or the exercise of any right or remedy belonging to Lender under this Agreement, together with interest thereon at the lower of the highest rate described in any promissory note or credit agreement executed by Borrower or Owner or the highest rate allowed by law from the date of payment until the date of reimbursement. These sums shall be included in the definition of Obligations, shall be secured by the Collateral identified in this Agreement and shall be payable upon demand. 23. ASSIGNMENT. Owner shall not be entitled to assign any of its rights, remedies or obligations described in this Agreement without the prior written consent of Lender. Consent may be withheld by Lender in its sole discretion. Lender shall be entitled to assign some or all of its rights and remedies described in this Agreement without notice to or the prior consent of Owner in any manner. 24. MODIFICATION AND WAIVER. The modification or waiver of any of Owner's Obligations or Lender's rights under this Agreement must be contained in a writing signed by Lender. Lender may perform any of Owner's Obligations or delay or fail to exercise any of its rights without causing a waiver of those Obligations or rights. A waiver on one occasion shall not constitute a waiver on any other occasion. Owner's Obligations under this Agreement shall not be affected if Lender amends, compromises, exchanges, fails to exercise, impairs or releases any of the obligations belonging to any Owner or third party or any of its rights against any Owner, third party or collateral. 25. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of Owner and Lender and their respective successors, assigns, trustees, receivers, administrators, personal representatives, legatees, and devisees. 26. NOTICES. Any notice or other communication to be provided under this Agreement shall be in writing and sent to the parties at the addresses described in this Agreement or such other address as the parties may designate in writing from time to time. 27. SEVERABILITY. If any provision of this Agreement violates the law or is unenforceable, the rest of the Agreement shall remain valid. 28. APPLICABLE LAW. This Agreement shall be governed by the laws of the state identified in Lender's address. Owner consents to the jurisdiction and venue of any court located in the state indicated in Lender's address in the event of any legal proceeding pertaining to the negotiation, execution, performance or enforcement of any term or condition contained in this Agreement or any related document and agrees not to commence or seek to remove such legal proceeding in or to a different court. 29. COLLECTION COSTS. If Lender hires an attorney to assist in collecting any amount due or enforcing any right or remedy under this Agreement, Owner agrees to pay Lender's reasonable attorneys' and collection costs. 30. MISCELLANEOUS. This Agreement is executed for commercial purposes. Owner shall supply information regarding Owner's business operations and financial condition or the Collateral in the form and manner as requested by Lender from time to time. All information furnished by Owner to Lender shall be true, accurate and complete in all respects. Owner and Lender agree that time is of the essence. Owner waives presentment, demand for payment, notice or dishonor and protest except as required by law. All references to Owner in this Agreement shall include all parties signing below except Lender. This Agreement shall be binding upon the heirs, successors and assigns of Owner and Lender. If there is more than one Owner, their obligations shall be joint and several. This Agreement shall remain in full force and effect until Lender provides Owner with written notice of termination. This Agreement and any related documents represent the complete and integrated understanding between Owner and Lender pertaining to the terms and conditions of those documents. 31. WAIVER OF JURY TRIAL. LENDER AND OWNER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN CONJUNCTION WITH THE OBLIGATIONS, THIS AGREEMENT AND ANY OTHER AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH OR THEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER MAKING THE LOAN EVIDENCED BY THE PROMISSORY NOTE. 32. ADDITIONAL TERMS: Owner acknowledges that Owner has read, understands, and agrees to the terms and conditions of this Agreement. Dated: DECEMBER 5, 1994 LENDER: The Benton State Bank /s/ Harry McCormick _____________________________ HARRY MCCORMICK SENIOR VICE PRESIDENT OWNER: LANDERS AUTO SALES, INC. OWNER: LANDERS AUTO SALES, INC. /s/ Steve Landers /s/ John Landers _______________________________ ______________________________ STEVE LANDERS JOHN LANDERS PRESIDENT VICE PRESIDENT OWNER: LANDERS AUTO SALES, INC. OWNER: /s/ Bob Landers _______________________________ ______________________________ BOB LANDERS SECRETARY OWNER: OWNER: ________________________________ ______________________________ OWNER: OWNER: ________________________________ ______________________________ EX-10.4-21 23 EXHIBIT 10.4.21 July 31, 1995 CERTIFIED MAIL RETURN RECEIPT REQUESTED PERSONAL AND CONFIDENTIAL United Auto Group, Inc. 375 Park Avenue, 22nd Floor New York, NY 10162 Attention: Mr. Carl Spielvogel, Chief Executive Officer -------------------------------------------- Gentlemen: On April 6, 1995 Oldsmobile Division on behalf of itself and GMC Truck Division rejected a proposal submitted by United Auto Group, Inc. ("UAG") and Landers Auto Sales, Inc. concerning a Stock Purchase Agreement executed between UAG and Landers Auto Sales, Inc., Steve Landers, John Landers and Bob Landers of Benton, Arkansas. That proposal contemplated the acquisition by UAG of eighty percent of the ownership equity or Landers Auto Sales, Inc. Oldsmobile's rejection of that proposal was based on the continuing failure of UAG to meet General Motoros policies for Multiple Dealer Investors-Multiple Dealer Operators (MDI-MDO) as set forth in NAO Dealer Bulletin 94-11. A copy of that Bulletin was provided to all General Motors Dealers on September 14, 1994. The fact that UAG has not fulfilled its responsibilities in the various General Motors Dealerships in which it has a financial investment was covered in some detail in a letter to UAG dated November 14, 1994 from Chevrolet Zone Manager, A. A. Prince. You have requested that Oldsmobile and GMC Truck reconsider our rejection of the above-mentioned Stock Purchase Agreement. You have also proposed that as condition of Oldsmobile and GMC Truck approval of the transactions contemplated by such Stock Purchase Agreement, UAG will take the necessary steps to fulfill its sales and service obilgations as outlined in each of the General Motors Dealer Sales and Service Agreements to which it and/or any dealer company in which UAG now has or hereafter acquires an ownership, financial, or management interest (individually, a "Dealer Company" and collectively, the "Dealer Companies") is a party, and that such level of performance shall be attained within two years from the date of Oldsmobile and GMC Truck apprvoal of this proposal. UAG has also agreed that, if UAG and/or any Dealer Company, fails to achieve such level of performance within such period, UAG will voluntarily terminate, and UAG will cause the applicable Dealer Company or Dealer Companies to terminate the respective Dealer Agreements for all franchises at a location at which the Dealer Company is not then meeting its sales and/or service performance obligations. In consideration of the above, Oldsmobile and GMC Truck are prepared to approve the proposed changes in ownership at Lands Auto Sales, Inc. subject to your acceptance and agreement to the following: 1. UAG agrees that within two years from the date of this letter each Dealer Company will meet its sales and service obligations for each General Motors Dealer Sales and Service Agreement in effect with such Dealer Company. For purposes of this agreement "sales and service obligations" are defined in the General Motors Multiple Dealer Investor Policy as follows: SALES PERFORMANCE A retail sales index of 100 or higher. CUSTOMER SATISFACTION A customer satisfaction index (CSi) that is equal to or above the Dealer Company's respective Zone/Branch average. 2. In the event a Dealer Company is not meeting both its sales obligations and its service obligations (as defined above), at the end of two years from the date of this letter, which performance will be reviewed by the respective General Motors Divisions, UAG agrees that at General Motors request, UAG will terminate and will cause each such Dealer Company to terminate, ALL the General Motors Dealer Sales and Service Agreements in effect with such Dealer Company. 3. Termination of any Dealer Sales and Service Agreements as described in item two (2) above shall occur within six (6) months of General Motors notice to UAG and the applicable Dealer Company of the failure of performance of such Dealer Company which notice shall be given, if at all, by General Motors within a reasonable period following General Motors receipt and review. 4. Until such time as UAG is in compliance with the General Motors Multiple Dealer Investor Policy, it will not attempt to make or acquire additional investments in any General Motors Dealerships. 5. Nothing contained in this letter is intended to preclude or prohibit UAG from disposing of its interest in any Dealer Company, in accordance with the existing General Motors policies. 6. UAG will cause DeFeo Oldsmobile of Bound Brook to voluntarily terminate their Oldsmobile Dealer Sales and Service Agreement -2- on or before December 31, 1995 on terms mutually acceptable to both parties. 7. UAG hereby warrants and represents to General Motors that it currently has, and shall maintain throughout the term of this Letter Agreement, the absolute and unconditional right, power and authority to cause each Dealer Company to comply with the terms and conditions of this Letter Agreement. 8. This Letter Agreement shall remain in full force and effect through August 27, 1998. Please acknowledge your acceptance and agreement with the above by signing the attached copy of this letter in the space provided below and return it to the writer. Very truly yours, J. J. Zubor Retail Organization & Development Director Accepted and agreed this 31st ---- of July, 1995 By: /s/ Carl Spielvogel ------------------------- Carl Spielvogel Chief Executive Officer DAH/lm cc: GMC Truck Chevrolet Pontiac Buick Cadillac -3- EX-10.5-4 24 EXHIBIT 10.5.4 EXHIBIT 10.5.4 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. $300,000.00 January 16, 1996 PROMISSORY NOTE ATLANTA TOYOTA. INC., a Texas corporation (hereinafter called "Maker"), for value received, promises and agrees to pay to First Extended Service Corporation (hereinafter called "Payee"), in lawful money of the United States of America, the principal sum of THREE HUNDRED THOUSAND DOLLARS ($300,000.00), 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 (8.5%) (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. THE PRINCIPAL of this Note shall be paid in installments of $150,000 on January 2, 1997 and $150,000 on January 2, 1998. ACCRUED INTEREST is due and payable on June 30, 1996, January 2, 1997, June 30, 1997 and January 2, 1998; 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: $300,000.00 January 16, 1996 (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 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 scheduled 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 $300,000.00 January 16, 1996 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 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, staged, 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 Payee 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). $300,000.00 January 16, 1996 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 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. ATLANTA TOYOTA, INC. By: /s/ Illegible ------------------------- Its: President -------------------------- EX-10.5-5 25 EXHIBIT 10.5.5 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 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. -2- 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-10.5-10 26 EX-10.5.10 Exhibit 10.5.10 CONTINUING GUARANTY FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged, and in consideration of any loan, advance or other financial accommodation heretofore or hereafter at any time made or granted to, of any purchase or other acquisition of retail installment sales contracts, leases, conditional sales contracts or other security agreements or instruments from, and of any extension of credit or of the transaction of any business with UNITED NISSAN, INC. ("DEALER") by WORLD OMNI FINANCIAL CORP., WORLD OMNI LEASING, INC. or TOYOTA MOTOR CREDIT CORPORATION (hereinafter, together with their transferees, successors and assigns, individually referred to as a "LENDER" and collectively referred to as the "LENDERS"), which loans, advances, purchases, acquisitions, or extensions of credit would not have been made but for this Continuing Guaranty, each of the undersigned (hereinafter, individually a "GUARANTOR" and collectively the "GUARANTORS"), jointly and severally, and absolutely and unconditionally, guarantee to each LENDER that DEALER shall fully, promptly and faithfully perform and pay and discharge all DEALER's present and future obligations to each LENDER (collectively, the "Obligations"), whether direct, indirect or contingent, whether incurred by DEALER as the primary debtor, co- maker, or guarantor, whether otherwise guaranteed or secured, or whether on open account, evidenced by an instrument, or otherwise. The GUARANTORS agree to pay in full on demand all sums due and to become due to each LENDER from DEALER if not paid when due by DEALER, whether at maturity or earlier, by reason of acceleration or otherwise, together with interest and all losses, costs, attorneys' fees (provided, however, that if this Continuing Guaranty is governed by and construed and enforced under the laws of the State of Georgia, the GUARANTORS shall pay to each LENDER attorneys' fees at the rate of 15% of the principal and interest owing by DEALER to each LENDER), other legal expenses, and other expenses which each LENDER may suffer, including attorneys' fees for any appellate procedure, arbitration or consultation, by reason of DEALER's default. Each of the GUARANTORS warrants to each LENDER that it has adequate means to obtain from the DEALER on a continuing basis information concerning the financial condition of the DEALER and that it is not relying on the LENDERS to provide such information either now or in the future. The GUARANTORS hereby individually subordinate any sums now or hereafter due to them from DEALER (the "Subordinated Indebtedness") to the payment of any sums now or hereafter due each LENDER from the DEALER. The GUARANTORS further agree that none of them, without prior written consent of each LENDER, shall demand payment of, take steps for the collection of, assign, transfer or otherwise dispose of any of the Subordinated Indebtedness, or any part thereof, nor shall they enforce collection against any collateral securing any Subordinated Indebtedness, nor demand or accept any property belonging to DEALER as security for any Subordinated Indebtedness as long as DEALER should be indebted to any LENDER. It is the understanding of the parties that payments (in fair and reasonable amounts) shall be allowed to be paid by DEALER to the GUARANTORS for: (i) wage and salary payments for services rendered after the date hereof or for a current payroll period; (2) reimbursement for ordinary and necessary travel and entertainment expenses actually incurred and paid by a GUARANTOR after the date hereof for the benefit of DEALER; and (3) payments for materials or services furnished by the GUARANTORS to the DEALER in the ordinary course of business dealings between a GUARANTOR and DEALER. In all respects, except as above set forth specifically, any indebtedness or other obligation of the DEALER to the GUARANTORS shall be subordinate to the debt of each LENDER. As security for the payment and performance of all of the GUARANTORS' obligations hereunder, each of the GUARANTORS hereby assigns, transfers, and sets over to the LENDERS, all of their right, title and interest in and to all of the Subordinated Indebtedness and any collateral pledged, granted or given to a GUARANTOR as security therefor and agrees to execute such instruments as may be reasonably requested from time to time, in the discretion of each LENDER, to effectuate, complete or further confirm this assignment and transfer; and each GUARANTOR hereby agrees to hold in trust for and promptly remit to the LENDERS for application upon the debt due the LENDERS from DEALER any amount such GUARANTOR receives from DEALER or any other person on account of the Subordinated Indebtedness. Each of the undersigned GUARANTORS shall furnish each LENDER such balance sheets, statements of income, expenditure and surplus statements, together with any other financial statements as may be reasonably requested from time to time, at the discretion of each LENDER. Additionally, each GUARANTOR shall execute and agree to all terms included in any assumption agreement, subordination agreement or other guaranty reasonably requested by each LENDER. With respect to each LENDER, this Continuing Guaranty shall not be terminable as long as there are any Obligations of DEALER to the LENDER in effect or pending. If no such Obligations are in effect or pending, then this Continuing Guaranty may be terminated by notice sent to the LENDER, by certified mail, stating an effective date after the receipt of such notice. A notice of termination shall not be effective for a period of 60 days after receipt by the LENDER. No termination shall be effective as pertains to any Obligation of DEALER incurred prior to the effective date of termination. No termination shall likewise be effected by the death or incompetency of any of the GUARANTORS. Notwithstanding a valid termination in accordance with this paragraph, this Continuing Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by the LENDER upon the insolvency, bankruptcy or reorganization of DEALER or otherwise, -2- all as though such payment had not been made. If the obligations of one or more GUARANTORS hereunder are terminated or if one or more GUARANTORS are released from this Continuing Guaranty, for any reason whatsoever, whether by an act of any LENDER or otherwise, such termination or release shall not operate to terminate this Continuing Guaranty with respect to any other GUARANTOR or operate to release any other GUARANTOR from the obligations hereunder. This Continuing Guaranty remains fully enforceable irrespective of any defenses which the DEALER may assert on the underlying debt including, but not limited to, failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, accord and satisfaction, and usury. The GUARANTORS hereby consent that, without notice to, or further consent of GUARANTORS: (a) the performance or observance by DEALER of the Obligations may be waived or the time of performance thereof extended by a LENDER; (b) the payment of any Obligation hereby guaranteed may be accelerated or extended in accordance with any agreement between a LENDER and any party liable with respect thereto; or (c) the Obligations may be renewed, in whole or in part, or new Obligations may be created or incurred, or any collateral therefor or any guaranty thereof may be exchanged, surrendered, released or otherwise dealt with as each LENDER may determine, and any of the acts mentioned in the Obligations may be done, all without affecting the liability of GUARANTORS hereunder. Without in any way limiting the foregoing, the GUARANTORS hereby waive any other act or omission of each LENDER which changes the scope of the GUARANTORS' risk. GUARANTORS hereby waive: (a) promptness, diligence, presentment of any instrument, demand for payment, protest, notice of dishonor, notice of presentment, notice of nonpayment, notice of protest, notice of default (or any other notice of any kind to GUARANTORS, all of which are hereby expressly waived by GUARANTORS to the fullest extent permitted by law); (b) notice of any exchange, surrender, release or other handling of any GUARANTORS or collateral relating to DEALER; (c) failure of any LENDER to obtain and perfect or maintain the perfection or priority of any security interest or lien on property to secure any of the Obligations; (d) defenses, offset and counterclaims which the GUARANTORS may at any time have to any claim of any LENDER against the DEALER; (e) any changes in the terms of the Obligations, whether deemed material or not, including any interest rate adjustment; (f) any other change in the Obligations including a change in the business structure of the DEALER; (g) surrender, release, exchange or substitution of any collateral or dealing with or taking any additional collateral; (h) abstaining from taking advantage of or realizing upon any security interest or other guarantee; and (i) any impairment of any collateral. Further, the GUARANTORS hereby waive all errors and omissions in connection with each LENDER's administration of the Obligations, except behavior which amounts to bad faith. Finally, without in any way limiting the foregoing, each of the GUARANTORS hereby -3- waives any other act or omission of any LENDER which changes the scope of each of the GUARANTOR's risk. It is contemplated that this is and is intended to be the personal guaranty of payment and performance of each GUARANTOR 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; however, this provision shall not apply to the signature of a person who signs as an officer of a corporation which executes this Continuing Guaranty as a Corporate Guarantor of the DEALER. The liability of the GUARANTORS is primary, absolute and unconditional, and shall not be subject to deduction for any claim of setoff, counterclaim or defense of DEALER, or loss of contribution from any CO- GUARANTORS hereunder or release or discharge of one or more of the CO- GUARANTORS, and the GUARANTORS shall have no right of subrogation, reimbursement, indemnity, or recourse to any assets or property of DEALER or to any security for the indebtedness or Obligations owing to any LENDER by DEALER, unless and until all of such indebtedness and Obligations shall have been performed and paid in full with interest, fees and costs. If any amount shall be paid to a GUARANTOR as payment on the Subordinated Indebtedness or on account of such subrogation, reimbursement or indemnity rights at any time before all Obligations have been paid in full, such amount shall be held in trust for the benefit of the LENDERS and shall forthwith be paid to the LENDERS to be credited and applied to the Obligations, whether matured or unmatured. The liability of the GUARANTORS under this Continuing Guaranty shall be absolute and unconditional irrespective of any lack of validity or enforceability of the Obligations or any other agreement or instrument relating thereto or any other circumstance which might otherwise constitute a defense available to, or a discharge of, the DEALER or a GUARANTOR. Nothing shall discharge or satisfy the joint and several liability of the GUARANTORS hereunder except such full performance and payment. This is a guaranty of payment, and not of collection, and the GUARANTORS therefore agree that each LENDER shall not be obligated, prior to seeking recourse against or receiving payment from the GUARANTORS, to do any of the following acts (although each LENDER may do so, in whole or in part, at its sole option), the performance of each of which is hereby unconditionally waived by the GUARANTORS: (a) take any steps whatsoever to collect from DEALER or to file any claim of any kind against DEALER; (b) take any steps whatsoever to accept, perfect any LENDER's interest in, or foreclose or realize on, any collateral security, if any, pledged or given as security for the payment of the amounts due any LENDER, or any guaranty of such amounts; or (c) in any other respect exercise any diligence whatever in collecting or attempting to collect the amounts due any LENDER by any means. Each GUARANTOR agrees that this Continuing Guaranty may be enforced by the LENDER without the necessity at any time of resorting to or exhausting any other security or collateral, -4- whether owned by Dealer or any CO-GUARANTOR, and each GUARANTOR hereby waives any right it may otherwise have under any statute, regulation or other law to require the LENDER to proceed against the DEALER or any CO-GUARANTOR or to require the LENDER to pursue any other remedy or enforce any other right prior to proceeding against the GUARANTOR. No waiver by any LENDER of any default shall operate as a waiver of any other default or of the same default on a future occasion. No delay or omission on the part of any LENDER in exercising any right or remedy shall operate as a waiver thereof, and no single or partial exercise by any LENDER of any right or remedy shall preclude any other or further exercise thereof or the exercise of any other right or remedy. Time is of the essence in relation to this Continuing Guaranty. The provisions of this Continuing Guaranty are cumulative and in addition to the provisions of any of the Obligations guaranteed by this Continuing Guaranty or any other agreement executed in conjunction herewith and each LENDER shall have all the benefits, rights and remedies provided by any Obligation guaranteed hereby. Each LENDER may employ an attorney or a law firm to enforce its rights and remedies hereunder and GUARANTORS hereby agree, jointly and severally, to pay to each LENDER reasonable attorneys' fees (provided, however, that if this Continuing Guaranty is governed by and construed and enforced under the laws of the State of Georgia, the GUARANTORS shall pay to each LENDER attorneys' fees at the rate of 15% of the principal and interest owing by DEALER to each LENDER), whether or not suit be brought, including attorneys' fees on appeal, plus all other reasonable expenses incurred by a LENDER in exercising any of its rights and remedies hereunder, including without limitation, court 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. Except as otherwise provided herein, each LENDER may assign this Continuing Guaranty or any of its rights and powers hereunder, with all of the Obligations hereby guaranteed, and may assign and/or deliver to any such assignee any of the security therefor, if any, and in the event of such assignment, the assignee of such rights and powers and of such security, shall have the same rights, duties, remedies and obligations as if originally named herein in place of a LENDER and, upon such assignee's written acceptance and assumption of same, the assigning LENDER shall be thereafter fully discharged from all responsibility with respect to any such security so assigned and/or delivered. Neither this guaranty nor any obligation hereunder may be assigned by the GUARANTORS. This instrument shall bind the GUARANTORS' respective heirs, administrators and personal representatives. -5- This Continuing Guaranty is intended by the parties hereto as a final expression of the guarantee agreement set forth herein and is also intended as a complete and exclusive statement of the terms of that agreement. No course of dealing, course of performance or trade usage, and no parol evidence of any nature, shall be used to supplement or modify any terms, nor are there any conditions to the full effectiveness of this Continuing Guaranty. The obligations of the GUARANTORS hereunder shall be complete and binding upon execution of this Continuing Guaranty and subject to no conditions, precedent or otherwise. Each of the persons who has signed this Continuing Guaranty has unconditionally delivered it to each LENDER, and failure to sign this or any other guaranty by any other person shall not discharge the liability of any signer. This Continuing Guaranty shall be governed by and construed and enforced under the laws of the State of GEORGIA without regard to its conflict of laws principles. Whenever possible, each provision of this Continuing Guaranty shall be interpreted so as to be effective and valid under applicable law, but if any provision of this Continuing Guaranty shall be invalid under applicable law, such provision shall be ineffective only to the extent of such invalidity, without invalidating the remainder of such provision or the remainder of this Continuing Guaranty. The singular when used herein shall include the plural, the neuter shall include masculine and feminine, and the masculine shall include the feminine. GUARANTORS hereby knowingly, voluntarily and intentionally waive the right to a trial by jury in respect of any litigation based on this Continuing Guaranty, or arising out of, under, or in connection with any document executed in connection with this Continuing Guaranty or any transaction related hereto, or in connection with any course of conduct, course of dealing, statements (whether verbal or written), or actions of any LENDER or any other person. This waiver of trial by jury provision is a material inducement for the LENDERS to -6- enter into the transactions guaranteed by this Continuing Guaranty. The GUARANTORS hereby acknowledge receipt of a fully executed copy of this Continuing Guaranty. IN WITNESS WHEREOF, each of the undersigned GUARANTORS has caused this Continuing Guaranty to be executed under hand and seal this 29 day of April 1996. Guarantors: (SEAL) Address - ------------------------- -------------------- (SEAL) Address - ------------------------- -------------------- Corporate Guarantor: UNITED AUTO GROUP, INC. ATTEST: (Print Name) By:/s/ Carl Spielvogel By:/s/ George Lowrance ------------------- ------------------- Carl Spielvogel ,President George Lowrance, Secretary ------------------- --------------- 375 Park Avenue Address ------------------- New York, NY 10152 (CORPORATE SEAL) ------------------ -7- EX-10.5-12 27 EXHIBIT 10.5.12 EXHIBIT 10.5.12 SHAREHOLDERS' AGREEMENT This Shareholders' Agreement, dated as of July 31, 1996, among United Auto Group, Inc., a Delaware corporation ("UAG"), UAG Atlanta, Inc., a Delaware corporation and a wholly owned subsidiary of UAG ("UAG/Atlanta"), Atlanta Toyota, Inc., a Texas corporation (the "Company") and John R. Smith, an individual resident of the State of Georgia ("Smith"). UAG/Atlanta and Smith 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, immediately prior to consummation of the UAG Purchase (as defined below), UAG/Atlanta will own 1,000 shares of Common Stock of the Company, $.01 par value ("Common Stock"), which will constitute all of the issued and outstanding capital stock of the Company as of such time; and WHEREAS, Smith, UAG, UAG/Atlanta and the Company have entered into a Stock Purchase Agreement, dated as of July 26, 1996 (the "Stock Purchase Agreement"), pursuant to which Smith has agreed to purchase 50 shares (the "Shares") of Common Stock from UAG/Atlanta (the "Smith Purchase"), such that immediately after giving effect to the Smith Purchase, UAG and Smith will own ninety-five (95%) percent and five (5%) percent, respectively, of all of the issued and outstanding shares of Common Stock, on a fully-diluted basis; and WHEREAS, pursuant to the Stock Purchase Agreement it is a condition precedent to the obligations of UAG, UAG/Atlanta and Smith to consummate the Smith Purchase that UAG, UAG/Atlanta, the Company and Smith shall have entered into this Agreement; and WHEREAS, UAG, UAG/Atlanta, the Company and Smith desire, INTER ALIA, to provide certain rights and set certain restrictions in connection with the transfer of the Shareholders' shares of Common Stock; NOW, THEREFORE, in consideration of the mutual terms, conditions, covenants and agreements made herein, the parties hereto hereby agree as follows: ARTICLE 1 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. "BUSINESS DAY" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday, excluding Federal holidays. "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. "COMPANY" shall have the meaning set forth in the preamble 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 3.3(a) hereof. "FIRST OFFER PERIOD" shall have the meaning specified in Section 3.3(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 -2- time or occurrence of future events, upon the exercise, conversion or exchange of all then outstanding Common Stock Equivalents. "GAAP" shall mean generally accepted accounting principles which are in effect in the United States at the time. "MANAGING UNDERWRITER" shall have the meaning specified in Section 4.1(b) hereof. "MINORITY INTEREST PERCENTAGE" shall have the meaning specified in Section 4.1(c) hereof. "MINORITY SHARES" shall have the meaning specified in Section 4.1(c) hereof. "OFFERED SHARES" shall have the meaning specified in Section 3.3(a) hereof. "OTHER MINORITY HOLDERS" shall have the meaning specified in Section 4.1(c) hereof. "OTHER MINORITY INTEREST" shall have the meaning specified in Section 4.1(c) hereof. "OUTSTANDING UAG SHARES" shall have the meaning specified in Section 4.1(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 3.3(a) hereof. "PURCHASER" shall have the meaning specified in Section 3.3(a) 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. -3- "SELLING SHAREHOLDER" shall have the meaning specified in Section 3.3(a) hereof. "SHAREHOLDERS" shall have the meaning specified in the preamble hereof. "SHARES" shall have the meaning specified in the third recital hereof. "SMITH EXCHANGED SHARES" shall have the meaning specified in Section 4.1(c) hereof. "SMITH INTEREST" shall have the meaning specified in Section 4.1(a) hereof. "SMITH INTEREST PERCENTAGE" shall have the meaning specified in Section 4.1(c) hereof. "SMITH INTEREST VALUE" shall have the meaning specified in Section 4.1(b) hereof. "SMITH" shall have the meaning specified in the preamble hereof. "SMITH PURCHASE" shall have the meaning specified in 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. "TAG-ALONG OFFER" shall have the meaning specified in Section 3.3(b) hereof. "TAG-ALONG PARTICIPATION NOTICE" shall have the meaning specified in Section 3.3(b) hereof. "TAG-ALONG SALE" shall have the meaning specified in Section 3.3 (b) hereof. "TAG-ALONG SALE NOTICE" shall have the meaning specified in Section 3.3(b) hereof. "TAKE-ALONG SALE" shall have the meaning specified in Section 3.3(c) hereof. -4- "TOTAL EXCHANGED SHARES" shall have the meaning specified in Section 4.1(c) hereof. "TOTAL INTEREST PERCENTAGE" shall have the meaning specified in Section 4.1(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/ATLANTA" shall have the meaning specified in the preamble hereof. "UAG COMMON STOCK" shall have the meaning specified in Section 4.1(a) hereof. "UAG COMMON STOCK EQUIVALENTS" shall have the meaning specified in Section 4.1(c) hereof. "UAG COMMON STOCK PRICE" shall have the meaning specified in Section 4.1(b) hereof. "UAG EXCHANGE" shall have the meaning specified in Section 4.1(a) hereof. "UAG EXCHANGE DATE" shall have the meaning specified in Section 4.1(c) hereof. "UAG Public Offering" shall have the meaning specified in Section 4.1(c) hereof. "UAG SHAREHOLDERS AGREEMENT" shall mean the Stockholders' Agreement, dated as of October 15, 1993, among UAG and certain shareholders of UAG named therein. ARTICLE 2 EFFECTIVENESS OF AGREEMENT SECTION 2.1. EFFECTIVE DATE. This Agreement shall become effective as of the date and time (the "Effective Date") the Smith Purchase shall have been consummated, and this Agreement shall have no effect for any purpose unless and until the Smith Purchase shall have occurred. SECTION 2.2. STOCK PURCHASE AGREEMENT RESTRICTIONS. Notwithstanding anything contained in this Agreement to the contrary, Smith shall not transfer the Shares unless the -5- Transfer is in accordance with the provisions of Section 1.3 of the Stock Purchase Agreement. ARTICLE 3 TRANSFER OF SECURITIES SECTION 3.1. CONSENT OF UAG. (a) Subject to the rights of Smith contained in Sections 3.3(b) and 4.1 hereof and for as long as UAG/Atlanta (or an Affiliate thereof) shall own 35% of the Fully-Diluted Shares, no Shareholder other than UAG/Atlanta 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 3.1, 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 3.1(a) hereof, but subject to the provisions of Section 3.2(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 3.2. GENERAL RESTRICTIONS. No Shareholder (including UAG/Atlanta and any other Shareholder permitted to Transfer shares of capital stock of the Company or any interest therein in accordance with Section 3.1 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 3.3 hereof, if applicable, and (ii) the transferee (if other than another Shareholder) agrees to -6- 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 3.3. 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 3.1(b) hereof, subject to Section 3.1(a) hereof, at any time prior to the Public Float Date, no Shareholder (other than UAG/Atlanta (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/Atlanta the Offered Shares. Prior to making any transfer that is subject to this Section 3.3(a), the Selling Shareholder shall give UAG/Atlanta 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/Atlanta 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/Atlanta of the Offer Notice (the "First Offer Period"). (ii) ACCEPTANCE OF FIRST OFFER. At any time during the First Offer Period, UAG/Atlanta may accept the First Offer of the Offered Shares by giving written notice to the Selling Shareholder of such acceptance. In the event UAG/ Atlanta accepts the First Offer, the closing of the sale of the Offered Shares shall take place within 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 -7- closing, the Selling Shareholder will deliver certificates for such Offered Shares against payment of the purchase price therefor, and UAG/Atlanta will acquire the Offered Shares free and clear of all liens, pledges, encumbrances, restrictions and security interests of any kind. If UAG/Atlanta 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 3.3(a). (b) TAG-ALONG-RIGHT. (i) TAG-ALONG SALE NOTICE. If, at any time prior to the Public Float Date, UAG/Atlanta (or an Affiliate thereof) 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/Atlanta 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/Atlanta shall be required to notify Smith, not less than fifteen (15) days prior to such proposed Tag- Along Sale, of such Tag-Along Offer or proposed Tag-Along Sale and Smith shall have the option to participate in such Tag-Along Sale as set forth in clause (ii) of this Section 3.3(b). The notice from UAG/Atlanta (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 3.3(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 Public Float Date, Smith 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 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 Smith pursuant to this Section 3.3(b) shall be paid for upon the same terms and conditions (includ- -8- ing as to price and type of consideration) received by UAG/Atlanta. (iii) TAG-ALONG NOTICE. If Smith elects to exercise the tag-along right provided for in this Section 3.3(b), he must deliver written notice to UAG/Atlanta (the "Tag-Along Participation Notice") within five (5) days following receipt by him of the Tag-Along Sale Notice. If Smith 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 Smith proposes to include in such transfer to the proposed purchaser up to the number of shares determined in accordance with Section 3.3(b)(ii) hereof. (c) TAKE-ALONG RIGHT. (i) TAKE-ALONG NOTICE. If UAG/Atlanta (or an Affiliate thereof) at any time receives a bona fide offer from a third party to purchase shares of Common Stock from UAG/Atlanta (or an Affiliate thereof) or UAG/Atlanta (or an Affiliate thereof) otherwise proposes to sell shares of Common Stock for value (a "Take-Along Sale"), UAG/Atlanta can require the other Shareholders, to participate in such Take-Along Sale as set forth in clause (ii) of this Section 3.3(c). If UAG/Atlanta elects to exercise the take- along right provided for in this Section 3.3(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 3.3(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 3.3(c) and has agreed to purchase shares of Common Stock in accordance with the terms hereof. (ii) TAKE-ALONG RIGHT. UAG/Atlanta 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 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/Atlanta (or an Affiliate thereof). Any shares of Common Stock purchased -9- from Shareholders other than UAG/Atlanta pursuant to this Section 3.3(c) shall be paid for upon the same terms and conditions (including price and type of consideration) received by UAG/Atlanta. SECTION 3.4. LEGENDS ON STOCK CERTIFICATES. For so long as shares of capital stock of the Company held by a Share- holder 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 July 26, 1996, as the same may be amended from time to time, by and among United Auto Group, Inc., UAG Atlanta, Inc., Inc., Atlanta Toyota (the "Company"), John Smith 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 3.5. IMPROPER TRANSFERS INEFFECTIVE. Any purported transfer of Common Stock by a Shareholder which is not permitted by the foregoing provisions of this Article 3, or which is in violation of such provisions, shall be void and of no force and effect whatsoever. ARTICLE 4 EXCHANGE; LOAN TO SMITH SECTION 4.1. 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"), Smith (and any transferee or Affiliate of Smith 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 "Smith Interest") immediately prior to the closing of the 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 Smith Interest for UAG Common Stock (such exchange is hereinafter referred to as the "UAG Exchange"). -10- (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. In determining the Company value, the Managing Underwriter shall satisfy itself that UAG's overhead expenses are attributed to the Company and UAG's other subsidiaries equitably. The value of the Smith Interest (the "Smith 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 Smith 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 Smith is entitled upon the consummation of the UAG Exchange (the "Smith Exchanged Shares") shall be determined by multiplying the Smith 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 Smith Interest pursuant to this Section 4.1 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 4.1 (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 Smith 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 Smith Interest Percentage, and the denominator of which shall be equal to the Total Interest Percentage (as defined below). For purposes of this Section 4.1, (i) the "Smith Interest Percentage" shall be determined by dividing the Smith 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 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 -11- "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 Smith Exchanged Shares shall be determined as follows: (TIP X OUS) WIP -------------- x --- (1 - TIP) TIP, where "TIP" refers to the Total Interest Percentage, "OUS" refers to the Outstanding UAG Shares and "WIP" refers to the Smith Interest Percentage. (d) The Smith 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 Smith shall become a party to the UAG Shareholders Agreement and (ii) Smith agrees 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 4.2. LOAN TO SMITH. If the Smith Interest is exchanged for UAG Common Stock pursuant to Section 4.1 hereof prior to the third anniversary of the date of this Shareholders' Agreement, then UAG shall, at Smith's request, loan to Smith an amount equal to fifty (50%) percent of the amount of any income taxes that Smith incurs as a result of the exchange if Smith is required to make a tax payment within 120 days after the date of the exchange, such loan to bear interest at the prime rate set by NationsBank, N.A. on the date of the exchange with interest and principal payable in full 120 days after the date of the exchange. ARTICLE 5 MISCELLANEOUS SECTION 5.1. 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. -12- SECTION 5.2. 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 5.3. 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 5.4. 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 Smith contained in Sections 3.3 and 4.2 hereof cannot be assigned or otherwise transferred in connection with any Transfer of shares of Common Stock by Smith without the prior written consent of UAG. No assignment of this Agreement shall relieve the assignor from any liability hereunder. SECTION 5.5. SHARES SUBJECT TO THIS AGREEMENT. All shares of capital stock of the Company now owned or hereafter acquired by any of the Shareholders shall be subject to the terms of this Agreement. SECTION 5.6. 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 -13- such Persons shall be marked as provided in Section 3.4 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 5.7. 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 5.8. 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 Smith: Mr. John Smith c/o Atlanta Toyota, Inc. 2345 Pleasant Hill Road Duluth, Georgia 30136 If to UAG or UAG/Atlanta or the Company: 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 229 Peachtree Street, N. E. Suite 2700 Atlanta, Georgia 30303 Attn: Michael Rosenzweig, 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 -14- any notice or communication changing any of the addresses set forth above shall be effective and deemed given only upon its receipt. SECTION 5.9. 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 5.10. 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 5.11. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Georgia, without giving effect to the choice-of-law provisions thereof. SECTION 5.12. 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. 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: CEO ----------------------------- UAG ATLANTA, INC. By: /s/ Carl Spielvogel ------------------------------- Name: Carl Spielvogel Title: CEO -15- ATLANTA TOYOTA, INC. By: /s/ Carl Spielvogel ------------------------------ Name: Carl Spielvogel John Smith ---------------------------------- JOHN R. SMITH, Individually -16- EX-10.7-10 28 EX-10.7.10 Exhibit 10.7.10 UAG GUARANTY OF ESTATE 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 LYNDA JANE HICKMAN, as Executrix under the Will of James Franklin Hickman, Jr., Deceased, her successors, successors-in-title and assigns ("Estate"). W I T N E S S E T H: WHEREAS, Estate, 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 5211 and 5214 Peachtree Industrial Road, Chamblee, Georgia 30341; and WHEREAS, Estate 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 Estate: (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 Estate if: (a) there is an Event of Default (as defined in the Lease) by 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 Estate. Estate 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 Estate harmless from and against any and all loss, damage, cost, expense, injury, or liability Estate 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 Estate to any Indebtedness is rescinded or returned by Estate 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 Estate, and this Guaranty shall continue to be effective or be reinstated, as the case may be, as to such Indebtedness, all as though such application by Estate 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 Estate, 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 -2- 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 Estate 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 Estate; (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 Estate from whatsoever source on account of any Indebtedness may be applied by Estate to the payment of such Indebtedness, and in such order or application, as Estate 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 Estate until such time as Estate shall have received payment of the full amount of all Indebtedness and the Obligations shall have been performed to Estate's satisfaction. 8. WAIVER. Guarantor expressly waives: (i) notice of the acceptance by Estate 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 Estate to inform Guarantor of any facts Estate may now or hereafter know about the Corporation or the Lease, it being understood and agreed that Estate 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 Estate to proceed against the Corporation for collection, and the failure or refusal by Estate 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 Estate 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 Estate except as expressly set forth in a writing duly signed and delivered on behalf of Estate. 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 Estate 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 -3- represent Estate in any other proceedings whatsoever in connection with this Guaranty or the Lease or any property subject thereto, then Guarantor shall pay to Estate upon demand the costs of collection and the actual reasonable attorneys' fees and expenses incurred by Estate, 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 Estate; 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 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 adjucated 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 Estate and Guarantor. If this Guaranty is executed in several counterparts, each of those counterparts shall be deemed an original, and all them together shall constitute one and the same instrument. 13. SUCCESSORS AND ASSIGNS; JOINT AND SEVERAL LIABILITY. This 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 -4- 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 Estate: Lynda Jane Hickman, as Executrix under the Will of James Franklin Hickman, Jr., Deceased, her successors, successors-in-title and assigns 339 Argonne Drive Atlanta, Georgia 30305 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 Estate by this Guaranty is not required to be given. -5- IN WITNESS WHEREOF, the undersigned has executed, sealed and delivered this instrument as of the day and year first above written. GUARANTOR: UNITED AUTO GROUP, INC. By: /s/ George Lowrance Its: Executive Vice President [Corporate Seal] -6- EX-10.8-1 29 EXHIBIT 10.8.1 STOCK PURCHASE AGREEMENT DATED AS OF JUNE 6, 1996 AMONG UNITED AUTO GROUP, INC. 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, KNAPPENBERGER 6725 TRUST DATED DECEMBER 29, 1992, STEVEN KNAPPENBERGER, JAY P. BESKIND AND GEORGE W. BROCHICK This STOCK PURCHASE AGREEMENT, dated as of June 6, 1996, is by and among United Auto Group, Inc., a Delaware corporation ("UAG"), UAG West, Inc., a Delaware corporation ("UAG West"), Scottsdale Jaguar, Ltd., an Arizona corporation ("Scottsdale Jaguar"), SA Automotive, Ltd., an Arizona corporation ("SA"), SL Automotive, Ltd., an Arizona corporation ("SL"), SPA Automotive, Ltd., an Arizona corporation ("SPA"), LRP, Ltd., an Arizona corporation ("LRP"), Sun BMW, Ltd., an Arizona corporation ("Sun BMW"), 6725 Dealership, Ltd., an Arizona corporation ("6725"), Scottsdale Management Group, Ltd., an Arizona corporation ("Scottsdale Management" and collectively with Scottsdale Jaguar, SA, SL, SPA, LRP, 6725 and Sun BMW, the "Companies"), Steven Knappenberger Revocable Trust Dated April 15, 1983, as amended ("Knappenberger Trust"), Brochick 6725 Trust Dated December 29, 1992 ("Brochick 6725 Trust"), Beskind 6725 Trust Dated December 29, 1992 ("Beskind 6725 Trust"), Knappenberger 6725 Trust Dated December 29, 1992 ("Knappenberger 6725 Trust"), Jay P. Beskind ("Beskind"), George W. Brochick ("Brochick" and together with Brochick 6725 Trust, Beskind 6725 Trust, Knappenberger 6725 Trust, Knappenberger Trust and Beskind, the "Stockholders"), and Steven Knappenberger ("Mr. Knappenberger"). W I T N E S S E T H: WHEREAS, UAG West is a wholly-owned subsidiary of UAG; WHEREAS, the Companies operate franchise automobile dealerships and related businesses; WHEREAS, there are 842,749 shares of common stock, no par value, of Scottsdale Jaguar issued and outstanding (the "Scottsdale Jaguar Common Stock"); WHEREAS, there are 1,713,010 shares of common stock, no par value of SA issued and outstanding (the "SA Common Stock"); WHEREAS, there are 625,000 shares of common stock, no par value of SL issued and outstanding (the "SL Common Stock"); WHEREAS, there are 547,125 shares of common stock, no par value of SPA issued and outstanding (the "SPA Common Stock"); WHEREAS, there are 500,000 shares of common stock, no par value of LRP issued and outstanding (the "LRP Common Stock"); WHEREAS, there are 900,000 shares of common stock, no par value of Sun BMW issued and outstanding (the "Sun BMW Common Stock" and together with the Scottsdale Jaguar Common Stock, the SA Common Stock, the SL Common Stock, the SPA Common Stock and the LRP Common Stock, the "Companies' Common Stock"); WHEREAS, Knappenberger Trust, Beskind and Brochick own all of the issued and outstanding shares of the Companies' Common Stock; WHEREAS, UAG West desires to purchase 842,749 shares of Scottsdale Jaguar Common Stock from Knappenberger Trust, Beskind and Brochick (such shares being collectively referred to as the "Scottsdale Jaguar Shares"), and Knappenberger Trust, Beskind and Brochick desire to sell the Scottsdale Jaguar Shares to UAG West (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 West will own one hundred (100%) percent of the issued and outstanding shares of Scottsdale Jaguar Common Stock, on a fully diluted basis; WHEREAS, UAG West desires to purchase 1,713,010 shares of SA Common Stock from Knappenberger Trust, Beskind and Brochick (such shares being collectively referred to as the "SA Shares"), and Knappenberger Trust, Beskind and Brochick desire to sell the SA Shares to UAG West (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 West will own one hundred (100%) percent of the issued and outstanding shares of SA Common Stock, on a fully diluted basis; WHEREAS, UAG West desires to purchase 625,000 shares of SL Common Stock from Knappenberger Trust, Beskind and Brochick (such shares being collectively referred to as the "SL Shares"), and Knappenberger Trust, Beskind and Brochick desire to sell the SL Shares to UAG West (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 West will own one hundred (100%) percent of the issued and outstanding shares of SL Common Stock, on a fully diluted basis; WHEREAS, UAG West desires to purchase 547,125 shares of SPA Common Stock from Knappenberger Trust, Beskind and Brochick (such shares being collectively referred to as the "SPA Shares"), and Knappenberger Trust, Beskind and Brochick desire to sell the SPA Shares to UAG West (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 West will own one hundred (100%) percent of the issued and outstanding shares of SPA Common Stock, on a fully diluted basis; WHEREAS, UAG West desires to purchase 500,000 shares of LRP Common Stock from Knappenberger Trust, Beskind and Brochick (such shares being collectively referred to as the "LRP Shares"), and Knappenberger Trust, Beskind and Brochick desire to sell the LRP Shares to UAG West (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 West will own one hundred (100%) percent of the issued and outstanding shares of LRP Common Stock, on a fully diluted basis; WHEREAS, UAG West desires to purchase 900,000 shares of Sun BMW Common Stock from Knappenberger Trust, Beskind and Brochick (such shares being collectively referred to as the "Sun BMW Shares" and together with the Scottsdale Jaguar Shares, the -2- SA Shares, the SL Shares, the SPA Shares and the LRP Shares, the "Shares"), and Knappenberger Trust, Beskind and Brochick desire to sell the Sun BMW Shares to UAG West (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 West will own one hundred (100%) percent of the issued and outstanding shares of Sun BMW Common Stock, on a fully diluted basis; WHEREAS, there are 101,251 shares of common stock, no par value of Scottsdale Management issued and outstanding (the "Scottsdale Management Common Stock"); WHEREAS, Knappenberger Trust owns all of the issued and outstanding shares of the Scottsdale Management Common Stock; WHEREAS, UAG West desires to purchase 101,251 shares of Scottsdale Management Common Stock from Knappenberger Trust (such shares being referred to as the "Scottsdale Management Shares") and Knappenberger Trust desires to sell the Scottsdale Management Shares to UAG West (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 West will own one hundred (100%) percent of the issued and outstanding shares of Scottsdale Management Common Stock, on a fully diluted basis; WHEREAS, there are 1,250 shares of common stock, no par value of 6725 issued and outstanding (the "6725 Common Stock"); WHEREAS, the Brochick 6725 Trust, the Beskind 6725 Trust and the Knappenberger 6725 Trust own one hundred percent of the issued and outstanding shares of 6725 (the "6725 Common Stock"); WHEREAS, UAG West desires to purchase 1,250 shares of 6725 Common Stock from the 6725 Trusts (such shares being referred to as the "6725 Shares") and the 6725 Trusts desire to sell the 6725 Shares to UAG West (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 West will own one hundred (100%) percent of the issued and outstanding shares of 6725 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 CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: -3- (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) "Bank of America Note" shall mean those certain Working Capital Term Loans, in the approximate aggregate principal amount of $5,450,000.00, by certain of the Companies as makers in favor of Bank of America Arizona. (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) "Maas Note" shall mean that certain Promissory Note, dated February 27, 1995, by Sun BMW as maker in favor of Camelback Automotive, Inc. in the principal amount of $500,000.00. (f) "Material Adverse Effect" shall mean any change in, or effect on, the Companies (including the businesses thereof) which is, or is reasonably likely to be, materially adverse to the business, operations, assets, or condition (financial or otherwise) of the Companies taken as a whole. (g) "Max Consulting Agreement" shall mean that certain Consulting and Non-Compete Agreement dated June 7, 1985 between Max Haechler and Scottsdale Jaguar (by assignment from SPA Automotive, formerly known as Scottsdale Porsche & Audi, Ltd.). (h) "Person" shall mean and include an individual, corporation, limited liability company, partnership, joint venture, association, trust, any other unincorporated organization or entity and a governmental entity or any department or agency thereto. (i) "Purchased Real Property" shall mean the real property used in the businesses of the Companies and known as 6725 E. McDowell Road, Scottsdale, Arizona, 6825 E. McDowell Road, Scottsdale, Arizona and 6905 E. McDowell Road, Scottsdale, Arizona. (j) "Scottsdale Road Leases" shall mean (i) that certain lease dated July 27, 1987, between Anthony A. Batarse, Jr., as Trustee under the Trustors' Trust Established under Article 1 of the Batarse Family Trust Agreement dated May 7, 1987, as amended (by assignment from Anthony A. Batarse, Jr. on September 30, 1987) as lessor, and SA, as lessee; and (ii) that certain lease dated July 27, 1987, between Anthony A. Batarse, Jr., as Trustee -4- under the Trustors' Trust Established under Article 1 of the Batarse Family Trust Agreement dated May 7, 1987, as amended (by assignment from Esther Batarse on August 20, 1987), as lessor, and SA, as lessee. (k) "6925 Lease" shall mean that certain Sublease dated August 11, 1980, by and between Max of Switzerland, as Sublessor, and Scottsdale Porsche & Audi, Ltd. (now known as SPA), as Sublessee, as amended by that certain Amendment to Sublease dated June 7, 1985, that certain Agreement dated July 15, 1985, and that certain Third Amendment to Sublease dated November 30, 1992. (l) "6905 Lease" shall mean that certain Sublease, dated June 7, 1985, by and between Max of Switzerland, as Sublessor, and Scottsdale Porsche & Audi, Ltd. (now known as SPA), as Sublessee, as amended by that certain Amendment to the Sublease, dated November 11, 1985, and that certain Second Amendment to Sublease dated July 30, 1986. 1.2 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 West, and UAG West shall purchase from the Stockholders, the Shares and the 6725 Shares for an aggregate purchase price (the "Purchase Price") equal to (i) Twenty-four Million Fifty Thousand Dollars ($24,050,000) (the "Base Price") (the Base Price shall be allocated pro rata among the Stockholders) which Base Price is subject to adjustment at the time of Closing as provided in SECTION 1.3 below and which Base Price is subject to adjustment after Closing as provided in SECTION 1.4 below, and (ii) the Additional Payments (if any) made pursuant to SECTION 1.5 below. At the Closing referred to in SECTION 1.2(b) hereof: (i) the Stockholders shall sell, assign, transfer and deliver to UAG West the Shares and the 6725 Shares representing 100% of the Scottsdale Jaguar Common Stock, 100% of the SA Common Stock, 100% of the SPA Common Stock, 100% of the SL Common Stock, 100% of the LRP Common Stock, 100% of the Sun BMW Common Stock and 100% of the 6725 Common Stock and deliver the certificates representing such shares accompanied by stock powers duly executed in blank; and (ii) UAG West shall accept and purchase the Shares and the 6725 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 less the Deposits (as defined in SECTION 1.6 hereof) by wire transfer to accounts designated in writing by the Stockholders or by certified funds. (b) CAPITAL CONTRIBUTION AND REPAYMENT OF LOAN. On the Closing Date, UAG West shall make a capital contribution to the -5- Companies in an aggregate amount equal to the principal and accrued but unpaid interest on the Bank of America Note as of the Closing Date ("the Payoff Amount"), and the Companies shall pay the Payoff Amount to Bank of America Arizona in full satisfaction of the Bank of America Note. (c) ASSUMPTION OF INDEBTEDNESS. Except as otherwise set forth herein, UAG and UAG West hereby acknowledge and agree that, as a result of the transactions contemplated hereby, UAG West shall, directly or indirectly, assume all obligations of the Companies, including without limitation, the indebtedness listed on SCHEDULE 1.2(e)(vii) hereof. UAG and UAG West acknowledge and agree to accept in connection with any consent to the transactions arising out of such direct or indirect assumption, changes to the existing terms of such obligations provided that the obligations as so revised are commercially reasonable taken as a whole. (d) CLOSING. Subject to the conditions set forth in this Agreement, the purchase and sale of the Shares and the 6725 Shares pursuant to this Agreement (the "Closing") shall take place within ten days of the Stockholders receiving written notice from UAG stating that all conditions to closing have been satisfied and that UAG is prepared to close (the "UAG Notice") or on December 2, 1996, whichever occurs first (the "Closing Date") at a time and place to be agreed upon by the parties; PROVIDED, HOWEVER, that the Stockholders may, at their option, elect to have the Closing Date be within ten days after the UAG Notice or within ten days after January 2, 1997, whichever occurs first, by giving UAG written notice of such election on or before November 15, 1996. (e) DELIVERIES AT THE CLOSING. Subject to the conditions set forth in this Agreement, at the Closing: (i) The Stockholders shall deliver to UAG West certificates representing the Shares and the 6725 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 1.2(a)(i) hereof, and any other documents that are necessary to transfer to UAG West good title to all the Shares and the 6725 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) Knappenberger Trust shall deliver to UAG West certificates representing the Scottsdale Management 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 1.8(a)(ii) hereof, and any other documents that are necessary to transfer to UAG West good title to all the Scottsdale Management Shares; (iii) UAG West shall (a) pay to the Stockholders funds as required by SECTION 1.2(a)(ii) hereof, (b) pay to Knappenberger Trust funds as required by SECTION 1.8(a)(ii) -6- hereof, and (c) deliver to the Stockholders all opinions, certificates and other instruments and documents required to be delivered by UAG or UAG West at or prior to the Closing or otherwise required in connection herewith; (iv) UAG West shall enter into an employment agreement with Mr. Knappenberger in a form mutually acceptable to UAG, UAG West and Mr. Knappenberger (the "Knappenberger Employment Agreement"). The Knappenberger Employment Agreement shall provide that Mr. Knappenberger shall be employed as President and Chief Operating Officer of UAG West and as dealer principal for all manufacturers relating to the Companies' current dealerships and shall be for a five-year term, which term shall automatically be extended for one year on each anniversary of the Closing Date unless such annual extensions are terminated by the parties. (v) UAG West shall enter into an employment agreement with Jay Beskind ("Beskind") in a form mutually acceptable to UAG, UAG West and Beskind (the "Beskind Employment Agreement"). The Beskind Employment Agreement shall provide that Beskind shall be employed as a General Manager and as Executive Vice-President of UAG West and shall be for a five-year term, which term shall automatically be extended for an additional year on each anniversary of the Closing Date unless such annual extensions are terminated by the parties. (vi) UAG West shall enter into an employment agreement with George Brochick ("Brochick") in a form mutually acceptable to UAG, UAG West and Brochick (the "Brochick Employment Agreement"). The Brochick Employment Agreement shall provide that Brochick shall be employed as a General Manager and as Executive Vice-President of UAG West and shall be for a five-year term, which term shall automatically be extended for an additional year on each anniversary of the Closing Date unless such annual extensions are terminated by the parties. (vii) UAG and UAG West shall guaranty the obligations of the Companies under the leases set forth on SCHEDULE 1.2(e)(vii) hereof (the "Leases"), the debt set forth on SCHEDULE 1.2(e)(vii) hereof, the Broker's Agreement between UAG West and KBB, Inc. (the "Broker's Agreement") and the Knappenberger, Beskind and Brochick Employment Agreements, and shall deliver to the creditors or lessors, and to KBB, Inc., Mr. Knappenberger, Beskind and Brochick, as the case may be, one or more guarantees in a form mutually acceptable to UAG and such other persons (collectively, the "Guarantees"). (viii) Provided that there is no uncured default by sellers under the real estate purchase agreement relating to the real property used in the business of SL and known as 6905 E. McDowell Road, Scottsdale, Arizona (the "6905 -7- Property") entered into by UAG West and the owners of the 6905 Property on the date hereof (the "Real Estate Purchase Agreement"), UAG West (or its assignee) shall purchase the 6905 Property on the terms and subject to the conditions set forth in the Real Estate Purchase Agreement. (ix) UAG West shall enter into the Broker's Agreement. 1.3 MAX CONSULTING. In the event that the Companies, or any of them, have any liabilities or obligations relating to the Max Consulting Agreement as of the Closing Date, then the Base Price shall be reduced by the after tax present value of such liabilities or obligations. For purposes of determining present value under this SECTION 1.3, the discount rate shall be ten (10%) percent per annum, and the assumed tax rate shall be 40%. 1.4 NET WORTH ADJUSTMENT. (a) On the Closing Date, or as soon as practicable after the Closing Date, the Stockholders shall deliver to UAG balance sheets of the Companies estimated as of the Closing Date (such balance sheets so delivered are referred to herein as the "Closing Date Balance Sheets"). The Closing Date Balance Sheets 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 2.5 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 Sheets, the Stockholders and the Companies shall permit the Reviewer (as defined below) and other representatives of UAG, at UAG's expense, to conduct a physical inventory at each location where inventory is held by the Companies. 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 such inventory. (b) Within forty-five (45) days after delivery of the Closing Date Balance Sheets, (i) Coopers & Lybrand or such other accounting firm selected by UAG and reasonably approved by the Stockholders (the "Reviewer") shall audit or otherwise review, at UAG's expense, the Closing Date Balance Sheets in such manner as UAG and the Reviewer deem reasonably appropriate, and (ii) UAG shall deliver such reviewed balance sheet (the "Reviewed Balance Sheets"), together with the Reviewer's report thereon, to the Stockholders. The Reviewed Balance Sheets (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 -8- the Final Net Worth (as defined in SECTION 1.4(g)(i) hereof), computed in accordance with the definition of Net Worth set forth in SECTION 1.4(g)(iii) hereof. UAG and the Reviewer shall have the opportunity to consult with the Stockholders, the Companies and each of the accountants and other representatives of the Stockholders and the Companies and examine the work papers, schedules and other documents prepared by the Stockholders, the Companies and each of such accountants and other representatives during the preparation of the Closing Date Balance Sheets. 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 Sheets. (c) The Stockholders shall have a period of forty-five (45) days after delivery of the Reviewed Balance Sheets 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 Sheets 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 Sheets, 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 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 1.4(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 1.4(e) hereof in order that any and all matters in dispute shall be resolved as soon as practicable. -9- (g) (i) If the aggregate Net Worth as shown on the Reviewed Balance Sheets as finally determined through the operation of SECTIONS 1.4 (a) THROUGH (e) hereof (such amount being referred to herein as the "Final Net Worth") shall be less than Six Million Four Hundred Thousand Seven Hundred and Thirty Dollars ($6,400,730) (the "March 31, 1996 Net Worth") (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 two (2) Business Days prior to 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 1.4(g)(i) unless the Net Worth Deficiency exceeds One Hundred Thousand Dollars ($100,000). (ii) If the Final Net Worth shall be more than the March 31, 1996 Net Worth (the amount of any such excess being referred to herein as the "Net Worth Excess"), UAG West 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 two (2) Business Days prior to 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.); (iii) "Net Worth" shall have the meaning ascribed to it in SCHEDULE 1.4(g)(iii) delivered on the date hereof, which sets forth the calculation of Net Worth for March 31, 1996. 1.5 ADDITIONAL PURCHASE PRICE. (a) If the Companies, on a combined basis, achieve Pre-Tax Earnings (as defined below) of at least $15,000,000 for the period commencing on October 1, 1996 and ending on September 30, 1998 (the "Additional Payment Period"), then, in consideration for the sale of the Shares by the Stockholders to UAG West, UAG West will make an additional payment to the Stockholders (the "Additional Purchase Price Payment") in the aggregate amount set forth below (the "Additional Purchase Price Payment Amount"), which Additional Purchase Price Payment shall be allocated among the Stockholders pro rata: -10- If: Then: TOTAL PRE-TAX EARNINGS (TE) ADDITIONAL PURCHASE PRICE PAYMENT AMOUNT $15,000,000 to $15,999,999 $[(TE - 15,000,000) x 2 DIVIDED BY 3] $16,000,000 or over $[1,666,667 +[(TE - 16,000,000) DIVIDED BY 5]] (b) In the event that UAG West is required to make an Additional Purchase Price Payment, then UAG West shall pay to the Stockholders an aggregate amount equal to eighty (80%) percent of UAG's estimate of the Additional Purchase Price Payment Amount (the "Estimated Additional Purchase Price Payment") within thirty (30) days after the completion of the Additional Payment Period. Within sixty (60) days after the completion of the review by the Companies' certified public accountants of the financial statements prepared in accordance with SECTION 1.5(c) hereof covering the Additional Purchase Price Payment Period (but, in no event, more than 90 days after the end of the Additional Payment Period), (i) if the Additional Purchase Price Payment Amount shall exceed the amount of the Estimated Additional Purchase Price Payment (the amount of any such excess being referred to herein as the "Additional Purchase Price Payment Deficiency"), then UAG West shall pay to the Stockholders, by wire transfer of immediately available funds to accounts designated in writing by the Stockholders, an aggregate amount equal to the Additional Purchase Price Payment Deficiency, and (ii) if the Additional Purchase Price Payment Amount shall be less than the amount of the Estimated Additional Purchase Price Payment (the amount of any such deficiency being referred to herein as the "Additional Purchase Price Payment Surplus"), the Stockholders shall pay to UAG West, by wire transfer of immediately available funds to an account designated in writing by UAG West, an aggregate amount equal to the Additional Purchase Price Payment Surplus. (c) For purposes of this ARTICLE I, "Pre-Tax Earnings" shall mean the consolidated net earnings (or losses), before taxes, of the Companies, 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 Companies; PROVIDED, HOWEVER, that for purposes of this SECTION 1.5, Pre-Tax Earnings shall be calculated giving effect to the consolidated net earnings (or losses) of any satellites of existing franchises and Land Rover of Tucson, shall add back any LIFO inventory adjustments and shall be calculated without including (i) depreciation or amortization expenses; (ii) overhead expenses of UAG or UAG West attributed to the Companies; (iii) interest expenses relating to the Bank of America Note or any refinancing or replacement thereof; (iv) expenses relating to the Scottsdale Road Leases; (v) expenses relating to the Max Consulting Agreement; (vi) interest expense on any new debt (excluding new vehicle financing); (vii) direct expenses relating to the expansion of UAG West (through acquisitions, start-ups or otherwise); (viii) any additional rent expense resulting from the sale of any of the -11- Companies' facilities to a third party; or (ix) any distributions on capital stock permitted under SECTION 5.4(a)(vi) hereof. 1.6 DEPOSITS. (a) INITIAL DEPOSIT. Upon the execution of this Agreement by all of the parties hereto, UAG shall pay to the Stockholders, pro rata, a deposit in the aggregate amount of Five Hundred Thousand Dollars ($500,000) (the "Initial Deposit"). The Initial Deposit shall be non-refundable except that if this Agreement is terminated pursuant to SECTION 8 hereof (i) within thirty (30) days of the payment of the Initial Deposit to the Stockholders as the result of a material misrepresentation or omission on the financial statements set forth on SCHEDULE 2.5 hereto or (ii) within five (5) days of the delivery by the Stockholders and the Companies of the Schedules set forth in ARTICLES 2 AND 3 hereof if the Schedules are not satisfactory to UAG, then, within five (5) days of such termination, the Stockholders shall refund to UAG Two Hundred and Fifty Thousand Dollars ($250,000) of the Initial Deposit. Without limitation of the foregoing, the Stockholders shall be entitled to keep the Initial Deposit if UAG and UAG West terminate this Agreement because of their failure to obtain the approval of their respective Boards of Directors as provided in SECTION 6.8 hereof. (b) SECOND DEPOSIT. Within five (5) days after the parties hereto receive (i) the approvals set forth in SECTION 6.11, and (ii) binding consents to the release at Closing of the 6925 Lease Guaranty, the 6905 Lease Guaranty, the Bank of America Note Guaranty, the Bank of America Flooring Guaranty, the Bank of America Real Property Guaranty I and the Bank of America Real Property Guaranty II (each of which is defined in SECTION 5.12 hereto) UAG shall pay to the Stockholders an additional deposit in the amount of Two Million Dollars ($2,000,000) (the "Second Deposit" and together with the Initial Deposit, the "Deposits"). If, after payment of the Second Deposit, this Agreement is terminated pursuant to SECTION 8.1 hereof, then, within five (5) days of such termination, the Stockholders shall refund the full amount of the Second Deposit; PROVIDED, HOWEVER, that the Stockholders shall have no obligation to refund the Second Deposit (i) if this Agreement is terminated by the Stockholders pursuant to SECTION 8.1(vi) or pursuant to SECTION 8.1(v) (unless such termination results from the failure to satisfy any condition set forth in the second sentence of SECTION 7.2(a), SECTION 7.2(b), SECTION 7.4, SECTION 7.6, SECTION 7.7 or SECTION 7.12 and any such condition is not waived by the Stockholders) or (ii) if all conditions to Closing have been satisfied or are capable of being satisfied by UAG prior to the Closing Date (as determined in accordance with SECTION 1.2(d) hereof) and the Stockholders were prepared to transfer the Shares and the 6725 Shares to UAG West on the Closing Date and this Agreement is terminated by the Stockholders pursuant to SECTION 8.1(ii) hereof. If this Agreement is not terminated, then at the Closing, the Deposits shall be credited against the Base Price as set forth in ARTICLE I hereof. -12- 1.7 MAAS NOTE. On or before the Closing Date, the Stockholders shall pay the outstanding principal and all accrued but unpaid interest on the Maas Note in full satisfaction of the Companies' obligations arising out of or relating to the Maas Note. 1.8 PURCHASE AND SALE OF SCOTTSDALE MANAGEMENT. (a) PURCHASE AND SALE. Upon the terms and subject to the conditions set forth in this Agreement, Knappenberger Trust shall sell to UAG West, and UAG West shall purchase from Knappenberger Trust, the Scottsdale Management Shares for an aggregate purchase price equal to Seven Hundred Fifty Thousand Dollars ($750,000) (the "Scottsdale Management Purchase Price"). At the Closing referred to in SECTION 1.2(b) hereof: (i) Knappenberger Trust shall sell, assign, transfer and deliver to UAG West the Scottsdale Management Shares representing 100% of the Scottsdale Management Common Stock and deliver the certificates representing such Scottsdale Management Shares accompanied by stock powers duly executed in blank; and (ii) UAG West shall accept and purchase the Scottsdale Management Shares from Knappenberger Trust and in payment therefor shall deliver to Knappenberger Trust immediately available funds in an aggregate amount equal to the Scottsdale Management Purchase Price by wire transfer to an account designated in writing by Knappenberger Trust or by certified funds. (b) NET WORTH. The parties acknowledge that, prior to the Closing Date, Knappenberger Trust will transfer the assets of Scottsdale Management to Knappenberger Trust (or to a third party) and the net worth of Scottsdale Management on the Closing Date will be zero. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE STOCKHOLDERS Subject to the parties' agreement and acknowledgment that the Schedules referred to in this ARTICLE 2 are to be delivered by the Companies and the Stockholders no later than June 14, 1996, the Companies and the Stockholders hereby jointly and severally represent and warrant to UAG and UAG West as follows (except for representations and warranties relating to Scottsdale Management which are made solely by Knappenberger Trust). Where any representation or warranty is made "to the knowledge of the Stockholders" or to "the Stockholders' knowledge", or subject to a similar knowledge limitation, such representation or warranty is made to the knowledge of the Knappenberger Trust, Mr. Knappenberger, Brochick, Beskind, 6725 Brochick Trust, 6725 Beskind Trust, 6725 Knappenberger Trust, and, solely with respect to the -13- 6905 Property, the Steven Knappenberger Revocable Trust II, dated May 12, 1992, or any of them, and shall include any information that any of them would or should have known in the exercise of reasonable diligence by an owner or lessor of commercial real property or an owner and operator of automobile and light truck dealerships, as the case may be. 2.1 ORGANIZATION AND GOOD STANDING. The Companies are corporations duly organized, validly existing and in good standing under the laws of the State of Arizona and have the corporate power and authority to own, lease and operate the properties used in their businesses and to carry on their businesses as now being conducted. The Companies are duly qualified to do business and are 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 Companies would not, or could not reasonably be expected to, in the aggregate have a Material Adverse Effect. SCHEDULE 2.1 hereto lists (i) the states and other jurisdictions where the Companies are so qualified and (ii) the assumed names under which the Companies conduct business. Attached to SCHEDULE 2.1(b) hereto are complete and correct copies of the Companies' Articles of Incorporation and Bylaws (including comparable governing instruments with different names), as amended and presently in effect. 2.2 SUBSIDIARIES. Except as set forth in SCHEDULE 2.2 and with respect to their interest in one another, the Companies do not have any interest or investment in any Person. 2.3 CAPITALIZATION. The authorized stock of the Companies 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 Companies 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 Companies or any securities convertible into, or other rights to acquire, any shares of capital stock of the Companies, or (ii) obligates the Companies 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. -14- The Companies have not agreed to register any securities under the Securities Act of 1933, as amended (the "Securities Act"). 2.4 AUTHORITY; APPROVALS AND CONSENTS. (a) The Companies have the corporate power and authority to enter into this Agreement and the documents referred to herein (the "Documents") to which they are a party and to perform their 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 each of the Companies and no other corporate proceedings on the part of the Companies 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, each of the Companies, enforceable against the Companies in accordance with their respective terms. (b) Except as set forth in SCHEDULE 2.4, the execution, delivery and performance by each of the Companies 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 Articles 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 which is material (as defined in SECTION 2.15 hereof) or require any consent or waiver of any party to any Company Agreement that would or could reasonably be expected to, in the aggregate, 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 Companies (other than the rights of UAG West to acquire the Shares, the 6725 Shares and the Scottsdale Management Shares pursuant to this Agreement) that would or could reasonably be expected to, in the aggregate, have a Material Adverse Effect; (iv) violate or conflict with any Legal Requirements (as defined in SECTION 2.9 hereof) applicable to the Companies or any of their respective businesses or properties -15- that would or could reasonably be expected to, in the aggregate, 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 5.3 hereof) that would or could reasonably be expected to, in the aggregate, have a Material Adverse Effect. Except as set forth in SCHEDULE 2.4 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 Companies to enable the Companies to continue to conduct their respective businesses and operations and use their respective 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. Except as otherwise indicated below, attached as SCHEDULE 2.5 are true and complete copies of: (i) (A) the unaudited balance sheets of the Companies as of December 31, 1995, 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 unaudited balance sheets of the Companies 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 reviewed by and accompanied by the report of independent certified public accountants; (ii) the unaudited balance sheets of the Companies as of March 31, 1996 (the "Company Balance Sheets") and the unaudited statements of income and stockholders' equity for the month periods ended on such date, together with the notes thereto; and (iii) the financial statements for and as of March 31, 1996, provided to each franchiser of the Companies (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 (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 Companies, fairly present the financial position, results of operations, -16- stockholders' equity and changes in financial position of the Companies 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 or in SCHEDULE 2.5 and except for the absence of footnote disclosure on interim financial 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 Companies 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 or as set forth in SCHEDULE 2.5, 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 set forth in SCHEDULE 2.5. The books and accounts of the Companies 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 Companies consistent with prior practices of the Companies. 2.6 ABSENCE OF UNDISCLOSED LIABILITIES. The Companies do not have any liability of any nature whatsoever (whether known or unknown, due or to become due, accrued, absolute, contingent or otherwise) that could exceed $50,000, 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 on the most recent Company Financial Statements, (ii) current liabilities incurred in the ordinary course of business and consistent with past practice after the date of the Company Balance Sheets 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 the Schedules hereto, including SCHEDULE 2.6 hereto. 2.7 ABSENCE OF MATERIAL ADVERSE EFFECT; CONDUCT OF BUSINESS. (a) Since December 31, 1995, the Companies have operated in the ordinary course of business consistent with past practice, except as set forth on SCHEDULE 2.7(a) hereto or as disclosed herein or on any Schedules hereto, and there has not been: (i) any material adverse change in the assets, properties, business, operations, net income or financial condition of the Companies, and no factor, event, condition or circumstance exists which threatens or may threaten to have a Material Adverse Effect; -17- (ii) any material loss, damage, destruction or other casualty to the property or other assets of the Companies, whether or not covered by insurance; (iii) any change in any method of accounting or accounting practice of the Companies; (iv) any loss of the employment, services or benefits of any key employee of the Companies. (b) Since December 31, 1995, except as set forth in SCHEDULE 2.7(b) hereto or as disclosed herein or on any Schedules hereto, the Companies have 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 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 other than in the ordinary course in connection with any refinancing of indebtedness or acquisition of new inventory, property or equipment; (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) in any material respect, 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 -18- excess of $500,000 (in each case, excluding loaner cars), 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 material 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. Since January 1, 1990, the Companies 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 Companies 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 Companies 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 income tax returns for the fiscal years ended after December 31, 1992 have been furnished to UAG or its representatives and such copies are accurate and complete as of the date hereof. The Companies have also furnished to UAG correct and complete copies of all notices and correspondence contesting any tax deficiency or asserting any tax deficiency after December 31, 1989 by the Companies to or from any federal, state or local tax authorities where the amount in dispute was in excess of $50,000. The Companies have 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 Companies make adequate provision on their books for the payment of all Taxes (including for the current fiscal period) owed by the Companies. Except to the extent reserves therefor are reflected on the Company Balance Sheets, the Companies are 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, after December 31, 1989 the Companies have not been subject to a federal tax audit of any kind or a state tax audit of any kind where the dispute was in excess of $50,000, and no adjustment has -19- 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 in taxes, penalties and interest. Neither the Companies nor any Stockholder knows of any basis for an assertion of a deficiency for Taxes against the Companies. The Stockholders will cooperate, and will cause their Affiliates to cooperate, with the Companies in the filing of any returns and in any audit or refund claim proceedings involving Taxes for which the Companies may be liable or with respect to which the Companies 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 Stockholders, threatened against or affecting, the Companies, the Real Property, the Improvements (both as defined in SECTION 2.10 hereof) or 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 Stockholders for any such Claims, and (ii) the Companies are not subject to any judgment, decree, writ, injunction, ruling or order (collectively, "Judgments") of any governmental, administrative or judicial authority, domestic or foreign. (b) The businesses of the Companies 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 Companies or any of their 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 Companies hold, and are in compliance with, all material 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 Companies own or hold 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 Companies are adequate for the conduct of the respective businesses of the Companies as presently conducted and no properties -20- and assets presently used in the business of the Companies are owned by any Affiliates of the Companies (other than one of the other Companies and except for the leased property at 6905 E. McDowell Road, Scottsdale, Arizona, or as set forth on SCHEDULE 2.10 hereto). Set forth on SCHEDULE 2.10 hereto is a list of all interests in real property owned by or leased to the Companies (including all such real property owned by the Companies or leased by the Stockholders (directly or indirectly) and used in the businesses of the Companies) and of all options or other contracts to acquire any such interest (collectively, the "Real Property"). In all material respects, the improvements to the Real Property ("Improvements") and the machinery, equipment and other tangible property (the "Tangible Property") owned or used by or leased to the Companies are in good operating condition and in good repair and are fit for the particular purposes for which they are used by the Companies, subject only to ordinary wear and tear. The Real Property, Tangible Property and all Improvements owned or leased by the Companies 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 material respect on property of others. To the Stockholders' knowledge, 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 Companies as presently conducted, and there is no pending or threatened application for changes in the zoning applicable to the respective Real Property. Except as set forth in SCHEDULE 2.10 Certificates of Occupancy have been issued with respect to the Improvements without special conditions or restrictions that limit the Companies' ability to operate their businesses after the Closing in a manner consistent with past practices. To the knowledge of the Stockholders, all utilities servicing the Real Property and the Improvements are provided by publicly-dedicated utility lines and are installed and operational. No written or, to the knowledge of the Stockholders, oral 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 Companies or the Stockholders with respect to the Real Property. 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, or in the ordinary course will be, paid and there are no liens against such property in connection therewith. 2.11 ENVIRONMENTAL MATTERS. (a) Except as set forth on SCHEDULE 2.11(a) hereto, (i) the Companies, the Real Property and the Improvements are, and any property formerly owned, occupied or leased by the Companies were, during the period of ownership, occupancy or lease by the Companies, in compliance with all Environmental Laws (as defined below), (ii) the Companies have obtained all Environmental Permits (as defined below), (iii) such Environmental Permits are in full force and effect, and (iv) the Companies are in compliance with all terms and conditions of such Environmental Permits. -21- 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 Companies' businesses 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. (b) Except as set forth in SCHEDULE 2.11(b), the Companies 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 -22- event has occurred with respect to the Real Property or the Improvements nor, to the knowledge of the Stockholders, during the period of ownership, lease or occupancy by the Companies of any property formerly owned, occupied or leased by the Companies has an event occurred, 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 in SCHEDULE 2.11(b), the Companies have no contingent liability under any Environmental Law; and 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 Companies, the Real Property or any portion thereof, the Improvements, or, to the knowledge of the Stockholders, any property formerly owned, occupied or leased by the Companies, 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 and there has been no spill, release or migration of any Hazardous Materials on or under the Real Property and no Hazardous Material is present on or under the Real Property (provided, however, that certain petroleum products are stored and handled on the Real Property in the ordinary course of the Companies' businesses in compliance with all Environmental Laws including the existing regulations of the United States Environmental Protection Agency requiring spill protection, overfill protection and corrosion protection by December 22, 1998), (ii) none of the Real Property or portion thereof, the Improvements or, during the period of ownership, lease or occupancy by the Companies, any property formerly owned, occupied or leased by the Companies 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) to the knowledge of the Stockholders, none of the Real Property, the Improvements or, during the period of ownership, lease or occupancy by the Companies, any property formerly owned, occupied or leased by the Companies, or, to the knowledge of the Companies or the Stockholders, any site or location where the Companies 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 con- -23- tainers 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, to the knowledge of the Stockholders, have any liens been placed upon any property formerly owned, occupied or leased by the Companies 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, to the knowledge of the Stockholders, threatened claim, litigation, or administrative proceeding, or known prior claim, litigation or administrative proceeding, arising under any Environmental Law involving any of the Companies, the Real Property, the Improvements, any property formerly owned, leased or occupied by the Companies, any offsite contamination affecting the business of the Companies 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 Companies have 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 Companies have 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 Companies, has any other entity whose liability therefor, in whole or in part, may be attributed to the Companies, received such notice, claim, demand, suit or request for information. (f) By June 14, 1996, the Stockholders and the Companies shall have provided to UAG all environmental studies and reports in their possession, and shall have advised UAG of any material environmental studies and reports known to them but not in their possession, pertaining to the Real Property, the Improvements, the Companies and any property formerly owned, occupied or leased by the Companies, 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, 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 Sheets and Company Factory Statements reflect the normal, LIFO inventory valuation policies of the Companies, and, in the case of the Company Balance Sheets, such values are in conformity with GAAP consistently applied (except as disclosed on -24- SCHEDULE 2.5 hereto). In all material respects, the inventories reflected on the Company Balance Sheets and Company Factory Statements 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 Company Balance Sheets), except for spare parts inventory which inventory is, in all material respects, good and usable. 2.13 ACCOUNTS RECEIVABLE. In all material respects, the accounts receivable reflected on the Company Balance Sheets are, and all accounts receivable that will be or will have been reflected on the Closing Date Balance Sheets, will be good, and 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 valid defenses, setoffs or counterclaims other than normal cash discounts accrued in the ordinary course of business. 2.14 INSURANCE. All material properties and assets of the Companies 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 Companies are engaged and, to the knowledge of the Stockholders, 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 Companies have made or will make available to UAG true and complete copies of all such policies. All such policies are in full force and effect are sufficient for all applicable requirements of law and will not in any way be affected by or terminated or lapsed by reason of the consummation of the transactions contemplated by this Agreement. Except as described in SCHEDULE 2.14, no notice of cancellation or non-renewal with respect to, or disallowance of any claim under, any such policy has been received by the Companies. 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 either of the Companies is a party or by which either of the Companies or any of their respective assets or properties (including the Real Property and the Improvements) may be bound or affected, including all amendments, modifications, extensions -25- 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 (i.e., involves payments over a period of twelve months or less of $100,000 or more and is not cancelable at will without penalty) to the business, operations, assets or condition (financial or otherwise) of the Companies. 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 Companies have 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 Companies are not, nor, to the knowledge of 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 Companies in any such case where such breach, default or other event would have, or could reasonably be expected to have, a Material Adverse Effect. To the knowledge of the Stockholders, there are no material unresolved disputes involving any of the Companies under any Company Agreement. 2.16 LABOR RELATIONS. (a) The Companies have paid or made provision for the payment of all salaries and accrued wages and have 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 have withheld and paid to the appropriate governmental authority, or are 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 their employees. (b) Except as described in Sections 6.12, 6.13 AND 6.14 and as set forth on SCHEDULE 2.16(b) hereto, the Companies are not a party to any (i) outstanding employment agreements or contracts with officers or employees providing for annual compensation in excess of $100,000 that are not terminable at will, or that provide for payment of any bonus or commission expected to exceed $100,000, (ii) agreement, policy or practice that requires any of them 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 Companies, nor do the Stockholders know of any activities or proceedings of any labor union to organize any such employees. The Companies have furnished to UAG complete and correct copies of all such agreements ("Employment and Labor Agreements"). The Companies -26- have not breached or otherwise failed to comply with any provisions of any Employment or Labor Agreement. (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' knowledge, threatened, against or affecting the Companies, and the Companies have 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 Companies, (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 Companies, (iv) there are no charges with respect to or relating to the Companies pending before the Equal Employment Opportunity Commission or any state, local or foreign agency responsible for the prevention of unlawful employment-practices, (v) the Companies have 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 Companies and, to the knowledge of the Stockholders, 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 Companies have 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 Companies or to which the Companies are 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 Companies or to which the Companies are 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 -27- 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) to the knowledge of the Stockholders, no event has occurred or 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 complied with the reporting and disclosure requirements imposed under ERISA and the Code; 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; (ii) has been operated, since its inception, in accordance with its terms and, to the knowledge of the Stockholders, there exists no fact which would materially adversely affect its qualified status; and (iii) to the knowledge of the Stockholders, is not currently under investigation, audit or review by the IRS and 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) None of the Companies' Pension Benefit Plans is a defined benefit plan under Section 414(j) of the Code. (e) None of the Companies' Pension Benefit Plans to which ERISA has applied has been or is being terminated, nor is termination contemplated with respect to any such plans. -28- (f) The approximate aggregate of the amounts of contributions by the Companies 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 Sheets reflect in the aggregate an accrual of all amounts of employer contributions accrued but unpaid by the Companies under the ERISA Plans as of the date of the Company Balance Sheets. (g) With respect to the Welfare Benefit Plans: (i) Except as set forth on SCHEDULE 2.17(g), there are no material liabilities of the Companies under Welfare Benefit Plans with respect to any condition which relates to a claim filed on or before the Closing Date. (ii) To the knowledge of the Stockholders, 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 Companies maintain or are 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 Companies pursuant to which payments in excess of $100,000 per individual 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 Companies 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, $100,000. 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 Companies, 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 -29- 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) to the knowledge of the Stockholders, is not currently under investigation, audit or review by the IRS or any other federal or state agency and (to the knowledge of the Companies or the Stockholders) no such action is contemplated or under consideration; (iii) has no material liability for any federal, state, local or foreign Taxes; (iv) to the knowledge of the Stockholders, has no claims subject to dispute or litigation; and (v) has met all applicable requirements, if any, of the Code and ERISA. 2.19 TRANSACTIONS WITH INSIDERS. Set forth on SCHEDULE 2.19 hereto is a complete and accurate description of all material transactions between the Companies 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 Companies, and any Affiliate (other than the Companies), 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 (other than the Companies) 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. -30- 2.20 PROPRIETY OF PAST PAYMENTS. To the knowledge of the Stockholders, no funds or assets of the Companies have been used for illegal purposes; no unrecorded funds or assets of the Companies have been established for any purpose; no accumulation or use of the Companies' corporate funds or assets has been made without being properly accounted for in the respective books and records of the Companies; all payments by or on behalf of the Companies 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 Companies for any reason; no payment has been made by or on behalf of the Companies 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 Companies have 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 Companies 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 Companies 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 4.9% 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 Companies that is engaged in the retail sale of automobiles or light duty trucks in the United States. 2.22 BROKERS. Neither the Companies, 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 Documents. 2.23 ACCOUNTS. SCHEDULE 2.23 hereof correctly identifies each bank account maintained by or on behalf or for the benefit of the Companies and the name of each person with any power or authority to act with respect thereto. 2.24 DISCLOSURE. Neither the Companies nor the Stockholders has made any material misrepresentation to UAG or UAG West relating to the Companies, the Shares, the 6725 Shares or the Scottsdale Manage- -31- ment Shares and neither the Companies nor the Stockholders has omitted to state to UAG any material fact relating to the Companies or the Shares, the 6725 Shares or the Scottsdale Manage-ent Shares which is necessary in order to make the information given by or on behalf of the Companies 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, the 6725 Shares or the Scottsdale Management Shares. 2.25 WORKING CAPITAL. On the Closing Date, the aggregate net working capital of the Companies (other than Scottsdale Management and 6725), as reflected on the Estimated Closing Date Balance Sheet (as defined in Section 6.6 hereof) will be equal to or greater than the aggregate net working capital of the Companies as of March 31, 1996 as reflected on the Company Balance Sheets, and such net working capital will be sufficient to operate the respective businesses of the Companies (other than Scottsdale Management and 6725) consistent with past practices. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS Subject to the parties' agreement and acknowledgment that the Schedules referred to in this ARTICLE 3 are to be delivered by the Companies and the Stockholders no later than June 14, 1996, each Stockholder hereby jointly and severally further represents and warrants to UAG as follows (except for representations and warranties relating to Scottsdale Management which are made solely by Knappenberger Trust). Where any representation or warranty is made "to the knowledge of the Stockholders" or to "the Stockholder's knowledge", or subject to a similar knowledge limitation, such representation or warranty is made to the knowledge of the Knappenberger Trust, Mr. Knappenberger, Brochick, Beskind, 6725 Brochick Trust, 6725 Beskind Trust, 6725 Knappenberger Trust, and, solely with respect to the 6905 Property, the Steven Knappenberger Revocable Trust II, dated May 12, 1992, or any of them, and shall include any information that any of them would or should have known in the exercise of reasonable diligence by an owner or lessor of commercial real property or an owner and operator of automobile and light truck dealerships, as the case may be. 3.1 OWNERSHIP OF SHARES; TITLE. Each Stockholder is the owner of record and beneficially of the Shares, the 6725 Shares and the Scottsdale Management Shares as set forth on SCHEDULE 3.1 hereof and has, and shall transfer to UAG West at the Closing, good and marketable title to the Shares, the 6725 Shares and the Scottsdale Management Shares owned by him, free and clear of any and all security interests, liens, encumbrances, proxies and voting or other agreements -32- except restrictions on transfer imposed by applicable federal and state securities laws. 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 or it is a party and to consummate the transactions contemplated hereby and thereby (including the disposition of the Shares, the 6725 Shares and the Scottsdale Management Shares to UAG West as contemplated by this Agreement). This Agreement has been duly executed and delivered by each Stockholder and constitutes, and the Documents to which each Stockholder is a party 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. Except as set forth on SCHEDULE 3.2, 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 any Stockholder is a party or to which any Stockholder or any of such Stockholder'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. 3.3 REAL PROPERTY AND IMPROVEMENTS. The owners of each of the Purchased Real Property (the "Owners") as set forth on SCHEDULE 3.3(a) hereof own the Purchased Real Property and the Improvements thereon in fee simple, free and clear of all liens, claims and encumbrances, except the leases and options described in SCHEDULE 2.10 hereof, those disclosed in the title insurance commitments described in SECTION 6.17 hereof and in SCHEDULE 3.3(b) hereof, none of which currently adversely affect the use of the Purchased Real Property and the Improvements thereon for the conduct of the respective businesses of the Companies as presently conducted. With regard to the Purchased Real Property, the aggregate principal and -33- interest on the Bank of American real estate loans relating thereto is approximately Ten Million Six Hundred Thousand Dollars ($10,600,000), the Purchased Real Property does not secure any other indebtedness other than indebtedness of the Companies to Bank of America and there are no defaults under any indebtedness secured by the Purchased Real Property. No assessments have been made against any portion of the Real Property which are unpaid (except ad valorem taxes and assessments for the current year that are not yet due and payable), whether or not they have become liens. The Owners of the Purchased Real Property are solvent and none have made a general assignment for the benefit of creditors, nor been adjudicated bankrupt, nor has a receiver been appointed with respect to any of their properties. To the Stockholders' knowledge, there are no disputes concerning the location of the lines and corners of the Real Property. Except as provided herein, no one has been granted any right to purchase or lease the Purchased Real Property or the Improvements thereon other than existing lessees under the leases in favor of the Companies or Mr. Knappenberger, which are to be terminated at Closing. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF UAG Subject to the parties' agreement and acknowledgment that the Schedules referred to in this ARTICLE 4 are to be delivered by UAG no later than June 14, 1996, UAG hereby represents and warrants to the Companies 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. Attached hereto as SCHEDULE 4.1 are complete and correct copies of UAG's Certificate of Incorporation and By-laws, as amended and presently in effect. 4.2 CAPITALIZATION. The authorized stock of UAG and UAG West 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 UAG West and have been validly autho- -34- rized 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 and UAG West or any securities convertible into, or other rights to acquire, any shares of capital stock of UAG and UAG West or (ii) obligates UAG and UAG West 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. (a) UAG and UAG West 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. Unless this Agreement is terminated prior to July 10, 1996, then, on or before July 10, 1996, 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 will have been duly authorized and approved by the Board of Directors of UAG and UAG West and no other corporate proceedings on the part of UAG or UAG West will be 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 UAG West, enforceable against UAG and UAG West in accordance with their respective terms. (b) Except as set forth on SCHEDULE 4.3 hereto, the execution, delivery and performance by UAG and UAG West 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 Certificates of Incorporation or Bylaws of UAG or UAG West; (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 mortgage, indenture, note, agreement, contract, lease, license, franchise, obligation, instrument, or other commitment, arrangement or understanding of any kind that is material to the business, operation or assets of UAG or its subsidiaries, taken as a whole (each a "UAG Agreement") 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 -35- be expected to have a material adverse effect on the business, operation, assets or condition (financial or otherwise) of UAG, UAG West and their subsidiaries taken as a whole (a "UAG 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 that would or could reasonably be expected to have a UAG Material Adverse Effect; (iv) violate or conflict with any Legal Requirements applicable to UAG or any UAG subsidiary or any of their respective businesses or properties that would or could reasonably be expected to have a UAG 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 the provisions of the H-S-R Act that would or could reasonably be expected to have a UAG Material Adverse Effect. 4.4 FINANCIAL STATEMENTS. Attached as SCHEDULE 4.4 are true and complete copies of: (i) the audited consolidated balance sheet of UAG and its subsidiaries as of December 31, 1994 and the unaudited consolidated balance sheet of UAG and its subsidiaries as of December 31, 1995 and the related audited consolidated statements of income, stockholders' equity and cash flows for the fiscal years ended on such dates, together with the notes thereto, and, in the case of the December 31, 1994 statements, 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 March 31, 1996 (the "UAG Balance Sheet"), and the unaudited consolidated statements of income, stockholders' equity and cash flows for the month period 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 recon- -36- ciled 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 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, UAG West 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 UAG West has made any material misrepresentation to the Stockholders and neither UAG nor UAG West has omitted to state to the Stockholders any material fact relating to UAG or UAG West which is necessary in order to make the information given by UAG or UAG West not misleading or which if disclosed would reasonably affect the decision of the seller of a business to UAG. 4.7 FINANCIAL CAPACITY. UAG and UAG West have the financial capacity to consummate the transactions and to comply with all of their obligations on the terms set forth herein. ARTICLE 5 COVENANTS AND ADDITIONAL AGREEMENTS 5.1 ACCESS; CONFIDENTIALITY. Between the date hereof and the Closing Date, the Stockholders and the Companies will (i) provide to the officers and other authorized representatives of UAG and UAG West full access, during normal business hours, to any and all premises, properties, files, books, records, documents, and other information of the Companies and will cause their officers to furnish to UAG and UAG West and their authorized representatives any and all financial, technical and operating data and other information -37- pertaining to the businesses and properties of the Companies, and (ii) make available for inspection and copying by UAG and UAG West true and complete copies of any documents relating to the foregoing. UAG and UAG West 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) of the Companies 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 UAG West, provided that any such third party is advised of and is bound by the confidentiality provisions hereof. If this Agreement is terminated, UAG and UAG West will promptly return to the Companies, upon the reasonable request of the Companies, all Confidential Information furnished by the Companies and held by UAG and UAG West, including all copies and summaries thereof. As used herein, "Confidential Information" shall mean all information concerning a party obtained 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 Companies and not known to the recipient to be bound by an obligation of confidentiality or (z) which is or becomes known to the public, other than through a breach by UAG of this Agreement. The Stockholders 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 of UAG 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 the Stockholders. If this Agreement is terminated, the Stockholders will promptly return to UAG, upon the reasonable request of UAG, all Confidential Information furnished by UAG and held by the Stockholders, including all copies and summaries thereof. 5.2 FURNISHING INFORMATION; ANNOUNCEMENTS. The Stockholders and the Companies, on the one hand, and UAG and UAG West, 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 Companies or UAG and UAG West, respectively, required for inclusion in any statement or application made by UAG or the Companies 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 Companies, on the one hand, nor UAG nor UAG West, 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. -38- 5.3 ANTITRUST IMPROVEMENTS ACT COMPLIANCE. UAG and UAG West and the Stockholders and the Companies, 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. UAG shall be responsible for all expenses (except for Stockholders' attorney's fees) incurred in the preparation of the H- S-R Act filings and the filing fee to be paid in connection with the H-S-R Act filings. The parties shall use their reasonable 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 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. 5.4 CERTAIN CHANGES AND CONDUCT OF BUSINESS. (a) From and after the date of this Agreement and until the Closing Date, the Companies shall, and the Stockholders shall cause the Companies to, conduct their respective businesses solely in the ordinary course consistent with past practices and, without the prior written consent of UAG, which consent shall not be unreasonably withheld, neither the Stockholders nor the Companies will, except as required or permitted pursuant to the terms hereof or as set forth in SCHEDULE 5.4, permit the Companies to: (i) make any material change in the conduct of their respective 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 their 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 their capital stock or alter any material term of any of their outstanding securities or make any change in their outstanding shares of capital stock or other ownership interests or its capitalization, whether by reason of a -39- 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 Companies, or (C) issue any options or other rights to acquire from the Companies, directly or indirectly, debt securities of the Companies or any security convertible into or exchangeable for such debt securities; (iv) except as permitted hereby, make any sale, assignment, transfer, abandonment or other conveyance of any of their assets or any part thereof, except transactions pursuant to existing contracts set forth in SCHEDULE 2.15 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 their 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) declare, set aside or pay any dividends or other distributions (whether in cash, stock, property or any combination thereof) in respect of any shares of their capital stock which could reasonably be expected to decrease the aggregate Net Worth of the Companies below the March 31, 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 -40- 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 $75,000, or aggregate capital expenditures in excess of $500,000, in each case excluding loaner cars; (x) except as permitted hereby, 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 their Affiliates except in the ordinary course of business consistent with past practice; (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 the Companies (or on behalf of the Companies) on the date hereof; (xiii) make any loan, advance or capital contribution to or investment in any person outside 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) take any other action that would cause any of the representations and warranties made by the Companies 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 Companies will use their reasonable best efforts to, and the Stockholders will use their reasonable best efforts to, cause the Companies to: -41- (i) continue to maintain, in all material respects, their properties in accordance with present practices in a condition suitable for their current use; (ii) comply in all material respects with all applicable Environmental Laws, and, in the event the Companies shall receive notice that there exists a violation of any Environmental Law with respect to their operations or any Real Property, promptly (and in any event within the time period permitted by the applicable governmental authority) commence action to and pursue until complete any removal or remedy related to 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 the Companies unless the validity thereof is contested in good faith and by appropriate proceedings diligently conducted; (iv) keep their books of account, records and files in the ordinary course and in accordance with existing practices; (v) preserve their 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 them; and (vi) continue to conduct their business in the ordinary course consistent with past practices. 5.5 NO INTERCOMPANY PAYABLES OR RECEIVABLES. Except as disclosed on SCHEDULE 5.5 hereto, at the Closing there will be no intercompany payables or intercompany receivables due and/or owing between the Stockholders and their Affiliates (other than the Companies) on the one hand, and the Companies, on the other hand, other than those incurred in the ordinary course of business generally disclosed in the Notes to the Companies' financial statements or elsewhere herein, including any Schedule hereto. 5.6 NEGOTIATIONS. Until the earlier of 180 days from the date hereof and the termination of this Agreement, no Stockholder, nor the Companies, nor their officers, directors, employees, advisors, agents, representatives, Affiliates or anyone acting on behalf of the Stockholders, the Companies 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 -42- 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 Companies. The Stockholders shall promptly communicate to UAG any serious 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 Companies and UAG will use their respective reasonable 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 Companies of all their material properties and (c) the conduct after the Closing by the Companies of their respective businesses as conducted by them 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. 5.8 ADDITIONAL AGREEMENTS. Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to use its reasonable 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 Companies shall take all such necessary action. -43- 5.9 INTERIM FINANCIAL STATEMENTS. Within thirty (30) days after the end of each calendar month after the date of this Agreement, the Companies will deliver to UAG unaudited balance sheets of the Companies, 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 statements of income and, with regard to UAG, the unaudited statements of cash flow for the fiscal months then ended. All such financial statements shall fairly present the financial position and results of operations of the Companies and UAG, as applicable, 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 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 or 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 Companies, 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, except where such default could not reasonably be expected to have a Material Adverse Effect. 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 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 Companies 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 Companies 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 -44- 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, the 6725 Shares or the Scottsdale Management Shares as contemplated hereby. 5.11 ASSURANCE BY THE STOCKHOLDERS. The Stockholders and Mr. Knappenberger shall cause each of the Companies to comply with their respective covenants set forth in this Agreement. 5.12 RELEASE OF GUARANTEES. UAG and UAG West shall use their reasonable best efforts to cause the Stockholders and their spouses as applicable, Mr. Knappenberger and his spouse as applicable, and the Steven Knappenberger Revocable Trust II to be released from all personal liability relating to the personal guarantees of (i) the obligations under the Max Consulting Agreement ("Max Consulting Guaranty"); (ii) the obligations arising out of the 6925 Lease ("6925 Lease Guaranty"); (iii) the obligations arising out of the 6905 Lease ("6905 Lease Guaranty"); (iv) the obligations arising out of the Bank of America Note ("Bank of America Note Guaranty"); (v) the obligations arising out of that certain Second Amended and Restated Automobile Flooring and Security Agreement dated November 27, 1995 between certain of the Companies and the Bank of America Arizona ("Bank of America Flooring Guaranty"); (vi) the obligations arising out of that certain Promissory Note Secured by Deed of Trust dated December 30, 1993 by SA as maker in favor of Bank of America Arizona in the original principal sum of $2,593,332 ("Bank of American Real Property Guaranty I"); (vii) the obligations arising out of that certain Promissory Note Secured by Deed of Trust dated December 30, 1993 by Marion K. Bolin, as trustee of H.M. Knappenberger Trust No. 1, No. 2 and No. 3 as maker in favor of Bank of America Arizona in the principal sum of $2,077,332 ("Bank of America Real Property Guaranty II") and (viii) the obligations arising out of the Scottsdale Road Leases. 5.13 ACCESS TO RECORDS. After Closing, UAG shall provide the Stockholders with reasonable access to the books and records of the Companies. 5.14 BANK OF AMERICA NOTE. The Stockholders shall cause the Companies to pay all principal and interest on the Bank of America Note that becomes due and payable from the date hereof until the Closing Date and shall not permit the principal outstanding under the Bank of America Note to be increased between the date hereof and the Closing Date. -45- 5.15 SPORTS TICKETS. At Mr. Knappenberger's request, the Companies shall assign to Mr. Knappenberger any and all rights that the Companies have to sports tickets and, to the extent that the Companies assign such rights to Mr. Knappenberger, Mr. Knappenberger shall assume any liabilities or obligations of the Companies in connection therewith. 5.16 MANUFACTURERS' AND DISTRIBUTORS' APPROVAL. As soon as practicable after the date hereof, Mr. Knappenberger shall initiate and UAG shall seek the consent, authorization and approval of each of the manufacturers and distributors whose consent is required for the transactions contemplated hereby. Mr. Knappenberger and UAG shall use their best efforts to obtain the consent, authorization and approval of such manufacturers and distributors, within 90 days of the date hereof, on terms substantially similar to those granted to the Companies immediately prior to the execution of this Agreement; PROVIDED, HOWEVER, that UAG shall accept any reasonable requirements of the manufacturers or distributors so long as those requirements could not be expected to have a material adverse effect on UAG, UAG West or the Companies. UAG acknowledges that certain manufacturer's agreements include a right of first refusal in favor of the manufacturer in the event of a sale such as the transaction contemplated herein and the parties acknowledge that any manufacturer attempting to exercise such right shall be deemed to have not consented to the transactions. 5.17 BANK OF AMERICA NOTE. On the Closing Date, UAG West shall make a capital contribution to the Companies in an aggregate amount equal to the principal and accrued but unpaid interest on the Bank of America Note as of the Closing Date ("the Payoff Amount"), and the Companies shall pay the Payoff Amount to Bank of America in full satisfaction of the Bank of America Note. 5.18 UAG FINANCIAL STATEMENTS. On or before June 30, 1996, UAG shall deliver to the Stockholders the audited consolidated balance sheet of UAG and its subsidiaries as of December 31, 1995, and the related consolidated statements of income and cash flows for the fiscal year then ended, together with the notes thereto, accompanied by the report of Coopers & Lybrand, independent certified public accountants. 5.19 LEASE/PURCHASE OPTION. The parties acknowledge and agree that, prior to the Closing Date, Sun BMW may transfer or assign its rights to purchase that certain real property known as 1144 E. Camelback -46- Road, Scottsdale, Arizona to Beskind, Brochick and Knappenberger Trust, or their mutually agreed upon assignee. 5.20 ENVIRONMENTAL STUDIES. UAG shall obtain Phase I environmental studies of the Real Property. At its option, UAG may also obtain Phase II environmental studies. The cost of all Phase I studies shall be borne by UAG and the cost of all Phase II studies that are recommended as a result of a Phase I study shall be borne one-half by UAG and one-half by the Stockholders. UAG and UAG West shall indemnify and hold the Stockholders and the Companies harmless from any injury, cost, liability or expense to person or property caused by their testing of the Real Property as permitted hereunder. 5.21 MAINTENANCE OF KNAPPENBERGER TRUST. The Knappenberger Trust shall not, and Mr. Knappenberger both individually and as Trustee of the Knappenberger Trust, shall not permit the Knappenberger Trust (i) to be revoked or otherwise terminated prior to its satisfaction of all of its obligations (including contingent obligations) hereunder (the "Obligations") or (ii) to distribute or otherwise transfer or assign its assets if immediately after such distribution, transfer or assignment, it would have insufficient assets to satisfy its Obligations, unless, prior to such revocation, transfer, distribution or assignment either (x) the persons or entities receiving the Knappenberger Trust's assets agree in writing to assume the Obligations or (y) Mr. Knappenberger agrees in writing to assume the Obligations, in each case to the extent necessary to satisfy any deficiency created by the distribution, transfer or revocation; PROVIDED, HOWEVER, that nothing in this SECTION 5.21 shall be deemed to modify or expand such Obligations. 5.22 SALE OF PURCHASED REAL PROPERTY TO A THIRD PARTY. Prior to the Closing, with the consent of the Stockholders and the Companies, which consent will not be unreasonably withheld, and subject to the Real Estate Purchase Agreement (as defined herein), UAG and UAG West may contract to sell all of the Purchased Real Property to a third party, provided that such consent shall be given if (i) the sale occurs simultaneously with the Closing hereunder, (ii) the purchaser fully assumes all obligations of the Purchaser under the Real Estate Purchase Agreement, (iii) all loans secured by the Purchased Real Estate are refinanced and all security arrangements are released, or the purchaser fully assumes all such loans and security arrangements and, in either case, all existing guarantees are released, (iv) the Stockholders and Seller (as defined in the Real Estate Purchase Agreement) receive proportionately with their interests as they may agree 75% of any consideration payable by the purchaser which exceeds the approximately Ten Million Six Hundred Thousand Dollars ($10,600,000) in real estate-related loans which are secured by the Purchased Real Property, and (v) the sale has no adverse effect on the Companies' other indebtedness or lending -47- relationships, including their ability to obtain any necessary consents to the transactions contemplated herein. 5.23 COMPANY INDEBTEDNESS. The Companies shall pay all principal and interest on all indebtedness listed on SCHEDULE 1.2(c) hereof that becomes due and payable from the date hereof until the Closing Date. ARTICLE 6 CONDITIONS TO THE OBLIGATIONS OF UAG TO EFFECT THE CLOSING The obligations of UAG and UAG West 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 or UAG West 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 Companies and the Stockholders contained in this Agreement shall be true and correct in all material respects 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 in all material respects as of the Closing. Each of the obligations of the Companies 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, UAG shall have received a certificate, dated the Closing Date and duly executed by the Stockholders and the Chairman or President of each of the Companies, 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 Companies. 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 Companies have entered into a franchise agreement (or comparable instrument) (subject to the provisions of SECTION 5.16 hereof), the Companies' lenders (subject to the -48- provisions of SECTION 1.2(c) hereof) and the lessors under the Leases) required to consummate the transactions contemplated hereby and all consents or waivers shall have been made or obtained. 6.3 OPINIONS OF THE COMPANIES' AND THE STOCKHOLDERS' COUNSEL. UAG and UAG West shall have been furnished with the opinion of counsel for the Companies and the Stockholders, dated the Closing Date, in form and substance reasonably satisfactory to UAG, UAG West and their counsel, which opinion shall have been rendered with respect to substantially those matters contained in SECTIONS 2.1, 2.3, 2.4, 2.9(a), 3.1 AND 3.2 hereof. In rendering the foregoing opinion, such counsel may rely as to factual matters upon representations and warranties made by the Stockholders herein and upon certificates or other documents furnished by officers, directors and stockholders 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, that such opinions are limited to Arizona and federal laws, and that, where appropriate, such opinions are to the knowledge of those persons working on this transaction. 6.4 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 UAG or UAG West effectively to exercise full rights of ownership of the Shares, the 6725 Shares and the Scottsdale Management 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 UAG West, 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, net income or financial condition of the Companies taken as a whole. -49- 6.6 WORKING CAPITAL REQUIREMENTS. On the Closing Date, the Stockholders shall deliver to UAG balance sheets of the Companies dated as of the most recent practicable date preceding the Closing Date, prepared in accordance with the Accounting Principles (the "Estimated Closing Date Balance Sheets"). The Estimated Closing Date Balance Sheets shall show as of the date thereof aggregate net working capital for the Companies (other than 6725 and Scottsdale Management) equal or greater than the aggregate net working capital for the Companies (other than 6725 and Scottsdale Management) on March 31, 1996 as reflected on the Company Balance Sheets. 6.7 COMPLETION OF DUE DILIGENCE. UAG and UAG West shall have completed their due diligence examination of the Companies, the Real Property and the Improvements and the results of such examination, including any Phase I and Phase II environmental audits of the Companies, the Real Property and the Improvements, shall be reasonably satisfactory to UAG and UAG West; PROVIDED, HOWEVER, that, with the exception of due diligence relating to any environmental issues as to which UAG and UAG West shall have 90 days to complete from execution hereof, such due diligence shall be completed, and shall be deemed completed, no later than thirty (30) days after the execution of this Agreement. UAG and UAG West shall have five (5) Business Days from the completion of the due diligence period to notify the Stockholders of any objections arising out of the due diligence examination. If the Stockholders do not cure or otherwise satisfy all such objections within ten (10) Business Days of the receipt of such notice (the "Cure Period") and UAG and UAG West do not terminate this Agreement pursuant to SECTION 8.1 hereof by sending a notice of termination to the Stockholders within five (5) Business Days after the expiration of the Cure Period, this condition shall be deemed to be satisfied. 6.8 BOARD APPROVAL. The Board of Directors of UAG and UAG West shall have approved the consummation of all of the transactions contemplated by this Agreement, PROVIDED, HOWEVER, that this condition shall be deemed waived after July 10, 1996 unless on or before July 10, 1996, UAG notifies the Stockholders that this condition has not been met. 6.9 CERTIFICATES. The Stockholders and the Companies shall have furnished UAG and UAG West 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 AND 6.6 hereof and shall have furnished UAG and UAG West with such any other certificates of its officers and others as UAG and UAG West may reasonably request to evidence compliance with the conditions set forth in this ARTICLE 6. -50- 6.10 LEGAL MATTERS. All certificates, instruments, opinions and other documents required to be executed or delivered by or on behalf of the Stockholders and the Companies 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 Companies in furtherance of the transactions contemplated hereby, shall be reasonably satisfactory in form and substance to counsel for UAG and UAG West. 6.11 APPROVAL OF MANUFACTURERS AND DISTRIBUTORS. The Stockholders and the Companies shall have obtained the consent, authorization and approval of the manufacturers and distributors whose consent is required on terms substantially similar to those granted to the Companies immediately prior to the execution of this Agreement; PROVIDED, HOWEVER, that UAG shall accept any reasonable requirements of the manufactures or distributors so long as these requirements could not reasonably be expected to have a material adverse effect on UAG, or the Companies. 6.12 KNAPPENBERGER EMPLOYMENT AGREEMENT. Mr. Knappenberger shall have entered into the Knappenberger Employment Agreement on the terms set forth in SECTION 1.2(c). 6.13 BESKIND EMPLOYMENT AGREEMENT. Beskind shall have entered into the Beskind Employment Agreement on the terms set forth in SECTION 1.2(c). 6.14 BROCHICK EMPLOYMENT AGREEMENT. Brochick shall have entered into the Brochick Employment Agreement on the terms set forth in SECTION 1.2(c). 6.15 PURCHASE OF REAL PROPERTY. The Stockholders shall have taken all action necessary on their part to effect the sale of the 6905 Property pursuant to the terms and conditions of the Real Estate Purchase Agreement and all conditions to Closing under the Real Estate Purchase Agreement not in UAG West's control shall have been satisfied. 6.16 NONDISTURBANCE AGREEMENTS. UAG shall have been provided with nondisturbance agreements in form and substance reasonably satisfactory to the Companies and UAG with respect to the properties that are the subject of the Leases; PROVIDED, HOWEVER, to the extent the respective lessees under the Leases are not entitled to obtain nondisturbance agreements pursuant to the terms of the Leases, -51- UAG and UAG West may not cancel this Agreement as a result of the Stockholders' or the lessees' inability to obtain such nondisturbance agreements so long as the Stockholders and the lessees have used their reasonable best efforts to obtain nondisturbance agreements. 6.17 TITLE INSURANCE. (a) Promptly following execution of this Agreement, the Companies shall arrange for First American Title Insurance Company ("Escrow Agent") to deliver current preliminary title reports (the "Reports") on the Real Property to UAG West and the Companies. The Reports shall show the status of title to the Real Property as of the date of the Reports and shall be accompanied by legible copies of all documents referred to in the Reports. (b) Promptly following delivery of the Reports, UAG West shall cause ALTA surveys of the Real Property (the "Surveys") to be prepared by an Arizona licensed civil engineer or land surveyor, at UAG West's expense. The Surveys shall be certified to be accurate, complete and correct to UAG, UAG West, the Companies and the Escrow Agent and shall be in a form acceptable to Escrow Agent for issuance of the title insurance required by this SECTION 6.17. (c) UAG West shall have ten (10) Business Days (the "Review Period") following receipt of both the Reports and the Surveys to approve or disapprove any Survey matters and the status of title as shown by the Reports and the Surveys; provided that such matters may be disapproved only if they, in UAG West's reasonable judgment, have a Material Adverse Effect. If Escrow Agent issues a supplemental or amended title report (and Escrow Agent shall issue such report no later than ten (10) days but no earlier than fifteen (15) days prior to Closing) showing additional exceptions to title (an "Amended Report"), UAG West shall have a period of time equal to five (5) Business Days (a "Supplemental Review Period") from the date of receipt of the Amended Report and a copy of each document referred to in the Amended Report in which to give notice of dissatisfaction as to any additional exceptions which may in UAG West's reasonable judgment have a Material Adverse Effect. If UAG West provides notice of dissatisfaction with any matter shown on the Surveys or with any exception to title as shown in the Reports or in an Amended Report as permitted herein, UAG West shall provisionally accept the title subject to the Companies' or the owner of 6905 E. McDowell Road ("Trust"), as the case may be, removal of any disapproved matters, exceptions or objections, or the Companies or Trust, as the case may be, obtaining title insurance endorsements satisfactory to UAG West against such matters, exceptions and objections before the Closing; PROVIDED, HOWEVER, it is understood and agreed that the Companies or Trust shall have no duty whatsoever to eliminate or secure a title insurance endorsement against any such matter or exception. If the Companies or Trust, as the case may be, cannot remove such matters, exceptions -52- and objections to UAG West's reasonable satisfaction before the Closing, then UAG West may terminate this Agreement pursuant to SECTION 8.1(iv), or UAG West may waive such objections and proceed with the transaction. (d) Notwithstanding anything herein to the contrary, it is understood and agreed that title to the Purchased Real Property shall, at the Closing, be free and clear of all monetary liens and encumbrances (other than liens evidencing the assumed debt described in SCHEDULE 6.17 and the lien for current real property taxes and assessments not yet due and payable) and that such monetary liens and encumbrances shall be released from the Purchased Real Property by the Companies at their sole expense on or before Closing or UAG West may cause their release and the cost thereof shall be credited against the Base Price. (e) If UAG West does not object to a Survey matter or an exception to title as disclosed by a Report or Amended Report within the applicable time period, such matter shall be deemed to have been approved by UAG West. (f) At Closing, UAG West shall have obtained, at UAG's expense, an ALTA extended coverage owner's policy of title insurance issued by Escrow Agent in the amounts with respect to each parcel of the Real Property set forth on SCHEDULE 6.17, effective as of the Closing, insuring UAG West that good and marketable fee simple title to the Purchased Real Property and the leasehold estates in the leased Real Property are vested in the Companies or UAG West, subject only to the usual printed exceptions and exclusions contained in such title insurance policies, to the matters approved by UAG West as provided above in this SECTION 6.17, to any other matters approved in writing by UAG West, to liens evidencing the assumed debt described in SCHEDULE 6.17, and current taxes and assessments not yet due and payable, and containing any endorsements requested by UAG West. The contingency for delivery of the title insurance policies on or before Closing called for in this SECTION 6.17 shall be satisfied if, at the Closing, Escrow Agent has made an unconditional commitment to issue the policies in the form required by this SECTION 6.17 and if such policies are delivered within a reasonable time following the Closing. 6.18 TERMINATION OF SECURITY INTERESTS, LIENS, ETC.. UAG shall have received evidence reasonably satisfactory to UAG that any and all liens, security interests or other encumbrances on the Real Property, the Improvements or any assets of the Companies guaranteeing, securing or otherwise arising out of or relating to the Bank of America Note, the Maas Note or the Max Consulting Agreement have been released or terminated. UAG shall have received evidence reasonably satisfactory to UAG that the stock pledges set forth in SCHEDULE 2.3 hereof have been released and that the shareholders' agreement set forth on SCHEDULE 2.3 hereof has been terminated. -53- 6.19 SCHEDULES. The Companies and the Stockholders shall have delivered to UAG and UAG West all Schedules referred to in ARTICLES 2 AND 3 and such Schedules shall be reasonably acceptable in form and substance to UAG and UAG West. UAG and UAG West shall have five (5) Business Days from receipt thereof to reject the Schedules, or this condition shall be deemed satisfied; PROVIDED, HOWEVER, that nothing in this Section shall be construed as limiting UAG and UAG West's right to conduct due diligence pursuant to SECTION 6.7 hereof with respect to all matters disclosed on such Schedules. ARTICLE 7 CONDITIONS TO THE OBLIGATIONS OF THE STOCKHOLDERS TO EFFECT THE CLOSING The obligations of the Stockholders and the Companies 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 Companies and 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 and UAG West contained in this Agreement shall be true and correct in all material respects 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 UAG West 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 UAG West 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 and UAG West. 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 -54- with whom the Companies 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 UAG WEST'S COUNSEL. The Stockholders shall have been furnished with the opinion of Rogers & Hardin, counsel to UAG and UAG West, 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 substantially those matters contained in SECTIONS 4.1, 4.2 AND 4.3(a) hereof. In rendering the foregoing opinions, such counsel may rely as to factual matters upon the representations and warranties made by UAG and UAG West herein and upon certificates or other documents furnished by officers and directors of UAG and UAG West 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, that such opinions are limited to the General Corporate Law of the State of Delaware and federal laws, and that, where appropriate, such opinions are to the knowledge of those persons working on this transaction. 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 that prevents or delays the consummation of any of the transactions contemplated hereby. 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 Stockholders, 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 CERTIFICATES. UAG and UAG West shall have furnished the Stockholders with such certificates of its officers and others to evidence compliance with the conditions set forth in ARTICLE 7 as may be reasonably requested by the Stockholders. 7.6 LEGAL MATTERS. All certificates, instruments, opinions and other documents required to be executed or delivered by or on behalf of UAG -55- or UAG West under the provisions of this Agreement, and all other actions and proceedings required to be taken by or on behalf of UAG or UAG West in furtherance of the transactions contemplated hereby, shall be reasonably satisfactory in form and substance to counsel for the Stockholders. 7.7 DUE DILIGENCE. The Stockholders shall have completed their due diligence examination of UAG and the results of such examination shall be satisfactory to the Stockholders; PROVIDED, HOWEVER, that such due diligence shall be completed, and shall be deemed completed, no later than thirty (30) days after the execution of this Agreement. The Stockholders shall have five (5) Business Days from the completion of the due diligence period to notify UAG of any objections arising out of the due diligence examination. If UAG and UAG West do not cure or otherwise satisfy all such objections within ten (10) Business Days of the receipt of such notice (the "UAG Cure Period") and the Stockholders do not terminate this Agreement pursuant to SECTION 8.1 hereof by sending a notice of termination to UAG within five (5) Business Days after the expiration of the UAG Cure Period, this condition shall be deemed satisfied. 7.8 KNAPPENBERGER EMPLOYMENT AGREEMENT. UAG West shall have entered into and UAG shall have guaranteed the Knappenberger Employment Agreement. 7.9 BESKIND EMPLOYMENT AGREEMENT. UAG West shall have entered into and UAG shall have guaranteed the Beskind Employment Agreement. 7.10 BROCHICK EMPLOYMENT AGREEMENT. UAG West shall have entered into and UAG shall have guaranteed the Brochick Employment Agreement. 7.11 PURCHASE OF REAL PROPERTY. UAG shall have taken all actions necessary on their part to effect the purchase of the 6905 Property pursuant to the terms and conditions of the Real Estate Purchase Agreement. 7.12 SCHEDULES. UAG shall have delivered to Knappenberger Trust all Schedules referred to in ARTICLE 4 and such Schedules shall be reasonably acceptable in form and substance to the Stockholders. The Stockholders shall have five (5) Business Days from receipt thereof to reject the Schedules, or this condition shall be deemed satisfied; PROVIDED, HOWEVER, that nothing in this Section shall be construed as limiting the Stockholders' rights to con- -56- duct due diligence pursuant to SECTION 7.7 hereof with respect to matters disclosed on such Schedules. 7.13 RELEASE OF PERSONAL GUARANTEES. The Stockholders and their spouses, as applicable, and Mr. Knappenberger and his spouse, as applicable, and the Steven Knappenberger Revocable Trust II shall have been released from the 6905 Lease Guaranty, the 6925 Lease Guaranty, the Bank of America Note Guaranty, the Bank of America Flooring Guaranty, the Bank of America Real Property Guaranty I and the Bank of America Real Property Guaranty II. 7.14 BROKER'S AGREEMENT. UAG West shall have entered into and UAG shall have guaranteed the Broker's Agreement. ARTICLE 8 TERMINATION 8.1 TERMINATION. This Agreement may be terminated at any time prior to Closing: (i) by mutual consent of UAG, UAG West and the Stockholders; (ii) by either UAG or the Stockholders if the Closing shall not have taken place on or prior to (a) December 2, 1996, or if the Closing Date is extended by the Stockholders pursuant to SECTION 1.2(b) hereof, January 12, 1997, (b) such later date as shall have been approved by UAG, UAG West 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 or UAG West if any of the conditions specified in ARTICLE 6 hereof have not been met by the Stockholders or waived by UAG or UAG West at such time as such condition is no longer capable of satisfaction (provided UAG and UAG West are not otherwise in material breach of its representations, warranties, covenants or agreements under this Agreement); -57- (v) by the Stockholders if any of the conditions specified in ARTICLE 7 hereof have not been met by UAG or UAG West or waived by the Stockholders at such time as such condition is no longer capable of satisfaction (provided that neither any Stockholder nor the Companies 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. 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/or the Confidentiality Agreement dated February 26, 1996 and (iii) as set forth in SECTIONS 9.1 AND 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 STOCKHOLDERS. Notwithstanding the Closing or the delivery of the Shares, the 6725 Shares or the Scottsdale Management Shares, each Stockholder jointly and severally, indemnifies and agrees to fully defend, save and hold harmless UAG, UAG West, the Companies (after Closing), 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 Companies after the Closing Date) shall at any time or from time to time suffer any Costs (as defined in SECTION 9.5 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 one or more of the following: (i) any untruth or inaccuracy in any representation of the Stockholders or the Companies or the breach of any warranty of the Stockholders or the Companies contained in this Agreement, including, without limitation, any misrepresen- -58- tation in, or omission from, any agreement, certificate, schedule, exhibit, or similar document furnished pursuant to this Agreement by the Stockholders or the Companies (or any representative of the Stockholders or the Companies) 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 Companies duly to perform or observe any term, provision, covenant, agreement or condition on the part of such Stockholder or the Companies to be performed or observed. 9.2 INDEMNIFICATION BY UAG. Notwithstanding the Closing, UAG indemnifies and agrees to fully defend, save and hold harmless the Stockholders, the Companies (prior to 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 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 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 agreement, certificate, schedule, exhibit or other similar 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, (ii) any failure of UAG or UAG West (or after the Closing, the Companies) duly to perform or observe any term, provision, covenant, agreement or condition on their part to be performed or observed, (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 any assets, properties or operations of UAG or the conduct of the business of UAG prior to the Closing Date or (iv) any personal guarantees referenced in SECTION 5.12 which are not released as of and in connection with the Closing. 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 (ii) a UAG Event of Breach occurs or is alleged and a Stockholder Indemnified Party asserts that UAG has become obligated to an Indemnified Party pursuant to SECTION 9.2, or if a claim is begun, made or instituted by a third party (a "Third Party Claim") as a result of which an Indemnifying Party may become obligated to an Indemnified Party hereunder (for purposes of this ARTICLE 9, any UAG Indemnified Party and any Stockholder Indemnified Party is -59- sometimes referred to as an "Indemnified Party" and UAG and the Stockholders are sometimes referred to as an "Indemnifying Party," 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 except to the extent prejudiced thereby. 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 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, with the reasonable consent of the Indemnifying Parties, 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 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 shall not be unreasonably withheld) 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 or condition (financial or otherwise) of the Indemnified Party. -60- 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 Five Hundred Thousand Dollars ($500,000); PROVIDED, HOWEVER, that notwithstanding the preceding limitation, 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 ARTICLE 1 OR SECTIONS 2.3, 2.4(a), 3.1 AND 10.2 hereof. In the event that the aggregate Costs incurred or sustained by all UAG Indemnified Parties exceeds Five Hundred Thousand Dollars ($500,000), then the Stockholders shall be fully liable for all such Costs that exceed Two Hundred Fifty Thousand Dollars ($250,000). The limitations in this SECTION 9.4(a)(i) shall not apply to SECTION 1.4(g). (ii) The aggregate Costs for which the Stockholders shall be obligated to indemnify the UAG Indemnified Parties shall not exceed Four Million Dollars ($4,000,000) in the case of Costs incurred or sustained by all UAG Indemnified Parties in connection with an Event of Breach; PROVIDED, HOWEVER, that 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 ARTICLE 1 OR SECTIONS 2.3, 2.4(a) AND 3.1 hereof. The limitations in this SECTION 9.4(a)(ii) shall not apply to SECTION 1.4(g). (b) INDEMNIFICATION BY UAG. (i) A Stockholder 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 Stockholder Indemnified Parties exceed Five Hundred Thousand Dollars ($500,000); PROVIDED, HOWEVER, that, notwithstanding the preceding limitation, a Stockholder Indemnified Party shall be entitled to indemnification for all Costs incurred or sustained by such Stockholder Indemnified Party as a result of (a) any failure to have the guarantees referred to in SECTION 5.12 released as of and in connection with the Closing, (b) 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 ARTICLE 1 OR SECTIONS 4.3 OR 4.7 hereof or in the Broker's Agreement or the Knappenberger, Beskind or Brochick Employment Agreements, or (c) any failure of UAG West to pay money or assume debt in accordance with the terms and subject to the conditions of the Real Estate Purchase Agreement. In the -61- event the aggregate Costs incurred or sustained by all Stockholder Indemnified Parties exceeds Five Hundred Thousand Dollars ($500,000), then UAG shall be fully liable for all such Costs that exceed Two Hundred Fifty Thousand Dollars ($250,000). (ii) The aggregate Costs for which UAG shall be obligated to indemnify the Stockholder Indemnified Parties shall not exceed Four Million Dollars ($4,000,000) in the case of Costs incurred or sustained by all Stockholder Indemnified Parties in connection with a UAG Event of Breach; PROVIDED, HOWEVER, that a Stockholder Indemnified Party shall be entitled to indemnification for all Costs incurred or sustained by such Stockholder Indemnified Party as a result of (a) any failure to have the guarantees referred to in SECTION 5.12 released as of and in connection with the Closing, (b) 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 ARTICLE 1 OR SECTIONS 4.3 OR 4.7 hereof or in the Broker's Agreement or the Knappenberger, Beskind or Brochick Employment Agreements, or (c) any failure of UAG West to pay money or assume debt in accordance with the terms and subject to the conditions of the Real Estate Purchase Agreement. 9.5 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, 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. 9.6 TAX SAVINGS AND INSURANCE PROCEEDS. Costs arising or resulting from Events of Breach or UAG Events of Breach shall be reduced to the extent of the amount of (i) any tax savings resulting from the indemnified matter to which such Costs relate which are actually realized by the Indemnified Party and (ii) any insurance proceeds actually received by the Indemnified Party in respect of the indemnified matter to which such Costs relate. 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 -62- Date) shall survive the Closing Date and the consummation of the transactions contemplated by this Agreement, subject to SECTION 10.1(b) below. (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 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 SECTION 2.8 AND 2.11 hereof, which shall survive the Closing Date for a period terminating on the later of (y) the date three years after the Closing Date and (z) with respect to any claim asserted with respect to any breach of such representations or warranties pursuant to SECTION 9.3 hereof before the expiration of such representations or warranties, 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 as a result of a breach of SECTION 5.6 hereof, then the Stockholders or the Companies 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 (other than expenses relating to UAG's review and audit of the Companies' Financial Statements) 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: -63- If to the Companies before the Closing Date: Steven W. Knappenberger 6725 E. McDowell Road Scottsdale, Arizona 85257 with a copy to: Snell & Wilmer, L.L.P. One Arizona Center Phoenix, Arizona 85004-0001 Attn: Steven D. Pidgeon, Esq. If to the Companies after the Closing Date (in addition to the foregoing addresses): United Auto Group, Inc. 375 Park Avenue New York, New York 10022 Attn: George G. Lowrance, Esq., Executive Vice President and General Counsel with a copy to: Rogers & Hardin 2700 Cain Tower, 229 Peachtree Street, N.E. Atlanta, Georgia 30303 Attn: Michael Rosenzweig, Esq. If to the Stockholders: Steven W. Knappenberger 6725 E. McDowell Road Scottsdale, Arizona 85257 and George Brochick 6242 E. Laurel Lane Scottsdale, Arizona 85254 and Jay Beskind 6513 E. Paradise Lane Scottsdale, Arizona 85254 with a copy to: Snell & Wilmer, L.L.P. One Arizona Center Phoenix, Arizona 85004-0001 Attn: Steven D. Pidgeon, Esq. -64- If to UAG or UAG West: United Auto Group, Inc. 375 Park Avenue New York, New York 10022 Attn: George G. Lowrance, Esq., Executive Vice President and General Counsel with a copy to: Rogers & Hardin 2700 Cain Tower, 229 Peachtree Street, N.E. Atlanta, Georgia 30303 Attn: Michael Rosenzweig, 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. -65- 10.7 WAIVER AND AMENDMENTS. Each of the Stockholders and the Companies as one Party, and UAG and UAG West 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 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. 10.10 SCHEDULES. 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. 10.11 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 -66- 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. 10.12 REMEDIES. 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 and specific performance as set forth in SECTION 10.15, shall be the exclusive remedy of either party for a breach of this Agreement. 10.13 TIME IS OF THE ESSENCE. Time is of the essence for purposes of this Agreement. 10.14 GOVERNING LAW. This Agreement shall be governed under the laws of the State of Arizona without regard to conflict of law principles. 10.15 SPECIFIC PERFORMANCE. The parties hereto agree that any violation of this Agreement will result in irreparable injury to the non-breaching party and that damages at law would not be reasonable or adequate compensation to such non-breaching party for a violation of this Agreement, and the non-breaching party shall be entitled to have the provisions of this Agreement specifically enforced by preliminary and permanent injunctive relief without the necessity of proving actual damages and without posting bond or other security. 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 ---------------------------------------- Carl Spielvogel, Chief Executive Officer -67- UAG WEST, INC. By: /s/ Carl Spielvogel ------------------------------- Its: Chief Executive Officer ------------------------------- SCOTTSDALE JAGUAR, LTD. By: /s/ Steven Knappenberger ------------------------------- Its: Chairman ------------------------------- SA AUTOMOTIVE, LTD. By: /s/ Steven Knappenberger ------------------------------- Its: Chairman ------------------------------- SL AUTOMOTIVE, LTD. By: /s/ Steven Knappenberger ------------------------------- Its: Chairman ------------------------------- SPA AUTOMOTIVE, LTD. By: /s/ Steven Knappenberger ------------------------------- Its: Chairman ------------------------------- LRP, LTD. By: /s/ Steven Knappenberger ------------------------------- Its: Chairman ------------------------------- -68- SUN BMW, LTD. By: /s/ Steven Knappenberger ------------------------------- Its: Chairman ------------------------------- SCOTTSDALE MANAGEMENT GROUP, LTD. By: /s/ Steven Knappenberger ------------------------------- Its: Chairman ------------------------------- 6725 DEALERSHIP, LTD. By: /s/ Illegible ------------------------------- Its: President ------------------------------- STEVEN KNAPPENBERGER REVOCABLE TRUST DATED APRIL 15, 1983, AS AMENDED By: /s/ Steven Knappenberger ------------------------------- Steven Knappenberger, Trustee /s/ Steven Knappenberger ---------------------------------------------- Steven Knappenberger (with respect to Sections 5.11, 5.16 and 5.21) /s/ Jay Beskind ------------------------------- Jay Beskind, Individually /s/ Diana R. Beskind ------------------------------- Diana R. Beskind, Spouse of Jay Beskind /s/ George Brochick ------------------------------- George Brochick, Individually /s/ Christine S. Brochick ------------------------------- Christine S. Brochick, Spouse of George Brochick -69- BROCHICK 6725 TRUST DATED DECEMBER 29, 1992 By: /s/ George W. Brochick ------------------------------- George W. Brochick, Trustee BESKIND 6725 TRUST DATED DECEMBER 29, 1992 By: /s/ Jay P. Beskind ------------------------------- Jay P. Beskind, Trustee KNAPPENBERGER 6725 TRUST DATED DECEMBER 29, 1992 By: /s/ Steven Knappenberger ------------------------------- Steven Knappenberger, Trustee -70- EX-10.8-2 30 EXHIBIT 10.8.2 PURCHASE AND SALE AGREEMENT 6905 E. MCDOWELL ROAD THIS PURCHASE AND SALE AGREEMENT OF REAL PROPERTY (hereinafter called the "Agreement"), made and entered into this ___ day of May 1996, by and between STEVEN KNAPPENBERGER, as Trustee of the Steven Knappenberger Revocable Trust II, as to an undivided fifty percent interest and BRUCE KNAPPENBERGER, as Trustee of the Bruce Knappenberger Revocable Trust, as to an undivided fifty percent interest (collectively and severally, "Seller") and UAG WEST, INC., a Delaware corporation ("Purchaser"). W I T N E S S E T H: WHEREAS, Seller desires to sell and Purchaser desires to purchase the Property (as hereinafter defined), subject to the terms and provisions of this Agreement. NOW, THEREFORE, for and in consideration of the premises, the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt, adequacy, and sufficiency of which are hereby acknowledged by the parties hereto, the parties hereto hereby covenant and agree as follows: 1. AGREEMENT TO SELL AND PURCHASE. Subject to and in accordance with the terms and provisions hereof, Seller agrees to sell and Purchaser agrees to purchase all that tract or parcel of land lying and being in Scottsdale, Arizona and being more particularly described on EXHIBIT "A" attached hereto and by this reference made a part hereof (the "Land"), together with that certain building (the "Building"), all other improvements, [VERIFY NO PERSONAL PROPERTY OWNED BY SELLER] structures, plants, trees, and shrubbery located thereon (the "Improvements"), and together with all rights, privileges, licenses, permits, members, reversions, warranties, guarantees, water rights and easements appurtenant thereto, and all right, title, and interest of Seller, if any, in and to any land lying in the bed of any street, road, alley, or right-of-way, open or proposed, adjacent to or abutting the Land (all interests in this Paragraph 1 are herein collectively referred to as the "Property"). 2. EARNEST MONEY. Within three (3) business days after the full execution of this Agreement, Purchaser shall deliver to First American Title Insurance Company ("Escrow Agent"), at the address for notices set forth in this Agreement, Purchaser's check, payable to Escrow Agent, in the amount of FIVE THOUSAND AND NO/100 DOLLARS ($5,000.00) (the "Earnest Money"), which Earnest Money shall be held and disbursed by Escrow Agent pursuant to the terms of this Agreement. In the event the Closing (as hereinafter defined) shall occur, the Earnest Money and all interest earned thereon shall be credited to the Purchase Price. If the Earnest Money is forfeited to Seller as provided by this Agreement, the Earnest Money, with any interest earned thereon, shall be paid immediately to Seller. If Purchaser is entitled at any time to a return of the Earnest Money, any interest earned thereon shall be paid to Purchaser. 3. PURCHASE PRICE. Subject to adjustment and credits as otherwise specified in this Agreement, the purchase price (the "Purchase Price") to be paid by Purchaser to Seller for the Property shall be NINE HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($950,000.00) plus Purchaser's assumption of that certain promissory note made by Seller and held by Bank of America ("Bank") dated ______________, in the original principal amount of ________________ _________________________________ ($______________) ("Promissory Note") secured by the Property pursuant to that certain Deed of Trust dated ___________, recorded in Book ____, Page ____, Maricopa County, Arizona, __________ Records ("Deed of Trust"). 4. PURCHASER'S INSPECTION AND REVIEW RIGHTS. Commencing on the effective date of this Agreement, Purchaser and its agents, engineers, and representatives, with Seller's full cooperation, shall have the privilege of going upon the Property following reasonable prior notice to Seller as needed to inspect, examine, test, and survey the Property at all reasonable times and from time to time. Such privilege shall include the right to make soils tests, borings, percolation tests, tank tightness, environmental, and other tests to obtain information necessary to determine surface and subsurface conditions, and tests and inspections to determine the fitness of the Building and Improvements, as well as any other tests deemed reasonably necessary by Purchaser. Purchaser agrees to indemnify and hold Seller harmless from any injury, cost, liability or expense to person or property arising out of Purchaser's exercise of the inspection rights granted by this Paragraph and this indemnity shall survive the Closing or the cancellation of this Agreement. Seller shall make available for inspection by Purchaser all books, records, and files relating to the ownership and operation of the Property, including, without limitation, copies of Seller's title policy and the exceptions shown thereon, surveys, environmental reports, investigation and governmental filings with respect thereto, appraisals, contracts, books, accounts, records, licensure, inventory and other information relating to the Property which is in Seller's possession or control. Seller further agrees to in good faith assist and cooperate with Purchaser in coming to a thorough understanding of all such information and to respond to such additional requests for information as Purchaser may make, provided Seller shall not be obligated to incur expenses in order to so assist Purchaser except for reasonable personnel assistance and copying costs. Within three (3) business days after the effective date of this Agreement, Seller shall deliver to Purchaser copies of the most recent title 2 policy, survey and environmental phase 1 and, if applicable, phase 2 reports in Seller's possession or control. 5. INSPECTION PERIOD. Purchaser shall have thirty (30) [MAKE CONSISTENT WITH SPA] days after the effective date of this Agreement (the "Inspection Period") in order to determine, in Purchaser's sole and absolute opinion and discretion, whether the Property is suitable for Purchaser's needs. Purchaser shall have the right to terminate this Agreement at any time prior to the expiration of the Inspection Period by giving written notice to Seller of such election to terminate. In the event Purchaser so elects to terminate this Agreement, Seller shall be entitled to receive $100.00 of the Earnest Money, the balance of the Earnest Money shall be refunded by Escrow Agent to Purchaser, whereupon, except as expressly provided to the contrary in this Agreement, no party hereto shall have any other or further rights or obligations under this Agreement. Seller acknowledges that the sum of $100.00 is good and adequate consideration for the termination rights granted to Purchaser hereunder and that Purchaser, in reliance on this Agreement, will expend far greater sums in investigating and examining the Property to determine its suitability for Purchaser's purposes. 6. GENERAL CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS REGARDING THE CLOSING. In addition to Purchaser's right to terminate this Agreement as set forth in Paragraph 5 above, the obligations and liabilities of Purchaser hereunder shall in all respects be conditioned upon the satisfaction of each of the following conditions precedent prior to or simultaneously with the Closing, the failure of any of which shall entitle Purchaser to terminate this Agreement upon notice to Seller, whereupon the balance of the Earnest Money shall be refunded by Escrow Agent to Purchaser: (a) Seller and the other parties thereto have complied with and otherwise performed each of the covenants and obligations set forth in this Agreement, in that certain Stock Purchase Agreement of even date herewith by and among Purchaser, United Auto Group, Inc., Scottsdale Jaguar, Ltd., SA Automotive, Ltd., SL Automotive, Ltd., SPA Automotive, Ltd., Scottsdale Management Group, Ltd., Steven Knappenberger, Jay Beskind and George Brochick, concerning the purchase of stock and assets regarding the business conducted at the Property and other businesses ("SPA"). (b) All representations and warranties of Seller as set forth in this Agreement and of Seller and the other parties thereto in the SPA shall be in all respects true and correct as of the date of Closing. (c) Title Company (as hereinafter defined) has issued an owner's title insurance commitment on the Property and is prepared to issue to Purchaser upon the Closing the Title Insurance Policy (as hereinafter defined) with respect to the Property, subject only to the matters approved by Purchaser. 3 (d) The closing of the SPA transactions contemplated by the SPA. (e) Purchaser's (i) ability to assume the Note and Deed of Trust on terms acceptable to Purchaser and without any increase in interest rate, decrease in term or payment of any amount for such assumption, provided that Purchaser and United Auto Group, Inc. agree to guarantee the Note and Deed of Trust as part of such assumption; (ii) obtaining written assurances satisfactory to it that (w) the Deed of Trust is security only for the Note, and (x) there is no default under the Note, Deed of Trust or any loan documents related thereto. Seller's obligations and liabilities hereunder shall be conditioned upon the full release of Seller and Steven Knappenberger from all liability under the Note, Deed of Trust and all related guarantees and loan documents related thereto prior to the Closing. (f) The Lease (as hereinafter defined) is not in default and Seller provides written evidence reasonably satisfactory to Purchaser to such effect. (g) The principal amount together with all accrued and unpaid interest on the Note together with any other amounts owing with respect to the Note and Deed of Trust shall not exceed _______________________ [DO WE NEED TO DEAL WITH OTHER ASSUMED DEBT AMOUNTS?]. Purchaser may waive any of the foregoing conditions except the contingency benefitting Seller set forth in paragraph 6(e), in Purchaser's sole discretion on or prior to Closing. 7. PRELIMINARY TITLE REPORT: SURVEY. (a) Within ten (10) days following the opening of escrow, Seller, at its expense, shall cause Escrow Agent to deliver a current preliminary title report (the "Report") on the Property to Purchaser and Seller. The Report shall show the status of title to the Property as of the date of the Report and shall be accompanied by legible copies of all documents referred to in the Report. (b) Promptly following the delivery of the Report, Purchaser will cause an ALTA Survey of the Property (the "Survey") to be prepared by an Arizona licensed civil engineer or land surveyor, at Purchaser's expense. The Survey shall be certified to be accurate, complete, and correct to Purchaser, Seller, and Escrow Agent and shall be in a form acceptable to Escrow Agent for issuance of the Title Insurance Policy required by Paragraph 8. (c) Purchaser shall have ten (10) days (the "Review Period") following receipt of both the Report and the Survey to approve or disapprove any Survey matters and the status of title as shown by the Report and the Survey. No later than 4 ten (10) days but no earlier than fifteen (15) days prior to Closing, Seller shall cause Escrow Agent to issue a supplemental or amended title report and if it shows additional exceptions to title (an "Amended Report"), Purchaser shall have a period of time equal to five (5) days (a "Supplemental Review Period") from the date of receipt of the Amended Report and a copy of each document referred to in the Amended Report in which to give notice of dissatisfaction as to any additional exceptions. Purchaser shall also obtain a re-certified Survey prior to Closing ("Amended Survey"). If Purchaser is dissatisfied with any matter shown on the Survey or Amended Survey or with any exception to title as shown in the Report or on an Amended Report, then, at Purchaser's sole option, Purchaser may either (i) cancel this Agreement by giving written notice of cancellation to Seller and Escrow Agent within five (5) days after the Review Period, or Supplemental Review Period, as appropriate, or (ii) Purchaser may provisionally accept the title subject to Seller's removal of any disapproved matters, exceptions, or objections, or Seller obtaining title insurance endorsements satisfactory to Purchaser against such matters, exceptions, and objections before the close of escrow; provided, however, it is understood and agreed that, except as provided below, Seller shall have no duty whatsoever to eliminate or secure a title endorsement against any such matter or exception. If Seller cannot remove such matters, exceptions, and objections before the close of escrow, then, at Purchaser's option, the Earnest Money shall be returned to Purchaser upon demand and, subject to Purchaser's rights herein, all obligations shall terminate, or Purchaser may close the transaction as scheduled and pursue any rights it may have hereunder. (d) Notwithstanding anything herein contained to the contrary, it is understood and agreed that title to the Property shall be delivered to Purchaser at the close of escrow free and clear of all (i) monetary liens and encumbrances (other than the Deed of Trust and any related documents and the lien for current real property taxes and assessments not yet due and payable) and that such monetary liens and encumbrances shall be released from the Property by Seller at Seller's sole expense on or before the close of escrow or Purchaser may cause their release and the cost thereof, together with Purchaser's reasonable expenses to accomplish same, shall be credited against the Purchaser Price; and (ii) matters first arising after the effective date of the Report which arise by the action or inaction of Seller and that such matters shall be released from the Property by Seller at Seller's sole expense on or before the close of escrow, or Purchaser may cause their release and the cost thereof, together with Purchaser's reasonable expenses to accomplish same, shall be credited against the Purchase Price (or if such cannot be so released, Purchaser may pursue its remedies against Seller for default) (the matters in (i) and (ii) sometimes referred to as "Seller Defects"). 5 (e) If Purchaser does not object to a Survey matter or an exception to title as disclosed by a Report or Amended Report within the applicable time period, such matter shall be deemed to have been approved by Purchaser. (f) Upon a cancellation in accordance with the provisions of this Paragraph 7, all Earnest Money deposits shall be returned to Purchaser, together with all documents deposited in escrow by Purchaser. All documents deposited in escrow by Seller shall be returned to Seller, and this Agreement shall terminate. Seller represents and warrants that is currently owns good and marketable fee simple title to the Property. Title to the Property shall be conveyed from Seller to Purchaser at the Closing by Special [VERIFY] Warranty Deed subject to current taxes and assessments not yet due and payable [VERIFY LESSEE PAYS TAXES], easements, rights-of-way, reservations in patents, covenants, conditions, restrictions and non-monetary encumbrances, as may appear of record on the date of this Agreement (unless Seller agrees to remove any such matters, in which case such shall not be a permitted exception), the Lease, Deed of Trust and all matters which an accurate survey of the Property or a physical inspection of the Property on the date of this Agreement would disclose (unless Seller agrees to remove any such matters, in which case such shall not be a permitted exception). Water rights, if any, shall be excluded from the coverage of the deed warranties and shall be transferred by quitclaim only [VERIFY]. If the Survey reflects a legal description that differs from that in the conveyance document by which Seller acquired title to the Property, Seller shall also convey, by quitclaim deed, the Property pursuant to the legal description reflected on the Survey. 8. TITLE POLICY. (a) At the close of escrow, Purchaser shall obtain an ALTA extended coverage owner's policy of title insurance ("Title Insurance Policy") issued by First American Title Insurance Company (the "Title Company") in the full amount of the purchase price (including the assumed amount of the Note obligation), effective as of the close of escrow, insuring Purchaser that good and marketable fee simple title to the Property is vested in Purchaser, subject only to the usual printed exceptions and exclusions contained in such title insurance policies [VERIFY], to the matters approved by Purchaser as provided above in Paragraph 7, to any other matters approved in writing by Purchaser, and containing any endorsements requested by Purchaser. (b) The obligations of Escrow Agent to provide the Title Insurance Policy shall be satisfied if, at the close of escrow, Escrow Agent has issued a binding commitment to issue the policy in the form required by this Paragraph and if such 6 policy is delivered within a reasonable time following the close of escrow. [VERIFY] 9. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby makes the following representations and warranties to Purchaser, each of which shall be deemed material, with knowledge that Purchaser is relying on same in entering into this Agreement: (a) NO OTHER AGREEMENTS. There are no leases, service contracts, management agreements, or other agreements or instruments in force, either oral or written, that grant to any person whomsoever or any entity whatsoever any right, title, interest, or benefit in or to all or any part of the Property or any rights relating to the use, operation, management, maintenance, or repair of all or any part of the Property, which will survive the Closing or be binding upon Purchaser except that certain Lease in favor of SL Automotive, d/b/a Scottsdale Lexus dated __________ with respect to the Property, a copy of which is attached hereto and incorporated herein by reference as EXHIBIT "D" ("Lease"), and [VERIFY] those agreements disclosed in the SPA. (b) NO LITIGATION. There are no actions, suits, or proceedings pending, or, to the best of Seller's knowledge, threatened by any organization, person, individual, or governmental agency against Seller with respect to the Property or against the Property or with respect thereto, nor does Seller know of any basis for such action except as described in Paragraph 29. Seller also has no knowledge of any pending or threatened application for changes in the zoning applicable to the Property or any portion thereof. (c) NO CONDEMNATION. To the best knowledge of Seller, no condemnation or other taking by eminent domain of the Property or any portion thereof has been instituted and, to the best knowledge of Seller, there are no pending or threatened condemnation or eminent domain proceedings (or proceedings in the nature or in lieu thereof) affecting the Property or any portion thereof or its use. (d) NO PROCEEDINGS AFFECTING ACCESS. To the best knowledge of Seller, there are no pending or, to the best knowledge of Seller, threatened proceedings that could have the effect of impairing or restricting access between the Property and adjacent public roads. (e) NO ASSESSMENTS. No assessments have been made against the Property that are unpaid whether or not they have become liens. If the Property or any part thereof shall be or shall have been affected by an assessment or assessments, made on or before the date of Closing, and that are or may become payable in installments, then for the purposes of this Agreement all of the unpaid installments of any such 7 assessments, including those that are to become due and payable after the Closing, shall be deemed to be due and payable immediately and shall be paid and discharged in full by Seller at the Closing. [WHO HAS OBLIGATION UNDER LEASE?] (f) NO VIOLATIONS. To the best knowledge of Seller, there are no violations of law, municipal or county ordinances, or other legal requirements with respect to the Property. (g) ZONING. The Property is currently zoned in a ___________________ classification under the applicable zoning ordinances and a new and used car dealership is permitted thereunder. (h) UTILITIES. To the best knowledge of Seller, all utilities necessary for the current use of the Property including water, sanitary sewer, storm sewer, natural gas, electricity, and telephone, are installed and operational and such utilities either enter the Property through adjoining public streets, or, if they pass through adjoining private land, do so in accordance with valid public easements or private easements which inure to the benefit of the Property. All rights to water with respect to the Property are permanent and not subject to reduction or termination, except as disclosed in Paragraph 29. [VERIFY] (i) NO FLOOD HAZARD. To the best knowledge of Seller, no portion of the Property is located in a flood plain or an area of special risk with respect to earth movement, rising groundwater, or other natural hazards. (j) NO LIENS. All contractors, subcontractors, and other persons or entities furnishing work, labor, materials, or supplies by or at the instance of Seller for the Property are being paid [VERIFY] as their invoices are submitted in the ordinary course of business, and there are no claims against the Property or Seller in connection therewith. (k) NO HAZARDOUS SUBSTANCES. To the best knowledge of Seller, without any implied obligation to investigate such matters, (i) no "hazardous substances", as that term is defined in the Comprehensive Environmental Response, Compensation and Liability Act or any other State, Federal or local law concerning health or the environment, and the rules and regulations promulgated pursuant thereto, or any other pollutants, toxic materials, or contaminants including, but not limited to, petroleum or petroleum based products have been or shall prior to Closing be discharged, disbursed, released, stored, treated, generated, disposed of, or allowed to escape on or migrate under the Property, except for those hazardous substances stored in compliance with applicable laws in the normal course of the lessee's business operated on the Property, (ii) no asbestos or asbestos containing materials have been installed, used, incorporated into, or 8 disposed of on the Property, (iii) no polychlorinated biphenyls are located on or in the Property, (iv) there are only ____ (__) underground storage tanks located on the Property, and Seller has no knowledge of any underground storage tanks on the Property which have been removed or filled nor has there been any spill from any past or present underground or aboveground storage tank, (v) no investigation, administrative order, consent order or agreement, litigation, or settlement with respect to hazardous substances is in existence with respect to the Property or, to the Seller's knowledge, is proposed, threatened or anticipated, and (vi) the Property has not previously been used as a cemetery, landfill, or as a dump for garbage or refuse. (l) NO BANKRUPTCY. The two trusts comprising the Seller are solvent and neither has made a general assignment for the benefit of creditors nor been adjudicated a bankrupt or insolvent, nor has a receiver, liquidator, or trustee for any of either party's properties (including the Property) been appointed or a petition filed by or against either for bankruptcy, reorganization, or arrangement pursuant to the Federal Bankruptcy Act or any similar Federal or State statute, or any proceeding instituted for the dissolution or liquidation of either. (m) NO PRE-EXISTING RIGHT TO ACQUIRE. No person or entity has any right or option to acquire the Property or any portion thereof other than Purchaser. (i) TAX RETURNS. There are no property tax returns or exemptions required to be filed by Seller relating to the Property under any law, ordinance, rule, regulation, order, or requirement of any governmental authority. (n) AUTHORIZATION. This Agreement has been duly executed on behalf of each Trust comprising Seller and constitutes the valid and binding agreement of each Trust comprising Seller, enforceable in accordance with its terms, and all necessary action on the part of such Trust to authorize the transactions herein contemplated has been taken, and no further action is necessary for such purpose. (o) SELLER NOT A FOREIGN PERSON. Seller is not a "foreign person" which would subject Purchaser to the withholding tax provisions of Section 1445 of the Internal Revenue Code of 1986, as amended. (p) WARRANTIES CORRECT. All representations and warranties of Seller contained in this Agreement are true and correct as of the date hereof. (q) KNOWLEDGE. As used herein, knowledge shall mean that Seller knows or, in the exercise of reasonable diligence 9 by a property owner of an improved commercial property, would or should have known of the particular matter referred to. At Closing, Seller shall reaffirm in writing that all such representations and warranties in this Agreement remain true and correct as of the date of the Closing and they shall agree to indemnify and hold harmless Purchaser of and from all loss, cost, liability, damage, expense (including, but not limited to, attorney's fees), action and suit arising out of any breach of such representation or warranty. This indemnity shall survive the Closing for a period of ______________ (___) months. Notwithstanding such limitation, however, Seller agrees that if there is any Hazardous Substance on, or under the Property as of the date of Closing, arising as a result of Seller's actions or for which Seller has liability under any applicable State, Federal or local law, Seller shall indemnify and hold harmless Purchaser from all loss, cost, damage, liability, expense (including, but not limited to, investigative costs and remediation expense and attorneys' fees and expenses) action and proceeding arising or alleged to arise as the result thereof. If there is any change in any representations or warranties from the date of this Agreement to the Closing, Seller shall promptly notify Purchaser and Purchaser may, at Purchaser's option, (i) close and consummate the transaction contemplated by this Agreement, except that after such closing and consummation Purchaser shall not have the right to bring any claim against Seller with respect to the matter disclosed by Seller prior to the Closing, unless such matter is the result of any action or inaction of Seller in which event Purchaser may seek monetary damages from Seller, or (ii) terminate this Agreement by written notice to Seller, whereupon the Earnest Money shall be immediately returned to Purchaser, and thereafter the parties hereto shall have no further rights or obligations hereunder, except only (1) for such rights or obligations that, by the express terms hereof, survive any termination of this Agreement and (2) that Purchaser shall have the right to seek monetary damages from Seller for any representations and warranties breached by them as a result of their actions or inactions, including, but not limited to, Purchaser's out-of-pocket costs and expenses in connection with the negotiation of this Agreement and all due diligence and investigations in connection therewith ("Costs"); or (iii) if the change is as a result of Seller's action or inaction, then Purchaser may treat such change as a Seller default and the Closing may, at Purchaser's option, be postponed to permit Purchaser to pursue its rights against Seller as provided in Paragraph 17 hereof. In addition, with respect to any representation or warranty made to Seller's knowledge, if Seller does not have knowledge that such representation or warranty is false, and if the factual underpinning of any such representation or warranty changes, regardless of Seller's knowledge, Purchaser shall also have the right to terminate this Agreement by notice to Seller on or prior to Closing, Escrow Agent shall return the Earnest Money to Purchase and no party shall have liability to the other except for those expressly stated herein to survive termination of this Agreement. 10 10. SELLER'S ADDITIONAL COVENANTS. Seller hereby covenants and agrees that from and after the date hereof until the Closing, Seller shall not, without the prior written consent of Purchaser, change or alter the physical condition of the Property, remove or alter any Improvements, or remove any trees, or grant or otherwise create or consent to the creation of any easement, restriction, lien, assessment, or encumbrance affecting the Property or any portion or portions thereof; PROVIDED, HOWEVER, the lessee under the Lease may make such alterations in the ordinary course of business as are permitted under the Lease including, without limitation, painting the Building. Seller covenants that, from the date of this Agreement up to and including the date of Closing, Seller shall not negotiate with any third party respecting the sale of the Property or any interest therein. Seller shall keep all insurance policies regarding the Property in full force and effect until Closing. Seller shall pay and perform all obligations under the Note and Deed of Trust until Closing. 11. CLOSING. Provided that all of the conditions set forth in this Agreement are theretofore fully satisfied or performed, it being fully understood and agreed, however, that Purchaser may waive expressly and in writing, at or prior to Closing, any conditions benefitting Purchaser that are unsatisfied or unperformed at such time, the consummation of the sale by Seller and purchase by Purchaser of the Property (herein referred to as the "Closing") shall be held on the Closing Date as defined in the SPA, or at such specific time and date as shall be mutually agreed upon by Seller and Purchaser. 12. SELLER'S CLOSING DOCUMENTS. For and in consideration of, and as a condition precedent to Purchaser's delivery to Seller of the Purchase Price described in Paragraph 3 hereof, Seller shall obtain or execute, at Seller's expense, and deliver to Escrow Agent at Closing the following documents, all of which shall be duly executed, acknowledged and notarized where required, in form and substance reasonably satisfactory to Purchaser and Purchaser's legal counsel, and shall survive the Closing: (a) WARRANTY DEED. A Special [VERIFY] Warranty Deed conveying the Property to Purchaser in the form required by the Title Company to issue the Title Insurance Policy; (b) QUIT CLAIM DEED. A quitclaim deed, if required by the terms of Paragraph 7; (c) PROPERTY VALUE AFFIDAVIT. An affidavit of property value as required by law; (d) SELLER'S CERTIFICATE. A certificate evidencing the reaffirmation of the truth and accuracy of the Seller's representations and warranties set forth in this Agreement; 11 (e) AFFIDAVITS. Affidavits from Seller and/or the Trusts comprising Seller required by the Title Company to enable it to issue the Title Insurance Policy. (f) FIRPTA CERTIFICATE. A FIRPTA Certificate from both Trusts comprising Seller in the form set forth in EXHIBIT "F" attached hereto and by this reference made a part hereof; (g) EVIDENCE OF CORPORATE AUTHORITY. Evidence of authority as may be required by the Title Company to issue the Title Insurance Policy; (h) LEASE ASSIGNMENT. An executed and acknowledged Assignment, Indemnity and Assumption of Lease Agreement whereby Seller's interest as lessor under the Lease is assigned to Purchaser, Seller indemnifies Purchaser against defaults by Seller under the Lease prior to Closing and Purchaser assumes Seller's obligations under the Lease on and after Closing; (i) SETTLEMENT STATEMENT. A settlement statement setting forth the amounts paid by or on behalf of and/or credited to each of Purchaser and Seller pursuant to this Agreement; and (j) OTHER DOCUMENTS. Such other documents as may be necessary or appropriate to transfer and convey the Property to Purchaser and to otherwise consummate this transaction in accordance with the terms of this Agreement 13. BUYER'S CLOSING DOCUMENTS. On or before the Closing, Purchaser shall deposit with Escrow Agent the following documents for delivery to Seller at the Closing, each of which shall have been duly executed, and where appropriate, acknowledged and shall be in form and substance reasonably satisfactory to Seller and Seller's legal counsel: (a) ASSUMPTION DOCUMENTS. All documents required by the Bank in connection with assumption of the Note and Deed of Trust by Purchaser; (b) PROPERTY VALUE AFFIDAVIT. An Affidavit of Property Value as required by law; (c) LEASE ASSIGNMENT. An executed and acknowledged Assignment, Indemnity and Assumption of Lease Agreement whereby Purchaser assumes Seller's interest as lessor under the Lease from and after Closing; and (d) OTHER DOCUMENTS. Such other documents as may be necessary or appropriate to consummate this transaction in accordance with the terms of this Agreement. 12 14. CLOSING COSTS. (a) Upon the Closing, Seller agrees to pay one-half of the escrow charges, the attorneys' fees of Seller, and cost of the Report and the Amended Report and all other costs and expenses incurred by Seller in connection with this transaction. (b) Upon the Closing, Purchaser agrees to pay one-half of the escrow charges, the entire cost of the owner's policy of title insurance including the cost of any endorsements requested by Purchaser [VERIFY], the attorneys' fees of Purchaser, and all other costs and expenses incurred by Purchaser in connection with this transaction. 15. PRORATIONS. Ad valorem real property taxes and any assessments [VERIFY] against the Property for the calendar year of Closing shall be prorated as of the date of Closing based on the latest available information. If at Closing actual real estate tax statements are not available, then following the Closing and within thirty (30) days of receipt by either party of actual tax statements, the parties shall reprorate real estate taxes and assessments [VERIFY] among themselves and make any necessary adjusting payment. The terms and provisions of this paragraph shall expressly survive the Closing and shall not merge upon execution and delivery of the Special [VERIFY] Warranty Deed. 16. PURCHASER'S DEFAULT. Except with respect to Purchaser's indemnity set forth in Paragraph 4 above, in the event of default by Purchaser under the terms of this Agreement, Seller's sole and exclusive remedy shall be to receive the Earnest Money as liquidated damages and thereafter the parties hereto shall have no further rights or obligations hereunder whatsoever. It is hereby agreed that Seller's damages will be difficult to ascertain and that the Earnest Money then held by Escrow Agent constitutes a reasonable estimate thereof and is intended not as a penalty, but as fully liquidated damages. Seller agrees that in the event of a default by Purchaser, it shall not initiate any proceeding to recover damages from Purchaser, but shall limit its recovery to the retention of the Earnest Money. 17. SELLER'S DEFAULT. In the event of default by Seller under the terms of this Agreement, at Purchaser's option: (i) Purchaser may terminate this Agreement by written notice to Seller, whereupon the Earnest Money shall be immediately returned by Escrow Agent to Purchaser, and Purchaser may sue for damages including, but not limited to, all out-of-pocket costs and expenses incurred by Purchaser in negotiating this Agreement and conducting its due diligence hereunder, or (ii) Purchaser shall be entitled to pursue against Seller any remedy granted to Purchaser at law or in equity, including, without limitation, an action for specific performance of this Agreement against Seller. 13 18. CONDEMNATION. If, prior to the Closing, all or any part of the Property is subjected to a bona fide threat of condemnation by a body having the power of eminent domain or is taken by eminent domain or condemnation (or sale in lieu thereof), or if Seller has received notice that any condemnation action or proceeding with respect to the Property is contemplated by a body having the power of eminent domain, Seller shall give Purchaser immediate written notice of such threatened or contemplated condemnation or of such taking or sale, and Purchaser may by written notice to Seller given within ten (10) days after the receipt of such notice from Seller, elect to cancel this Agreement. If Purchaser chooses to cancel this Agreement in accordance with this Paragraph 18, then the Earnest Money shall be returned immediately to Purchaser by Escrow Agent and the rights, duties, obligations, and liabilities of the parties hereunder, except for Purchaser's indemnity as set forth in Paragraph 4 above, shall immediately terminate and be of no further force and effect. If Purchaser does not elect to cancel this Agreement in accordance herewith, this Agreement shall remain in full force and effect and the sale of the Property contemplated by this Agreement, less any interest taken by eminent domain or condemnation, or sale in lieu thereof, shall be effected with no further adjustment and without reduction of the Purchase Price, and at the Closing, Seller shall assign, transfer, and set over to Purchaser all of the right, title, and interest of Seller in and to any awards that have been or that may thereafter be made for such taking. At such time as all or a part of the Property is subjected to a bona fide threat of condemnation and Purchaser shall not have elected to terminate this Agreement as hereinabove provided, Purchaser shall be permitted to participate in the proceedings as if Purchaser were a party to the action. Seller shall not settle or agree to any award or payment pursuant to condemnation, eminent domain, or sale in lieu thereof without obtaining Purchaser's prior written consent thereto in each case. 19. DAMAGE OR DESTRUCTION. If at any time prior to Closing all or any part of the Improvements be damaged or destroyed, from any cause whatsoever, then Purchaser shall have the right to: (i) terminate this Agreement and receive a full refund of the Earnest Money from Escrow Agent in which case this Agreement shall be null and void and of no further force and effect; or (ii) proceed to Closing and accept the Property in its condition with no decrease in the Purchase Price, however, all insurance proceeds received on account of such damage or destruction shall be paid to Purchaser upon receipt thereof. Seller shall give immediate notice of any damage or destruction to the Property. 20. ASSIGNMENT. This Agreement and Purchaser's rights, duties, and obligations hereunder may be delegated, transferred, and assigned by Purchaser without the prior written consent of Seller. 21. NO BROKER. Purchaser and Seller hereby represent 14 each to the other than they have not discussed this Agreement or the subject matter thereof with any real estate broker, agent, or salesman, so as to create any legal right in any such broker, agent, or salesman, to claim a real estate commission, fee or other compensation with respect to the conveyance of the Property contemplated by this Agreement. Seller hereby agrees to indemnify and hold Purchaser harmless from and against any and all liability, loss, cost, damage, and expense, including attorneys' fees and costs of litigation, Purchaser shall ever suffer or incur because of any claim by any agent, salesman, or broker, whether or not meritorious, for any fee, commission or other compensation with regard to this Agreement or the sale and purchase of the Property contemplated hereby, and arising out of any acts or agreements of Seller. Likewise, Purchaser hereby agrees to indemnify and hold Seller free and harmless from and against any and all liability, loss, cost, damage, and expense, including attorneys' fees and costs of litigation, Seller shall ever suffer or incur because of any claim by any agent, salesman, or broker, whether or not meritorious, for any fee, commission or other compensation with respect to this Agreement or the sale and purchase of the Property contemplated hereby and arising out of the acts or agreements of Purchaser. This Paragraph 21 shall survive the Closing or any termination of this Agreement. 22. NOTICES. Wherever any notice or other communication is required or permitted hereunder, such notice or other communication shall be in writing and shall be delivered by overnight courier (such as Airborne or Federal Express) for next business day delivery, by hand delivery, or by U.S. registered, or certified mail, return receipt requested, postage prepaid, to the addresses set out below or at such other addresses as are specified by written notice delivered in accordance herewith: PURCHASER: United Auto Group, Inc. 375 Park Avenue Suite 2201 New York, NY 10152 ATTN: George G. Lowrance, Esq. with a copy to: Rogers & Hardin 2700 Cain Tower 299 Peachtree Street, NE Atlanta, GA 30303 ATTN: Stephen R. Leeds, Esq. SELLER: Steven Knappenberger, as Trustee ___________________________ ___________________________ ___________________________ Bruce Knappenberger, as Trustee ___________________________ ___________________________ ___________________________ 15 ESCROW AGENT: First American Title Insurance Company 111 West Monroe Suite 202 Phoenix, Arizona 85003 ATTN: Carol Peterson, Escrow Officer Telephone: 602/252-5941 Any notice or other communication as hereinabove provided shall be deemed effectively given and received on the date of delivery, if delivered by hand, or on the next business day following deposit with an overnight courier, or on the third (3rd) business day following deposit in the U. S. mail. 23. POSSESSION. Full and exclusive possession of the Property, subject to the Lease and the lessee's rights thereunder, shall be delivered by Seller to Purchaser on the date of Closing. 24. TIME PERIODS. If the time period by which any right, option, or election provided under this Agreement must be exercised, or by which any act required hereunder must be performed, or by which the Closing must be held, expires on a Saturday, Sunday, or holiday, then such time period shall be automatically extended through the close of business on the next regularly scheduled business day. 25. SURVIVAL OF PROVISIONS. All covenants, warranties, and agreements set forth in this Agreement shall survive the execution or delivery of any and all deeds and other documents at any time executed or delivered under, pursuant to or by reason of this Agreement, and shall survive the payment of all monies made under, pursuant to, or by reason of this Agreement. 26. SEVERABILITY. This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules and regulations. If any provision of this Agreement, or the application thereof to any person or circumstance, shall, for any reason and to any extent be invalid or unenforceable, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected thereby but rather shall be enforced to the greatest extent permitted by law. 27. GENERAL PROVISIONS. No failure of either party to exercise any power given hereunder or to insist upon strict compliance with any obligation specified herein, and no custom or practice at variance with the terms hereof, shall constitute a waiver of either party's right to demand exact compliance with the terms hereof. This Agreement contains the entire agreement of the parties hereto, and no representations, inducements, promises, or agreements, oral or otherwise, between the parties not embodied herein shall be of any force or effect. Any amendment to this Agreement shall not be binding upon Seller or Purchaser unless such amendment is in writing and executed by both Seller and Purchaser. The provisions of this Agreement 16 shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, legal representatives, successors, and assigns. Time is of the essence in this Agreement. This Agreement may be executed in multiple counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same agreement. The headings inserted at the beginning of each paragraph are for convenience only, and do not add to or subtract from the meaning of the contents of each paragraph. This Agreement shall be construed and interpreted under the laws of the State of Arizona. Except as otherwise provided herein, all rights, powers, and privileges conferred hereunder upon the parties shall be cumulative but not restrictive to those given by law. All personal pronouns used in this Agreement, whether used in the masculine, feminine, or neuter gender shall include all genders, and all references herein to the singular shall include the plural and vice versa. 28. EFFECTIVE DATE. The "effective date" of this Agreement shall be deemed to be the date this Agreement is fully executed by both Purchaser and Seller and a fully executed original counterpart of this Agreement has been received by both Purchaser and Seller. 29. GENERAL STREAM ADJUDICATION. Purchaser acknowledges that Purchaser is aware that there is pending in Maricopa County Superior Court a general stream adjudication of all rights to use water in and from the Lower Gila River system and source and that such adjudication may involve rights to use water on and from the Property. [VERIFY] 30. FORM 1099-B. Escrow Agent is hereby authorized and instructed to file with the U.S. Internal Revenue Service Form 1099-B, Proceeds From Real Estate, Broker, and Barter Exchange Transactions, as required by Section 6045(e) of the Internal Revenue Code of 1986. 31. SECTION 1031 EXCHANGE. This Agreement is intended to constitute an Exchange Escrow and these provisions shall control the agreement of the parties. Either or both entities comprising the Seller may elect to exchange the Property for other property of like kind in order to qualify such exchange under Section 1031 of the Internal Revenue Code. The exchange of the Property may be handled in accordance with one or more of the following provisions, at Seller's election, but subject in any event to the requirement that no such exchange shall delay the Closing and in no event shall Purchaser be obligated to take title to any property other than the Property: (a) SIMULTANEOUS EXCHANGE WITH THIRD-PARTY PARTICIPATION. Seller may exchange the Property for other property so long as the party or parties acquiring the Property are obligated to sell the Property to Purchaser at the purchase price and on the terms and conditions set forth in this Agreement and that such conveyance is not a default 17 under the Note and/or Deed of Trust. The close of any such exchange escrow shall be contingent upon the contemporaneous closing of the escrow provided for herein. In the event Seller does not effect such an exchange at the time set for the closing of this escrow, Seller than agrees to sell, and Purchaser agrees to buy, the Property at the purchase price and upon the terms and conditions set forth in this Agreement. (b) EXCHANGE WITH INTERMEDIARY. Seller may, prior to the close of escrow, assign this Agreement to an intermediary of Seller's sole and absolute choice (including all rights of Seller and subject to all conditions and obligations of Seller hereunder). Notwithstanding such assignment, Seller, or Seller's assignee, shall convey the Property directly to Purchaser at close of escrow pursuant to this Agreement. (c) PURCHASER COOPERATION. Purchaser agrees to cooperate fully with Seller and Seller's intermediary, if applicable, in facilitating and accomplishing the 1031 exchange contemplated herein. (d) NO FINANCIAL OBLIGATION OF PURCHASER. Purchaser shall have no liability or obligation whatsoever for any additional costs or expenses, including attorneys' fees, which may be incurred by virtue of the exchange transactions contemplated by this Paragraph 31. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and their respective seals to be affixed hereunto as of the day, month and year first above written. SELLER: STEVEN KNAPPENBERGER, as Trustee of the Steven Knappenberger Revocable Trust II /s/ Steven Knappenberger ----------------------------------- STEVEN KNAPPENBERGER, as Trustee as aforesaid BRUCE KNAPPENBERGER, as Trustee of the Bruce Knappenberger Revocable Trust /s/ Bruce Knappenberger ----------------------------------- BRUCE KNAPPENBERGER, as Trustee as aforesaid 18 PURCHASER: UAG WEST, INC., a Delaware corporation By: /s/ illegible -------------------------- Its: ------------------------- Date: Attest: ------------------- ---------------------- 19 EX-10.8-3 31 EXHIBIT 10.8.3 EMPLOYMENT AGREEMENT This Employment Agreement is dated as of _____________, 1996, and is entered into between United Auto Group, Inc., a Delaware corporation ("UAG"), UAG West, Inc., a Delaware corporation (the "Company") and Steven Knappenberger, an individual resident of the State of Arizona ("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 EMPLOYMENT, DUTIES AND RESPONSIBILITIES SECTION 1.1 EMPLOYMENT. Executive shall be employed as President, Chief Operating Officer and Director of the Company, as Chairman of the Board of each subsidiary of the Company and as dealer principal for the manufacturers of the existing dealerships of the Company and its subsidiaries. Executive hereby accepts such employment. SECTION 1.2 DUTIES AND RESPONSIBILITIES. (a) Executive shall be required to perform such duties and responsibilities as are consistent with his positions and as the Chief Executive Officer of UAG may from time to time reasonably prescribe. Executive's duties shall include the management and oversight of operations of the Company's subsidiaries. Executive shall report, in the performance of his duties, directly to the Chief Executive Officer of UAG. Executive agrees to perform his duties, responsibilities and obligations hereunder to the best of his ability. Executive agrees that all of his activities as an employee of the Company shall be in material conformity with all reasonable and lawful policies, rules and regulations of the Company not inconsistent with this Agreement. (b) Executive shall submit annual operating budgets for each of the Company's subsidiaries to the Chief Executive Officer of UAG for approval, which approval shall not be unreasonably withheld, and shall obtain approval, which approval shall not be unreasonably withheld, from the Chief Executive Officer of UAG for unbudgeted capital expenditures by any of the Company's subsidiaries in excess of $100,000 per dealership. SECTION 1.3 EXECUTIVE'S OFFICE. Executive shall perform his duties hereunder at his offices in Arizona or California. SECTION 1.3 UAG'S DUTIES UAG and UAG West shall permit UAG West's operating subsidiaries to retain earnings (i) sufficient to operate their respective businesses consistent with past practices and consistent with the annual operating budgets of such subsidiaries, and (ii) sufficient to fund any capital expenditures made pursuant to the provisions of Section 1.2(b) hereof. ARTICLE 2 TERM SECTION 2.1 TERM. The term of this Agreement shall begin on the date hereof (the "Effective Date") and, unless otherwise earlier terminated pursuant to ARTICLE 5 hereof, shall end on the date which is five years following the Effective Date; PROVIDED, HOWEVER, that such term shall be extended automatically for an additional year on each anniversary of the Effective Date unless either party hereto gives written notice to the other party not to so extend within ninety (90) days prior to an anniversary, in which case no further extension shall occur (such term, including any extension thereof, shall herein be referred to as the "Term"). ARTICLE 3 COMPENSATION AND BENEFITS 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 during the first two 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 Three Hundred Sixty Thousand Dollars ($360,000) per annum (or such PRO RATA amount thereof for any period of less than one year). After the first two years of the Term, Executive's salary shall be increased to Seven Hundred Fifty Thousand Dollars ($750,000) per annum. At the end of the first year of the Term, and annually thereafter, the Chief Executive Officer of UAG shall review Executive's salary and, at the time of such review, Executive's salary may be increased (but not decreased) by mutual agreement of Executive and the Company. -2- (b) BENEFITS. During the Term, the Company shall, either directly or through UAG or one of its wholly-owned subsidiaries, provide the Executive, at the Company's expense, with the employee benefits set forth on EXHIBIT A hereto. (c) 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, including travel, facsimile, telephone and other direct expenses incurred in respect of his California office, subject, however, to the Company's reasonable policies relating to expense reimbursement. (d) VACATION. Executive shall be entitled to four weeks paid vacation (or such additional vacation as the Chief Executive Officer of UAG shall determine) in accordance with the Companies' policies during the Term. (e) VEHICLES. Executive shall be entitled to the use of two vehicles selected by Executive including insurance, maintenance and registration expenses. Executive shall also be reimbursed for gasoline for the vehicles. (f) EXPENSES. The Companies will reimburse Executive for reasonable business-related expenses incurred by him in connection with the performance of his duties hereunder, including a monthly budget of $1,500 for entertainment expenses for business purposes. (g) STOCK OPTIONS. Executive shall be entitled to receive, from time to time, stock options on terms and conditions comparable to the 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 to Executive and to others similarly situated shall be made by UAG in its sole discretion. (h) TAXES. The Companies shall not be responsible for the payment of Executive's tax liabilities (if any) relating to the compensation and benefits the Companies provide to the Executive pursuant to this Agreement, except that the Companies shall pay Executive an additional amount equal to the amount of Executive's tax liability directly related to (i) the benefits set forth in subparagraph (e) hereof and (ii) the payment of Executive's medical insurance premiums as set forth in EXHIBIT A hereto. SECTION 3.2 MANAGEMENT BONUS. In addition to paying Executive's base salary, UAG West shall pay to Executive or persons designated by Executive, and agreed upon by UAG West, a bonus (the "Management Bonus") for each dealership or dealership group (each an "Acquired Dealership" and collectively, the "Acquired Dealerships") that the Company acquires -3- or opens in the Territory (as defined below) during the period commencing on the Closing Date and ending at the end of the Term (the "Management Bonus Period"). Each Management Bonus shall consist of a cash payment (of not less than $0) equal to eight (8%) percent of the Acquired Dealership's Pre-Tax Earnings (as defined below) for each twelve (12) month period commencing on the date the Company acquires the Acquired Dealership and ending on the date Executive's employment with the Company terminates, except as provided in Section 5.4(b); PROVIDED that if either Jay Beskind or George Brochick are terminated as employees of UAG West or any subsidiary or affiliate, any similar bonus then payable to either of them shall also inure to the benefit of Executive. Eighty percent (80%) of the Management Bonus shall be paid within 15 days of the end of each quarter and any balance shall be paid within 30 days of the end of each twelve (12) month period. Bonuses shall be pro rated for partial twelve-month periods except as provided in Section 5.4(b). For purposes of this Section 3.2, each Acquired Dealership's Pre-Tax Earnings shall mean the consolidated net earnings (or losses) before taxes, of such Acquired Dealership, computed in accordance with generally accepted accounting principles; PROVIDED, HOWEVER, that the calculation of the Acquired Dealership's Pre-Tax Earnings shall add back any LIFO inventory adjustment and shall not include any start-up expenses, depreciation or amortization expense, or expenses incurred in connection with the acquisition, including acquisition-related indebtedness and covenants not to compete, or any overhead expenses of UAG or the Company . For purposes of this Section 3.2, "Territory" shall mean the States of Arizona, Colorado, New Mexico and Utah and the counties in the State of California listed on EXHIBIT B hereto. ARTICLE 4 CONFIDENTIALITY; NON-COMPETE SECTION 4.1 CONFIDENTIALITY. Executive agrees that he will not, at any time during, or for six months after the termination of, Executive's employment, make use of or divulge to any other person, firm or corporation any confidential or proprietary information concerning the business or policies of the Company, any of its subsidiaries or their affiliates. 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 (except as provided in the Broker's Agreement or Stock Purchase Agreement), 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 materials shall be retained by him. As used herein, confidential -4- information shall mean all information concerning UAG, the Company or any of their subsidiaries or affiliates except information (i) ascertainable or obtained from public information, (ii) received from a third party not employed by or otherwise affiliated with UAG, the Company or any of their subsidiaries or affiliates, or (iii) which is or becomes known to the public, other than through a breach by Executive of the terms of this Agreement. SECTION 4.2 NON-COMPETE. (a) For the Non-Compete Period (defined below), 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 similar capacity 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 business of the Company or any of its subsidiaries or their affiliates. For purposes hereof, the Company shall be deemed to be in the business of operating dealerships located in the United States of America that engage in the retail sale of new and used automobiles or light duty trucks and businesses ancillary thereto, PROVIDED, HOWEVER, that with respect to any post-termination employment Non-Compete Period, for any business of Executive to be deemed competitive for purposes hereof, it must be located within a 50 mile radius of any automobile or truck dealership or ancillary business in which the Company (or any affiliate thereof), directly or indirectly, has an ownership interest of 20% or more at the time the competing activities commence. 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 customer, client, supplier, manufacturer, distributor, consultant, independent contractor or employee of the Company or any of its subsidiaries or their affiliates. (b) The Non-Compete Period shall mean (i) the term of Executive's employment, if he is employed for five (5) years or more or (ii) five (5) years from execution of this Agreement; provided, however, if Executive is terminated without Cause (as defined in Section 5.1), the Non-Compete Period shall terminate on the date of his termination. (c) Notwithstanding anything herein to the contrary, Executive may own, directly or indirectly, up to 4.9% of the outstanding capital stock of any competitive business having a class of capital stock which is traded on any national stock exchange or in the over-the-counter market. Further, the activities of -5- Executive on behalf of Broker under that Broker's Agreement dated the date hereof are expressly permitted by UAG and UAG West. (d) Executive acknowledges that (i) the agreements and covenants contained in this Section 4.2 are essential to protect the value of the Company's and its subsidiaries' and their affiliates' business and assets, (ii) by virtue of his employment with the Company and its subsidiaries, 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 (iii) 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' detriment. ARTICLE 5 TERMINATION SECTION 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 for Cause. For purposes of this Agreement, "Cause" shall mean: (i) Executive's material failure, neglect or refusal to perform his duties hereunder, which material failure, neglect or refusal shall not be remedied by Executive within thirty (30) days of receipt by Executive of written notice from the Company of such neglect, (ii) Executive's refusal to follow the reasonable and lawful instructions, orders or directives of the Chief Executive Officer of UAG with respect to his material duties and responsibilities hereunder which refusal is not remedied promptly after receipt by Executive of written notice from the Chief Executive Officer of UAG of such refusal, (iii) Executive's conviction for, or the entry of a plea (including nolo contendere or its equivalent) by Executive with respect to any act of fraud, misappropriation or embezzlement or any felony under federal or state law, or (iv) any wilful or intentional act of Executive that has the effect of causing injury to the reputation or business of UAG, the Company or their subsidiaries or affiliates in any material respect. SECTION 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. SECTION 5.3 DISABILITY. In the event that Executive shall suffer a disability which shall have prevented him from performing satisfactorily his -6- 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 5.4 hereof). SECTION 5.4 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 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 expiration of the Term, the Company shall, for a period equal to the remainder of the Term, continue to (i) pay to Executive his salary and Management Bonus and reimburse him for all business-related expenses incurred through the date of termination, (ii) provide Executive with benefits on the terms set forth in Section 3.1(b), and (iii) vest in full all stock options granted to him, the term (exercise period) of which shall remain in full force and effect notwithstanding Executive's termination. ARTICLE 6 MISCELLANEOUS SECTION 6.1 UAG GUARANTY. UAG hereby guarantees the due and punctual performance of the obligations of the Company hereunder. SECTION 6.2 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. The Company represents and warrants to Executive that neither the execution and delivery of this Agreement nor the performance of its duties hereunder violates or will violate the provisions of any other agreement to which it is a party or by which it is bound. SECTION 6.3 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, -7- 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 6.4 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 Steven Knappenberger at 6725 E. McDowell Road, Scottsdale, Arizona 85257-3103, 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 received. SECTION 6.5 AMENDMENT. This Agreement may not be changed or modified except by an instrument in writing signed by both of the parties hereto. SECTION 6.6 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 6.7 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 6.8 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. -8- SECTION 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. SECTION 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. SECTION 6.11 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. SECTION 6.12 GOVERNING LAW. This Agreement shall be governed by the laws of the State of Arizona without regard to conflict of law principles. SECTION 6.13 INDEMNIFICATION. UAG, the Company and the Company's subsidiaries (a) shall indemnify and hold Executive harmless to the full extent permitted by law, if Executive is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding (other than an action, suit or proceeding commenced by Executive without approval of the Company's Board of Directors) by reason of the fact that he is or was an officer or employee of the Company or its subsidiaries after the date hereof against all liability and loss suffered and expenses reasonably incurred by Executive, (b) shall maintain (or cause to be maintained) in the certificate of incorporation of the Company and the articles of incorporation of its subsidiaries, provisions limiting the liability of officers and directors from stockholders to the full extent permitted by law and (c) shall maintain directors and officers liability insurance with terms, deductibles and coverages customary for companies of similar size and nature. Nothing herein shall be interpreted as requiring UAG, the Company or its subsidiaries to indemnify Executive for any claim arising out of a breach by Executive of the terms of this Agreement or of the terms of that certain Stock Purchase Agreement dated June 6, 1996 between Executive, UAG, the Company and certain other parties. -9- 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: _______________________________ Its: _______________________________ UAG WEST, INC. By: _______________________________ Its: _______________________________ ____________________________________ Steven Knappenberger, Individually -10- EXHIBIT A EXECUTIVE BENEFITS - - family health insurance coverage - - annual health physical - - $2.5 million life insurance coverage - at rate not to exceed premium paid in 1996 - - directors / officers liability insurance - - $10 million umbrella liability insurance coverage - as additional insured under Company policy - - Arizona Country Club and Arizona Club dues - - first class air travel for business - - personal secretarial services - as part of secretary's duties - - home personal computer - - YPO time / expenses EXHIBIT "B" Counties State of California Los Angeles Orange Riverside Ventura San Bernadino San Diego EX-10.8-4 32 EXHIBIT 10.8.4 BROKER'S AGREEMENT This Agreement (the "Broker's Agreement") is dated as of _____________, 1996, and is entered into between UAG West, Inc., a Delaware corporation ("UAG West") and KBB, Inc., an Arizona corporation ("Broker"). In consideration of the mutual covenants contained herein, and other good and valuable consideration, Broker and UAG West agree as follows: 1. ENGAGEMENT. UAG West hereby engages Broker, and Broker accepts such engagement, as a broker for UAG West (i) to locate prospective automobile and light truck dealerships and dealership groups for UAG West to acquire within the Territory (as defined below) and (ii) to assist UAG West in obtaining new dealerships in the Territory. For purposes of this Agreement, the "Territory" shall mean the States of Arizona, New Mexico, Colorado and Utah, and the counties in the State of California listed on Exhibit "A" hereto. 2. TERM. The Term of this Agreement shall begin on the date hereof (the "Effective Date") and, unless otherwise terminated pursuant to Section 4 hereof, shall end on the date which is five years following the Effective Date; PROVIDED, HOWEVER, that such term shall be extended automatically for an additional year on each anniversary of the Effective Date unless either party hereto gives written notice to the other party not to so extend within ninety (90) days prior to an anniversary, in which case no further extension shall occur (such term, including any extension thereof, shall hereinafter be referred to as the "Term"). 3. BROKER'S FEE. In return for Broker's efforts in identifying dealerships and dealership groups in the Territory for UAG West to acquire or open and in assisting in the acquisition or opening of such dealerships and dealership groups, UAG West shall pay to Broker a fee (the "Broker's Fee") for each dealership or dealership group (each an "Acquired Dealership" and collectively, the "Acquired Dealerships") that UAG West acquires or opens in the Territory during the Term other than the dealerships owned by the persons listed on Exhibit "B" hereto. Each Broker Fee shall consist of a cash payment (not less than $0) calculated as follows: (i) If the Acquired Dealership is an existing dealership or dealership group in the Territory, then the Broker's Fee shall be a cash payment on the date of the acquisition of the Acquired Dealership (the "Acquisition Closing Date") in an amount equal to the Acquired Dealership's Pre-Tax Earnings (as defined below) for the 12-month period immediately preceding the Acquisition Closing Date; PROVIDED, HOWEVER, that in the event an Acquired Dealership's sales exceed Five Hundred Million Dollars ($500,000,000) during the twelve (12) month period immediately preceding the Acquisition Closing Date, then the Broker's Fee shall be an amount to be mutually agreed to by Broker and UAG West; (ii) If the Acquired Dealership is a dealership that UAG West is opening ("New Dealership") within Maricopa County, Arizona, then the Broker's Fee shall be a cash payment on the thirteenth month anniversary of the date on which the New Dealership commenced business ("Opening Date") in an amount equal to three times the New Dealership's Pre-Tax Earnings (as defined below) for the twelve (12) month period commencing on the Opening Date; and (iii) If the Acquired Dealership is a New Dealership that UAG West is opening within the Territory but not within Maricopa County, Arizona, then the Broker's Fee shall be a cash payment on the thirteenth month anniversary of the Opening Date in an amount equal to the New Dealership's Pre-Tax Earnings for the twelve (12) month period commencing on the Opening Date. For purposes of this Agreement, each Acquired Dealership's Pre-Tax Earnings shall mean the consolidated net earnings (or losses), before taxes, of such Acquired Dealership, computed in accordance with generally accepted accounting principles; PROVIDED, HOWEVER, that the calculation of the Acquired Dealership's Pre-Tax Earnings shall add back any LIFO inventory adjustment and shall not include any depreciation or amortization expense or expenses incurred in connection with the acquisition, and shall be recast (consistent with UAG West's past practices in connection with acquisitions) to reflect extraordinary owners compensation, personal expenses and other expenses not related to the continuing operations of the dealership, and without any allocation of overhead expenses of UAG or UAG West or any acquisition-related expenses, such as acquisition-related indebtedness. For purposes of this Agreement, each New Dealership's Pre-Tax Earnings shall mean the consolidated net earnings (or losses), before taxes, of such New Dealership, computed in accordance with generally accepted accounting principles less the New Dealership's start-up expenses; PROVIDED, HOWEVER, that the calculation of the New Dealership's Pre- Tax Earnings shall add back any LIFO inventory adjustment and shall not include any depreciation or amortization expense or any allocation of overhead expenses of UAG or UAG West. The Broker and UAG West may from time to time agree in writing as to other fee arrangements in particular circumstances, such as an acquisition where the target is not profitable. 4. TERMINATION. This Agreement shall terminate (a) at the expiration of the Term; (b) at any time with the mutual consent of UAG West and Broker; or (c) if Steven Knappenberger's employment with UAG West terminates unless he is succeeded as President (provided that any decision with respect to succession shall be at the sole discretion of the Board of Directors of UAG West) by Jay Beskind or George Brochick. In addition, notwithstanding any -2- termination, Broker shall be entitled to fees on any transaction that is the subject of an agreement on the date of the termination or with respect to any transaction that closes within one year from the date of termination and as to which Broker rendered substantial assistance. 5. INDEMNIFICATION BY BROKER. Broker shall indemnify and defend UAG West, its affiliates and their respective directors, officers, shareholders, employees and agents and hold them harmless to the fullest extent permitted by law, from and against any and all claims, liabilities, losses, damages and expenses (including attorneys' fees and costs) as they are incurred that are directly or indirectly related to or otherwise incurred in connection with Broker's bad faith, negligence or willful misconduct, or of any breach of this Agreement by Broker. 6. INDEMNIFICATION BY UAG WEST. UAG West shall indemnify and defend the Broker and each of its directors, officers, shareholders, employees and agents and hold each of them harmless to the fullest extent permitted by law, from and against any and all claims, liabilities, losses, damages and expenses (including attorneys' fees and costs) as they are incurred that are directly or indirectly related to or otherwise incurred in connection with the activities set forth in Paragraph 1 hereof other than arising out of Broker's bad faith, negligence or willful misconduct, or any breach of this Agreement by UAG West. 7. CONFIDENTIAL INFORMATION. Broker shall hold in the strictest confidence any and all confidential and proprietary information and materials provided to Broker by UAG West or any of its affiliates. Broker shall not use any of the same except for purposes contemplated by this Agreement. Except to enforce its rights hereunder, Broker shall, on UAG West's demand, return to UAG West all documents and other materials previously provided to Broker by UAG West or any of its affiliates and all copies thereof and excerpts therefrom in Broker's possession. As used herein, confidential information shall mean all information concerning UAG West or any of its affiliates except information (i) ascertainable or obtained from public information, (ii) received from a third party not employed by or otherwise affiliated with UAG West or any of its affiliates, or (iii) which is or becomes known to the public, other than through a breach by Broker of the terms of this Agreement. 8. NO VIOLATION. Broker represents and warrant to UAG West that neither the execution and delivery of this Agreement nor the performance of its duties hereunder violates or will violate the provisions of any other agreement to which Broker or any of its directors, officers, shareholders, employees and agents are bound. UAG West represents and warrants to Broker that neither the execution and delivery of this Agreement nor the performance of its duties hereunder violates or will violate the provisions of any -3- other agreement to which it or any of its affiliates are parties or by which it or any of its affiliates are bound. 9. BENEFIT OF AGREEMENT. This Agreement shall enure to the benefit of and be binding upon UAG West and its successors, including, without limitation, any corporation or person which may acquire all or substantially all of UAG West's assets or business, or into which UAG West may be consolidated or merged. This Agreement shall also enure to the benefit of, and be enforceable by, Broker and its successors. 10. 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 pre-paid, with return receipt requested, addressed (a) in the case of UAG West, to c/o United Auto Group, Inc., 375 Park Avenue, New York, New York 10022, Attn: General Counsel, or to such other address and/or to the attention of such other person as UAG West shall designate by written notice to Broker; and (b) in the case of Broker, (i) to Steven Knappenberger at 6725 E. McDowell Road, Scottsdale, Arizona 85257, (ii) George Brochick at 6242 E. Laurel Lane, Scottsdale, Arizona 85254, and (iii) Jay Beskind at 6513 E. Paradise Lane, Scottsdale, Arizona 85254 or to such other address as Messrs. Knappenberger, Brochick or Beskind, respectively, shall designate by written notice to UAG West. Any notice given hereunder shall be effective and deemed to have been given as of the date of receipt. 11. AMENDMENT. This Agreement may not be changed or modified except by an instrument in writing signed by both of the parties hereto. 12. WAIVER. The waiver by either party of the 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 Broker or UAG West, as the case may be. 13. HEADINGS. The Section headings herein are for convenience of reference only, do not constitute a part of this Agreement, and should not be deemed to limit or affect any of the provisions hereof. 14. 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. 15. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, though all of which together shall constitute one and the same instrument. -4- 16. ASSIGNMENT. Neither this Agreement nor any rights under this Agreement are assignable and no duties or obligations under this Agreement are delegable. Any attempted purported assignment or delegation shall be void. 17. ENTIRE AGREEMENT. This Agreement, together with its exhibits, contains the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior or contemporaneous negotiations, correspondence, or understandings and agreements between the parties. 18. GOVERNING LAW. This Agreement shall be governed by the laws of the State of Arizona without regard to conflict of law principles. UAG WEST, INC. By: _______________________________ Its: _______________________________ KBB, INC. By: _______________________________ Its: _______________________________ -5- EXHIBIT "A" Counties State of California Los Angeles Orange Riverside Ventura San Bernadino San Diego EX-10.9-1 33 EXHIBIT 10.9.1 STOCK PURCHASE AGREEMENT DATED AS OF AUGUST 5, 1996 AMONG UNITED AUTO GROUP, INC., UAG ATLANTA IV, INC., CHARLES EVANS BMW, INC., AND CHARLES F. EVANS This STOCK PURCHASE AGREEMENT, as of August 5, 1996 is by and among United Auto Group, Inc., a Delaware corporation ("UAG"), UAG Atlanta IV, Inc., a Delaware corporation ("Sub"), Charles Evans BMW, Inc., a Georgia corporation (the "Company"), and Charles F. Evans ("Evans" or the "Stockholder"). W I T N E S S E T H: WHEREAS, the Company operates a BMW automobile dealership and related businesses in Duluth, Georgia; WHEREAS, the Stockholder owns all of the issued and outstanding shares of common stock of the Company (the "Common Stock"); WHEREAS, Sub is a wholly-owned subsidiary of UAG; and WHEREAS, Sub desires to purchase all of the issued and outstanding shares of the Common Stock from the Stockholder (such shares being collectively referred to herein as 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 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 Stockholder shall sell to Sub, and Sub shall purchase from the Stockholder, the Shares for an aggregate purchase price equal to Ten Million Dollars ($10,000,000) (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 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 the Stockholder 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) 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, within ten (10) Business Days of the UAG Public Offering Date (as defined in SECTION 10.11) or on November 30, 1996, whichever occurs first (the "Closing Date") The date on which the Closing occurs is herein referred to as the "Closing Date". The Closing shall take place on the same date as the closing of the Stock Purchase Agreement dated as of August 5, 1996 between UAG, Sub, Charles Evans Nisan, Inc. and Evans. (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 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) The Stockholder and Sub shall enter into a real estate purchase agreement in a form mutually acceptable to the parties (the "Real Estate Purchase Agreement") pursuant to which Sub shall agree to purchase the real property used in the business of the Company and commonly known as 3624 Commerce Ave., Duluth, Georgia (the "BMW Property"), on or before the eighteen-month anniversary of the Closing Date. If the closing of the Real Estate Purchase Agreement (the "Real Estate Closing") takes place on or before the six-month anniversary of the Closing Date, the purchase price for the BMW Property (the "Real Estate Purchase Price") shall be Six Million Dollars ($6,000,000). If the Real Estate Closing takes place after the six- month anniversary of the Closing Date but on or before the one-year anniversary of the Closing Date, then the Real Estate Purchase Price shall be Six Million Five Hundred Thousand Dollars ($6,500,000). If the Real Estate Closing takes place after the one-year anniversary of the Closing Date, the Real Estate Purchase Price shall be Seven Million Five Hundred Thousand Dollars ($7,500,000). -2- (iv) Sub shall pay and deliver to Stockholder a deposit in the amount of Seven Hundred Thousand Dollars ($700,000) (the "Real Estate Deposit"), such deposit to be credited against the Real Estate Purchase Price at the Real Estate Closing. The Real Estate Deposit shall be non-refundable; PROVIDED, HOWEVER, that the Stockholder shall refund the Real Estate Deposit if the Stockholder is unwilling or unable to consummate the sale of the BMW Property pursuant to the terms of the Real Estate Purchase Agreement; and (v) the Stockholder, Sub and the Company shall enter into a lease for the BMW Property in a form mutually acceptable to the parties (the "BMW Lease"). The initial lease rate shall be $45,000 per month and on the six- month anniversary of the Closing Date shall increase to $55,000 per month. The BMW Lease payments shall be paid monthly commencing on the Closing Date. The Lease shall terminate at the Real Estate Closing. 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 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 Stockholder 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 Stockholder (or the respective representatives thereof) will prepare a schedule, which shall be signed by each of Sub and the Stockholder, setting forth the nature and quality of such inven- tory and such other items as shall be agreed upon by Sub and the Stockholder 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 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 -3- 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 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. During said forty-five (45) day period, the Stockholder, their accountants and other representatives of the Stockholder may, at the office of the Company or the office of the Reviewer, as determined by Stockholder, 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 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 firm of independent certified public accountants having a reputation for special expertise in automobile dealership accounting and 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 SECTION 1.2 (e) hereof in order that any and all matters in dispute shall be resolved as soon as practicable. -4- (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 shall be less than Two Million Three Hundred Thousand Dollars ($2,300,000) (the amount of any such deficiency being referred to herein as the "Net Worth Defi- ciency"), 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 date that is two Business Days after the Reviewed Balance Sheet is delivered to the Stockholder until such amount is paid in full at the prime rate or its equivalent (as announced from time to time by Citibank, N.A.). (ii) If the Net Worth as shown on the Closing Date Balance Sheet is equal to or greater than Two Million Three Hundred Thousand Dollars ($2,300,000) and the Net Worth as shown on the Reviewed Balance Sheet as finally determined through the operation of SECTIONS 1.2(a) THROUGH (e) hereof shall be greater than the Net Worth as shown on the Closing Date Balance Sheet, then Sub shall pay to the Stockholder at the Supplemental Closing an amount equal to the difference between the Net Worth as shown on the Reviewed Balance Sheet and the Net Worth as shown on the Closing Date Balance Sheet. (iii) "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. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER Subject to the parties' agreement and acknowledgment that the Schedules referred to in this ARTICLE 2 are to be delivered by the Company and the Stockholder no later than August 15, 1996, the Company and the Stockholder 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 has not conducted its business under any assumed names during the last 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. -5- 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 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 to perform its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement 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 transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by, and constitutes 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 Stockholder of this Agreement and Real Estate Purchase Agreement 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 (except for the rights of BMW of North America, Inc. ("BMW") under the BMW Dealer Agreement between BMW and Evans (the "BMW Agreement"); -6- (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 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 audited 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 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; and (ii) the most recent unaudited balance sheet of the Company and the unaudited statements of income and stockholders' equity for the periods ended on such date, together with the notes thereto; (iii) the most recent monthly and year-to-date financial statements provided to BMW (the "Company Factory Statements"); (the financial statements referred to in clauses (i) and (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 the financial position of the Company as of the dates and for the periods indi- cated, in the case of the financial statements referred to in clauses (i) and (ii) above in -7- 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 pur- poses, 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 asserted or unasserted, 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 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 reason- ably 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 can reasonably be expected to have, a Material Adverse Effect. 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, 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 -8- (iv) any loss of the employment, services or benefits of any key employee of the Company (except for any such loss occurring after the execution of this Agreement but prior to the Closing Date and disclosed to UAG on or before the Closing Date). (b) Since December 31, 1995, 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; (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 (except for agreements or arrangements that are in the ordinary course of business consistent with past practices, that will be reflected as expenses on the Company's financial statements prior to the Closing Date and that will not bind the Company after the Closing Date); (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 -9- (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 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 cor- poration. 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 filed all returns and paid all taxes for the period ending December 31, 1995. 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. Nei- ther the Company nor the Stockholder knows of any basis for an assertion of a deficiency for Taxes against the Company. 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 on SCHEDULE 2.9(a) hereto and except for Claims (as defined below) that do not exceed Thirty Thousand Dollars ($30,000), (i) there is no claim, action, suit, litigation, investigation, inquiry, review or proceeding (collectively, "Claims") -10- pending against, or, to the knowledge of the Company or the Stockholder, 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 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. 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. 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 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 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 regula-tions 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 Stockholder with respect to the Real Property. -11- 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 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. -12- (b) 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. 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 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 and there has been no spill, release or migration of any Hazardous Materials on or under the Real Property and no Hazardous Material is present on or under the Real Property (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 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 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. -13- (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 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 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, 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 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. 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 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. -14- 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. 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 have 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 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. There are no material unresolved disputes involving the 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 -15- 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 govern-mental 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 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 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. (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 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 and (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. (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 -16- 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: (i) no event has occurred or (to the knowledge of the Company or the 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; (ii) 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 (iii) 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; (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 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. -17- (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 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 estimated aggregate amounts of contributions to be paid or accrued by the Company under ERISA Plans for the current fiscal year is 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). -18- (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 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 re- quired 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 Stockholder) no such action is contemplated or under consideration; (iii) has no liability for any federal, state, local or foreign Taxes; -19- (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 Stockholder, 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. 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 -20- 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 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 of light duty trucks or automobiles in Georgia. 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 Real Estate Purchase Agreement, except that the Stockholder has employed Patrick McNulty as a broker (the "Broker") in connection with this transaction. The Stockholder will satisfy any obligations of UAG, Sub, the Stockholder or the Company relating to the employment of the Broker, and will hold UAG, Sub and the Company harmless therefrom. 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 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. On the Closing Date, the Net Worth of the Company, as determined in accordance with the Accounting Principles, will be equal to or greater than Two Million Three Hundred -21- Thousand Dollars ($2,300,000). On the Closing Date, the net working capital of the Company, as reflected on the Estimated Closing Date Balance Sheet (as defined in Section 6.6 hereof) will be equal to or greater than the net working capital of the Company as of December 31, 1995 as reflected on the Company Balance Sheet and such net working capital will be sufficient to operate the businesses of the Company consistent with past practice. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER Subject to the parties' agreement and acknowledgment that the Schedules referred to in this ARTICLE 3 are to be delivered by the Stockholder to UAG and Sub no late than August 15, 1996, the Stockholder hereby represents and warrants to UAG and Sub as follows: 3.1 OWNERSHIP OF SHARES; TITLE. The 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. 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. Except as set forth on SCHEDULE 3.2, the execution, delivery and performance of this Agreement by the Stockholder and the consum- mation 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 Stockholder is a party or to which the Stockholder or the Stockholder's property is subject; (ii) violate or conflict with any Legal Requirements applicable to the Stockholder or the Stockholder's businesses or properties; or -22- (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. The 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(a), none of which currently or, to the 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. Except as set forth in ARTICLE 1 hereof, 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 Subject to the parties' agreement and acknowledgment that the Schedules referred to in this ARTICLE 4 are to be delivered by UAG and Sub no later than August 15, 1996, UAG and Sub hereby represent and warrant to the Company and the Stockholder as follows: 4.1 ORGANIZATION AND GOOD STANDING. Each of UAG and Sub 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 Sub 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 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, -23- 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 Real Estate Purchase Agreement. 4.4 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 or which if disclosed would reasonably affect the decision of a person considering the sale of the Shares. -24- ARTICLE 5 COVENANTS AND ADDITIONAL AGREEMENTS 5.1 ACCESS; CONFIDENTIALITY. Between the date hereof and the Closing Date, the 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 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), (ii) provide to the officers and other authorized representatives of UAG and Sub reasonable access to any and all premises and properties of the Company (including the Real Property and Improvements) provided that such access shall not unreasonably disrupt the normal business of the Company; and (iii) 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, 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 trans- actions 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 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 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 -25- 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 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 Two Million Three -26- Million Dollars ($2,300,000) 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 (other than agreements in the ordinary course of business consistent with past practices that will be reflected on the Company's financial statement prior to the Closing Date and that will not bind the Company after the Closing Date), 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 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; -27- (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: (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 applic- able 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 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 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 and the termination of this Agreement pursuant to SECTION 8.1 hereof, neither the Stockholder nor the Company, nor the -28- 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 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 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 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. -29- 5.8 INTERIM FINANCIAL STATEMENTS. Within thirty (30) days after the end of each calendar month after May 31, 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 BMW after the date hereof within five days of their delivery to BMW. 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. 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 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. The 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 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. -30- 5.10 ASSURANCE BY THE STOCKHOLDER. The 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 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 (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. In the event that the Stockholder incurs any expense in connection with any assertion that the transactions contemplated herein constitute a violation of the antitrust laws, UAG shall reimburse the Stockholder for such expense unless the Stockholder incurred such expense after UAG notified the Stockholder that UAG intended to terminate the Agreement. 5.12 USE OF CHARLES EVANS NAME. UAG, Sub and the Company shall have the right to use the name "Charles Evans" in connection with the business of the Company for up to one year after the Closing Date. After the Closing and until the one year anniversary of the Closing Date, Evans shall not use the name "Charles Evans" or "Evans" in connection with the sale of new or used automobiles or light duty trucks in the metropolitan Atlanta area. 5.13 DEMONSTRATOR VEHICLES. During their lifetimes, Evans and Mrs. Charles Evans shall each be entitled to the use of one demonstrator vehicle (which vehicle shall be a 750 il equivalent) subject to the same terms and conditions applicable to other employees of the Company who are provided with a demonstrator vehicle. During Evans' lifetime, Evans shall also be entitled to an additional demonstrator vehicle (which vehicle shall be a 740 il equivalent) for the use of Sarah Pilgrim or, in the event that Ms. Pilgrim ceases to be employed by Evans, any person who assumes her position. In the event that Evans, directly or indirectly, acquires an ownership interest in or becomes employed by an entity that is engaged in the business of -31- selling automobiles or light-duty trucks, then Evans', Mrs. Evans' and Ms. Pilgrim's right to the use of demonstrator vehicles pursuant to this Section shall terminate. 5.14 MOTOR HOME. The Company acknowledges that, from time to time, Mr. Michael Spooner performs maintenance work on Evans' motor home and the Company agrees that to the extent Mr. Spooner performs such work after the Closing Date, Evans shall not be liable to the Company for any labor charges relating thereto. 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 AND WARRANTIES; AGREEMENTS; COVENANTS. Each of the representations and warranties 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 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 Real Estate Purchase Agreement, 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 -32- transactions contemplated hereby and all consents or waivers shall have been made or obtained. 6.3 OPINIONS OF THE COMPANY'S AND THE STOCKHOLDER' COUNSEL. UAG and Sub shall have been furnished with the opinion of the Company's and the Stockholder' counsel, dated the Closing Date, in form and substance satisfactory to UAG and Sub and their counsel, which opinion shall have been rendered with respect to those matters contained in SECTIONS 2.1, 2.3, 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. 6.6 WORKING CAPITAL REQUIREMENTS. On the Closing Date, the 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 equal to or greater than the consolidated net working capital of the Company as set forth on the Company Balance Sheet. -33- 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. 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 Stockholder. 6.8 LEASE AND REAL ESTATE PURCHASE AGREEMENT. The Stockholder and the Company shall have agreed upon the terms of the BMW Lease and the Real Estate Purchase Agreement on or before August 15, 1996 and shall have entered into the BMW Lease and the Real Estate Purchase Agreement at the time of the Closing. 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. 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 6.5, 6.6 AND 6.13 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 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. -34- 6.12 APPROVAL OF MANUFACTURER AND DISTRIBUTOR. The Stockholder and the Company shall have obtained the consent, authorization and approval of BMW and BMW distributor on terms no less favorable to those granted to the Company immediately prior to the execution of this Agreement. 6.13 ENVIRONMENTAL LAWS. The Company shall be in compliance with all applicable Environmental Laws. 6.14 TITLE INSURANCE. The Company shall have obtained title insurance with respect to the Real Property in form and substance satisfactory to UAG. UAG shall pay the title insurance premium. 6.15 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. 6.16 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. 6.17 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 shall be reasonably acceptable in form and substance to UAG and Sub. ARTICLE 7 CONDITIONS TO THE OBLIGATIONS OF THE STOCKHOLDER 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: -35- 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 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 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 transac- tions 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 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. -36- 7.5 LEASE AND REAL ESTATE PURCHASE AGREEMENT. The Company and Sub shall have agreed upon the terms of the BMW Lease and the Real Estate Purchase Agreement on or before August 15, 1996 and the Company and Sub shall have entered into the BMW Lease and Sub shall have entered into the Real Estate Purchase Agreement at the time of the Closing. 7.6 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. 7.7 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 Stockholder. 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 November 30, 1996, or such later date as shall have been approved by UAG, Sub and the Stockholder (provided that the terminating party is not otherwise in material breach of its represen- tations, warranties, covenants or agreements under this Agreement); (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 contem- plated 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 -37- 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 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, warranties 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, 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 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. 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 STOCKHOLDER. Notwithstanding the Closing or the delivery of the Shares, the Stockholder indemnifies and agrees 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, repre-sentatives, agents and Affiliates (other than the 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 9.6 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 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 -38- 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 or the breach of any warranty 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. 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 Stockholder, the Company (prior to the Closing), and any of their respective officers, directors, employees, 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 or any Claim relating to or arising out of any violation of the Environmental Laws by the Company after 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 Stock- holder (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. 9.3 PROCEDURES. If (i) any Stockholder Event of Breach occurs or is alleged and a UAG Indemnified Party asserts that the Stockholder 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 Stockholder may become obligated to a UAG Indemnified Party hereunder, or (ii) a UAG Event of Breach occurs or is alleged and a Stockholder -39- 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 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 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, disburse-ments 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 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 -40- 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. 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 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, 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. (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. In the event of a breach of any such representations, warranties or covenants, the party to whom such repre- sentations, 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) The representations and warranties contained in SECTION 2.11 shall survive (and not be affected in any respect by) the Closing for a period terminating on the later of (i) the date five 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. -41- 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 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 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: Charles Evans Nissan, Inc. 3180 Zingara Road Route 1 Conyers, Georgia 30207 Attn: Charles F. Evans with a copy to: Lance & Associates 884 Green Street Conyers, Georgia 30207 Facsimile No.: (770) 388-7944 Attn: Forrest Jack Lance, Esq. -42- 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 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, Esq. If to the Stockholder: Charles F. Evans 3180 Zingara Road Route 1 Conyers, Georgia 30207 with a copy to: Lance & Associates 884 Green Street Conyers, Georgia 30207 Facsimile No.: (770) 388-7944 Attn: Forrest Jack Lance, 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. Executive Vice President -43- 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, 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 Stockholder, the personal representatives and heirs of the 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 which consent shall not be unreasonably withheld. 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, 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 Real Estate Purchase Agreement 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 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 -44- 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 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 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. -45- (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 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. (h) "UAG Public Offering Date" shall mean the date of the consummation of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offering and sale of shares of common stock, par value $.0001 per share of UAG. on a firm commitment basis. 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. -46- 10.15 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/ GEORGE LOWRANCE __________________________________ Name: George G. Lowrance __________________________________ Title: Executive Vice-President _________________________________ UAG ATLANTA IV, INC. By: /s/ GEORGE LOWRANCE __________________________________ Name: George G. Lowrance __________________________________ Title: Vice President _________________________________ CHARLES EVANS BMW, INC. By: /s/ SARAH H. PILGRIM __________________________________ Name: Sarah H. Pilgrim __________________________________ Title: President _________________________________ /s/ CHARLES F. EVANS _________________________________ Charles F. Evans, Individually -47- EX-10.9-2 34 EXHIBIT 10.9.2 STOCK PURCHASE AGREEMENT DATED AS OF AUGUST 5, 1996 AMONG UNITED AUTO GROUP, INC., UAG ATLANTA IV, INC., CHARLES EVANS NISSAN, INC., AND CHARLES F. EVANS This STOCK PURCHASE AGREEMENT, dated as of August 5, 1996 is by and among United Auto Group, Inc., a Delaware corporation ("UAG"), UAG Atlanta IV, Inc., a Delaware corporation ("Sub"), Charles Evans Nissan, Inc., a Georgia corporation (the "Company"), and Charles F. Evans ("Evans" or the "Stockholder"). W I T N E S S E T H: ------------------- WHEREAS, the Company operates a Nissan automobile dealership and related businesses in Conyers, Georgia; WHEREAS, the Stockholder owns all of the issued and outstanding shares of common stock of the Company (the "Common Stock"); WHEREAS, Sub is a wholly-owned subsidiary of UAG; and WHEREAS, Sub desires to purchase all of the issued and outstanding shares of the Common Stock from the Stockholder (such shares being collectively referred to herein as 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 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 Stockholder shall sell to Sub, and Sub shall purchase from the Stockholder, the Shares for an aggregate purchase price equal to Two Million Dollars ($2,000,000) (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 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 the Stockholder 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) 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, within ten (10) Business Days of the UAG Public Offering Date (as defined in SECTION 10.11) or on November 30, 1996, whichever occurs first (the "Closing Date"). The date on which the Closing occurs is herein referred to as the "Closing Date". The Closing shall take place on the same date as the closing of the Stock Purchase Agreement dated as of August 5, 1996 between UAG, Sub, Charles Evans BMW, Inc. and Evans (the "BMW Stock Purchase Agreement"). (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 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) the Stockholder and Sub shall enter into a real estate purchase agreement in a form mutually acceptable to the parties (the "Real Estate Purchase Agreement") pursuant to which Sub shall agree to purchase the real property used in the business of the Company and commonly known as 1420 Iris Drive, Conyers, Georgia 30207 (the "Nissan Property") on or before the eighteenth month anniversary of the Closing Date for a purchase price equal to Two Million Nine Hundred Forty-Five Thousand Dollars ($2,945,000). The closing of the purchase of the Nissan Property shall take place on the same date as the Real Estate Closing as that term is defined in the BMW Stock Purchase Agreement; (iv) the Stockholder, Sub and the Company shall enter into a lease for the Nissan Property in a form mutually acceptable to the parties (the "Nissan Lease"). The initial lease rate shall be $20,000 per month and on the one year anniversary of the Closing Date shall increase by a percentage equal to the percentage increase in the Consumer Price Index published by the United States Department of Labor for the -2- preceding twelve months. The Nissan Lease payments shall be paid monthly commencing on the Closing Date. The Lease shall terminate at the Real Estate Closing. 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 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 Stockholder 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 Stockholder (or the respective representatives thereof) will prepare a schedule, which shall be signed by each of 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 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 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 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 -3- shall be set forth in reasonable detail. During said forty-five (45) day period, the Stockholder, their accountants and other representatives of the Stockholder may, at the office of the Company or the office of the Reviewer, as determined by Stockholder, 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 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 firm of independent certified public accountants having a reputation for special expertise in automobile dealership accounting and 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 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 shall be less than the net worth of the Company as set forth on the Company Balance Sheet (the "December 31 Net Worth") (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 date the Reviewed Balance Sheet is delivered to the Stockholder until paid at the prime rate or its equivalent (as announced from time to time by Citibank, N.A.). -4- (ii) If the Net Worth as shown on the Closing Date Balance Sheet is equal to or greater than the December 31 Net Worth and the Net Worth as shown on the Reviewed Balance Sheet as finally determined through the operation of SECTIONS 1.2(a) THROUGH (e) hereof shall be greater than the Net Worth as shown on the Closing Date Balance Sheet, then Sub shall pay to the Stockholder at the Supplemental Closing an amount equal to the difference between the Net Worth as shown on the Reviewed Balance Sheet of the Net Worth as shown on the Closing Date Balance Sheet. (iii) "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. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER Subject to the parties' agreement and acknowledgment that the Schedule referred to in ARTICLE 2 are to be delivered by the Company and the Stockholder no later than August 15, 1996, the Company and the Stockholder 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 has not conducted its business under any assumed names during the last 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). 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 -5- 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 to perform its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement 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 transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by, and constitutes 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 Stockholder of this Agreement and Real Estate Purchase Agreement 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 (except for the rights of [Nissan] ("Nissan") under the Dealer Agreement between Nissan and Evans (the "Nissan 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 in connection with or in compliance with the provisions of the H-S-R Act (as defined in SECTION 5.11 hereof). -6- 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 audited 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 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; and (ii) the most recent unaudited balance sheet of the Company and the unaudited statements of income and stockholders' equity for the periods ended on such date, together with the notes thereto; (iii) the most recent monthly and year-to-date financial statements provided to Nissan (the "Company Factory Statements"); (the financial statements referred to in clauses (i) and (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 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) 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 -7- 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 asserted or unasserted, 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 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 reason-ably 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 can reasonably be expected to have, a Material Adverse Effect. 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, 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 (iv) any loss of the employment, services or benefits of any key employee of the Company (except for any such loss occurring after the execution of this Agreement but prior to the Closing Date and disclosed to UAG on or before the Closing Date). (b) Since December 31, 1995, 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; -8- (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; (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 (except for agreements or arrangements that are in the ordinary course of business consistent with past practices, that will be reflected as expenses on the Company's financial statements prior to the Closing Date and that will not bind the Company after the Closing Date); (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 correctly reflecting the Taxes (as defined below) and all other information required to be reported thereon and have paid, or made adequate -9- 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 filed all returns and paid all taxes for the period ending December 31, 1995. 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 Stockholder knows of any basis for an assertion of a deficiency for Taxes against the Company. 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 on SCHEDULE 2.9(a) hereto and except for Claims (as defined below) that do not exceed Thirty Thousand Dollars ($30,000), (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 Stockholder, 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 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. -10- (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. 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. 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 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 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 Stockholder 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 -11- 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. 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. 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) 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. 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. -12- (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 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 and there has been no spill, release or migration of any Hazardous Materials on or under the Real Property and no Hazardous Material is present on or under the Real Property (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 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 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 -13- 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 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 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, 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 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. 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 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. 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 -14- 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 have 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 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. There are no material unresolved disputes involving the 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 govern-mental 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. -15- (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 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 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. (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 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 and (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. (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 which the Company is required to make contributions ("Welfare Benefit Plan"). -16- 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: (i) no event has occurred or (to the knowledge of the Company or the 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; (ii) 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 (iii) 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; (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 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; -17- (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 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 estimated aggregate amounts of contributions to be paid or accrued by the Company under ERISA Plans for the current fiscal year is 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. -18- 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, 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 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. -19- 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 Stockholder, 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. 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 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 -20- 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 light duty trucks or automobiles in Georgia. 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 Real Estate Purchase Agreement, except that the Stockholder has employed Patrick McNulty as a broker (the "Broker") in connection with this transaction. The Stockholder will satisfy any obligations of UAG, Sub, the Stockholder or the Company relating to the employment of the Broker, and will hold UAG, Sub and the Company harmless therefrom. 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 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. On the Closing Date, the Net Worth of the Company, as determined in accordance with the Accounting Principles, will be equal to or greater than the December 31 Net Worth. On the Closing Date, the net working capital of the Company, as reflected on the Estimated Closing Date Balance Sheet (as defined in SECTION 6.6 hereof) will be equal to or greater than the net working capital of the Company as of December 31, 1995 as reflected on the Company Balance Sheet and such net working capital will be sufficient to operate the businesses of the Company consistent with past practice. -21- ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER Subject to the parties' agreement and acknowledgment that the SCHEDULEs referred to in this ARTICLE 3 are to be delivered by the Stockholder to UAG and Sub not later than August 15, 1996, the Stockholder hereby represents and warrants to UAG and Sub as follows: 3.1 OWNERSHIP OF SHARES; TITLE. The 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. 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. Except as set forth on SCHEDULE 3.2, 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 Stockholder is a party or to which the Stockholder or the Stockholder's property is subject; (ii) violate or conflict with any Legal Requirements applicable to the Stockholder or the 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. -22- 3.3 REAL PROPERTY AND IMPROVEMENTS. The 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(a), none of which currently or, to the 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. Except as set forth in ARTICLE 1 hereof, 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 Subject to the parties' agreement and acknowledgment that the Schedules referred to in this ARTICLE 4 are to delivered by UAG and Sub no later than August 15, 1996, UAG and Sub hereby represent and warrant to the Company and the Stockholder as follows: 4.1 ORGANIZATION AND GOOD STANDING. Each of UAG and Sub 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 Sub 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 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: -23- (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 Real Estate Purchase Agreement. 4.4 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 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 Closing Date, the 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 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 -24- information pertaining to the businesses and properties of the Company (including the Real Property and the Improvements), (ii) provide to the officers and other authorized representatives of UAG and Sub reasonable access to any and all premises and properties of the Company (including the Real Property and Improvements) provided that such access shall not unreasonably disrupt the normal business of the Company; and (iii) 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, 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 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 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: -25- (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 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 the December 31, 1995 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 (other than agreements in the ordinary course of business consistent with past practices that will be reflected on the Company's financial statement prior to the Closing Date and that will not bind the Company after the Closing Date), grant any general increase in the compensation of officers or employees (including any -26- 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 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: (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; -27- (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; (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 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 and the termination of this Agreement pursuant to SECTION 8.1 hereof, neither the Stockholder nor 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 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 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. -28- 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 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. 5.8 INTERIM FINANCIAL STATEMENTS. Within thirty (30) days after the end of each calendar month after May 31, 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 Company Financial Statements. -29- 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 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. The 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 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. 5.10 ASSURANCE BY THE STOCKHOLDER. The 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 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 (including, without limitation, the institution or defense of legal proceedings), any -30- 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. In the event that the Stockholder incurs any expense in connection with any assertion that the transactions contemplated herein constitute a violation of the antitrust laws, UAG shall reimburse the Stockholder for such expense unless the Stockholder incurred such expense after UAG notified the Stockholder that UAG intended to terminate the Agreement. 5.12 USE OF CHARLES EVANS NAME. UAG, Sub and the Company shall have the right to use the name "Charles Evans" in connection with the business of the Company for up to one year after the Closing Date. After the Closing and until the one year anniversary of the Closing Date, Evans shall not use the name "Charles Evans" or "Evans" in connection with the sale of new or used automobiles or light duty trucks in the metropolitan Atlanta area. 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 AND WARRANTIES; AGREEMENTS; COVENANTS. Each of the representations and warranties 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 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 Real Estate Purchase Agreement, and the consummation of the transactions contemplated hereby shall have been duly and validly taken -31- 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 STOCKHOLDER' COUNSEL. UAG and Sub shall have been furnished with the opinion of the Company's and the Stockholder' counsel, dated the Closing Date, in form and substance satisfactory to UAG and Sub and their counsel, which opinion shall have been rendered with respect to those matters contained in SECTIONs 2.1, 2.3, 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. -32- 6.6 WORKING CAPITAL REQUIREMENTS. On the Closing Date, the 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 equal to or greater than the consolidated net working capital of the Company as set forth on the Company Balance Sheet. 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. 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 Stockholder. 6.8 LEASE AND REAL ESTATE PURCHASE AGREEMENT. The Stockholder and the Company shall have agreed up the terms of the Nissan Lease and the Real Estate Purchase Agreement on or before August 15, 1996 and shall have entered into the Nissan Lease and the Real Estate Purchase Agreement at the time of the Closing. 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. 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 6.5, 6.6 AND 6.13 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 Stockholder and the Company under the provisions of this -33- 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. 6.12 APPROVAL OF MANUFACTURER AND DISTRIBUTOR. The Stockholder and the Company shall have obtained the consent, authorization and approval of Nissan and [Nissan distributor] on terms no less favorable to those granted to the Company immediately prior to the execution of this Agreement. 6.13 ENVIRONMENTAL LAWS. The Company shall be in compliance with all applicable Environmental Laws. 6.14 TITLE INSURANCE. The Company shall have obtained title insurance with respect to the Real Property in form and substance satisfactory to UAG. UAG shall pay the title insurance premium. 6.15 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. 6.16 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. 6.17 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 shall be reasonably acceptable in form and substance to UAG and Sub. 6.18 BMW Purchase. The transactions contemplated by the BMW Stock Purchase Agreement shall have been consummated. -34- ARTICLE 7 CONDITIONS TO THE OBLIGATIONS OF THE STOCKHOLDER 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: 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 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 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 transac- tions 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 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 -35- 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 AND REAL ESTATE PURCHASE AGREEMENT. The Company and Sub shall have agreed upon the terms of the Nissan Lease and Real Estate Purchase Agreement on or before August 15, 1996. The Company and Sub shall have entered into the Nissan Lease and Sub shall have entered into the Real Estate Purchase Agreement at the time of the Closing. 7.6 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. 7.7 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 Stockholder. 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 November 30, 1996, or such later date as shall have been approved by UAG, Sub and the Stockholder (provided that the terminating party is not otherwise in material breach of its represen- tations, warranties, covenants or agreements under this Agreement); -36- (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 contem- plated 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 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, warranties 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, 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 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. 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 STOCKHOLDER. Notwithstanding the Closing or the delivery of the Shares, the Stockholder indemnifies and agrees to fully defend, save and hold harmless on an after-tax basis UAG, -37- Sub, the Company (after the Closing), and any of their respective officers, directors, employees, stockholders, advisors, representatives, agents and Affiliates (other than the 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 9.6 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 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 or the breach of any warranty 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. 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 Stockholder, the Company (prior to the Closing), and any of their respective officers, directors, employees, 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 or any Claim relating to or arising out of any violation of the Environmental Laws by the Company after 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 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 -38- 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 Stockholder Event of Breach occurs or is alleged and a UAG Indemnified Party asserts that the Stockholder 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 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 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 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 -39- 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 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. 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 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, 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. (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. 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 -40- 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) The representations and warranties contained in SECTION 2.11 shall survive (and not be affected in any respect by) the Closing for a period terminating on the later of (i) the date five 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. 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 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 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: Charles Evans Nissan, Inc. 3180 Zingara Road Route 1 Conyers, Georgia 30207 - 41 - with a copy to: Lance & Associates 884 Green Street Conyers, Georgia 30207 Attn: Forrest Jack Lance, Esq. Fac # 770-388-7944 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 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, Esq. If to the Stockholder: Charles F. Evans 3180 Zingara Road Route 1 Conyers, Georgia 30207 with a copy to: Lance & Associates 884 Green Street Conyers, Georgia 30207 Facsimile No.: (770) 388-7944 Attn: Forrest Jack Lance, Esq. - 42 - 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 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, 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 Stockholder, the personal representatives and heirs of the 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 which consent shall not be unreasonably withheld. 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, 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 Real Estate Purchase Agreement 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 - 43 - 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 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 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; - 44 - 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 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. (h) "UAG Public Offering Date" shall mean the date of the consummation of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offering and sale of shares of common stock, par value $.0001 per share of UAG. on a firm commitment basis. 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. - 45 - 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 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/ George Lowrance ---------------------------------- Name: George G. Lowrance ---------------------------------- Title: Executive Vice-President ---------------------------------- UAG ATLANTA IV, INC. By: /s/ George Lowrance ---------------------------------- Name: George G. Lowrance ---------------------------------- Title: Executive Vice-President ---------------------------------- CHARLES EVANS NISSAN, INC. By: /s/ Sarah H. Pilgrim ---------------------------------- Name: Sarah H. Pilgrim ---------------------------------- Title: President ---------------------------------- /s/ Charles F. Evans ----------------------------------------- Charles F. Evans, Individually - 46 - EX-10.10-1 35 EXHIBIT 10.10.1 STOCK PURCHASE AGREEMENT DATED SEPTEMBER 5, 1996 AMONG UNITED AUTO GROUP, INC., UAG TENNESSEE, INC., STANDEFER MOTOR SALES, INC. d/b/a STANDEFER NISSAN, CHARLES A. STANDEFER AND CHARLES A. STANDEFER AND KAREN S. NICELY, TRUSTEES UNDER THE IRREVOCABLE TRUST AGREEMENT OF CHARLES B. STANDEFER FOR THE PRIMARY BENEFIT OF CHILDREN DATED DECEMBER 21, 1992 This STOCK PURCHASE AGREEMENT, dated September 5, 1996 is by and among United Auto Group, Inc., a Delaware corporation ("UAG"), UAG Tennessee, Inc., a Delaware corporation ("Sub"), Standefer Motor Sales, Inc., a Tennessee corporation d/b/a Standefer Nissan (the "Company"), Charles A. Standefer ("Standefer") and Charles A. Standefer and Karen S. Nicely Trustees under the Irrevocable Trust Agreement of Charles B. Standefer for the primary benefit of Children dated December 21, 1992 (the "Trust" and together with Standefer, the "Stockholders"). W I T N E S S E T H: -------------------- WHEREAS, the Company operates a Nissan automobile dealership and related businesses in Chattanooga, Tennessee; WHEREAS, the Stockholders own all of the issued and outstanding shares of common stock, no par value, of the Company (the "Common Stock"); WHEREAS, Sub is a wholly-owned subsidiary of UAG; and WHEREAS, Sub desires to purchase all of the issued and outstanding 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 Eighteen Million Two Hundred Thousand Dollars ($18,200,000) (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 less the Escrow Amount (as defined in Section 1.3) by certified funds; and (iii) the Escrow Agent (as defined in SECTION 1.3) shall deliver to the Stockholders the Escrow Amount pursuant to the terms of the Escrow Agreement. (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 a location to be agreed upon by the parties, on the earlier of the UAG Public Offering Date (as defined in SECTION 10.11) or a mutually agreeable date no later than January 3, 1997. 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 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) Standefer Investment Company, a Tennessee limited partnership ("Landlord") and the Company shall enter into a lease for the real property used in the business of the Company and known as 2121 Chapman Road, Chattanooga, Hamilton County, Tennessee 37412 in a form mutually acceptable to the parties (the "Lease") and UAG shall guarantee the performance of the obligations of Sub thereunder. The Lease shall be for a twenty (20) year term commencing on the Closing Date. The initial monthly lease rate shall be Twenty Seven Thousand Five Hundred Dollars ($27,500), and (x) on the fifth anniversary of the Closing Date the monthly lease rate shall be adjusted to an amount equal to the greater of the then current lease rate and nine-tenths of one percent (0.9%) of the then Appraised Value (as defined below), and (y) on the tenth anniversary of the Closing Date the monthly lease rate shall be adjusted to an amount equal to the greater of the then current lease rate and one percent (1%) of the then Appraised Value, and (z) on the fifteenth anniversary of the Closing Date the lease rate shall be adjusted to an amount equal to the greater of the then current lease rate and one percent (1%) of the then Appraised Value. The Lease shall provide the Company - 2 - with 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 at a monthly lease rate equal to the greater of the then current lease rate and one and five-one hundredths percent (1.05%) of the then Appraised Value. 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 at a monthly lease rate equal to the greater of the then current lease rate and one and five-one hundredth percent (1.05%) of the then Appraised Value. For purposes of this section, Appraised Value shall mean the value of the real property assuming it is leased for use as a car dealership as appraised by a certified appraiser agreed to by the lessor and lessee. (iv) Sub, and the Company shall enter into an employee agreement with Karen S. Nicely ("Nicely") in a form mutually acceptable to UAG, Sub and Nicely (the "Employment Agreement"). The Employment Agreement shall provide that Nicely shall be employed as Executive Manager of the Company. 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"). UAG shall reimburse the Company for reasonable fees or expenses incurred by the Company's certified public accountant in connection with the preparation of the Closing Date Balance Sheet or the Estimated Closing Date Balance Sheet referred to in SECTION 6.6. 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 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 - 3 - 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, 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 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 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 or considered 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 "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 - 4 - 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 shall be less than Five Million Ninety Thousand Dollars ($5,090,000) (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 prime rate or its equivalent (as announced from time to time by Citibank, N.A.). (ii) If the Net Worth as shown on the Closing Date Balance Sheet is equal to or greater than Five Million Ninety Thousand Dollars ($5,090,000) and the Net Worth as shown on the Reviewed Balance Sheet as finally determined through the operation of SECTIONS 1.2(a) THROUGH (e) hereof shall be greater than the Net Worth as shown on the Closing Date Balance Sheet (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 within two (2) Business Days 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.). (iii) "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 (plus the amount of any Last-In First-Out ("LIFO") inventory reserves) 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 ESCROW. Within 5 days of 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, Sub shall deposit into escrow funds in the amount of Five Hundred Thousand Dollars ($500,000) (the "Escrow Amount") by delivering such funds to Rogers & Hardin (the "Escrow Agent") which Escrow Amount shall be held and disbursed by the Escrow Agent pursuant to the terms of an escrow agreement to be agreed upon by the parties. - 5 - 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 no later than September 6, 1996, 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 Tennessee 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 where the lack of such qualification would not have a material adverse effect on the financial condition of the Company. 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 Charter and Bylaws as amended and presently in effect. 2.2 SUBSIDIARIES. Except as set forth in SCHEDULE 2.2 hereof, 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 that are issued and outstanding are set forth on SCHEDULE 2.3(a) 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. Except for the stock restriction agreement set forth on SCHEDULE 2.3(b) hereto (the "Stock Restriction Agreement") which will be terminated prior to the Closing Date, 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. - 6 - 2.4 AUTHORITY; APPROVALS AND CONSENTS. The Company has the corporate power and authority to enter into this Agreement and to perform its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement 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 transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by, and constitutes 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 Charter or By-Laws of the Company; (ii) to the knowledge of the Company or the Stockholders, (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 where such conflict or default would not have a material adverse effect on the financial condition of the Company or on the ability of the parties to consummate the transactions contemplated by this 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) to the knowledge of the Company or the Stockholders, 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 where such conflict or default would not have a material adverse effect on the financial condition of the Company or on the ability of the parties to consummate the transactions contemplated by this Agreement; 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 where such conflict or default would not have a material adverse effect on the financial condition of the Company or on the ability of the parties to consummate the transactions contemplated by this Agreement. - 7 - 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 unaudited balance sheet of the Company as of December 31, 1995, 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 accompanied by the compilation report of independent certified public accountants, and (B) the unaudited 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 accompanied by the compilation report of independent certified public accountants; and (ii) the unaudited balance sheet of the Company as of June 30, 1996 (the "Company Balance Sheet") and the unaudited statements of income and stockholders' equity for the periods ended on such date, together with the notes thereto; (iii) the most recent monthly and year-to-date financial statements provided to Nissan (the "Company Factory Statements"); (the financial statements referred to in clause (i) and (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 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 or on SCHEDULE 1.2 hereof) 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 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. - 8 - 2.6 ABSENCE OF UNDISCLOSED LIABILITIES. The Company does not have any material 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 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 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, 1995, 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 (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, 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; - 9 - (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; (xi) incurred any obligation or liability to any employee 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. Since January 1, 1985, 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 - 10 - 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 material notices and correspondence sent or received since January 1, 1992 by the Company to or from any federal, state or local tax authorities. The unpaid Taxes of the Company with respect to periods ended on, prior to or through the date of the Company Balance Sheet will not exceed by any material amount the reserve for Taxes reflected on such financial statements. In the ordinary course, the Company makes adequate provision on its books (on an annual basis) 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 since January 1, 1985, and no adjustment has been proposed by the Internal Revenue Service ("IRS") with respect to any return for any 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 and the Company shall reimburse the Stockholders for any reasonable out-of-pocket expenses directly related to the Company's tax liability; PROVIDED, HOWEVER, that the Company will not reimburse the Stockholders for any expenses relating to Stockholders' tax liability. 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. - 11 - (b) To the knowledge of the Stockholders or the Company, 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 comply would not have a material adverse effect upon the financial condition of the Company. To the knowledge of the Stockholders or the Company, 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 comply would not have a material adverse effect upon the financial condition of the Company. A list of all Permits is set forth on SCHEDULE 2.9(b) hereof. (c) To the knowledge of the Stockholders or the Company, the Company owns or holds all Permits material to the conduct of its business. To the knowledge of the Company or the Stockholders, 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 (including improvements to the Real Property (the "Improvements") and all machinery, equipment and other tangible property 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 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 "). To the knowledge of the Stockholders or the Company, 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. To the knowledge of the Stockholders or the Company, 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. To the knowledge of the Stockholders or the Company, no Certificate of Occupancy is required with respect to the Improvements. To the knowledge of the Stockholders or the Company, 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. Except as otherwise represented herein, the machinery, equipment and other tangible property are transferred "as is". - 12 - 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 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 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'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. - 13 - (b) To the knowledge of the Stockholders or the Company, 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. To the knowledge of the Stockholders or the Company, 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. To the knowledge of the Stockholders or the Company, 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 and there has been no spill, release or migration of any Hazardous Materials on or under the Real Property and no Hazardous Material is present on or under the Real Property (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 including the existing regulations of the United States Environmental Protection Agency and the State of Tennessee requiring spill protection, overfill protection and corrosion protection by December 22, 1998), (ii) to the knowledge of the Stockholders or the Company, 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) to the knowledge of the Stockholders or the Company, none of the Real Property, the Improvements or any property formerly owned, occupied or leased by 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 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, to the knowledge of the Stockholders or the Company, 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 - 14 - 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, to the knowledge of the Stockholders or the Company, 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 Environ- mental 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 or 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 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, and such values are in conformity with GAAP consistently applied, except that no adjustment to the LIFO reserves will be recorded on such financial statement. 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), except for spare parts inventory which inventory is good and usable. - 15 - 2.13 ACCOUNTS RECEIVABLE. 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 have been or will have been collected or are collectible in accordance with their terms at their recorded amounts, and are subject to no material defenses, setoffs or counterclaims other than normal cash discounts accrued in the ordinary course of business, subject to the reserve for bad debts set forth on the Company Balance Sheet, as adjusted for operations and transactions through the Closing Date in the ordinary course of business and consistent with past practices. 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. 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 have 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, to the knowledge of the Stockholders or the Company, neither the Company nor any other party thereto is in breach of or default in any - 16 - material respect under any Company Agreement, and no event has occurred which (after notice or lapse of time or both) would become a breach or default in any material respect 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. 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 govern- mental 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 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 material provisions of any Employment or Labor Agreement. (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 - 17 - 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 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 in all material respects 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. - 18 - (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; (ii) has been operated, since its inception, in all material respects 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) to the knowledge of the Stockholders or the Company, 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. - 19 - (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 for the current fiscal year is not expected to exceed approximately one hundred and ten percent of the amounts of such contributions for the past 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 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: (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 - 20 - 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; (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 - 21 - 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, to the knowledge of the Stockholders or the Company, 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 Tennessee. 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. - 22 - 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 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 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. On the Closing Date, the Net Worth of the Company, as determined in accordance with the Accounting Principles, will be no less than Five Million Ninety Thousand Dollars ($5,090,000). ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS Subject to the parties' agreement and acknowledgement that certain of the Schedules referred to in this ARTICLE 3 are to be delivered by the Company and the Stockholders no later than September 6, 1996, each Stockholder hereby jointly and severally represents and warrants to UAG and Sub 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 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. - 23 - 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 Stockholders is a party or to which any Stockholders 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. 3.3 REAL PROPERTY AND IMPROVEMENTS. 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. - 24 - 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. 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 4.2 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 - 25 - 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. UAG shall indemnify the Company and the Stockholder for any claim by Jappie Dickinson for a broker's, finder's or similar fee, commission or expense arising out of this transaction. 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 Closing Date, the Stockholders 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 (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, 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 representa- - 26 - tives 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. UAG shall reimburse the Company and the Stockholders for reasonable expenses incurred by the Company and the Stockholder in connection with this Section. 5.3 CERTAIN CHANGES AND CONDUCT OF BUSINESS. (a) Except as set forth on SCHEDULE 5.3(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 Charter 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; - 27 - (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 Five Million Ninety Thousand Dollars ($5,090,000) or redeem, retire, purchase or otherwise acquire, directly or indirectly, any shares of its capital stock which would decrease the Net Worth of the Company below Five Million Ninety Thousand ($5,090,000) Dollars; (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 and except for the purchase of a computer system for approximately $125,000; (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, except in the ordinary course of business; - 28 - (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) Except as set forth on SCHEDULE 5.3(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; - 29 - (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 Stockholders and any of their Affiliates, on the one hand, and the Company, on the other hand, except for the Standefer Loan as set forth in SECTION 5.13 hereof, which shall be paid in full on or before the Closing Date. 5.5 NEGOTIATIONS. Until the earlier of 180 days from the date hereof and 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, 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. - 30 - (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. 5.8 INTERIM FINANCIAL STATEMENTS. If requested by UAG and at UAG's expense, within thirty (30) days after the end of each calendar month after June 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 5.8 shall be prepared on a basis consistent with the Company Financial Statements. 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 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) promptly advise - 31 - 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. 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. UAG shall pay the H-S-R filing fee relating to such filings. 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 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 shall determine that continuing such resistance is not in its best interests, UAG may, by written notice to the other party, terminate this Agreement with the effect set forth in SECTION 8.2 hereof. 5.12 USE OF "STANDEFER" NAME. After the Closing Date, UAG and the Company shall not use the name "Standefer" in connection with the business of the Company; PROVIDED, HOWEVER, that the Company may continue to use the "Standefer" name in a manner consistent with its use prior to the Closing for a period of sixty (60) days after the Closing. After the Closing, neither Standefer nor - 32 - any of his Affiliates (other than adult children) shall use the name "Standefer" in connection with the sale or servicing of new or used automobiles or light duty trucks prior to the fifth year anniversary of the Closing Date; PROVIDED, HOWEVER, that relatives of Standefer may use the Standefer name in connection with the sale of new or used automobiles or light duty trucks (other than the sale of Nissans in Hamilton County, Tennessee) so long as Standefer does not have a direct or indirect ownership interest in any such business and does not directly or indirectly assist in the management or operation of such business (except that nothing herein shall prevent Standefer from making loans to or leasing property (at fair market value) to an entity engaged in the sale of new or used automobiles or light duty trucks). 5.13 STANDEFER LOAN. On or before the Closing Date, the Stockholders shall cause the Company to pay the outstanding principal and all accrued but unpaid interest on the Standefer Loan. For purposes of this Section, the Standefer Loan shall mean the loan to the Company from Standefer and his Affiliates as set forth on the Company Balance Sheet in the approximate amount of $1,865,000. 5.14 DISTRIBUTION OF SUBSIDIARY'S STOCK. The parties acknowledge and agree that the interest in Scenic City, Ltd., a Nevada limited partnership, owned by the Company shall be distributed to the Stockholders or an Affiliate of the Stockholders (at book value) prior to the Closing Date. 5.15 CONTRIBUTION OF EQUIPMENT. The parties acknowledge and agree that the equipment owned by the Landlord and used in the business of the Company will be contributed to the Company on or before the Closing Date, subject to the existing liabilities set forth on SCHEDULE 5.15 hereof. 5.16 STOCK RESTRICTION AGREEMENT. Prior to the Closing Date, the Stock Restriction Agreement shall be terminated in accordance with its terms and the parties thereto shall have released any and all claims arising under or relating to the Stock Restriction Agreement and its termination. 5.17 SPLIT-DOLLAR AGREEMENT. Prior to the Closing Date, the Split-Dollar Agreement between the Charles B. Standefer Irrevocable Insurance Trust and the Company shall be terminated and the Closing Date Balance Sheet shall not include as an asset of the Company the amount owed for premium advances relating to such Split-Dollar Agreement. - 33 - 5.18 PERSONAL ITEMS. The parties acknowledge and agree that the Stockholders may retain certain personal items (which items are not reflected as assets on the Company Balance Sheet and will not be reflected as assets on the Closing Date Balance Sheet). These items will include personal pictures, awards and mementos. 5.19 S CORPORATION TAX RETURNS. The S corporation federal income tax returns (Form 1120S) of the Company for the tax year beginning on January 1, 1996, shall be prepared by the regular accounting firm of the Company, at the sole cost and expense of the Company, with the Stockholders having a right to review and make comments on such return prior to its being filed with the Internal Revenue Service. 5.20 AUDITS. Sub shall (i) grant to each Stockholder access at all reasonable times to all of the Company's books and records (including tax workpapers and returns and correspondence with tax authorities), including the right to take extracts therefrom and make copies thereof, to the extent that such books and records relate to taxable periods ending on or prior to or that include the Closing Date, and (ii) otherwise cooperate with the Stockholders in connection with any audit of taxes that relate to the business of the Company prior to the Closing. Sub will allow the Stockholders and their counsel to participate at their own expense in any audits of the Company's federal income tax returns to the extent that such returns could affect the Stockholders. Sub will not allow the Company to settle any such audit in a manner which would or could adversely affect the Stockholders after the Closing Date without the prior written consent of the Stockholders, which consent shall not unreasonably be withheld. 5.21 NO LIABILITY; SECTION 338 ELECTION. The Stockholders shall under no circumstances be liable for any federal income tax liability of the Company arising from or occasioned by any election by Sub with respect to the Company (whether actual or deemed) under Section 338 of the Internal Revenue Code. 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: - 34 - 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 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 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, 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 Tennessee and federal laws. 6.4 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 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 - 35 - 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, other than payments to Stockholders in accordance with the terms of this Agreement. 6.6 NET WORTH. 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 Worth no less than Five Million Ninety Thousand Dollars ($5,090,000). 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. 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 one-half by UAG and one-half by the Stockholders; PROVIDED, HOWEVER, that the Stockholders may elect not to pay any costs of the Phase II audit but, if the Stockholders elect not to pay one-half of the costs of the Phase II audit and the results of the Phase II audit conclude that remediation is necessary, the Stockholders shall pay the entire costs of the Phase II audit. If UAG determines that a Phase II is necessary, the Phase II audit shall be performed by an environmental, engineering or consulting company mutually agreeable to the Stockholders and UAG. 6.8 LEASE. The Landlord and the Company shall have entered into the Lease in a form and substance satisfactory to UAG. - 36 - 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; PROVIDED, HOWEVER, that the UAG Board shall consider the transactions contemplated by this Agreement on or before the date that is fifteen days after Standefer and UAG formally seek the approval of Nissan as set forth in SECTION 6.12 hereof. 6.10 CERTIFICATES. 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. Nissan shall have consented to, authorized and approved the transactions contemplated by this Agreement on terms no less favorable to those granted to the Company immediately prior to the execution of this Agreement. 6.13 EMPLOYMENT AGREEMENT. Sub, the Company and Nicely shall have entered into the Employment Agreement. 6.14 ENVIRONMENTAL LAWS. The Company shall be in material compliance with all applicable Environmental Laws. 6.15 NONDISTURBANCE AGREEMENT. Standefer shall have obtained a nondisturbance agreement in form and substance satisfactory to the Company and UAG. - 37 - 6.16 TITLE INSURANCE. The Company shall have obtained title insurance with respect to the leasehold estate in form and substance satisfactory to UAG. UAG shall be responsible for the cost of such title insurance. 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 or her 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: 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 an officer of UAG and of Sub to the effect that the conditions set forth in the preceding two sentences have been satisfied. - 38 - 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. 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 Stockholders 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 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 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 in form and substance satisfactory to the Landlord. 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. - 39 - 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. 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 December 31, 1996, 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 (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 - 40 - 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, 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, 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. - 41 - 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 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 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 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 - 42 - 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 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 (other than the Lease) of the other parties (or any Affiliate (excluding the Landlord) 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. 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. - 43 - 9.6 LIMITATION ON INDEMNIFICATION. No Indemnified Party shall be entitled to indemnification for any Costs hereunder unless the aggregate amount of Costs incurred by such party exceeds $200,000, in which event such party shall be entitled to indemnification for all such Costs in excess of $200,000; PROVIDED, HOWEVER, that this limitation shall not apply to any amounts owed by the parties pursuant to SECTION 1.2 hereof. 9.7 DEFINITIONS. For purposes of this ARTICLE 9, "Costs" shall mean all liabilities, losses, costs and actual damages (not including consequential damages) and reasonable expenses, reasonable attorneys' fees, reasonable experts' fees, reasonable consultants' fees, and reasonable 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. 9.8 TAX SAVINGS. Costs arising or resulting from Stockholders Events of Breach or UAG Events of Breach shall be reduced to the extent of the amount of any tax savings resulting from the indemnified matter to which such Costs relate which are actually realized (or can reasonably be expected to be realized in future years) by the Indemnified Party. 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 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 - 44 - 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 three (3) years after the Closing Date, and (ii) with respect to any claim asserted with respect to any breach of such representations and warranties 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. 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 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 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: Charles A. Standefer 3715 Kings Road Chattanooga, Tennessee 37416 with a copy to: Mr. James D. Hutcherson, CPA Henderson, Hutcherson, Walker & McCullough 1000 Riverfront Parkway Chattanooga, Tennessee 37402-2103 - 45 - Gearhiser, Peters, Lockaby & Tallant 320 McCallie Avenue Chattanooga, Tennessee 37402 Attn: R. Wayne Peters, Esq. If to the Company after the Closing Date: United Auto Group, Inc. 375 Park Avenue New York, New York 10022 Attn: George G. Lowrance Executive Vice President with a copy to: Rogers & Hardin 2700 Cain Tower, Peachtree Center 229 Peachtree Street, N.E. Atlanta, Georgia 30303 Attn: Michael Rosenzweig If to the Stockholders: Charles A. Standefer 3715 Kings Road Chattanooga, Tennessee 37416 with a copy to: Mr. James D. Hutcherson, CPA Henderson, Hutcherson, Walker & McCullough 1000 Riverfront Parkway Chattanooga, Tennessee 37402-2103 Gearhiser, Peters, Lockaby & Tallant 320 McCallie Avenue Chattanooga, Tennessee 37402 Attn: R. Wayne Peters, Esq. - 46 - If to UAG or Sub: United Auto Group, Inc. 375 Park Avenue New York, New York 10022 Attn: George G. Lowrance Executive Vice President with a copy to: Rogers & Hardin 2700 Cain Tower, Peachtree Center 229 Peachtree Street, N.E. Atlanta, Georgia 30303 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 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, 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. - 47 - 10.7 WAIVER AND AMENDMENTS. Each of the Stockholders, 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 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 and construed in accordance the laws of the State of Tennessee without giving effect to any choice or conflict of law provision or rule that would cause the laws of any other jurisdiction to apply. 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 - 48 - 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. (h) "Knowledge" means, with respect to the Stockholders, that the Stockholders knew, or in the exercise of reasonable diligence, would or should have known of the particular matter referred to; with respect to the Company, that the President or the Executive Manager knew, 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 knew or, in the exercise of reasonable diligence, would or should have known of the particular matter referred to. (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 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. (h) "UAG Public Offering Date" shall mean the date of the consummation of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offering and sale of shares of common stock, par value $.0001 per share of UAG on a firm commitment basis. 10.12 SCHEDULES. 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. - 49 - 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 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/ George Lowrance ------------------------------------- Name: George G. Lowrance Title: Executive Vice-President UAG TENNESSEE, INC. By: /s/ George Lowrance ------------------------------------- Name: George G. Lowrance Title: Vice-President - 50 - STANDEFER MOTOR SALES, INC. d/b/a STANDEFER NISSAN By: /s/ Charles A. Standefer ------------------------------------- Name: Title: /s/ Charles A. Standefer ---------------------------------------- CHARLES A. STANDEFER, INDIVIDUALLY CHARLES A. STANDEFER AND KAREN S. NICELY TRUSTEES UNDER THE IRREVOCABLE TRUST AGREEMENT OF CHARLES B. STANDEFER FOR THE PRIMARY BENEFIT OF CHILDREN DATED DECEMBER 21, 1992 By: /s/ Charles A. Standefer, Trustee ------------------------------------- CHARLES A. STANDEFER, TRUSTEE By: /s/ Karen S. Nicely, Trustee ------------------------------------- KAREN S. NICELY, TRUSTEE - 51 - EX-11.1 36 EXHIBIT 11.1 Exhibit 11 United Auto Group Statement re computation of per share earnings
Years Ended Six Months Ended December 31, June 30, --------------------------------------- ------------------------- 1993 1994 1995 1995 1996 ----------- ------------ ------------ ------------ ----------- Net income (loss).......................... $ 96,000 ($ 1,691,000) ($ 3,466,000) ($ 4,902,000) $ 3,898,000 ----------- ------------ ------------ ------------ ----------- ----------- ------------ ------------ ------------ ----------- Weighted Average shares outstanding........ 1,317,000 3,296,000 4,905,000 4,105,000 7,923,000 Effect of options issued within one year of the IPO date not included in the above share amount based on the treasury stock method at the assumed IPO price........... 556,000 556,000 556,000 556,000 556,000 ----------- ------------ ------------ ------------ ----------- Shares used in computing pro forma net income (loss) per common share............ 1,873,000 3,852,000 5,461,000 4,661,000 8,479,000 ----------- ------------ ------------ ------------ ----------- Pro forma net income (loss) per common share..................................... $0.05 ($0.44) ($0.63) ($1.05) $0.46 ----------- ------------ ------------ ------------ ----------- ----------- ------------ ------------ ------------ -----------
EX-21.1 37 EXHIBIT 21.1 United Auto Group, Inc. (formerly named EMCO Motor Holdings, Inc.) List of Subsidiaries State of Incorporation DiFeo Division or Organization - -------------- ---------------------- DiFeo Partnership, Inc. Delaware DiFeo Partnership RCT, Inc. Delaware DiFeo Partnership RCM, Inc. Delaware DiFeo Partnership HCT, Inc. Delaware DiFeo Partnership SCT, Inc. Delaware DiFeo Partnership VIII, Inc. Delaware DiFeo Partnership IX, Inc. Delaware DiFeo Partnership X, Inc. Delaware Hudson Partners of Jersey City, Inc. New Jersey UAG Northeast, Inc. Delaware Hudson Motors, Inc. New Jersey Fair Hyundai Partnership New Jersey Fair Chevrolet-Geo Partnership New Jersey Danbury Auto Partnership New Jersey Danbury Chrysler Plymouth Partnership New Jersey Hudson Motors Partnership New Jersey DiFeo Hyundai Partnership New Jersey J&F Oldsmobile Partnership New Jersey DiFeo Nissan Partnership New Jersey DiFeo Chevrolet-Geo Partnership New Jersey DiFeo Chrysler Plymouth Jeep Eagle Partnership New Jersey OCT Partnership New Jersey OCM Partnership New Jersey Somerset Motors Partnership New Jersey DiFeo BMW Partnership New Jersey County Auto Group Partnership New Jersey Rockland Motors Partnership New Jersey United-DiFeo Management Partnership New Jersey Arizona - ------- UAG West, Inc. Delaware SA Automotive, Ltd. Arizona SL Automotive, Ltd. Arizona SPA Automotive, Ltd. Arizona LRP, Ltd. Arizona Sun BMW, Ltd. Arizona 6725 Dealership, Ltd. Arizona Scottsdale Management Group, Ltd. Arizona SK Motors, Ltd. Arizona Scottsdale Audi, Ltd. Arizona Arkansas - -------- United Landers, Inc. Delaware Landers Auto Sales, Inc. Arkansas Landers United Auto Group, Inc. Arkansas Landers United Auto Group No. 2, Inc. Arkansas Landers United Auto Group No. 3, Inc. Arkansas Landers-UAG Reinsurance Co., LTD California Georgia - ------- UAG Atlanta, Inc. Delaware Atlanta Toyota, Inc. Texas UAG Atlanta II, Inc. Delaware United Nissan, Inc. Georgia (formerly named Steve Rayman Nissan. Inc.) UAG Atlanta III, Inc. Delaware Peachtree Nissan, Inc. Georgia (formerly named Hickman Nissan, Inc.) UAG Atlanta IV, Inc. Delaware UAG Atlanta IV Motors, Inc. Georgia (formerly named Charles Evans BMW, Inc.) UAG Atlanta V, Inc. Delaware Conyers Nissan, Inc. Georgia (formerly named Charles Evans Nissan, Inc.) Tennessee - --------- UAG Tennessee, Inc. Delaware United Nissan, Inc. Tennessee (formerly named Standefer Nissan, Inc.) Finance Division - ---------------- Atlantic Auto Finance Corporation Delaware Atlantic Auto Funding Corporation Delaware Atlantic Auto Second Funding Corporation Delaware Atlantic Auto Third Funding Corporation Delaware -2- EX-23.1-1 38 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 October 3, 1996 EX-23.1-2 39 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 October 3, 1996 EX-23.1-3 40 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 October 3, 1996 EX-23.1-4 41 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 October 3, 1996 EX-23.1-5 42 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 October 3, 1996 EX-23.1-6 43 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 October 3, 1996 EX-23.1-7 44 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 October 3, 1996 EX-23.1-8 45 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 October 3, 1996 EX-27 46 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 (3,446) 3,898 (.70) .49 0 0
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