-----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, RZq+6OWq3ii3Jnr+3F09zgTMzqzvk9Ovhm2FESUHbwRa4jrSTkmvm6u3++D5WK1V bU5TpYoWQViNBU6gtJS3ng== 0000912057-96-023443.txt : 19961023 0000912057-96-023443.hdr.sgml : 19961023 ACCESSION NUMBER: 0000912057-96-023443 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 60 FILED AS OF DATE: 19961022 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: 96646321 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 22, 1996 REGISTRATION NO. 333-09429 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- AMENDMENT NO. 3 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. / / -------------------------- CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED OFFERING PRICE (1) FEE (2) Common Stock, par value $0.0001 per share................................... $187,500,000 $4,546
(1) Estimated solely for purposes of determining the registration fee pursuant to Rule 457(c) under the Securities Act of 1933. (2) $59,483 in registration fees has been previously paid. -------------------------- 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.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 22, 1996 5,500,000 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 $29.00 and $30.00 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 $2,625,000. (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 approximately $30.5 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........................ 5,500,000 shares Common Stock Outstanding after the Offering 15,528,684 shares (1)........................................ Use of Proceeds............................. The net proceeds from the Offering are estimated to be $148.3 million, of which approximately $62.1 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 $29.50 per share, 250,847 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) 19,425 (5,727) 9,404 17,289 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 Net income (loss) per common share $ .05 $ (.44) $ (.63) $ .53 $ (1.05) $ .46 $ .54
---------------------------------------------------------------------- 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 $ 274,250 Current liabilities 117,494 125,825 139,447 128,027 181,317 226,111 Property and equipment, net 8,845 12,072 12,146 11,814 14,609 28,375 Intangible assets, net 22,832 23,018 48,774 22,700 66,131 153,814 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 154,218 170,342 236,027 176,945 311,104 497,841 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 66,709 250,606
----------------------------------------------------------------------- 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% 2.2% 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 and distribution capabilities of the Manufacturers of which the Company is a franchisee. Accordingly, events, such as labor strikes, that may adversely affect a Manufacturer may also adversely affect the Company. For example, a strike of the independent truckers who distribute Chrysler Corporation ("Chrysler") motor vehicles adversely affected the Company in the second half of 1995. 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 Company's capital stock (on a fully diluted basis) may be freely tradable and unrestricted at any time. Upon consummation of the Offering, 33.9% 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 capital 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, it is currently the policy of Honda to restrict any company from holding more than seven Honda or more than three Acura franchises and restrict 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 22.7%, 18.3% and 11.9% 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. Moreover, if the Company elects to use its Class C Common Stock for future public offerings, which carries one-tenth of the voting power of the Common Stock, such persons will be able, to a great extent, to retain such control of the Company. 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." 12 Shares Eligible for Future Sale Upon consummation of the Offering, the Company will have outstanding 15,528,684 shares of Common Stock. All of the 5,500,000 shares of Common Stock to be sold in the Offering will be eligible for immediate sale in the public market without restriction unless held by affiliates of the Company. Of the remaining 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 250,847 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 64.6% 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 $23.65 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 approximately $30.5 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 and also provides for contingent payments to indemnify the sellers against certain tax liabilities. 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). In connection with such acquisition, the Company will also acquire ownership of three parcels of real property with third-party financing in the amount of $10.4 million. The Company expects to designate an unaffiliated third party to purchase such property and simultaneously enter into long-term leases with the Company. 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. In connection with such acquisition, the sellers will receive $6.2 million out of the proceeds of third-party financing pursuant to provisions of the acquisition agreement permitting the withdrawal of certain retained earnings. 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 $148.3 million ($168.8 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 $29.50 per share. Of such net proceeds, (i) approximately $62.1 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 $27.6 million will be used for working capital and other general corporate purposes, including other potential acquisitions. At present, the Company has not identified any probable 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 $ 18,985 Current portion of long-term debt 2,463 2,825 --------- ----------- Total short-term debt $ 20,048 $ 21,810 --------- ----------- --------- ----------- 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, 15,529 shares issued and outstanding, as adjusted (3) 1 2 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 -- -- Class C Common Stock, $0.0001 par value; no shares authorized, actual; 20,000 shares authorized, no shares issued and outstanding, as adjusted -- -- Additional paid-in capital 68,319 259,541 Accumulated deficit (1,612) (8,937) --------- ----------- Total stockholders' equity 250,621 250,606 --------- ----------- Total capitalization $ 122,299 $ 263,028 --------- ----------- --------- -----------
- ------------------------ (1) As of June 30, 1996, an aggregate of $129.0 million was outstanding under the Company's floor plan facilities. (2) As of August 31, 1996, there were Senior Notes outstanding in the aggregate principal amount of $33.3 million, net of unamortized discount of $1.7 million. (3) Does not include 873,000 and 250,847 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 $29.50 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 $96.8 million, or approximately $5.85 per share. This represents an immediate dilution of approximately $23.65 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 $ 29.50 --------- 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 6.02 --------- 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 5.85 --------- Dilution per share to new investors in the Offering $ 23.65 --------- ---------
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 $29.50 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 66.8% $ 116,658,379 41.8% $ 10.56 New investors in the Offering 5,500,000 33.2 162,250,000 58.2 29.50 ----------- --- -------------- --- Total 16,544,783 100% $ 278,908,379 100% ----------- --- -------------- --- ----------- --- -------------- ---
- ------------------------------ (1) Does not include 873,000 and, assuming an initial offering price of $29.50 per share, 250,847 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 --------- ---------- --------- --------- --------- ---------- ---------- --------- --------- ---------- --------- --------- --------- ---------- ---------- --------- Net income (loss) per common share $(.63) --------- --------- Shares used in computing net income (loss) per common share 5,482 --------- --------- 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) 136,145 (9,877) (3) 867 (4) (127) (5) (1,763) (6) 2,016 (7) (3,121) (8) 575 (9) --------- Operating income (loss) 19,425 Related party interest income (3,039) (4) -- Other income (expense), net (1,050) (10) (1,891) 1,248 (11) 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 --------- --------- Net income (loss) per common share $ .53 --------- --------- Shares used in computing net income (loss) per common share 11,640(14) 17,122 --------- ---------
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 18 (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) 2,025 200 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 --------- --------- --------- ---------- ---------- --------- --------- --------- --------- ---------- ---------- --------- Net income per common share $.46 --------- --------- Shares used in computing net income (loss) per common share 8,500 8,622 --------- --------- Total --------- Auto Dealerships Total revenues (3) $800,630 Cost of sales (3) 708,280 --------- Gross profit 92,350 Selling, general and administrative (2) 75,061 expenses (3) (4) (5) (6) (7) (9) --------- Operating income 17,289 Related party interest income (4) -- Other income (expense), net (10) (819) (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 --------- --------- Net income per common share $.54 --------- --------- Shares used in computing net income (loss) per common share (14) 17,122 --------- ---------
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 or terminated 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 net increase in interest expense at acquired dealerships due to the increase in short-term debt offset in part by repayment of long-term 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 $3,123 for the year ended December 31, 1995 and $2,085 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 $5,698 for the year ended December 31, 1995 and $1,356 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 $148,268 (1) 11,531 (2) (11,350) (2) (31,150) (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 2,186 (3) (652) (11) Intangible assets, net 66,131 -- 1,137 -- -- 9,832 (2) 19,399 (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 $35,145 Accounts receivable 65,061 Inventories 162,141 Deferred income taxes 8,784 Other current assets 3,119 ---------- Total current assets 274,250 Property and equipment, net 28,375 Intangible assets, net 153,814 Due from related parties 699 Other assets 9,136 ---------- Total Auto Dealership assets 466,274 ---------- Auto Finance Cash and cash equivalents 16,530 Finance assets, net 775 Other assets 14,262 ---------- Total Auto Finance assets 31,567 ---------- Total assets $497,841 ---------- ----------
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 -- -- -- -- 10,400 (3) (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 1 (1) (50) (2) (7,228) (3) (2) (4) (1) (5) Non-voting Common Stock -- -- -- -- 9 (9) (5) Class C Common Stock -- -- -- -- -- Additional paid-in capital 68,319 1 -- 897 -- 148,267 (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 16,469 Accounts payable 24,523 Accrued expenses 18,330 Current portion of long-term debt 2,825 ---------- Total current liabilities 226,111 Long-term debt 12,422 Due to related party 1,191 Deferred income taxes 3,493 ---------- Total Auto Dealership liabilities 243,217 ---------- 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 2 Non-voting Common Stock -- Class C Common Stock -- Additional paid-in capital 259,541 Retained earnings (accumulated (8,937) deficit) ---------- Total stockholders' equity 250,606 ---------- Total liabilities, minority interests subject to repurchase, stock purchase warrants and stockholders' equity $497,841 ---------- ----------
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, repayments of long-term debt, incurrence of short-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 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 in response to the increased popularity of used cars. 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 33 of Common Stock valued at $10.3 million. Proceeds from subsequent closings under the Equity Facility during 1994, 1995 and 1996 equaled $5.5 million, $25.2 million and $22.5 million, respectively. In addition, proceeds from additional offerings of equity and the Additional Warrants (as defined herein) during July 1996 equaled $4.1 million. The Company finances substantially all of its new and used vehicle inventory under revolving floor plan financing arrangements with General Motors Acceptance Corporation, Chrysler Credit Corporation, World Omni Financial Corp. and Nissan Motor Acceptance Corporation. The floor plan lenders pay the Manufacturer directly with respect to new vehicles. The Company makes monthly interest payments on the amount financed but is not required to make loan principal repayments prior to the sale of new and used vehicles. Substantially all of the assets of the Company's dealerships are subject to security interests granted to their floor plan lending sources. The Company believes that its existing capital resources, including the net proceeds of the Offering, will be sufficient to meet anticipated cash requirements, including those relating to the Contemporaneous Acquisitions, through at least the end of 1997. To the extent the Company pursues other significant acquisitions, it will need to raise additional capital either through the issuance of equity or debt securities or through borrowings. 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 a majority of its dealerships' CSI scores were at or above the average CSI scores for the applicable 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. 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 Except for three facilities that the Company owns in Arizona, 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 September 30, 2010 Danbury, CT sales; general office; service Fair 100 Federal Road New and used car Month-to-month Hyundai/Isuzu/Suzuki Danbury, CT sales; service DiFeo Lexus 1550 Route 22 East New and used car September 30, 2010 Bound Brook, NJ sales; service DiFeo Chevrolet-Geo 599 Route 440W New and used car September 30, 2010 and Jersey City, NJ sales; service J&F Oldsmobile DiFeo Hudson Mall on Route New and used car September 30, 2010 Chrysler-Plymouth/ 440 sales; service Jeep-Eagle/Hyundai Jersey City, NJ Hudson Toyota 585 Route 440W New and used car September 30, 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 September 30, 2010 Nyack, NY sales; service Rockland Toyota 115 Route 59 New and used car September 30, 2002, Nyack, NY sales; service renewable to 2012 DiFeo Nissan (a) 977 Communipaw New and used car sales September 30, 2010 Avenue Jersey City, NJ (b) 909-921 Service September 30, 2010 Communipaw Ave. Jersey City, NJ Fair Honda 102 Federal Road New and used car September 30, 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 September 30, 2010 St. Toms River, NJ Gateway Toyota Route 37 & Batchelor New and used car September 30, 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 Lexus 6905 E. McDowell New and used car December 31, 2005, Scottsdale, AZ sales; service renewable to 2010(1) Land Rover 6925 E. McDowell New and used car August 10, 2005, Scottsdale Scottsdale, AZ sales; service renewable to 2025 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 April 28, 1998(2) Duluth, GA sales; service Evans Nissan 1420 Iris Drive New and used car April 28, 1998(3) 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) The owner of the property has the right to require the tenant to purchase the property at any time after December 31, 1997 at a purchase price equal to one hundred times the monthly rental payment at the time of such purchase. (2) The Company has entered into a purchase agreement to acquire the property at any time 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. (3) The Company has entered into a purchase agreement to acquire the property 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. Employees and Labor Relations As of June 30, 1996, on a pro forma basis, UAG employed approximately 2,100 people, approximately 100 of whom are covered by collective bargaining agreements with labor unions. Relations with employees are considered by the Company to be satisfactory. The Company's policy is to motivate its key managers through, among other things, grants of stock options. See "Management -- Stock Option Plan." 47 Litigation The Company and its subsidiaries are involved in litigation that has arisen in the ordinary course of business. None of these matters, either individually or in the aggregate, are expected to have a material adverse effect on the Company's results of operations or financial condition. Environmental Matters As with automobile dealerships generally, and service parts and body shop operations in particular, the Company's business involves the use, handling and contracting for recycling or disposal of hazardous or toxic substances or wastes, including environmentally sensitive materials such as motor oil, waste motor oil and filters, transmission fluid, antifreeze, freon, waste paint and lacquer thinner, batteries, solvents, lubricants, degreasing agents, gasoline and diesel fuels. The Company's business also involves the past and current operation and/or removal of aboveground and underground storage tanks containing such substances or wastes. Accordingly, the Company is subject to regulation by federal, state and local authorities establishing health and environmental quality standards, and liability related thereto, and providing penalties for violations of those standards. The Company is also subject to laws, ordinances and regulations governing remediation of contamination at facilities it operates or to which it sends hazardous or toxic substances or wastes for treatment, recycling or disposal. The Company believes that it does not have any material environmental liabilities and that compliance with environmental laws, ordinances and regulations will not, individually or in the aggregate, have a material adverse effect on the Company's results of operations or financial condition. However, soil and groundwater contamination has been known to exist at certain properties leased by the Company. Furthermore, environmental laws and regulations are complex and subject to frequent change. There can be no assurance that compliance with amended, new or more stringent laws or regulations, stricter interpretations of existing laws or the future discovery of environmental conditions will not require additional expenditures by the Company, or that such expenditures would not be material. See "Risk Factors -- Environmental Matters." Insurance The Company maintains general liability and property insurance and an umbrella and excess liability policy in amounts it considers adequate and customary for businesses of its kind. However, there can be no assurance that future claims will not exceed insurance coverage. 48 Management Executive Officers and Directors The following information relates to the executive officers and directors of the Company as of August 31, 1996.
Name Age Position - ----------------------------------- ----- ----------------------------------- Carl Spielvogel 67 Chairman of the Board and Chief Executive Officer Marshall S. Cogan 59 Vice Chairman of the Board and Chairman of the Executive and Compensation Committees Arthur J. Rawl 54 Executive Vice President and Chief Financial Officer George G. Lowrance 52 Executive Vice President -- Development and Industry Relations Philip N. Smith, Jr. 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) 1,855,239 4,701,540 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(6) 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, 1994. (6) Options were granted on April 23, 1996 and vest and become exercisable in five equal annual installments beginning on August 1, 1995. 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 50,847 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 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 to be Issued in Minority Minority Division Interest 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 22.7 375 Park Avenue New York, New York 10152 Aeneas Venture Corporation........................ 2,843,656 18.3 (an affiliate of Harvard Private Capital) 600 Atlantic Avenue Boston, Massachusetts 02210 AIF II, L.P....................................... 1,843,656 11.9 c/o Apollo Advisors, L.P. Two Manhattanville Road Purchase, New York 10577 Carl Spielvogel (2)............................... 226,118 1.4 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 22.7 Michael R. Eisenson (5)........................... 2,843,656 18.3 John J. Hannan (6)................................ 1,843,656 11.9 Jules Kroll....................................... 104,474 * Robert H. Nelson (7).............................. 3,544,756 22.8 John M. Sallay (8)................................ 2,843,656 18.3 Richard Sinkfield................................. 10,000 * All directors and Named Executive Officers, 8,764,500 55.6 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, 20,000,000 shares of Class C 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" refer 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. Class C Common Stock No shares of Class C Common Stock have been issued. Holders of Class C Common Stock would be entitled to one-tenth of one vote per share on all matters submitted to a vote of stockholders, and they would be 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 Class C 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. 58 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, 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 Company's capital 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 21.5 million shares of Common Stock, 20.0 million shares of Class C 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 capital 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 59 the stockholders of opportunities to sell their shares of Common Stock at prices higher than prevailing market prices. Such additional shares also could be used to dilute the stock ownership of persons seeking to obtain control of the Company pursuant to the operation of a shareholders' rights plan or otherwise. Delaware General Corporation Law Pursuant to Section 203 of the DGCL, with certain exceptions, a Delaware corporation may not engage in any of a broad range of business combinations, such as mergers, consolidations and sales of assets, with an "interested stockholder" for a period of three years from the date that such person became an interested stockholder unless (i) the transaction that results in the person's becoming an interested stockholder, or the business combination, is approved by the board of directors of the corporation before the person becomes an interested stockholder, (ii) the interested stockholder acquires 85% or more of the outstanding voting stock of the corporation in the same transaction that makes it an interested stockholder or (iii) on or after the date the person becomes an interested 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 15,528,684 shares of Common Stock outstanding immediately after the consummation of the Offering, the 5,500,000 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 155,287 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 all or a portion of the shares of Common Stock issuable upon exercise of such options. Options to purchase up to 50,847 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............................................... 5,500,000 --------------- ---------------
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. The excess of the initial public offering price per share over the price paid for the Additional Warrants by J.P. Morgan Capital Corporation (and its affiliates) and The Equitable Life Assurance Society of the United States is deemed by the NASD to be underwriting compensation pursuant to Rule 2710 of the Conduct Rules. 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 64 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. Additional Information The Company has filed with the Commission a Registration Statement on Form S-1 (herein, together with all amendments thereto, called the "Registration Statement") under the Securities Act with respect to the Common Stock offered by the Company hereby. This Prospectus, which is part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits and financial schedules thereto, to which reference is hereby made. Statements contained in this Prospectus as to the contents of any contract or other document are summaries which are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement herein being qualified in all respects by such reference. The Registration Statement, including the exhibits thereto, may be inspected without charge at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Avenue, N.W., Washington, D.C. 20549, and at the Commission's regional offices at Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such materials can be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a Website (http://www.sec.gov.) that contains reports, proxy and information statements and other information that is filed electronically with the Commission. 65 Index to Financial Statements United Auto Group, Inc. Report of Independent Accountants................................................... F-3 Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996...... F-4 Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996........................... F-5 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1996......................... F-6 Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996........................... F-7 Notes to Consolidated Financial Statements.......................................... F-9 Landers Auto Sales, Inc. Report of Independent Accountants................................................... F-22 Balance Sheets as of December 31, 1994 and July 31, 1995............................ F-23 Statements of Operations for the years ended December 31, 1993 and 1994 and the seven months ended July 31, 1995................................................... F-24 Statements of Retained Earnings for the years ended December 31, 1993 and 1994 and the seven months ended July 31, 1995............................................... F-25 Statements of Cash Flows for the years ended December 31, 1993 and 1994 and the seven months ended July 31, 1995................................................... F-26 Notes to Financial Statements....................................................... F-28 Atlanta Toyota, Inc. Report of Independent Accountants................................................... F-33 Balance Sheets as of December 31, 1994 and 1995..................................... F-34 Statements of Operations for the years ended December 31, 1993, 1994 and 1995....... F-35 Statements of Retained Earnings for the years ended December 31, 1993, 1994 and 1995............................................................................... F-36 Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995....... F-37 Notes to Financial Statements....................................................... F-38 Steve Rayman Nissan, Inc. (presently United Nissan, Inc.) Report of Independent Accountants................................................... F-41 Balance Sheets as of December 31, 1994 and 1995..................................... F-42 Statements of Operations for the period from inception (April 5, 1993) to December 31, 1993 and the years ended December 31, 1994 and 1995 and the three months ended March 31, 1995 and the four months ended April 30, 1996............................ F-43 Statements of Retained Earnings for the period from inception (April 5, 1993) to December 31, 1993 and the years ended December 31, 1994 and 1995................... F-44 Statements of Cash Flows for the period from inception (April 5, 1993) to December 31, 1993 and the years ended December 31, 1994 and 1995 and the three months ended March 31, 1995 and the four months ended April 30, 1996............................ F-45 Notes to Financial Statements....................................................... F-46 Hickman Nissan, Inc. (presently Peachtree Nissan, Inc.) Report of Independent Accountants................................................... F-51 Balance Sheets as of December 31, 1995, and June 30, 1996........................... F-52 Statements of Income and Retained Earnings for the year ended December 31, 1995 and the six months ended June 30, 1995 and 1996........................................ F-53 Statements of Cash Flows for the year ended December 31, 1995 and the six months ended June 30, 1995 and 1996....................................................... F-54 Notes to Financial Statements....................................................... F-55
F-1 Sun Automotive Group Report of Independent Accountants................................................... F-58 Combined Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996.......... F-59 Combined Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996............................... F-60 Combined Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1996............................... F-61 Combined Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996............................... F-62 Notes to Combined Financial Statements.............................................. F-64 Evans Automotive Group Report of Independent Accountants................................................... F-71 Combined Balance Sheets as of December 31, 1995 and June 30, 1996................... F-72 Combined Statements of Operations and retained earnings for the year ended December 31, 1995 and the six months ended June 30, 1995 and 1996........................... F-73 Combined Statements of Cash Flows for the year ended December 31, 1995 and the six months ended June 30, 1995 and 1996................................................ F-74 Notes to Combined Financial Statements.............................................. F-75 Standefer Motor Sales, Inc. Report of Independent Accountants................................................... F-80 Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996................... F-81 Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996........................................ F-82 Statements of Retained Earnings for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1996............................................. F-83 Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996........................................ F-84 Notes to Financial Statements....................................................... F-85
F-2 Report of Independent Accountants To the Stockholders of United Auto Group, Inc.: We have audited the accompanying consolidated balance sheets of United Auto Group, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Auto Group, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Princeton, New Jersey June 17, 1996 F-3 UNITED AUTO GROUP, INC. Consolidated Balance Sheets (In thousands except per share data)
--------------------------------- (Unaudited) December 31, June 30, -------------------- ----------- 1994 1995 1996 --------- --------- ----------- ASSETS Auto Dealerships Cash and cash equivalents $ 751 $ 4,697 $ 9,301 Accounts receivable 19,588 27,349 48,209 Inventories 96,065 101,556 121,289 Deferred income taxes -- 5,153 5,333 Other current assets 2,130 2,894 2,848 --------- --------- ----------- Total current assets 118,534 141,649 186,980 Property and equipment, net 12,072 12,146 14,609 Intangible assets, net 23,018 48,774 66,131 Due from related parties 10,388 14,578 15,727 Other assets 5,754 10,128 11,090 --------- --------- ----------- Total Auto Dealership assets 169,766 227,275 294,537 --------- --------- ----------- Auto Finance Cash and cash equivalents 32 531 1,530 Finance assets, net -- 7,555 775 Other assets 544 666 14,262 --------- --------- ----------- Total Auto Finance assets 576 8,752 16,567 --------- --------- ----------- Total assets $ 170,342 $ 236,027 $ 311,104 --------- --------- ----------- --------- --------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Auto Dealerships Floor plan notes payable $ 92,310 $ 97,823 $ 129,009 Short-term debt 20,050 16,187 15,069 Accounts payable 7,638 12,393 20,626 Accrued expenses 3,922 9,875 14,150 Current portion of long-term debt 1,905 3,169 2,463 --------- --------- ----------- Total current liabilities 125,825 139,447 181,317 Long-term debt 6,735 24,073 38,694 Due to related party 750 1,109 1,191 Deferred income taxes -- 2,279 2,279 --------- --------- ----------- Total Auto Dealership liabilities 133,310 166,908 223,481 --------- --------- ----------- Auto Finance Short-term debt -- 4,661 2,516 Accounts payable and other liabilities 285 590 1,502 --------- --------- ----------- Total Auto Finance liabilities 285 5,251 4,018 --------- --------- ----------- Minority interests subject to repurchase 7,962 13,608 15,299 --------- --------- ----------- Stock purchase warrants -- 1,020 1,597 --------- --------- ----------- Commitments and contingent liabilities Stockholders' Equity Class A Convertible Preferred Stock, $0.0001 par value, shares authorized 4,911; shares issued and outstanding 1,972 and 3,651 at December 31, 1994 and 1995, respectively 1 1 1 Voting Common Stock, $0.0001 par value, shares authorized 15,100; shares issued and outstanding 1,529 and 2,583 at December 31, 1994 and 1995, respectively 1 1 1 Non-voting Common Stock, $0.0001 par value, authorized 1,025; none issued and outstanding -- -- -- Additional paid-in-capital 30,827 54,748 68,319 Accumulated deficit (2,044) (5,510) (1,612) --------- --------- ----------- Total stockholders' equity 28,785 49,240 66,709 --------- --------- ----------- Total liabilities, minority interests subject to repurchase, stock purchase warrants and stockholders' equity $ 170,342 $ 236,027 $ 311,104 --------- --------- ----------- --------- --------- -----------
The accompanying notes are an integral part of these consolidated financial statements. F-4 UNITED AUTO GROUP, INC. Consolidated Statements of Operations (In thousands except per share data)
----------------------------------------------------- (Unaudited) Years ended Six months ended December 31, June 30, ------------------------------- -------------------- 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- Auto Dealerships Vehicle sales $ 528,484 $ 644,380 $ 716,394 $ 310,217 $ 535,173 Finance and insurance 24,666 27,518 29,806 14,499 22,339 Service and parts 52,941 59,731 59,421 28,023 40,427 --------- --------- --------- --------- --------- Total revenues 606,091 731,629 805,621 352,739 597,939 Cost of sales, including floor plan interest for the years ended December 31, 1993, 1994 and 1995 of $3,754, $4,557 and $5,784, respectively 537,688 647,643 720,344 316,525 531,560 --------- --------- --------- --------- --------- Gross profit 68,403 83,986 85,277 36,214 66,379 Selling, general and administrative expenses 66,910 80,415 90,586 41,941 56,975 --------- --------- --------- --------- --------- Operating income (loss) 1,493 3,571 (5,309) (5,727) 9,404 Related party interest income -- -- 3,039 1,519 1,548 Other interest expense (1,233) (860) (1,438) (402) (2,049) Equity in income (loss) of uncombined investees -- (2,899) (831) (508) 75 --------- --------- --------- --------- --------- Income (loss) before income taxes -- Auto Dealerships 260 (188) (4,539) (5,118) 8,978 --------- --------- --------- --------- --------- Auto Finance Revenues -- 2 530 101 1,029 Interest expense -- -- (174) (13) (176) Operating and other expenses -- (618) (1,738) (789) (1,202) --------- --------- --------- --------- --------- Loss before income taxes -- Auto Finance -- (616) (1,382) (701) (349) --------- --------- --------- --------- --------- Total Company Income (loss) before minority interests and provision for income taxes 260 (804) (5,921) (5,819) 8,629 Minority interests (117) (887) 366 917 (1,734) Benefit (provision) for income taxes (47) -- 2,089 -- (2,997) --------- --------- --------- --------- --------- Net income (loss) $ 96 $ (1,691) $ (3,466) $ (4,902) $ 3,898 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss) per common share (see note 2) $ .05 $ (.44) $ (.63) $ (1.05) $ .46 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Shares used in computing net income (loss) per common share 1,894 3,873 5,482 4,682 8,500 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
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 -- $ -- 1,281,250 $ 1 $ 15,999 $ (449) $ 15,551 Issuance of stock for cash 1,570,000 1 62,500 -- 14,616 -- 14,617 Distribution to stockholder -- -- -- -- (5,000) -- (5,000) Net income for 1993 -- -- -- -- -- 96 96 --------- --- --------- --- ----------- ----------- ---------- Balances, December 31, 1993 1,570,000 1 1,343,750 1 25,615 (353) 25,264 Issuance of stock for cash 401,611 -- 185,486 -- 5,212 -- 5,212 Net loss for 1994 -- -- -- -- -- (1,691) (1,691) --------- --- --------- --- ----------- ----------- ---------- Balances, December 31, 1994 1,971,611 1 1,529,236 1 30,827 (2,044) 28,785 Issuance of stock for cash 1,679,118 -- 1,053,549 -- 23,921 -- 23,921 Net loss for 1995 -- -- -- -- -- (3,466) (3,466) --------- --- --------- --- ----------- ----------- ---------- Balances, December 31, 1995 3,650,729 1 2,582,785 1 $ 54,748 (5,510) 49,240 Issuance of stock for cash (Unaudited) 840,325 -- 717,017 -- 13,571 -- 13,571 Net income for the six months ended June 30, 1996 (Unaudited) -- -- -- -- -- 3,898 3,898 --------- --- --------- --- ----------- ----------- ---------- Balances, June 30, 1996 (Unaudited) 4,491,054 $ 1 3,299,802 $ 1 $ 68,319 $ (1,612) $ 66,709 --------- --- --------- --- ----------- ----------- ---------- --------- --- --------- --- ----------- ----------- ----------
The accompanying notes are an integral part of these consolidated financial statements. F-6 UNITED AUTO GROUP, INC. Consolidated Statements of Cash Flows (Dollars in thousands)
------------------------------------------------------------------------------------------------- (Unaudited) Years ended December 31, Six months ended June 30, ----------------------------------------------------- ------------------------------------------ 1993 1994 1995 1995 1996 --------- -------------------- -------------------- -------------------- -------------------- Auto Auto Auto Auto Auto Auto Auto Auto Auto Dealerships Dealerships Finance Dealerships Finance Dealerships Finance Dealerships Finance --------- --------- --------- --------- --------- --------- --------- --------- --------- Operating activities: Net income (loss) $ 96 $ (1,075) $ (616) $ (2,084) $ (1,382) $ (4,201) $ (701) $ 4,247 $ (349) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 924 2,225 20 2,536 284 1,109 62 1,619 90 Deferred income tax benefit -- -- -- (2,374) -- -- -- -- -- Related party interest income -- -- -- (3,039) -- -- -- -- -- Accrued interest related parties...... -- -- -- -- -- (1,519) -- (1,548) -- Loss on sale of interest in uncombined investee -- 117 -- 348 -- 253 -- -- -- Equity in income (loss) of uncombined investee -- 2,782 -- 483 -- 255 -- (75) -- Gain on sales of loans -- -- -- -- (129) -- -- -- (510) Loans originated -- -- -- -- (18,769) -- (3,219) -- (44,075) Loans repaid or sold -- -- -- -- 11,236 -- 339 -- 37,456 Minority interests 117 887 -- (366) -- (917) -- 1,734 -- Changes in operating assets and liabilities: Accounts receivable (8,315) (7,042) -- (1,524) -- (2,343) -- (16,091) -- Inventories (23,982) (12,417) -- 16,319 -- (2,054) -- (2,494) -- Floor plan notes payable 22,458 14,874 -- (14,753) -- 3,020 -- 16,651 -- Accounts payable and accrued expenses (4,431) (1,239) 288 5,240 302 4,223 (79) 8,430 910 Other 460 (879) (5) (90) 411 (499) 38 (598) 2,670 --------- --------- --------- --------- --------- --------- --------- --------- --------- Net cash provided by (used in) operating activities (12,673) (1,767) (313) 696 (8,047) (2,673) (3,560) 11,875 (3,808) --------- --------- --------- --------- --------- --------- --------- --------- --------- Investing activities: Purchase of equipment and improvements (1,624) (4,675) (562) (1,496) (243) (1,158) (117) (1,916) (153) Dealership acquisitions (1,975) (755) -- (19,921) -- (92) -- (20,803) -- Investment in auto finance subsidiary -- (907) 907 (4,592) 4,592 (4,125) 4,125 (9,400) 9,400 Funding for subsequent acquisition -- -- -- (1,840) -- -- -- -- -- Advances to related parties (1,775) (5,923) -- (1,496) -- (64) -- 400 -- Investment and advances to uncombined investee -- (4,087) -- (799) -- 102 -- (1,438) -- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net cash provided by (used in) investing activities (5,374) (16,347) 345 (30,144) 4,349 (5,337) 4,008 (33,157) 9,247 --------- --------- --------- --------- --------- --------- --------- --------- ---------
F-7 UNITED AUTO GROUP, INC. Consolidated Statements of Cash Flows (Continued) (Dollars in thousands) ------------------------------------------------------------------------------------------------- (Unaudited) Six months ended June Years ended December 31, 30, -------------------------------------------------------- ---------- 1993 1994 1995 1995 ---------- --------------------- --------------------- ---------- Auto Auto Auto Auto Auto Auto Dealerships Dealerships Finance Dealerships Finance Dealerships ---------- ---------- --------- ---------- --------- ---------- Financing activities: Proceeds from issuance of stock 15,209 5,450 -- 25,220 -- 10,079 Proceeds from borrowings of long-term debt 2,320 4,299 -- 16,300 -- 410 Deferred financing costs -- -- -- (2,549) -- -- Net borrowings (repayments) of short-term debt 11,023 9,027 -- (3,863) -- (3,129) Payments of long-term debt and capitalized lease obligations (2,680) (1,139) -- (2,073) -- (1,063) Distribution to stockholders and minority interest (5,328) (42) -- -- -- -- Advances from affiliates 6,162 -- -- 359 -- 1,187 Advances to affiliates -- (7,389) -- -- -- -- Borrowings of warehouse credit line -- -- -- -- 14,202 -- Payments of warehouse credit line -- -- -- -- (10,005) -- ---------- ---------- --------- ---------- --------- ---------- Net cash provided by financing activities 26,706 10,206 0 33,394 4,197 7,484 ---------- ---------- --------- ---------- --------- ---------- Net increase (decrease) in cash and cash equivalents 8,659 (7,908) 32 3,946 499 (526) Cash and cash equivalents, beginning of year 0 8,659 0 751 32 751 ---------- ---------- --------- ---------- --------- ---------- Cash and cash equivalents, end of year $ 8,659 $ 751 $ 32 $ 4,697 $ 531 $ 225 ---------- ---------- --------- ---------- --------- ---------- ---------- ---------- --------- ---------- --------- ----------
1996 --------------------- Auto Auto Auto Finance Dealerships Finance --------- ---------- --------- Financing activities: Proceeds from issuance of stock -- 15,986 -- Proceeds from borrowings of long-term debt -- 13,220 -- Deferred financing costs -- (908) -- Net borrowings (repayments) of short-term debt -- (1,118) -- Payments of long-term debt and capitalized lease obligations -- (1,376) -- Distribution to stockholders and minority interest -- -- -- Advances from affiliates -- 82 -- Advances to affiliates -- -- -- Borrowings of warehouse credit line 45 -- 30,880 Payments of warehouse credit line -- -- (35,320) --------- ---------- --------- Net cash provided by financing activities 45 25,886 (4,440) --------- ---------- --------- Net increase (decrease) in cash and cash equivalents 493 4,604 999 Cash and cash equivalents, beginning of year 32 4,697 531 --------- ---------- --------- Cash and cash equivalents, end of year $ 525 $ 9,301 $ 1,530 --------- ---------- --------- --------- ---------- ---------
The accompanying notes are an integral part of these consolidated financial statements. F-8 UNITED AUTO GROUP, INC. (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes to Consolidated Financial Statements (Dollars in thousands) 1. Organization: United Auto Group, Inc. ("UAG" or the "Company") is engaged in the sale of new and used motor vehicles, finance and insurance products, vehicle service and parts and aftermarket products. Through its wholly-owned consumer finance subsidiary, Atlantic Auto Finance Corporation ("AAFC"), UAG also purchases, sells and services financing contracts on new and used vehicles originated by both UAG and third party dealerships. The Company has through its wholly owned subsidiaries, DiFeo Partnership, Inc. and United Landers, Inc., a 70% interest in the partnerships within the United DiFeo Automotive Group (the "DiFeo Group") and an 80% interest in the corporations of Landers Auto Sales, Inc. ("Landers"), respectively. The DiFeo Group is comprised of twenty-seven automobile dealerships, organized as partnerships, and a management partnership. These partnerships operate in Connecticut, New Jersey and New York and are under common ownership, management and control. Landers is comprised of two automobile dealerships organized as corporations, operating in Arkansas. The Company operates dealerships which hold franchise agreements with a number of automotive manufacturers. In accordance with the individual franchise agreement, each dealership is subject to certain rights and restrictions typical of the industry. The ability of the manufacturers to influence the operations of the dealerships or the loss of a franchise agreement could have a negative impact on operating results of the Company. 2. Summary of Significant Accounting Policies: ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accounts which require the use of significant estimates are receivables, inventory, taxes, intangibles and accrued expenses. INTERIM FINANCIAL STATEMENTS (UNAUDITED): The interim unaudited financial statements reflect adjustments, consisting only of normal recurring accruals, which are, in the opinion of the Company's management, necessary for a fair presentation of the financial position and results of operations for the periods presented. Operating results for any interim period are not necessarily indicative of the results for a full year. PRINCIPLES OF CONSOLIDATION: These consolidated financial statements include all significant majority-owned subsidiaries and reflect the operating results, assets, liabilities and cash flows for two business segments: auto dealerships and financial services. The assets and liabilities of the auto dealerships segment are classified as current or noncurrent and those of the financial services segment are unclassified. All material accounts and transactions among the consolidated affiliates have been eliminated. Affiliated companies that are 20% to 50% owned are accounted for under the equity method of accounting. RECLASSIFICATIONS: Certain reclassifications have been made to 1993 and 1994 amounts to conform them to the 1995 presentation. CASH AND CASH EQUIVALENTS: Cash and cash equivalents include all highly-liquid investments that have an original maturity of three months or less at the date of purchase. F-9 UNITED AUTO GROUP, INC. (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes to Consolidated Financial Statements (Continued) (Dollars in thousands) 2. Summary of Significant Accounting Policies: (Continued) REVENUE RECOGNITION -- AUTO DEALERSHIPS: Revenue is recognized by the Company when vehicles are delivered to consumers or motor vehicle service work is performed and parts are delivered. Finance and insurance revenues are recognized upon the sale of the finance or insurance contract. An allowance for chargebacks against revenue recognized from Company originated and sold customer finance contracts is established during the period in which the related revenue is recognized. REVENUE RECOGNITION --AUTO FINANCE: Revenue from finance receivables is recognized over the term of the receivable using the interest method. Certain loan origination costs are deferred and amortized over the term of the related receivable as a reduction in financing revenue. Generally, finance receivables are accumulated by the Company until they attain a value in excess of $5,000, at which time they are sold into a commercial paper conduit (loan warehouse facility). An allowance for financing losses on receivables is provided for the period from the date of purchase to the date of sale. This allowance is shown as a reduction in receivables held for sale. Revenue is recognized upon sale to the conduit. Interest is received and credited to interest income based on the daily principal balance of the receivables outstanding. Loan servicing fees on receivables sold to the conduit are recognized as collected. INVENTORY VALUATION: Inventories are stated at the lower of cost or market with cost determined by the following methods:
------------------------ Inventory Component Valuation Method - --------------------------- ------------------------ New vehicles Last in, first out (LIFO) Used vehicles Specific identification Parts, accessories and Factory list price other
New vehicle and parts inventories are purchased primarily from the related vehicle manufacturer. PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost and depreciated over their estimated useful lives, primarily using the straight-line method. Useful lives for purposes of computing depreciation are: Leasehold improvements and -- Economic life or life of equipment under capital the lease, whichever is lease shorter. Equipment, furniture and -- 5 to 7 years fixtures
Expenditures for repairs and maintenance which increase the useful life or substantially increase serviceability of the asset are capitalized. When equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from their respective accounts, and any resulting gain or loss is included in the statement of operations. INCOME TAXES: The Company provides for income taxes in accordance with Statement of Financial Accounting Standard No. 109 "Accounting for Income Taxes" ("SFAS 109") which requires the asset and liability method of accounting for income taxes. Deferred tax assets or liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using enacted tax rates. The Company provides a valuation allowance for net deferred tax assets when it will be more likely than not that taxable income will not be sufficient to realize such assets. F-10 UNITED AUTO GROUP, INC. (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes to Consolidated Financial Statements (Continued) (Dollars in thousands) 2. Summary of Significant Accounting Policies: (Continued) INTANGIBLE ASSETS: Intangible assets consists of excess of cost over net assets acquired which is being amortized on a straight-line basis over the estimated benefit period of 40 years. The Company periodically reviews these costs to assess recoverability. Losses in value, if any, are charged to operations in the period such losses are determined to be permanent. Amortization expense was $549, $570 and $904 for the years ended December 31, 1993, 1994 and 1995. The Company's policy with respect to assessing whether there has been a permanent impairment in the value of excess cost over net assets acquired is to compare the carrying value of a business' excess cost over net assets acquired with the anticipated undiscounted future cash flows from operating activities of the business. Factors considered by the Company in performing this assessment include current operating income, trends and other economic factors. FAIR VALUE OF FINANCIAL INSTRUMENTS: The Company's financial instruments consist of cash and cash equivalents and debt. The carrying amount of these financial instruments approximates fair value due either to length of maturity or existence of variable interest rates that approximates prevailing market rates. LONG-LIVED ASSETS: Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" ("SFAS 121") requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset in question may not be recoverable. SFAS 121 was adopted in 1996 and did not have a material effect on the Company's results of operations, cash flows or financial position. AUTO FINANCE -- FINANCE ASSETS: All finance receivables are sold principally into a commercial paper conduit through the issuance of a certificate indicating ownership of the contracts by CXC Incorporated ("CXC"), a Citibank, N. A. related entity. These contracts are carried at the lower of their principal balance outstanding or market value. Market value is estimated based on the characteristics of the finance receivables held for sale and the terms of recent sales of similar finance receivables computed by the Company. While finance receivables are being accumulated for sale into the conduit, they are pledged against a liquidity credit line with Citibank, N.A. As of December 31, 1995, none of the finance receivables qualified as impaired, subject to the terms set forth in Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan." The Company is required to hedge each pool of finance receivables sold to CXC. Swaps against the commercial paper rate have been used to provide protection for the net yield in each pool as required by CXC. The differential to be paid or received as interest rates change is included in the calculation of excess servicing and amortized over the life of the pool. The notional amounts of outstanding hedges were $0 and $10,987 at December 31, 1994 and 1995, respectively. There were no swap agreements outstanding as of December 31, 1994. The fair value of interest rate swap agreements represented an unrecorded liability of $170 as of December 31, 1995. The Company has credit and interest rate risk on finance receivables held for sale. The Company has a program of credit review prior to final approval of specific loans and maintains reserves as appropriate. Interest rate risk is mitigated by the short period of time that receivables are held. NET INCOME (LOSS) PER COMMON SHARE: 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 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 $29.50 per share. 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) Net income (loss) per common share data calculated in accordance with APB No. 15 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
The computations of net income (loss) per share in accordance with APB No. 15 are based on the weighted average number of common shares, the weighted average number of preferred shares and warrants outstanding to the extent dilutive. 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 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 Net income (loss) per common share $.05
In the fourth quarter of 1995 the Company determined that it was more likely than not that future taxable income would be sufficient to fully recognize a net deferred tax asset of $2,874 (See Note 16). The net income (loss) per common share amounts are calculated independently for each of the quarters presented and are not presented in thousands. The sum of the quarters may not equal the full year net income (loss) per common share amount. F-20 UNITED AUTO GROUP, INC. (Information related to the six months ended June 30, 1995 and 1996 is unaudited) Notes to Consolidated Financial Statements (Continued) (Dollars in thousands) 19. Subsequent Events: Effective January 1, 1996, the Company acquired a 100% interest in Atlanta Toyota, Inc. for a purchase price consisting of $9,100 in cash plus $2,400 in notes. This acquisition was accounted for under the purchase method and the accompanying financial statements reflect the results of operations from the date of acquisition. In order to finance the acquisition, the Company issued additional Preferred Stock and Common Stock in the amount of $6,100 and issued Notes in the amount of $4,400 at an interest rate of 11.60%. On May 1, 1996, the Company acquired a 100% interest in Steve Rayman Nissan, Inc. for a purchase price of $11,500 in cash. This acquisition will be accounted for under the purchase method and the financial statements will reflect the results of operations from the date of acquisition. The dealership has been renamed United Nissan. In order to finance the acquisition, the Company issued additional Preferred Stock and Common Stock in the amount of $7,380 and issued Notes in the amount of $4,620 at an interest rate of 11.95%. The following unaudited pro forma summary presents the consolidated results of operations of the Company, Landers and the aforementioned acquisitions for 1994 and 1995 with pro forma adjustments as if these transactions had been consummated as of January 1, 1994.
-------------------- December 31, -------------------- 1994 1995 --------- --------- Revenues $1,122,463 $1,144,823 Income before minority interests and provision for income taxes 6,678 4,187
The foregoing pro forma results are not necessarily indicative of results of operations that would have been reported had the acquisitions been completed at January 1, 1994. F-21 Report of Independent Accountants To the Stockholders of Landers Auto Sales, Inc. We have audited the accompanying balance sheets of Landers Auto Sales, Inc. as of July 31, 1995 and December 31, 1994 and the related statements of operations, retained earnings and cash flows for the period ended July 31, 1995 and the years ended December 31, 1994 and 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Landers Auto Sales, Inc. as of July 31, 1995 and December 31, 1994 and the results of its operations and its cash flows for the period ended July 31, 1995 and the years ended December 31, 1994 and 1993 in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Memphis, Tennessee May 31, 1996 F-22 LANDERS AUTO SALES, INC. Balance Sheets (Dollars in thousands)
------------------------ December 31, July 31, 1994 1995 ------------- --------- Assets: Current Assets Cash $ 3,229 $ 2,278 Accounts receivable 6,948 6,593 Inventories 26,871 22,433 Other current assets -- 29 ------------- --------- Total current assets 37,048 31,333 ------------- --------- Property and equipment, net 871 927 Intangible assets 55 49 ------------- --------- Total assets $ 37,974 $ 32,309 ------------- --------- ------------- --------- Liabilities and stockholders' equity: Current Liabilities Floor plan notes payable $ 26,328 $ 21,384 Current portion of long-term debt 88 115 Due to stockholders 2,669 2,046 Accounts payable 1,374 1,337 Accrued expenses 959 1,313 Income taxes payable 1,623 336 Accrued dividends -- 1,545 ------------- --------- Total current liabilities 33,041 28,076 ------------- --------- Long-term debt -- net of current portion 187 239 ------------- --------- Total liabilities 33,228 28,315 ------------- --------- Commitments and contingent liabilities Stockholders' equity: Common stock, no par value; authorized 100 shares, issued and outstanding 10 shares 805 805 Retained earnings 3,941 3,189 ------------- --------- Total stockholders' equity 4,746 3,994 ------------- --------- Total liabilities and stockholders' equity $ 37,974 $ 32,309 ------------- --------- ------------- ---------
The accompanying notes are an integral part of the financial statements. F-23 LANDERS AUTO SALES, INC. Statements of Operations (Dollars in thousands)
---------------------------------- Period Years ended ended July December 31, 31, ---------------------- ---------- 1993 1994 1995 ---------- ---------- ---------- Sales $ 163,343 $ 228,912 $ 164,368 Cost of sales, including floor plan interest for the years ended December 31, 1993 and 1994 and for the period ended July 31, 1995 of $274, $1,922 and $1,503, respectively 153,631 208,932 147,566 ---------- ---------- ---------- Gross profit 9,712 19,980 16,802 Selling, general and administrative expenses 9,530 15,445 10,132 ---------- ---------- ---------- Income from operations 182 4,535 6,670 Other income (expense), net 214 209 242 ---------- ---------- ---------- Income before income taxes 396 4,744 6,912 Provision for income taxes 181 1,810 449 ---------- ---------- ---------- Net income $ 215 $ 2,934 $ 6,463 ---------- ---------- ---------- ---------- ---------- ----------
The accompanying notes are an integral part of the financial statements. F-24 LANDERS AUTO SALES, INC. Statements of Retained Earnings (Dollars in thousands)
------------- Retained earnings, December 31, 1992 $ 850 Net income for the year 215 ------ Retained earnings, December 31, 1993 1,065 Dividends (58) Net income for the year 2,934 ------ Retained earnings, December 31, 1994 3,941 Dividends (7,215) Net income for the period 6,463 ------ Retained earnings, July 31, 1995 $ 3,189 ------ ------
The accompanying notes are an integral part of the financial statements. F-25 LANDERS AUTO SALES, INC. Statements of Cash Flows (Dollars in thousands)
------------------------------- Period Years ended ended December 31, July 31, -------------------- --------- 1993 1994 1995 --------- --------- --------- Operating activities: Net income $ 215 $ 2,934 $ 6,463 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 177 290 159 Amortization 38 27 7 Net loss (gain) on sale of assets -- 19 (5) Changes in operating assets and liabilities: Accounts receivable (2,236) (2,390) 353 Inventories (858) (7,534) 4,439 Other current assets (534) 654 (29) Floor plan notes payable 1,862 5,954 (4,944) Accounts payable 523 89 (37) Accrued expenses 583 292 354 Income taxes payable (319) 1,623 (1,287) --------- --------- --------- Net cash provided by (used in) operating activities (549) 1,958 5,473 Investing activities: Acquisition of property and equipment (365) (414) (76) Proceeds from sale of assets -- 13 21 --------- --------- --------- Net cash used in investing activities (365) (401) (55) Financing activities: Payment on debt (30) (96) (76) Net increase (decrease) in cash overdrafts 1,015 (1,015) -- Net increase (decrease) in due to stockholders (67) 2,201 (623) Dividends paid -- -- (5,670) --------- --------- --------- Net cash provided by (used in) financing activities 918 1,090 (6,369) --------- --------- --------- Net increase (decrease) in cash 4 2,647 (951) Cash, beginning of period 578 582 3,229 --------- --------- --------- Cash, end of period $ 582 $ 3,229 $ 2,278 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of the financial statements. F-26 LANDERS AUTO SALES, INC. Statements of Cash Flows -- Supplemental Information (Dollars in thousands)
--------------------------------------- Period Years ended December 31, ended July -------------------------- 31, 1993 1994 1995 ------------ ------------ ----------- Supplemental cash flow information: Cash paid during the period: Interest $ 183 $ 1,966 $ 1,525 Income taxes 993 88 1,804
Supplemental Disclosures of Non-Cash Activities: During the years ended December 31, 1993 and 1994 and the period ended July 31, 1995, the Company purchased equipment and vehicles totaling $88, $70 and $125, respectively, through direct financing. During the period ended July 31, 1995, the Company acquired computer equipment totaling $31 through a capital lease. During the year ended December 31, 1993, the Company entered into the capital lease of a computer for $230. During the year ended December 31, 1994, a Company vehicle was destroyed. The note relating to the vehicle in the amount of $20 was subsequently paid off by the insurance company in full. During the year ended December 31, 1994, the Company paid dividends to stockholders in the form of Company owned land with a cost and a fair value of $58. During the period ended July 31, 1995, the Company accrued dividends to stockholders in the amount of $1,545. The accompanying notes are an integral part of the financial statements. F-27 LANDERS AUTO SALES, INC. Notes to Financial Statements (Dollars in thousands) 1. Organization: The December 31, 1993 financial statements of Landers Auto Sales, Inc. (the "Company") were prepared on a consolidated basis and included the accounts of its wholly owned subsidiaries, Landers Oldsmobile-GMC, Inc. and Landers Jeep-Eagle, Inc. As of December 22, 1994, Landers Oldsmobile-GMC, Inc. and Landers Jeep-Eagle, Inc. were merged into Landers Auto Sales, Inc. and operate as divisions of Landers Auto Sales, Inc. under the trade names of Landers Oldsmobile-GMC Trust and Landers Jeep-Eagle/Chrysler-Plymouth-Dodge, respectively. All material divisional accounts and transactions have been eliminated. The Company, operating in Benton, Arkansas, sells and services new Oldsmobile, GMC Trucks, Jeep, Eagle, Chrysler, Plymouth, Dodge cars and trucks and used automobiles and 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.................................................... $ 64,029 NASD Fees............................................................... 19,250 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.................................................. 14,721 ---------- Total........................................................... $2,625,000 ---------- ----------
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. 10.1.14 Form of Agreement among the Company, certain of its affiliates and American Honda Motor Co., Inc. 10.1.15 Form of Option Certificate of the Company in favor of Samuel X. DiFeo and Joseph C. DiFeo. 10.1.16 Form of Registration Rights Agreement among the Company and the parties listed on Schedule I thereto. 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.
II-3
No. Description - ------------ ------------------------------------------------------------------------------------------ 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 October 21, 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. *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).
II-4
No. Description - ------------ ------------------------------------------------------------------------------------------ *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. **10.2.23 Loan and Security Agreement, dated as of October 1, 1992, between General Motors Acceptance Corporation and Hudson Motors Partnership, as amended April 7, 1993 (a substantially similar agreement exists with each other operating partnership in the DiFeo Group). 10.2.24 Unconditional, Continuing Guaranty of Payment of the Company and its affiliates named therein, dated as of October 1, 1992, in favor of General Motors Acceptance Corporation, as amended April 7, 1993. 10.2.25 Term Loan and Borrowing Base Credit Line Loan Agreement, dated as of April 7, 1993, between General Motors Acceptance Corporation and DiFeo-EMCO Management Partnership. 10.2.26 Settlement Agreement, dated as of October 3, 1996, among the Company and certain of its affiliates, on the one hand, and Samuel X. DiFeo, Joseph C. DiFeo and certain of their affiliates, on the other hand. 10.2.27 Form of Agreement and Plan of Merger used in the Minority Exchange of the DiFeo Group. 10.2.28 Form of Lease of certain facilities in the DiFeo Group. 10.2.29 Lease Agreement, dated September 27, 1990, between J & F Associates and TJGHCC Associates. 10.2.30 Lease Agreement, dated October 1, 1992, between Manly Chevrolet, Inc. and County Toyota, Inc. 10.2.31 Sublease, dated October 1, 1992, between DiFeo BMW, Inc. and DiFeo BMW Partnership. *10.3.1 Receivables Purchase Agreement, dated as of June 28, 1995, between Atlantic Auto Funding Corporation and Atlantic Auto Finance Corporation. *10.3.2 Loan and Security Agreement, dated as of June 28, 1995, among Atlantic Auto Funding Corporation, Atlantic Auto Finance Corporation and Citibank, N.A. *10.3.3 Support Agreement of the Company, dated as of June 28, 1995, in favor of Atlantic Auto Funding Corporation. *10.3.4 Purchase Agreement, dated as of June 14, 1996, between Atlantic Auto Finance Corporation and Atlantic Auto Second Funding Corporation. *10.3.5 Transfer and Administration Agreement, dated as of June 14, 1996, among Atlantic Auto Second Funding Corporation, Atlantic Auto Finance Corporation and Morgan Guaranty Trust Company of New York. *10.3.6 Support Agreement of the Company, dated as of June 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.
II-5
No. Description - ------------ ------------------------------------------------------------------------------------------ *10.4.2 Promissory Note of the Company, dated August 1, 1995, in favor of Steve Landers and John Landers. *10.4.3 Promissory Note of the Company, dated August 1, 1995, in favor of Steve Landers and John Landers. *10.4.4 Guarantee of the Company, dated as of August 1, 1995, in favor of Steve Landers and John Landers. *10.4.5 Employment Agreement, dated as of August 1, 1995, between Landers Auto Sales, Inc. and Steve Landers. *10.4.6 Lease, dated as of August 1, 1995, among Steve Landers, John Landers, Bob Landers and Landers Auto Sales, Inc., regarding Jeep-Eagle premises. *10.4.7 Lease, dated as of August 1, 1995, among Steve Landers, John Landers, Bob Landers and Landers Auto Sales, Inc., regarding Oldsmobile-GMC premises. *10.4.8 Shareholders' Agreement, dated as of August 1, 1995, among the Company, United Landers, Inc., Landers Auto Sales, Inc., Steve Landers and John Landers. *10.4.9 Chrysler Corporation Eagle Sales and Service Agreement, dated August 16, 1995, between United Landers Auto Sales, Inc. and Chrysler Corporation (standard provisions are in Exhibit 10.2.10.2). *10.4.10 Chrysler Corporation Jeep Sales and Service Agreement, dated August 16, 1995, between United Landers Auto Sales, Inc. and Chrysler Corporation (substantially similar to Exhibit 10.4.9). *10.4.11 Chrysler Corporation Dodge Sales and Service Agreement, dated August 16, 1995, between United Landers Auto Sales, Inc. and Chrysler Corporation (substantially similar to Exhibit 10.4.9). *10.4.12 Chrysler Corporation Plymouth Sales and Service Agreement, dated August 16, 1995, between United Landers Auto Sales, Inc. and Chrysler Corporation (substantially similar to Exhibit 10.4.9). *10.4.13 Chrysler Corporation Chrysler Sales and Service Agreement, dated August 16, 1995, between United Landers Auto Sales, Inc. and Chrysler Corporation (substantially similar to Exhibit 10.4.9). *10.4.14 Oldsmobile Division Dealer Sales and Service Agreement, dated November 1, 1995, between General Motors Corporation, Oldsmobile Division and United Landers Auto Sales, Inc. (substantially similar to Exhibit 10.2.7.1). *10.4.15 GMC Truck Division Dealer Sales and Service Agreement, dated November 1, 1995, between General Motors Corporation, GMC Truck Division and United Landers Auto Sales, Inc. (substantially similar to Exhibit 10.2.7.1). *10.4.16 Security Agreement and Master Credit Agreement, dated October 25, 1993, between Landers Oldsmobile-GMC Inc. and Chrysler Credit Corporation. *10.4.17 Security Agreement and Master Credit Agreement, dated May 17, 1989, between Landers Jeep-Eagle, Inc. and Chrysler Credit Corporation. *10.4.18 Continuing Guaranty of United Landers, Inc., dated August 15, 1994, in favor of Chrysler Credit Corporation. *10.4.19 Commercial Loan Agreement, dated December 5, 1994, between Landers Oldsmobile-GMC, Inc. and The Benton State Bank. *10.4.20 Commercial Security Agreement, dated December 5, 1994, between Landers Oldsmobile-GMC, Inc. and The Benton State Bank. *10.4.21 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.
II-6
No. Description - ------------ ------------------------------------------------------------------------------------------ *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 10.2.9.1). *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.
II-7
No. Description - ------------ ------------------------------------------------------------------------------------------ 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, as amended on October 21, 1996 by Amendment No. 1, Amendment No. 2 and Amendment No. 3. *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. 10.8.5.1 Form of Audi Dealer Agreement (standard provisions are in Exhibit 10.8.5.2 hereto). 10.8.5.2 Audi Standard Provisions. 10.8.6.1 Form of Acura Automobile Dealer Sales and Service Agreement (standard provisions are in Exhibit 10.8.6.2 hereto). 10.8.6.2 Acura Standard Provisions. 10.8.7.1 Form of BMW of North America Dealer Agreement (substantially similar to Exhibit 10.2.4.1). 10.8.8.1 Form of Porsche Sales and Service Agreement. **10.8.8.2 Form of Addendum to Porsche Sales and Service Agreement. **10.8.9.1 Form of Land Rover North America, Inc. Dealer Agreement. **10.8.9.2 Land Rover Standard Provisions. 10.8.10 Sublease, dated June 7, 1988, between Max of Switzerland and Scottsdale Porsche & Audi, Ltd. 10.8.11 Lease, dated October 1990, between Lisa B. Zelinsky and R. J. Morgan Corporation of America and Scottsdale Hyundai, Ltd. 10.8.12 Sublease, dated July 1, 1995, between Camelback Automotive, Inc. and LRP Ltd. 10.8.13 Lease, dated February 27, 1995, between Lee S. Maas and Sun BMW Ltd. 10.8.14 Form of Shareholders' Agreement among UAG West, Inc., SK Motors, Ltd., and the Knappenberger Revocable Trust. 10.8.15 Form of Management Agreement among the Company, UAG West, Inc. and Scottsdale Jaguar, Ltd. 10.8.16 Form of Lease Agreement between 6725 Agent and Scottsdale Jaguar, Ltd. **10.8.17 Form of Indemnification Agreement among the Company, UAG West, Inc., Scottsdale Jaguar, Ltd., Steven Knappenberger, and certain other individuals and trusts. 10.8.18 Form of Real Estate Loan and Security Agreement, made by SA Automotive, Ltd. for the benefit of Chrysler Financial Corporation. 10.8.19 Form of Security Agreement and Master Credit Agreement of Chrysler Credit Corporation (substantially similar to Exhibit 10.4.16). 10.8.20 Form of Continuing Guaranty of each of the Company and UAG West, Inc. in favor of Chrysler Credit Corporation (substantially similar to Exhibit 10.4.18). *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. 10.9.3 Form of Dealer Agreement between BMW North America, Inc. and Charles Evans BMW Inc. (substantially similar to Exhibit 10.2.4.1). 10.9.4 Form of Nissan Dealer Term Sales and Service Agreement between Nissan Motor Corporation in U.S.A. and Charles Evans Nissan, Inc. (substantially similar to Exhibit 10.2.9.1). 10.9.5 Form of Lease Agreement between Charles F. Evans and Charles Evans BMW, Inc.
II-8
No. Description - ------------ ------------------------------------------------------------------------------------------ 10.9.6 Form of Lease Guaranty of the Company in favor of Charles F. Evans. 10.9.7 Form of Lease Agreement between Charles F. Evans and Charles Evans Nissan, Inc. **10.9.8 Form of Lease Guaranty of the Company in favor of Charles F. Evans. 10.9.9 Form of Purchase and Sale Agreement for Charles Evans BMW Property between Charles F. Evans and the Company. 10.9.10 Form of Purchase and Sale Agreement for Charles Evans Nissan Property between Charles F. Evans and the Company. 10.9.11 Form of Inventory Financing and Security Agreement between BMW Financial Services NA, Inc. and UAG Atlanta IV Motors, Inc. 10.9.12 Form of Guaranty of the Company in favor of BMW Financial Services NA, Inc. 10.9.13 Form of Inventory Financing and Security Agreement between BMW Financial Services NA, Inc. and Conyers Nissan, Inc. (substantially similar to Exhibit 10.9.11). 10.9.14 Form of Guaranty of the Company in favor of BMW Financial Services NA, Inc. (substantially similar to Exhibit 10.9.12). *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. **10.10.2 Form of Nissan Dealer Term Sales and Service Agreement between Nissan Motor Corporation in U.S.A. and Conyers Nissan, Inc. (standard provisions are in Exhibit 10.2.9.2). 10.10.3 Form of Lease Agreement between Standefer Investment Company and Standefer Motor Sales, Inc. **10.10.4 Form of Lease Guaranty of the Company in favor of Standefer Investment Company. 10.10.5 Form of Security Agreement and Master Credit Agreement between Chrysler Credit Corporation and Standefer Motor Sales, Inc. (substantially similar to Exhibit 10.4.16). 10.10.6 Form of Continuing Guaranty of each of the Company and UAG Tennessee, Inc. in favor of Chrysler Credit Corporation (substantially similar to Exhibit 10.4.18). 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. (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, II-9 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-10 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 3 to be signed on its behalf by the undersigned, thereunto duly authorized, in New York, New York on October 22, 1996. UNITED AUTO GROUP, INC. By: /s/ PHILIP N. SMITH, JR. ----------------------------------- Philip N. Smith, Jr. VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 3 has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date - ------------------------------------------ ------------------------------------------------- ------------------ * --------------------------------- Chairman of the Board and Chief Executive Officer October 22, 1996 Carl Spielvogel (Principal Executive Officer) * --------------------------------- Executive Vice President and Chief Financial October 22, 1996 Arthur J. Rawl Officer (Principal Financial Officer) /s/ ROBERT W. THOMPSON --------------------------------- Vice President-Finance (Principal Accounting October 22, 1996 Robert W. Thompson Officer) * --------------------------------- Director October 22, 1996 Marshall S. Cogan * --------------------------------- Director October 22, 1996 Michael R. Eisenson * --------------------------------- Director October 22, 1996 John J. Hannan * --------------------------------- Director October 22, 1996 Jules B. Kroll * --------------------------------- Director October 22, 1996 Robert H. Nelson
Signature Title Date - ------------------------------------------ ------------------------------------------------- ------------------ * --------------------------------- Director October 22, 1996 John M. Sallay * --------------------------------- Director October 22, 1996 Richard Sinkfield *By: /s/ PHILIP N. SMITH, JR. ---------------------------- 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. 10.1.14 Form of Agreement among the Company, certain of its affiliates and American Honda Motor Co., Inc. 10.1.15 Form of Option Certificate of the Company in favor of Samuel X. DiFeo and Joseph C. DiFeo. 10.1.16 Form of Registration Rights Agreement among the Company and the parties listed on Schedule I thereto. 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 October 21, 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).
No. Description - ------------ ------------------------------------------------------------------------------------------ *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. **10.2.23 Loan and Security Agreement, dated as of October 1, 1992, between General Motors Acceptance Corporation and Hudson Motors Partnership, as amended April 7, 1993 (a substantially similar agreement exists with each other operating partnership in the DiFeo Group). 10.2.24 Unconditional, Continuing Guaranty of Payment of the Company and its affiliates named therein, dated as of October 1, 1992, in favor of General Motors Acceptance Corporation, as amended April 7, 1993.
No. Description - ------------ ------------------------------------------------------------------------------------------ 10.2.25 Term Loan and Borrowing Base Credit Line Loan Agreement, dated as of April 7, 1993, between General Motors Acceptance Corporation and DiFeo-EMCO Management Partnership. 10.2.26 Settlement Agreement, dated as of October 3, 1996, among the Company and certain of its affiliates, on the one hand, and Samuel X. DiFeo, Joseph C. DiFeo and certain of their affiliates, on the other hand. 10.2.27 Form of Agreement and Plan of Merger used in the Minority Exchange of the DiFeo Group. 10.2.28 Form of Lease of certain facilities in the DiFeo Group. 10.2.29 Lease Agreement, dated September 27, 1990, between J & F Associates and TJGHCC Associates. 10.2.30 Lease Agreement, dated October 1, 1992, between Manly Chevrolet, Inc. and County Toyota, Inc. 10.2.31 Sublease, dated October 1, 1992, between DiFeo BMW, Inc. and DiFeo BMW Partnership. *10.3.1 Receivables Purchase Agreement, dated as of June 28, 1995, between Atlantic Auto Funding Corporation and Atlantic Auto Finance Corporation. *10.3.2 Loan and Security Agreement, dated as of June 28, 1995, among Atlantic Auto Funding Corporation, Atlantic Auto Finance Corporation and Citibank, N.A. *10.3.3 Support Agreement of the Company, dated as of June 28, 1995, in favor of Atlantic Auto Funding Corporation. *10.3.4 Purchase Agreement, dated as of June 14, 1996, between Atlantic Auto Finance Corporation and Atlantic Auto Second Funding Corporation. *10.3.5 Transfer and Administration Agreement, dated as of June 14, 1996, among Atlantic Auto Second Funding Corporation, Atlantic Auto Finance Corporation and Morgan Guaranty Trust Company of New York. *10.3.6 Support Agreement of the Company, dated as of June 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).
No. Description - ------------ ------------------------------------------------------------------------------------------ *10.4.11 Chrysler Corporation Dodge Sales and Service Agreement, dated August 16, 1995, between United Landers Auto Sales, Inc. and Chrysler Corporation (substantially similar to Exhibit 10.4.9). *10.4.12 Chrysler Corporation Plymouth Sales and Service Agreement, dated August 16, 1995, between United Landers Auto Sales, Inc. and Chrysler Corporation (substantially similar to Exhibit 10.4.9). *10.4.13 Chrysler Corporation Chrysler Sales and Service Agreement, dated August 16, 1995, between United Landers Auto Sales, Inc. and Chrysler Corporation (substantially similar to Exhibit 10.4.9). *10.4.14 Oldsmobile Division Dealer Sales and Service Agreement, dated November 1, 1995, between General Motors Corporation, Oldsmobile Division and United Landers Auto Sales, Inc. (substantially similar to Exhibit 10.2.7.1). *10.4.15 GMC Truck Division Dealer Sales and Service Agreement, dated November 1, 1995, between General Motors Corporation, GMC Truck Division and United Landers Auto Sales, Inc. (substantially similar to Exhibit 10.2.7.1). *10.4.16 Security Agreement and Master Credit Agreement, dated October 25, 1993, between Landers Oldsmobile-GMC Inc. and Chrysler Credit Corporation. *10.4.17 Security Agreement and Master Credit Agreement, dated May 17, 1989, between Landers Jeep-Eagle, Inc. and Chrysler Credit Corporation. *10.4.18 Continuing Guaranty of United Landers, Inc., dated August 15, 1994, in favor of Chrysler Credit Corporation. *10.4.19 Commercial Loan Agreement, dated December 5, 1994, between Landers Oldsmobile-GMC, Inc. and The Benton State Bank. *10.4.20 Commercial Security Agreement, dated December 5, 1994, between Landers Oldsmobile-GMC, Inc. and The Benton State Bank. *10.4.21 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).
No. Description - ------------ ------------------------------------------------------------------------------------------ *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 10.2.9.1). *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, as amended on October 21, 1996 by Amendment No. 1, Amendment No. 2 and Amendment No. 3. *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. 10.8.5.1 Form of Audi Dealer Agreement (standard provisions are in Exhibit 10.8.5.2 hereto). 10.8.5.2 Audi Standard Provisions. 10.8.6.1 Form of Acura Automobile Dealer Sales and Service Agreement (standard provisions are in Exhibit 10.8.6.2 hereto). 10.8.6.2 Acura Standard Provisions. 10.8.7.1 Form of BMW of North America Dealer Agreement (substantially similar to Exhibit 10.2.4.1). 10.8.8.1 Form of Porsche Sales and Service Agreement.
No. Description - ------------ ------------------------------------------------------------------------------------------ **10.8.8.2 Form of Addendum to Porsche Sales and Service Agreement. **10.8.9.1 Form of Land Rover North America, Inc. Dealer Agreement. **10.8.9.2 Land Rover Standard Provisions. 10.8.10 Sublease, dated June 7, 1988, between Max of Switzerland and Scottsdale Porsche & Audi, Ltd. 10.8.11 Lease, dated October 1990, between Lisa B. Zelinsky and R. J. Morgan Corporation of America and Scottsdale Hyundai, Ltd. 10.8.12 Sublease, dated July 1, 1995, between Camelback Automotive, Inc. and LRP Ltd. 10.8.13 Lease, dated February 27, 1995, between Lee S. Maas and Sun BMW Ltd. 10.8.14 Form of Shareholders' Agreement among UAG West, Inc., SK Motors, Ltd., and the Knappenberger Revocable Trust. 10.8.15 Form of Management Agreement among the Company, UAG West, Inc. and Scottsdale Jaguar, Ltd. 10.8.16 Form of Lease Agreement between 6725 Agent and Scottsdale Jaguar, Ltd. **10.8.17 Form of Indemnification Agreement among the Company, UAG West, Inc., Scottsdale Jaguar, Ltd., Steven Knappenberger, and certain other individuals and trusts. 10.8.18 Form of Real Estate Loan and Security Agreement, made by SA Automotive, Ltd. for the benefit of Chrysler Financial Corporation. 10.8.19 Form of Security Agreement and Master Credit Agreement of Chrysler Credit Corporation (substantially similar to Exhibit 10.4.16). 10.8.20 Form of Continuing Guaranty of each of the Company and UAG West, Inc. in favor of Chrysler Credit Corporation (substantially similar to Exhibit 10.4.18). *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. 10.9.3 Form of Dealer Agreement between BMW North America, Inc. and Charles Evans BMW Inc. (substantially similar to Exhibit 10.2.4.1). 10.9.4 Form of Nissan Dealer Term Sales and Service Agreement between Nissan Motor Corporation in U.S.A. and Charles Evans Nissan, Inc. (substantially similar to Exhibit 10.2.9.1). 10.9.5 Form of Lease Agreement between Charles F. Evans and Charles Evans BMW, Inc. 10.9.6 Form of Lease Guaranty of the Company in favor of Charles F. Evans. 10.9.7 Form of Lease Agreement between Charles F. Evans and Charles Evans Nissan, Inc. **10.9.8 Form of Lease Guaranty of the Company in favor of Charles F. Evans. 10.9.9 Form of Purchase and Sale Agreement for Charles Evans BMW Property between Charles F. Evans and the Company. 10.9.10 Form of Purchase and Sale Agreement for Charles Evans Nissan Property between Charles F. Evans and the Company. 10.9.11 Form of Inventory Financing and Security Agreement between BMW Financial Services NA, Inc. and UAG Atlanta IV Motors, Inc. 10.9.12 Form of Guaranty of the Company in favor of BMW Financial Services NA, Inc. 10.9.13 Form of Inventory Financing and Security Agreement between BMW Financial Services NA, Inc. and Conyers Nissan, Inc. (substantially similar to Exhibit 10.9.11). 10.9.14 Form of Guaranty of the Company in favor of BMW Financial Services NA, Inc. (substantially similar to Exhibit 10.9.12). *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. **10.10.2 Form of Nissan Dealer Term Sales and Service Agreement between Nissan Motor Corporation in U.S.A. and Conyers Nissan, Inc. (standard provisions are in Exhibit 10.2.9.2). 10.10.3 Form of Lease Agreement between Standefer Investment Company and Standefer Motor Sales, Inc. **10.10.4 Form of Lease Guaranty of the Company in favor of Standefer Investment Company.
No. Description - ------------ ------------------------------------------------------------------------------------------ 10.10.5 Form of Security Agreement and Master Credit Agreement between Chrysler Credit Corporation and Standefer Motor Sales, Inc. (substantially similar to Exhibit 10.4.16). 10.10.6 Form of Continuing Guaranty of each of the Company and UAG Tennessee, Inc. in favor of Chrysler Credit Corporation (substantially similar to Exhibit 10.4.18). 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-3.1 2 EXH 3.1(A) FORM OF RESTATED CERT. OF INCORPORATION 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 61,225,000, 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"); (iii) 20,000,000 shares of Class C Common Stock, par value $0.0001 per share (the "Class C Common Stock" and, collectively with the Voting Common Stock, and the Non-voting Common Stock, the "Common Stock"); and (iv) 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. (a) 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 -2- determination of stockholders entitled to vote on such matters or, if no such record date is established, at the date such vote is taken. (b) 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. (c) Except as provided in this Section 2 or as otherwise required by law, each holder of Class C Common Stock shall be entitled to one-tenth of one vote for each share of Class C 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, and each share of Class C Common Stock shall be counted as one-tenth of one share in determining the number of shares voting or entitled to vote on any such matters. (d) Except as otherwise provided in this Section 2 or as otherwise required by law, the holders of shares of Voting Common Stock and Class C 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 or Class C 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 or Class C Common Stock, respectively. 3. Certain Provisions relating to 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. -3- (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 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 pursuant to this Section 3, 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 -4- (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, 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 -5- 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, the Non-voting Common Stock or the Class C 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 Voting 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 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 Non-voting Common Stock 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 Non-voting Common Stock 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 Voting Common Stock into which such Non-voting 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 -6- 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 pursuant to this Section 3 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. (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 -7- 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 such 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, (ii) Class II directors shall be elected to serve until the 1998 Annual Meeting of Stockholders, and -8- (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, -9- alter or repeal Bylaws of the Corporation (except insofar as Bylaws adopted by the stockholders shall otherwise provide). 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. -10- 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 -11- 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. 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. -12- 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-5.1 3 OPINION OF WILLKIE FARR [LETTERHEAD OF WILLKIE FARR & GALLAGHER] October 22, 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 6,250,000 shares ("Shares") of Voting Common Stock, par value $0.0001 per share, of the Corporation, of which up to 750,000 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 22, 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-10.1-9 4 EXH 10.1.9 REGISTRATION RIGHTS AGRMNT DATED 9/1/95 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated as of August 1, 1995, is entered into by and among United Auto Group, Inc., a Delaware corporation (the "Company"), and each of the parties listed on Schedule I hereto. WHEREAS, pursuant to the terms of the Shareholders' Agreement, (the "Shareholders Agreement"), dated as of August 1, 1995, among the Company, United Landers, Inc., a Delaware corporation, Landers Auto Sales, Inc., an Arkansas corporation ("Auto Sales"), Steve Landers and John Landers (collectively referred herein as the "Landers"), and certain other parties named therein, in the event of an underwritten public offering of the Company's common stock, par value $0.0001 per share (the "Common Stock"), the Landers will be required to exchange their shares of common stock, no par value, of Auto Sales for shares (the "Landers Shares") of Common Stock; WHEREAS, the Company has agreed to grant the Landers certain rights to have shares of Common Stock registered under the Securities Act of 1933, as amended (the "1933 Act"); WHEREAS, pursuant to the terms of the Master Agreement (the "DiFeo Master Agreement"), dated as of March 17, 1992, as amended, among the Company, Samuel X. DiFeo, Joseph DiFeo (Samuel X. DiFeo and Joseph DiFeo are collectively referred to herein as the "DiFeos"), and certain other parties named therein, in the event of an underwritten public offering of the Common Stock, certain entities owned by the DiFeos (the "DiFeo Entities") will be required to exchange their interests in certain partnerships for shares (the "DiFeo Shares") of Common Stock (the "DiFeo Exchange"); WHEREAS, pursuant to the terms of the DiFeo Master Agreement, the Company has previously agreed to grant to the DiFeo Entities upon consummation of the DiFeo Exchange certain rights to have shares of Common Stock registered under the 1933 Act and it is contemplated that the DiFeo will enter into this Agreement; WHEREAS, it is contemplated by the Company that as a result of ventures with or acquisitions of certain persons or entities (the "Venture Shareholders") after the date hereof, the Company will grant certain rights to the Venture Shareholders to have shares of Common Stock registered under the 1933 Act; and WHEREAS, the Company, the Landers, the DiFeos and the DiFeo Entities desire to integrate the registration rights held or to be held by the Landers, the DiFeo Entities and the Venture Shareholders and to supersede in their entirety any registration rights previously granted to the DiFeo Entities; NOW, THEREFORE, in consideration of the foregoing and the mutual promises and covenants herein contained, the parties hereto hereby agree as follows: SECTION 1. REGISTRATION RIGHTS 1.1 DEFINITIONS As used in this Section 1: (a) the terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the 1933 Act (and any post-effective amendments filed or required to be filed) and the declaration or ordering of effectiveness of such registration statement; (b) the term "Registrable Securities" means (A) the Landers Shares, (B) the DiFeo Shares, (C) any shares of Common Stock which the Landers (or an Affiliate (as defined below) thereof) or the DiFeos (or an Affiliate thereof) may hereafter acquire, (D) any shares of Common Stock hereafter issued to or acquired by a person or entity deemed by the Company to be a Venture Shareholder for purposes hereunder and included at such time on Schedule I hereto, and (E) any capital stock of the Company issued as a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares of Common Stock referred to in clauses (A)-(D) above; (c) the term "Holder" means any person owning or having the right to acquire Registrable Securities; (d) the term "Prior Holder" means any person or entity who has previously been or will be granted rights pursuant to either the Registration Rights Agreement, dated as of October 15, 1993, among the Company and certain parties named therein (the "Registration Rights Agreement"), or the warrants (the "Investor Warrants") to purchase Common Stock issued pursuant to the Securities Purchase Agreements, to be entered into on or prior to November 30, 1995, among the Company and certain investors, such Securities Purchase Agreements to be substantially in the form thereof dated August 10, 1995 but incorporating the terms of that certain Supplement to Summary of Selected Terms and containing such other terms not inconsistent with such Supplement as may be agreed to by the parties to such Securities Purchase Agreements (the Registration Rights -2- Agreement and the Investor Warrants are collectively referred to herein as the "Prior Registration Rights Agreements") to have shares of Common Stock registered under the 1933 Act, either in respect of issued shares of Common Stock or shares of Common Stock to be issued upon conversion of outstanding securities of the Company; (e) the number of shares of "Registrable Securities then outstanding" shall be determined by adding the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which upon issuance would be, Registrable Securities; (f) the term "Affiliate" of a specified person means a person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified, and in the case of a specified person who is a natural person, his spouse, his issue, his parents, his estate and any trust entirely for the benefit of his spouse and/or issue. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person or entity, whether through the ownership of voting securities, by contract or otherwise; and (g) the term "UAG IPO" means a Qualified Public Offering (as such term is defined in UAG's Restated Certificate of Incorporation as in effect on the date hereof) or the completion of a sale of capital stock of UAG (or a subsidiary of UAG) pursuant to a registration statement which has become effective under the Securities Act 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, par value $0.0001 per share, of UAG. 1.2 REQUESTED REGISTRATION (a) REQUEST FOR REGISTRATION. If, after one year following the UAG IPO, the Company shall receive a written request from the Holder or Holders of in excess of 66 2/3% of the Registrable Securities then outstanding and entitled to registration rights under this Section 1 (the "Initiating Holders") that the Company effect the registration under the 1993 Act with respect to all or a part of the Registrable Securities, the Company will, within five days of the receipt thereof, give written notice of such request to all Holders and shall within ninety (90) days of its receipt of such written request, file a registration statement on a form deemed appropriate by the -3- Company's counsel with the Securities and Exchange Commission (the "SEC") covering all the Registrable Securities which the Holders shall in writing request (given within twenty (20) days of receipt of the notice given by the Company pursuant to this Section 1.2(a)) to be included in such registration and the Company shall use its best efforts to cause such registration statement to become effective. The Company shall not be obligated to effect such registration pursuant to this Section 1.2(a) hereof (A) after the Company already has effected one (1) such registration pursuant to this Section 1.2(a) and such registration has been declared or ordered effective, (B) if a registration statement filed by the Company has been declared or ordered effective within fifteen (15) months prior to the receipt of a written request from a Holder or Holders under this Section 1.2(a), (C) if the Company shall be required by the SEC or any state securities authority to have an audit of any of its interim financial statements prepared in order to have a registration statement declared effective, unless the Holders shall agree in writing to bear the expense of such audit in full, (D) if in the good faith judgment of the Board of Directors of the Company, it would not be in the best interests of the Company and its stockholders generally for such registration statement to be filed (in which case the Company shall have the right to defer such filing for a period of not more that 180 days after receipt of the request of the Initiating Holders), or (E) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, unless the Company is already subject to service in such jurisdiction and except as may be required by the 1933 Act or applicable rules or regulations thereunder. It is expressly agreed that nothing contained in this Section 1.2(a) shall give any Holder the right to have the disposition of its Registrable Securities effected by means of an underwritten offering. The registration statement filed pursuant to the request of the Initiating Holders may, subject to the provisions of Section 1.2(b) below, include other securities of the Company for its own account or which are held by officers or directors of the Company or persons or entities who, by virtue of agreements with the Company, are entitled to include their securities in any such registration (the "Other Shareholders"). (b) UNDERWRITING. If the Initiating Holders desire to distribute the Registrable Securities covered by such request by means of an underwriting, they shall so advise the Company as a part of such request made pursuant to Section 1.2(a). If the Company approves of such request, it shall select an investment -4- banking firm as underwriter of such requested registration. The right of any Holder to registration pursuant to this Section 1.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. If officers or directors of the Company holding other securities of the Company shall request inclusion in any registration pursuant to this Section 1.2, or if Other Shareholders request such inclusion, the Holders shall offer to include the securities of such officers, directors and Other Shareholders in the underwriting and may condition such offer upon their participation in the underwriting and on their acceptance of the further applicable provisions of this Section 1. The Holders shall (together with the Company, officers, directors and Other Shareholders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by the Company as provided above, but the Company shall not be required to pay any commission to the underwriter in respect of the sale of Registrable Securities. Subject to the rights of the Prior Holders contained in the Prior Registration Rights Agreements, notwithstanding any other provision of this Section 1.2, if the representative of the underwriters determines that marketing factors require a limitation on the number of shares to be underwritten, the securities of the Company held by officers or directors of the Company and the securities held by Other Shareholders shall be excluded from the underwriting by reason of the underwriters' marketing limitation to the extent so required by such limitation. If a further limitation is required, the Company shall so advise all Holders requesting inclusion in such offering, and, subject to the rights of the Prior Holders contained in the Prior Registration Rights Agreements, the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among all Holders requesting inclusion in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held (or entitled to be held upon conversion) by each such Holder at the time of filing the registration statement. No Registrable Securities or any other securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. If any Holder, officer, director or Other Shareholder who has requested inclusion in such registration as provided above disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the underwriter and the Initiating -5- Holders. The securities so withdrawn shall also be withdrawn from registration; PROVIDED, HOWEVER, that, if by the withdrawal of such Registrable Securities a greater number of Registrable Securities held by other Holders may be included in such registration (up to a maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders who have included Registrable Securities in the registration the right to include additional Registrable Securities in the same proportion used in determining the underwriter limitation in this Section 1.2(b). If the representative of the underwriters has not limited the number of Registrable Securities, the Company may include its securities for its own account in such registration if the underwriter so agrees and if the number of Registrable Securities which would otherwise have been included in such registration and underwriting will not thereby be limited. (c) ASSIGNMENT. The registration rights granted pursuant to this Section 1.2 may be assigned, in whole but not in part, to any transferee of all of the Registrable Securities held by the transferring Holder. 1.3 COMPANY REGISTRATION (a) INCLUSION IN REGISTRATION. If, after one year following the UAG IPO, the Company shall determine to register any of its shares of Common Stock on a form (other than for the registration of securities to be offered and sold by the Company on any registration form which does not permit secondary sales or pursuant to (i) an employee benefit plan, (ii) a dividend or interest reinvestment plan, (iii) other similar plans or (iv) reclassifications of securities, mergers, consolidations and acquisitions of assets) which would permit the registration of any Registrable Securities, or the Company shall be requested to register any of its shares of Common Stock by any holder of any securities entitled to registration upon such request (other than the Holders or their nominees), the Company will: (i) promptly give to the Holders written notice thereof (which shall include a list of the jurisdictions, if any, in which the Company intends to qualify such shares of Common Stock under the applicable blue sky or other state securities laws); and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests made by each of the Holders, within -6- fifteen (15) days after receipt of the written notice from the Company described in clause (i) above; PROVIDED, HOWEVER, that if the offering is underwritten and relates only to shares of Common Stock to be sold by the Company and the Holders are advised in writing by the managing underwriter that the sale of Registrable Securities by the Holders will, due to market conditions, adversely affect such underwriting, the Holders shall not sell any of their Registrable Securities included therein until such time as the managing underwriter may permit. The Company shall be under no obligation to complete any offering of the shares of Common Stock it proposes to make and shall incur no liability to any Holder for its failure to do so. (b) UNDERWRITING. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 1.3(a). In such event the right of the Holders to registration pursuant to the Section 1.3 shall be conditioned upon the Holders' participation in such underwriting and the inclusion of the Holders' Registrable Securities in the underwriting to the extent provided herein. The Holders shall (together with the Company, officers, directors and the Other Shareholders distributing their shares of Common Stock through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for underwriting by the Company and shall deliver all documents and opinions required to be delivered thereunder in respect of their participation as selling shareholders. Subject to the rights of the Prior Holders contained in the Prior Registration Rights Agreements, notwithstanding any other provision of this Section 1.3, if the representative of the underwriters determines that marketing factors require a limitation on the number of shares of Common Stock to be underwritten, then the Company shall include in the underwriting only that number of shares, including Registrable Securities, which the representative believes will not jeopardize the success of the offering (the shares so included to be apportioned as follows: first, all shares which stockholders other than the Holders and the Prior Holders seek to include in the offering shall be excluded from the offering to the extent limitation on the number of shares included in the underwriting is required, then the number of shares held by Holders and the Prior Holders that may be included in the underwriting shall be apportioned PRO RATA among the selling Holders and the Prior Holders according to the total amount of Registrable Securities and shares entitled to be included therein -7- owned by each selling Holder and Prior Holder, respectively, or in such other apportions as shall be mutually agreed to by such selling Holders and Prior Holders). If any of the Holders or any officer, director or Other Shareholder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the representative of the underwriters. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. If the registration of which the Company gives notice pursuant to Section 1.3(a) hereof is a best efforts underwritten public offering on behalf of the Company, any public sales of Registrable Securities of the Holders included therein shall not commence until the earlier of: (i) ninety (90) days after the effective date thereof, (ii) the completion of the sale of all shares of Common Stock being sold for the account of the Company, or (iii) the receipt by the Company of a letter from the representative of the underwriters advising that all or a portion of the Registrable Securities of the Holders could be sold prior to the dates set forth in the foregoing clauses (i) and (ii) without adversely affecting the marketability or price of the shares offered by the Company. (c) NUMBER; NO ASSIGNMENT. The Holders shall be entitled to have their shares included in an unlimited number of registrations pursuant to this Section 1.3. The registration rights granted pursuant to this Section 1.3 shall not be assignable, whether in whole or in part. 1.4 EXPENSES OF REGISTRATION Except as otherwise provided herein, in connection with a registration pursuant to this Section 1, the Company shall pay all registration, filing and qualification fees, accounting fees and printing expenses of the Company, reasonable fees and disbursements of counsel for the Company and the reasonable fees and expenses of one counsel for the selling Holders. All (i) underwriting discounts and commissions, (ii) filing fees or other expenses directly and solely resulting from the inclusion of the Holders' Registrable Securities in a registration pursuant to Section 1.3 hereof, (iii) stock transfer taxes incurred in respect of the Registrable Securities being sold, and (iv) legal and accounting fees, expenses and disbursements of the Holders (except as set forth above), shall be borne and paid ratably by the Holders of the Registrable Securities included in any such registration. 1.5 REGISTRATION PROCEDURES -8- In the case of each registration effected by the Company pursuant to this Section 1, the Company shall: (i) keep such registration effective for a period of one hundred twenty (120) days or until each Holder has completed the distribution described in the registration statement relating thereto, whichever first occurs; (ii) furnish each Holder copies of any Registration Statement and each preliminary or final prospectus, or supplement or amendment required to be prepared pursuant hereto, as any Holder may from time to time reasonably request; (iii) prepare and promptly file with the SEC and promptly notify each Holder of the filing of any amendments or supplements to such Registration Statement or prospectus as may be necessary to correct any statements or omissions if, at any time when a prospectus relating to the Registrable Securities is required to be delivered under the 1933 Act, any event with respect to the Company shall have occurred as a result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and use its best efforts to qualify as soon as reasonably practicable the Registrable Securities included in the Registration Statement for sale under the securities or blue-sky laws of such states and jurisdictions within the United States as shall be reasonably requested by any Holder, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business, to become subject to taxation or to file a consent to service of process generally in any of the aforesaid states or jurisdictions; and (iv) use its best efforts to qualify as soon as reasonably practicable the Registrable Securities included in the Registration Statement for sale under the securities or blue-sky laws of such states and jurisdictions within the United States as shall be reasonably requested by any Holder, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business, to become subject to taxation or to file a consent to service of process generally in any of the aforesaid states or jurisdictions. 1.6 DELAY OF REGISTRATION -9- No Holder shall have any right to take any action to restrain, enjoin or otherwise delay any registration as a result of any controversy that may arise with respect to the interpretation or implementation of this Agreement. 1.7 INDEMNIFICATION (a) The Company shall indemnify each Holder offering Registrable Securities for sale pursuant to each registration that has been effected pursuant to this Section 1 against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement of a material fact contained in any registration statement under which such Registrable Securities were registered under the 1933 Act, or based on any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each such Holder for any legal or other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action; PROVIDED, HOWEVER, that the Company shall pay for only one firm of counsel for all such Holders and the Company shall not be liable to a Holder in any such case (i) to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon information furnished to the Company by such Holder or the underwriter of any such Holder and stated to be specifically for use therein or (ii) in the case of a sale directly by a Holder of Registrable Securities (including a sale of such Registrable Securities through any underwriter retained by such Holder engaging in a distribution on behalf of such Holder), such untrue statement or omission was contained in a preliminary prospectus and corrected in a final or amended prospectus, and such Holder failed to deliver a copy of the final or amended prospectus at or prior to the confirmation of the sale of the Registrable Securities to the person or entity asserting any such loss, claim, damage or liability. (b) Each of the Holders shall, if Registrable Securities held by them are included in the securities as to which such registration is being effected, severally indemnify the Company, each of its directors and officers who sign such registration statement, each Affiliate of the Company, each underwriter, if any, of the Company's securities covered by such registration statement, each other Holder and each other security holder whose securities are included in such registration, and each Affiliate thereof against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement of a material fact contained in any such registration statement under which such Registrable -10- Securities were registered under the 1933 Act, or based on any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such directors, officers, employees, Affiliates, other Holders or security holders or underwriters for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement or omission is made in such registration statement in reliance upon and in conformity with information furnished to the Company by such Holder and stated to be specifically for use therein. (c) Each party entitled to indemnification under this Section 1 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and any claim or any litigation resulting therefrom. In case any action is brought against an Indemnified Party, and it notifies the Indemnifying Parties of the commencement thereof, the Indemnifying Party will be entitled to participate in and, to the extent it so determines, assume the defense thereof; provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense. After notice from the Indemnifying Party of its election to so assume the defense thereof, the Indemnifying Party will not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. 1.8 LOCKUP AGREEMENT In consideration for the Company agreeing to its obligations under this Section 1, each Holder agrees in connection with the initial registration (other than for the registration of securities to be offered and sold by the Company on any registration form which does not permit secondary sales or pursuant to (i) an employee benefit plan, (ii) a dividend or interest reinvestment plan, (iii) other similar plans or (iv) reclassifications of securities, mergers, consolidations and acquisitions of assets) of the Company's securities, upon the -11- request of the Company's underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Securities without the prior written consent of the Company or such underwriters, as the case may be, for such period of time from the effective date of such registration as the Company or the underwriters may specify. 1.9 INFORMATION ABOUT THE PURCHASERS Each Holder shall promptly furnish to the Company such information regarding itself, its Affiliates or subsidiaries and the distribution proposed by it as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration referred to in this Section 1. 1.10 CONDITIONS TO REGISTRATION As a condition to the Company's obligation hereunder to cause a registration statement to be filed or Registrable Securities to be included in a registration statement, each Holder shall provide such information and execute such documents as may reasonably be required in connection with such registration. In addition, the Company shall not be obligated to file a registration statement or to include Registrable Securities in a registration statement hereunder as to any Holder, (i) if the Company shall have received opinions of counsel reasonably satisfactory to such Holder and the Company to the effect that the proposed disposition of such Registrable Securities by such Holder may be effected without registration under the 1933 Act or (ii) to the extent such Registrable Securities can then be sold during a single three month period pursuant to Rule 144 under the 1933 Act. 1.11 RULE 144 With a view to making available the benefits of certain rules and regulations of the SEC which may permit the sale of the restricted securities to the public without registration, the Company agrees to (a) make and keep public information available as those terms are understood and defined in Rule 144 under the 1933 Act at all times from and after ninety (90) days following the closing date of the first registration under the 1933 Act filed by the Company for an offering of its securities to the general public, and (b) use its best efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Exchange Act at any time after it has become subject to such reporting requirements. -12- 1.12 RIGHTS GRANTED TO VENTURE SHAREHOLDERS Any person or entity deemed by the Company to be a Venture Shareholder for purposes of this Agreement and to whom rights under this Agreement are granted shall, as a condition to such grant, deliver to the Company a written instrument by which such person or entity agrees to be bound by the obligations imposed upon Holders under this Agreement to the same extent as if such person or entity were a Holder under this Agreement. SECTION 2. WAIVER OF PRIOR REGISTRATION RIGHTS AND AMENDMENT OF PRIOR AGREEMENTS The DiFeos and the DiFeo Entities hereby waive any and all registration rights granted them under agreements entered into prior to the date hereof, including without limitation the DiFeo Master Agreement, and further agree that all such prior agreements are amended to delete in their entirety the provisions concerning registration rights therein contained. SECTION 3. ASSIGNABILITY This Agreement shall be binding upon and inure to the benefit of the respective heirs, personal representatives, successors and assigns of the parties hereto. SECTION 4. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. SECTION 5. AMENDMENT Any modification, amendment or waiver of this Agreement or any provision hereof shall be in writing and executed by Holders of not less than 66 2/3% of the Registrable Securities PROVIDED, HOWEVER, that no such modification, amendment or waiver shall reduce the aforesaid percentage of Registrable Securities without the consent of all of the Holders of the Registrable Securities. SECTION 6. LEGEND Each certificate representing Registrable Securities shall state therein: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF AUGUST 1, 1995 BY AND AMONG UNITED AUTO -13- GROUP, INC. (THE "COMPANY") AND CERTAIN STOCKHOLDERS OF THE COMPANY NAMED THEREIN, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE COMPANY. SECTION 7. NOTICES All notices, requests, consents and demands shall be in writing and shall be personally delivered, mailed, postage prepaid, telecopied or telegraphed or delivered by any nationally recognized overnight delivery service to the company at: to the Company: United Auto Group, Inc. 374 Park Avenue New York, New York 10022 Fax number: (212) 223-5148 Attn: George G. Lowrance, Executive Vice President and General Counsel and to each Holder at such address as shall be furnished in writing to the Company. All such notices, requests, demands and other communication shall, when mailed (registered or certified mail, return receipt requested, postage prepared), personally delivered, or telegraphed, be effective four days after deposit in the mails, when personally delivered, or when delivered to the telegraph company, respectively, addressed as aforesaid, unless otherwise provided herein and, when telecopied or delivered by any nationally recognized overnight delivery service, shall be effective upon actual receipt. SECTION 8. COUNTERPARTS This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. -14- IN WITNESS WHEREOF, the Company and each of the undersigned parties has executed this Agreement effective for all purposes as of the date first above written. UNITED AUTO GROUP, INC. By: /s/Carl Spielvogel ------------------------------- Its: Chairman & CEO ------------------------------- /s/Steve Landers ----------------------------------- Steve Landers /s/John Landers ----------------------------------- John Landers ----------------------------------- Samuel X. DiFeo ----------------------------------- Joseph DiFeo THE DIFEO ENTITIES: FAIR CADILLAC-OLDSMOBILE CORP. By: ------------------------------- Its: ------------------------------- -15- FAIR CHEVROLET CORP. By: ------------------------------- Its: ------------------------------- FAIR INFINITI, INC. By: ------------------------------- Its: ------------------------------- DIFEO AUTO CENTER INC. (D/B/A) DIFEO MAZDA) By: ------------------------------- Its: ------------------------------- DIFEO LEASING CORPORATION By: ------------------------------- Its: ------------------------------- SOMERSET MOTORS INC. (D/B/A) DIFEO LEXUS) By: ------------------------------- Its: ------------------------------- -16- GATEWAY OLDSMOBILE INC. (D/B/A DIFEO VOLKSWAGEN OF BRIDGEWATER) By: ------------------------------- Its: ------------------------------- DIFEO B.M.W., INC. By: ------------------------------- Its: ------------------------------- COUNTY AUTO GROUP, INC. (D/B/A COUNTY TOYOTA) By: ------------------------------- Its: ------------------------------- ROCKLAND MOTORS CORP. (D/B/A ROCKLAND MITSUBISHI) By: ------------------------------- Its: ------------------------------- DIFEO HYUNDAI INC. By: ------------------------------- Its: ------------------------------- -17- J & F OLDSMOBILE CORP. By: ------------------------------- Its: ------------------------------- DIFEO SUBARU INC. By: ------------------------------- Its: ------------------------------- DIFEO JEEP-EAGLE INC. By: ------------------------------- Its: ------------------------------- DIFEO IMPORTS INC. (D/B/A JERSEY CITY MITSUBISHI) By: ------------------------------- Its: ------------------------------- -18- DIFEO BUICK INC. By: ------------------------------- Its: ------------------------------- FAIR IMPORTS CORP. (D/B/A FAIR ACURA) By: ------------------------------- Its: ------------------------------- FAIR HYUNDAI CORP. By: ------------------------------- Its: ------------------------------- FAIR MOTORS CORP. By: ------------------------------- Its: ------------------------------- DANBURY-MT. KISCO SATURN CORP. (D/B/A SATURN OF DANBURY) By: ------------------------------- Its: ------------------------------- -19- HUDSON TOYOTA INC. By: ------------------------------- Its: ------------------------------- DIFEO VOLKSWAGEN INC. By: ------------------------------- Its: ------------------------------- NORTH JERSEY MANHATTAN SATURN CORP. By: ------------------------------- Its: ------------------------------- JS1, INC. By: ------------------------------- Its: ------------------------------- JS2, INC. By: ------------------------------- Its: ------------------------------- -20- JS4, INC. By: ------------------------------- Its: ------------------------------- -21- SCHEDULE I Schedule of Registrable SECURITIES Number of Shares of Common Stock Held and Holder Type of security - ------ ---------------------- Steve Landers (to be determined) John Landers (to be determined) Samuel X. DiFeo (to be determined) Joseph DiFeo (to be determined) Pursuant to Section 1.12 of the Registration Rights Agreement, dated as of August 1, 1995, among United Auto Group, Inc. and each of the parties listed on Schedule I thereto (the "Agreement"), the undersigned hereby agrees, as of August 31, 1996, to become a party to the Agreement and to be subject to the rights and obligations of Holders (as defined in the Agreement) under the Agreement to the same extent as if the undersigned were a Holder under the Agreement. ----------------------- John R. Smith Accepted and agreed to as of August 31, 1996: UNITED AUTO GROUP, INC. By: ---------------------- Name: Title: EX-10.1-14 5 EXH 10.1.14 AGREEMENT AM. HONDA CORP. 10/4/96 AGREEMENT BETWEEN AMERICAN HONDA MOTOR COMPANY, INC. AND UNITED AUTO GROUP, INC. This Agreement, dated October 4, 1996, entered between United Auto Group, Inc., a Delaware corporation with its principal place of business at 375 Park Avenue, 22nd Floor, New York, New York 10152, UAG West, Inc., a Delaware corporation with its principal place of business at 375 Park Avenue, 22nd Floor, New York, New York 10152, UAG Northeast, Inc., a Delaware corporation with its principal place of business at 375 Park Avenue, 22nd Floor, New York, New York 10152, DiFeo Partnership, Inc., a Delaware corporation with its principal place of business at 375 Park Avenue, 22nd Floor, New York, New York 10152, Danbury Auto Partnership, Inc., a New Jersey partnership corporation with its principal place of business at 102D Federal Road, Danbury, Connecticut 06810, certain stockholders of UAG that have executed the signatory page hereto (all of the above are collectively referred to herein as "UAG") and American Honda Motor Co., Inc. ("AHM"), a California corporation with its principal place of business at 1919 Torrance Boulevard, Torrance, California 90501. WHEREAS, UAG is currently the owner, directly or through its Affiliates (as defined in Paragraph 1 below), in whole or in part, of a Honda automobile dealership; and WHEREAS, UAG wants to issue stock in a public offering of securities anticipated to be traded on the New York Stock Exchange; and WHEREAS, AHM has formulated the American Honda Motor Co., Inc. Policy on the Public Ownership of Honda and Acura Dealerships (the "Policy"); and WHEREAS, AHM is willing to permit UAG (as an entity of which a minority portion is publicly owned) to own Honda and Acura dealerships, provided that UAG adheres to the Policy and the terms and conditions set forth in this Agreement; and WHEREAS, UAG is willing to adhere to the Policy and the terms set forth herein; NOW THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration the sufficiency of which is hereby acknowledged, the parties agree as follows: 1. STRUCTURE OF RELATIONSHIP 1.1 DEALERSHIPS ARE SEPARATE LEGAL ENTITIES. UAG shall create and/or maintain separate legal entities for each Honda and Acura dealership which it owns, directly or through an Affiliate, shall obtain a separate motor vehicle license for each dealership, and shall maintain separate financial statements for each such dealership. Consistent with AHM policy, the name "Honda" or "Acura," as applicable, shall appear in the d/b/a of each dealership. The Honda and/or Acura dealerships currently owned by UAG and/or approved by AHM for acquisition by UAG are listed in Schedule A, appended hereto. As used herein, "Affiliate" of, or a person or entity "affiliated" with, a specified person or entity, means a person or entity that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the person or entity specified. For the purpose of this definition, the term "control" (including the terms "controlling," "controlled by" and "under common control with") means the possession, directly or indirectly, or the power to direct or cause the direction of the management and policies of a person or entity, whether through the ownership of securities, by contract or otherwise. 1.2 AGREEMENT TO AUTOMOBILE DEALER SALES AND SERVICE AGREEMENT. UAG hereby agrees to be bound by the terms of Honda and Acura Automobile Dealer Sales and Service Agreements (the "Dealer Agreements"), copies of which are appended hereto as Schedule B. UAG further agrees that each individual Honda and Acura dealership that it owns, in whole or in part, shall execute and be bound by the applicable Dealer Agreement. 1.3 ADHERENCE TO THE POLICY. UAG and its Honda and Acura dealerships hereby agree to be bound by the terms of the Policy, a copy of which is appended hereto as Schedule C. 1.4 TRANSFER OF OWNERSHIP OF HONDA AND ACURA DEALERSHIPS UPON OCCURRENCE OF THE INITIAL PUBLIC OFFERING. UAG understands and agrees that the public offering (the "Offering") of certain shares of the capital stock of UAG (the entire capital stock of UAG being referred to herein as the "UAG Stock") will constitute a change of ownership of the Honda and Acura dealerships that, pursuant to the Dealer Agreement, requires AHM's prior written approval. Provided that the representations and warranties in this Section are accurate and that UAG, its Honda and Acura dealerships, and UAG's shareholders adhere to the terms and conditions of this Agreement, the Policy, and the applicable Dealer Agreements, AHM hereby agrees to the transfer of certain shares of UAG Stock pursuant to the Offering as described herein. UAG hereby represents and warrants that it has provided all documentation and information to AHM pertaining to the public offering of UAG Stock, including but not limited to all filings with the SEC and other federal and state regulatory agencies (including, but not limited to, quarterly and annual financial statement filings, prospectuses and other materials related to UAG), all agreements between or among UAG and financial institutions and/or underwriters, and all agreements between or among UAG and its shareholders. One copy of this documentation and information has been filed with AHM and labeled Schedule X. UAG hereby further represents, warrants and covenants as follows: -2- 1.4.1 No more than 40% of the UAG Stock, including warrants, stock options and minority roll-up interests, will be offered in the Offering or otherwise become freely tradable or unrestricted at any time. Within three (3)business days, UAG shall notify AHM, in writing (the "Report"), of the sale, or offer to sell, to the public of any UAG Stock owned by any person or entity listed on Schedule D appended hereto (or as the same may be modified from time to time), which is an accurate list of all individuals and entities that own or who have options, warrants or minority roll-up interests to acquire UAG Stock ("Stockholders") and the number of shares of UAG Stock held by each and the percentage ownership of UAG Stock owned or controlled by each Stockholder. The Report shall include (A) the name of the person or entity that has made the sale or offer; (B) the date of the sale or offer; (C) the number of shares of UAG Stock that have been sold or offered; (D) the total number of shares of UAG Stock outstanding (including, but not limited to, restricted shares of UAG Stock, freely traded shares of UAG, warrants, stock options, and minority roll-up interests); and (E) the number of shares of UAG Stock that are registered and freely tradable (not including the shares of UAG Stock enumerated in (C) immediately above). "Public Stock" shall mean the sum of the shares of UAG Stock enumerated in (C) and (E) hereof. "Public Stock Percentage" shall mean the number of Public Stock (C+E) as a percentage of total UAG Stock (D). (Public Stock Percentage = [C+E]/D expressed as a percentage.) In the event that the Public Stock Percentage exceeds 40% (that is, [C+E]/D>.4), then UAG shall: (1) within thirty(30) days, take such steps or measures as may be required to prevent the proposed transfer, reacquire stock on the public market or take such other steps so that the Public Stock Percentage shall not exceed 40%; or (2) shall enter into an agreement to sell all of its Honda and/or Acura dealerships to one or more third parties which shall be acceptable to AHM (which agreement shall be subject to AHM's rights herein including, without limitation, Section 8.2 hereof); or (3) shall voluntarily relinquish its rights (including, without limitation, its ownership interests) to any and all Honda and Acura dealerships then owned, in whole or in part, by UAG or its Affiliates, and such rights shall revert to AHM. 1.4.2 In addition to those persons or entities referred to in Section 1.4.1 of this Agreement, Schedule D also lists those individuals or entities with ownership interests in the following Stockholder: Trace International Holdings, Inc. ("Trace"). On a continuing basis, UAG agrees to provide pertinent financial and business data on Trace as well as Aeneas Venture Corporation ("Aeneas") and AIF II, L.P. ("Apollo"), to the extent such documentation and information is reasonably available. -3- 1.5 RESTRICTIONS ON TRANSFER OF UAG STOCK BY RESTRICTED STOCKHOLDERS. Without AHM's prior written approval, Trace, Aeneas and Apollo (collectively, "Restricted Stockholders") shall not sell, transfer or in any manner encumber any UAG Stock nor enter into any agreement providing for the voting of UAG Stock as directed by any person or entity or in a specified manner or pursuant to a specified procedure, or grant any voting proxy or otherwise enter into any arrangement the purpose or effect of which is to vest in any other person or entity the voting rights of any UAG Stock held by the Restricted Stockholders. AHM will not approve any transfers of UAG Stock that it reasonably deems detrimental to AHM's interests as provided in Section 1.7 below, and any approved transfer may only be made on the condition that the transferee(s) and subsequent transferee(s) agree in writing to be bound by the terms of the Agreement to the same extent as if it had executed this Agreement as a Restricted Stockholder. Each certificate representing UAG Stock held by a Restricted Stockholder or any securities issued in respect of such UAG Stock shall be stamped or otherwise imprinted with a legend substantially in the following form: The shares represented by this certificate are subject to restrictions on transfer set forth in an Agreement between American Honda Motor Company, Inc. and the Corporation dated October 4, 1996, as amended, a copy of which will be furnished by the Corporation without charge upon written request. 1.6 IDENTIFICATION OF OWNERS OF UAG. Schedule E, appended hereto, includes accurate documentation and information pertaining to each individual or entity that owns or controls 5% or more of the UAG Stock, whether such stock is freely tradable and/or restricted. In the event of any change of ownership that results in an individual or entity not listed on Schedule E obtaining ownership or control of 5% or more of UAG Stock, UAG shall provide AHM with the documentation and information required by Schedule E with respect to such person or entity to the extent the documentation and information is reasonably available. UAG will provide AHM with copies of all filings made with the SEC and comparable filings made with state agencies by persons or entities that own more than 5% of UAG and or any of its Affiliates. Without limiting the foregoing, UAG will use its best efforts to provide such information regarding such shareholders as AHM may from time to time request. 1.7 RIGHT OF AHM TO DISAPPROVE ACQUISITIONS OF UAG STOCK. Without limiting the restrictions set forth in Section 1.5, AHM shall have the irrevocable right to disapprove of the acquisition of more than 5% of the shares of UAG Stock by any individual or entity if such acquisition is reasonably deemed detrimental to AHM's interests. Without limiting the foregoing, the parties agree that such acquisition or attempted acquisition may reasonably be deemed to be detrimental to AHM's interests if the acquiring individual or entity (a) competes with AHM or its -4- parent, subsidiaries or Affiliates in manufacturing, marketing, or selling automotive products or services or is owned or controlled by or has a substantial economic interest in an entity that competes with American Honda or its parent, subsidiaries or Affiliates in manufacturing, marketing, or selling automotive products or services (not including an interest in a dealership selling products manufactured by a competing automobile manufacturer); (b) has criminal affiliations or a criminal record; (c) has less than an excellent credit rating or credit history; (d) has demonstrated unacceptable customer satisfaction index performance in any industry in which it has participated; or (e) has had a prior relationship with AHM which AHM deems to have been unsatisfactory. Notwithstanding the immediately preceding sentence, as long as control of UAG remains in the hands of persons or entities approved by AHM, it is not AHM's intention to restrict reputable banks, mutual funds, insurance companies, and/or pension funds (collectively referred to herein as "Institutional Investors") from acquiring up to 15% of UAG Stock. Therefore, the parties further agree that, unless such Institutional Investor (i) is owned or controlled by or owns 10% or more [15% or more if such ownership is in the capacity as an investment advisor, trustee or custodian for the benefit of third parties] of, or controls, any person or entity that competes with AHM or its parent, subsidiaries or Affiliates in manufacturing, marketing, or selling automotive products or services (not including an interest in a dealership selling products manufactured by a competing automobile manufacturer); (ii) has criminal affiliations or a criminal record; or (iii) has acquired, or has reasonable likelihood of acquiring, a controlling interest in UAG, acquisition of up to 15% of UAG Stock by such Institutional Investor shall be presumed not to be detrimental to AHM's interests. The parties further agree that acquisition or control of more than 15% of UAG Stock by any party shall be subject to AHM's approval pursuant to the standards set forth above with respect to parties that acquire 5% or more of UAG Stock. UAG agrees that it will provide AHM with notice of any acquisition or proposed acquisition of UAG Stock of which UAG becomes aware with respect to which AHM has a right of disapproval pursuant to this Section 1.7. UAG shall make its best efforts to obtain and provide to AHM such documentation and information pertaining to the party or parties that have acquired or are proposing to acquire the UAG Stock that AHM would need to exercise its right of disapproval. Unless AHM objects in writing to such acquisition within 180 days of receiving completed documentation and information from UAG pertaining thereto, AHM shall be deemed to have approved such acquisition. In the event AHM disapproves of such acquisition, UAG and its then current shareholders shall make their best efforts to prevent such acquisition or, if it has already taken place, to reacquire the shares of UAG Stock so transferred. In the event that UAG is unable to prevent such acquisition or reacquire the shares of UAG -5- Stock, AHM may invoke the purchase provisions of Section 9.3 hereof. 1.8 DESIGNATION OF UAG'S EXECUTIVE MANGER. UAG shall designate Carl Spielvogel as its Executive Manager. The Executive Manager shall have operational control of UAG and shall have final authority to decide any dealership matters not within the authority of the Dealer Manager. UAG may not change its Executive Manager without the prior written approval of AHM, which approval shall not be unreasonably withheld. 1.9 NO FURTHER PUBLIC OFFERINGS OF STOCK WITHOUT AHM'S PRIOR WRITTEN APPROVAL. UAG shall not make any further public offerings of UAG Stock without AHM's prior written approval. UAG shall submit any proposals to make other public offerings of UAG Stock to AHM in the manner set forth in the Policy and AHM shall evaluate such proposal in accordance therewith. The restriction in this Section 1.9 on making further public offerings of UAG Stock shall not be construed to prevent any registration of shares of UAG Stock issuable to employees pursuant to employee stock options; however, shares of UAG Stock so registered shall be considered to be Public Stock as defined in Section 1.4.1 of this Agreement which total Public Stock shall not be in excess of 40% of total UAG Stock. 1.10 NO PUBLIC OWNERSHIP OF INDIVIDUAL DEALERSHIPS. UAG will not use a public ownership structure for any of its Honda and/or Acura dealerships. 1.11 CHANGE OF CONTROL OF UAG. UAG acknowledges and agrees that AHM has the right to ensure that its dealerships remain under the control of persons and/or entities with a full-time commitment to the sales and service of Honda Products or Acura Products (as the case may be). UAG recognizes the legitimacy of AHM's concern (as more fully set forth in the Policy) that public ownership of dealerships, if unrestricted, could lead to the loss of AHM's control over the selection of the individuals who sell and service Honda Products or Acura Products. Therefore, in the event that a controlling interest in UAG or any of its Affiliates that own Honda or Acura dealers is acquired or threatened to be acquired by an individual or entity not specifically approved by AHM, UAG agrees that AHM may terminate its Dealer Agreement(s) with the Honda and/or Acura dealership(s) then owned by UAG and/or exercise the right to purchase set forth in Section 9.3. As used herein, "controlling interest" means (a) ownership or practical control of shares of UAG or its Affiliates sufficient to appoint or control either the management or the board of directors thereof or (b) the practical ability to make the day-to-day and/or policy decisions of a Honda or Acura dealership. -6- 2. FUTURE ACQUISITIONS BY UAG OF HONDA AND ACURA DEALERSHIPS 2.1 RIGHT OF APPROVAL BY AHM. Neither UAG nor any UAG Affiliate (as defined above) shall acquire any interest in any Honda or Acura dealership not listed on Schedule A without AHM's prior written approval. Approval shall be at AHM's sole discretion and will be evaluated in light of the then current Policy and AHM's then current business interests. Without limiting the foregoing, in no event will AHM approve any such acquisition unless all Honda and Acura dealerships owned or controlled by UAG and/or its Affiliates are (a) in full compliance with all of the terms of its Dealer Agreement and this Agreement; and (b) meet all of the applicable Honda or Acura policies and performance expectations. 2.2 OWNERSHIP OF CONTIGUOUS DEALERSHIPS. UAG and/or its Affiliates shall not own contiguous Honda and/or Acura dealerships. 2.3 OWNERSHIP OF MULTIPLE DEALERSHIPS. UAG shall not own or control, directly or through an Affiliate, Honda or Acura dealerships in excess of the numbers set forth below: 2.3.1 HONDA. UAG shall not hold an ownership interest, directly or through an Affiliate, in a multiple number of Honda dealerships as provided below: (a) in a "Metro" market (a "Metro" market is a metropolitan market area represented by two or more Honda Dealer points) with two (2) to ten (10) Honda dealership points (inclusive), no Dealer Owner may own, operate or have an interest in more than one (1) Honda dealership; (b) in a Metro market with eleven (11) to twenty (20) Honda dealership points (inclusive), no Dealer Owner may own, operate or have an interest in more than two (2) Honda dealerships; (c) in a Metro market with twenty-one (21) or more Honda dealership points (inclusive), no Dealer Owner may own, operate or have an interest in more than three (3) Honda dealerships; (d) 4% of the Honda dealerships in any one of the ten Honda Zones; and (e) seven (7) Honda dealerships nationally. 2.3.2 ACURA. UAG shall not hold an ownership interest, directly or through an Affiliate, in more than: (a) one (1) Acura dealership in a Metro market (as used herein, "Metro" market is a Metropolitan market area represented by two or more Acura dealer points); (b) two (2) Acura dealerships in any one of the six Acura Zones; and (c) three (3) Acura dealerships nationally. 2.4 PROPOSED ACQUISITION IN EXCESS OF LIMITS. If the purchase of any Honda or Acura dealership would result in exceeding the limits set forth in this Section 2, AHM will reject UAG's application for approval of the ownership transfer until such time as UAG shall divest itself of the appropriate number of dealerships to bring it into compliance with the requirements of this Agreement at which time AHM will reconsider the proposal in -7- light of the Policy. In case of such divestiture, AHM may invoke the purchase option/right of first refusal provisions of Section 8.2 hereof. 3. SEPARATE, FREESTANDING, EXCLUSIVE DEALERSHIPS 3.1 MAINTENANCE OF EXCLUSIVE DEALERSHIP PREMISES. Each Honda or Acura dealership owned by UAG or its Affiliates shall be maintained as separate, freestanding Dealership Operations that meet complete and timely compliance with facility design and image enhancements to AHM's brand image, functionality and capacity standards and guidelines, which standards and guidelines AHM may reasonably modify from time to time, and shall exclusively offer a full range of Honda Products and services or Acura Products and services and do not offer competing products or services from its Dealership Premises. 3.2 FULL LINE OF PRODUCTS AND SERVICES. UAG shall make available to the customers at each of its Honda dealerships all Honda Products and services, including, but not limited to, vehicles, Genuine Parts and Accessories, American Honda Finance Corporation retail financing services (whether for purchases or leases), Honda Vehicle Service Contracts, and Honda Certified Used Car Program. UAG shall make available to the customers at each of its Acura dealerships all Acura Products and services, including vehicles, Genuine Parts and Accessories, American Honda Finance Corporation retail financing services (whether for purchases or leases), Acura Vehicle Service Contracts, and Acura Preferred Pre- Owned Program. 3.3 TREATMENT AS INDEPENDENT DEALERSHIPS. For allocation and other purposes, transfer of Honda or Acura Automobiles from one dealership to another dealership owned by the same entity will be treated the same as a transfer between separately-owned dealers. 3.4 INDEPENDENT REPORTING REQUIREMENTS. Each Honda and Acura dealership shall have the same reporting requirements as all other Honda and Acura dealerships, including fully audited dealership-specific financial information. Each individual dealership must meet the capitalization requirements and other requirements set forth in its individual Dealer Agreement. The corporate by-laws of the individual corporation that actually owns the Honda or Acura dealership must restrict it from engaging in any activity other than the ownership and maintenance of a Honda or Acura dealership, as the case may be. 4. DEALER MANAGERS 4.1 APPROVAL BY AHM. Each Honda and Acura dealership owned or controlled by UAG shall have a qualified Dealer Manager, approved by AHM (subject to the exception noted in Section 4.2 below). Each Dealer Manager shall work at the Honda or Acura Dealership Premises, shall devote all efforts to -8- the management of the dealership and shall have no other significant business interests or management responsibilities. 4.2 TRIAL PERIOD. Whenever UAG nominates a new Dealer Manager candidate for a Honda or Acura dealership, AHM shall have the right to withhold a decision concerning approval or rejection of the candidate for a trial period of up to one year, at its sole discretion; provided, however, that the candidate may operate in the capacity of Dealer Manager until AHM has approved or rejected the candidate. 4.3 AUTHORITY OF DEALER MANAGER. UAG shall advise AHM in writing of the limitations, by category and, where applicable, by specific action, on the authority of the Dealer Manager regarding the operation of the dealership. Without limiting the foregoing, the Dealer Manager must have the authority to run the day-to-day operations of the dealership and the capacity to enter into substantial transactions (e.g., the placement of orders for Honda or Acura Automobiles and Genuine Parts and Accessories) on behalf of the dealership. 5. REPRESENTATION ON HONDA AND ACURA DEALER ORGANIZATIONS No more than one representative each from the Honda, and separately, Acura dealerships owned, directly or through an Affiliate, by UAG, may serve on the Honda National Dealer Advisory Board, the Acura National Dealer Council or any future Honda or Acura national board(s) which may be established, and no more than one representative each may serve on either a Honda or Acura Zone Advisory Board/Council, or Honda Advertising Triad or Acura advertising counsel (should one be established in the future). Such representative must be involved on a full-time basis in the day-to-day operation of the dealership which it is appointed to represent and must otherwise comply with the bylaws of the applicable organization. 6. DEALERSHIP PERSONNEL TRAINING UAG shall not substitute training courses of its own for those provided or sponsored by AHM without the prior written approval of AHM, which approval shall be in AHM's sole discretion. In no event will AHM approve UAG training courses unless the trainers are certified pursuant to Honda's or Acura's certification programs, as applicable. 7. PROSPECTUS DISCLAIMER AND INDEMNIFICATION AND HOLD HARMLESS AGREEMENT UAG shall place in its registration statement and its prospectus, as well as in any other document offering shares in UAG Stock to public or private investors, the following disclaimer: -9- No Manufacturer (as defined in this Prospectus) has been involved, directly or indirectly, in the preparation of this Prospectus or in the offering being made hereby. No Manufacturer has made any statements or representations in connection with the offering or has provided any information or materials that were used in connection with the Offering, and no Manufacturer has any responsibility for the accuracy or completeness of this Prospectus. UAG shall indemnify and hold harmless AHM pursuant to the terms of the Indemnification Agreement set forth in Schedule F to this Agreement. 8. TRANSFER OF DEALERSHIPS BY UAG. 8.1 SALE OF OWNERSHIP INTEREST IN DEALERSHIP. This is a personal services Agreement based upon personal skills, service, qualifications and commitment of UAG, its Executive Manager, and its Dealer Managers. For this reason, and because AHM has entered into this Agreement in reliance upon UAG's, its Executive Manager's, and its Dealer Managers' qualifications, without limiting any of the other restrictions on transfer of ownership set forth in this Agreement, UAG agrees to obtain AHM's prior written approval of any proposed transfer of any ownership interest in a Honda or Acura dealership owned by UAG. Without limiting the foregoing, in the event of such proposed transfer, AHM shall not be obligated to renew the applicable Dealer Agreement or to execute a new Dealer Agreement with UAG or the proposed transferee unless (a) UAG first makes arrangements acceptable to AHM to satisfy any outstanding indebtedness to AHM; (b) the proposed transfer conforms to this Agreement and the Policy; and (c) the transferee agrees to the terms and conditions of this Agreement and the Policy. 8.2 RIGHT OF FIRST REFUSAL OR OPTION TO PURCHASE 8.2.1 RIGHTS GRANTED. If a proposal to sell a dealership's assets or transfer its ownership is submitted by UAG to AHM, AHM has a right of first refusal or option to purchase the dealership assets or stock, including any leasehold interest or realty. AHM's exercise of its right or option under this Section supersedes UAG's right to transfer its interest in, or ownership of, the dealership. AHM's right or option may be assigned by it to any third party and AHM hereby guarantees the full payment to UAG of the purchase price by such assignee. AHM may disclose the terms of any pending ownership transfer agreement and any other relevant dealership performance information to any potential assignee. AHM's rights under this Section will be binding on and enforceable against any assignee or successor in interest of UAG or purchaser of UAG's assets. -10- 8.2.2 EXERCISE OF AHM'S RIGHTS. AHM shall have 180 days from AHM's receipt of all completed documentation and information customarily required by it to evaluate a proposed transfer of ownership in which to exercise its option to purchase or right of first refusal. AHM's exercise of its right of first refusal under this Section neither shall be dependent upon nor require its prior refusal to approve the proposed transfer. 8.2.3 RIGHT TO FIRST REFUSAL. If UAG has entered into a bona fide written ownership transfer agreement for its dealership business or assets, AHM's right under this Section is a right of first refusal, enabling AHM to assume the buyer's rights and obligations under such ownership transfer agreement, and to cancel this Agreement and all rights granted UAG. Upon AHM's request, UAG agrees to provide other documents relating to the proposed transfer and any other information which AHM deems appropriate, including, but not limited to, those reflecting other agreements or understandings between the parties to the ownership transfer agreement. Refusal to provide such documentation or to state that no such documents exist shall create the presumption that the ownership transfer agreement is not a bona fide agreement. 8.2.4 OPTION TO PURCHASE. If UAG submits a proposal which AHM determines is not bona fide or in good faith, AHM has the option to purchase the principal assets of UAG utilizing the dealership business, including real estate and leasehold interest, and to cancel this Agreement and the rights granted UAG. The purchase price of the dealership assets will be determined by good faith negotiations between the parties. If an agreement cannot be reached, the purchase price will be exclusively determined as set forth in Section 9.3 of this Agreement. 8.2.5 UAG'S OBLIGATIONS. Upon AHM's exercise of its right or option and tender of performance under the ownership transfer agreement or upon whatever terms may be expressed in the ownership transfer agreement, UAG shall forthwith transfer the affected real property by warranty deed conveying marketable title free and clear of all liens, claims, mortgages, encumbrances, tenancies and occupancies. The warranty deed shall be in proper form for recording, and UAG shall deliver complete possession of the property and deed at the time of closing. UAG shall also furnish to AHM all copies of any easements, licenses or other documents affecting the property or dealership operations and shall assign any permits or licenses that are necessary or desirable for the use of or appurtenant to the property or the conduct of such Dealer Operations. UAG also agrees to execute and deliver to AHM instruments satisfactory to AHM conveying title to all personal property, including leasehold interests, involved in the transfer or sale to AHM. If any personal property is subject to any lien or charge of any kind, UAG agrees to procure the discharge and satisfaction thereof prior to the closing of sale of such property to AHM. -11- 9. REMEDIES OF AHM. 9.1 CUMULATIVE REMEDIES. All of AHM's remedies set forth herein are cumulative. No explicit listing of any remedy shall foreclose AHM from seeking any remedy at laws or in equity, including injunctive relief, that would otherwise be available to it. 9.2 INJUNCTIVE RELIEF. UAG agrees that any breach by UAG or its Affiliates of the covenants set forth in this Agreement that pertain to the ownership, control, transfer, and/or operation of Honda or Acura dealerships would result in irreparable harm to AHM and therefore agrees that AHM shall be entitled to emergency, preliminary and permanent injunctive relief to prevent such breaches. 9.3 RIGHT TO PURCHASE. UAG understands and acknowledges that AHM has the right to maintain a personal relationship with its dealers and a healthy and competitive dealer network and that the Policy and this Agreement are designed to ensure the protection of that right and the integrity of the dealer network while at the same time enabling UAG to raise capital through the public offering of stock. Therefore, in the event that UAG materially breaches the Policy or this Agreement, in addition to any other remedies that AHM might have, upon notice from AHM, AHM may exercise its right to purchase, and UAG agrees that it will sell, all assets of its Honda and Acura dealerships at their then current fair market value and on the terms set forth in Section 8.2.5 and that the applicable Dealer Agreements will terminate upon such sale. In the event that UAG or any of its Honda or Acura dealerships materially breaches any applicable Honda or Acura Dealer Agreement(s), in addition to any other remedies that AHM might have, upon notice from AHM, AHM may exercise its right to purchase, and UAG agrees that it will sell, the assets of the affected Honda and/or Acura dealerships or all Honda and Acura dealerships, at their then current fair market value and on the terms set forth in Section 8.2.5 and that the applicable Dealer Agreements will terminate upon such sale. Any dispute as the fair market value of such dealerships will be resolved by arbitration as described in Section 10 hereof. In such arbitration, the Arbitrator shall be empowered only to determine (1) whether a material breach took place; and, (2) if so, the fair market value of the dealerships at issue. The arbitrator in such proceeding shall not have the power to award any other damages or other relief. If the arbitrator finds a material breach, UAG shall transfer the dealerships to AHM or its designee at the fair market value determined by the arbitrator without the necessity of further legal action by AHM. The arbitrator's decision shall be unappealable and unreviewable. If, in violation of the terms hereof, UAG requires AHM to obtain a court judgment to enforce the arbitrator's decision, that decision shall be enforceable in any court of competent jurisdiction and UAG agrees to pay the costs and attorneys' fees expended in connection therewith. The foregoing arbitration -12- shall not, without the consent of both parties, be consolidated with any other arbitration initiated by a party pursuant to Section 10 hereof. 10. DISPUTE RESOLUTION Except as modified in Section 9.3 immediately above, any controversy or claim arising out of or relating to the Agreement, or the breach thereof, or any failure to agree where agreement of the parties is necessary pursuant hereto, including the determination of the scope of this agreement to arbitrate, shall be resolved by the following procedures: 10.1 ATTEMPT TO RESOLVE DISPUTE. The parties shall use all reasonable efforts to amicably resolve the dispute through direct discussions. The senior management of each party commits itself to respond promptly to any such dispute. Any party may send written notice to the other parties identifying the matter in dispute and invoking the procedures of this article. Within ten (10) days after such written notice is received, unless a delay is agreed to by both parties to the dispute or the parties agree to confer by telephone, one or more senior management of each party shall meet in Los Angeles, California to attempt to amicably resolve the dispute by written agreement. If said dispute cannot be settled through direct discussions, the parties agree to first endeavor to settle the dispute in an amicable manner by mediation in Los Angeles and administered by the American Arbitration Association ("AAA"), pursuant to the Commercial Mediation Rules of the AAA at the time of submission prior to resorting to binding arbitration. 10.2 APPLICATION TO BINDING ARBITRATION. If after forty-five (45) days from the first written notice of dispute, the parties fail to resolve the dispute by written agreement or mediation, either party may submit the dispute to final and binding arbitration administered by the AAA, pursuant to the Commercial Arbitration Rules of the AAA at the time of submission. The arbitration shall be held in Los Angeles before a single neutral, independent, and impartial arbitrator (the "Arbitrator"). 10.3 BINDING ARBITRATION PROCEDURE. Unless the parties have agreed upon the selection of the Arbitrator before then, the AAA shall appoint the Arbitrator as soon as practicable, but in any event within thirty (30) days after the submission to AAA for binding arbitration. The arbitration hearings shall commence within forty-five (45) days after the selection of the Arbitrator. Unless the Arbitrator otherwise directs, each party shall be limited to three pre-hearing depositions lasting no longer than 6 hours each. The parties shall exchange documents to be used at the hearing no later than ten (10) days prior to the hearing date. Unless the Arbitrator otherwise directs, each party shall have no longer than three days to present its position, the entire proceedings before the -13- Arbitrator shall be on no more than eight hearing days within a three week period. The Arbitrator's award shall be made no more than thirty (30) days following the close of the proceeding. The Arbitrator's award may not include consequential, exemplary, or punitive damages. The Arbitrator's award shall be a final and binding determination of the dispute and shall be fully enforceable in any court of competent jurisdiction. the prevailing party shall be entitled to recover its reasonable attorneys' fees and expenses, including arbitration administration fees, incurred in connection with such proceeding. Except in a proceeding to enforce the results of the arbitration, neither party nor the Arbitrator may disclose the existence, content, or results of any arbitration hereunder without the prior written consent of both parties. 10.4 EXCEPTIONS. Notwithstanding the foregoing, either party may, without recourse to arbitration, assert against the other party a third-party claim, cross-claim or like claim in any action brought by a Third Party to which this Agreement or the obligations of the parties hereunder may pertain. Nothing herein shall prevent a party from seeking injunctive relief, where appropriate, from a court of competent jurisdiction pending the outcome of any arbitration concerning the subject of such arbitration or when authorized by an arbitrator's award or when emergency relief is required. 11. ENTIRE AGREEMENT OF THE PARTIES There are no prior agreements or understandings, either oral or written, between the parties affecting this Agreement, except as otherwise specified or referred to in this Agreement. No change or addition to, or deletion of any portion of this Agreement shall be valid or binding upon the parties hereto unless approved in writing signed by an officer of each of the parties hereto. The parties acknowledge that each of them have been represented by counsel and are substantial entities with considerable resources. This Agreement has been fully negotiated. No provision of this Agreement shall be construed against a party on the ground that the party or its attorneys drafted it. 12. 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 provision(s), and such provision(s) will be deemed amended to comply with such law, or if it (they) cannot be so amended without materially affecting the tenor of the Agreement, then it (they) will be deemed deleted from this Agreement in such jurisdiction, and in either case, the remainder of the Agreement will be valid and binding. Notwithstanding the foregoing, if, as a result of any provision of this Agreement being held invalid or unenforceable, AHM's ability to control the -14- selection of the Dealer Owner, Executive Manager, or the Dealer Manager or to otherwise maintain its ability to exercise reasonable discretion over the selection of the actual individual who is managing a Honda or Acura dealership is materially restricted beyond the terms of this Agreement or the Dealer Agreement, AHM shall be permitted to invoke the purchase provisions of Section 9.3 hereof. 13. 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. 14. AHM POLICIES AHM has adopted certain policies which are attached hereto as Schedule G. UAG hereby agrees to abide by these policies as attached hereto and as reasonably amended by AHM from time to time, and other policies promulgated in the future by AHM. In addition, AHM has expressed a commitment to diversity in management and among employees. UAG hereby agrees to adhere to that commitment by seeking to achieve diversity among the management personnel and employees it appoints in connection with the Honda and Acura dealerships it owns or controls. Without limiting the foregoing, UAG hereby agrees that its dealerships will meet or exceed (with respect to both the applicable zone and the United States as a whole) average Honda and/or Acura dealership performance (as such performance is measured by AHM, now or in the future) with respect to customer satisfaction, sales, and market share. 15. APPLICABLE LAW This Agreement shall be governed by and construed according to the laws of the State of California. 16. BENEFIT This Agreement is entered into by and between AHM and UAG for their sole and mutual benefit. Neither this Agreement nor any specific provision contained in it is intended or shall be construed to be for the benefit of any third party. 17. NOTICE TO THE PARTIES Any notices permitted or required under the terms of this Agreement shall be directed to the following respective addresses of the parties, or if either of the parties shall have -15- specified another address by notice in writing to the other party, then to the address last specified: AMERICAN HONDA MOTOR CO., INC. Acura Division 1919 Torrance Boulevard Torrance, California 90501 Attention: Acura Dealer Development Department AMERICAN HONDA MOTOR CO., INC. Honda Division 1919 Torrance Boulevard Torrance, California 90501 Attention: Dealer Placement Department with a copy to: Associate General Counsel HONDA NORTH AMERICA, INC. Law Department 700 Van Ness Avenue Torrance, California 90509-2206 UNITED AUTO GROUP 375 Park Avenue 22nd Floor New York, New York 10152 Attention: Carl Spielvogel, Chairman and C.E.O. -16- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. UNITED AUTO GROUP, INC. By:________________________________ Carl Spielvogel, Chairman and Chief Executive Officer UAG NORTHEAST, INC. By:________________________________ Title:_____________________________ UAG WEST, INC. By:________________________________ Title:_____________________________ DIFEO PARTNERSHIP, INC. By:________________________________ Title:_____________________________ DANBURY PARTNERSHIP, INC. By:________________________________ Title:_____________________________ RESTRICTED STOCKHOLDERS TRACE INTERNATIONAL HOLDINGS, INC. By:________________________________ Title:_____________________________ AENEAS VENTURE CORPORATION By:_______________________________ Title:____________________________ -17- AIF II, L.P. By:_______________________________ Title:____________________________ AMERICAN HONDA MOTOR CO., INC. Acura Division By:_______________________________ Richard B. Thomas Executive Vice President Acura Division AMERICAN HONDA MOTOR CO., INC. Honda Division By:_______________________________ Richard Colliver Senior Vice President Automobile Sales Division -18- AMERICAN HONDA MOTOR CO., INC. POLICY ON THE PUBLIC OWNERSHIP OF HONDA AND ACURA DEALERSHIPS I. OBJECTIVES In this policy on the Public Ownership of Honda and Acura Dealerships (the "Policy"), American Honda Motor Co., Inc. ("American Honda") addresses several issues raised by the recent announcement by certain entities which own automobile dealerships that they intend to offer stock for sale to the public. Proposals for the public ownership of automobile dealerships have been widely publicized in the press. American Honda has been asked by several dealers and the National Automobile Dealers Association to state its position on the public ownership of Honda and Acura dealerships. This Policy is an effort to address these inquiries by providing guidelines for the ownership of Honda and Acura dealerships that assist Dealer Owners and potential Dealer Owners in assessing whether a particular form of ownership is consistent with American Honda's standards for its dealerships. II. BACKGROUND A. THE PERSONAL NATURE OF THE DEALER OWNER RELATIONSHIP There is no simple "yes" or "no" answer to the question, "Will American Honda permit transfer of a dealership to a publicly-owned corporation?" The answer depends on whether the proposed form of ownership preserves the individualized relationship between the Dealer Owner and the local community, on the one hand, and American Honda and the Dealer Owner, on the other hand. Despite the recent increase of mass marketing (including the advent over the last twenty years of so-called "category killers" such as the toy store giants that have replaced neighborhood toy stores and the hardware giants that have replaced local hardware stores), American Honda continues to believe that automobile sales and service are most effectively done through dedicated, local dealerships with strong ties to the community. For most automobile purchasers, the decision to buy a new car is a major financial commitment and is only made after extensive deliberation. Although competitive price is undoubtedly a major factor in the buying decision, American Honda believes strongly that the building of a relationship between the dealer and the buyer, particularly the development of trust in the quality of the product and the service provided by Honda dealers has, over the years, been a major selling point that has distinguished Honda and Acura vehicles from the competition. When a first-time new car buyer purchases a Honda vehicle, American Honda believes that we have a great opportunity to make that customer a life-time Honda and Acura buyer -- because we provide the best products and the best service through the most dedicated and committed dealers. In order to ensure that Honda and Acura dealers provide the advice and service required by new car buyers, American Honda attempts to select the best people to be its dealers and requires that these people maintain personal control over dealership operations. Because individual Dealer Owners have considerable autonomy as to how they run their dealerships, American Honda's influence over the quality of its dealerships depends in large part on how wisely it selects its dealers. Although no process is perfect, American Honda believes that over the years it has done an excellent job of selecting Dealer Owners and is extremely proud of the quality of its dealerships. B. THE DEALER AGREEMENT The Honda or Acura Automobile Dealer Sales and Service Agreement (the "Dealer Agreement") between American Honda and its dealers includes a number of provisions that ensure that the relationship between American Honda and its dealers will remain personal. Section C of the Dealer Agreement states: "Dealer covenants and agrees that this Agreement is personal to Dealer, to the Dealer Owner, and to the Dealer Manager, and American Honda has entered into this Agreement based upon their particular qualifications and attributes and their continued ownership or participation in Dealership Operations." Sections C and D of the Dealer Agreement name the specific individuals who own the dealership, their percentage of ownership, the individual who will function as the Dealer operator and the individual who will function as the Dealer Manager. Section J states: "Neither this Agreement, nor any part thereof or interest therein, may be transferred or assigned by Dealer, directly or indirectly, voluntarily or by operation of law, without the prior written consent of American Honda." In Section 8.1 of the Dealer Agreement, "Dealer agrees that American Honda has the right to select each successor and replacement dealer and to approve its owners and principal management." Dealers must inform American Honda in writing of any potential change in the ownership or management listed in Sections C and D. Prior to taking effect, such changes must be approved in writing by American Honda. American Honda's approval will not be unreasonably withheld. C. THE POTENTIAL BENEFITS OF PUBLIC INVESTMENT IN DEALERSHIPS Public investment in dealerships offers potential benefits to both American Honda and its dealers. American Honda needs exclusive Honda or Acura dealerships with separate, free-standing state-of-the-art facilities at prime locations to meet its long term business objectives. American Honda dealers need to compete vigorously and such competition may include expanded -2- and improved showrooms, upgraded computerization, the introduction of various customer amenities, etc. The ability to raise capital through public offerings of stock provides an additional means of financing improvement in dealership facilities and operations. D. THE TENSION BETWEEN PERSONAL RELATIONSHIP AND PUBLIC OWNERSHIP American Honda believes that the quality of the individuals who serve as Honda or Acura dealers and Dealer Managers is essential to the success of American Honda and the dealerships. Therefore, American Honda is determined to maintain its personal relationships with its Dealer Owners and Dealer Managers and to continue to exercise the right of approval of changes in dealer ownership and management as set forth in the Dealer Agreement. To the extent that public ownership of a Honda or Acura dealership means that the Dealer Manager will be appointed by a board of directors selected by owners of publicly-traded stock, such an arrangement is inconsistent with American Honda's needs and the Dealer Agreement. On the other hand, public ownership of a portion of the shares of a dealership may be consistent with American Honda's objectives in cases in which a controlling interest in the dealership is maintained by a specified Dealer Owner and the dealership is managed by a specified Dealer Manager. The following guidelines are an attempt to reconcile the tension between American Honda's need for a personal relationship with each dealer and dealer proposals for public ownership of an interest in dealerships. III. PUBLIC OWNERSHIP GUIDELINES A. CASE-BY-CASE DETERMINATION. As in the past, American Honda will evaluate requests to transfer ownership of Honda and Acura dealerships on a case-by-case basis. Proposals to transfer ownership to entities with publicly- traded shares will be reviewed based on the standards set forth in this Policy. AMERICAN HONDA RESERVES THE RIGHT, IN ITS SOLE BUSINESS JUDGMENT, TO APPROVE OR REJECT SUCH TRANSFERS. B. PROPOSALS TO BE SUBMITTED IN WRITING. All proposals to transfer ownership of Honda and Acura dealerships must be submitted in writing to American Honda and must include: 1. A list of the individuals and entities that will own PRIVATELY-HELD SHARES of the dealership, including the amount of shares owned by such individual or entity and information and documentation about each such individual or entity; in the case of entities owning or controlling such privately-held shares, a list of the individuals owning such entities and information and documentation about such individuals; -3- 2. With respect to ownership interests not listed in accordance with subsection 1, immediately above, a list of the individuals and entities that will own or control 5% or more of the dealership (either through ownership of publicly-held stock or any combination of privately-held stock and publicly-held stock or any other arrangement), including information and documentation about each such individual or entity; 3. The number and percentage (if any) of the shares of the entity that owns the dealership that will be publicly traded; 4. A detailed description, including flow charts, of the proposed structure of the entities that will own and/or control the dealership and the relationship of the Dealer Owner to these entities, including, with respect to entities with a significant interest in the Dealer Owner, a description of the individuals holding such interest; 5. The name and a brief biography of the individual who will function as Dealer Manager and a detailed description of the functions and responsibilities of the Dealer Manager; 6. Complete financial documents (including but not limited to the most recent and the prior year end audited financial statements of any entity proposing to obtain any interest equal to or greater than 5% of a dealership or 5% of an entity that owns a dealership), indicating, among other things, the amount of capitalization of the dealership and the verifiable sources of such capitalization; 7. A detailed description of the proposed use of the funds to be raised from the public investment; 8. The articles and bylaws of the entity or entities that will own and/or control the dealership; 9. Copies of the proposed transactional documents that will be used to effectuate the transaction, including, without limitation, copies of any government filings and contracts pertaining thereto; and 10. Copies of any additional documents that the transferees, transferors and other parties having a substantial interest in the transaction have that American Honda would reasonably need to evaluate the proposal. After receipt of complete documentation for the Proposal, as outlined above, and due consideration thereof, American Honda will provide the party submitting the proposal with a preliminary assessment of the proposed transaction. NO FINAL DECISION ON THE PROPOSAL WILL BE MADE UNTIL SUBMISSION OF -4- FINAL VERSIONS OF ITEMS 1 THROUGH 10 WITH ANY OTHER DOCUMENTATION REQUESTED BY AMERICAN HONDA AND AMERICAN HONDA AND THE NEW OWNERSHIP ENTITY AGREE ON AND ENTER INTO A DEALER AGREEMENT. It is not advisable to make any expenditures or commitments, or to enter into any contracts or incur any obligations on the assumption that authorization of a proposal will be granted. Any such expenditures, commitments or obligations, financial or otherwise, made or entered into by a dealer in anticipation of authorization of a proposal, and prior to: (1) receipt of final written approval by American Honda and (2) execution of the necessary documents as described above (including a new Dealer Agreement) are made entirely at the dealer's own risk and without any liability on the part of American Honda. C. GUIDES TO PREPARATION OF AN ACCEPTABLE PROPOSAL In preparing the documents listed immediately above, the dealer should keep in mind the following list of standards (which is intended to provide guidance, not to be a complete list) to which American Honda will require adherence: 1. All dealerships must have a qualified Dealer Manager acceptable to American Honda. American Honda's right of prior written approval of any change of Dealer Manager must be incorporated into the transactional documents. The Dealer Manager should be a well-respected, civicly-active member of the community. As discussed above, personal involvement by Dealer Managers in Dealership Operations is an important means of ensuring that Honda and Acura dealerships are run with a high level of attention, care and commitment. The Dealer Manager must maintain control over the day-to-day operations of the dealership and the transactional documents should set forth in detail the level of autonomy that the Dealer Manager will exercise, including, for example, the amount of money that the Dealer Manager will be empowered to transfer. Dealerships must abide by American Honda's commitment to encourage diversity of persons in dealer management positions. 2. The Dealer Owner's Executive Manager (that is, the person who has operational control of the entity that owns and/or controls the dealership) should be an experienced, well-respected executive with final authority to decide any dealership matters not within the authority of the Dealer Manager. 3. Dealerships are non-transferable without the prior written consent of American Honda. Because the shares of publicly-owned corporations are freely transferable, the percentage of public ownership must be restricted so that a controlling interest of the dealership remains in the hands of approved individuals. It follows that the controlling -5- interest in the entity that controls the dealership cannot be transferred without the prior written consent of American Honda. In no event may the percentage of public ownership of a dealership exceed the percentage of private ownership by American Honda-approved individuals and privately-held entities. To the extent that an entity not approved by American Honda attempts to acquire control and/or ownership of a dealership, the Dealer Agreement with American Honda must provide for termination of the Dealer Agreement and/or American Honda's right to acquire the dealership at its fair market value. 4. The controlling interest in Honda or Acura dealerships must remain in the hands of a person or entity engaged predominantly in the sale and service of new automobiles. For example, American Honda will not approve transfer of dealerships or entities that control dealerships to general retailers or retailers that deal primarily in non-automotive products. 5. American Honda will not approve the transfer of Honda or Acura dealerships to entities that are known to have significant investments in companies that compete with American Honda or its parent, subsidiaries or Affiliates in manufacturing, marketing, or selling automotive products or services. 6. Public corporations having an ownership interest in the dealership and the individuals and entities that control such public corporations (but not persons whose ownership interest is limited to passive ownership of 5% or less of the shares of public corporations) must agree to obtain American Honda's approval before acquiring an interest in any other Honda or Acura dealership. American Honda reserves the right to limit the number and/or location of Honda and Acura dealerships that can be owned or controlled by any one individual or corporation. In the future, except where a specific finding is made by American Honda that such acquisition would further a business interest of American Honda, individuals and/or entities will be limited to acquiring interests in dealerships as follows: a. HONDA No one shall be allowed to acquire an ownership interest, directly or through an Affiliate, in a multiple number of Honda dealerships as provided below: a) in a "Metro" market (a "Metro" market is a metropolitan market area represented by two or more Honda dealer points) with two (2) to ten (10) Honda dealership points (inclusive), no Dealer Owner may own, operate or have an interest in more than on (1) Honda dealership; -6- b) in a Metro market with eleven (11) to twenty (20) Honda dealership points (inclusive), no Dealer Owner may own, operate or have an interest in more than two (2) Honda dealerships; c) in a Metro market with twenty-one (21) or more Honda dealership points, no Dealer Owner may own, operate or have an interest in more than three (3) Honda dealerships; d) 4% of the Honda dealerships in any one of the ten Honda Zones; and e) seven (7) Honda dealerships nationally. No one shall acquire contiguous Honda dealerships. b. ACURA No one shall be allowed to acquire an ownership interest, directly or through an Affiliate, in a multiple number of Acura dealerships as provided below: (a) one (1) Acura dealer in a "Metro" market (a "Metro" market is a Metropolitan market area represented by two or more Acura dealer points) (b) two (2) Acura dealerships in any one of the Six Acura Zones; and (c) three (3) Acura dealerships nationally. No one shall acquire contiguous Acura dealerships. "Affiliate" of, or a person or entity "affiliated" with, a specified person or entity, means a person or entity that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the person or entity specified. For the purpose of this definition, the term "control" (including the terms "controlling," "controlled by" and "under common control with" means the possession, directly or indirectly, or the power to direct or cause the direction of the management and policies of a person or entity, whether through the ownership of securities, by contract or otherwise. 7. The dealership would continue to have the same reporting requirements as all other Honda and Acura dealerships, including dealership-specific financial information on the same basis that the dealership has provided such information in the past. In the case of -7- corporations that, with American Honda's approval, own multiple Honda and Acura dealerships, each such dealership must be separately incorporated and financial information must be broken down by individual dealership and must meet capitalization requirements, etc., by individual dealership. The corporate by-laws of the individual corporation that actually owns a Honda or Acura dealership must restrict it from engaging in any activity other than the ownership and maintenance of a Honda or Acura dealership. 8. The dealership must agree to provide American Honda with all information and documents, including but not limited to SEC filings, that evidence a substantial change of ownership or control of such dealership or any entity with a controlling interest in such dealership. Individuals or entities that acquire, own or control more than 5% of any entity that owns or controls a Honda or Acura dealership must provide American Honda with copies of all filings made to the SEC, all comparable filings made to state agencies, and, at least once annually, the most recent calendar year's fully audited financial statements. Nothing in this section 8 should be construed to limit the requirement that any proposed change in the ownership or control of privately-held shares of a dealership or an entity that owns a dealership must be reported to American Honda and is subject to American Honda's prior written approval. 9. For allocation and other purposes, transfer of Honda or Acura Automobiles from one dealership to another dealership owned and/or controlled by the same entity will be treated the same as a transfer between separately-owned dealers. 10. The dealership should be committed to providing separate, freestanding Dealership Operations that exclusively offer a full range of Honda Products and services or Acura Products and services and do not offer competing products or services from its Dealership Premises. 11. The controlling individual or entity must be liable for the operation of the dealership and must agree to indemnify American Honda for any claims made by shareholders of publicly-held shares against American Honda to the full extent permitted by law. American Honda must have the right (but not the obligation) to review all documentation and other representations to the public about any offering of stock in the dealership or the entity owning the dealership. Whether or not American Honda reviews them, such documentation and representations must include an affirmative statement that American Honda is completely independent of the entity offering the stock and that, although American Honda's acts or omissions may have an impact on the value of the stock, American Honda bears no -8- responsibility for such impact and has no liability to any investor under any legal or equitable theory. 12. The entity that owns or controls the dealership may not commingle its trademarks with dealer trademarks other than those used exclusively in connection with the dealership. For example, a dealer could use its own "dealership" trademark in conjunction with the Honda or Acura trademarks as in "John Smith HONDA" but it could not use a trademark in conjunction with the Honda or Acura Trademarks that it also uses in conjunction with the non-Honda or non-Acura goods or services. The entity must agree to maintain the Honda or Acura brand image, as that image is developed by American Honda. 13. The entity that owns the dealership must agree to have all dealership sales and service personnel certified by American Honda pursuant to its usual certification programs; to use and sell genuine Honda and Acura parts and accessories; and to participate in good faith in applicable Honda or Acura sales, marketing, service, parts, facility image and upgrade, training, customer satisfaction, and diversity programs. 14. The Dealer Agreement will also provide that breaches of the Dealer Agreement or failure to adhere to American Honda requirements by any individual dealership owned by an entity shall be treated as breaches of the Dealer Agreement between American Honda and such entity and shall constitute reasonable grounds for rejection by American Honda of acquisition by the entity of additional Honda or Acura dealerships. 15. American Honda will not approve any transfer of a dealership that is not in full compliance with the Dealer Agreement between American Honda and such dealership prior to such transfer. 16. The Dealer Agreement with the entity that owns the dealership will include provisions that incorporates the provisions of this Policy and, without limiting the foregoing, permit American Honda to terminate the Dealer Agreement for breaches of the above-listed requirements and to reacquire the dealership as set forth in subsection IIIC3 above. INQUIRIES ABOUT THE POLICY SHOULD BE MADE TO HONDA DEALER PLACEMENT DEPARTMENT AND/OR ACURA DEALER DEVELOPMENT, AS APPLICABLE. INQUIRIES ABOUT THE TRANSFER OF A DEALERSHIP SHOULD BE MADE TO ZONE SALES OFFICE. -9- EX-10.1-15 6 EXH 10.1.15 FORM OF OPINION CERT. Exhibit 10.1.15 [FORM OF OPTION CERTIFICATE] THE OPTION REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND SUCH OPTION MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AT THE TIME AMENDED, OR IN CONFORMITY WITH THE LIMITATIONS OF RULE 144 OR SIMILAR RULE AS THEN IN EFFECT UNDER SUCH ACT, OR UNLESS SOME OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE WITH RESPECT THERETO. NO. _____ Option to Purchase Shares of Common Stock UNITED AUTO GROUP, INC. COMMON STOCK PURCHASE OPTION Void after , 2001 United Auto Group, Inc., a Delaware corporation (the "Company"), hereby certifies that, for value received, _________________, or their heirs, representatives, successors and assigns, is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time after the Initial Exercise Date (as defined below) and before 5:00 P.M. New York time, on , 2001 (the "Expiration Date") ________ fully paid and nonassessable shares of Common Stock of the Company. The purchase price per share of such Common Stock ("the Exercise Price") shall be $__________ [equal to the initial price to public of the Company's Common Stock specified in the final prospectus with respect to the Company's initial public offering]. 1. DEFINITIONS. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: 1.1. The term "Company" includes any corporation which shall succeed to or assume the obligations of the Company hereunder. 1.2. The term "Common Stock" shall mean the Common Stock of the Company, and any other securities or property of the Company or of any other person (corporate or otherwise) which the holder of this Option at any time shall be entitled to receive on the exercise hereof, in lieu of or in addition to Common Stock, or which at any time shall be issuable in exchange for or in replacement of Common Stock. 1.3. The term Current Fair Market Value of the Common Stock shall mean with respect to each share of Common Stock: (a) if the Common Stock is traded on a securities exchange, the fair market value shall be deemed to be the average of the closing prices over a twenty-one (21) day period ending three days before the day with respect to which the current fair market value of the Common Stock is being determined (or such shorter period as the Common Stock may have been trading on such securities exchange); (b) if the Common Stock is actively traded over-the-counter, the fair market value shall be deemed to be the average of the closing bid and asked prices quoted on the Nasdaq system (or similar system) over the twenty-one (21) day period ending three days before the day with respect to the current fair market value of the Common Stock is being determined (or such shorter period as the Common Stock may have been quoted on such system); or (c) if at any time the Common Stock is not listed on any securities exchange or quoted in the Nasdaq System or the over-the-counter market, the current fair market value of Common Stock shall be the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by its Board of Directors, unless the Company shall become subject to a merger, acquisition or other consolidation pursuant to which the Company is not the surviving party, in which case the fair market value of Common Stock shall be deemed to be the value received by the holders of the Company's Common Stock on a common equivalent basis pursuant to such merger or acquisition. 2. INITIAL EXERCISE DATE; EXPIRATION. This Option may be exercised at any time or from time to time following , 1996. It shall expire at 5:00 P.M., New York time, on , 2001. -2- 3. EXERCISE OF OPTION; PARTIAL EXERCISE. This Option may be exercised in full or in part by the holder hereof by surrender of this Option, with the form of subscription attached hereto duly executed by such holder, to the Company at its principal office, accompanied by payment of the Exercise Price of the shares of Common Stock to be purchased hereunder. For any partial exercise hereof, the holder shall designate in the subscription the number of shares of Common Stock that it wishes to purchase. On any such partial exercise, the Company at its expense shall forthwith issue and deliver to the holder hereof a new option of like tenor, in the name of the holder hereof, which shall be exercisable for such number of shares of Common Stock represented by this Option which have not been purchased upon such exercise. The Exercise Price may be paid at the holder's election either by cash or check payable to the order of the Company or by wire transfer. 4. WHEN EXERCISE EFFECTIVE. The exercise of this Option shall be deemed to have been effected immediately prior to the close of business on the business day on which this Option is surrendered to the Company as provided in Section 2, and at such time the person in whose name any certificate for shares of Common Stock shall be issuable upon such exercise, as provided in Section 4, shall be deemed to be the record holder of such Common Stock for all purposes. 5. DELIVERY ON EXERCISE. As soon as practicable after the exercise of this Option in full or in part, and in any event within five (5) business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the holder hereof, or as such holder may direct, a certificate or certificates for the number of fully paid and nonassessable full shares of Common Stock to which such holder shall be entitled on such exercise. 6. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The character of the shares of Common Stock issuable upon exercise of this Option (or any shares of stock or other securities at the time issuable upon exercise of this Option) and the purchase price therefor, are subject to adjustment upon the occurrence of the following events: -3- 6.1. ADJUSTMENT FOR STOCK SPLITS, STOCK DIVIDENDS, RECAPITALIZATIONS, ETC. The exercise price of this Option and the number of shares of Common Stock issuable upon exercise of this Option (or any shares of stock or other securities at the time issuable upon exercise of this Option) shall be appropriately adjusted to reflect any stock dividend, stock split, combination of shares, reclassification, recapitalization or other similar event affecting the number of outstanding shares of Common Stock (or such other stock or securities). For example if there should be a two-for-one (2-for-1) stock split, the exercise price would be divided by two (2) and such number of shares would be doubled or if there should be a one-for-two (1-for-2) reverse stock split, the exercise price would be doubled and the number of shares would be divided by two (2). 6.2. ADJUSTMENT FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In case the Company shall make or issue, or shall fix a record date for the determination of eligible holders entitled to receive, a dividend or other distribution with respect to the Common Stock (or any shares of stock or other securities at the time issuable upon exercise of the Option) payable in (i) securities of the Company (other than shares of Common Stock) or (ii) assets (excluding cash dividends paid or payable solely out of retained earnings), then in each case, the holder of this Option on exercise hereof at any time after the consummation, effective date or record date of such event, shall receive, in addition to the Common Stock (or such other stock or securities) issuable on such exercise prior to such date, the securities or such other assets of the Company to which such holder would have been entitled upon such date if such holder had exercised this Option immediately prior thereto (all subject to further adjustment as provided in this Option). 6.3. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case of any consolidation or merger of the Company with or into any other corporation, entity or person, or any other corporate reorganization, in which the Company shall not be the continuing or surviving -4- entity of such consolidation, merger or reorganization, or any transactions in which in excess of fifty percent (50%) of the Company's voting power is transferred, or any sale of all or substantially all of the assets of the Company (any such transaction being hereinafter referred to as a "Reorganization"), then, in each case, the holder of this Option, on exercise hereof at any time after the consummation or effective date of such Reorganization (the "Effective Date"), shall receive, in lieu of the Common Stock issuable on such exercise prior to the Effective Date, the stock and other securities and property (including cash) to which such holder would have been entitled upon the Effective Date if such holder had exercised this Option immediately prior thereto (all subject to further adjustment as provided in this Option). 6.4. ADJUSTMENT FOR ISSUANCE OF RIGHTS OR OPTIONS. In case the Company shall issue rights or options to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock (or securities convertible into Common Stock) at a price (or having a conversion price per share) less than the Current Fair Market Value of the Common Stock on the record date mentioned below, the Exercise Price shall be adjusted so that the same shall equal the price determined by multiplying the Exercise Price in effect immediately prior to the date of such issuance by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding on the record date mentioned below and the number of additional shares of Common Stock that the aggregate offering price of the total number of shares of Common Stock so offered (or the aggregate conversion price of the convertible securities so offered) would purchase at the then current fair market value per share of the Common Stock, and the denominator of which shall be the sum of the number of shares of Common Stock outstanding on such record date and the number of additional shares of Common Stock offered for subscription or purchases (or into which the convertible securities so offered are convertible). Such adjustment shall be made successively whenever such rights or options are issued and shall -5- become effective immediately after the record date for the determination of shareholders entitled to receive such rights or options; and, to the extent that shares of Common Stock are not delivered (or securities convertible into Common Stock are not delivered) after the expiration of such rights or options, the Exercise Price shall be readjusted to the Exercise Price that would then be in effect had the adjustment made upon the issuance of such rights or options been made upon the basis of delivery of only the number of shares of Common Stock (or securities convertible into Common Stock) actually delivered. 6.5. CERTIFICATE AS TO ADJUSTMENTS. In case of any adjustment or readjustment in the price or kind of securities issuable on the exercise of this Option, the Company will promptly give written notice thereof to the holder of this Option in the form of a certificate, certified and confirmed by the Board of Directors of the Company, setting forth such adjustment or readjustment and showing in reasonable detail the facts upon which such adjustment or readjustment is based. 7. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Option, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Option against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of this Option above the amount payable therefor on such exercise, (b) will at all times reserve and keep available a number of its authorized shares of Common Stock, free from all preemptive rights therein, which will be sufficient to permit the exercise of this Option, and (c) shall take all such action as may be necessary or appropriate in order that all shares of Common Stock as may be issued pursuant to the exercise of this Option will, upon issuance, be duly and validly issued, fully paid and nonassessable and free from all -6- taxes, liens and charges with respect to the issue thereof. 8. NOTICE OF RECORD DATE, ETC. In the event of (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into any other person, or (c) any voluntary or involuntary dissolution, liquidation or winding up of the Company, or (d) any proposed issue or grant by the Company of any shares of stock of any class or any other securities, or any right or option to subscribed for, purchase or otherwise acquire any shares of stock of any class or any other securities, then and in each such event the Company will mail to the holder hereof a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as to which the holders of record of Common Stock (or any shares of stock or other securities at the time issuable upon the exercise of this Option) shall be entitled to exchange their shares for securities or other property deliverable on which reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up, and (iii) the amount and character of any stock or other securities, or rights or options with respect thereto, proposed to be issued or granted, the date of such proposed issue or grant -7- and the persons or class of persons to whom such proposed issue or grant is to be offered or made. Such notice shall be mailed at least twenty (20) days prior to the date therein specified. 9. EXCHANGE OF OPTIONS. On surrender for exchange of this Option, properly endorsed, to the Company, the Company at its expense will issue and deliver to or on the order of the holder thereof a new Option of like tenor, in the name of such holder or as such holder may direct, calling in the aggregate on the face thereof for the number of shares of Common Stock called for on the face of the Option so surrendered. 10. REPLACEMENT OF OPTIONS. On receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Option and, in the case of any such loss, theft or destruction of this Option, on delivery of an indemnity agreement reasonably satisfactory in form and amount of the Company or, in the case of any such mutilation, on surrender and cancellation of such Option, the Company at its expense will execute and deliver, in lieu thereof, a new Option of like tenor. 11. REGISTRATION RIGHTS. The holder of this Option is entitled to all of the benefits of the Registration Rights Agreement dated __________, 1996, by and among UAG, Samuel X. DiFeo and Joseph DiFeo, as if such holder was a party to such agreement. 12. INVESTMENT INTENT. Unless a current registration statement under the Securities Act of 1933, as amended, shall be in effect with respect to the securities to be issued upon exercise of this Option, the holder thereof, by accepting this Option, covenants and agrees that, at the time of exercise hereof, and at the time of any proposed transfer of securities acquired upon exercise hereof, such holder will deliver to the Company a written statement that the securities acquired by the holder upon exercise hereof are for the own account of the holder for investment and are not acquired with a view to, or for sale in connection with, any distribution thereof (or any portion hereof) and with no present intention (at any such time) of offering and distributing such securities (or any portion thereof). 13. TRANSFER. Subject to the transfer conditions referred to in the legend endorsed hereon, this Option and all rights hereunder are transferrable, -8- in whole or in part, without charge to the holder thereof upon surrender of this Option with a properly executed assignment (in the form annexed hereto) at the principal office of the Company. Upon any partial transfer, the Company will at its expense issue and deliver to the holder hereof a new Option of like tenor, in the name of the holder hereof, which shall be exercisable for such number of shares of Common Stock which were not so transferred. 14. NO RIGHTS OR LIABILITY AS A STOCKHOLDER. This Option does not entitle the holder hereof to any voting rights or other rights as a stockholder of the Company. No provisions hereof, in the absence of affirmative action by the holder hereof to purchase Common Stock, and no enumeration herein of the rights or privileges of the holder hereof shall give rise to any liability of such holder as a stockholder of the Company. 15. DAMAGES. The Company recognizes and agrees that the holder hereof will not have an adequate remedy if the Company fails to comply with the terms of this Option and that damages will not be readily ascertainable, and the Company expressly agrees that, in the event of such failure, it shall not oppose an application by the holder of this Option or any other person entitled to the benefits of this Option requiring specific performance of any and all provisions hereof or enjoining the Company from continuing to commit any such breach of the terms hereof. 16. NOTICES. All notices referred to in this Option shall be in writing and shall be delivered personally or by certified or registered mail, return receipt requested, postage prepaid and will be deemed to have been given when so delivered or mailed (i) to the Company, at its principal executive offices and (ii) to the holder of this Option, at such holder's address as it appears in the records of the Company (unless otherwise indicated by such holder). 17. PAYMENT OF TAXES. All shares of Common Stock issued upon the exercise of this Option shall be validly issued, fully paid and nonassessable, and the Company shall pay all taxes and other governmental charges that may be imposed in respect to the issue or delivery thereof. -9- 18. MISCELLANEOUS. This Option and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Option is being delivered in the State of New York and shall be governed by and construed and enforced in accordance with the internal laws of the State of New York (without reference to any principles of the conflicts of laws). The headings in this Option are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. Dated: , 1996 United Auto Group, Inc. By --------------------------- Name: Title: -10- ATTACHMENT A TO OPTION FORM OF SUBSCRIPTION (To be signed only on exercise of Option) To UNITED AUTO GROUP, INC. The undersigned, the holder of the within Option, hereby irrevocably elects to exercise the purchase rights represented by such Option for, and to purchase thereunder, __________* shares of Common Stock of United Auto Group, Inc., and makes payment of $_______ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to _______________, whose address is _____________________________________. -------------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Option) -------------------------------- -------------------------------- Address Dated: _______________________ ATTACHMENT B TO OPTION FORM OF ASSIGNMENT (To be signed only on transfer of Option) For value received, the undersigned hereby sells, assigns, and transfer unto ___________________ the right represented by the within Option to purchase shares of Common Stock of United Auto Group, Inc. to which the within Option relates, and appoints ______________ Attorney to transfer such right on the books of _________________ with full power of substitution in the premises. -------------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Option) -------------------------------- -------------------------------- Address Dated: EX-10.1-16 7 EXH 10.1.16 FORM OF REG RIGHTS AGREE Exhibit 10.1.16 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated as of __________, 1996, is entered into by and among United Auto Group, Inc., a Delaware corporation (the "Company"), and each of the parties listed on Schedule I hereto. WHEREAS, pursuant to the terms of the Settlement Agreement (the "Settlement Agreement"), dated as of October 1, 1996, among the Company, Samuel X. DiFeo, Joseph DiFeo (Samuel X. DiFeo and Joseph DiFeo are collectively referred to herein as the "DiFeos"), and certain other parties named therein, certain entities owned or controlled by the DiFeos (the "DiFeo Entities") will be merged with and into certain affiliates of the Company, and the shareholders of the DiFeo Entities will receive, in consideration thereof, shares (the "DiFeo Shares") of the Company's common stock (the "Common Stock"), and options (the "DiFeo Options") to acquire additional shares of Common Stock; WHEREAS, pursuant to the terms of the Settlement Agreement, the Company has agreed to grant to the holders of the DiFeo Shares and the DiFeo Options certain rights to have shares of Common Stock registered under the Securities Act of 1933, as amended (the "1933 Act"); WHEREAS, in connection with the Shareholders' Agreement (the "Shareholders Agreement"), dated as of August 1, 1995, among the Company, United Landers, Inc., a Delaware corporation, Landers Auto Sales, Inc., an Arkansas corporation, Steve Landers and John Landers (collectively referred herein as the "Landers"), and certain other parties named therein, the Company has issued to the Landers shares (the "Landers Shares") of Common Stock, and has granted the Landers certain rights to have such shares registered under the 1933 Act; NOW, THEREFORE, in consideration of the foregoing and the mutual promises and covenants herein contained, the parties hereto hereby agree as follows: SECTION 1.1 REGISTRATION RIGHTS 1. DEFINITIONS As used in this Section 1: (a) the terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the 1933 Act (and any post-effective amendments filed or required to be filed) and the declaration or ordering of effectiveness of such registration statement; (b) the term "Registrable Securities" means (A) the DiFeo Shares, (B) shares of Common Stock issued or issuable upon exercise of the DiFeo Options, (C) any shares of Common Stock which the DiFeos or the other persons named on Schedule I hereto (or an Affiliate thereof) may hereafter acquire, and (D) any capital stock of the Company issued as a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares of Common Stock referred to in clauses (A)-(C) above; (c) the term "Holder" means any person owning or having the right to acquire Registrable Securities; (d) the number of shares of "Registrable Securities then outstanding" shall be determined by adding the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which upon issuance would be, Registrable Securities; (e) the term "Affiliate" of a specified person means a person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified, and in the case of a specified person who is a natural person, his spouse, his issue, his parents, his estate and any trust entirely for the benefit of his spouse and/or issue. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person or entity, whether through the ownership of voting securities, by contract or otherwise; and -2- (f) the term "UAG IPO" means a Qualified Public Offering (as such term is defined in UAG's Restated Certificate of Incorporation as in effect on the date hereof) or the completion of a sale of capital stock of UAG (or a subsidiary of UAG) pursuant to a registration statement which has become effective under the 1933 Act 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, par value $0.0001 per share, of UAG. 1.2. REQUESTED REGISTRATION (a) REQUEST FOR REGISTRATION. If, after one year following the UAG IPO, the Company shall receive a written request from the Holder or Holders of 50% or more of the Registrable Securities then outstanding and entitled to registration rights under this Section 1 (the "Initiating Holders") that the Company effect the registration under the 1993 Act with respect to all or a part of the Registrable Securities, the Company will, within five days of the receipt thereof, give written notice of such request to all Holders and shall within ninety (90) days of its receipt of such written request, file a registration statement on a form deemed appropriate by the Company's counsel with the Securities and Exchange Commission (the "SEC") covering all the Registrable Securities which the Holders shall in writing request (given within twenty (20) days of receipt of the notice given by the Company pursuant to this Section 1.2(a)) to be included in such registration and the Company shall use its best efforts to cause such registration statement to become effective. The Company shall not be obligated to effect such registration pursuant to this Section 1.2(a) hereof (A) after the Company already has effected one (1) such registration pursuant to this Section 1.2(a) and such registration has been declared or ordered effective, (B) if the Company shall be required by the SEC or any state securities authority to have an audit of any of its interim financial statements prepared in order to have a registration statement declared effective, unless the Holders shall agree in writing to bear the expense of such audit in full, (C) if in the good faith judgment of the Board of Directors of the Company, it would not be in the best interests of the Company and its stockholders generally for such registration statement to be filed (in which case the -3- Company shall have the right to defer such filing for a period of not more than 180 days after receipt of the request of the Initiating Holders), or (D) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, unless the Company is already subject to service in such jurisdiction and except as may be required by the 1933 Act or applicable rules or regulations thereunder. It is expressly agreed that nothing contained in this Section 1.2(a) shall give any Holder the right to have the disposition of its Registrable Securities effected by means of an underwritten offering. The registration statement filed pursuant to the request of the Initiating Holders may, subject to the provisions of Section 1.2(b) below, include other securities of the Company for its own account or which are held by officers or directors of the Company or persons or entities who, by virtue of agreements with the Company, are entitled to include their securities in any such registration (the "Other Shareholders"). (b) UNDERWRITING. If the Initiating Holders desire to distribute the Registrable Securities covered by such request by means of an underwriting, they shall so advise the Company as a part of such request made pursuant to Section 1.2(a). If the Company approves of such request, it shall select an investment banking firm reasonably satisfactory to the Initiating Holders as underwriter of such requested registration. The right of any Holder to registration pursuant to this Section 1.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. If officers or directors of the Company holding other securities of the Company shall request inclusion in any registration pursuant to this Section 1.2, or if Other Shareholders request such inclusion, the Holders shall offer to include the securities of such officers, directors and Other Shareholders in the underwriting and may condition such offer upon their participation in the underwriting and on their acceptance of the further applicable provisions of this Section 1. The Holders shall (together with the Company, officers, directors and Other Shareholders proposing to distribute their securities through such underwriting) -4- enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by the Company as provided above, but the Company shall not be required to pay any commission to the underwriter in respect of the sale of Registrable Securities. Notwithstanding any other provision of this Section 1.2, if the representative of the underwriters determines that marketing factors require a limitation on the number of shares to be underwritten, the securities of the Company held by officers or directors of the Company and the securities held by Other Shareholders shall be excluded from the underwriting by reason of the underwriters' marketing limitation to the extent so required by such limitation. If a further limitation is required, the Company shall so advise all Holders requesting inclusion in such offering, and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among all Holders requesting inclusion in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held (or entitled to be held upon conversion) by each such Holder at the time of filing the registration statement. No Registrable Securities or any other securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. If any Holder, officer, director or Other Shareholder who has requested inclusion in such registration as provided above disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the underwriter and the Initiating Holders. The securities so withdrawn shall also be withdrawn from registration; PROVIDED, HOWEVER, that, if by the withdrawal of such Registrable Securities a greater number of Registrable Securities held by other Holders may be included in such registration (up to a maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders who have included Registrable Securities in the registration the right to include additional Registrable Securities in the same proportion used in determining the underwriter limitation in this Section 1.2 (b). If the representative of the underwriters has not limited the number of Registrable Securities, the Company may include its securities for its own account in such registration if the underwriter so agrees and if the number of Registrable Securities which would otherwise -5- have been included in such registration and underwriting will not thereby be limited. (c) ASSIGNMENT. The registration rights granted pursuant to this Section 1.2 may be assigned, in whole but not in part, to any transferee of all of the Registrable Securities held by the transferring Holder. 1.3. COMPANY REGISTRATION (a) INCLUSION IN REGISTRATION. If, at any time or from time to time following the UAG IPO, the Company shall determine to register any of its shares of Common Stock on a form (other than for the registration of securities to be offered and sold by the Company on any registration form which does not permit secondary sales or pursuant to (i) an employee benefit plan, (ii) a dividend or interest reinvestment plan, (iii) other similar plans or (iv) reclassifications of securities, mergers, consolidations and acquisitions of assets) which would permit the registration of any Registrable Securities, or the Company shall be requested to register any of its shares of Common Stock by any holder of any securities entitled to registration upon such request (other than the Holders or their nominees), the Company will: (i) promptly give to the Holders written notice thereof (which shall include a list of the jurisdictions, if any, in which the Company intends to qualify such shares of Common Stock under the applicable blue sky or other state securities laws); and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests made by each of the Holders, within fifteen (15) days after receipt of the written notice from the Company described in clause (i) above; PROVIDED, HOWEVER, that if the offering is underwritten and relates only to shares of Common Stock to be sold by the Company and the Holders are advised in writing by the -6- managing underwriter that the sale of Registrable Securities by the Holders will, due to market conditions, adversely affect such underwriting, the Holders shall not sell any of their Registrable Securities included therein until such time as the managing underwriter may permit; and PROVIDED, FURTHER, that if the registration of which the Company gives notice relates only to securities held by Trace International Holdings, Inc. and/or its officers and directors (collectively, "Trace Securities"), and if the purpose of such registration is to permit a margin transaction or other pledge with respect to such securities (and not an offering or sale of such securities, other than to or by the pledge thereof), then the Registrable Securities may be included in such registration only for the same purpose and subject to the same limitations. The Company shall be under no obligation to complete any offering of the shares of Common Stock it proposes to make and shall incur no liability to any Holder for its failure to do so. (b) UNDERWRITING. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 1.3(a). In such event the right of the Holders to registration pursuant to Section 1.3 shall be conditioned upon the Holders' participation in such underwriting and the inclusion of the Holders' Registrable Securities in the underwriting to the extent provided herein. The Holders shall (together with the Company, officers, directors and the Other Shareholders distributing their shares of Common Stock through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for underwriting by the Company and shall deliver all documents and opinions required to be delivered thereunder in respect of their participation as selling shareholders. Notwithstanding any other provision of this Section 1.3, if the representative of the underwriters determines that marketing factors require a limitation on the number of shares of Common Stock to be underwritten, then the number of shares included in -7- such registration and underwriting shall be allocated as follows: first, if the registration was initiated by holders of Common Stock (other than the Holders) exercising demand registration rights, then the number of Trace Securities, if any, included in such registration and underwriting shall be reduced (and finally eliminated, if necessary); and second, the number of Registrable Securities and Landers Shares included in such registration and underwriting shall be reduced, PRO RATA among the Holders and holders of Landers Shares according to the total number of shares entitled to be included therein and owned by each selling Holder and holder of Landers Shares, respectively, or in such other proportions as may be mutually agreed by such selling Holders and holders of Landers Shares. If any of the Holders or any officer, director or Other Shareholder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the representative of the underwriters. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. If the registration of which the Company gives notice pursuant to Section 1.3(a) hereof is a best efforts underwritten public offering on behalf of the Company, any public sales of Registrable Securities of the Holders included therein shall not commence until the earlier of: (i) ninety (90) days after the effective date thereof, (ii) the completion of the sale of all shares of Common Stock being sold for the account of the Company, or (iii) the receipt by the Company of a letter from the representative of the underwriters advising that all or a portion of the Registrable Securities of the Holders could be sold prior to the dates set forth in the foregoing clauses (i) and (ii) without adversely affecting the marketability or price of the shares offered by the Company. (c) NUMBER; NO ASSIGNMENT. The Holders shall be entitled to have their shares included in an unlimited number of registrations pursuant to this Section 1.3. The registration rights granted pursuant to this Section 1.3 shall not be assignable, whether in whole or in part, except to the respective heirs or personal representatives of the DiFeos and the other persons named on Schedule I hereto, to receive Registrable Securities pursuant to the laws of descent or distribution. -8- 1.4. EXPENSES OF REGISTRATION Except as otherwise provided herein, in connection with a registration pursuant to this Section 1, the Company shall pay all registration, filing and qualification fees, accounting fees and printing expenses of the Company, reasonable fees and disbursements of counsel for the Company and the reasonable fees and expenses of one counsel for the selling Holders. All (i) underwriting discounts and commissions, (ii) filing fees or other expenses directly and solely resulting from the inclusion of the Holders' Registrable Securities in a registration pursuant to Section 1.3 hereof, (iii) stock transfer taxes incurred in respect of the Registrable Securities being sold, and (iv) legal and accounting fees, expenses and disbursements of the Holders (except as set forth above), shall be borne and paid ratably by the Holders of the Registrable Securities included in any such registration. 1.5. REGISTRATION PROCEDURES In the case of each registration effected by the Company pursuant to this Section 1, the Company shall: (i) keep such registration effective for a period of one hundred twenty (120) days or until each Holder has completed the distribution described in the registration statement relating thereto, whichever first occurs; (ii) furnish each Holder copies of any Registration Statement and each preliminary or final prospectus, or supplement or amendment required to be prepared pursuant hereto, as any Holder may from time to time reasonably request; (iii) prepare and promptly file with the SEC and promptly notify each Holder of the filing of any amendments or supplements to such Registration Statement or prospectus as may be necessary to correct any statements or omissions if, at any time when a prospectus relating to the Registrable Securities is required to be delivered under the 1933 Act, any event with respect to the -9- Company shall have occurred as a result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and use its best efforts to qualify as soon as reasonably practicable the Registrable Securities included in the Registration Statement for sale under the securities or blue-sky laws of such states and jurisdictions within the United States as shall be reasonably requested by any Holder, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business, to become subject to taxation or to file a consent to service of process generally in any of the aforesaid states or jurisdictions; and (iv) use its best efforts to qualify as soon as reasonably practicable the Registrable Securities included in the Registration Statement for sale under the securities or blue-sky laws of such states and jurisdictions within the United States as shall be reasonably requested by any Holder, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business, to become subject to taxation or to file a consent to service of process generally in any of the aforesaid states or jurisdictions. 1.6. DELAY OF REGISTRATION No Holder shall have any right to take any action to restrain, enjoin or otherwise delay any registration as a result of any controversy that may arise with respect to the interpretation or implementation of this Agreement. 1.7. INDEMNIFICATION (a) The Company shall indemnify each Holder offering Registrable Securities for sale pursuant to each registration that has been effected pursuant to -10- this Section 1 against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement of a material fact contained in any registration statement under which such Registrable Securities were registered under the 1933 Act, or based on any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each such Holder for any legal or other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action; PROVIDED, HOWEVER, that the Company shall pay for only one firm of counsel for all such Holders and the Company shall not be liable to a Holder in any such case (i) to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon information furnished to the Company by such Holder or the underwriter of any such Holder and stated to be specifically for use therein or (ii) in the case of a sale directly by a Holder of Registrable Securities (including a sale of such Registrable Securities through any underwriter retained by such Holder engaging in a distribution on behalf of such Holder), such untrue statement or omission was contained in a preliminary prospectus and corrected in a final or amended prospectus, and such Holder failed to deliver a copy of the final or amended prospectus at or prior to the confirmation of the sale of the Registrable Securities to the person or entity asserting any such loss, claim, damage or liability. (b) Each of the Holders shall, if Registrable Securities held by them are included in the securities as to which such registration is being effected, severally indemnify the Company, each of its directors and officers who sign such registration statement, each person who controls the Company within the meaning of the 1933 Act, each underwriter, if any, of the Company's securities covered by such registration statement, each other Holder and each other security holder whose securities are included in such registration, and each person controlling such other holder against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement of a material fact contained in any such registration statement under which such Registrable Securities were registered under the 1933 Act, or based on any omission to state therein a material fact required to be stated therein or -11- necessary to make the statements therein not misleading, and will reimburse the Company, such directors, officers, employees, control persons, other Holders or security holders or underwriters for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement or omission is made in such registration statement in reliance upon and in conformity with information furnished to the Company by such Holder and stated to be specifically for use therein. (c) Each party entitled to indemnification under this Section 1 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and any claim or any litigation resulting therefrom. In case any action is brought against an Indemnified Party, and it notifies the Indemnifying Parties of the commencement thereof, the Indemnifying Party will be entitled to participate in and, to the extent it so determines, assume the defense thereof; provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense. After notice from the Indemnifying Party of its election to so assume the defense thereof, the Indemnifying Party will not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. 1.8. LOCKUP AGREEMENT In consideration for the Company agreeing to its obligations under this Section 1, each Holder agrees in connection with the initial registration of the Company's securities in connection with the UAG IPO, upon the request of the Company's managing -12- underwriters, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Securities without the prior written consent of such underwriters, for such period of time, not to exceed 180 days, from the effective date of such registration as the Company or the underwriters may specify. 1.9. INFORMATION ABOUT THE PURCHASERS Each Holder shall promptly furnish to the Company such information regarding itself, its Affiliates or subsidiaries and the distribution proposed by it as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration referred to in this Section 1. 1.10. CONDITIONS TO REGISTRATION As a condition to the Company's obligation hereunder to cause a registration statement to be filed or Registrable Securities to be included in a registration statement, each Holder shall provide such information and execute such documents as may reasonably be required in connection with such registration. In addition, the Company shall not be obligated to file a registration statement or to include Registrable Securities in a registration statement hereunder as to any Holder, (i) if the Company shall have received opinions of counsel reasonably satisfactory to such Holder and the Company to the effect that the proposed disposition of such Registrable Securities by such Holder may be effected without registration under the 1933 Act or (ii) to the extent such Registrable Securities can then be sold during a single three month period pursuant to Rule 144 under the 1933 Act. 1.11. RULE 144 With a view to making available the benefits of certain rules and regulations of the SEC which may permit the sale of the restricted securities to the public without registration, the Company agrees to (a) make and keep public information available as those terms are understood and defined in Rule 144 under the 1933 Act at all times from and after ninety (90) days following the closing date of the first registration under the 1933 Act filed by the Company for an offering -13- of its securities to the general public, and (b) use its best efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Exchange Act at any time after it has become subject to such reporting requirements. SECTION 2. WAIVER OF PRIOR REGISTRATION RIGHTS The DiFeos and the other persons named on Schedule I hereto hereby waive any and all registration rights granted them under agreements entered into prior to the date hereof, including without limitation the Master Agreement, dated as of March 17, 1992, as amended. SECTION 3. ASSIGNABILITY This Agreement shall be binding upon and inure to the benefit of the respective heirs, personal representatives, successors and assigns of the parties hereto. SECTION 4. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. SECTION 5. AMENDMENT Any modification, amendment or waiver of this Agreement or any provision hereof shall be in writing and executed by Holders of not less than 66% of the Registrable Securities; PROVIDED, HOWEVER, that no such modification, amendment or waiver shall reduce the aforesaid percentage of Registrable Securities without the consent of all of the Holders of the Registrable Securities. SECTION 6. LEGEND Each certificate representing Registrable Securities shall state therein: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF __________, 1996, BY AND AMONG UNITED AUTO GROUP, INC. (THE "COMPANY") AND CERTAIN STOCKHOLDERS OF THE -14- COMPANY NAMED THEREIN, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE COMPANY. SECTION 7. NOTICES All notices, requests, consents and demands shall be in writing and shall be personally delivered, mailed, postage prepaid, telecopied or telegraphed or delivered by any nationally recognized overnight delivery service to the company at: to the Company: United Auto Group, Inc. 375 Park Avenue, 11th Floor New York, New York 10152 Fax number: (212) 593-1363 Attn: Philip N. Smith, Jr., Esq. and to each Holder at such address as shall be furnished in writing to the Company. All such notices, requests, demands and other communication shall, when mailed (registered or certified mail, return receipt requested, postage prepared), personally delivered, or telegraphed, be effective four days after deposit in the mails, when personally delivered, or when delivered to the telegraph company, respectively, addressed as aforesaid, unless otherwise provided herein and, when telecopied or delivered by any nationally recognized overnight delivery service, shall be effective upon actual receipt. SECTION 8. COUNTERPARTS This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. -15- IN WITNESS WHEREOF, the Company and each of the undersigned parties has executed this Agreement effective for all purposes as of the date first above written. UNITED AUTO GROUP, INC. By: ------------------------ ----------------------------- Samuel X. DiFeo ----------------------------- Joseph C. DiFeo ----------------------------- [Minority Stockholders] -16- SCHEDULE I SCHEDULE OF REGISTRABLE SECURITIES Number of Initial Number of Shares Shares of Common Covered by Initial Holder Stock Options - ------ ----------------- ------------------ Samuel X. DiFeo Joseph C. DiFeo [Minority Stockholders] EX-10.2-1-1 8 HONDA SERVICE AGREEMENT DATED 10/5/95 EXHIBIT 10.2.1.1 HONDA AUTOMOBILE DEALER SALES AND SERVICE AGREEMENT Danbury Auto Partnership T/A FAIR HONDA #207994 102 D Federal Road Danbury, Connecticut 06810 AMERICAN HONDA MOTOR CO., INC. A This is an agreement between the Honda Automobile Division, American Honda Motor Co., Inc. (American Honda) and Danbury Auto Partnership (Dealer), a(n) Partnership doing business as T/A FAIR HONDA. By this agreement, which is made and entered into at Torrance, California, effective the 5th day of October, 1995, American Honda gives to Dealer the nonexclusive right to sell and service Honda Products at the Dealership Location. It is the purpose of this Agreement, including the Honda Automobile Dealer Sales and Service Agreement Standard Provisions (Standard Provisions), which are incorporated herein by reference, to set forth the rights and obligations which Dealer will have as a retail seller of Honda Products. Achievement of the purposes of this Agreement is premised upon the mutual understanding and cooperation between American Honda and Dealer. American Honda and Dealer have each entered into this Agreement in reliance on the integrity and ability and expressed intention of each to deal fairly with the consuming public and with each other. For consistency and clarity, terms which are used frequently in this Agreement have been defined in Article 12 of the Standard Provisions. B American Honda grants to Dealer the nonexclusive right to buy Honda Products and to identify itself as a Honda dealer at the Dealership Location. Dealer assumes the obligations specified in this Agreement and agrees to sell and service effectively Honda Products within Dealer's Primary Market Area and to maintain premises satisfactory to American Honda. C Dealer covenants and agrees that this Agreement is personal to Dealer, to the Dealer Owner, and to the Dealer Manager, and American Honda has entered into this Agreement based upon their particular qualifications and attributes and their continued ownership or participation in Dealership Operations. The parties therefore recognize that the ability of Dealer to perform this Agreement satisfactorily and the Agreement itself are both conditioned upon the continued active involvement in or ownership of Dealer by either: (1.) the following person(s) in the percentage(s) shown: NAME ADDRESS TITLE PERCENT OF OWNERSHIP DiFeo Partnership, 875 Park Ave. Partner 70% Inc. Suite 2201 New York, NY JS Two, Inc. 585 Route 440 Partner 30% Jersey City, NJ (2.) _________________________________________________________________, an individual personally owning an interest in Dealer of at least 25% and who has presented to American Honda a firm and binding contract giving to him the right and obligation of acquiring an ownership interest in Dealer in excess of 50% within five years of the commencement of Dealership Operations and being designated in that contract as Dealer operator. D Dealer represents, and American Honda enters into this Agreement in reliance upon the representation, that Steven A. Gall exercises the functions of Dealer Manager and is in complete charge of Dealership Operations with authority to make all decisions on behalf of Dealer with respect to Dealership Operations. Dealer agrees that there will be no change in Dealer Manager without the prior written approval of American Honda. E American Honda has approved the following premises as the location(s) for the display of Honda Trademarks and for Dealership Operations. HONDA NEW VEHICLE PARTS AND SERVICE FACILITY SALES SHOWROOM 102 D Federal Road 102 D Federal Road Danbury, Connecticut Danbury, Connecticut SALES AND GENERAL OFFICES USED VEHICLE DISPLAY AND SALES FACILITIES 102 D Federal Road 102 D Federal Road Danbury, Connecticut Danbury, Connecticut F There shall be no voluntary or involuntary change, direct or indirect, in the legal or beneficial ownership or executive power or responsibility of Dealer for the Dealership Operations, specified in Paragraphs C and D hereof, without the prior written approval of American Honda. -2- G Dealer agrees to maintain, solely with respect to the Dealership Operations, minimum net working capital of $1,236,200.00, minimum owner's equity of $_____*_____, and flooring and a line or lines of credit in the aggregate amount of $1,855,000.00 with banks or financial institutions approved by American Honda for use in connection with Dealer's purchases of and carrying of inventory of Honda Products, all of which American Honda and Dealer agree are required to enable Dealer to perform its obligations pursuant to this Agreement. If Dealer also carries on another business or sells other products, Dealer's total net working capital, owner's equity and lines of credit shall be increased by an appropriate amount. * Long Term Debt, less Real Estate Mortgages, shall not exceed a ratio of 1:1 when compared to Effective Net Worth which is defined as Total Net Worth less Total Other Assets. H This Agreement is made for the period beginning October 5, 1995 and ending October 31, 1996, unless sooner terminated. Continued dealings between American Honda and Dealer after the expiration of this Agreement shall not constitute a renewal of this Agreement for a term, but rather shall be on a day-to-day basis, unless a new agreement or a renewal of this Agreement is fully executed by both parties. I This Agreement may not be varied, modified or amended except by an instrument in writing, signed by duly authorized officers of the parties, referring specifically to this Agreement and the provision being modified, varied or amended. J Neither this Agreement, nor any part thereof or interest therein, may be transferred or assigned by Dealer, directly or indirectly, voluntarily or by operation of law, without the prior written consent of American Honda. Danbury Auto Partnership Danbury Auto Partnership By:/s/Illegible T/A FAIR HONDA #207994 --------------------- - ------------------------------- (Dealer) (Corporate or Firm Name) (Corporate Seal) AMERICAN HONDA MOTOR CO., INC. HONDA AUTOMOBILE DIVISION By: /s/Richard Colliver --------------------------- Richard Colliver Senior Vice President -3- EX-10.2-1-2 9 AMERICAN HONDA STANDARD PROVISIONS Exhibit 10.2.1.2 HONDA AUTOMOBILE DEALER SALES AND SERVICE AGREEMENT STANDARD PROVISIONS HONDA AUTOMOBILE DEALER SALES AND SERVICE AGREEMENT STANDARD PROVISIONS TABLE OF CONTENTS PAGE 1. THE OBLIGATIONS OF AMERICAN HONDA . . . . . . . . . . 1 2. SALE OF HONDA PRODUCTS TO DEALER. . . . . . . . . . . 4 3. THE OBLIGATIONS OF DEALER . . . . . . . . . . . . . . 6 4. WARRANTY. . . . . . . . . . . . . . . . . . . . . . . 9 5. ADVERTISING AND PROMOTIONAL PROGRAMS. . . . . . . . . 9 6. TRADEMARKS AND SERVICE MARKS. . . . . . . . . . . . . 10 7. GENERAL BUSINESS REQUIREMENTS . . . . . . . . . . . . 11 8. APPOINTMENT OF SUCCESSOR AND REPLACEMENT DEALERS. . . 13 9. TERMINATION OF AGREEMENT. . . . . . . . . . . . . . . 14 10. RIGHTS, OBLIGATIONS AND DEALINGS UPON TERMINATION . . 19 11. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . 23 12. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 25 HONDA AUTOMOBILE DEALER SALES AND SERVICE AGREEMENT STANDARD PROVISIONS The following Standard Provisions are, by reference, incorporated in and made a part of the Honda Automobile Dealer's Sales and Service Agreement. These Standard Provisions accompany the Honda Dealer's Sales and Service Agreement which has been executed on behalf of both American Honda and Dealer. 1. THE OBLIGATIONS OF AMERICAN HONDA 1.1. It is the obligation of American Honda to supply to Dealer, and to all authorized dealers, Honda Products in a fair and reasonable manner in order that Dealer may conduct Dealership Operations in a businesslike manner. In fulfilling this obligation, Honda Products may be supplied either on the basis of dealer order or on the basis of allocation, depending on market conditions and availability. There are numerous factors which affect the availability of Honda Products. Among those factors are component availability and production capacity, consumer demand, strikes and other labor troubles, weather and transportation conditions, and government regulations. Because such factors affect individual dealer supply, American Honda necessarily reserves discretion in accepting orders and allocating and distributing Honda Products, and its judgment and decision in such matters will be final. 1.2. To assist Dealer in the fulfillment of its obligations under the Agreement, which it has as a retail seller of Honda Products, American Honda agrees to provide Dealer sales, service and parts support. 1.2.A. To assist Dealer in fulfilling its sales responsibility, American Honda agrees to offer general and specialized product information and to provide field sales personnel to advise and counsel Dealer's sales organization on sales-related subjects such as merchandising, training and sales management. 1.2.B. To assist Dealer in fulfilling its service and parts responsibilities, American Honda agrees to offer, or cause to be offered, general and specialized service and parts training courses. Based on the service training needs of Dealer's service personnel, to be determined by American Honda with the assistance of Dealer, Dealer agrees to have members of Dealer's service organization attend such courses. Further, American Honda agrees to make available to Dealer field service personnel capable of advising and counseling Dealer's service personnel on service- related subjects, including product quality, technical adjustments, repairs and replacement of product components, recall, product improvement or product update campaigns which American Honda may conduct, owner complaints, warranty administration, service and parts merchandising, and training and service management. 1.3. To assist Dealer in planning, establishing and maintaining the Dealership Premises, American Honda will, at its sole option, make available to Dealer, upon request, sample copies of building layout plans or facility planning recommendations, including sales, service and parts space and the placement, installation and maintenance of recommended signs. In addition, representatives of American Honda will be available to Dealer from time to time to counsel and advise Dealer and its personnel in connection with Dealer's planning and equipping the Dealership Premises. 1.4. American Honda agrees to make available to Dealer, at reasonable cost, such sales, service and parts manuals, brochures, special service tools and equipment and other data for Honda Products as American Honda deems necessary for Dealership Operations. 1.5. American Honda agrees to maintain a nationwide system of authorized dealers of Honda Products. In order that those authorized dealers may be assured of the benefits of comprehensive advertising of Honda Products, American Honda agrees to establish and maintain general advertising programs in such manner and amount as it may deem appropriate and will make sales promotion and campaign materials available to Dealer. 1.6. American Honda agrees to compensate Dealer for the labor and parts used by Dealer in performing its obligations under any American Honda warranty and in connection with any recall, product improvement or product update campaign which American Honda may undertake and require Dealer to perform. Such 2 compensation will be in such reasonable amounts, and pursuant to such requirements and instructions, as American Honda shall establish from time to time, and such compensation shall constitute full and complete payment by American Honda to Dealer for such work. 1.7. American Honda agrees to assume the defense of Dealer and to indemnify Dealer against any money judgment, less any offset recovered by Dealer, in any lawsuit naming Dealer as a defendant, where such lawsuit relates to: (a) an alleged breach of any Honda warranty relating to Honda Products; (b) bodily injury or property damage claimed to have been caused by a defect in the design, manufacture or assembly of a Honda Product prior to delivery thereof to Dealer (other than a defect which could have been detected by Dealer in a reasonable inspection); or (c) a misrepresentation or misleading statement of American Honda; provided, however, that if any information discloses the possibility of Dealer error or omission in servicing or otherwise (including but not limited to Dealer not having performed all recalls of which Dealer has notice on the Honda Product involved in the lawsuit if the defect subject to the recall is alleged or contended to be a contributing cause of the breach of warranty, injury or damage which is the subject matter of the lawsuit), or should it appear that the Honda Product involved in such lawsuit had been altered by or for Dealer, or if Dealer has violated any of the provisions of this Paragraph 1.7, then Dealer will immediately obtain its own counsel and defend itself, and American Honda will not be obligated to defend or indemnify Dealer further. Dealer will promptly notify American Honda of any claim which Dealer will assert American Honda might be obligated to defend under this Paragraph 1.7. American Honda will have not less than thirty (30) days to conduct a reasonable investigation to initially determine whether or not American Honda is obligated to defend under this Paragraph 1.7. Dealer will take the steps necessary to protect its own interests involved in the lawsuit until American Honda assumes the active defense of Dealer. American Honda will, upon assuming the defense of Dealer, reimburse Dealer for all attorneys' fees or court costs incurred by Dealer from the date of the tender. American Honda, upon assuming Dealer's defense, will have the right to retain and direct counsel of its own choosing, and Dealer will cooperate in all matters during the course of defending the lawsuit. If, upon final 3 judgment in a lawsuit, it is determined that American Honda wrongfully failed or refused to defend Dealer, American Honda will reimburse Dealer for all costs and attorneys' fees incurred by Dealer from the date of the tender of defense. 2. SALE OF HONDA PRODUCTS TO DEALER. 2.1. To the extent that Honda Products are the subject of dealer order, such orders will be submitted and processed in accordance with procedures established by American Honda. No order will be binding on American Honda, as evidenced by either the issuance of an invoice or shipment of the ordered Honda Products, and any such order may be accepted in whole or in part. All orders by Dealer will be deemed firm orders and binding upon the Dealer, except that at any time prior to acceptance, an order may be canceled by Dealer by giving actual notice to American Honda in writing of the desire by Dealer to cancel such order. 2.2. While it is the intent of American Honda to provide Honda Automobiles to Dealer in such quantities and types as are ordered by Dealer, American Honda and Dealer recognize that Honda Automobiles may not always be available in desired quantities. It is therefore understood and agreed that American Honda, at its sole election, will have the right to allocate Honda Automobiles among authorized dealers of Honda Products in a fair and reasonable manner. American Honda will provide to Dealer an explanation, in writing, of any allocation system it may adopt. 2.3. American Honda will have the right at any time and from time to time to establish and revise prices and other terms, including payment by Dealer, for its sales of Honda Products to Dealer. Revised prices, terms or provisions will apply to the sale of any Honda Products as of the effective date of the revised prices, terms or provisions, even though a different price or different terms may have been in effect at the time such Honda Products were allocated to or ordered by Dealer. 2.4. American Honda will have the right to select the distribution points and the mode of transportation and may pay carriers for all charges in effecting delivery of Honda Products to Dealer. Dealer agrees to pay to American Honda such charges for delivery as American Honda may assess. Subject to the terms of sale which may be established from time to time by American Honda, risk of loss to 4 Honda Products will pass to Dealer upon tender of the Honda Products to Dealer or its authorized agent, and title will pass to Dealer upon receipt by American Honda of payment. 2.5. If Dealer should fail or refuse or for any reason be unable to accept delivery of any Honda Products ordered by Dealer, or if Dealer should request diversion of a shipment from American Honda, Dealer will be responsible for and pay to American Honda, promptly on demand, all costs and expenses incurred by American Honda in filling and shipping Dealer's order and by reason of such diversion, including costs of demurrage and storage, plus restocking charges as determined by American Honda. American Honda may direct that such returned Honda Products be delivered to another destination, but the amount charged Dealer for return to such other destination will not be greater than the costs and expenses of returning such Honda Products to their original place of shipment plus any demurrage, storage and restocking charges. 2.6. As between American Honda and Dealer, American Honda assumes responsibility for damage to Honda Products caused prior to delivery to Dealer or its authorized agent. 2.7. American Honda will not be liable in any manner for delay or failure in supplying any Honda Products where such delay or failure is the result of any event beyond the control of American Honda. Such event may include, but is not limited to, any law or regulation or any acts of God, foreign or civil wars, riots, interruptions of navigation, shipwrecks, fires, strikes, lockouts, or other labor troubles, embargoes, blockades, demand for, or delay or failure of any supplier to deliver or in making delivery, of Honda Products. 2.8. American Honda reserves the right at any time to change or modify, without notice, any specification, design or model of Honda Products. In the event of any change or modification with respect to any Honda Products, Dealer will not be entitled to have such or similar change or modification made with respect to any other Honda Products, except as may be required by applicable law. American Honda may, however, in its sole discretion, make such changes or modifications to all Honda Products in its inventory or control, whether or not invoiced to Dealer. No such change 5 will be considered a model year change unless specified by American Honda. 2.9. American Honda may at any time discontinue, without obligation to Dealer or Dealer's customers, the sale of any Honda Products, or models or lines thereof or any other items, goods or services. Further, American Honda will have no obligation, under any circumstances, to accept orders for any Honda Products which are not in current inventory. 3. THE OBLIGATIONS OF DEALER. 3.1. It is the obligation of Dealer to promote and sell, at retail, Honda Products, and to promote and render service, whether or not under warranty, for those products within the Dealer's Primary Market Area. 3.2. Dealer's performance of its sales obligations for Honda Products will be evaluated by American Honda on the basis of such reasonable criteria as American Honda may develop from time to time, including, but not limited to, such reasonable sales objectives as American Honda may establish and a comparison of Dealer's sales performance with other authorized dealers of Honda Products. 3.3. To enable Dealer to fulfill its obligations satisfactorily, Dealer agrees to establish and maintain an adequate and trained sales and customer relations organization. Dealer further agrees to establish and maintain a complete service and parts organization, including a qualified service manager and a qualified parts manager and a number of competent service and parts personnel adequate to care for the service obligations to be performed by Dealer under the Agreement. 3.4. Dealer agrees to acknowledge, investigate and resolve satisfactorily all complaints received from owners of Honda Products in a businesslike manner in order to secure and maintain the goodwill of the public. Any complaint received by Dealer which, in the opinion of Dealer, cannot be readily remedied, shall be promptly reported to American Honda by Dealer. 3.5. Dealer agrees that it will not make any misrepresentations or misleading statements regarding the items making up the total selling price of Honda Products or as to the prices or 6 charges relating to such items. With the understanding that Dealer is the sole judge of the price at which it sells Honda Products, dealer recognizes that a retail customer has the right to purchase Honda Automobiles without being required to purchase any optional equipment or accessories which the purchaser does not want or order unless such equipment or accessories are required under applicable laws or regulations. 3.6. Dealer agrees to make certain that all Honda Products sold by it have received predelivery services and inspection in accordance with applicable procedures and directives issued by American Honda. Dealer further agrees that all Honda Products sold by it will be in proper operating condition prior to delivery to any customer. To enable Dealer to fulfill its obligations in this regard, Dealer agrees that an appropriate number of its service personnel will be fully qualified to perform all necessary predelivery service and inspection. 3.7. Dealer agrees to comply with, and operate consistent with, all applicable provisions of the National Traffic and Motor Vehicle Safety Act of 1966 and the Federal Clean Air Act, as amended, including such applicable rules and regulations as may be issued thereunder, and all other applicable federal, state and local motor vehicle safety and emission control requirements. In the interests of motor vehicle safety and emission control, American Honda agrees to provide to Dealer, and Dealer to American Honda, 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 the rules and regulations issued thereunder, and all other applicable federal, state and local motor vehicle safety and emission control requirements. 3.8. Dealer agrees to conduct a used vehicle operation at or in connection with the Dealership Premises, to the extent reasonably required to enhance the opportunity for sales of Honda Automobiles. 3.9. American Honda and Dealer recognize that it may be necessary for American Honda to formulate new or different policies or directives to meet new or changing technology, laws or circumstances. In the operation of Dealer's business and in the sale 7 and promotion of Honda Products, in rendering service and in all other activities of the Dealership Operations, Dealer will follow all reasonable directives, suggestions and policies of American Honda. All written directives, suggestions and policies of American Honda contained in any of its bulletins or manuals, which are in effect as of the date of the Agreement or are issued thereafter, will be deemed a part of the Agreement. 3.10. Dealer agrees that it will, at all times, maintain in effect all licenses required for Dealership Operations and for the Dealership Premises. 3.11. Dealer agrees that it will comply with all laws, rules, regulations and guides relating to the conduct of its business. 3.12. Dealer agrees that it will perform any and all warranty, recall, product improvement or product update service in compliance with instructions and directives issued by American Honda, regardless of where the Honda Product involved was purchased. To protect and maintain the goodwill and reputation of Honda Products and the Honda Trademarks, Dealer agrees that it will not charge any customer for warranty service or any work done in connection with such warranty, recall, product improvement or update or any other service as to which Dealer is reimbursed by American Honda. 3.13. Dealer fully understands that the success of its Dealership Operations depends to a great extend upon the amount of net working capital, owner's equity, flooring and lines of credit which Dealer maintains. Accordingly, for the benefit of both American Honda and Dealer, Dealer agrees that it will, at all times, pay for Honda Products promptly and, to do so, maintain its minimum net working capital, owner's equity, flooring and lines of credit in the amounts specified in Paragraph G of the Agreement. American Honda will have the right, reasonably, to specify an increased amount of minimum net working capital, owner's equity, flooring, or lines of credit to be used in Dealership Operations and Dealer agrees promptly to establish and maintain the increased amount. Dealer and American Honda agree to execute such new documents as American Honda may reasonably require to evidence revised capital requirements. 8 3.14. Dealer agrees to assume the defense of American Honda and to indemnify American Honda against any money judgment, less any offset recovered by American Honda, in any lawsuit naming American Honda as a defendant where such lawsuit relates to: (a) an alleged failure by Dealer to comply, in whole or in part, with any obligation assumed by Dealer pursuant to the Agreement, (b) Dealer's alleged negligent or improper repairing or servicing of Honda Products, or such other motor vehicles or equipment as may be sold or serviced by Dealer, (c) Dealer's alleged breach of any contract between Dealer and Dealer's customer, or (d) Dealer's alleged misrepresentation or misleading statement, either direct or indirect, to any customer of Dealer. American Honda may, at its sole option and at its expense, participate in defending any such lawsuit. 4. WARRANTY. 4.1. Dealer understands and agrees that the only warranties that will be applicable to Honda Products will be such written warranty or warranties as may be furnished by American Honda. Except for its express liability under such written warranties, American Honda neither assumes nor authorizes any other person or party to assume for it any other obligation or liability in connection with any Honda Product or component thereof. 4.2. Dealer agrees that it will expressly incorporate any warranty furnished by American Honda with a Honda Automobile as a part of each order form or other contract for the sale of such Honda Automobile by Dealer to any buyer. Dealer further agrees that it will deliver to the buyer of all Honda Products, at the time of delivery of such Honda Products, copies of such applicable warranties as may be furnished by American Honda. Dealer agrees to abide by and implement in all other respects American Honda's warranty procedures in effect at the time of Dealer's sale. 5. ADVERTISING AND PROMOTIONAL PROGRAMS. 5.1. Dealer agrees to develop and actively utilize programs for the advertisement and promotion of Honda Products and its servicing of such products. Such programs will include the prominent display and use or demonstration of Honda Automobiles. Dealer further agrees to cooperate with all 9 reasonable promotional programs developed by American Honda. 5.2. Dealer agrees that it will not advertise, promote or trade in Honda Products or the servicing thereof in such a manner as to injure or be detrimental to the goodwill and reputation of American Honda and the Honda Trademarks. Dealer further agrees that it will not publish or otherwise disseminate any advertisement or announcement or use any form or media of advertising which is objectionable to American Honda. Dealer agrees to discontinue immediately any advertisement or form of advertising deemed objectionable upon request of American Honda. 5.3. Subject to applicable federal, state or local ordinances, regulations and statutes, Dealer agrees to erect and maintain, at the Dealership Location, at Dealer's expense, authorized product and service signs of types required by American Honda, as well as such other authorized signs as are necessary to advertise the Dealership Operations effectively and as are required by American Honda. 6. TRADEMARKS AND SERVICE MARKS. 6.1. Dealer agrees that American Honda has the exclusive right to use and to control the use of the Honda Trademarks and but for the right and license granted by Paragraph 6.2 hereof to use and display the Honda Trademarks, Dealer would have no right to use the same. 6.2. Dealer is hereby granted the nonexclusive right and license to use and display the Honda Trademarks at the Dealership Premises. Such use or display is limited to that which is necessary in connection with the sale, offering for sale and servicing of Honda Products at retail at the Dealership Location. Dealer agrees that it will promptly discontinue the use of any of the Honda Trademarks or change the manner in which any of the Honda Trademarks is used when requested to do so by American Honda. 6.3. American Honda and Dealer recognize that Dealer is free to sell Honda Products to customers wherever they may be located. However, in order that American Honda may establish and maintain an effective network of authorized dealers for the sale and service of Honda Products, Dealer specifically agrees that it will not display Honda 10 Trademarks, or, either directly or indirectly, establish any place or places of business for the conduct of any of its Dealership Operations except at the locations and for the purpose described in Paragraph E of the Agreement without the prior written approval of American Honda. Dealer further agrees that the rights and license granted by Paragraph 6.2 hereof will be automatically canceled upon a change in the location of the Dealership Location unless such change in location was previously approved in writing by American Honda. Dealer further agrees that such right and license terminates with the termination of the Agreement. 6.4. If Dealer refuses or neglects to keep and perform its obligations assumed under this Article 6 or under paragraph 10.3 hereof, Dealer will reimburse American Honda for all costs, attorneys' fees and other expenses incurred by American Honda in connection with any action to require Dealer to comply therewith. 7. GENERAL BUSINESS REQUIREMENTS. 7.1. It is to the mutual benefit of Dealer and American Honda that uniform accounting systems and practices be maintained by authorized dealers. Accordingly, Dealer agrees to maintain such systems and practices as are required by American Honda. In the event Dealer engages in the sale of any other product, Dealer agrees to maintain and keep separate records and books relating to the sale and servicing of Honda Products. 7.2. Dealer agrees to furnish monthly to American Honda, on or before the times designated by American Honda, on forms prescribed by American Honda, a complete and accurate financial and operating statement covering the preceding month and calendar-year-to-date operations and showing the true and accurate condition of Dealership Operations. Financial statements and other business information furnished to American Honda will not be submitted to any third party unless authorized by Dealer or required by law, or the information is pertinent to a proceeding in which American Honda and Dealer are parties. 7.3. Dealer agrees to keep complete and current records regarding the sale and servicing of Honda Products and to prepare for American Honda such reports, based on those records, as American Honda may reasonably request. In order that policies and 11 procedures relating to the applications for reimbursement for warranty and other applicable work and for other credits or reimbursements may be applied uniformly to all authorized dealers, Dealer agrees to prepare, keep current and retain records in support of requests for reimbursement or credit in accordance with policies and procedures designated by American Honda. 7.4. Dealer agrees to permit, during reasonable business hours, American Honda, or its designee, to examine, audit, reproduce and take copies of all reports, accounts and records pertaining to the sale, servicing and inventorying of Honda Products, including, but not limited to, records in support of claims for reimbursement or credit from American Honda, and with the prior approval of Dealer, which approval will not be unreasonably withheld, to interview Dealer employees with respect thereto. 7.5. Dealer agrees that Dealership Operations will be conducted in the normal course of business during and for not less than the days of the week and hours of the day customary for automobile dealerships in the Primary Market Area. 7.6. Dealer agrees and understands that any retail price which may be suggested by American Honda is merely a suggested price, and Dealer has no obligation to sell any Honda Products at such price. Dealer further understands and agrees that it is the sole judge of the price at which it sells Honda Products and the price it charges others for service, subject only to applicable local, state and federal laws, rules and regulations. 7.7. Dealer understands and agrees that it will be responsible for and will pay any and all taxes, whether sales, use or excise, and all other governmental or municipal charges imposed upon the sale of Honda Products by American Honda to Dealer and will maintain accurate records of the same, which records will be available to American Honda, or its designee, during regular business hours for inspection. 7.8. Dealer understands and agrees that, while it has responsibility for the promotion and retail sale and servicing of Honda Products within the Primary Market Area, it has no territorial exclusivity. Further, American Honda reserves the right, based upon reasonable criteria, to appoint other 12 authorized dealers of Honda Products in the Primary Market Area. 8. APPOINTMENT OF SUCCESSOR AND REPLACEMENT DEALERS. 8.1. The parties recognize that Honda Products are marketed through a system of authorized dealers developed by American Honda and that customers and American Honda have a vital interest in the preservation and efficient operation of the system. American Honda has the responsibility of continuing to administer the system and of selecting the most suitable dealer candidate in each circumstance. Accordingly, Dealer agrees that American Honda has the right to select each successor and replacement dealer and to approve its owners and principal management and the location of dealership facilities. Further, Dealer agrees to provide written notice to American Honda of any potential change in the involvement, ownership or management specified in Paragraphs C and D of the Agreement. No change affecting such involvement, ownership or management will be made without the prior written approval of American Honda, which approval will not be unreasonably withheld. 8.2. Upon Dealer's request, American Honda will execute with Dealer a Successor Addendum designating proposed Dealer operators or owners of a successor dealer to be established if the Agreement expires or is terminated because of death or incapacity. The request must be executed by all persons identified in Paragraph C of the Agreement and all proposed dealer operators or owners and be submitted to American Honda prior to such death or incapacity; provided that such proposed dealer operators or owners must be acceptable to American Honda. 8.3. Dealer, but not American Honda, may cancel any executed Successor Addendum. If American Honda notifies Dealer that it does not plan to permit Dealership Operations to continue at the Dealership Location, American Honda shall have no obligation to execute a new Successor Addendum. 8.4. If the Agreement expires or is terminated because of death or incapacity and Dealer and American Honda have not executed a Successor Addendum, the remaining owners, successors or heirs may propose a successor dealer entity to continue Dealership Operations at the Dealership Location. Such proposal must be made within thirty days of the 13 event causing expiration or termination by submitting a written proposal to American Honda. Such proposal will be accepted by American Honda if it does not introduce new owners or if the proposed new owners are acceptable to American Honda. 8.5. Any successor dealer entity approved by American Honda pursuant to this Article 8 must establish that it can conduct Dealership Operations in an efficient and businesslike manner. Such successor dealer entity will have one year to meet reasonable performance criteria established from time to time by American Honda. In the event such successor dealer entity fails to meet those criteria, such failure will be separate grounds for termination of the Agreement. 9. TERMINATION OF AGREEMENT. 9.1. The Agreement may be terminated, at any time, by mutual agreement of American Honda and Dealer. 9.2. Dealer may terminate the Agreement, at any time, by giving American Honda notice of such termination. Such termination shall be effective upon the date specified by Dealer, or if no date is specified, then upon receipt by American Honda of such notice. 9.3. American Honda may terminate the Agreement, at any time, by serving on Dealer a written notice of such termination by certified or registered mail to Dealer at the Dealership Premises. Subject to other provisions of the Agreement, termination will be effective ninety (90) days after mailing of such notice to dealer or such longer period as American Honda may specify; provided, however, that termination will be effective ten (10) days after mailing if for an occurrence of any circumstance referred to in Paragraphs 9.4.A, 9.4.B, 9.4.J or 9.4.M hereof. 9.4. It is recognized that each of the following grounds is within control of Dealer or originates from action taken by Dealer or its employee(s) and is contrary to the spirit and objectives of the Agreement. Therefore, American Honda may terminate the Agreement upon the occurrence of any of the following: 9.4.A. Failure by Dealer to secure and continuously maintain any license necessary for the conduct by Dealer of 14 its business pursuant to the Agreement or the termination or expiration without renewal, or suspension or revocation of any such license for any reason whatsoever, whether or not license is reinstated. 9.4.B. Any change, transfer or attempted transfer by Dealer or any Dealer Owner, voluntarily or by operation of law, of the whole or any part of the Agreement or any interest or legal or beneficial ownership therein or any right or obligation thereunder, directly or indirectly, such as, for example only, by way of a sale of an underlying ownership interest in Dealer or the Dealership Premises or a change in the persons having control or managerial authority, without prior written consent of American Honda. Any purported change, transfer or assignment shall be null and void and not binding on American Honda. 9.4.C. Any dispute, disagreement, controversy or personal difficulty between or among Dealer Owners or in the management of Dealer which, in American Honda's opinion, may adversely affect the conduct of Dealer's business, or the presence in the management of Dealer of any person who, in American Honda's opinion, does not have or no longer has requisite qualifications for his position. 9.4.D. Impairment of the reputation or the financial standing of Dealer or of any Dealer Owner subsequent to the execution of the Agreement; or the ascertainment by American Honda of any facts existing at or prior to execution of the Agreement which tend to impair such reputation or financial standings; or the failure of Dealer continuously to meet American Honda's minimum requirements of net working capital, owner's equity or line(s) of credit. 9.4.E. Failure by Dealer to pay, within ten (10) days after written demand from American Honda, any delinquent accounts 15 or other monies due to American Honda from Dealer. 9.4.F. Submission or participation in the submission to American Honda of any false or fraudulent statement, application, report, request for issuance of reimbursement, compensation, refund or credit, including but not limited to any false or fraudulent claim for warranty work, labor rate, setup reimbursement or warranty coverage. 9.4.G. Use by Dealer of any deceptive or fraudulent practice, whether willful, negligent or otherwise, in the sale of any Honda Product. 9.4.H. Any conviction in any court of original jurisdiction of Dealer or any Dealer Owner or any employee of the Dealership Operations for any crime or violation of any law if, in the opinion of American Honda, such conviction or violation may adversely affect the conduct of the Dealership Operations or tend to be harmful to the goodwill of American Honda or to the reputation of Honda Products or the Honda Trademarks, or the violation or refusal or neglect of Dealer to comply with the provisions of the National Traffic and Motor Vehicle Safety Act of 1966, as amended, or the Clean Air Act, or any rules, regulations or standards under either of said Acts, including but not limited to performance of any product update or recall operation as directed by American Honda. 9.4.I. Dealer's entering into any agreement, combination, understanding or contract, oral or written, with any other corporation, person, firm or other legal entity for the purpose of fixing prices of Honda Products or otherwise violating any law. 9.4.J. Dealer's abandonment of Dealership Premises or failure to maintain Dealership Operations as a going business, open during customary business hours for the days and hours as are customary for automobile dealerships in the Primary Market Area, provided such 16 failure is not due to causes beyond Dealer's control. Failure of the Dealership Premises to remain open for seven (7) consecutive days will constitute, without more, such abandonment. 9.4.K. Death or incapacity of any Dealer Owner or Dealer Manager, subject to the provisions of Article 8. 9.4.L. Failure of Dealer to make improvements, alterations or modifications of its Dealership Premises which are required to meet reasonable facility requirements of American Honda or which Dealer has agreed or represented to American Honda that Dealer will make or do. 9.4.M. The movement of Dealership Premises to a new location or the establishment of an additional location for the sale or service of any Honda Products without the prior written approval of American Honda. 9.4.N. The failure of Dealer to provide adequate representation, promotion, sales or service, including warranty work, of any Honda Products. 9.4.O. Dealer's breach of any provision of the Agreement or Dealer's failure to comply with any contained in the Agreement. 9.5. The Agreement will also be terminated upon written notice by American Honda in the event: 9.5.A. Of termination of American Honda's distribution agreement as a Honda Automobile distributor. 9.5.B. Of withdrawal by American Honda from the market in which Dealer is located. 9.5.C. American Honda will, for any reason, discontinue the distribution of Honda Automobiles. 9.6. Upon the occurrence of any of the following facts or circumstances, the Agreement will terminate automatically, without notice or other action by American Honda or Dealer; and upon such termination, any dealings between American Honda 17 and dealer will be on a day-to-day basis at the sole option of American Honda and may be discontinued at any time by American Honda: 9.6.A. Insolvency by any definition of Dealer, or 9.6.B. The existence of facts or circumstances which would allow the voluntary commencement by Dealer, or the involuntary commencement against Dealer, of any proceedings under any bankruptcy act or law or under any state insolvency law; or 9.6.C. The appointment of a receiver or other officer having similar powers for Dealer or the Dealership Premises; or 9.6.D. Any levy against Dealer under attachment, garnishment or execution or similar process which is not within ten (10) days vacated or removed by payment or bonding. 9.7. American Honda may select any applicable provision under which it elects to terminate the Agreement and give notice thereunder, notwithstanding the existence of any other grounds for termination or the failure to refer to such other grounds in the notice of termination. The failure by American Honda to specify additional ground(s) for cancellation in its notice will not preclude American Honda from later establishing that termination is also supported by such additional ground(s). 9.8. The acceptance by American Honda of orders from Dealer or the continued sale of Honda Products to Dealer or any other act or course of dealing of American Honda after termination of the Agreement will not be construed as or deemed to be a renewal of the Agreement for any further term or a waiver of such termination. Any dealings after termination will be on a day-to- day basis. 9.9. In all cases, Dealer agrees to conduct itself and Dealership Operations until the effective date of termination and after termination or expiration of the Agreement, so as not to injure the reputation or goodwill of the Honda Trademarks or American Honda. 18 10. RIGHTS, OBLIGATIONS AND DEALINGS UPON TERMINATION. 10.1. Upon the mailing of a written notice of termination or after date of the expiration of the Agreement without renewal, American Honda will have the right to cancel all pending orders of Dealer for Honda Products, special tools and equipment, whether previously accepted by American Honda or not, except as specifically otherwise provided in this Section 10. Notwithstanding the foregoing, if American Honda chooses to fill any orders, it will not be obligated to fill any other orders and will not be precluded from changing the terms of any sale. 10.2. Not later than the effective date of the termination or expiration of the Agreement, Dealer will cease to hold itself out as being authorized to sell Honda Products and will discontinue selling Honda Products or performing service as an authorized dealer. 10.3. In addition to the requirements of Section 10.2, not later than the effective date of the termination or expiration of the Agreement, Dealer will, at its sole expense, discontinue any and all uses of any Honda Trademarks and any words, symbols and marks which are confusingly similar thereto; will remove all signs bearing any Honda Trademark and will destroy all stationery, repair orders, advertising and solicitation materials, and all other printed matter bearing any Honda Trademark or referring directly or indirectly to American Honda or Honda Products in any way which might make it appear to members of the public that Dealer is still an authorized dealer. The foregoing will include, but not be limited to, discontinuing the use of a Honda Trademark as part of Dealer's business and corporate name. Dealer will also deliver to American Honda, at American Honda's place of business, or to a person designated by American Honda, or will destroy the same upon request by American Honda, any and all technical or service literature, advertising and other printed material then in Dealer's possession which relates to Honda Products and which was acquired or obtained by Dealer from American Honda. Dealer will destroy any sign bearing a Honda Trademark which has not been repurchased by American Honda. 10.4. In the event the Agreement is terminated pursuant to the provisions of paragraph 9.3 hereof, upon request of American Honda for copying Dealer's 19 records of predelivery service, warranty service, recall or update service or other service of Honda Products. In the event the Agreement is terminated pursuant to the provisions of paragraphs 9.1 or 9.2 hereof, upon the request of American Honda, Dealer will deliver to American Honda copies of such Dealer records. 10.5. Dealer may, at any time within five (5) days after the effective date of termination or expiration of the Agreement, notify American Honda in writing of Dealer's desire to have American Honda repurchase from Dealer Honda Products in Dealer's inventory which were purchased from American Honda and which, when American Honda accepts sole possession: 10.5.A. In the case of Honda Automobiles, are new and of the then current model year, as designated by American Honda, unused, undamaged and in first-class resalable condition, regardless of whether or not American Honda has exercised its right of inspection; and 10.5.B. In the case of Honda Parts are new, listed as current in the Parts Price Book unused, undamaged, in their original package and in first-class resalable condition. 10.6. Upon termination or expiration without renewal, upon request of Dealer given no later than five (5) days after the effective date of termination or expiration, American Honda will repurchase all signs which use a Honda Trademark as were authorized in advance by American Honda and all service information and materials, special tools and equipment designed specifically for service of Honda Automobiles and which were purchased from American Honda and are usable on current Honda Products, provided that such signs, information, materials, tools and equipment are less than five (5) years old and are in good working order. 10.7. American Honda will repurchase from Dealer Honda Products and signs, information, materials, tools and equipment as aforesaid on the condition that Dealer furnishes an inventory to American Honda within thirty (30) day after the termination or expiration without renewal of the Agreement and complies strictly with all procedures and conditions of repurchase issued by American Honda at the time of repurchase. American Honda will 20 have the right and option to assign to another person or entity the right to purchase such Honda Products. 10.7.A. The price for Honda Products, other than tools, equipment, information, materials and signs, will be the price at which they were originally purchased by Dealer from American Honda or the price last established by American Honda for the sale of identical Honda Products, whichever may be lower, and in either case will be less all prior refunds and allowances made by American Honda with respect thereto, if any. The price for tools, equipment, information, materials and signs will be the price paid by Dealer reduced by straight-line depreciation on the basis of a useful life of five (5) years. In all cases, the price will be reduced by any applicable restocking charge which may be in effect at the time American Honda's receipt of goods to be repurchased. 10.7.B. Dealer agrees to store Honda Products and other items which American Honda desires or is obligated to repurchase until receipt from American Honda of rejection of repurchase or instructions for shipping and return to American Honda. Dealer agrees to strictly follow and abide by all instructions for return as may be issued from time to time by American Honda. All Honda Products will be properly and suitably packaged and containered for safe transportation to American Honda. All damage, regardless of nature or cause, will be the responsibility of Dealer until the Honda Products are inspected and accepted by American Honda for repurchase. Storage of such Honda Products and other items will be at Dealer's expense for a period of ninety (90) days after Dealer requests repurchase and provides an inventory as provided by paragraphs 10.6 and 10.7 hereof. Thereafter, Dealer will be entitled to charge American Honda a reasonable storage charge. 10.7.C. American Honda, or its designee, at such reasonable time and for such a 21 reasonable period of time as American Honda may determine, will have the right to enter the premises where items for repurchase are being held for the purpose of checking the inventory submitted by Dealer or examining, inspecting and inventorying any and all Honda Products. If American Honda agrees to repurchase and Dealer fails to furnish an inventory, Dealer will reimburse American Honda for all costs of American Honda taking an inventory. 10.7.D. Only those Honda Products meeting the requirements of Paragraphs 10.5 and 10.6 hereof are or will be eligible for return to American Honda. American Honda will not be obligated to give Dealer credit for any Honda Products which do not meet those requirements. 10.7.E. Dealer warrants and represents that all Honda Products tendered to American Honda for repurchase will be free of all liens, encumbrances, security interests or attachments at the time repurchase is requested by Dealer. Clear title will be vested in American Honda upon receipt of goods. Dealer will execute and deliver any documents necessary to vest clear title in American Honda, and Dealer will be responsible for complying with all applicable procedures, including but not limited to those relating to bulk transfers. 10.7.F. Dealer will pay all freight and insurance charges from Dealer to the place of delivery designated by American Honda, provided that Dealer will not be liable for any amount greater than the freight and insurance charges from Dealer to American Honda's closest automobile warehouse or parts center as American Honda may designate. Claims for damage or allegedly caused by any carrier will be the sole responsibility of Dealer, and in no event will American Honda be obligated to make a claim against a carrier or be liable to Dealer for damage. 10.7.G. As a condition of repurchase and notwithstanding any other agreement or 22 offer to repurchase, payment for repurchase will first be applied against any obligations or money owed by Dealer to American Honda. All payment due from American Honda to Dealer pursuant to any provisions of the Agreement or in connection with the termination of the Agreement or in connection with the termination of the Agreement will be made by American Honda after receipt of the goods to be repurchased and after all debits and credits have been ascertained and applied to Dealer's accounts, and Dealer has delivered to American Honda the manufacturer's certificate of origin or other document of title for Honda Automobiles tendered to American Honda for repurchase. In the event it be found that a balance is due from Dealer to American Honda, Dealer will pay such sum to American Honda within ten (10) days of written notice of such balance. 11. GENERAL PROVISIONS. 11.1. Dealer acknowledges that only the President or a designated Vice President, Secretary or Assistant Secretary of American Honda is authorized to execute the Agreement, agree to any variation, modification or amendment of any of the provisions thereof, including authorized location, or to make commitments for or on behalf of American Honda. No other employee of American Honda may make any promise or commitment on behalf of American Honda or in any way bind American Honda. Dealer agrees that it will not rely on any statements or purported statements except from personnel as authorized hereinabove. 11.2. The Agreement contains the entire agreement between Dealer and American Honda. Dealer acknowledges that no representations or statements other than those expressly set forth therein were made by American Honda or any officer, employee, agent or representative thereof, or were relied upon by Dealer in entering into the Agreement. The Agreement terminates and supersedes, as of the execution thereof, all prior agreements relating to Honda Products, if any. 11.3. Dealer hereby waives, abandons and relinquishes any and all claims of any kind and nature whatsoever arising from or out of or in connection 23 with any prior agreement entered into between Dealer and American Honda; provided, however, that nothing herein contained shall be deemed a release or waiver of any claim arising out of prior sales of Honda Products by American Honda to Dealer. 11.4. The Agreement is personal to the individuals identified as principals, owner(s), partners or shareholder(s) in Paragraph C. Neither the Agreement, nor any part hereof or any interest therein, may be transferred or assigned by Dealer, in whole or in part, directly or indirectly, voluntarily or by operation of law, without the prior written approval of American Honda. Any attempted transfer or assignment will be void and not binding upon American Honda. 11.5. All notices, notifications or requests under or pursuant to the provisions of the Agreement will be directed to the address of the principal places of business of the respective parties to the Agreement. If either party cannot effect notice at the place of business of the other because a party has abandoned its place of business or refuses to accept notice, then, and only in such case, notice may be served on American Honda through its designated agent for service of process and upon Dealer through the Department of Motor Vehicles (or its equivalent) in the state where the Dealership Location is authorized by American Honda. 11.6. The waiver by either party of any breach or violation of or default under any provision of the Agreement will not be a waiver by such party of any other provision or of any subsequent breach or violation thereof or default thereunder. The failure or delay of either party to take prompt action upon any breach or violation of the Agreement will not be deemed a waiver of the right to take action for such breach, default or violation at any time in the future. 11.7. Dealer agrees to keep confidential and not disclose, directly or indirectly, any information which American Honda designates as confidential. 11.8. The Agreement is and shall be deemed to have been entered into in California and shall be governed by and construed in accordance with the laws of the State of California. 11.9. If any provision of this Agreement should be held invalid or unenforceable for any reason whatsoever 24 or to conflict with any applicable law, the 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 altering the tenor of the Agreement, then it will be deemed deleted from the Agreement in such jurisdiction, and in either case, the remainder of the Agreement will be valid and binding. 11.10. The terms of the Agreement may not be modified except in writing signed by an authorized officer of the parties. Without limiting the generality of the foregoing, no course of dealing will serve to modify or alter the terms of the Agreement. 11.11. Dealer is an independent business. The Agreement does not constitute Dealer the agent or legal representative of American Honda for any purpose whatsoever. Dealer is not granted any expressed or implied right or authority to assume or create any obligation on behalf of or in the name of American Honda or to bind American Honda in any manner or thing whatsoever. Dealer has paid no consideration for the Agreement. Neither the Agreement nor any right granted under it is a property right. 11.12. The expiration or termination of the Agreement will not extinguish any claims American Honda may have for the collection of money or the enforcement of any obligations which may be in the nature of continuing obligations. 12. DEFINITIONS. 12.1. American Honda means American Honda Motor Co., Inc. a California corporation, and the Honda Automobile Division that markets Honda Automobiles. 12.2. Dealer means the person, firm, corporation, partnership or other legal entity that signs the Agreement and each of the persons identified in Paragraph C. 12.3. Dealer Manager means the principal manager of Dealer identified in Paragraph D upon whose personal service American Honda relies in entering into the Agreement. 12.4. Dealer Owner means the owner(s) of Dealer identified in Paragraph C upon whose personal 25 service American Honda relies in entering into the Agreement. 12.5. Dealership Location means the location approved by American Honda for the purpose of conducting Dealership Operations. 12.6. Dealership Operations means all operations contemplated by the Agreement. These operations include the sale and service of Honda Products, and any other activities undertaken by Dealer related to Honda Products, including rental and leasing operations, used car sales and body shop operations, and finance and insurance operations, whether conducted directly or indirectly by Dealer. 12.7. Dealership Premises means the facilities provided by Dealer at its Dealership Location for the conduct of Dealership Operations as approved by American Honda. 12.8. Honda Automobiles means such new passenger cars as are from time to time offered for sale by American Honda to Dealer for resale as part of the Honda automobile line as defined by American Honda. 12.9. Honda Parts means parts, accessories and optional equipment marketed by American Honda for use with Honda Automobiles. 12.10. Honda Products means Honda Automobiles and Honda Parts. 12.11. Honda Trademarks means the various trademarks, service marks, names and designs which American Honda uses or is authorized to use in connection with Honda Products or services relating thereto. 12.12. Primary Market Area means the geographical area designated for Dealer by American Honda from time to time. 12.13. The Agreement means the Honda Automobile Dealer's Sales and Service Agreement and these Standard Provisions which are incorporated therein by reference. 26 EX-10.2-4-1 10 EXH 10.2.4.1 BMW DEALER AGREEMENT 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/ Illegible ------------------------ 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 material change in the 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 its 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 of the Dealer Agreement shall apply to any such transfer. Failure of Dealer, Partner, DPI, UAG 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 motor vehicles. 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, DPI, and UAG thereby 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 Dealer, Partnership, DPI or other related entity. 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 October 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 & Chief Executive Date: October 21, 1996 Officer Date: October 21, 1996 DiFEO PARTNERSHIP, INC. UNITED AUTO GROUP, INC. /s/ Carl Spielvogel /s/ Carl Spielvogel - -------------------------------- -------------------------------------- By: Carl Spielvogel By: Carl Spielvogel Title: Chairman & Chief Title: Chairman & Chief Executive Executive Officer Officer Date: October 21, 1996 Date: October 21, 1996 BMW OF NORTH AMERICA, INC. /s/ James J. Ryan /s/ Dennis Helfman - -------------------------------- -------------------------------------- By: James J. Ryan By: Dennis Helfman Title: Senior Vice President Title: General Counsel and Secretary General Manager Eastern Region Date: October 21, 1996 Date: October 21, 1996 -4- 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-10.2-9-1 11 EXH 10.2-9-1 NISSAN SALES AND SERVICE AGRMNT NISSAN DEALER TERM SALES AND SERVICE AGREEMENT THIS AGREEMENT is entered into effective the day last set forth below by and between the Nissan Division of NISSAN MOTOR CORPORATION IN U.S.A., a California corporation, hereinafter called "Seller," and the natural persons and entities identified in the Final Article of this Agreement. INTRODUCTION The purpose of this Agreement is to establish Dealer as an authorized dealer of Nissan Products and to provide for the sale and servicing of Nissan Products in a manner that will best serve owners, potential owners and purchasers of Nissan Products as well as the interests of Seller, Dealer and other Authorized Nissan Dealers. This Agreement sets forth: the rights which Dealer will enjoy as an Authorized Nissan Dealer; the responsibilities which Dealer assumes in consideration of its receipt of these rights; and the respective conditions, rights and obligations of Seller and Dealer that apply to Seller's grant to Dealer of such rights and Dealer's assumption of such responsibilities. It is understood that Dealer wishes an opportunity to qualify for a regular Nissan Dealer Sales and Service Agreement for Nissan Products and understands that for that purpose Dealer first must fulfill all of Dealer's undertakings hereinafter described. This is a personal services Agreement. In entering into this Agreement and appointing Dealer as provided below, Seller is relying, among other things, upon the personal qualifications, expertise, reputation, integrity, experience, ability and representations of the individual named in the Final Article of this Agreement as Dealer Principal (the "Dealer Principal") and the individual named in the Final Article of this Agreement as Executive Manager and the representations of UAG Northeast, Inc., DiFeo Partnership, Inc., UAG and the Dealer. In addition to Dealer, Seller intends to look to UAG Northeast, Inc., DiFeo Partnership, Inc., UAG, the Dealer Principal and the Executive Manager for the performance of Dealer's obligations hereunder. Nissan Products are intended for discriminate owners with the expectation that such owners will be loyal and proud, but also demanding toward Seller and Dealer with respect to Nissan Products and the manner in which they are sold and serviced. Owners, potential owners and purchasers of Nissan Products are expected to want, and are entitled to do business with, dealers who enjoy the highest reputation in their communities and have well located, attractive and efficient places of business, courteous personnel and outstanding service and parts facilities. Nissan Products must be sold by enthusiastic dealers who are not interested in short term results only but are willing to look toward long term goals and whoa re devoted to creating and maintaining a positive total ownership experience for owners of Nissan Products. Seller's standard of excellence for Nissan Products must be matched by the dealers who sell them to the public and who service them during their operative lives. Achievement of the purposes of this Agreement is premised upon mutual understanding and cooperation between Seller and Dealer. Dealer has entered into this Agreement in reliance upon Seller's integrity and expressed intention to deal fairly with Dealer and the consuming public. Seller has entered into this Agreement in reliance upon the integrity and ability of the Dealer Principal and Executive Manager and their expressed intention to deal fairly with the consuming public and Seller. It is the responsibility of Seller to market Nissan Products throughout the Territory. It is the responsibility of Dealer to actively promote the retail sale of Nissan Products and to provide courteous and efficient service of Nissan Products. The success of both Seller and Dealer will depend on how well they each fulfill their respective responsibilities under this Agreement. It is recognized that: Seller will endeavor to provide motor vehicles of excellent quality and workmanship and to establish a network of Authorized Nissan Dealers that can provide an outstanding sales and service effort at the retail level; and Dealer will endeavor to fulfill its responsibilities through aggressive, sound, ethical selling practices and through conscientious regard for customer service in all aspects of its Nissan Dealership Operations. Seller and Dealer shall refrain from engaging in conduct or activities which might be detrimental to or reflect adversely upon the reputation of Seller, Dealer or Nissan Products and shall engage in no discourteous, deceptive, misleading or unethical practices or activities. For consistency and clarity, terms which are used frequently in this Agreement have been defined in Section 1 of the Standard Provisions. All terms used herein which are defined in the Standard Provisions shall have the meaning stated in said Standard Provisions. These definitions should be read carefully for a proper understanding of the provisions in which they appear. To achieve the purposes referred to above, Seller, UAG Northeast, Inc., DiFeo Partnership, Inc., Dealer, the Dealer Principal and the Executive Manager agree as follows: ARTICLE FIRST: Appointment of Dealer Subject to the conditions and provisions of this Agreement, Seller: -2- (a) appoints Dealer as an Authorized Nissan Dealer and grants Dealer the non-exclusive right to buy from Seller those Nissan Products specified in Dealer's current Product Addendum hereto, for resale, rental or lease at or from the Dealership Locations established and described in accordance with Section 2 of the Standard Provisions; and (b) grants Dealer a non-exclusive right, subject to and in accordance with Section 6.K of the Standard Provisions, to identify itself as an Authorized Nissan Dealer, to display the Nissan Marks in the conduct of its Dealership Operations and to use the Nissan Marks in the advertising, promotion and sale of Nissan Products in the manner provided in this Agreement. ARTICLE SECOND: Assumption of Responsibilities by Dealer Dealer hereby accepts from Seller its appointment as an Authorized Nissan Dealer and, in consideration of its appointment and subject to the other conditions and provisions of this Agreement, hereby assumes the responsibility for: (a) establishing and maintaining at the Dealership Location the Dealership Facilities in accordance with Section 2 of the Standard Provisions; (b) actively and effectively promoting the sale at retail (and, if Dealer elects, the leasing and rental) of Nissan Vehicles within Dealer's Primary Market Area in accordance with Section 3 of the Standard Provisions; (c) servicing Nissan Vehicles and for selling and servicing Nissan Parts and Accessories in accordance with Section 5 of the Standard Provisions; (d) building and maintaining consumer confidence in Dealer and in Nissan Products in accordance with Section 5 of the Standard Provisions; and (e) performance of the additional responsibilities set forth in this Agreement, including those specified in Section 6 of the Standard Provisions. ARTICLE THIRD: Ownership (a) Owners. This Agreement has been entered into by Seller in reliance upon, and in consideration of, among other things, the personal qualifications, expertise, reputation, integrity, experience, ability and representations with respect thereto of the Dealer Principal and Executive Manager named in the Final Article of this Agreement and in reliance upon the representations and agreements of UAG Northeast, Inc., DiFeo Partnership, Inc., UAG and the Dealer as follows: -3- (i) UAG Northeast, Inc. and DiFeo Partnership, Inc. will at all times own 100% of the capital stock of Dealer and Dealer will at all times be maintained as a separate entity. (ii) The Executive Committee of Dealer is set forth in attached Schedule "A". (iii) The officers of Dealer are as set forth in attached Schedule "A". (iv) United Auto Group, Inc. ("UAG") owns 100% of the outstanding stock of UAG Northeast, Inc. and DiFeo Partnership, Inc., (se Attachment "A" attached). (b) Changes in Ownership. In view of the fact that this is a personal services agreement with the Dealer Principal and Executive Manager and in view of its objective and purposes, this Agreement and the rights and privileges conferred on Dealer hereunder are not assignable, transferable or salable by UAG Northeast, Inc. and DiFeo Partnership, Inc., and no property right or interest is or shall be deemed to be sold, conveyed or transferred to Dealer, UAG Northeast, Inc. and DiFeo Partnership, Inc. under this Agreement. Dealer, UAG Northeast, Inc., DiFeo Partnership, Inc., the Dealer Principal and the executive Manager agree that any change in the ownership of Dealer, UAG Northeast, Inc. or DiFeo Partnership, Inc. specified herein requires the prior written consent of Seller [IF DEALER DESIRES TO REMAIN AN AUTHORIZED NISSAN DEALER] and that without the prior written consent of Seller: (i) no sale, pledge, hypothecation or other transfer of any of the currently outstanding capital stock or partnership interest of Dealer will be made and no additional shares of capital stock, partnership interest or securities convertible into shares of capital stock, of Dealer will be issued or sold. (ii) no sale, pledge, hypothecation or other transfer of any of the currently outstanding capital stock of UAG Northeast, Inc. and DiFeo Partnership, Inc. will be made and no additional shares of capital stock, partnership interest or securities convertible into shares of capital stock, of UAG Northeast, Inc. and DiFeo Partnership, Inc. will be issued or sold. (iii) neither Dealer, UAG Northeast, Inc. nor DiFeo Partnership, Inc. will be merged with or into, or consolidate with, any other entity and none of the principal assets necessary for the performance of Dealer's obligations under this Agreement will be sold, transferred or assigned. (iv) UAG Northeast, Inc. and DiFeo Partnership, Inc. will not enter into any transaction, including, without limitation, any sale, pledge, hypothecation or other transfer of any of the currently outstanding capital stock of UAG Northeast, -4- Inc. and DiFeo Partnership, Inc., the issuance or sale of additional shares of capital stock, partnership interest or securities convertible into shares of capital stock, of UAG Northeast, Inc. and DiFeo Partnership, Inc., or the merger of UAG Northeast, Inc. and DiFeo Partnership, Inc. with or into, or the consideration of UAG Northeast, Inc. and DiFeo Partnership, Inc. with any other entity, if as a result of such transaction, the UAG Northeast, Inc. and DiFeo Partnership, Inc. will cease to own at least 100% of the capital stock or interest of Dealer. Any transaction involving the capital stock of UAG Northeast, Inc. and DiFeo Partnership, Inc. which does not violate subparagraph (iv) above may be effected without obtaining the prior written consent of Seller and without triggering a termination event under Section 12.A.(2) of the Standard Provisions. Dealer shall give Seller prior notice of any proposed change in said ownership requiring consent of Seller and immediate notice of the death or incapacity of any Dealer Principal or Executive Manager. No such change, and no assignment of this Agreement or of any right or interest herein, shall be effective against Seller unless and until embodied in an appropriate amendment to or assignment of this Agreement, as the case may be, duly executed and delivered by Seller and by Dealer. Seller shall not, however, unreasonably withhold its consent to any such change, subject to Seller's rights of first refusal set forth in Article Tenth of this Agreement. Seller shall have no obligation to transact business with any person who is not named either as a Dealer Principal or Executive Manager of Dealer hereunder or otherwise to give effect to any proposed sale or transfer of the ownership, partnership interest management of Dealer, UAG Northeast, Inc. and DiFeo Partnership, Inc. (other than changes in the ownership of UAG Northeast, Inc. and DiFeo Partnership, Inc. which are expressly permitted by the Article Third) prior to having concluded the evaluation of such a proposal as provided in Section 15 of the Standard Provisions. Dealer acknowledges Seller's right to require consent to any change in the ownership of Dealer, UAG Northeast, Inc., and DiFeo Partnership, Inc. agree that any change or transfer without such consent from Seller is void, and of no force and effect, and grounds for termination. Dealer, UAG Northeast, Inc., and DiFeo Partnership, Inc. further agree that either will not challenge, contest, dispute, or litigate: (i) any action taken by Seller (including, without limitation, termination of this Agreement) response to an attempt to transfer ownership of Dealer (except as provided by this Agreement) without Seller's consent; or (ii) any decisions by Seller to withhold consent to a proposed change in ownership of Dealer. -5- The stock certificates representing the stock or analogous instrument demonstrating ownership of Dealer, UAG Northeast, Inc., and DiFeo Partnership, Inc. will have legends which notify a potential purchaser of such stock of the limitations on transfer set forth in this Article third. Dealer, UAG Northeast, Inc., and DiFeo Partnership, Inc. represent and agree that none of UAG Northeast, Inc. and DiFeo Partnership, Inc. or Dealer will register their capital stock, or securities convertible into their capital stock for sale or resale to the public under any state or federal securities laws. UAG Northeast, inc. and DiFeo Partnership, Inc. agree that no capital stock, or securities convertible into capital stock, of Dealer will be issued, sold or otherwise transferred by Dealer, UAG Northeast, Inc. and DiFeo Partnership, Inc., directly or indirectly, to any automobile manufacturer, automobile distributor, any motor vehicle dealer, any other person who could reasonably be considered a competitor or potential competitor of Seller, or any affiliate of any of the foregoing. However, with the exception of the immediately preceding sentence and the stock restriction set forth in Exhibit A attached, Nissan does not intend to restrict the transfer of equity or interests in UAG. ARTICLE FOURTH: Management (a) This Agreement has been entered into by Seller in reliance upon, and in consideration of, among other things, the personal qualifications, expertise, reputation, integrity, experience, ability and representations with respect thereto of the person named as Dealer Principal in the Final Article of this Agreement and in reliance on the following representations and agreements of UAG Northeast, Inc. and DiFeo Partnership, Inc. that: (i) each of Samuel and Spielvogel will, subject to any other obligations set forth in this Agreement, devote 100% of their time to the business and day-to-day operations of the entity for which they are responsible. (ii) Samuel will devote 100% of his time to the affairs of Dealer. (b) Dealer. Seller and Dealer agree that the retention by Dealer of qualified management is of critical importance to the successful operation of Dealer and to the achievement of the purposes and objectives of this Agreement. this agreement has been entered into by Seller in reliance upon, and in consideration of, among other things, the personal qualifications, expertise, reputation, integrity, experience, ability and representations with respect thereto of the persons named as Dealer Principal and Executive Manager in the Final Article of this Agreement and in reliance on the following representations and agreements of Dealer, and UAG Northeast, Inc. and DiFeo Partnership, Inc. that: -6- (i) Samuel is currently employed as the Executive Manager of Dealer. As long as Spielvogel is employed by UAG Northeast, Inc. and DiFeo Partnership, Inc., and Samuel is employed by Dealer, they will have full and complete control over the Dealership Operations, subject only to the powers of the Board of Directors of Dealer to manage the business and affairs of Dealer, and they will at all times be members of the Board of Directors of Dealer. In addition, any replacements for Spielvogel and Samuel will, so long as such replacements are employed by any UAG Northeast, Inc. and DiFeo Partnership, Inc. and Dealer, have full and complete control over the Dealership Operations, subject only to the powers of the Board of Directors of Dealer to manage the business and affairs of Dealer, and such replacements will at all times be members of the Board of Directors of dealer. (ii) the Board of Directors of Dealer shall delegate the management of the Dealership Operations to Samuel and Dealer will not amend its Certificate of Incorporation or By-laws to provide that its Board of Directors provide that its Board of directors is entitled to exercise any extraordinary powers or interfere unduly in the Dealership Operations. (iii) Samuel will, subject to any other obligations set forth in this Agreement, continually provide his personal services in operating the dealership and will be physically present at the Dealership Facilities on a full-time basis. (c) Changes in Management. In view of the fact that this is a personal services Agreement with the Dealer principal and Executive Manager and in view of its objectives and purposes, Dealer, UAG Northeast, Inc. and DiFeo Partnership, Inc. agree that any change in the Dealer Principal or Executive Manager from that specified in the Final Article of this Agreement requires the prior written consent of Seller. In addition, UAG Northeast, Inc. and DiFeo Partnership, Inc. agree that no chief executive officer, or person performing services and having responsibilities similar to a chief executive officer, of UAG Northeast, Inc. or DiFeo Partnership, Inc. will be appointed, directly or indirectly, without the prior written consent of Seller. Dealer shall give Seller prior notice of any proposed change in Dealer Principal or Executive Manager or the appointment of any chief executive or similar officer of UAG Northeast, Inc. and DiFeo partnership, Inc. and immediate notice of the death or incapacity of any Dealer Principal or Executive Manager. No change in Dealer Principal or Executive Manager and no appointment of a chief executive or similar officer of UAG Northeast, Inc. or DiFeo Partnership, Inc. shall be effective unless and until embodied in an appropriate amendment to this Agreement duly executed and delivered by all of the parties hereto. Subject to the foregoing, Dealer, UAG Northeast, Inc. and DiFeo Partnership, Inc. shall make their own, independent decisions concerning the hiring and firing of its employees, including, without limitation, the Dealer Principal and Executive Manager. -7- Dealer shall give Seller prior written notice of any proposed change in Dealer Principal or Executive Manager and immediate notice of the death or incapacity of Dealer Principal or Executive Manager. No change in Dealer Principal or Executive Manager shall be effective unless and until embodies in an appropriate amendment to this Agreement duly executed and delivered by all of the parties hereto. Dealer acknowledges Seller's right as set forth herein and in the Standard Provisions) to require consent to any change in the management of Dealer, UAG Northeast, Inc. and DiFeo Partnership, Inc. agree that a change without such consent from Seller is void, of no force and effect, and grounds for termination. Dealer, UAG Northeast, Inc. and DiFeo Partnership, Inc. further agree that either will not challenge, contest, dispute, or litigate: (i) any action taken by Seller (including, without limitation, termination of this Agreement) in response to an attempt to change the management of Dealer without Seller's consent; or (ii) any decision by Seller to withhold consent to a proposed change in management of Dealer, or (iii) any decision by Seller to withhold approval of a proposed management candidate. To enable Seller to evaluate and respond to Dealer concerning any proposed change in Dealer Principal or Executive Manager or the appointment of any chief executive or similar officer of UAG Northeast, Inc. and DiFeo Partnership, Inc., Dealer, UAG Northeast, Inc. and DiFeo Partnership, Inc. agree to provide, in the form requested by Seller and in a timely manner, all applications and information customarily requested by Seller to evaluate the proposed change. While Seller shall not unreasonably withhold its consent to any such change, it is agreed that any successor Dealer Principal, Executive Manager or chief executive or similar officer of UAG Northeast, Inc. and DiFeo Partnership, Inc. must possess personal qualifications, expertise, reputation, integrity, experience and ability which are, in the opinion of Seller, satisfactory. Seller will determine whether, in its opinion, the proposed change or appointment is likely to result in a successful dealership cooperation with capable management that will satisfactorily perform Dealer's obligations under this Agreement. Seller shall have no obligation to transact business with any person who is not named as a Dealer principal or Executive Manager of Dealer hereunder prior to having concluded its evaluation of such person. Any successor Dealer Principal or Executive Manager and any chief executive or similar officer of UAG Northeast, Inc. and DiFeo Partnership, Inc. must meet the following minimum requirements in order to be submitted to Seller for approval: -8- (i) At least three years of experience as a general manager of an automobile dealer in a major metropolitan area or similar position involving all aspects of the day-to-day operations of such an automobile dealership (including, without limitation, new and used vehicles sales, service, parts and administration); and (ii) A demonstrated track record of success in his/her prior automobile dealership activities as measured by the dealerships' performance under his/her management. The dealership(s) shall have consistently demonstrated at least the following: 1. An above average level of sales performance when measured against regional or zone averages and as measured against sales performance objectives established by the manufacturer; and 2. An above average level of customer satisfaction when measured against regional or zone averages for the make; and 3. A history of cooperation and good relations with manufacturer(s) and/or distributor(s). (d) Evaluation of Management. Dealer and Seller understand and acknowledge that the personal qualifications, expertise, reputation, integrity, experience and ability of the Dealer Principal and Executive Manager and their ability to effectively manage Dealer's day-to-day Dealership Operations is critical to the success of Dealer in performing its obligation under this Agreement. Seller may from time to time develop standards and/or procedures for evaluating the performance of the Dealer Principal and Executive Manager and of Dealer's personnel generally. Seller may, from time to time, evaluate the performance of the Dealer Principal and Executive Manager and will advise Dealer, the Dealer Principal and the Executive Manager of the results of such evaluations and the way in which any deficiencies affect Dealer's performance of its obligations under this Agreement. (e) Compensation of Executive Manager. Samuel will have a substantial portion of his compensation tied to Dealer's overall performance with respect to objectives for sales, market penetration and customer service which will be established at quarterly intervals. ARTICLE FIFTH: Additional Provisions The additional provisions set forth in the attached "Nissan Dealer Sales and Service Agreement Standard Provisions," bearing from number NDA-4S/9-88, as amended in Article Thirteenth of this Agreement, and excepting only the provisions contained in Sections 4, 14 and 16, are hereby incorporated in and made a part of this Agreement. The Notice of Primary Market area, Dealership Facilities Addendum, Product Addendum, Dealership Identification addendum, Holding Company Addendum, if applicable, and all guides -9- and Standards referred to in this Agreement (including references contained in the Standard Provisions referred to above) are hereby incorporated in and made a part of this Agreement. Dealer further agrees to be bound by and comply with: the Warranty Manual; Seller's Manuals or Instructions heretofore or hereafter issued by Seller to Dealer; any amendment, revision or supplement to any of the foregoing; and any other manuals heretofore or hereafter issued by Seller to Dealer. ARTICLE SIXTH: Termination of Prior Agreements This Agreement cancels, supersedes and annuls all prior contracts, agreements and understandings except as stated herein, all negotiations, representations and understandings being merged herein. 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 spaces and lines) will be valid or binding on Seller unless approved in writing by the President or an authorized Vice President of Seller. ARTICLE SEVENTH: Term This Agreement shall have a term commencing on the effective date hereof and, subject to its earlier termination in accordance with the provisions of this Agreement, expiring on the expiration date indicate in the Final Article of this Agreement. Subject to other applicable provisions hereof, this Agreement shall automatically terminate at the end of such stipulated term without any action by Dealer, Seller or any of the other parties hereto. ARTICLE EIGHTH: License of Dealer If Dealer is required to secure or maintain a license for the conduct of its business as contemplated by this Agreement in any state or jurisdiction where any of its Dealership Operations are to be conducted or any of its Dealership Facilities are located, this Agreement shall not be valid until and unless Dealer shall have furnished Seller with written notice specifying the date and number, if any, of such license or licenses issued to Dealer, Dealer shall notify Seller immediately in writing if Dealer shall fail to secure or maintain any and all such licenses or renewal thereof or, if such license or licenses are suspended or revoked, specifying the effective date of any such suspension or revocation. ARTICLE NINTH: Additional Representations and Warranties (a) All of the representations and covenants made to Seller by the other parties to this Agreement have been made jointly and severally by each of the parties hereto which has made any such representation or covenant. -10- (b) In addition to the representations set forth elsewhere in this Agreement, Dealer, UAG Northeast, Inc. and DiFeo Partnership, Inc., jointly and severally, represent to Seller that: (i) all of the documents and correspondence provided to seller by Dealer, UAG Northeast, Inc., DiFeo Partnership, Inc., UAG or any of their agents in connection with the solicitation of Seller's consent to this Agreement are true and correct copies of such documents. (c) In addition to the covenants set forth elsewhere in this Agreement, Dealer, UAG Northeast, Inc. and DiFeo Partnership, Inc., jointly and severally, agree with Seller that: (i) Dealer will at times be involved in the operation of the Nissan dealership currently operated by it and Dealer will not conduct any other type of business. (ii) no distributions will be made to the stockholders of partners of Dealer, UAG Northeast, Inc. and DiFeo Partnership, Inc., if such distributions would cause Dealer to fail to meet any of the Guides and Standards relating to the capitalization of Dealer. In particular, UAG Northeast, Inc. and DiFeo Partnership, Inc. will not be permitted to voluntarily redeem any of its preferred stock, if prior to and after giving effect to such redemption Dealer fails to meet any of the Guides and Standards relating to capitalization of Dealer. (iii) The UAG Northeast, Inc., DiFeo Partnership, Inc. and Dealer hereby, jointly and severally, indemnify and hold harmless, Seller, its officers, directors, affiliates and agents, and each person who controls Seller within the meaning of the Securities Act of 1933, as amended (the "Act"), from and against any and all losses, claims, damages or liabilities, to which they or any of them may become subject under the Act, the Securities Exchange Act of 1934, as amended, or any other federal or state securities law, rule or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities arise out of the sale by the UAG Northeast, Inc., DiFeo Partnership, Inc. or Dealer of any securities. The indemnification provided for in this paragraph shall be exclusive of, and in addition to, any indemnification pursuant to Section 10 of the Standard Provisions. (iv) One of the conditions to the effectiveness of this Agreement by Seller is the delivery of an opinion of counsel to all of the parties hereto (other than Seller) to the effect that this Agreement has been duly executed and delivered by each of the parties thereto (other than Seller) and is the legal, valid and binding obligations of each of such parties enforceable in accordance with its terms. ARTICLE TENTH: -11- A. Seller's right of First Refusal In addition to its rights under this Agreement, in the event that UAG Northeast, Inc., DiFeo Partnership, Inc. or Dealer should desire to enter into a transaction, which if not approved by Seller, would result in a breach of the covenants set forth in Article Third, Sections (a)(i), (a)(ii), (a)(iii), (a)(iv) or (b) of this Agreement or in the event that any of the covenants set forth i the fourth full paragraph of Article Third, Section (b), Article Forth, Section (a)(vii) or Article Ninth, Section (c)(ii) of this Agreement are breached, Seller shall have the additional right and option to purchase the dealership assets or ownership interests pursuant to this Article Tenth. (a) If Seller chooses to exercise its right of first refusal, it must do so in its written refusal to consent to the proposed sale or transfer pursuant to Section 15 of the Standard provisions or, if Section 15 of the Standard Provisions does not apply, within sixty (60) days of receipt of notification that an event triggering Seller's right of first refusal hereunder has occurred. Dealer agrees not to complete any proposed change or sale prior to the expiration of the period of exercise of Seller's right of first refusal and without Seller's prior written consent. Such exercise shall be null and void if Dealer withdraws its proposal within thirty (30) days following Dealer's receipt of Seller's notice exercising its rights of first refusal. (b) After being exercised, Seller's right to purchase may be assigned to any party, and Seller hereby agrees to guarantee the full payment of the purchase price by such assignee. Seller's rights under this Article Tenth shall be binding on and enforceable against any assignee or successor in interest of Dealer or purchaser of Dealer's assets. Seller shall have no obligation to exercise its rights hereunder. (c) If Dealer has entered into a bona fide written buy/sell agreement respecting its Nissan dealership, Seller's right under this Article Tenth shall be a right of first refusal, enabling Seller to assume the prospective purchaser's purchase rights and obligations under such buy/sell agreement. The purchase price and other terms of sale shall be those set forth in such agreement and any related documents. Seller may request and Dealer agrees to provide all other documents relating to Dealer and the proposed transfer, including, but not limited to, those reflecting any other agreements or understandings between the parties to the buy/sell agreement. If Dealer refuses either to provide such documentation or to state in writing that no such document exists, it shall be presumed that the agreement is not bona fide. (d) If Seller determines pursuant to paragraph (c) above that the buy/sell agreement is not bona fide, Seller will so notify Dealer. Dealer shall have ten (10) days from its receipt -12- of such notice within which to withdraw its proposal. Seller's exercise of its rights hereunder shall be null and void if Dealer withdraws its proposal within such time period. If the proposal is not withdrawn, Seller shall have the option, but no obligation, under this Article Tenth to purchase the principal assets, or the ownership interests, of Dealer, shall include the right to lease the Dealership Facilities. the purchase price shall be at the then fair market value as determined by an independent appraiser selected by Seller and reasonably acceptable to UAG Northeast, Inc. and DiFeo Partnership, Inc. and the other terms of sale shall be those agreed by Seller, Dealer, UAG Northeast, Inc. and DiFeo Partnerships, Inc. (e) Dealer shall transfer the affected property free and clear of liens, claims, mortgages, and encumbrances. (f) In addition to any other rights Seller may have at law, in equity or hereunder, any conveyance of the dealership in violation of this right of first refusal shall be viable by Seller. (g) In the event that Seller elects not to exercise its right to purchase the dealership assets or the ownership interests of the Dealer, UAG Northeast, Inc. and DiFeo Partnership, Inc. agree that it will offer to sell such assets or interests to the Dealer's then current management team or to some other entity or persons acceptable to Seller. If such individuals are not interested in such a transaction and no other entity or individuals acceptable to Seller can be found then this Agreement will be terminable at Seller's option, by deliver of written notice to Dealer. B. Right of First Refusal on Sale or Lease of Property to a Third Party. a) In addition to its rights under Articles Third and Fourth and Section 15 of the Standard Provisions, Dealer agrees that should Dealer seek to sell or lease all or substantially all of the Approved Site to a third party for use as a Nissan New Motor Vehicle Dealership, Seller shall have the additional right and option, but not the obligation, to purchase or lease the Approved Site pursuant to Article Thirteenth. A sale or lease for use other than a Nissan New Motor Vehicle Dealership is void. b) If Seller chooses to exercise its right of first refusal, it must do so by written not delivered to Dealer within 60 days of Seller's receipt of notice of the proposed sale or lease by Dealer. Dealer agrees not to complete any proposed sale or lease prior to the expiration of the period for exercise of Seller's right of first refusal and without Seller's prior written consent, and agrees to allow Seller to perform an environmental study of the property. Such exercise shall be null -13- and void if Dealer withdraw its sale or lease proposal within thirty (30) days following Dealer's receipt of Seller's notice exercising right of first refusal. c) After being exercised, Seller's right to purchase or lease may be assigned to any party, and Seller hereby agrees to guarantee the full payment of the purchase price or the rental payment by such assignee. Seller's rights under this Article Thirteenth shall be binding on an and enforceable against any assignee or successor in interest of Dealer or purchase of Dealer's assets. Seller shall have no obligation to exercise its rights hereunder, and Seller may rescind its offer if the property is determined be contaminated pursuant to an environmental study. Such contamination shall be deemed a breach of this agreement by dealer. d) Should Seller actually purchase or lease the facility, Dealer shall also furnish to Seller copies of any easements, licenses, environmental studies or other documents affecting the property. e) Dealer shall transfer the affected property by deed conveying marketable title free and clear of liens, claims, mortgages, encumbrances, tenancies and occupancies, or, if applicable, by an assignment of any existing lease. The Warranty Deed shall be in proper form for recording. Dealer shall deliver complete possession of the property at the time of delivery of the Deed or lease assignment. Dealer shall also furnish to Seller copies of any easements, licenses, or other documents affecting the property and shall assign any permits or licenses which are necessary for the conduct of the Dealership Operations. f) In addition to any other rights Seller may have at law, in equity or hereunder, any sale or lease of the Approved Site in violation of this right of first refusal shall be voidable by Seller. C. Exclusivity Provisions. In order for Dealer to maintain competitive Dealership Facilities to effectively market Nissan Products, Dealer hereby agrees to abide by and never challenge the following provisions (hereinafter "Exclusively Provisions"). These Exclusivity Provisions shall be effective on or before the execution of the Agreement, and continue in effect thereafter so long as Dealer (or its principals) are authorized N___ dealers and these provisions shall be binding on any successors-in-interest, assigns or purchasers of Dealer: a) The only line-make of new, unused motor vehicles which Dealer shall display sell at the Approved Site shall be the Nissan line and make of motor vehicles. Dealer shall not conduct any dealership operations for any other make or line of vehicles from the Approved Site. -14- b) Dealer shall sell and maintain a full line of Genuine Nissan Parts and Accessories at the Approved Site and shall provide a full range of automotive servicing for Nissan vehicles at the Approved Site pursuant to Section 5 of the Standard Provisions to the Agreement. Nothing contained herein, however, shall preclude Dealer from offering parts, accessories or servicing for vehicles of other line or makes so long as such products or services are incidental to Dealer's Nissan Dealership Operations; c) Dealer shall not advertise or promote any make or line of new, unused vehicles from the Approved Site other than the Nissan line; and d) Dealer shall not install or maintain any sign at or near the Approved Site which would tend to lead the public into believing that any line or make of vehicles other than the Nissan line sold at the Approved Site. ARTICLE ELEVENTH: Breach By Dealer In the event (i) that any of the representations and warranties of Dealer, UAG Northeast, Inc. DiFeo Partnership, Inc., UAG, Spielvogel or Samuel contained in this Agreement shall prove not to have been true and correct when made or (ii) of any breach or violation of any of the covenants made by Dealer, UAG Northeast, Inc. and DiFeo Partnership, Inc., UAG, Spielvogel or Samuel in Articles Third, Fourth and Ninth of this Agreement or upon the occurrence of any of the events warranting termination of this Agreement as set forth in Section 12.A of the Standard Provisions, Seller may terminate this Agreement, prior to the expiration date hereof, by giving Dealer written notice thereof, such termination to be effective upon the date specified in such notice, or such latter date as may be required by any applicable statute with the effect set forth in Section 13 of the Standard Provisions. ARTICLE TWELFTH: Execution of Agreement This Agreement, and any Addendum or amendment or notice with respect thereto, shall be valid and binding on Seller when it bears the signature of either the President or an authorized Vice President of Seller and, when such signature is a facsimile, the manual countersignature of an authorized employee of Seller at the Director level and a duplicate original thereof is delivered personally or by mail to the Dealership location. This Agreement shall bind Dealer and the other parties hereto only when it is signed by: a duly authorized officer or executive of Dealer or such party if a corporation; one of the general partners of Dealer or such party if a partnership; or Dealer or such party if an individual. ARTICLE THIRTEENTH: Amendments to Standard Provisions -15- (a) Section 1.0 of the Standard Provisions is hereby amended to read as follows: "O. 'Principal Owners(s)' shall mean the persons named as Dealer Principal in the Final Article of this Agreement upon whose personal qualifications, expertise, integrity, experience, ability and representations Seller has relied in entering into this Agreement." (b) Section 6.I of the Standard Provisions is hereby amended to read as follows: "Seller shall have the right, at all reasonable times during regular business hours, to inspect the Dealership Facilities and to examine, audit and make and take copies of all records, accounts and supporting data relating to the sale, sales reporting, service and repair of Nissan Products by Dealer. Whenever possible, Seller shall attempt to provide Dealer with advance notice of an audit or examination of Dealer's operations. Seller shall also have the right, at all reasonable times during regular business hours and upon advance notice, to examine, audit and make and take copies of all records, accounts and supporting data of UAG Northeast, Inc. and DiFeo Partnership, Inc. relating to the business, ownership or operations of Dealer." (c) Section 12.A(1) of the Standard Provisions is hereby amended to read as follows: "(1) Any actual or attempted sale, transfer, assignment or delegation, whether by operation of law or otherwise, by Dealer, UAG Northeast, Inc. and DiFeo Partnership, Inc. of any interest in or right, privilege or obligation under this Agreement, or of the principal assets necessary for the performance of Dealer's responsibilities under this Agreement, without, in either case, the prior written consent of Seller having been obtained, which consent shall not be unreasonably withheld;" (d) Section 12.A(3) of the Standard Provisions is hereby amended to read as follows: "(3) Removal, resignation, withdrawal or elimination from Dealer for any reason of the Executive Manager, or removal, resignation, withdrawal, or elimination from Dealer of Spielvogel as President, or removal, resignation, withdrawal or elimination from Dealer of Samuel as Executive Vice President or Executive Manager; provided, however, in each case, Seller shall give Dealer a reasonable period of time within which to replace such person with an individual satisfactory to Dealer as the case may be, and Seller in accordance with Article Fourth of this Agreement; or the failure of Dealer to retain an Executive Manager who, in accordance with Article Fourth of this Agreement, in Seller's reasonable opinion, is competent, possesses the requisite qualifications for the position, and who will act in a -16- manner consistent with the continued interests of both Seller and Dealer." (e) Section 12.B(2)(i) of the Standard Provisions is hereby amended to read as follows: "(i) any dispute, disagreement or controversy between or among Dealer, UAG Northeast, Inc., DiFeo Partnership, Inc. or UAG and any third party or between the owners and management personnel of Dealer relating to the management or ownership of Dealer, UAG Northeast, Inc., and DiFeo Partnership, Inc. develops or exists which, in the reasonable judgment of Seller, tends to adversely affect the conduct of the Dealership Operations or the interests of Dealer or Seller; or" (f) Section 12.B(2)(ii) of the Standard Provisions is hereby amended to read as follows: "(ii) any other act or activity of Dealer, UAG Northeast, Inc. and DiFeo Partnership, Inc. or any of their owners or management occurs, which substantially impairs the reputation or financial standing of Dealer or any of its management subsequent to the execution of this Agreement:" (g) Exhibits A and B are hereby incorporated by reference. -17- IN WITNESS WHEREOF, the parties hereto have executed this Agreement in _____ effective as of the 18th day of October, 1996 at Carson, California. SELLER: NISSAN DIVISION NISSAN MOTOR DIVISION CORPORATION IN USA By: /s/ Illegible By: /s/ Illegible --------------------------------- ------------------------------ Its: Vice President Nissan Division Its: Regional Vice President DIFEO NISSAN PARTNERSHIP By: /s/ Carl Spielvogel --------------------------------- Its: Chairman & CEO UAG NORTHEAST, INC. By: /s/ Carl Spielvogel --------------------------------- Its: Chairman & CEO DIFEO PARTNERSHIP, INC. By: /s/ Carl Spielvogel --------------------------------- Its: Chairman & CEO CARL SPIELVOGEL /s/ Carl Spielvogel --------------------------------- SAMUEL X. DIFEO /s/ Samuel X. DiFeo --------------------------------- -18- FINAL ARTICLE The Dealer is DiFeo Nissan Partnership, a partnership formed under the laws of the State of New Jersey. Dealer is located in Jersey City, New Jersey. The other parties to this Agreement are UAG Northeast, Inc., a corporation incorporated under the laws of the state of Delaware, DiFeo Partnership, Inc., a corporation incorporated under the laws of the state of Delaware, Carl Spielvogel ("Spielvogel") and Samuel X. DiFeo ("Samuel"). The Dealer Principal and Executive Manager is Samuel X. DiFeo. Expiration Date: July 1, 2001 Working Capital Guide Requirement: $ 607,308 Net Worth Guide Requirement: $ 818,791 Flooring Line: $1,798,438 -19- Attachment "A" DIFEO NISSAN PARTNERSHIP Executive Committee See Schedule Officers "A" 30% Partner 70% Partner UAG NORTHEAST, INC. DIFEO PARTNERSHIP, INC. Directors See Schedule Directors See Schedule Officers "B" Officers "C" 100% Stockholder 100% Stockholder UNITED AUTO GROUP, INC. Directors See Schedule Officers "D" -20- Schedule "A" DiFeo Nissan Partnership - Executive Committee and Officers Executive Committee Marshall S. Cogan Carl Spielvogel Arthur J. Rawl Joseph C. DiFeo Samuel X. DiFeo Officers Carl Spielvogel - Chairman and Chief Executive Officer Marshall S. Cogan - President Arthur J. Rawl - Executive Vice President, Chief Financial Officer and Treasurer George G. Lowrance - Secretary Tambra S. King - Assistant Secretary Judith Hershon - Assistant Secretary Principal Owner/Executive Manager Samuel X. DiFeo -21- Schedule "B" UAG Northeast, Inc. - Directors and Officers Directors Marshall S. Cogan Carl Spielvogel Robert H. Nelson Officers Carl Spielvogel - Chairman and Chief Executive Officer Marshall S. Cogan - President Arthur J. Rawl - Executive Vice President, Chief Financial Officer and Treasurer George G. Lowrance - Secretary Tambra S. King - Assistant Secretary Judith Hershon - Assistant Secretary -22- Schedule "C" DiFeo Partnership, Inc. - Directors and Officers Directors Marshall S. Cogan Carl Spielvogel Robert H. Nelson Officers Carl Spielvogel - Chairman and Chief Executive Officer Marshall S. Cogan - President Arthur J. Rawl - Executive Vice President, Chief Financial Officer and Treasurer George G. Lowrance - Secretary Tambra S. King - Assistant Secretary Judith Hershon - Assistant Secretary -23- Schedule "D" United Auto Group, Inc. - Directors and Officers Directors Marshall S. Cogan Carl Spielvogel Robert H. Nelson Michael R. Eisenson John J. Hannan Jules Kroll John M. Sallay Richard Sinkfield Officers Carl Spielvogel - Chairman and Chief Executive Officer Marshall S. Cogan - Vice Chairman Arthur J. Rawl - Executive Vice President, and Chief Financial Officer George G. Lowrance - Executive Vice President, Secretary and General Counsel The Company will provide prior notice of changes to this Schedule; franchisor consent thereto is not required. -24- Exhibit "B" INDEMNIFICATION AGREEMENT INDEMNIFICATION AGREEMENT ("Agreement"), made this __th day of _________________ 19__ between United Auto Group, Inc., a Delaware corporation the address of which is 375 Park Avenue, New York, New York 10152 ("UAG"), TRACE INTERNATIONAL HOLDINGS, INC., a Delaware Corporation and principal shareholder of UAG with an address at 375 Park Avenue, New York, New York 10152 ("Trace") (UAG and Trace are hereinafter referred to as the "Indemnitors") and Nissan Motor Corporation in U.S.A., a corporation the address of which is 18501 South Figueroa Street, P.O. Box 191, Gardena, CA 90248-0191 ("Nissan"). WITNESSETH WHEREAS, UAG has acquired all of the capital stock of various automobile dealerships, including DiFeo Partnership Nissan of Jersey City, New Jersey ("DiFeo"). WHEREAS, UAG intends to offer and sell certain of its shares (the "Shares") in a public offering pursuant to the Securities Act of 1933, as amended (the "Act"); WHEREAS, UAG intends to use a portion of the proceeds from the public offering to acquire, among other things, new automobile dealerships, repay debt and provide cash for working capital and general corporate purposes; -25- WHEREAS, Nissan has consented to the transfer of DiFeo, and has agreed to enter into a Nissan Dealer Sales and Service Agreement (the "Sales and Service Agreement") with UAG, Carl J. Spielvogel ("Spielvogel") and DiFeo whereby Spielvogel will serve as Dealer Principal for DiFeo; WHEREAS, Nissan is not involved in the public offering of the Shares and has no control over UAG's activities or representations in connection with that offering or the sale of the Shares; and WHEREAS, in recognition of Nissan's desire for complete protection against liability and potential legal action and in order to obtain Nissan's consent to the transfer of DiFeo and the execution of the Sales and Service Agreement, the Indemnitors wish to provide in this Agreement for the indemnification of and the advancing of expenses to Nissan as set forth herein. NOW, THEREFORE, in consideration of the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. INDEMNITY OF NISSAN The Indemnitors hereby agree to indemnify and hold harmless Nissan from and against any and all losses, liabilities, judgments, amounts paid in settlement, claims, damages and expenses whatsoever incurred investigating, preparing or defending against any litigation, commenced or threatened, to -26- which Nissan may become subject under the Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the securities laws of any state (the "Blue Sky Laws"), any other statute or at common law or otherwise under the laws of any foreign country, arising in connection with the offer and sale of the Shares, including but not limited to any claim based upon the allegation that Nissan is a "controlling person" within the meaning of 15 of the Act or 20(a) of the Exchange Act. In addition, the Indemnitors hereby agree to indemnify and hold harmless Nissan from any and all claims of the shareholders of UAG with respect to any matter involving UAG, provided, that if it is ultimately determined, based upon a final decision of a court, arbitrator or other authorized panel or a settlement entered into by the parties to the dispute and consented to by Nissan that Nissan was liable for such Claim in whole or in part, the indemnification set forth herein shall be of no force or effect, and Nissan shall immediately reimburse the Indemnitors for any expenses advanced by the Indemnitors pursuant to paragraph 3 of this Agreement. 2. NOTIFICATION AND DEFENSE OF CLAIM (a) If any claim is made or any litigation is commenced against Nissan in respect of which indemnity may be sought pursuant to this Agreement, Nissan shall promptly notify the Indemnitors in writing of the claim or the commencement of any such litigation, and the Indemnitors shall then assume the defense of any such litigation, including the employment and fees -27- of counsel (reasonably satisfactory to Nissan) and the payment of all such expenses. Notwithstanding the foregoing, Nissan agrees to first make demand upon UAG for indemnification pursuant to this Agreement, unless such demand would be futile. (b) Nissan shall have the right, as its own expense, to employ its own counsel in any such case to oversee the litigation on behalf of Nissan, to consult with the attorneys engaged by the Indemnitors as to the proper handling of the litigation and to take such actions in connection with the litigation as are reasonably necessary to protect Nissan's interests. The Indemnitors, however, shall pay the reasonable fees and expenses of not more than one additional firm of attorneys for Nissan if the Indemnitors do not assume defense of any claim or in the event that a conflict of interest arises between Nissan, the Indemnitors and/or their counsel. In the event that a conflict arises between Nissan's attorneys and the Indemnitors or Indemnitors' attorneys, the Indemnitors agree that the conflict will be resolved in Nissan's favor and that Nissan shall be permitted to continue to retain Nissan's attorneys. (c) The Indemnitors agree promptly to notify Nissan of the commencement of any litigation against UAG in connection with the issue and sale of the Shares. UAG and Nissan agree to cooperate with each other in the defense of any litigation. (d) The Indemnitors shall not be obligated to indemnify or reimburse Nissan under this Agreement for any amounts paid in settlement of any litigation effected without prior written -28- consent. The Indemnitors shall not, in the defense of any such litigation, except with Nissan's prior written consent, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to Nissan of a release from all liability in respect to such litigation. Neither the Indemnitors nor Nissan shall unreasonably withhold its consent to any proposed settlement. 3. ADVANCEMENT OF EXPENSES The Indemnitors agree that they will pay any and all expenses incurred by Nissan in defending any claim, civil or criminal action, suit or proceeding against Nissan in advance of the time such expenses are due. With respect to legal fees and disbursements of Nissan's attorneys, the Indemnitors will pay such attorneys an advance retainer of up to $20,000 and will pay additional fees and expenses of such attorneys in increments of not more than $20,000 periodically in advance of the dates that such fees and expenses are incurred. 4. ENFORCEMENT (a) The Indemnitors expressly confirm and agree that they have entered into this Agreement and assume the obligations imposed on them in order to induce Nissan to consent to the transfer of DiFeo and to execute the Sales and Service Agreement and acknowledge that Nissan is relying upon this Agreement, and other promises, to grant such consent. -29- (b) In the event Nissan is required to bring any action to enforce rights or to collect moneys due under this Agreement and is successful in such action, the Indemnitors shall reimburse Nissan for all of Nissan's reasonable fees and expenses in bringing and pursuing such action. 5. SUBROGATION (a) In the event of payment under this Agreement, the Indemnitors shall be subrogated to the extent of such payment to all of the rights of recovery of Nissan, which shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Indemnitors effectively to bring suit to enforce such rights. (b) The Indemnitors shall not be liable under this Agreement to make any payment in connection with any Claim or litigation made against Nissan to the extent Nissan has otherwise actually received payment (under any insurance policy or otherwise) of the amounts otherwise indemnifiable hereunder, provided, that nothing contained in this Agreement shall be deemed to require Nissan to notify its insurance carriers with respect to any Claim or litigation or to seek payments from such carriers with respect to such Claim or litigation. -30- 6. MISCELLANEOUS (a) This Agreement shall be interpreted and construed in accordance with the laws of the State of California, without giving effect to the conflict of law rules. (b) This Agreement shall be binding upon and inure to the benefit of UAG, Trace and Nissan and their respective legal representatives, successor and assigns. (c) No amendment, modification or termination of this Agreement shall be effective unless in writing and signed by both parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written. UNITED AUTO GROUP, INC. By: /s/ Carl Spielvogel ------------------------------- President TRACE INTERNATIONAL HOLDINGS, INC. By: /s/ Marshall S. Cogan ------------------------------- Title: NISSAN MOTOR CORPORATION IN U.S.A. By: /s/ Michael J. Seergy ------------------------------- Title: Regional Vice President -31- EXHIBIT A This Exhibit is incorporated by reference in and is a part of the Nissan Dealer Term Sales and Service Agreement between Dealer and Seller dated October 18, 1996. Article THIRTEENTH (6)is hereby amended to read as follows: If any person or entity, after the date of the initial public offering, acquires more than 20% of UAG's common stock issued and outstanding at any time and Nissan determines that such person or entity does not have interests comparable with those of Nissan, or is otherwise not qualified to have an ownership interest in a Nissan dealership (an "Adverse Person"), UAG must terminate its dealer agreements with Nissan or transfer the Nissan dealerships to a third party acceptable to Nissan unless, within 90 days after Nissan's determination, the Adverse Person's ownership interest is reduced to less than 20%. -32- DEALER: DiFeo Nissan Partnership - -------------------------------------------------------------------------------- (Name) ________________________________________________________________________________ (Doing Business As) By /s/ Samuel X. DiFeo SELLER: ----------------------------- NISSAN DIVISION (SIGNATURE) NISSAN MOTOR CORPORATION IN U.S.A. Samuel DiFeo ----------------------------- (TYPE NAME & TITLE) By /s/legible --------------------------------- (SIGNATURE) Jersey City NJ ---------------------------- Vice President Nissan Division City State ----------------------------------- (TYPE NAME & TITLE) ____________________________ Dealer Code By /s/ Michael J. Seergy --------------------------------- (SIGNATURE) Michael J. Seergy Regional Vice President --------------------------------- (TYPE NAME & TITLE) -33- EX-10.2-9-2 12 EXH 10.2.9.2 NISSAN SLS AND SVC AGRMNT STND PROV Exhibit 10.2.9.2 NISSAN DEALER SALES AND SERVICE AGREEMENT STANDARD PROVISIONS NISSAN DIVISION NISSAN MOTOR CORPORATION IN U.S.A. NISSAN DEALER SALES & SERVICE AGREEMENT The following Standard Provisions have by reference been incorporated in and made a part of the Nissan Dealer Sales & Service Agreement which they accompany and which has been executed on behalf of Seller and Dealer. Section 1. Definitions Seller and Dealer agree that the following terms, as used in this Agreement, shall be defined exclusively as set forth below. A. "Authorized Nissan Dealers" shall mean dealers located in the Territory that are authorized by Seller to conduct Dealership Operations in connection with the sale of Nissan Products, pursuant to a duly executed Nissan Dealer Sales and Service Agreement. B. "Nissan Cars" shall mean the new passenger cars specified in the current Product Addendum. C. "Nissan Trucks" shall mean the new trucks, cab and chassis, utility vehicles, buses or vans specified in the current Product Addendum. D. "Nissan Vehicles" shall mean Nissan Cars and Nissan Trucks. E. "Genuine Nissan Parts and Accessories" shall mean such parts, accessories and other products for Nissan Vehicles as are from time to time offered for sale by Seller to Authorized Nissan Dealers for resale under this Agreement. F. "Nissan Products" shall mean Nissan Vehicles and Genuine Nissan Parts and Accessories. G. "Competitive Vehicles" shall mean those new vehicles which are considered by Seller to be directly competitive with Nissan Vehicles. H. "Industry Cars" shall mean all new cars of all manufacturers which are sold and distributed within the United States, to the extent data relating to registration thereof are reasonably available. I. "Competitive Truck Segment" shall include all compact pickup trucks, compact utility vehicles, and compact buses of all manufacturers which are sold and distributed within the United States, to the extent data relating to registration therefor are reasonably available. -2- J. "Dealership Location" shall mean the place or places of business of Dealer established and described in accordance with Section 2 of this Agreement. K. "Dealership Facilities" shall mean the land areas at the Dealership Location and the buildings and improvements erected thereon provided by Dealer in accordance with Section 2 of this Agreement. L. "Dealership Facilities Addendum" shall mean the addendum executed by Seller and Dealer pursuant to Section 2 of this Agreement. M. "Dealership Operations" shall mean all dealer functions contemplated by this Agreement including, without limitation, sale and servicing of Nissan Products, use and display of Nissan Marks and Nissan Products, rental and leasing of Nissan Vehicles, sales of used vehicles, body shop work, financing or insurance services and any other activities undertaken by Dealer in connection with Nissan Products whether conducted directly or indirectly by Dealer. N. "Primary Market Area" shall mean the geographic area which is designated from time to time as the area of Dealer's sales and service responsibility for Nissan Products in a Notice of Primary Market Area issued by Seller to Dealer. Seller reserves the right, in its reasonable discretion, to issue new, superseding "Notices of Primary Market Area" to Dealer from time to time. Such geographic area may at any time be applicable to Dealer and to other Authorized Nissan Dealers. O. "Principal Owner(s)" shall mean the person(s) named as Principal Owner(s) in the Final Article of this Agreement upon whose personal qualifications, expertise, reputation, integrity, experience, ability and representations concerning the management and operation of Dealer, Seller has relied in entering this Agreement. P. "Other Owner(s)" shall mean the person(s) named as Other Owner(s) in the Final Article of this Agreement who will not be involved in the operation or management of Dealer. Q. "Executive Manager" shall mean the person named as Executive Manager in the Final Article of this Agreement upon whose personal qualifications, expertise, reputation, integrity, experience, ability and representations that he or she shall devote his or her primary efforts to and have full managerial authority and responsibility for the day-to-day management and performance of Dealer, Seller has relied in entering into this Agreement. R. "Successor Addendum" shall mean the Successor Addendum, if any, executed by Seller and Dealer pursuant to Section 14 of this Agreement. -3- S. "Guides" shall mean such reasonable standards as may be established by Seller for Authorized Nissan Dealers from time to time under its standard procedures with respect to such matters as dealership facilities, tools, equipment, financing, capitalization, inventories, operations and personnel. The execution of this Agreement or of any addenda hereto (including, without limitation, any Dealership Facilities Addendum) shall not, however, be construed as evidence of Dealer's fulfillment of or compliance with said Guides or of Dealer's fulfillment of its responsibilities under this Agreement. T. "Warranty Manual" shall mean the publication or publications of Seller, as the same may from time to time be amended, revised or supplemented, which set forth Seller's policies and procedures concerning the administration of Seller's warranties and related matters. U. "Nissan Marks" shall mean those trademarks, service marks, names, logos and designs that Seller may, from time to time, use or authorize for use by Dealer in connection with Nissan Products or Dealership Operations including, without limitation, the name "Nissan". V. "Seller's Manuals and Instructions" shall mean those bulletins, manuals or instructions issued by Seller to all Authorized Nissan Dealers advising them of Seller's policies or procedures under this Agreement including, without limitation, the Parts and Accessories Policy and Procedures Manual and the Nissan Dealer Accounting System Manual. W. "Territory" shall mean the geographic area in which Seller has been authorized by Manufacturer to distribute Nissan Products. X. "Product Addendum" shall mean the Product Addendum issued by Seller to Dealer which specifies those Nissan Vehicles which shall be offered for sale by Seller to Dealer for resale. Seller reserves the right, in its sole discretion, to issue new, superseding Product Addenda to Dealer from time to time. Y. "Dealer Identification Addendum" shall mean the Dealer Identification Addendum executed by Seller and Dealer pursuant to Section 6.C of this Agreement. Section 2. Dealership Location and Dealership Facilities A. Location and Facilities. Dealer shall provide, at the Dealership Location approved by Seller in accordance with Section 2.B hereof, Dealership Facilities that will enable Dealer to effectively perform its -4- responsibilities under this Agreement and which are reasonably equivalent to those maintained by Dealer's principal competitors in the geographic area in which Dealer's Primary Market Area is located. In addition, the Dealership Facilities shall be satisfactory in space, appearance, layout, equipment, signage and otherwise be substantially in accordance with the Guides therefor established by Seller from time to time. Dealer shall conduct its Dealership Operations only from Dealership Location specified in the Dealership Facilities Addendum. If the Dealership Location is comprised of more than one place of business, Dealer shall use each such place of business only for the purposes specified therefor in the current Dealership Facilities Addendum. B. Dealership Facilities Addendum. Dealer and Seller will execute a Dealership Facilities Addendum which will include a description of the Dealership Location and the Dealership Facilities, the approved use for each such place of business and facility, and the current Guides therefor. C. Changes and Additions. Dealer shall not move, relocate, or change the usage of the Dealership Location or any of the Dealership Facilities, or substantially modify any of the Dealership Facilities, nor shall Dealer or any person named in the Final Article of this Agreement directly or indirectly establish or operate any other locations or facilities for the sale or servicing of Nissan Products or for the conduct of any other of the Dealership Operations contemplated by this Agreement, without the prior written consent of Seller. Any changes in the Dealership Location or the Dealership Facilities that may be agreed to by Seller and Dealer shall be reflected in a new, superseding Dealership Facilities Addendum executed by Seller and Dealer. D. Assistance Provided by Seller. To assist Dealer in planning, establishing and maintaining the Dealership Facilities, Seller, at the request of Dealer, will from time to time make its representatives available to Dealer to provide standard building layout plans, facility planning recommendations, and counsel and advice concerning location and facility planning. E. Evaluation of Dealership Facilities and Location. Seller will periodically evaluate Dealer's performance of its responsibilities under this Section 2. In making such evaluations, Seller will give consideration to: the actual land and building space provided by Dealer for the performance of its responsibilities under this Agreement; the current Guides established by Seller for the Dealership Facilities; the appearance, condition and layout of the Dealership Facilities; the location of the Dealership Facilities relative to the sales -5- opportunities and service requirements of the Primary Market Area; equivalence with facilities maintained by Dealer's principal competitors; and such other factors, if any, as may directly relate to Dealer's performance of its responsibilities under this Section 2. Evaluations prepared pursuant to this Section 2.E will be discussed with and provided to Dealer, and Dealer shall have an opportunity to comment, in writing, on such evaluations, and Seller will consider Dealer's comments. Dealer shall promptly take such action as may be required to correct any deficiencies in Dealer's performance of its responsibilities under this Section 2. Section 3. Vehicle Sales Responsibilities of Dealer A. General Obligations of Dealer. Dealer shall actively and effectively promote through its own advertising and sales promotion activities the sale at retail (and if Dealer elects, the leasing and rental) of Nissan Vehicles to customers located within Dealer's Primary Market Area. Dealer's Primary Market Area is a geographic area which Seller uses as a tool to evaluate Dealer's performance of its sales obligations hereunder. Dealer agrees: that it has no right or property interest in any such geographic area which Seller may designate; that, subject to Section 4 of this Agreement, Seller may add, relocate or replace dealers in Dealer's Primary Market Area; and that Seller may, in its reasonable discretion, change Dealer's Primary Market Area from time to time. B. Sales of Nissan Cars and Nissan Trucks. Dealer's performance of its sales responsibility for Nissan Cars and Nissan Trucks will be evaluated by Seller on the basis of such reasonable criteria as Seller may develop from time to time, including for example: 1. Achievement of reasonable sales objectives which may be established from time to time by Seller for Dealer as standards for performance; 2. Dealer's sales of Nissan Cars and Nissan Trucks in Dealer's Primary Market Area and/or the metropolitan area in which Dealer is located, as applicable, or Dealer's sales as a percentage of: (i) registration of Nissan Cars and Nissan Trucks; (ii) registration of Competitive Vehicles; (iii) registration of Industry Cars; -6- (iv) registration of vehicles in the Competitive Truck Segment; 3. A comparison of Dealer's sales and/or registrations to sales and/or registrations of all other Authorized Nissan Dealers combined for Seller's Sales Region and District in which Dealer is located and, where Section 3.C applies, for all other Authorized Nissan Dealers combined in the metropolitan area in which Dealer is located; and 4. A comparison of sales and/or registrations achieved by Dealer to the sales or registrations of Dealer's competitors. The sales and registration data referred to in this Section 3 shall be those utilized in Seller's records or in reports furnished to Seller by independent sources selected by it and generally available for such purpose in the automotive industry. If such reports of registration and/or sales are not generally available, Seller may rely on such other registration and/or sales data as can be reasonably obtained by Seller. C. Metropolitan Markets. If Dealer is located in a metropolitan or other marketing area where there are located one or more Authorized Nissan Dealers other than Dealer, the combined sales performance of all Nissan Dealers in such metropolitan or other marketing area may be evaluated as indicated in Sections 3.B.2 and 3.B.3 above, and Dealer's sales performance may also be evaluated on the basis of the proportion of sales and potential sales of Nissan Vehicles in the metropolitan or other marketing area in which Dealer is located for which Dealer fairly may be held responsible. D. Additional Factors for Consideration. Where appropriate in evaluating Dealer's sales performance, Seller will take into account such reasonable criteria as Seller may determine from time to time, including, for example, the following: the Dealership Location; the general shopping habits of the public in such market area; the availability of Nissan Vehicles to Dealer and to other Authorized Nissan Dealers; any special local marketing conditions that would affect Dealer's sales performance differently from the sales performance of other Authorized Nissan Dealers; the recent and long term trends in Dealer's sales performance; the manner in which Dealer has conducted its sales operations (including advertising, sales promotion, and treatment of customers); and the other factors, if any, directly affecting Dealer's sales opportunities and performance. E. Used Motor Vehicle Sales. Dealer shall engage in used motor vehicle operations as and to the extent reasonably required for Dealer to effectively perform -7- its responsibilities for the sale of Nissan Vehicles. Subject to requirements and guidelines established by Seller, Dealer shall be entitled to identify such used motor vehicle operations as a part of its Dealership Operations and to apply the Nissan Marks relating to used motor vehicle operations. F. Dealer Sales Personnel. Dealer shall organize and maintain a sales organization that includes a sufficient number of qualified and trained sales managers and sales people to enable Dealer to effectively fulfill its responsibilities under this Section 3. Seller may, from time to time, comment on or advise Dealer concerning the qualifications, performance and ability of Dealer's sales personnel as the same affect Dealer's performance of its obligations under this Section 3. G. Assistance Provided by Seller. 1. Sales Training Courses. Seller will offer from time to time sales training courses for Dealer sales personnel. Based on its need therefor, Dealer shall, without expense to Seller, have members of Dealer's sales organization attend such training courses and Dealer shall cooperate in such courses as may from time to time be offered by Seller. 2. Sales Personnel. To further assist Dealer, Seller will provide to Dealer advice and counsel on matters relating to new vehicle sales, sales personnel training and management, merchandising, and facilities used for Dealer's vehicle sales operations. H. Evaluation of Dealer's Sales Performance. Seller will periodically evaluate Dealer's performance of its responsibilities under this Section 3. Evaluations prepared pursuant to this Section 3.H will be discussed with and provided to Dealer, and Dealer shall have an opportunity to comment, in writing, on such evaluations. Dealer shall promptly take such action as may be required to correct any deficiencies in Dealer's performance of its responsibilities under this Section 3. Section 4. Determination of Dealer Representation A. Development of Market Studies. Seller may, from time to time and in its sole discretion, conduct studies of various geographic areas to evaluate market -8- conditions. Such market studies may, where appropriate, take into account such factors as geographical characteristics, consumer shopping patterns, existence of other automobile retail outlets, sales opportunities and service requirements of the geographic area in which Dealer's Primary Market Area is located, trends in marketing conditions, current and prospective trends in population, income, occupation, and such other demographic characteristics as may be determined by Seller to be relevant to its study. Such studies will make recommendations concerning the market, the Dealership Facilities, and the Dealership Location. Prior to conducting a study which includes the geographic area in which Dealer's Primary Market Area is located, Seller will notify Dealer of its intention to conduct such a study. Dealer will be given the opportunity to present to Seller such information pertaining to such study as Dealer believes may be relevant. Seller will consider all relevant information timely provided by Dealer before concluding its study. B. Appointment of New Authorized Nissan Dealers to Fill Open Points. 1. If any study conducted pursuant to Section 4.A recommends that an open point be established at a location that is within ten (10) miles driving distance, by the shortest publicly traveled route, of Dealer's main Dealership Location, Seller will so notify Dealer. Dealer will have thirty (30) days from Dealer's receipt of notice of the recommendations of the study in which to object to them. Upon Dealer's request, Seller will review the results of the study with Dealer (excluding information considered by Seller to be confidential). Seller will consider all objections to the recommended open point timely made by Dealer. Prior to entering into a Nissan Dealer Sales and Service Agreement with a New Authorized Nissan Dealer filling such an open point, Seller will give Dealer written notice of its intent to fill the open point (hereinafter the "Notice of Appointment"). If Dealer timely files a Notice of Appeal (as defined in Section 16.B hereof) with the Policy Review Board (as defined in Section 16.A hereof) in accordance with the procedures established in Section 16.B therefor, Seller will not enter into a Nissan Dealer Sales and Service Agreement appointing such New Authorized Nissan Dealer until the Policy Review Board has rendered its decision on the matter. 2. Nissan reserves the right to sell Nissan Products to others and to appoint Authorized Nissan Dealers within and outside the ten (10) miles driving distance described above. However, Seller agrees that it will not enter into a Nissan Dealer Sales and Service Agreement appointing a New Authorized Nissan Dealer filling an open point which is located within the ten (10) miles driving distance described above unless the study made pursuant to Section 4.A demonstrates in Seller's good faith opinion that the declaration of an open point is warranted by market or economic conditions. -9- 3. Nothing in this Agreement shall be construed to require Dealer's consent to the appointment of a New Authorized Nissan Dealer at a location that is within the ten (10) miles driving distance described above. Nothing in this Agreement shall be construed to grant Dealer any rights in connection with the appointment of an Authorized Nissan Dealer at a location that is not within the ten (10) miles driving distance described above. In addition, this Section 4.B does not apply to, nor shall it be construed to grant Dealer any rights in connection with any of the events or transactions excluded from the definition of "New Authorized Nissan Dealer" in Section 4.B.4(a), (b) or (c) below. 4. "New Authorized Nissan Dealer" shall mean an Authorized Nissan Dealer that has not previously executed a Nissan Dealer Sales and Service Agreement or done business as an Authorized Nissan Dealer; provided, however, that "New Authorized Nissan Dealer" shall not include an Authorized Nissan Dealer who: (a) is a Successor Dealer appointed pursuant to Section 14, (b) is a purchaser or transferee of the assets of or ownership interests in an Authorized Nissan Dealer that is appointed as an Authorized Nissan Dealer pursuant to Section 15, or (c) who is approved as a Nissan Dealer following or resulting from: (i) a change in name or form of an Authorized Nissan Dealer; (ii) any other sale, exchange or other transfer of any ownership interests in or any assets of any other Authorized Nissan Dealer, by operation of law or otherwise and whether voluntary and involuntary; (iii) an assignment, sale or other transfer of any interest in a Nissan Dealer Sales and Service Agreement, by operation of law or otherwise and whether voluntary or involuntary: (iv) the relocation of an existing Authorized Nissan Dealer; or (v) the replacement of a former Authorized Nissan Dealer where the appointment of such replacement Dealer takes place within (2) years of the date on which the former Dealer ceased doing business and where such replacement Dealer's main Dealership Location is located within a five (5) mile driving distance by the shortest publicly traveled route of the former Dealer's main Dealership Location; regardless of whether any of the foregoing actions, individually or collectively, result in the appointment of an Authorized Nissan Dealer at a location that is within or without the ten (10) miles driving distance described above. -10- Section 5. Responsibility of Dealer with Respect to Service and Parts A. General Service Obligations of Dealer. Dealer understands and acknowledges that future sales of Nissan Products depend, in part, upon the satisfaction of Dealer's customers with its servicing of such Products. Dealer further recognizes that Seller has entered into this Agreement in reliance upon Dealer's representations concerning its ability and commitment to fair dealing and professional servicing. Accordingly, Dealer shall develop and maintain a quality service organization and shall render at the Dealership Facilities prompt, efficient and courteous service to owners and users of Nissan Products, regardless of the origin of purchase, including, without limitation, the specific obligations described in Section 5.B. In this regard, Dealer shall take all reasonable steps to insure that: the service needs of its customer's Nissan Vehicles are accurately diagnosed; Dealer's customers are advised of such needs and that each customer's consent is obtained prior to initiation of any repairs; necessary repairs and maintenance are professionally performed; and Dealer's customers are treated courteously and fairly. B. Specific Service Obligations of Dealer. 1. Pre-Delivery Inspections and Service. Dealer shall perform or be responsible for the performance of pre-delivery inspections and service on each Nissan Vehicle prior to sale and delivery thereof by Dealer, in accordance with the standards and procedures relating thereto set forth in the applicable pre-delivery inspection schedules furnished by Seller to Dealer from time to time. The completion of such inspection and service shall be verified by Dealer on forms supplied or approved by Seller for this purpose. Dealer shall retain the original or a legible copy of each such form in its records and shall furnish a copy to the purchaser. 2. Warranty Repairs and Goodwill Adjustments. Dealer shall promptly, courteously and efficiently perform: (i) warranty repairs on each Nissan Product which qualifies for such repairs under the provisions of any warranty furnished therewith by Seller, Manufacturer or the manufacturer of the Product; and (ii) such other inspections, repairs or corrections on Nissan Products as may be approved or authorized by Seller to be made at Seller's expense (hereinafter referred to as "goodwill adjustments"). Dealer shall perform such repairs and service on each such Nissan Product as and when required and requested by the owner or user (or in the case of goodwill adjustments when requested by Seller), without regard to its origin of purchase and in accordance with the provisions relating thereto set forth -11- in the Warranty Manual or in Seller's Manuals or Instructions issued to Dealer from time to time. In performing such repairs and service on Nissan Products for which Seller has agreed to reimburse Dealer, Dealer shall use Genuine Nissan Parts and Accessories unless Dealer receives prior authorization from Seller to use non-genuine parts or accessories. Dealer will provide to each owner or user of a Nissan Product upon which any such repairs or service are performed a copy of the repair order reflecting all services performed. 3. Campaign Inspections and Corrections. Dealer shall promptly, courteously and efficiently perform such campaign inspections and/or corrections for owners and users of Nissan Products, regardless of their origin of purchase, as are: (i) described in owner notifications and recall campaigns conducted by Seller in furtherance of any federal or state law, regulation, rule or order; or (ii) requested by Seller on Nissan Products that qualify for such inspections and/or corrections. Once Dealer has been notified that a recall or service campaign affects a particular class or type of Nissan Product, Dealer shall perform such campaign inspections and/or corrections on all affected Nissan Products then in or which thereafter come into Dealer's inventory or which are delivered to Dealer for repair or service. Dealer shall inquire, through the Nissan Datanet system or otherwise, with respect to each such Nissan Product to determine whether all applicable campaign inspections and/or corrections have been performed on such Nissan Product and, if they have not been performed, Dealer shall perform them. Dealer shall advise Seller as and when such campaign inspections and/or corrections are performed, in accordance with Seller's Manuals or Instructions relating thereto and in accordance with the provisions relating thereto set forth in the Warranty Manual. To enable Dealer to perform required corrections as promptly as practicable, parts and/or other materials required for each such campaign may be shipped in quantity and billed to Dealer. Dealer shall accept and retain such parts and/or other materials for use in such campaign. Upon completion of the campaign program, Dealer shall have the right to return excess parts shipped by Seller to Dealer for such campaign, but only to the extent that Dealer has not ordered and received additional parts from Seller. Such a return of parts shall be apart from any other parts return policies or programs which may be instituted by Seller. In performing such campaign corrections for which Seller has agreed to reimburse Dealer for parts and materials used in making such corrections, Dealer shall use Genuine Nissan Parts and Accessories unless Dealer receives prior authorization from Seller to use non-genuine parts and accessories. -12- 4. Maintenance and Repair Service. Dealer shall promptly, courteously and efficiently maintain and repair Nissan Products as and when required and requested by the owner or user thereof, without regard to their origin of purchase. Dealer shall provide all owners and users for whom Dealer provides maintenance and repair service itemized invoices reflecting all the services performed. In connection with its sale or offering for sale of any maintenance services recommended by Seller for the maintenance of a Nissan Product, Dealer shall advise each customer requesting such recommended maintenance service of: (i) a description of the items included in maintenance recommended by Seller and Dealer's price therefor; and (ii) the price and description of such additional maintenance or repair being sold or recommended by Dealer which are in addition to that recommended by Seller in published owner's manuals. 5. Payments by Seller to Dealer. For pre-delivery inspections and service, warranty repairs, goodwill adjustments, and campaign inspections and corrections performed by Dealer in accordance with this Section 5.B, Seller shall fairly and adequately reimburse Dealer for the parts and/or other materials (or shall provide Dealer with the parts and/or other materials) and their labor required and used in connection therewith in accordance with the provisions relating thereto set forth in the Warranty Manual. Dealer understands and acknowledges that such repairs are provided for the benefit of owners and users of Nissan Products, and Dealer shall not impose any charge on such owners or users for parts, materials, or labor for which Dealer has received or will receive compensation from Seller hereunder. Dealer shall comply with the disposition instructions contained in the Warranty Manual with respect to any Genuine Nissan Parts or Accessories acquired by Dealer as a result of its performance of warranty repairs, goodwill adjustments and campaign adjustments and/or corrections. C. Service Operations of Dealer. 1. Dealer Personnel. Dealer shall organize and maintain, substantially in accordance with Seller's Guides, a complete service organization that includes a competent, trained service manager and a sufficient number of trained service and customer relations personnel to enable Dealer to fulfill its responsibilities for service and customer relations under this Section 5. Dealer shall designate at least one member of its staff who shall be responsible for resolving consumer complaints on behalf of Dealer. Dealer shall, without expense to Seller, have members of Dealer's service organization attend training courses offered by Seller and Dealer -13- shall cooperate with and participate in such training courses as may from time to time be offered by Seller. Dealer agrees that its personnel will meet such educational, management and technical training standards as Seller may establish or approve. Seller may, from time to time, comment on or advise Dealer concerning the qualifications, performance and ability of Dealer's service personnel as the same affect Dealer's performance of its obligations under this Section 5. 2. Compliance with Laws. In performing the maintenance and service obligations specified in Section 5.B, Dealer shall comply with all applicable provisions of federal, state and local laws, ordinances, rules, regulations and orders affecting Nissan Products including, but not limited to, laws relating to safety, emissions control, noise control and customer service. Seller shall provide to Dealer, and Dealer shall provide to Seller, such information and assistance as may be reasonably requested by the other in connection with the performance of obligations of the parties under such laws, ordinances, rules, regulations and orders. if applicable law requires the installation or supply of equipment not installed or supplied as standard equipment by Seller or the manufacturer of a Nissan Vehicle, Dealer shall, prior to its sale of the Nissan Vehicles on or for which such equipment is required, install or supply such equipment at its own expense and in conformance with such standards as may be adopted by Seller. Dealer shall comply with all applicable laws pertaining to the installation or supply of such equipment including, without limitation, the reporting thereof. 3. Tools and Equipment. Dealer shall provide for use in its service operations such service equipment and special tools, comparable to the type and quality recommended by Seller from time to time, as are necessary to meet Dealer's service responsibilities hereunder and as are substantially in accordance with Seller's Guides. In addition, Dealer shall obtain and maintain for use in its service operations all tools which are essential to the proper service, repair and maintenance of Nissan Vehicles and are identified by Seller as essential tools. Seller shall ship such essential tools to Dealer as required due to new model and component introductions and Dealer shall pay Seller therefor as invoiced. If Dealer is in possession of a tool equivalent to any essential tool shipped by Seller, Dealer may so notify Seller and Seller will exempt Dealer from purchasing such essential tool from Seller upon Seller's determination that Dealer's tool will satisfy the need for the specific repair procedure or procedures for which the essential tool is intended. Dealer shall maintain all such equipment and tools in good repair and proper calibration so as to enable Dealer to meet its service responsibilities under this Section 5. -14- 4. Owner Relations. In providing service on Nissan Products, Dealer shall make every effort to build and maintain good relations between Dealer and owners and users of Nissan Products. Dealer shall promptly investigate and handle all matters brought to its attention by Seller, owners or users of Nissan Products, or any public or private agency, relating to the sale or servicing of Nissan Products, so as to develop and maintain owner and user confidence in Dealer, Seller and Nissan Products. Dealer shall promptly report to Seller the details of each inquiry or complaint received by Dealer relating to any Nissan Product which Dealer cannot handle promptly and satisfactorily. Dealer will take such other steps with respect to such customer complaints as Seller may reasonably require. Dealer will do nothing to affect adversely Seller's rights or obligations under applicable laws, rules and/or regulations. Furthermore, Dealer shall participate in and cooperate with such dispute resolution procedures as Seller may designate from time to time and such other procedures as may be required by law. Seller will promptly investigate all matters brought to its attention by Dealer, owners or users of Nissan Products, or any public or private agency, relating to the design, manufacture or sale by Seller of Nissan Products, and Seller will take such action as it may deem necessary or appropriate so as to develop and maintain owner confidence in Seller, Dealer and Nissan Products. D. Parts Operations of Dealer. 1. Parts Sales Responsibility of Dealer. Dealers shall actively and effectively promote through its own advertising and sales promotion activities the sale of Genuine Nissan Parts and Accessories to service, wholesale, retail and other customers within Dealer's Primary Market Area. 2. Dealer Personnel. Dealer shall organize and maintain, substantially in accordance with Seller's recommendations with respect thereto, a complete parts organization that includes a competent, trained parts manager and a sufficient number of trained parts personnel to enable Dealer to fulfill its responsibilities under this Section 5. Based on its need therefor, Dealer shall, without expense to Seller, have members of Dealer's parts organization attend training courses offered by Seller and Dealer shall cooperate in such training courses as may from time to time be offered by Seller. Seller may, from time to time, comment on or advise Dealer concerning the qualifications, performance and ability of Dealer's parts personnel as the same affect Dealer's performance of its obligations under this Section 5. -15- 3. Inventories of Parts and Accessories. Dealer shall maintain at all times a stock of parts and accessories which is adequate to meet its service and wholesale and retail parts sales responsibilities under this Section 5. Dealer shall also maintain, subject to the ability of Seller to supply the products ordered by Dealer, a stock of Genuine Nissan Parts and Accessories of an assortment and in quantities adequate to meet customer demand and for warranty repairs, goodwill adjustments and campaign corrections made pursuant to this Section 5. E. Assistance Provided by Seller. 1. Service and Parts Manuals. Seller will make available to Dealer, for use by Dealer's service and parts personnel, Seller's Manuals or Instructions concerning Dealer's services and parts operations and other sources of information and technical data as Seller deems necessary to permit Dealer to perform its service and parts responsibilities under this Section 5. Dealer shall keep such information and data current and available for consultation by Dealer's service and parts employees. 2. Service and Parts Field Personnel. To further assist Dealer, Seller will provide to Dealer the advice and counsel of its service and parts field personnel on matters relating to service, parts and accessories, including technical diagnosis, service and parts management, merchandising, personnel training, owner relations, and facilities used for Dealer's service and parts operations. F. Evaluation of Dealer's Service and Parts Performance. Dealer's performance of its service and parts responsibilities will be evaluated by Seller on the basis of such reasonable criteria as Seller may develop from time to time, including for example: 1. Dealer's performance in building and maintaining consumer confidence in Dealer and in Nissan Products as measured by surveys or indices of consumer satisfaction as compared with performance levels achieved by other Authorized Nissan Dealers in Seller's Region or District in which Dealer is located or such other means as may be deemed appropriate by Seller; 2. Reasonable parts purchase or sales performance objectives which may be established from time to time by Seller for Dealer; 3. Dealer's advertising and promotion of its parts and service operations; -16- 4. Dealer's performance of its service responsibilities and Dealer's conduct of its service operations including, without limitation, the financial results of its service operations, labor sales, warranty claims practices training of service personnel, qualification, performance and ability of service personnel, and inventory of special and essential tools and service equipment, as compared with Seller's Guide therefor where such have been established and/or as compared with performance levels achieved by other Authorized Nissan Dealers in Seller's Region or District in which Dealer is located; 5. Dealer's performance of its parts sales responsibilities and Dealer's conduct of its parts operations including, without limitation, the financial results of its parts operations, training of parts personnel, and inventory of parts, as compared with Seller's Guides therefor where such have been established and/or as compared with performance levels achieved by other Authorized Nissan Dealers in Seller's Region or District in which Dealer is located; and 6. Evaluation reports resulting from any audit or review of Dealer's service or parts operations by Seller's representatives. Seller will periodically evaluate Dealer's performance of its responsibilities under this Section 5. Evaluations prepared pursuant to this Section 5 will be discussed with and provided to Dealer, and Dealer shall have an opportunity to comment, in writing, on such evaluations. Dealer shall promptly take such action as may be required to correct any deficiencies in Dealer's performance of its responsibilities under this Section 5. Section 6. Other Seller and Dealer Responsibilities A. Advertising and Promotion. 1. Advertising Standards. Both Seller and Dealer recognize the need for maintaining the highest standards of ethical advertising which is of a quality and dignity consonant with the reputation and standing of Nissan Products. Accordingly, neither Seller nor Dealer shall publish or cause to be published any advertising relating to Nissan Products that is not in compliance with all applicable federal, state and local laws, ordinances, rules, regulations and orders or that is likely to mislead, confuse or deceive the public or impair the goodwill of Manufacturer, Seller or Dealer or the reputation of Nissan Products or the Nissan Marks. -17- 2. Display by Dealer. Dealer shall prominently state upon its stationery and other printed matter that it is an Authorized Nissan Dealer. 3. Sales Promotion. Seller will establish and maintain comprehensive advertising programs to promote the sale of Nissan Vehicles and will from time to time offer advertising, sales promotion and sales campaign materials to Dealer. In addition, to effectively promote the sale of Nissan Products and the availability of service for Nissan Vehicles, Dealer shall establish and maintain its own advertising and sales promotion programs including, but not limited to, effective showroom displays, and Dealer will have available in showroom ready condition at least one vehicle in each model line of Nissan Vehicles for purposes of demonstration to potential customers. B. Dealer Disclosures and Representations Concerning Nissan Products and Other Products or Services. Dealer understands and acknowledges that it is of vital importance to Seller that Nissan Products are sold and serviced in a manner which promotes consumer satisfaction and which meet the high quality standards associated with Seller, Manufacturer, the Nissan Marks and Nissan Products in general. Accordingly, Dealer shall fully and accurately disclose to its customers all material information concerning the products and services sold by Dealer and the terms of purchase and sale including, without limitation: the items making up the purchase price; the source of products sold; and all warranties affecting products sold. Dealer shall not make any misleading statements or misrepresentations concerning the products sold by Dealer, the terms of sale, the warranties applicable to such products, the source of the products, or the recommendations or approvals of Seller or Manufacturer. Nothing in this Agreement shall limit or be construed to limit the products or services which Dealer may sell to its customers. Seller acknowledges that Dealer is free to sell whatever products or services Dealer may choose in connection with its sale and servicing of Nissan Products, subject to Dealer obligations under Sections 5 and 6 of this Agreement. C. Signs. Dealer shall, at its expense, display at its Dealership Location, in such number and at such locations as Seller may reasonably require, signs which are compatible with the design standards established by Seller and published in Seller's Manuals or Instructions from time to time. Dealer's use and operation of signs displayed by Dealer at the Dealership Location and Dealer's display of any Nissan Mark shall be subject to Seller's approval -18- and shall be in accordance with the terms and conditions of Section 6.K and the Dealership Identification Addendum. D. Hours of Operations. Dealer recognizes that the service and maintenance needs of the owners of Nissan Products and Dealer's own responsibilities to actively and effectively promote the sale of Nissan Products can be met properly only if Dealer keeps its Dealership Facilities open and conducts all of its Dealership Operations required by this Agreement during hours which are reasonable and convenient for Dealer's customers. Accordingly, Dealer shall maintain its Dealership Facilities open for business and shall conduct all Dealership Operations required under this Agreement during such days and hours as automobile dealers' sales and service facilities are customarily and lawfully open in Dealer's Primary Market Area or in the metropolitan area in which Dealer is located. E. Capital and Financing. Dealer recognizes that its ability to conduct its Dealership Operations successfully on a day-to-day basis and to effectively perform its other obligations under this Agreement including, without limitation, its obligations with respect to Dealership Facilities, new vehicle sales, and service and parts sales, depends to a great extent upon the adequate capitalization of Dealer, including its maintaining sufficient net working capital and net worth and employing the same in its Dealership Operations. Dealer shall at all times maintain and employ such amount and allocation of net working capital and net worth as are substantially in accordance with Seller's Guides therefor and which will enable Dealer to fulfill all of its responsibilities under this Agreement. Dealer shall at all times during the term of this Agreement have flooring arrangements (wholesale financing) satisfactory to Seller, in an amount substantially in accordance with Seller's Guides therefor, with a financial institution acceptable to Seller, and which will enable Dealer to fulfill its obligations under this Agreement. F. Accounting System. It is in the mutual interest of Seller and Dealer that all Authorized Nissan Dealers install and maintain uniform accounting systems and practices, so that Seller can develop standards of operating performance which will assist Dealer in obtaining satisfactory results from its Dealership Operations and which will assist Seller in formulating policies in the interests of Seller and all Authorized Nissan Dealers. Accordingly, Dealer shall install and maintain an accounting system, not exclusive of any other system, in accordance with Seller's Nissan Dealer Accounting System Manual, as the same may from time to time be amended, revised or supplemented. -19- G. Records and Reports. 1. Financial Statements. Dealer shall furnish to Seller, on or before the tenth (10th) day of each month, in a manner acceptable to Seller, complete and accurate financial and operating statements which fairly present, in accordance with generally accepted accounting principles, Dealer's financial condition as of the end of the preceding month and the results of Dealer's Dealership Operations for the preceding month and for that portion of Dealer's fiscal year then ended. Dealer shall also furnish for such periods reports of Dealer's sales and inventory of Nissan Products. Dealer shall also promptly furnish to Seller a copy of any adjusted annual financial or operating statement prepared by or for Dealer. 2. Sales Records and Reports. Dealer shall prepare and retain for a minimum of two (2) years, complete and up-to-date records covering its sales of Nissan Products. To assist Seller in evaluating, among other things, current market trends, to provide information for use in the adjustment of production and distribution schedules, to provide information used by Seller in providing Nissan Vehicles to Dealer, and to provide Seller with accurate records of the ownership of Nissan Vehicles for various purposes including warranty records and ownership notification, Dealer shall accurately submit to Seller such information with respect to Dealer's sales of Nissan Products as Seller may reasonably require as and in the form or manner specified by Seller, at or as soon as possible after the close of each business day on which such Nissan Products are sold by Dealer. If Dealer becomes aware that any information submitted by Dealer to Seller hereunder is or has become inaccurate, Dealer will immediately take all steps necessary to advise Seller of and to correct such inaccuracy. Should Seller determine or discover that any report submitted hereunder by Dealer is or has become inaccurate, Seller may take any steps it deems necessary or appropriate to correct such inaccuracy and to adjust its records, calculations or procedures with respect to Dealer's reported sales to correct the effect of such inaccuracy or to prevent additional inaccurate reports from being made. 3. Service Records. Dealer shall prepare and retain for a minimum of two (2) years, in accordance with the procedures specified in the Warranty Manual: records in support of applications for payment for pre-delivery inspection and service, warranty repairs and goodwill adjustments, and campaign inspections and corrections performed by Dealer; claims for parts compensation; and applications for discounts, allowances, refunds or credits. -20- 4. Other Reports. Dealer shall furnish to Seller such other records or reports concerning its Dealership Operations as Seller may reasonably require from time to time. H. Nissan Datanet System. Seller has developed the Nissan Datanet system, which is an electronic data communication and processing system designed to facilitate accurate and prompt reporting of dealership operational and financial data, submission of parts orders and warranty claims and processing of information with respect to the Dealership Operations. Such data is used by Seller, among other things, to develop composite operating statistics which are useful to Dealer and Seller in assessing Dealer's progress in meeting its obligations under this Agreement, to provide a basis for recommendations which Seller may make to Dealer from time to time to assist Dealer in improving Dealership Operations, to assist Seller in developing standards of operating performance which will assist Dealer in obtaining satisfactory results from its Dealership Operations, to assist Seller in formulating policies in the interest of Seller and all Authorized Nissan Dealers, and to provide sales reporting information relied upon by Seller in providing Nissan Vehicles to Dealer. Accordingly, Dealer shall install and maintain electronic data processing facilities which are compatible with the Nissan Datanet system. I. Right of Inspection. Seller shall have the right, at all reasonable times during regular business hours, to inspect the Dealership Facilities and to examine, audit and make and take copies of all records, accounts and supporting data relating to the sale, sales reporting, service and repair of Nissan Products by Dealer. When practicable, Seller shall attempt to provide Dealer with advance notice of an in-dealership audit of Dealer's records or accounts. J. Confidentiality. Seller will not furnish to any third party financial statements or other confidential data, excluding sales records or reports, submitted by Dealer to Seller, except as an unidentified part of a composite or coded report, unless disclosure is authorized by Dealer or is required by law, or unless such information is pertinent to judicial or governmental administrative proceedings or to proceedings conducted pursuant to Section 16 of this Agreement. K. Use of Nissan Marks. Seller grants Dealer the non-exclusive right to identify itself as an Authorized Nissan Dealer and to display at the Dealership Location and use, in connection with the sale and service of -21- Nissan Products, the Nissan Marks. The Nissan Marks may not be used as part of Dealer's name or trade name without Seller's written consent. No entity owned by or affiliated with Dealer or any of its owners may use any Nissan Mark without Seller's prior written consent. Dealer shall not make any use of any Nissan Mark, and Dealer shall neither have nor claim any rights in respect of any Nissan Mark. Dealer shall comply with any of Seller's Manuals or Instructions regarding the use of Nissan Marks as may be issued by Dealer from time to time. Dealer shall promptly change or discontinue its use of any Nissan Marks upon Seller's request. Any authorization granted may be withdrawn by Seller at any time and, in any event, shall cease immediately upon the effective date of termination of this Agreement. If Seller institutes litigation to effect or enforce compliance with this Section 6.K, the prevailing party in such litigation shall be entitled to reimbursement for its costs and expenses in such litigation, including reasonable attorney's fees. Section 7. Purchase and Delivery A. Dealer Purchases. 1. Nissan Vehicles. From time to time Seller will advise Dealer of the number and model lines of Nissan Vehicles which Seller has available for sale to Dealer and, subject to this Section 7, Dealer shall have the right to purchase such Nissan Vehicles. Seller will distribute Nissan Vehicles to Authorized Nissan Dealers in accordance with Seller's written distribution policies and procedures as the same may be in effect from time to time. Seller will provide to Dealer an explanation of the method used by Seller to distribute Nissan Vehicles to Authorized Nissan Dealers. Dealer recognizes that there are numerous factors which affect the availability of Nissan Vehicles to Seller and to Dealer including, without limitation, production capacity, sales potential in Dealer's and other Primary Market Areas, varying consumer demand, weather and transportation conditions, and state and federal government requirements. Since such factors may affect individual dealers differently, Seller reserves to itself sole discretion to distribute Nissan Vehicles in a fair and consistent manner, and its decisions in such matters shall be final. 2. Genuine Nissan Parts and Accessories. Dealer shall submit to Seller firm orders for Genuine Nissan Parts and Accessories in such quantity and variety as are reasonably necessary to fulfill Dealer's obligations under this -22- Agreement. All orders shall be submitted by Dealer in the manner specified by Seller and in accordance with Seller's Parts and Accessories Policy and Procedures Manual, may be accepted in whole or in part by Seller, and shall be effective only upon acceptance thereof by Seller at its home office in California (but without necessity of any notice of acceptance by Seller to Dealer). Such orders shall not be cancellable by Dealer after acceptance and shipment by Seller, except in accordance with Section 8 of this Agreement. B. Delays in Delivery. Seller shall not be liable for failure or delay in delivery to Dealer of Nissan Products which Seller has previously agreed to deliver to Dealer where such failure or delay is due to cause or causes beyond the control or without the fault or negligence of Seller. C. Shipment of Nissan Products. 1. Nissan Vehicles. Seller will ship Nissan Vehicles to Dealer by whatever mode of transportation, by whatever route, and from whatever point Seller may select. Dealer shall pay to Seller in connection with Nissan Vehicles delivered to Dealer the applicable destination charges that are established for Dealer by Seller and that are in effect at the time of shipment. Dealer shall bear the risk of loss and damage to Nissan Vehicles during transportation from the point of shipment; however, Seller will, if requested by Dealer in such manner and within such time as Seller shall from time to time specify, prosecute claims for loss of or damage to Nissan Vehicles during said transportation against the responsible carrier for and on behalf of Dealer. 2. Genuine Nissan Parts and Accessories. Seller will ship Genuine Nissan Parts and Accessories to Dealer by whatever mode of transportation, by whatever route, and from whatever point Seller may select. Dealer shall bear the risk of loss and damage to Genuine Nissan Parts and Accessories during transportation from the point of shipment. D. Passage of Title. Title to each Nissan Product shall pass from Seller to Dealer, or 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. -23- E. Security Interest. 1. Grant of Security Interest. As security for the full payment of all sums from time to time owed by Dealer to Seller under this Agreement, whether such sums are now, or hereafter become, due and owing, Dealer hereby grants to Seller a security interest in the following (collectively referred to as "Collateral"): (i) All non-vehicle inventory of Dealer including, without limitation, all Genuine Nissan Parts and Accessories delivered by Seller to Dealer hereunder on account (all such inventory hereinafter referred to collectively as "Inventory" and individually as "Item of Inventory"); and (ii) All proceeds from any of the foregoing including, without limitation, insurance payable by reason of the loss, damage or destruction of any Item of Inventory; and all accounts and chattel paper of Dealer arising from sale, lease, or other disposition of Inventory now existing or hereafter arising, and all liens, securities, guarantees, remedies and privileges pertaining thereto, together with all rights and liens of Dealer relating thereto. 2. Default in Payment. Dealer shall be in default of this Section 7 if: (i) Dealer shall fail to pay any amounts secured hereby when due or fail to perform any obligations under this Section 7 in a timely manner; (ii) there shall occur any material adverse change in the financial condition of Dealer; (iii) Dealer shall dissolve or become insolvent or bankrupt; or (iv) Seller shall have determined in good faith that the prospect of such payment or performance is impaired; and in any such case Seller may declare all sums secured by this Section 7.E immediately due and payable and Seller shall have all rights and remedies afforded to a secured party after default under the Uniform Commercial Code or other applicable law in effect on the date of this Agreement. 3. Assembly of Collateral, Payment of Costs, Notices. Dealer shall, if requested by Seller upon the occurrence of any default under the foregoing Section 7.E.2 assemble the Collateral and make it available to Seller at a place or places designated by Seller. Dealer also shall pay all costs of Seller including, without limitation, attorneys' fees incurred with respect to the enforcement of any of Seller's rights under this Section 7. 4. Recording, Further Assurances. Dealer shall execute and deliver such financing statements and such other instruments or documents and take any other action as Seller may request in order to create or maintain the security -24- interest intended to be created by this Section 7.E or to enable Seller to exercise and enforce its rights hereunder. A carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement and may be filed in lieu of a financing statement in any and all jurisdictions which accept such reproductions. 5. Records and Schedules of Inventory. Dealer shall keep accurate records itemizing and describing the kind, type and quantity of Inventory and shall furnish to Seller within five (5) days of receipt of Seller's request therefor, with a current schedule of inventory in form and substance satisfactory to Seller ("Schedule of Inventory"), which shall be true and accurate in all respects. A physical inventory shall be conducted no less than annually in connection with preparation of year-end financial statements of Dealer and, at Seller's request, a report of such inventory shall be promptly provided to Seller. F. Charges for Storage and Diversions. Dealer shall be responsible for and shall pay all charges for demurrage, storage and other expense accruing after shipment to Dealer or to a carrier for transportation to Dealer. If diversions of shipments are made upon Dealer's request or are made by Seller as a result of Dealer's failure or refusal to accept shipments made pursuant to Dealer's orders, Dealer agrees to pay all additional charges and expenses incident to such diversions. G. Changes in Nissan Products. Seller shall have the right in its sole discretion to discontinue the supply, or make changes in the design or component materials, of any Nissan Product at any time. Seller shall be under no liability to Dealer on account of any such changes and shall not be required as a result of any such changes to make any changes to Nissan Products previously purchased by Dealer. No change shall be considered a model year change unless so specified by Seller. Section 8. Pricing A. Nissan Vehicles. At any time prior to shipment (or delivery to a carrier for transportation to Dealer) of any Nissan Vehicle, Seller may, without prior notice and without incurring any liability to Dealer or anyone else, including any customer of Dealer, change at any time and from time to time the price, discount, allowance or other terms of sale of any Nissan Vehicle offered for sale by -25- Seller. Except with respect to the establishment of initial prices for a new model year vehicle or for any new model or body type, Seller will notify Dealer by mailgram or other acceptable means of any such change in price as soon as reasonably practicable, and Dealer may, by notice to Seller within ten (10) days after such notification, cancel any offer to purchase Nissan Vehicles affected by such change, provided that Seller has not notified Dealer of its acceptance of Dealer's offer on or prior to the date such notification by Dealer is received by Seller. B. Genuine Nissan Parts and Accessories. Seller may, without prior notice and without incurring any liability to Dealer or anyone else, including any customer of Dealer, change at any time and from time to time the price, discount, allowance or other terms of sale of any Genuine Nissan Part or Accessory offered for sale by Seller, and any such change in price, discount, allowance or other terms of sale shall apply to all such Genuine Nissan Parts and Accessories whether or not an order has been submitted by Dealer, but not to Genuine Nissan Parts and Accessories for which Seller has accepted and processed Dealer's order prior to the effective date of such change. Seller will notify Dealer of any such change in price as soon as is reasonably practicable. Dealer may, by notice to Seller, cancel any order for Genuine Nissan Parts and Accessories affected by such change which was placed before such notification was given, provided that such Genuine Nissan Parts and Accessories have not been shipped to Dealer or delivered to a carrier for transportation to Dealer on or prior to the date such notification by Dealer is received by Seller. Section 9. Payment A. Payment for Vehicles. Payment by Dealer for Nissan Vehicles must be made in accordance with the applicable prices, charges, discounts, allowances and other terms of sale established by Seller either: (i) in accordance with wholesale financing arrangements that at the time of delivery to Dealer or to a carrier for transportation to Dealer of such Nissan Vehicles, whichever shall first occur, are in effect between Seller, Dealer and a financing institution; or (ii) prior to delivery to Dealer or to a carrier for transportation to Dealer, whichever shall first occur, by cash or such other medium of payment as Seller may agree to accept. B. Payment for Parts and Accessories. Parts, equipment, accessories and other products and services will normally be billed by Seller to Dealer on Seller's invoices, which shall be due the tenth (10th) of the month following the -26- month of shipment of such products and services; provided, however, Seller reserves the right to place any and all sales of such items on a C.O.D. or cash in advance basis, without notice; provided further, however, that Seller will endeavor to provide Dealer with prior notice if in Seller's sole judgment such notice would be practicable. C. Accounts Payable. 1. Right of Set Off. In addition to any right of set off provided by law, all sums due Dealer shall be considered net of indebtedness of Dealer to Seller, and Seller may deduct any amounts due or to become due from Dealer to Seller or any amounts held by Seller from any sums or accounts due from Seller to Dealer. 2. Liquidated Damages. (i) Liquidated Damages for Delinquent Payments. In the event that Dealer fails to pay Seller in full any amounts owed by Dealer to Seller when due, Dealer shall pay Seller a delinquency charge of one percent (1%) per month of such amount or amounts to compensate Seller for its costs of carrying and collection; provided, however, that Seller agrees that it will not assess any delinquency charge on an overdue account which has a total outstanding balance of less than $1,000.00, unless such account is more than ninety (90) days overdue. Dealer and Seller agree that such charge is to be assessed not as a penalty, but as liquidated damages under California Civil Code Section 1671(b) based on Seller's reasonable estimate of the losses which will be suffered by Seller as a result of such delinquent payment or payments. The imposition of such delinquency charges shall not imply or constitute any agreement to forbear collection of a delinquent account. (ii) Liquidated Damages for Improper Payments to Dealer. Seller may, from time to time, conduct audits or reviews of Dealer's books and records pursuant to Section 6.I of this Agreement. If any such audit or review results in a determination by Seller that Dealer was or is not entitled to received payment from Seller, Seller may debit Dealer's account in such amounts as Seller shall determine were improperly paid to Dealer. Such a determination may be based on Dealer's failure to comply with applicable rules or procedures or on Dealer's submission of false or inaccurate information to Seller. In addition, Seller may assess and, if it does, Dealer will pay a delinquency charge of one percent (1%) per month of such amount or amounts improperly paid by Seller to Dealer to compensate Seller for its costs of auditing, loss of funds and collection. Dealer and Seller agree that such charge is to be assessed not as a penalty, but as liquidated damages under California Civil Code Section 1671(b) based on Seller's reasonable estimate of the losses -27- which will be suffered by Seller as a result of such improper payment or payments. The imposition of such delinquency charges shall not imply or constitute any agreement to forbear collection of a delinquent account. D. Collection of Taxes by Dealer. Dealer hereby represents and warrants that all Nissan Products purchased from Seller are purchased for resale in the ordinary course of Dealer's business. Dealer further represents and warrants that Dealer has obtained all licenses and complied with all other requirements to collect sales, use and or other taxes incurred in any such resale transaction, and that Dealer will furnish evidence thereof to Seller, at Seller's request. If Dealer purchases any Nissan Products other than for resale, or puts any Nissan Products to a taxable use, Dealer shall pay directly to the appropriate taxing authority any sales, use or similar taxes incurred as a result of such use or purchase, to file any tax returns required in connection therewith and to hold Seller harmless from any claims or demands with respect thereto. Section 10. Warranties The only warranties that shall be applicable to Nissan Products (or any components thereof) shall be such written warranty or warranties as may be furnished by Seller and as stated in the Warranty Manual or Seller's Parts and Accessories Policy and Procedures Manual, as the same may be revised from time to time. Except for its express limited liability under such written warranties, neither Manufacturer nor Seller assumes, or authorizes any other person or party including, without limitation, Dealer, to assume on their behalf any other obligation or liability in connection with any Nissan Product (or component thereof). Any obligations or liabilities assumed by Dealer which are in addition to Seller's written warranties shall be solely the responsibility of Dealer. Dealer shall expressly incorporate in full and without modification any warranty furnished by Seller with a Nissan Vehicle as a conspicuous part of each order form or other contract for the sale of such Nissan Vehicle by Dealer to any buyer. Dealer shall make available to the buyer of each Nissan Product prior to the purchase of such Nissan Product, copies of such applicable warranties as may be furnished by Seller. Dealer shall also provide to the buyer of each Nissan Product, in full and without modification, any owner's manual, warranty booklet or other owner information which Seller may provide to Dealer for delivery with such Nissan Product. Dealer agrees to abide by and implement in all other respects Seller's warranty procedures then in effect. -28- Section 11. Indemnification A. Indemnification of Dealer. Subject to Section 11.C, and upon Dealer's written request, Seller shall: 1. Defend Dealer against any and all claims that during the term of this Agreement may arise, commence or be asserted against Dealer in any action concerning or alleging: (a) Bodily injury or property damage arising out of an occurrence caused solely by a manufacturing defect or alleged manufacturing defect in a Nissan Product supplied by Seller, except for any manufacturing defect in tires, provided that the defect could not have reasonably been discovered by Dealer during the pre-delivery inspection of the product required by Section 5.B.1 of this Agreement; (b) Bodily injury or property damage arising out of an occurrence caused solely by a defect or alleged defect in the design of a Nissan Product applied by Seller, except for a defect or alleged defect in the design of tires; and (c) Any substantial damage occurring to a new Nissan Product and repaired by Seller from the time the product left the manufacturer's assembly plant to the time it was delivered to Dealer's designated location or to a carrier for transportation to Dealer, whichever occurred first, provided Seller failed to notify Dealer of such damage and repair prior to delivery of the product to the first retail customer; and (d) Breach of Seller's warranty of a Nissan Product which is not, in whole or part, the result of Dealer's sales, service or repair practices or conduct; and 2. Indemnify and hold Dealer harmless from any and all settlements made which are approved by Seller and final judgments rendered with respect to any claims described in Section 11.A.1; provided, however, that Seller shall have no obligation to indemnify or hold Dealer harmless unless Dealer: (i) promptly notifies Seller of the assertion of such claim and the commencement of such action against Dealer; (ii) cooperates fully in the defense of such action in such manner and to such extent as Seller may reasonably require; (iii) consents to the employment of attorneys selected by Seller and agrees to waive any conflict of interest then existent or which may later arise, thereby enabling Seller's selected attorneys to represent Seller and/or the manufacturer of a Nissan Product throughout the defense of the claim; and (iv) withdraws any actions (including cross-claims) filed against Seller or the manufacturer of a Nissan Product arising out of the circumstances for which Dealer -29- seeks indemnity. Dealer shall pay all costs of its own defense incurred prior to Seller's assumption of Dealer's defense and thereafter to the extent that Dealer employs attorneys in addition to those selected by Seller. 3. Seller may offset any recovery on Dealer's behalf against any indemnification that may be required under this Section 11 including, without limitation, attorneys' fees paid by Seller pursuant to this Section 11.A and the amount of any settlement or judgment paid by Seller. B. Indemnification of Seller. Subject to Section 11.C and upon Seller's written request, Dealer shall: 1. Defend Seller against any and all claims that during the term of this Agreement may arise, commence or be asserted against Seller in any action concerning or alleging: (a) Dealer's failure to comply, in whole or in part, with any obligation of Dealer under this Agreement; (b) Any negligence, error, omission or act of Dealer in connection with the preparation, repair or service (including warranty service, goodwill adjustments, and campaign inspections and corrections) by Dealer of Nissan Products; (c) Any modification or alteration made by or on behalf of Dealer to a Nissan Product, except those made pursuant to the express written instruction or with the express written approval of Seller; (d) Dealer's breach of any agreement between Dealer and Dealer's customer or other third party; (e) Misleading, libelous or tortuous statements, misrepresentations or deceptive or unfair practices by Dealer, directly or indirectly, to Seller, a customer or other third party including, without limitation, Dealer's failure to comply with Section 6.B of this Agreement; (f) Dealer's breach of any contract or warranty other than a contract with or warranty of Seller or the manufacturer of a Nissan Product; or (g) Any change in the employment status or in the terms of employment of any officer, employee or agent of Dealer or of any Principal including but not limited to, claims for breach of employment contract, wrongful termination or discharge, tortious interference with contract or economic advantage, and similar claims; and -30- 2. Indemnify and hold Seller harmless from any and all settlements made and final judgments rendered with respect to any claims described in Section 11.B.1; provided, however, that Dealer shall have no obligation to indemnify or hold Seller harmless unless Seller: (i) promptly notifies Dealer of the assertion of such claim and the commencement of such action against Seller; (ii) cooperates fully in the defense of such action in such manner and to such extent as Dealer may reasonably require; (iii) consents to the employment of attorneys selected by Dealer and agrees to waive any conflict of interest then existent or which may later arise, thereby enabling Dealer's selected attorneys to represent Dealer throughout the defense of the claim; and (iv) withdraws any actions (including cross-claims) filed against Dealer arising out of the circumstances for which Seller seeks indemnity. Seller shall pay all costs of its own defense incurred prior to Dealer's assumption of Seller's defense and thereafter to the extent that Seller employs attorneys in addition to those selected by Dealer. C. Conditions and Exceptions to Indemnification. 1. If the allegations asserted in any action or if any facts established during or with respect to any action would require Seller to defend and indemnify Dealer under Section 11.A and Dealer to defend and indemnify Seller under Section 11.B, Seller 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 Seller and Dealer. 2. In undertaking its obligations to defend and/or indemnify each other, Dealer and Seller conditional on the continued existence of the state of facts as then known to such party and may provide for the withdrawal of such defense and/or indemnification at such time as facts arise which, if known at the time of the original request for a defense and/or indemnification, would have caused either Dealer or Seller to refuse such request. In the event that subsequent developments in a case make clear that the allegations which initially justified acceptance of a request for a defense and/or indemnification are no longer at issue therein or that the claims no longer meet the description of those for which indemnification is required hereunder, any party providing a defense and/or indemnification hereunder may terminate such defense and/or indemnification of the other party. The party withdrawing from its defense and/or indemnification to defend and/or indemnify shall give notice of its withdrawal to the indemnifying party. Moreover, the withdrawing party shall be responsible for all costs and expenses of defense up to the date of the other party's receipt of the notice of withdrawal. -31- Section 12. Termination A. Termination Due to Certain Acts or Events. The following represent events which are within the control of or originate from actions taken by Dealer or its management or owners and which are so contrary to the intent and purpose of this Agreement that they warrant its termination: 1. Any actual or attempted sale, transfer assignment or delegation, whether by operation of law or otherwise, by Dealer of an interest in or right, privilege or obligation under this Agreement, or of the principal assets necessary for the performance of Dealer's responsibilities under this Agreement, without, in either case, the prior written consent of Seller having been obtained, which consent shall not be unreasonably withheld; 2. Subject to the provisions of Section 14 thereof, a change, by operation of law or otherwise, in the direct or indirect ownership of Dealer, whether voluntary or involuntary, from that set forth in the Final Article of this Agreement, except as expressly permitted herein, without the prior written consent of Seller having been obtained which consent shall not be unreasonably withheld; 3. Removal, resignation, withdrawal or elimination from Dealer for any reason of the Executive Manager of Dealer; provided, however, Seller shall give Dealer a reasonable period of time within which to replace such person with an Executive Manager satisfactory to Dealer and Seller in accordance with Article Fourth of this Agreement; or the failure of Dealer to retain an Executive Manager who, in accordance with Article Fourth of this Agreement, in Seller's reasonable opinion, is competent, possesses the requisite qualifications for the position, and who will act in a manner consistent with the continued best interests of both Seller and Dealer; 4. The failure of Dealer to maintain the Dealership Facilities open for business or to conduct all the Dealership Operations required by this Agreement during and for not less than the hours customary and lawful in Dealer's Primary Market Area or in the metropolitan area in which Dealer is located for seven (7) consecutive days, unless such failure is caused by fire, flood, earthquake or other act of God; 5. Any undertaking by Dealer to conduct, directly or indirectly, any of the Dealership Operations at a location or facility other than that which is specified in the current Dealership Facilities Addendum for that Dealership Operation; 6. The failure of Dealer to establish or maintain wholesale financing arrangements which are in accordance with -32- Seller's Guides and which are reasonably acceptable to Seller with banks or other financial institutions approved by Seller for use in connection with Dealer's purchase of Nissan Vehicles, unless Seller shall have agreed to accept another medium of payment; 7. Insolvency of Dealer; voluntary institution by Dealer of any proceeding under the federal bankruptcy laws or under any state insolvency law; institution against Dealer of any proceeding under the federal bankruptcy laws or under any state insolvency law which is not vacated within thirty (30) days from the institution thereof; appointment of a receiver, trustee or other officer having similar powers for Dealer or Dealer's business, provided such appointment is not vacated within thirty (30) days of the date of such appointment; execution by Dealer of an assignment for the benefit of creditors; or any levy under attachment, foreclosure, execution or similar process whereby a third party acquires rights to a significant portion of the assets of Dealer necessary for the performance of Dealer's responsibilities under this Agreement or to the operation or ownership of Dealer, which is not within thirty (30) days from the date of such levy vacated or removed by payment or bonding; 8. Any material misrepresentation by Dealer or any person named in the Final Article of this Agreement as to any fact relied on by Seller in entering into, amending or continuing with this Agreement including, without limitation, any representation concerning the ownership, management or capitalization of Dealer; 9. The conviction in a court of original jurisdiction of Dealer or of any Principal Owner or Executive Manager of a crime affecting the Dealership Operations or of any felony; provided, however, that a convicted Executive Manager's ownership interest in Dealer shall not be an event warranting termination of this Agreement if the individual is no longer employed by Dealer or involved in any way in the management or operation of Dealer and Dealer has made reasonable efforts to obtain the individual's divestiture of his ownership interest in Dealer; or any willful failure of Dealer to comply with the provisions of any laws, ordinances, rules, regulations, or orders relating to the conduct of its Dealership Operations including, without limitation, the sale and servicing of Nissan Products. 10. Knowing submission by Dealer to Seller of: (i) a false or fraudulent report or statement; (ii) a false or fraudulent claim (or statement in support thereof), for payment, reimbursement or for any discount, allowance, refund, rebate, credit or other incentive under any plan that may be offered by Seller, whether or not Dealer offers or makes restitution; (iii) false financial information; (iv) false sales reporting data; or (v) any false report or statement relating to pre-delivery inspection, testing, warranties, service, repair or maintenance required to be performed by Dealer. -33- Upon the occurrence of any of the foregoing events, Seller may terminate this Agreement by giving Dealer notice thereof, such termination to be effective upon the date specified in such notice, or such later date as may be required by any applicable statute. B. Termination by Seller for Non-Performance by Dealer. 1. If, based upon the evaluations thereof made by Seller, Dealer shall fail to substantially fulfill its responsibilities with respect to: a. Sales of new Nissan Vehicles and the other responsibilities of Dealer set forth in Section 3 of this Agreement; b. Maintenance of the Dealership Facilities and the Dealership Location set forth in Section 2 of this Agreement; c. Service of Nissan Vehicles and sale and service of Genuine Nissan Parts and Accessories and the other responsibilities of Dealer set forth in Section 5 of this Agreement; d. The other responsibilities assumed by Dealer in this Agreement including, without limitation, Dealer's failure to: (i) Timely submit accurate sales, service and financial information concerning its Dealership Operations, ownership or management and related supporting data, as required under this Agreement or as may be reasonably requested by Seller; (ii) Permit Seller to make an examination or audit of Dealer's accounts and records concerning its Dealership Operations after receipt of notice from Seller requesting such permission or information; (iii) Pay Seller for any Nissan Products or any other products or services purchased by Dealer from Seller, in accordance with the terms and conditions of sale; or (iv) Maintain net worth and working capital substantially in accordance with Seller's Guides therefor; or 2. In the event that any of the following occur: (i) any dispute, disagreement or controversy between or among Dealer and any third party or between or among the owners or management personnel of Dealer relating to the management or ownership of Dealer develops or exists which, in the reasonable opinion of Seller, tends to adversely affect the conduct of the Dealership Operations or the interests of Dealer or Seller; or -34- (ii) any other act or activity of Dealer, or any of its owners or management occurs, which substantially impairs the reputation or financial standing of Dealer or of any of its management subsequent to the execution of this Agreement: Seller will notify Dealer of such failure and will review with Dealer the nature and extent of such failure and the reasons which, in Seller's or Dealer's opinion, account for such failure. Thereafter, Seller will provide Dealer with a reasonable opportunity to correct the failure. If Dealer fails to make substantial progress towards remedying such failure before the expiration of such period, Seller may terminate this Agreement by giving Dealer notice of termination, such termination to be effective at least ninety (90) days after such notice is given. During such period Dealer will commence such actions as may be necessary so that the termination obligations of Seller and Dealer set forth in this Agreement may be fulfilled as promptly as practicable. C. Termination Because of Death or Physical or Mental Incapacity of Principal Owner. This Agreement is a personal services agreement and has been entered into by Seller in reliance on Dealer's being owned by the Principal Owner(s). Seller (subject to Section 14 hereof) may terminate this Agreement by giving notice to Dealer upon the death of any of the Principal Owner(s) or if Seller in good faith determines that any Principal Owner is so physically or mentally incapacitated as to be unable to discharge his or her responsibility to the operating management of Dealer. Unless deferred as hereinafter provided, the effective date of such termination shall be not less than ninety (90) days from the date such notice is given to Dealer. To facilitate the orderly termination of the business relationship between Seller and Dealer and of the Dealership Operations, Seller may, in its sole discretion, defer the effective date of such termination and continue to operate with Dealer under the terms of this Agreement for a period of time, to be determined by Seller, of up to one (1) year from the date such notice of termination is given if within sixty (60) days from the date of said notice, the executor or representative of the deceased or incapacitated Principal Owner or a surviving Principal Owner shall give to Seller written request for such deferment. This Agreement shall automatically terminate without further notice or action by Seller upon the expiration of any such deferment. D. Termination for Failure of Seller or Dealer to be Licensed. -35- If Seller or Dealer shall fail to secure or maintain any license, permit or authorization required by either of them for their performance of any obligation under or in connection with this Agreement, or if such license, permit or authorization is suspended or revoked, irrespective of the cause, and such suspension or revocation continues for a period of seven (7) days, either party may immediately terminate this Agreement by giving notice to the other party. E. Termination by Dealer. Dealer has the right to terminate this Agreement at any time by giving notice to Seller, such termination to be effective thirty (30) days after the giving of such notice (unless the thirty (30) day notice period is waived in writing by Seller) or on such other date as may be mutually agreed to in writing by Seller and Dealer. F. Termination by Seller Because of a Change of Seller's Method of Distribution or Decision by Seller to Cease Distribution of Nissan Vehicles. If Seller should elect or be required to discontinue its present method of distributing Nissan Vehicles, or if Seller should elect or be required to cease selling or distributing Nissan Vehicles, Seller may terminate this Agreement by giving Dealer notice and such termination will be effective not less than one (1) year after such notice is given. G. Termination Upon Entering into a New Sales and Service Agreement. Seller may terminate this Agreement at any time by giving Dealer at least ninety (90) days prior notice thereof and offering to enter into a new or amended form of Agreement with Dealer in a form being offered generally to Authorized Nissan Dealers. Unless otherwise agreed in writing, the rights and obligations of Dealer that may otherwise become applicable upon termination or expiration of the term of this Agreement shall not be applicable if Seller and Dealer enter into a new or superseding Dealer Sales and Service Agreement, and the rights and obligations of the parties hereunder shall continue under the terms and provisions of the new agreement. Dealer's performance under any prior agreement may be considered by Seller in evaluating Dealer's performance under this, or any succeeding, agreement. -36- Section 13. Rights and Liabilities Upon Termination A. Termination Procedures. 1. Upon termination of this Agreement by either Seller or Dealer for any reason, Dealer shall: (i) immediately discontinue the distribution and sale of Nissan Products as an Authorized Nissan Dealer; and (ii) at its own expense (a) erase or obliterate all Nissan Marks and any word or words indicating that Dealer is an Authorized Nissan Dealer from the stationery, forms and other papers used by Dealer or any business associated or affiliated with Dealer; (b) discontinue all advertising of Dealer as an Authorized Nissan Dealer; (c) take all steps necessary to remove any listing in any telephone directory yellow pages advertisement indicating that Dealer is an Authorized Nissan Dealer; (d) discontinue any use of any Nissan Mark in Dealer's firm or trade name and take all steps necessary or appropriate in the opinion of Seller to change such firm or trade name to eliminate any Nissan Mark therefrom; (e) discontinue or cause to be discontinued all other use of the Nissan Marks; (f) refrain from doing anything, whether or not specified above, that would indicate that Dealer is or was an Authorized Nissan Dealer; and (g) refrain from using, either directly or indirectly, any Nissan Marks or any other confusingly similar marks, names, logos or designs in a manner likely to cause confusion or mistake or to deceive the public. If Dealer fails to comply with any requirements of this Section 13.A.1, Dealer shall reimburse Seller for all costs and expenses, including reasonable attorney's fees, incurred by Seller in effecting or enforcing compliance. 2. Termination of this Agreement will not release Dealer or Seller from the obligation to pay any amounts owing the other. 3. Subject to Section 13.E, Seller shall process all claims and make all payments due for all labor provided and all parts and/or other materials used by Dealer pursuant to Sections 5.B.2 and 5.B.3 prior to the effective date of termination as provided in the Warranty Manual. Dealer shall cease, as of the effective date of termination, to be eligible to receive reimbursement for any work thereafter performed or parts thereafter supplied under any warranty, campaign inspections or corrections and any other adjustment previously authorized by Seller. 4. Dealer shall, upon Seller's request, deliver to Seller or its designee copies of Dealer's records with respect to pre-delivery, warranty, goodwill campaign and other service work of Dealer. -37- B. Repurchases by Seller Upon Termination. Upon termination other than pursuant to a sale or transfer, Seller shall buy from Dealer and Dealer shall sell to Seller, within ninety (90) days after the effective date of termination: 1. All new, unused, undamaged, unlicensed, then current and immediate previous model year Nissan Vehicles which were purchased by Dealer from Seller and are then the unencumbered property of and in the possession of Dealer or Dealer's flooring and/or financing institution. The price for such vehicles shall be the invoice price previously paid by Dealer therefor, less Seller's destination charges, all allowances paid or applicable allowances offered thereon by Seller, any amount paid by Seller to Dealer for pre-delivery inspection and service with respect to such vehicles pursuant to Section 5.B, any dealer association collection, and any other charge for taxes or special items or service. Seller shall also repurchase Genuine Nissan Accessories which have been installed in such Nissan Vehicles which accessories are listed in the current parts and accessories price list (except those items marked "not eligible") at the prices set forth on Seller's then current parts and accessories price list. 2. Subject to Section 13.C, all new, unused, undamaged and resalable Genuine Nissan Parts and Accessories which are still in the original and undamaged packages, were purchased from Seller, are listed in the current parts and accessories price list (except those items marked "not eligible"), and are then the unencumbered property of and in the possession of Dealer. The prices for such Genuine Nissan Parts and Accessories shall be the prices set forth on Seller's then current parts and accessories price list. 3. Subject to Section 13.C, all special tools and equipment owned by Dealer and which are unencumbered and in the possession of Dealer on the effective date of termination which were designed especially for servicing Nissan Vehicles, are of the type recommended in writing by Seller and designated as "essential" tools in accordance with Seller's Guides or other notices pertaining thereto from Seller, are in usable and good condition, except for reasonable wear and tear, and were purchased by Dealer from Seller within the three (3) year period preceding the date of termination. Seller's purchase price for such essential tools shall be calculated at Dealer's purchase price reduced by straight-line depreciation on the basis of a useful life of thirty- six (36) months. Dealer's and Seller's obligations with respect to the signs located at the Dealership Facilities shall be determined in accordance with the Dealership Identification Addendum between Seller and Dealer. -38- C. Dealer's Responsibilities with Respect to Repurchase. Seller's obligation to repurchase Genuine Nissan Vehicles, Genuine Nissan Parts and Accessories, and essential tools from Dealer is conditioned on Dealer's fulfilling its responsibilities under this Section 13.C as follows: 1. Immediately following the effective date of termination of this Agreement, Dealer shall furnish to Seller a list of vehicle identification numbers and such other information and documents as Seller may require pertaining to the Nissan Vehicles subject to the repurchase obligations of Section 13.B.1. Dealer shall deliver all such vehicles in accordance with Seller's instructions. 2. Within thirty (30) days after the effective date of termination of this Agreement, Dealer shall deliver or mail to Seller a detailed inventory of all of the items referred to in Sections 13.B.2 and 13.B.3. Within thirty (30) days of its receipt of such inventory, Seller shall provide Dealer with instructions as to the procedures to be followed in returning such items to Seller. Dealer shall, at its expense, tag, pack and deliver all such items to Seller at Seller's designated parts distribution center in accordance with such instructions. Should Dealer fail to comply with the responsibilities listed above, Seller shall have no obligation to repurchase any such items from Dealer; provided, however, that Seller shall have the right, but no obligation, to enter into the Dealership Facilities for the purpose of compiling an inventory, tagging, packing and shipping such items to Seller's designated parts distribution center. If Seller undertakes any such responsibilities of Dealer, the repurchase prices of such items shall be fifteen percent (15%) less than the repurchase prices otherwise applicable under Section 13.B. D. Title to Repurchased Property. With respect to any items of property repurchased by Seller pursuant to this Section 13, Dealer shall take such action and shall execute and deliver such instruments as may be necessary: (i) to convey good and marketable title to all such items of property; (ii) to comply with the requirements of any applicable law relating to bulk sales and transfers; and (iii) to satisfy and discharge any liens or encumbrances on such items of property prior to delivery thereof to Seller. E. Payment. Seller shall make all payments to Dealer pursuant to this Section 13 within ninety (90) days after Seller's receipt of all items to be repurchased by it and provided Dealer has fulfilled all of its obligations under this Section 13; provided, however, that Seller shall be entitled to offset against such payments any and all -39- indebtedness or other obligations of Dealer to Seller. Seller may make any payment for any property repurchased pursuant to this Section 13 directly to anyone having a security or ownership interest therein. F. Cancellation of Deliveries. Upon termination of this Agreement Seller shall have the right to cancel all shipments of Nissan Products scheduled for delivery to Dealer. After the effective date of termination, if Seller shall voluntarily ship any Nissan Products to Dealer, or otherwise transact business with Dealer, all such transactions will be governed by the same terms provided in this Agreement, insofar as those terms would have been applicable had the Agreement not been terminated. Nevertheless, neither the shipping of such Nissan Products nor any other acts by Seller shall be construed as a waiver of the termination or a renewal or extension of this Agreement. Section 14. Establishment of Successor Dealer A. Because of Death of Principal Owner. If Seller shall terminate this Agreement pursuant to Section 12.C because of the death of a Principal Owner, the following provisions shall apply: 1. Subject to the other provisions of this Section 14, Seller shall offer a two (2) year Term Sales and Service Agreement to a successor dealership ("Successor Dealership") comprised of the person nominated by such deceased Principal Owner as his or her successor, together with the other Principal Owner(s) and Other Owner(s), provided that: (a) The nomination was submitted to Seller on a Successor Addendum, was consented to by the remaining Principal Owner(s) and Other Owner(s), and was approved by Seller prior to the death of such Principal Owner; (b) Either (i) there has been no change in the Executive Manager of Seller; or (ii) Seller has approved a candidate for Executive Manager having the required qualifications, expertise, integrity, experience and ability to successfully operate the dealership and perform Dealer's obligations under this Agreement; and (c) The Successor Dealership has capital and facilities substantially in accordance with Seller's Guides therefor at the time the Terms Sales and Service Agreement is offered. 2. If the deceased Principal Owner has not nominated a successor in accordance with Section 14.A.1(a) above, but all of -40- the beneficial interest of the deceased Principal Owner has passed by will or the laws of intestate succession directly to the deceased Principal Owner's spouse and/or children or to one (1) or more other Principal Owners who each held not less than twenty-five percent (25%) beneficial ownership interest in the dealership prior to the death of the deceased Principal Owner (collectively "proposed New Owners"), subject to the other provisions of this Section 14, Seller shall offer a two (2) year Term Sales and Service Agreement to a Successor Dealership composed of the Proposed New Owner(s), together with the other Principal Owner(s) and Other Owner(s), provided that: (a) Either (i) there has been no change in the Executive Manager of Dealer; or (ii) Seller has approved a candidate for Executive Manager having the required qualifications, expertise, integrity, experience and ability to successfully operate the dealership and perform Dealer's obligations under this Agreement; and (b) The Successor Dealership has capital and facilities substantially in accordance with Seller's Guides therefor at the time the Term Sales and Service Agreement is offered. (B) Consideration of Successor Addendum. To be named in the Successor Addendum, a proposed Principal Owner or Executive Manager must (i) be employed by Dealer or a comparable automotive dealership as his principal place of employment; (ii) be already qualified as a Principal Owner or Executive Manager, as the case may be; and (iii) otherwise be acceptable to Seller as provided below. Upon receipt of a request from Dealer that one or more individuals be named in a Successor Addendum, Seller shall request those named to submit an application and to provide all personal and financial information that Seller may reasonably and customarily require in connection with the review of such applications. Seller, upon the submission of all requested information, will determine whether to consent to a Successor Addendum naming such individuals by applying its criteria for considering the qualifications of Principal Owners or Executive Managers, as the case may be. C. Termination of Successor Addendum. Dealer may, at any time, withdraw a nomination of a Successor even if Seller previously has qualified the candidate, or cancel an executed Successor Addendum by giving notice to Seller of such withdrawal at any time prior to the death or incapacity of any Principal Owner named in this Agreement. Seller may cancel an executed Successor Addendum only if the proposed Principal Owner or Executive Manager no longer complies with the requirements of this Section 14. -41- D. Evaluation of Successor Dealership. During the term of the Term Sales and Service Agreement, Seller will evaluate the performance of the Successor Dealership and periodically review with the new Dealer this evaluation. If the Successor Dealership's performance is deemed to be satisfactory to Seller during the Term Sales and Service Agreement, Seller will give first consideration to such Successor Dealership with respect to a new Sales and Service Agreement. E. Termination of Market Representation. Notwithstanding anything stated or implied to the contrary in this Section 14, Seller shall not be obligated to offer a Term Sales and Service Agreement to any Successor Dealership if Seller notified Dealer prior to the event causing the termination of this Agreement that Seller's market representation plans do not provide for continuation of representation in Dealer's Primary Market Area. F. Termination of Offer. If the person or persons comprising a proposed Successor Dealership to which any offer of a Term Sales and Service Agreement for Nissan Products shall have been made pursuant to this Section 14 do not accept same within thirty (30) days after notification to them of such offer, such offer shall automatically expire. Section 15. Sale of Assets or Ownership Interests in Dealer. A. Sale or Transfer. Article Third of this Agreement provides that neither this Agreement nor any right or interest herein may be assigned without the prior written consent of Seller. However, during the term of this Agreement, Dealer may negotiate for the sale of the assets of Dealer, or the owners of Dealer may negotiate the sale of their ownership interests in Dealer, upon such terms as may be agreed upon by them and the prospective purchaser. With respect to any sale or transfer which requires Seller's prior written consent under Article Third of this Agreement, Dealer shall notify Seller prior to any closing of the transaction called for by the purchase and sale agreement, and the prospective purchaser shall apply to Seller for a Sales and Service Agreement. B. Seller's Evaluation. Seller is responsible for establishing and maintaining an effective body of Authorized Nissan Dealers to promote the sale and servicing of Nissan Products. Accordingly, Seller has the -42- right and obligation to evaluate each prospective dealer, its owner(s) and executive manager, the dealership location and the dealership facilities to ensure that each of the foregoing is adequate to enable Dealer to meet its responsibilities hereunder. Seller will evaluate each prospective purchaser's qualifications and proposal for the conduct of the Dealership Operations by applying the standards set forth or referred to in this Agreement. In determining whether it shall consent to such a sale or transfer, Seller will take into account factors such as the personal, business and financial qualifications, expertise, reputation, integrity, experience and ability of the proposed Principal Owner(s) and Executive Manager as referred to in Articles Third and Fourth of this Agreement, the capitalization and financial structure of the prospective dealer, the prospective purchaser's proposal for conducting the Dealership Operations, and Seller's interest in promoting and preserving competition. In evaluating the prospective purchaser's application for a Sales and Service Agreement, Seller may, without liability to Dealer, Dealer's Owners or the prospective purchaser, consult with the prospective purchaser regarding any matter relating to the proposed dealership. Seller shall notify Dealer of Seller's consent or refusal to consent to Dealer's proposed sale or transfer within sixty (60) days after Seller has received from Dealer (i) Dealer's written request for Seller's approval; and (ii) all applications and information customarily or reasonably requested by Seller to evaluate such a proposal including, without limitation, information concerning each proposed owner's and/or the replacement dealer's identity, character, business affiliations, business experience, financial qualifications and proposals for conducting the Dealership Operations. Any material change in such a proposal including, without limitation, any change in the financial terms or in the proposed ownership or management of any proposed replacement dealer, shall be treated as a new proposal for purposes of this Section 15.B. If Seller does not consent to Dealer's proposed sale or transfer, Seller will specify in its notice to Dealer the reasons for its refusal to consent. If Seller determines that the proposed dealership would not, at the commencement of its operations, have capital or facilities in accordance with Seller's Guides therefor and otherwise satisfactory to Seller, or if Seller reasonably determines that the proposed dealership might not meet Seller's performance standards in sales or service, Seller may, in its sole discretion and in lieu of refusing to consent to the proposed sale or transfer, agree to enter into a Term Sales and Service Agreement with the prospective purchaser. If Seller has recommended, pursuant to a market study conducted in accordance with Section 4.A, that Dealer relocate its Dealership Facilities, Seller may offer to the proposed dealer a Term Sales and Service Agreement subject to the condition that its Dealership Facilities shall be -43- relocated within a reasonable time to a location and in facilities acceptable to Seller and in accordance with the market study recommendations. Notwithstanding anything stated or implied to the contrary in this Section 15, Seller shall not be obligated to enter into a Sales and Service Agreement with any purchaser of the assets or ownership interests of Dealer if Seller has notified Dealer prior to its having received notice of the proposed sale or transfer that Seller's market representation plans do not provide for continuation of representation in Dealer's Primary Market Area. C. Effect of Termination. This Agreement shall end on the effective date of termination and, except as otherwise set forth in Section 13, all rights, obligations, duties and responsibilities of Dealer and Seller under this Agreement shall cease as of the effective date of termination. No assignment, transfer or sale of Dealer's right or interest in this Agreement shall have the effect of granting the assignee, transferee or buyer any right or interest in this Agreement that is greater than or in addition to that then held by Dealer. Any such assignment, transfer or sale shall be subject to the terms of any written notice of deficiency under Section 12.B or any written notice of termination under Sections 12.A, 12.B, 12.C, 12.D, 12.E or 12.F that was previously received by Dealer, including but not limited to Dealer's obligation to correct any failure before the expiration date of any period established in any such notice of deficiency. No such assignment, transfer or sale shall correct any such deficiency or extend the effective date of termination specified in any written notice of termination. Section 16. Policy Review Board A. Establishment of Policy Review Board. In the interest of maintaining harmonious relations between Seller and Dealer and to provide for the resolution of certain protests, controversies and claims with respect to or arising out of Section 4, Section 12 or Section 13 of this Agreement, Seller has established the Nissan Motor Corporation in U.S.A. Policy Review Board ("Policy Review Board"). The procedures of the Policy Review Board, as they may be revised by Seller from time to time, are incorporated herein by reference. At the time of execution of this Agreement, Seller will have furnished to Dealer a copy of such procedures, and Seller will furnish to Dealer a copy of each revision or modification that Seller may thereafter make to such procedures. Any decision of the Policy Review Board shall represent the independent decision of Seller and shall be binding on Seller but not on Dealer. -44- B. Appeal of Dealer Appointment to Policy Review Board. Any objections by Dealer to the proposed appointment of an additional Nissan dealer within the ten (10) mile driving distance described in Section 4.B shall be appealed to the Policy Review Board by filing a Notice of Appeal in accordance with the procedures established therefor within thirty (30) days from the date of Dealer's receipt of the Notice of Appointment. C. Appeal of Termination to Policy Review Board. Any protests, controversies or claims by Dealer (whether for damages, stay of action, or otherwise) with respect to any termination of this Agreement or the settlement of the accounts of Dealer with Seller after termination of this Agreement has become effective shall be appealed to the Policy Review Board by filing an appeal in accordance with the procedures established therefor within thirty (30) days after Dealer's receipt of notice of termination or, as to settlement of accounts after termination, within one (1) year after the termination has become effective. D. Effect of Other Proceedings. Because the purpose of the Policy Review Board is to assist in resolving issues between Seller and Dealer in a non-adversarial setting and to avoid litigation, if Dealer institutes or seeks any relief or remedy through legal, administrative or other proceedings as to any matter that is or could be the subject of an appeal to the Policy Review Board, then the Policy Review Board may, in its sole discretion, elect to refuse to consider any appeal to the Policy Review Board then pending or thereafter filed by Dealer relating to such subject matter. Dealer further agrees that Dealer's seeking such relief or remedy shall constitute a waiver of any right to an appeal to the Policy Review Board with respect to such subject matter and Seller and the Policy Review Board shall be forever released from any obligation they might otherwise have had to conduct any proceedings, render any decision or take any other action in connection with such subject matter. Section 17. General A. Notices. All notices or notifications required or permitted to be given by this Agreement to either party shall be sufficient only if given in writing and delivered personally or by mail to Dealer at the address set forth on the Dealership Facilities Addendum to this Agreement and to Seller at its national headquarters, or at such other address as the party to be addressed may have previously -45- designated by written notice to the other party. Unless otherwise specified in the notice, such notices shall be effective upon receipt. B. No Implied Waivers. The waiver by either party, or the delay or failure by either party to claim a breach, of any provision of this Agreement shall not affect the right to require full performance thereafter, nor shall it constitute a waiver of any subsequent breach, or affect in any way the effectiveness of such provision. C. No Agency. Dealer is an independently operated business entity in which Seller has no ownership interest. This Agreement does not constitute Dealer the agent or legal representative of Seller or Manufacturer for any purpose whatsoever. Dealer is not granted any express or implied right or authority to assume or create any obligation on behalf of or in the name of Seller or Manufacturer or to bind Seller or Manufacturer in any manner or thing whatsoever. D. Limitations of Seller's Liability. This Agreement contemplates that all investments by or in Dealer shall be made, and Dealer shall purchase and resell Nissan Products, in conformity with the provisions hereof, but otherwise in the discretion of Dealer. Except as herein specified, nothing herein contained shall impose any liability on Seller in connection with the business of Dealer or otherwise or for any expenditures made or incurred by Dealer in preparation for performance or in performance of Dealer's responsibilities under this Agreement. E. Entire Agreement. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter contained herein and may be amended only by a written instrument executed by each of the parties or their respective personal representatives, successors and/or assigns. This Agreement supersedes any and all prior agreements with respect to the subject matter hereof, and there are no restrictions, promises, warranties, covenants or undertakings between the parties other than those expressly set forth in this Agreement; provided, however, Seller shall have the right to amend, modify or change this Agreement in case of legislation, government regulations or changes in circumstances beyond the control of Seller that might affect materially the relationship between Seller and Dealer as further provided in Section 17.G. -46- F. California Law. This Agreement shall be deemed to have been entered into in the State of California, and all questions concerning the validity, interpretation or performance of any of its terms or provisions, or of any rights or obligations of the parties hereof, shall be governed by and resolved in accordance with the internal laws of the State of California including, without limitation, the statute of limitations. G. Changes Required by Law. Should Seller determine that any federal or state legislation or regulation or any condition referred to in Section 17.E required a change or changes in any of the provisions of this Agreement, Seller may offer to Dealer an amendment or an amended Agreement embodying such change or changes. If Dealer shall fail to execute such amendment or amended Agreement and return it to Seller within thirty (30) days after it is offered Dealer, Seller may terminate this Agreement by giving notice to Dealer, such termination to be effective upon receipt by Dealer of such notice. H. Severability. If any term or provision of this Agreement, or the application thereof to any person or circumstance, shall to any extent be found to be invalid, void or unenforceable, the remaining provisions and any application thereof shall nevertheless continue in full force and effect without being impaired or invalidated in any way. I. Assignment. Dealer shall not transfer or assign any right or transfer or delegate any obligation of Dealer under this Agreement without prior written approval of Seller. Any purported transfer, assignment or delegation made without the prior written approval of Seller shall be null and void. J. No Franchise Fee. Dealer represents and warrants that it has paid no fee, nor has it provided any goods or services in lieu of a fee, as consideration for Seller's entering into this Agreement and that the sole consideration for Seller's entering into this Agreement was Dealer's Principal Owners' and Executive Manager's abilities, integrity, assurances of personal services and expressed intention to deal fairly and equitably with Seller and the public and any other promises recited in this Agreement. -47- K. Captions. The captions of the sections of this Agreement are for convenience and reference only and shall in no way be construed to explain, modify, amplify, or aid in the interpretation, construction or meaning of the provisions of this Agreement or to be a part of this Agreement. L. Benefit. This Agreement is entered into by and between Seller 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. -48- Policy Review Board Procedures Nissan Division NISSAN MOTOR CORPORATION in U.S.A. FOREWORD Section 16 of the Nissan Dealer Sales and Service Agreement ("Agreement") provides for the establishment by Nissan Motor Corporation in U.S.A. ("Nissan") of a Policy Review Board. Under the Agreement, the Dealer may appeal to the Policy Review Board any controversy with respect to termination of the Agreement, the settlement of the accounts of a Dealer with Nissan after termination of the Agreement, or the proposed appointment by Nissan of an additional dealer which is subject to the requirements of Section 4 of the Agreement. The Policy Review Board and these procedures are intended to assist in maintaining a harmonious relationship between Nissan and dealers. Accordingly, the purpose of the Policy Review Board is to review and resolve issues which have arisen between Nissan and dealers, falling within the limits of its jurisdiction and which have not been or cannot be resolved through the usual channels of communication between Nissan and its dealers The Board and its procedures offer to the Dealer the opportunity to present its views to Nissan's management in a non-adversarial business setting. The Dealer is not required to pursue an appeal to the Board as a condition precedent to other actions it may wish to take, but a decision of the Board, while not binding on the Dealer, is binding on Nissan. The following procedures shall govern the conduct of appeals to the Policy Review Board. Section 1. Policy Review Board Membership The Policy Review Board (the "Board") shall consist of not less than three(3) nor more than five (5) members of Nissan management who shall be appointed by Nissan. One of the members shall be designated by Nissan as the Chairman of the Board. Section 2. Initiation of Appeal A. Appeals to the Board must be initiated by the Dealer by serving a written notice of appeal ("Notice of Appeal") on the Executive Secretary of the Board. The Notice of Appeal shall be addressed "Executive Secretary, Nissan Policy Review Board, P.O. Box 191, Gardena, California 90247." The Notice of Appeal must be received by the Executive Secretary within the following time periods: (i) Termination of Agreement Thirty (30) days from the Dealer's receipt of notice of termination from Nissan. (ii) Settlement of Accounts One (1) year after the effective date of termination. (iii) Determination of Need for Additional Dealer Thirty (30) days from the Dealer's receipt of the Notice of Appointment from Nissan of its decision to appoint an additional Nissan dealer as a result of its determination that one or more of the conditions specified in Section 4.B of the Agreement exists. Nissan will not enter into a Nissan Dealer Sales and Service Agreement appointing such an additional Nissan dealer until the Policy Review Board has rendered its decision on the matter. B. Within thirty (30) days of the Dealer's filing of its Notice of Appeal or the Dealer's receipt of the information specified in Section 3.C. of these procedures, whichever occurs later, the Dealer shall file with the Board a complete and detailed statement of the reasons for the Dealer's appeal. The Dealer shall attach to such statement any exhibits, documents, or other supporting materials on which the Dealer intends to rely in its appeal. The Dealer may also request that he be permitted to supplement the detailed statement with an oral presentation to the Board at a meeting. Section 3. Issues Before the Board The Dealer's Notice of Appeal, and its detailed statement, including the supporting exhibits, documents and other materials submitted or presented by the Dealer, shall be limited to information relating to the issues which may be appealed to the Board which are as follows: A. If the appeal concerns the Dealer's termination pursuant to Section 12 of the Agreement, the issues before the Board are whether or not the reasons stated in the notice of termination existed and whether or not such reasons constitute appropriate grounds for termination pursuant to Section 12 of the Agreement. B. If the appeal concerns settlement of the Dealer's account with Nissan following the Dealer's termination, the issues shall be limited to matters concerning Nissan's compliance with the Agreement in connection with such settlement. C. If the appeal concerns notice to the Dealer of the need for an additional Nissan Dealer or Dealers within the ten (10) mile driving distance specified in Section 4.B of the Agreement, the issue before the Board is whether one or more -2- of the conditions specified in Section 4.B of the Agreement exists. Upon receipt of the Dealer's Notice of Appeal, Nissan shall provide the Dealer with a copy of that portion of the market study which concludes that additional representation is needed (excluding information concerning other Nissan dealers). The Dealer has no right to obtain any particular information from Nissan, except as otherwise required by the Agreement. Section 4. Procedures for Appeal A. Upon receipt of the Dealer's detailed statement, the Chairman of the Policy Review Board shall determine the manner in which the Board will decide the appeal. Subject to the Dealer's right to request the opportunity to make an oral presentation under Section 2.B, the Board may decide the appeal based solely upon the written submissions, it may request oral presentations, or it may choose any other manner or procedures which it may deem appropriate. B. The Chairman of the Policy Review Board may limit the submissions required by these procedures, require additional submissions, or otherwise modify the appeal procedures set forth in this Section, in his sole discretion. Section 5. Meetings with the Board A. The Chairman may delegate to one or more members of the Board the authority and responsibility to conduct any meeting hereunder, and any such member or members shall have all of the authority of the Board. The date, time, and location of any such meeting shall be determined by the Chairman. However, unless otherwise agreed to by the Chairman and the Dealer, any such meeting shall take place not more than thirty (30) days after receipt of the Dealer's detailed statement. B. At any meeting with the Board or its members, the Dealer shall be represented by a Principal Owner(s) or an Executive Manager so identified in Article Third of the Agreement between Nissan and the Dealer. The Chairman may, in his discretion, exclude anyone from the meeting or any portion thereof. C. The Chairman may also invite to the meeting a representative or representatives from Nissan. D. The Chairman shall determine how any meetings with the Dealer shall be conducted, the issues to be discussed and considered, and what information shall be received and considered by the Board in making its decision. -3- E. The Board is not an arbitration or quasijudicial panel and its procedures are not necessarily intended to simulate litigation or arbitration. The Dealer should have no expectation of obtaining discovery against Nissan and the common law and/or federal rules of evidence will not necessarily constrain the Chairman's conduct of any meeting. Section 6. Decisions of the Board A. The Chairman shall give written notice of the Board's decision to the Executive Secretary, who shall promptly notify the Dealer. The decision shall be binding upon Nissan. B. If the Dealer shall fail to comply with the time requirements of these rules, fail to appear at a hearing on its scheduled date, or otherwise impede the appeal or the rendering of the Board's decision in any way, the Board may either render a decision on the appeal based on the information it has received, if any, or dismiss the appeal. C. The Board shall render its decision as soon as practicable. Section 7. Multiple Proceedings In the case of appeals brought by more than one Dealer concerning a finding by Nissan's Sales Department of the need for an additional Dealer, the Board may determine such appeals jointly or separately, as the Chairman may determine. Section 8. Effect of Other Proceedings Because the purpose of the Policy Review Board and these procedures is to assist in resolving issues between Nissan and dealers in a non-adversarial setting and to avoid litigation, if Dealer institutes or seeks any relief or remedy through legal, administrative or other proceedings as to any matter that is or could be the subject of an appeal to the Policy Review Board, then the Policy Review Board may, in its sole discretion, elect to refuse to consider any appeal to the Policy Review Board then pending before or thereafter filed by Dealer relating to such subject matter. Pursuant to Section 16.D of the Agreement, Dealer's seeking such relief or remedy constitutes a waiver of any right to an appeal to the Policy Review Board with respect to such subject matter. -4- Section 9. Expenses Parties to an appeal shall bear their own expense, including travel. Section 10. Notices All notices required hereunder shall be in writing unless otherwise specifically waived by the Chairman. Notices shall be effective upon receipt and, unless there is evidence to the contrary, shall be deemed to have been received three (3) days after the date of mailing. -5- EX-10.2-23 13 EXH 10.2.23 LOAN AND SECURITY AGREE 10.2.23 [Reserved for future use.] [This Exhibit has been reserved by the Company for future use.] EX-10.2-24 14 EXH 10.2.24 UNCONDITIONAL CONT. GUARANTY Exhibit 10.2.24 UNCONDITIONAL, CONTINUING GUARANTY OF PAYMENT I. THE PARTIES This Unconditional, Continuing Guaranty of Payment (the "Guaranty"), dated effective as of the 1st day of October, 1992, is given to and in favor of General Motors Acceptance Corporation, a New York corporation, with branch operations offices located at (i) 325 Columbia Turnpike, Florham Park, New Jersey 07932; (ii) 2700 Westchester Avenue, Purchase, New York 10577-2535; (iii) 90 Woodbridge Center Drive, Woodbridge, New Jersey 07095; and (iv) 555 Long Wharf Drive, New Haven, Connecticut 06511 ("GMAC"), by each and every one of the following parties whose name, legal status, and address is listed (the "Guarantor(s)"). Guarantor Name Status Address -------------- ------ ------- County Auto Group Partnership NJ General 115 Route 59 t/a County Toyota Partnership Nyack, NY 10960 Rockland Motors Partnership NJ General 73 North Highland Avenue t/a Rockland Mitsubishi Partnership P.O. Box 724 Nyack, NY 10960 Somerset Motors Partnership NJ General Route 22 East t/a DiFeo Lexus Partnership P.O. Box 310 Bound Brook, NJ 08805 DiFeo Oldsmobile Partnership NJ General Route 22 East t/a DiFeo Volkswagen Partnership P.O. Box 310 Bridgewater Bound Brook, NJ 08805 Fair Motors Partnership NJ General 100 Federal Road t/a Fair Mitsubishi Partnership Danbury, CT 06813 Fair Chevrolet-Geo Partnership NJ General 100 Federal Road Partnership Danbury, CT 06813 Fair Hyundai Partnership NJ General 102D Federal Road t/a Fair Suzuki Partnership Danbury, CT 06813 Fair Infiniti Partnership NJ General 100B Federal Road Partnership Danbury, CT 06813 Fair Imports Partnership NJ General 100A Federal Road t/a Fair Acura Partnership Danbury, CT 06813 Danbury-Mt. Kisco Saturn NJ General 102C Federal Road Partnership t/a Saturn Partnership Danbury, CT 06813 of Danbury Fair Cadillac-Oldsmobile-Isuzu NJ General 102 Federal Road Partnership Partnership Danbury, CT 06813 Guarantor Name Status Address -------------- ------ ------- Danbury Auto Partnership NJ General 102D Federal Road t/a Fair Honda Partnership Danbury, CT 06813 [TO BE FORMED] DiFeo Nissan Partnership NJ General 977 Communipaw Avenue [TO BE FORMED] Partnership Jersey City, NJ 07304 DiFeo Jeep-Eagle Partnership NJ General 315 Clendenny Ave. Partnership Route 440 Jersey City, NJ 07304 DiFeo Autocenter Partnership NJ General Hudson Mall & Route 440 t/a DiFeo Mazda Partnership Jersey City, NJ 07304 DiFeo Subaru Partnership NJ General 315 Clendenny Avenue Partnership Jersey City, NJ 07304 DiFeo Chevrolet-Geo Partnership NJ General 315 Clendenny Ave. [TO BE FORMED] Partnership Route 440 Jersey City, NJ 07304 DiFeo Hyundai Partnership NJ General Hudson Mall & Route 440 Partnership Jersey City, NJ 07304 DiFeo Buick-Pontiac-GMC NJ General 919 Communipaw Avenue Truck Partnership Partnership Jersey City, NJ 07304 DiFeo BMW Partnership NJ General 301 County Road Partnership Tenafly, NJ 07670 DiFeo Imports Partnership NJ General 947 Communipaw Avenue t/a Jersey City Mitsubishi Partnership Jersey City, NJ 07304 J & F Oldsmobile-Isuzu NJ General 315 Clendenny Avenue Partnership Partnership Route 440 Jersey City, NJ 07304 DiFeo Leasing Partnership NJ General 977 Communipaw Avenue Partnership Jersey City, NJ 07304 Hudson Motors Partnership NJ General 585 Route 440 t/a Hudson Toyota Partnership Jersey City, NJ 07304 J & S Ford Partnership NJ General 599 Route 440 [TO BE FORMED] Partnership Jersey City, NJ 07304 DiFeo Volkswagen Partnership NJ General 599 Route 440 Partnership Jersey City, NJ 07304 North Jersey Manhattan Saturn NJ General 943 Communipaw Avenue Partnership Partnership Jersey City, NJ 07304 [TO BE FORMED] DiFeo-EMCO Management NJ General 977 Communipaw Avenue Partnership Partnership Jersey City, NJ 07304 -2- Guarantor Name Status Address -------------- ------ ------- County Auto Group, Inc. New York 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Partnership RCT, Inc. Delaware 153 East 53 Street c/o EMCO Motor Holdings, Inc. Corporation Suite 5900 New York, NY 10022 DiFeo Partnership, Inc. Delaware 153 East 53 Street c/o EMCO Motor Holdings, Inc. Corporation Suite 5900 New York, NY 10022 EMCO Motor Holdings, Inc. Delaware 153 East 53 Street Corporation Suite 5900 New York, NY 10022 Rockland Motors Corp. New York 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Partnership RCM, Inc. Delaware 153 East 53 Street c/o EMCO Motor Holdings, Inc. Corporation Suite 5900 New York, NY 10022 Somerset Motors, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Partnership SCT, Inc. Delaware 153 East 53 Street c/o EMCO Motor Holdings, Inc. Corporation Suite 5900 New York, NY 10022 Gateway Oldsmobile, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 Fair Motors Corp. Connecticut 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Partnership DM, Inc. Delaware 153 East 53 Street c/o EMCO Motor Holdings, Inc. Corporation Suite 5900 New York, NY 10022 Fair Chevrolet Corp. Connecticut 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 Fair Hyundai Corp. Connecticut 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 Fair Infiniti, Inc. Connecticut 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 Fair Imports Corp. Connecticut 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 Danbury-Mt. Kisco Saturn Corp. Connecticut 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 Fair Cadillac-Oldsmobile Corp. Connecticut 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 -3- JS2, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 JS1, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Jeep-Eagle, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Autocenter, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Subaru, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Hyundai, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Buick, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo BMW, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Imports, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Partnership HCM, Inc. Delaware 153 East 53 Street c/o EMCO Motor Holdings, Inc. Corporation Suite 5900 New York, NY 10022 J & F Oldsmobile Corp. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Leasing Corporation New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 Hudson Toyota, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Partnership HCT, Inc. Delaware 153 East 53 Street c/o EMCO Motor Holdings, Inc. Corporation Suite 5900 New York, NY 10022 DiFeo Volkswagen, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 J & S Ford, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 North Jersey Manhattan Saturn New Jersey 943 Communipaw Avenue Corporation Corporation Jersey City, NJ 07304 Samuel X. DiFeo Individual 121 Lorraine Avenue Spring Lake, NJ 07762 -4- Joseph C. DiFeo Individual 17 Blackpoint Horseshoe Rumson, NJ 07760 James G. Hetherington Individual 44 Minors Bridge Road Roxbury, CT. 06783 Neale A. Kuperman Individual 9 Sterling Forest Lane Suffern, NY 10901 Robert J. Cohen Individual 812 Napoleon Street Woodmere, NY 11598 Joseph J. Mitolo Individual 5 Michelle Lane Warren, NJ 07060 Richard Mutterperl Individual 3 Cherbourg Road Parsippany, NJ 07054 Sam C. DiFeo Individual 2219 First Avenue Spring Lake, NJ 07762 James Salerno Individual Kennady Road Mendham, NJ 07926 Michael Salerno Individual 228 E. Blackwell Street Dover, NJ 07801 Raymond Duane Individual 267 Broad Street Summit, NJ 07901 II. THE RECITALS A. WHEREAS, the following named entities, presently in existence or proposed to-be-formed, in their capacity as motor vehicle dealers (the "Dealer(s)"), have requested GMAC to extend or continue to extend credit accommodations to them as separate and distinct entities. The type of credit, in the aggregate, will likely exceed $100 million and involves one or more of (1) wholesale floorplan financing of motor vehicles, including related demonstrator, short-term rental, and delayed payment programs; (2) retail sales and lease financing; (3) all other obligations, indebtedness, and liabilities of Dealers to GMAC for loans, leases, financing, and other credit extensions which GMAC may, in its sole discretion, provide to one or more Dealers from time to time; and (4) all costs, expenses or fees relating to the extension, administration, and collection of the credit accommodations (the "Obligations"); and -5- Dealer Name Status Address ----------- ------ ------- County Auto Group Partnership NJ General 115 Route 59 t/a County Toyota Partnership Nyack, NY 10960 Rockland Motors Partnership NJ General 73 North Highland Avenue t/a Rockland Mitsubishi Partnership P.O. Box 724 Nyack, NY 10960 Somerset Motors Partnership NJ General Route 22 East t/a DiFeo Lexus Partnership P.O. Box 310 Bound Brook, NJ 08805 DiFeo Oldsmobile Partnership NJ General Route 22 East t/a DiFeo Volkswagen Partnership P.O. Box 310 Bridgewater Bound Brook, NJ 08805 Fair Motors Partnership NJ General 100 Federal Road t/a Fair Mitsubishi Partnership Danbury, CT 06813 Fair Chevrolet-Geo Partnership NJ General 100 Federal Road Partnership Danbury, CT 06813 Fair Hyundai Partnership NJ General 102D Federal Road t/a Fair Suzuki Partnership Danbury, CT 06813 Fair Infiniti Partnership NJ General 100B Federal Road Partnership Danbury, CT 06813 Fair Imports Partnership NJ General 100A Federal Road t/a Fair Acura Partnership Danbury, CT 06813 Danbury-Mt. Kisco Saturn NJ General 102C Federal Road Partnership t/a Saturn of Danbury Partnership Danbury, CT 06813 Fair Cadillac-Oldsmobile- NJ General 102 Federal Road Isuzu Partnership Partnership Danbury, CT 06813 DiFeo Jeep-Eagle Partnership NJ General 315 Clendenny Ave. Partnership Route 440 Jersey City, NJ 07304 DiFeo Autocenter Partnership NJ General Hudson Mall & Route 440 t/a DiFeo Mazda Partnership Jersey City, NJ 07304 DiFeo Subaru Partnership NJ General 315 Clendenny Avenue Partnership Jersey City, NJ 07304 DiFeo Hyundai Partnership NJ General Hudson Mall & Route 440 Partnership Jersey City, NJ 07304 DiFeo Buick-Pontiac-GMC NJ General 919 Communipaw Avenue Truck Partnership Partnership Jersey City, NJ 07304 DiFeo BMW Partnership NJ General 301 County Road Partnership Tenafly, NJ 07670 DiFeo Imports Partnership NJ General 947 Communipaw Avenue t/a Jersey City Mitsubishi Partnership Jersey City, NJ 07304 J & F Oldsmobile-Isuzu Partnership NJ General 315 Clendenny Avenue Partnership Route 440 Jersey City, NJ 07304 Hudson Motors Partnership NJ General 585 Route 440 t/a Hudson Toyota Partnership Jersey City, NJ 07304 DiFeo Volkswagen Partnership NJ General 599 Route 440 Partnership Jersey City, NJ 07304 -6- Dealer Name Status Address ----------- ------ ------- J & S Ford Partnership NJ General 599 Route 440 [TO BE FORMED] Partnership Jersey City, NJ 07304 North Jersey Manhattan Partnership NJ General 943 Communipaw Avenue [TO BE FORMED] Partnership Jersey City, NJ 07304 Danbury Auto Partnership NJ General 102D Federal Road t/a Fair Honda Partnership Danbury, CT 06813 [TO BE FORMED] DiFeo Nissan Partnership NJ General 977 Communipaw Avenue (TO BE FORMED) Partnership Jersey City, NJ 07304 DiFeo Chevrolet-Geo Partnership NJ General 315 Clendenny Ave. [TO BE FORMED] Partnership Route 440 Jersey City, NJ 07304 B. WHEREAS, each Dealer is an affiliate of the other, having substantially similar financial, ownership, and management interests with one another; and C. WHEREAS, each Guarantor is allied to at least one of the other Guarantors by at least one of the following factors: financial, ownership, or management; and D. WHEREAS, GMAC has agreed to extend credit accommodations to Dealers pursuant to the terms and conditions of a Loan and Security Agreement executed on or about the date of this Guaranty, and such other documents, agreements, and instruments referred to therein, all of which may be amended, altered, suspended, or terminated from time to time in accordance with the terms thereof (the "GMAC Financing"); and E. WHEREAS, each Guarantor has determined that the execution, delivery, and performance of this Guaranty directly benefits, and is within the purposes and best interest of the Guarantor; and F. WHEREAS, GMAC has been induced to provide GMAC Financing by the execution, delivery, and performance of this Guaranty by all of the Guarantors; III. THE GUARANTY AGREEMENT NOW, THEREFORE, in consideration of the premises, the sufficiency of which is hereby acknowledged, Guarantors hereby agree as follows: 1. Guaranty of Payment. Guarantor hereby unconditionally, continuously, and absolutely guaranties to GMAC punctual payment of any and all Dealer Obligations now or hereafter arising, whether matured, contingent, or liquidated inclusive of all principal, interest, charges, costs, fees, and expenses. This Guaranty is unlimited as to the amount and extent of Obligations, except that as to individual Guarantors, James G. Hetherington, Neale A. Kuperman, Robert J. Cohen, Joseph J. Mitolo, Richard Mutterperl, Sam C. DiFeo, James Salerno, Michael Salerno and Raymond Duane, his or their liability hereunder shall be limited -7- (i) to Obligations incurred by Dealers in which he or they have an ownership interest as a shareholder of a general partner thereof; and (ii) shall terminate for such Dealer Obligations which are incurred up to two business days after his or their legal and equitable ownership interest therein shall cease. The Guaranty shall not apply to any Obligation for which the Guarantor is also the direct signatory/obligor of the aforementioned Loan and Security Agreement to the extent of and in the capacity as the Dealer thereunder. 2. Time for Payment. If any of the following events occur, GMAC may declare all or any part of the Obligations, regardless of their terms or conditions, and for the purposes of this Guaranty or otherwise, to be immediately due and payable: (a) any default with respect to payment or performance of any of the Obligations by any Dealer; or (b) any default in the observance or performance of any covenant or agreement of any Guarantor under this Guaranty or otherwise; or (c) insolvency, bankruptcy, or receivership proceeding initiated by or against any Dealer or Guarantor; or (d) the death, dissolution, or termination, as the case may be, of any Guarantor; (e) any material adverse change in the financial status of any Guarantor, including the sale, mortgage, pledge, or encumbrance of any real or personal property of the Guarantor without first obtaining the prior written consent of GMAC (except as may occur for permitted purchase money security interests and mortgages). 3. Right of Set-off. GMAC is hereby irrevocably authorized at any time and from time to time without notice to Guarantor (any such notice being expressly waived by Guarantor) to set-off, appropriate, recoup, and apply any and all payments, credits, indebtedness or claims or any part thereof, at any time held or owing by GMAC to or for the account of, or otherwise payable to, Guarantor against and on account of the obligations and liabilities of Guarantor to GMAC hereunder. 4. Waiver of Subrogation. Guarantor hereby waives and releases any rights that it may now possess or hereafter acquire, whether by operation of law, equity, or through contract, to obtain indemnity, reimbursement or repayment from Dealers of any amount paid by Guarantor to GMAC pursuant to this Guaranty, whether by way of subrogation, indemnity, defense, reimbursement or otherwise. In the event that any Dealer shall be the subject of a bankruptcy, insolvency or similar proceeding, Guarantor agrees to make no claim against any Dealer or the estate of any Dealer arising out of or in relation to the performance of this Guaranty -8- by Guarantor and to execute and deliver to the debtor-in-possession, trustee, receiver or other appropriate person such releases and waivers of any claims available to Guarantor as shall be required to evidence this waiver and release. 5. Certain Rights of GMAC. GMAC may at any time to the extent provided by the GMAC Financing, without the consent of, or notice (except as shall be required by applicable statute and which cannot be waived) to Guarantor, and without incurring responsibility to Guarantor or impairing, mitigating, or releasing the obligations of Guarantor hereunder: (a) change the manner, place or terms of payment, or change or extend the time of payment of, renew or alter any Obligations, any security therefor, or any liability incurred directly or indirectly in respect thereof, and the Guaranty herein made shall apply to the Obligations as so changed, extended, renewed or altered; (b) sell, exchange, release, subordinate, surrender, realize upon or otherwise deal with in any manner and in any order any property at any time pledged or mortgaged to secure the Obligations; fail to obtain, maintain, or perfect any lien, pledge, mortgage, or security interest in any property of the Dealer, delay in the perfection of any such interest, fail to fully and adequately conduct audits and verification reviews of such property or the books and records of the Dealer; or (c) exercise or refrain from exercising any rights or remedies against Dealer or others (including Guarantor or any other person directly or contingently liable for any or all the Obligations); (d) settle or compromise any Obligations, any security therefor or any liability (including any of those hereunder) incurred directly or indirectly in respect thereof, and may subordinate the payment of all or any part thereof to the payment of any liability (whether due or not) of Dealers to creditors of Dealers; and (e) apply any sums however realized from Guarantor in the order of payment as set forth in the GMAC Financing agreements or, to the extent not set forth, in GMAC's reasonable discretion, provided GMAC has no duty to marshal assets for the benefit of any Dealer or Guarantor. 6. Other Agreements of Guarantor. Guarantor also agrees as follows: (a) the liability of Guarantor under this Guaranty is absolute and unconditional and may be enforced without requiring GMAC to first resort to any other right, remedy or security; -9- (b) no setoffs or counterclaims that any Dealer or Guarantor, or any other person, may have against GMAC shall impair or otherwise affect the rights of GMAC against Guarantor and Guarantor waives the assertion of any such setoffs or counterclaims in any proceeding to enforce Guarantor's Obligations under this Guaranty; (c) if any Dealer or Guarantor shall at any time become insolvent, make a general assignment for the benefit of creditors, or if a petition in bankruptcy or any insolvency or reorganization proceeding shall be commenced by, against or in respect of any of them, such action shall not release this Guaranty; (d) this Guaranty is a continuing Guaranty which may not be terminated so long as any Obligations remain outstanding; (e) nothing shall discharge or satisfy the liability of Guarantor except the full payment and performance of the Obligations; (f) no invalidity, irregularity or unenforceability of all or any part of the Obligations or of any security therefor shall affect, impair or be a defense to this Guaranty; and (g) this Guaranty is secured under separate security agreement, pledge, assignment, and/or mortgage in favor of GMAC. (h) Guarantor unconditionally and irrevocably waives each and every defense which, under principles of guarantee or suretyship law, would otherwise operate to impair or diminish the liability of Guarantor under this Guaranty, including, without limitation, Guarantor expressly waives and dispenses with notice of acceptance of this Guaranty, notices of non-payment or non-performance, notice of amount of indebtedness outstanding at any time, protests, demands, and prosecution of collection, foreclosure, and possessory remedies. Guarantor further waives any right to require GMAC to (i) proceed against other persons or any Dealer, (ii) advise the Guarantor of the results of any collateral checks or examinations, (iii) require any Dealer to comply with its agreement with GMAC, or (iv) proceed against Dealer or proceed against or exhaust any security. (i) Guarantor shall provide upon the execution of this Guaranty and upon request by GMAC a detailed financial statement for such Guarantor, upon the forms attached hereto as Exhibits "A" (GMAC Form 559) and "B" (GMAC Form 505 G). Continuing Guaranty. This is a continuing guaranty and shall remain in full force and effect until five business days after receipt by GMAC of written notice by the Guarantor terminating or modifying same; provided, however, that such notice shall not operate to release the Guarantor from liability hereunder with respect to any Obligations -10- incurred prior to the effective date of such notice; and provided further that such notice shall be effective only as to the Guarantor specifically giving such notice. Integration. Except as noted herein or in the GMAC Financing agreements, GMAC has made no promises to any Dealer or Guarantor to induce execution of this Guaranty and there are no other agreements or understandings, either oral or in writing, between GMAC and the Guarantor affecting this Guaranty. Joint and Several Liability. The Obligation of all parties signing this Guaranty shall be joint and several, and the failure of or subsequent release of any Guarantor named in this Guaranty to be bound hereby shall not mitigate, release, or impair the responsibility of every other Guarantor hereunder. Reinstatement. (a) Guarantor further agrees that if GMAC receives any payment or payments on account of the Obligations, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent, avoidable, or preferential, set aside or required to be repaid to a trustee, receiver, or any other party under any bankruptcy, state or federal law, common law or equitable doctrine, then to the extent of any sum not finally retained by GMAC, Guarantor's obligations under this Guaranty shall be reinstated and this Guaranty shall remain in full force and effect (or be reinstated) until payment of all the Obligations shall have been irrevocably and indefeasibly made to GMAC. If any action or proceeding seeking such repayment is pending or, in GMAC's reasonable judgment, threatened, this Guaranty shall remain in full force and effect notwithstanding that any Dealer may not then be obligated to GMAC. (b) If claim is ever made upon GMAC for repayment or recovery of any amount or amounts received by it in payment or on account of any of the Obligations and all or part of such amount is repaid by reason of (i) any judgment, decree or order of any court or administrative body having jurisdiction over GMAC or any of its property, or (ii) any settlement or compromise of any such claim affected by GMAC with any such claimant (including Dealer), then and in such event Guarantor agrees that any such judgment, decree, order, settlement or compromise shall be binding upon Guarantor, notwithstanding any revocation hereof or the cancellation of any note or other instrument evidencing any Obligations, and Guarantor shall be and remains liable to GMAC hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by GMAC. 11. Severability. Any provision of this Guaranty which is prohibited or unenforceable in any jurisdiction or against any person -11- organized under the laws of such jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction or with respect to any other person. 12. Paragraph Headings. The paragraph headings used in this Guaranty are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 13. Rights and Remedies Not Waived. No course of dealing between GMAC and any Dealer and/or Guarantor or any failure or delay on the part of GMAC in exercising any rights or remedies hereunder shall operate as a waiver of any rights or remedies of GMAC and no single or partial exercise of any rights or remedies hereunder shall operate as a wiaver or preclude the exercise of any other rights or remedies hereunder. 14. Waivers and Amendments; Successors and Assigns; Governing Law. None of the terms or provisions of this Guaranty may be waived, altered, modified or amended except by a written instrument, duly executed by Guarantor and GMAC. This Guaranty and all obligations of Guarantor hereunder shall be binding upon the successors and assigns of Guarantor, and shall, together with the rights and remedies of GMAC hereunder, inure to the benefit of GMAC and its successors and assigns, provided that Guarantor may not assign or transfer any of its rights or obligations hereunder without the prior written consent of GMAC. This Guaranty shall be governed by, and be construed and interpreted in accordance with, the internal laws (and not the laws of conflict) of the State of New Jersey. 15. Notices. Any demand, notice or communication to be made or given hereunder shall be in writing, except as otherwise expressly permitted or required under this Guaranty, and may be made or given by personal delivery, overnight courier, registered or certified mail or by transmittal by telex or facsimile machine, whether by public or private means, addressed to the respective parties at the addresses set forth in Section I above. If the party making or giving such demand, notice or communication knows or ought reasonably to know of difficulties with the postal system which might affect the delivery of mail, any such demand, notice or communication shall not be mailed but shall be made or given by personal delivery or by telex or by facsimile transmission. 16. Counterparts. This Guaranty may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which taken together shall be deemed to constitute one and the same instrument, and it shall not be necessary in making -12- proof of this Guaranty to produce or account for more than one such counterpart. 17. Waiver of Jury Trial. THE PARTIES HERETO ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL RIGHT, BUT THAT THIS RIGHT MAY BE WAIVED. GMAC AND EACH GUARANTOR EACH HEREBY KNOWINGLY, VOLUNTARILY AND WITHOUT COERCION, WAIVE ALL RIGHTS TO A TRIAL BY JURY OF ALL DISPUTES ARISING OUT OF OR IN RELATION TO THIS GUARANTY OR ANY OTHER AGREEMENTS BETWEEN THE PARTIES. NO PARTY SHALL BE DEEMED TO HAVE RELINQUISHED THE BENEFIT OF THIS WAIVER OF JURY TRIAL UNLESS SUCH RELINQUISHMENT IS IN A WRITTEN INSTRUMENT SIGNED BY THE PARTY TO WHICH SUCH RELINQUISHMENT WILL BE CHARGED. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. County Auto Group Partnership t/a County Toyota By /s/Ezra P. Mager ----------------------------- Title Ezra P. Mager, CEO ----------------------------- Attest/Certify /s/Donald Betson ----------------- Title Donald Betson, CFO -------------------------- Rockland Motors Partnership t/a Rockland Mitsubishi By /s/Ezra P. Mager ----------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO -------------------------- Somerset Motors Partnership t/a DiFeo Lexus By /s/Ezra P. Mager ----------------------------- Title Ezra P. Mager, CEO ----------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO ------------------------ -13- DiFeo Oldsmobile Partnership t/a DiFeo Volkswagen of Bridgewater By /s/Ezra P. Mager ----------------------------- Title Ezra P. Mager, CEO ----------------------------- Attest/Certify /s/Donald Betson ----------------- Title Donald Betson, CFO ------------------------ Fair Motors Partnership t/a Fair Mitsubishi By /s/Ezra P. Mager ----------------------------- Title Ezra P. Mager, CEO ----------------------------- Attest/Certify /s/Donald Betson -------------- Title Donald Betson, CFO ------------------------ Fair Chevrolet-Geo Partnership By /s/Ezra P. Mager -------------------------- Title Ezra P. Mager, CEO ----------------------------- Attest/Certify /s/Donald Betson -------------- Title Donald Betson, CFO ------------------------ Fair Hyundai Partnership t/a Fair Suzuki By /s/Ezra P. Mager ----------------------------- Title Ezra P. Mager, CEO ----------------------------- Attest/Certify /s/Donald Betson -------------- Title Donald Betson, CFO ------------------------ Fair Infiniti Partnership By /s/Ezra P. Mager ----------------------------- Title Ezra P. Mager, CEO ----------------------------- Attest/Certify /s/Donald Betson -------------- Title Donald Betson, CFO ------------------------ -14- Fair Imports Partnership t/a Fair Acura By /s/Ezra P. Mager ----------------------------- Title Ezra P. Mager, CEO ----------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO ------------------------ Danbury-Mt. Kisco Saturn Partnership t/a Saturn of Danbury By /s/Ezra P. Mager ---------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO -------------------------- Fair Cadillac-Oldsmobile- Isuzu Partnership By /s/Ezra P. Mager ---------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/Donald Betson ----------------- Title Donald Betson, CFO -------------------------- Danbury Auto Partnership t/a Fair Honda By /s/Ezra P. Mager ---------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/Donald Betson ----------------- Title Donald Betson, CFO -------------------------- DiFeo Nissan Partnership By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/Donald Betson ----------------- Title Donald Betson, CFO -------------------------- -15- DiFeo Jeep-Eagle Partnership By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO -------------------------- DiFeo Autocenter Partnership t/a DiFeo Mazda By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO -------------------------- DiFeo Subaru Partnership By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/Donald Betson ----------------- Title Donald Betson, CFO -------------------------- DiFeo Chevrolet-Geo Partnership By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/Donald Betson ----------------- Title Donald Betson, CFO -------------------------- DiFeo Hyundai Partnership By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO -------------------------- -16- DiFeo Buick-Pontiac-GMC Truck Partnership By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO -------------------------- DiFeo BMW Partnership By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO -------------------------- DiFeo Imports Partnership t/a Jersey City Mitsubishi By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO ------------------------------- J & F Oldsmobile - Isuzu Partnership By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO -------------------------- DiFeo Leasing Partnership By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO -------------------------- -17- Hudson Motors Partnership t/a Hudson Toyota By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO -------------------------- J & S Ford Partnership By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO -------------------------- DiFeo Volkswagen Partnership By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO -------------------------- DiFeo-EMCO Management Partnership By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO -------------------------- County Auto Group, Inc. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, VP ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, Treasurer -------------------------------- -18- DiFeo Partnership PCT, Inc. By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, Pres. ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO -------------------------- DiFeo Partnership, Inc. By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, Pres. ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO -------------------------- EMCO Motor Holdings, Inc. By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, Pres. ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO -------------------------- Rockland Motors Corp. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, Pres. ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, Asst. Sec. --------------------------------- DiFeo Partnership RCM, Inc. By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, Pres. ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO -------------------------- -19- Somerset Motors, Inc. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, Pres. ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, VP --------------------------- DiFeo Partnership SCT, Inc. By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, Pres. ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO -------------------------- Gateway Oldsmobile, Inc. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, Pres. ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, VP -------------------------- Fair Motors Corp. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, Treasurer ------------------------------- Attest/Certify /s/Joseph C. DiFeo ---------------- Title Joseph C. DiFeo, Pres. ---------------------------- DiFeo Partnership DM, Inc. By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, Pres. ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO -------------------------- -20- Fair Chevrolet Corp. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, VP ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, Sec. --------------------------- Fair Hyundai Corp. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, VP ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, Treasurer -------------------------------- Fair Infinite, Inc. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, Pres. ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, Sec. --------------------------- Fair Imports Corp. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, VP ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, Pres. ---------------------------- Danbury-Mt. Kisco Saturn Corp. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, VP ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, Sec. --------------------------- -21- Fair Cadillac-Oldsmobile Corp. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, VP ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, Sec. --------------------------- JS2, Inc. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, Pres. ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, VP -------------------------- JS1, Inc. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, Pres. ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, VP -------------------------- DiFeo Jeep Eagle, Inc. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, VP ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, Pres. ---------------------------- DiFeo Autocenter, Inc. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, VP ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, Tres. ---------------------------- -22- DiFeo Subaru, Inc. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, Pres. ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, Sec. --------------------------- DiFeo Hyundai, Inc. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, VP ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, Tres. ---------------------------- DiFeo Buick, Inc. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, Pres. ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, Sec. --------------------------- DiFeo BMW, Inc. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, Sec. ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, Tres. ---------------------------- DiFeo Imports, Inc. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, VP ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, Pres. ---------------------------- -23- DiFeo Partnership HCM, Inc. By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, Pres. ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO -------------------------- J & F Oldsmobile Corp. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, VP ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, Asst. Sec. --------------------------------- DiFeo Leasing Corporation By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, VP ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, Sec. --------------------------- Hudson Toyota, Inc. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, VP ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, VP ------------------------- DiFeo Partnership HCT, Inc. By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, Pres. ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO ------------------------ -24- DiFeo Volkswagen, Inc. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, VP ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, Tres. ---------------------------- /s/ Samuel X. DiFeo ------------------------------- Samuel X. DiFeo, Individual North Jersey-Manhattan Saturn Corporation By /s/Samuel X. DiFeo ------------------------------- Title ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title ---------------------------- North Jersey Manhattan Saturn Partnership By /s/Ezra P. Mager ------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/Donald Betson ---------------- Title Donald Betson, CFO -------------------------- J & S Ford, Inc. By /s/Samuel X. DiFeo ------------------------------- Title Samuel X. DiFeo, Pres. ------------------------------- Attest/Certify /s/Joseph C. DiFeo ------------------ Title Joseph C. DiFeo, VP -------------------------- /s/Joseph C. DiFeo - ------------------------------- ------------------------------- James Salerno, Individual Joseph C. DiFeo, Individual - ------------------------------- ------------------------------- Michael Salerno, Individual James G. Hetherington, Individual - ------------------------------- ------------------------------- Raymond Duane, Individual Neale A. Kuperman, Individual -25- - ------------------------------- ------------------------------- Richard Mutterperl, Robert J. Cohen, Individual Individual /s/Sam C. DiFeo - ------------------------------- ------------------------------- Sam C. DiFeo, Individual Joseph J. Mitolo, Individual GENERAL MOTORS ACCEPTANCE CORPORATION By: /s/Illegible - ------------------------------- Its: Asst. Tres. ------------ -26- FIRST AMENDMENT TO UNCONDITIONAL CONTINUING GUARANTY OF PAYMENT I. THE PARTIES This First Amendment to Unconditional, Continuing Guaranty of Payment (the "Amendment") is dated effective the 8th day of February, 1993, and executed by and between General Motors Acceptance Corporation, a New York corporation, with branch operations offices located at (i) 325 Columbia Turnpike, Florham Park, New Jersey 07932; (ii) 2700 Westchester Avenue, Purchase, New York 10577-2535; (iii) 90 Woodbridge Center Drive, Woodbridge, New Jersey 07095; and (iv) 555 Long Wharf Drive, New Haven, Connecticut 06511 ("GMAC"); Fair Chrysler Plymouth Partnership, a New Jersey general partnership, trading as Fair Chrysler Plymouth and located at 100C Federal Road, Danbury, Connecticut 06813 ("Fair Chrysler"); and by each and everyone of the following persons whose name, legal status, and address is listed (the "Guarantors"): Guarantor Name Status Address - -------------- ------ ------- County Auto Group Partnership NJ General 115 Route 59 t/a County Toyota Partnership Nyack, NY 10960 Rockland Motors Partnership NJ General 73 North Highland Avenue t/a Rockland Mitsubishi Partnership P.O. Box 724 Nyack, NY 10960 Somerset Motors Partnership NJ General Route 22 East t/a DiFeo Lexus Partnership P.O. Box 310 Bound Brook, NJ 08805 DiFeo Oldsmobile Partnership NJ General Route 22 East t/a Difeo Volkswagen Bridgewater Partnership P.O. Box 310 Bound Brook, NJ 08805 Fair Motors Partnership NJ General 100 Federal Road t/a Fair Mitsubishi Partnership Danbury, CT 06813 Fair Chevrolet-Geo Partnership NJ General 100 Federal Road Partnership Danbury, CT 06813 Fair Hyundai Partnership NJ General 102D Federal Road t/a Fair Suzuki Partnership Danbury, CT 06813 Fair Infiniti Partnership NJ General 100B Federal Road -27- Partnership Danbury, CT 06813 Fair Imports Partnership NJ General 100A Federal Road t/a Fair Acura Partnership Danbury, CT 06813 Danbury-Mt. Kisco Saturn NJ General 102C Federal Road Partnership t/a Saturn of Danbury Partnership Danbury, CT 06813 Fair Cadillac-Oldsmobile-Isuzu NJ General 102 Federal Road Partnership Partnership Danbury, CT 06813 Danbury Auto Partnership NJ General 102D Federal Road t/a Fair Honda Partnership Danbury, CT 06813 DiFeo Nissan Partnership NJ General 977 Communipaw Avenue Partnership Jersey City, NJ 07304 DiFeo Jeep-Eagle Partnership NJ General 315 Clendenny Avenue Partnership Route 440 Jersey City, NJ 07304 DiFeo Autocenter Partnership NJ General Hudson Mall & Route 440 t/a DiFeo Mazda Partnership Jersey City, NJ 07304 DiFeo Subaru Partnership NJ General 315 Clendenny Avenue Partnership Jersey City, NJ 07304 DiFeo Chevrolet-Geo NJ General 315 Clendenny Avenue Partnership Partnership Route 440 Jersey, City, NJ 07304 DiFeo Hyundai Partnership NJ General Hudson Mall & Route 440 Partnership Jersey City, NJ 07304 DiFeo Buick-Pontiac-GMC NJ General 919 Communipaw Avenue Truck Partnership Partnership Jersey City, NJ 07304 DiFeo BMW Partnership NJ General 301 County Road Partnership Tenafly, NJ 07670 DiFeo Imports Partnership NJ General 947 Communipaw Avenue t/a Jersey City Mitsubishi Partnership Jersey City, NJ 07304 J & F Oldsmobile-Isuzu NJ General 315 Clendenny Avenue Partnership Partnership Route 440 Jersey City, NJ 07304 -28- DiFeo Leasing Partnership NJ General 977 Communipaw Avenue Partnership Jersey City, NJ 07304 Hudson Motors Partnership NJ General 585 Route 440 t/a Hudson Toyota Partnership Jersey City, NJ 07304 J & S Ford Partnership NJ General 599 Route 440 Partnership Jersey City, NJ 07304 DiFeo Volkswagen Partnership NJ General 599 Route 440 Partnership Jersey City, NJ 07304 North Jersey Manhattan Saturn NJ General 943 Communipaw Avenue Partnership Partnership Jersey City, NJ 07304 DiFeo-EMCO Management NJ General 977 Communipaw Avenue Partnership Partnership Jersey City, NJ 07304 County Auto Group, Inc. NY Corporation 585 Route 440 c/o Joseph C. DiFeo Jersey City, NJ 07304 DiFeo Partnership RCT, Inc. Delaware 153 East 53 Street c/o EMCO Motor Holdings, Inc. Corporation Suite 5900 New York, NY 10022 DiFeo Partnership, Inc. Delaware 153 East 53 Street c/o EMCO Motor Holdings, Inc. Corporation Suite 5900 New York, NY 10022 EMCO Motor Holdings, Inc. Delaware 153 East 53 Street Corporation Suite 5900 New York, NY 10022 Rockland Motors Corp. New York 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Partnership RCM, Inc. Delaware 153 East 53 Street c/o EMCO Motor Holdings, Inc. Corporation Suite 5900 New York, NY 10022 Somerset Motors, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Partnership SCT, Inc. Delaware 153 East 53 Street c/o EMCO Motor Holdings, Inc. Corporation Suite 5900 New York, NY 10022 Gateway Oldsmobile, Inc. New Jersey 585 Route 440 -29- c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 Fair Motors Corp. Connecticut 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Partnership DM, Inc. Delaware 153 East 53 Street c/o EMCO Motor Holdings, Inc. Corporation Suite 5900 New York, NY 10022 Fair Chevrolet Corp. Connecticut 585 Route 440 c/o Joseph C. DeFeo Corporation Jersey City, NJ 07304 Fair Hyundai Corp. Connecticut 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 Fair Infiniti, Inc. Connecticut 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 Fair Imports Corp. Connecticut 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 Danbury-Mt. Kisco Saturn Corp. Connecticut 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 Fair Cadillac-Oldsmobile Corp. Connecticut 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 JS2, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 JS1, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Jeep-Eagle, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Autocenter, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Subaru, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Hyundai, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Buick, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 -30- DiFeo BMW, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Imports, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Partnership HCM, Inc. Delaware 153 East 53 Street c/o EMCO Motor Holdings, Inc. Corporation Suite 5900 New York, NY 10022 J & F Oldsmobile Corp. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Leasing Corporation New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 Hudson Toyota, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Partnership HCT, Inc. Delaware 153 East 53 Street c/o EMCO Motor Holdings, Inc. Corporation Suite 5900 New York, NY 10022 DiFeo Volkswagon, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 J & S Ford, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 North Jersey Manhattan Saturn New Jersey 943 Communipaw Avenue Corporation Corporation Jersey City, NJ 07304 Samuel X. DiFeo Individual 121 Lorraine Avenue Spring Lake, NJ 07762 Joseph C. DiFeo Individual 17 Blackpoint Horseshoe Rumson, NJ 07760 James G. Hetherington Individual 44 Minors Bridge Road Roxbury, CT 06783 Sam C. DiFeo Individual 2219 First Avenue Spring Lake, NJ 07762 II. THE RECITALS -31- A. WHEREAS, each of the Guarantors executed and delivered to and in favor of GMAC an Unconditional, Continuing Guaranty of Payment, dated effective October 1, 1992, (the "Guaranty"); and B. WHEREAS, the Guaranty is an unconditional, continuing guaranty of payment of any and all obligations which the Dealers whose names were described therein then or thereafter owed to GMAC, except that certain limitations applied as to the Individual Guarantors, as more fully set forth in paragraph 1 of the Guaranty; and C. WHEREAS, each of the Dealers described in the Guaranty ("Dealers") has previously executed, inter alia, a Loan and Security Agreement with GMAC (the "Loan Agreement") which, among other things, required the cross-guaranty of each Dealer, all Affiliates thereto, and certain other parties named in paragraph 4 of the Loan Agreement; and D. WHEREAS, Fair Chrysler has, contemporaneous with the execution of this First Amendment, executed a Loan Agreement and other related documents, instruments, and agreements with GMAC, and in connection therewith, will become an "Affiliate" of the Dealers as that term is described in paragraph 6(I) of each and every Loan Agreement; and E. WHEREAS, GMAC requires, in connection with all such Loan Agreements, that each Guarantor unconditionally and continuously guaranty the payment of the obligations of Fair Chrysler to GMAC and vice versa (the "Cross Guaranty"); and F. WHEREAS, except for certain Individual Guarantors whose obligations are not increased or altered by this First Amendment, each of the Parties hereto intend that the Guaranty be amended to include the Cross-Guaranty of Fair Chrysler. III. THE AMENDMENT AGREEMENT NOW, THEREFORE, in consideration of the premises, the sufficiency of which is hereby acknowledged, GMAC, Fair Chrysler, and each of the undersigned Guarantors hereby agree, in conformity with paragraph 14 of the Guaranty, as follows: 1. The Guaranty is hereby amended to make and designate Fair Chrysler a "Guarantor" and a "Dealer" as ascribed in the Guaranty and for all intents and purposes thereunder, with all duties, obligations, and liabilities as a Guarantor and Dealer as though originally executed by Fair Chrysler. 2. Except as noted above, the Guaranty remains in full force and effect and is not otherwise waived, altered, modified, or amended hereby. -32- Fair Chrysler Plymouth Partnership GENERAL MOTORS ACCEPTANCE t/a Fair Chrysler Plymouth CORPORATION By /s/ E.P. Mager By /s/ Paul A. Given - ---------------------------------- ------------------------------- Title President Paul A. Given, ---------------------------- Control Branch Manager Attest/Certify /s/ George Lowrance ------------------- Title General Counsel -------------------- County Auto Group Partnership t/a County Toyota By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- Rockland Motors Partnership t/a Rockland Mitsubishi By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- Somerset Motors Partnership t/a DiFeo Lexus By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Oldsmobile Partnership t/a Difeo Volkswagen of Bridgewater By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- -33- Fair Motors Partnership t/a Fair Mitsubishi By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- Fair Chevrolet-Geo Partnership By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- Fair Hyundai Partnership t/a Fair Suzuki By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- Fair Infiniti Partnership By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- Fair Imports Partnership t/a Fair Acura By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- -34- Danbury-Mt. Kisco Saturn Partnership t/a Saturn of Danbury By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- Fair Cadillac-Oldsmobile-Isuzu Partnership By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- Danbury Auto Partnership t/a Fair Honda By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Nissan Partnership By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Jeep-Eagle Partnership By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- -35- DiFeo Autocenter Partnership t/a DiFeo Mazda By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Subaru Partnership By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Chevrolet-Geo Partnership By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Hyundai Partnership By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Buick-Pontiac-GMC Truck Partnership By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- -36- DiFeo BMW Partnership By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Imports Partnership t/a Jersey City Mitsubishi By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- J & F Oldsmobile-Isuzu Partnership By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Leasing Partnership By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- Hudson Motors Partnership t/a Hudson Toyota By /s/ E.P. Mager ------------------------------- Title President ------------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- -37- J & S Ford Partnership By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Volkswagen Partnership By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo-EMCO Management Partnership By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- County Auto Group, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Partnership RCT, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel -------------------------- DiFeo Partnership, Inc. -38- By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- EMCO Motor Holdings, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- Rockland Motors Corp. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Partnership RCM, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- Somerset Motors, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Partnership SCT, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance -------------------- Title General Counsel -------------------------- -39- Gateway Oldsmobile, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- Fair Motors Corp. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Partnership DM, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------ Fair Chevrolet Corp. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- Fair Hyundai Corp. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- -40- Fair Infiniti, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- Fair Imports Corp. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- Danbury-Mt. Kisco Saturn Corp. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- Fair Cadillac-Oldsmobile Corp. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- JS2, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- -41- JS1, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Jeep-Eagle, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Autocenter, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Subaru, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Hyundai, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- -42- DiFeo Buick, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo BMW, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Imports, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Partnership HCM, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- J & F Oldsmobile Corp. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- -43- DiFeo Leasing Corporation By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- Hudson Toyota, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Partnership HCT, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Volkswagon, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- North Jersey Manhattan Saturn Partnership By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- -44- DiFeo-EMCO Mangement Avenue Partnership By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- DiFeo Partnership RCT, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- J & S Ford, Inc. By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- North Jersey Manhattan Saturn Corporation By /s/ E.P. Mager ------------------------------- Title President ---------------------------- Attest/Certify /s/ George Lowrance ------------------- Title General Counsel ------------------------- /s/ Samuel X. DiFeo ---------------------------------- Samuel X. DiFeo, Individual /s/ Joseph C. DiFeo ---------------------------------- Joseph C. DiFeo, Individual /s/ James G. Hetherington ---------------------------------- James G. Hetherington, Individual -45- /s/ Sam C. DiFeo ---------------------------------- Sam C. DiFeo, Individual -46- SECOND AMENDMENT TO UNCONDITIONAL CONTINUING GUARANTY OF PAYMENT I. THE PARTIES This Second Amendment to Unconditional, Continuing Guaranty of Payment (the "Second Amendment") is dated effective the 7th day of April, 1993, and executed by and between General Motors Acceptance Corporation, a New York corporation, with a branch operations office located at 325 Columbia Turnpike, Florham Park, New Jersey 07932, and by each and everyone of the following persons whose name, legal status, and address is listed below (the "Guarantors"): Guarantor Name Status Address -------------- ------ ------- County Auto Group Partnership NJ General 115 Route 59 t/a County Toyota Partnership Nyack, NY 10960 Rockland Motors Partnership NJ General 73 North Highland Avenue t/a Rockland Mitsubishi Partnership P.O. Box 724 Nyack, NY 10960 Somerset Motors Partnership NJ General Route 22 East t/a DiFeo Lexus Partnership P.O. Box 310 Bound Brook, NJ 08805 DiFeo Oldsmobile Partnership NJ General Route 22 East t/a Difeo Volkswagen Partnership P.O. Box 310 Bridgewater Bound Brook, NJ 08805 Fair Motors Partnership NJ General 100 Federal Road t/a Fair Mitsubishi Partnership Danbury, CT 06813 Fair Chevrolet-Geo Partnership NJ General 100 Federal Road Partnership Danbury, CT 06813 Fair Hyundai Partnership NJ General 102D Federal Road t/a Fair Suzuki Partnership Danbury, CT 06813 Fair Infiniti Partnership NJ General 100B Federal Road Partnership Danbury, CT 06813 Fair Imports Partnership NJ General 100A Federal Road t/a Fair Acura Partnership Danbury, CT 06813 Danbury-Mt. Kisco Saturn NJ General 102C Federal Road Partnership t/a Saturn of Partnership Danbury, CT 06813 Danbury and t/a Saturn of Watertown Fair Cadillac-Oldsmobile-Isuzu NJ General 102 Federal Road Partnership Partnership Danbury, CT 06813 Danbury Auto Partnership NJ General 102D Federal Road t/a Fair Honda Partnership Danbury, CT 06813 DiFeo Nissan Partnership NJ General 977 Communipaw Avenue Partnership Jersey City, NJ 07304 -47- Guarantor Name Status Address -------------- ------ ------- DiFeo Chrysler-Plymouth NJ General 315 Clendenny Ave. Jeep-Eagle Partnership Partnership Route 440 Jersey City, NJ 07304 DiFeo Autocenter Partnership NJ General Hudson Mall & Route 440 t/a DiFeo Mazda Partnership Jersey City, NJ 07304 DiFeo Subaru Partnership NJ General 315 Clendenny Avenue Partnership Jersey City, NJ 07304 DiFeo Chevrolet-Geo Partnership NJ General 315 Clendenny Ave. Partnership Route 440 Jersey City, NJ 07304 DiFeo Hyundai Partnership NJ General Hudson Mall & Route 440 Partnership Jersey City, NJ 07304 DiFeo Buick-Pontiac-GMC Truck NJ General 919 Communipaw Avenue Partnership Partnership Jersey City, NJ 07304 DiFeo BMW Partnership NJ General 301 County Road Partnership Tenafly, NJ 07670 DiFeo Imports Partnership NJ General 947 Communipaw Avenue t/a Jersey City Mitsubishi Partnership Jersey City, NJ 07304 J & F Oldsmobile-Isuzu NJ General 315 Clendenny Avenue Partnership Partnership Route 440 Jersey City, NJ 07304 DiFeo Leasing Partnership NJ General 977 Communipaw Avenue Partnership Jersey City, NJ 07304 Hudson Motors Partnership NJ General 585 Route 440 t/a Hudson Toyota Partnership Jersey City, NJ 07304 J & S Ford Partnership NJ General 599 Route 440 TO BE FORMED Partnership Jersey City, NJ 07304 DiFeo Volkswagen Partnership NJ General 599 Route 440 Partnership Jersey City, NJ 07304 North Jersey Manhattan Saturn NJ General 943 Communipaw Avenue Partnership Partnership Jersey City, NJ 07304 DiFeo-EMCO Management NJ General 585 Route 440 Partnership Partnership Jersey City, NJ 07304 County Auto Group, Inc. New York 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Partnership RCT, Inc. Delaware 153 East 53 Street c/o EMCO Motor Holdings, Inc. Corporation Suite 5900 New York, NY 10022 DiFeo Partnership, Inc. Delaware 153 East 53 Street c/o EMCO Motor Holdings, Inc. Corporation Suite 5900 New York, NY 10022 EMCO Motor Holdings, Inc. Delaware 153 East 53 Street Corporation Suite 5900 New York, NY 10022 -48- Guarantor Name Status Address -------------- ------ ------- Rockland Motors Corp. New York 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Partnership RCM, Inc. Delaware 153 East 53 Street c/o EMCO Motor Holdings, Inc. Corporation Suite 5900 New York, NY 10022 Somerset Motors, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Partnership SCT, Inc. Delaware 153 East 53 Street c/o EMCO Motor Holdings, Inc. Corporation Suite 5900 New York, NY 10022 Gateway Oldsmobile, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 Fair Motors Corp. Connecticut 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Partnership DM, Inc. Delaware 153 East 53 Street c/o EMCO Motor Holdings, Inc. Corporation Suite 5900 New York, NY 10022 Fair Chevrolet Corp. Connecticut 585 Route 440 c/o Joseph C. Difeo Corporation Jersey City, NJ 07304 Fair Hyundai Corp. Connecticut 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 Fair Infiniti, Inc. Connecticut 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 Fair Imports Corp. Connecticut 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 Danbury-Mt. Kisco Saturn Corp. Connecticut 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 Fair Cadillac-Oldsmobile Corp. Connecticut 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 JS2, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 JS1, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Jeep-Eagle, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Autocenter, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Subaru, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Hyundai, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Buick, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 -49- Guarantor Name Status Address -------------- ------ ------- DiFeo BMW, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Imports, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Partnership HCM, Inc. Delaware 153 East 53 Street c/o EMCO Motor Holdings, Inc. Corporation Suite 5900 New York, NY 10022 J & F Oldsmobile Corp. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Leasing Corporation New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 Hudson Toyota, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 DiFeo Partnership HCT, Inc. Delaware 153 East 53 Street c/o EMCO Motor Holdings, Inc. Corporation Suite 5900 New York, NY 10022 DiFeo Volkswagen, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 J & S Ford, Inc. New Jersey 585 Route 440 c/o Joseph C. DiFeo Corporation Jersey City, NJ 07304 Fair Chrysler Plymouth NJ General 100 C Federal Road Partnership Partnership Danbury, CT 06813 t/a Fair Chrysler Plymouth Samuel X. DiFeo Individual 121 Lorraine Avenue Spring Lake, NJ 07762 Joseph C. DiFeo Individual 17 Blackpoint Horseshoe Rumson, NJ 07760 II. THE RECITALS A. WHEREAS, each of the Guarantors executed and delivered to and in favor of GMAC an Unconditional, Continuing Guaranty of Payment, dated effective October 1, 1992, (the "Guaranty"); and B. WHEREAS, the Guaranty is an unconditional, continuing guaranty of payment of any and all obligations while the Dealers whose names were described therein then or thereafter owed to GMAC, except that certain limitations applied as to certain of the Individual Guarantors, as more fully set forth in paragraph 1 of the Guaranty or as subsequently modified in writing by GMAC; and C. WHEREAS, the Guaranty was first amended effective February 8, 1993, for the purpose of adding an additional party thereto both as a named "Guarantor" and a named "Dealer" thereunder; and -50- D. WHEREAS, each of the Dealers named in the Guaranty (as amended) have hired and retained DiFeo-EMCO Management Partnership, a New Jersey general partnership (with its principal administrative office located at 585 Route 440, Jersey City, New Jersey 07304) for the purpose of coordinating, managing, and supervising various business, financial, organizational, management, and operational matters for each such Dealer, and in connection therewith, have deemed it in their best interests that DiFeo-EMCO Management Partnership borrow money and procure extensions of credit for and on behalf of itself and each such Dealer (the "Group Loans"); and E. WHEREAS, DiFeo-EMCO Management Partnership has requested and GMAC is willing to provide the Group Loans but only in accordance with the terms and conditions of a certain Term Loan and Borrowing Base Credit Line Loan Agreement, dated of even date herewith, substantially in the form of Exhibit "A" hereto (the "Loan Agreement"; and F. WHEREAS, the Loan Agreement requires, among other things, the unconditional, continuing guaranty of payment by the Guarantors of all Group Loans, made in accordance with the Loan Agreement; and G. WHEREAS, each of the Guarantors agree and acknowledge that the Group Loans are in their best interest, irrespective of whether they are a direct recipient or beneficiary thereof, and intend hereby that the Guaranty, as amended, by further amending to include as a Dealer Obligation guarantied thereby, the Global Loans pursuant to the Loan Agreement. III. THE AMENDMENT AGREEMENT NOW, THEREFORE, in consideration of the premises, the sufficiency of which is hereby acknowledged, GMAC, and each of the undersigned Guarantors hereby agree, in conformity with paragraph 14 of the Guaranty, as follows: 1. The Guaranty is hereby amended to make and designate DiFeo-EMCO Management Partnership as a "Dealer" under the Guaranty and all Group Loans under the Loan Agreement as an "Obligation" guarantied thereby, for all intents and purposes thereunder, as though originally executed by the Guarantors in this manner. 2. The Guaranty is hereby further amended to make and designate as a "Dealer" for all intents and purposes under the Guaranty, and without further amendment or notice thereof, any corporate or partnership entity which is later formed and which has substantially similar and common financial, ownership, and management interests as each of the Dealers presently designated hereunder, as of the date hereof. -51- 3. Except as noted above, the Guaranty remains in full force and effect and is not otherwise waived, altered, modified, or amended hereby. GENERAL MOTORS ACCEPTANCE CORPORATION By /s/Paul A. Given ---------------------------------- Paul A. Given, Control Branch Manager County Auto Group Partnership t/a County Toyota By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- Rockland Motors Partnership t/a Rockland Mitsubishi By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- Somerset Motors Partnership t/a DiFeo Lexus By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- DiFeo Oldsmobile Partnership t/a Difeo Volkswagen of Bridgewater By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- -52- Fair Chrysler Plymouth Partnership t/a Fair Chrysler Plymouth By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- Fair Motors Partnership t/a Fair Mitsubishi By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- Fair Chevrolet-Geo Partnership By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- Fair Hyundai Partnership t/a Fair Suzuki By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- Fair Infiniti Partnership By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- -53- Fair Imports Partnership t/a Fair Acura By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- Danbury-Mt. Kisco Saturn Partnership t/a Saturn of Danbury and t/a Saturn of Watertown By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- Fair Cadillac-Oldsmobile- Isuzu Partnership By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- Danbury Auto Partnership t/a Fair Honda By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- DiFeo Nissan Partnership By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- -54- DiFeo Chrysler-Plymouth Jeep-Eagle Partnership By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- DiFeo Autocenter Partnership t/a DiFeo Mazda By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- DiFeo Subaru Partnership By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- DiFeo Chevrolet-Geo Partnership By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- DiFeo Hyundai Partnership By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- -55- DiFeo Buick-Pontiac-GMC Truck Partnership By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- DiFeo BMW Partnership By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- DiFeo Imports Partnership t/a Jersey City Mitsubishi By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- J & F Oldsmobile-Isuzu Partnership By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- DiFeo Leasing Partnership By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ------------------------------- Title V. Pres. -------------------- -56- Hudson Motors Partnership t/a Hudson Toyota By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- J & S Ford Partnership TO BE FORMED By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- DiFeo Volkswagen Partnership By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- DiFeo-EMCO Management Partnership By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, CEO ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- County Auto Group, Inc. By /s/ Joseph DiFeo ---------------------------------- Title Pres. ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title V. Pres. -------------------- -57- DiFeo Partnership RCT, Inc. By /s/E.P. Mager Title Ezra P. Mager, Pres. ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- DiFeo Partnership, Inc. By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, Pres. ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- EMCO Motor Holdings, Inc. By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, Pres. ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- Rockland Motors Corp. By /s/ Joseph C. DiFeo ---------------------------------- Title Tres. ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title Pres. -------------------- DiFeo Partnership RCM, Inc. By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, Pres. ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- Somerset Motors, Inc. By /s/Joseph C. DiFeo ---------------------------------- Title V. Pres. ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title Pres. -------------------- -58- DiFeo Partnership SCT, Inc. By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, Pres. ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- Gateway Oldsmobile, Inc. By /s/Joseph C. DiFeo ---------------------------------- Title V. Pres. ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title Pres. -------------------- Fair Motors Corp. By /s/Joseph C. DiFeo ---------------------------------- Title Pres. ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title V. Pres. -------------------- DiFeo Partnership DM, Inc. By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, Pres. ------------------------------- Attest/Certify /s/ Joseph C. DiFeo ---------------------- Title Treasurer -------------------- Fair Chevrolet Corp. By /s/Joseph C. DiFeo ---------------------------------- Title V. Pres. ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title V. Pres. -------------------- Fair Hyundai Corp. By /s/Joseph C. DiFeo ---------------------------------- Title Pres. ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title V. Pres. -------------------- -59- Fair Infiniti, Inc. By /s/Joseph C. DiFeo ---------------------------------- Title Treasurer ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title Pres. -------------------- Fair Imports Corp. By /s/Joseph C. DiFeo ---------------------------------- Title Pres ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title V. Pres. -------------------- Danbury-Mt. Kisco Saturn Corp. By /s/Joseph C. DiFeo ---------------------------------- Title Sec. ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title V. Pres. -------------------- Fair Cadillac-Oldsmobile Corp. By /s/Joseph C. DiFeo ---------------------------------- Title -------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title --------------------- JS2, Inc. By /s/Joseph C. DiFeo ---------------------------------- Title V. Pres. ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title Pres. -------------------- JS1, Inc. By /s/Joseph C. DiFeo ---------------------------------- Title V. Pres. ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title Pres. -------------------- -60- DiFeo Jeep-Eagle, Inc. By /s/Joseph C. DiFeo ---------------------------------- Title Pres. ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title V. Pres. -------------------- DiFeo Autocenter, Inc. By /s/Joseph C. DiFeo ---------------------------------- Title Pres. ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title V. Pres. -------------------- DiFeo Subaru, Inc. By /s/Joseph C. DiFeo ---------------------------------- Title V. Pres. ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title Pres. -------------------- DiFeo Hyundai, Inc. By /s/Joseph C. DiFeo ---------------------------------- Title Pres. ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title V. Pres. -------------------- DiFeo Buick, Inc. By /s/Joseph C. DiFeo ---------------------------------- Title V. Pres ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title Pres. -------------------- DiFeo BMW, Inc. By /s/Joseph C. DiFeo ---------------------------------- Title Pres. ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title V. Pres. -------------------- -61- DiFeo Imports, Inc. By /s/Joseph C. DiFeo ---------------------------------- Title Pres. ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title V. Pres -------------------- DiFeo Partnership HCM, Inc. By /s/E.P. Mager ---------------------------------- Title Pres. ------------------------------- Attest/Certify /s/Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- J & F Oldsmobile Corp. By /s/Joseph C. DiFeo ---------------------------------- Title Pres. ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title V. Pres. --------------------- DiFeo Leasing Corporation By /s/Joseph C. DiFeo ---------------------------------- Title Sec. ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title V. Pres. -------------------- Hudson Toyota, Inc. By /s/Joseph C. DiFeo ---------------------------------- Title V. Pres ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title V. Pres. -------------------- DiFeo Partnership HCT, Inc. By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, Pres. ------------------------------- Attest/Certify /s/Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- -62- DiFeo Volkswagen, Inc. By /s/Joseph C. DiFeo ---------------------------------- Title Pres. ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title V. Pres. -------------------- North Jersey Manhattan Saturn Partnership By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, Pres. ------------------------------- Attest/Certify /s/Joseph C. DiFeo ---------------------- Title V. Pres. -------------------- DiFeo Partnership RCT, Inc. By /s/E.P. Mager ---------------------------------- Title Ezra P. Mager, Pres. ------------------------------- Attest/Certify /s/Joseph C. DiFeo ---------------------- Title --------------------- J & S Ford, Inc. By /s/Joseph C. DiFeo ---------------------------------- Title Pres ------------------------------- Attest/Certify /s/Samuel X. DiFeo ---------------------- Title V. Pres. -------------------- /s/Samuel X. DiFeo ------------------------------------- Samuel X. DiFeo, Individual /s/Joseph C. DiFeo ------------------------------------- Joseph C. DiFeo, Individual -63- EX-10.2-25 15 EXH 10.2.25 TERM LOAN AND BORROW. BASE CREDIT AGR. Exhibit 10.2.25 TERM LOAN AND BORROWING BASE CREDIT LINE LOAN AGREEMENT I. THE PARTIES This Term Loan and Borrowing Base Credit Line Loan Agreement (the "Loan Agreement") is made effective the 7th day of April, 1993, by and between General Motors Acceptance Corporation, a New York corporation with a branch operations office located at 325 Columbia Turnpike, Florham Park, New Jersey 07932 ("GMAC") and DiFeo-EMCO Management Partnership, a New Jersey general partnership with its principal administrative office located at 585 Route 440, Jersey City, New Jersey 07304 ("Borrower"). II. THE RECITALS A. WHEREAS, GMAC is in the business of providing, among other things, various credit accommodations to motor vehicle dealers for use in the purchase, sale, lease, rental, and servicing of motor vehicles ("Dealership Financing"); and B. WHEREAS, beginning on or after October 1, 1992, GMAC provided Dealership Financing to the 27 separate entities listed on the attached Schedule A, and GMAC may, in the future, provide Dealership Financing to other entities, and GMAC is also willing to include and consider DiFeo Leasing Partnership, a New Jersey general partnership, as similarly situated for purposes of this Loan Agreement (the "Dealers"). In every instance, the Borrower and each and every Dealer are affiliates of one another, having substantially similar and common financial, ownership, and management interests with one another including, without limitation, the direct or indirect ownership interest of EMCO Motor Holdings, Inc., a Delaware corporation, and Samuel X. DiFeo and his brother Joseph C. DiFeo, both of whom are residents of New Jersey (the "Dealer Group"); and C. WHEREAS, the Dealers have hired and retained the Borrower for the purpose of coordinating, managing, and supervising various business, financial, organizational, management, and operational matters for each and every Dealer. D. WHEREAS, the best interests of the Dealer Group warrants that the Dealers replace certain of their Dealership Financing with loans and revolving lines of credit and in furtherance of this objective, have requested Borrower to borrow money and procure extensions of credit for and on behalf of itself and each and every Dealer (the "Group Loans"); and E. WHEREAS, Borrower has requested and GMAC is willing to provide certain credit and finance accommodations as Group Loans but only in accordance with the terms and conditions of this Loan Agreement. III. THE AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual promises herein contained, the sufficiency of which is hereby acknowledged, GMAC and Borrower hereby agree as follows: 1. Two Types of Group Loans. Subject to all of the terms and conditions of this Loan Agreement, GMAC shall make two separate and distinct types of credit and finance accommodations to Borrower as follows: (a) TERM LOAN. GMAC shall loan to Borrower the amount of Two Million Dollars ($2,000,000.00) (the "Term Loan"). (b) LINE OF CREDIT. GMAC hereby establishes a revolving line of credit, not to exceed Ten Million Dollars ($10,000,000.00) (the "Line of Credit"). (The Term Loan and Line of Credit are hereinafter referred to as "Group Loans.") (c) THE PURPOSE. The Group Loans shall be used by the Borrower as working capital in connection with the lawful business, investment, and financial operations of Borrower and the Dealers. (d) PURCHASE MONEY LOAN. Borrower acknowledges that the fundamental nature and character of the Group Loans is a purchase money loan in that the existence and use of the credit accommodations will enable and facilitate the acquisition of Used Motor Vehicles and service parts and accessories merchandise as inventory for Borrower and all of the Dealers. 2. THE TERM LOAN. (a) THE ADVANCE. GMAC shall advance to the Borrower the full amount of the Term Loan as of the date of this Loan Agreement. (b) ISSUANCE OF NOTE. To further evidence the Term Loan, Borrower shall execute and deliver a promissory note payable to the order of GMAC, substantially in the form of Exhibit 2(b) hereto with the appropriate insertions (the "Term Loan Note"). The Term Note shall be subject to the terms and conditions of this Loan Agreement. (c) INTEREST. The Term Loan shall earn interest from time to time on the unpaid principal balance beginning the date of this Loan Agreement through the date of payment in full of all amounts owing hereunder. The interest -2- shall accrue and be payable in accordance with the Term Loan Note. (d) PERMISSIVE PREPAYMENT OF THE TERM LOAN. The Term Loan may be prepaid in whole or in part at the option of Borrower and without premium or penalty; provided, however, that any partial prepayment shall be in multiple amounts of one thousand dollars and shall be applied to instalments of principal due under the Term Loan Note in inverse order of maturity thereunder. (e) MANDATORY PAYMENT OF THE TERM LOAN. Unless voluntarily prepaid in full or accelerated due to an Event of Default, the Term Loan shall be repaid in sixty (60) consecutive monthly instalments as set forth in the Term Loan Note, beginning one month from the date of this Loan Agreement. 3. THE LINE OF CREDIT. (a) ADVANCES. Upon request made to GMAC by Borrower from time to time, GMAC will loan and advance money directly to Borrower or its designee under the Line of Credit ("Advance"). Such request shall be in writing and presented to GMAC substantially in the form of Exhibit 3(a) hereto with the appropriate insertions (the "Request for Credit Line Advance"). The first Advance made on or after the date of this Loan Agreement shall be in an amount and shall be so used to fully pay the total principal amount outstanding under the used vehicle floorplan financing accommodations between the Dealers and GMAC. The aggregate principal amount of all Advances remaining unpaid from time to time are deemed "Credit Line Advances." (b) LIMITATION. Credit Line Advances shall at no time and in no event exceed the lesser of Ten Million Dollars ($10,000,000.00) or the Collateral Formula Amount, as that term is defined in subparagraph 3(g)(i); provided, however, that if it does, the excess amount shall be deemed to be part of the Line of Credit for all intents and purposes under this Loan Agreement. (c) ACCOUNT STATED. Each Advance shall be charged to the Borrower's account on GMAC's books and records. GMAC will render to Borrower a statement at least once each month of the Borrower's account which, in the absence of manifest error, shall constitute an account stated and shall be deemed to be correct and accepted by and binding upon Borrower and constitute conclusive evidence as to the existence and amounts of the Credit Line Advances, unless GMAC receives a written statement of the Borrower's exceptions thereto within thirty (30) days after such statement is rendered to the Borrower. -3- (d) ISSUANCE OF A NOTE. Borrower shall repay the Credit Line Advances to GMAC together with all accrued and unpaid interest, and applicable costs and expenses as hereinafter set forth, and in any event, on or before two (2) years from the date of this Loan Agreement. To further evidence the Line of Credit, Borrower shall execute and deliver a promissory note payable to the order of GMAC, substantially in the form of Exhibit 3(d) hereto with the appropriate insertions (the "Line of Credit Note"). The Line of Credit Note shall be subject to the terms and conditions of this Loan Agreement. (e) PRINCIPAL REPAYMENT. In addition to the other amounts Borrower is obligated to pay GMAC as herein set forth, Borrower shall promptly and forthwith repay to GMAC the Credit Line Advances, as follows: (i) PERMISSIVE PREPAYMENT. The Credit Line Advances may be prepaid in whole or in part at the option of Borrower and without premium or penalty; provided, however, that any partial prepayment shall be in multiple amounts of ten thousand dollars. (ii) MANDATORY REPAYMENT OF CREDIT LINE ADVANCES. [A] The full amount of the Credit Line Advances must be paid: [X] immediately upon the occurrence of an Event of Default as hereinafter set forth; [Y] immediately upon the effective date of termination under paragraph 12 of this Loan Agreement. [B] So much of the Credit Line Advances must be paid from time to time to ensure the Line of Credit limitation of paragraph 3(b) is not exceeded. (f) INTEREST. The Credit Line Advances shall bear interest on the principal amount of and from the date of each Advance to the date of repayment in full of the Credit Line Advances. Only one interest rate will apply to the Credit Line Advances at any given time. The interest rate on each Credit Advance will be determined from time to time at the Prime Rate plus one percent per annum. The "Prime Rate" shall mean the rate of interest publicly announced as being in effect from time to time by a majority of the twelve largest commercial banks operating in the United States (the -4- "Banks") as the "prime" or "base" rate for computing interest on loans for borrowers of the highest credit standing. In determining the Prime Rate hereunder, GMAC's determination of the Banks and their publicly announced prime or base rates shall be conclusive. No change will be made in the Prime Rate unless there is a single rate of interest which is publicly announced by at least seven of the Banks as their prime or base rate. The Prime Rate as of the date of this Agreement is Six Percent (6.00%). Interest shall be calculated on the basis of a 360-day year for the number of actual days outstanding. Interest shall be billed by GMAC monthly and shall be due and payable immediately upon receipt. The parties hereto intend to comply with applicable usury laws and the aforesaid interest rate is to be construed in accordance with this intent. The parties acknowledge that these laws may change from time to time. If acceleration or other events cause the interest contracted for, charged or received to be in excess of the lawful maximum, Borrower will receive credits so that the interest will comply with the law and in no event will the interest contracted for, charged or received exceed the legal maximum. (g) SPECIAL DEFINITIONS. (i) COLLATERAL FORMULA AMOUNT. The Collateral Formula Amount shall be the aggregate of the following amounts, as hereinafter described, as of the date of this Loan Agreement, as adjusted from time to time, and as certified in the Certification Report required to be submitted to GMAC by Borrower pursuant to paragraph 7(f) hereof; provided that the actual Collateral Formula Amount shall at no time be less than (i) the amount represented in the Monthly Certification Report or (ii) the Credit Line Advances, whichever is less: [A] Eighty-Five Percent (85%) of the lesser of (I) the actual and reasonable acquisition cost (plus actual and reasonable reconditioning expenditures) or (II) the current listed wholesale value as provided in the current, local edition of a used car guide of national repute of all Used Motor Vehicles owned by Borrower or any Dealer. [B] Fifty Percent (50%) of the original acquisition cost of all new and unused or rebuilt service parts and accessories held in inventory and owned by Borrower or any Dealer, which are free from security interests, liens, and encumbrances not otherwise arising in favor of GMAC. -5- (ii) "Used Motor Vehicles" shall mean any and all motor vehicles, cars, vans, passenger vehicles, and light trucks which [A] are then owned and held in inventory for sale, lease, or rental by Borrower or any Dealer; and [B] have been owned and held in inventory for not more than 120 days from original acquisition from outside the Group or, for motor vehicles owned as of the date of this Loan Agreement, 120 days from that date; and [C] have been previously used and titled under any state title certificate law (except if such use and titling was for the exclusive purpose of utilizing it as a demonstrator in promoting the sale, lease, or rental of Dealer merchandise); and [D] were originally acquired by Dealer or Borrower, exclusive of reconditioning expenditures, for not less than Three Thousand Dollars per motor vehicle; and [E] are of any make, type, model, or age; and [F] are not otherwise customarily regarded by GMAC in the ordinary course of its business as a new motor vehicle; and [G] are free from any other lien, security interest, or encumbrance, except in favor of GMAC in connection with this Loan Agreement; and [H] includes all parts, accessories, instruments, or equipment installed thereon. 4. SECURITY INTEREST AND COLLATERAL ASSIGNMENT. To secure (i) the prompt and complete payment of the Group Loans, (ii) the performance of any and all obligations and duties of Borrower or any Dealer pursuant to this Loan Agreement, and (iii) the payment and performance of any and all other debts, obligations or duties of Borrower or any Dealer to GMAC now existing or hereafter arising by this Loan Agreement, any guaranty in favor of GMAC or otherwise, Borrower hereby pledges, assigns and grants to GMAC a security interest in the following described property of Borrower, now existing or hereafter acquired and wherever located, and any and all proceeds thereof, in whatever form (the "Collateral"): -6- (a) inventory of all types and kinds including new and used motor vehicles, chassis, trailers, cars and trucks, service parts and accessories. (b) equipment of all types and kinds including fixtures, tools, signs, furniture, electronic and computer devices, software programs, hoists, analyzers, and goods. (c) all types and kinds of general intangibles, contract rights, accounts receivable, rebates, refunds, open accounts, bank and depository accounts, certificates of deposit, reserve accounts, chattel paper, franchise rights, cash, instruments, goodwill, accounts, documents, and contracts. Borrower shall execute and deliver to GMAC one or more agreements, documents, and financing statements, in form and substance satisfactory to GMAC, as may be required by GMAC to grant and maintain a valid, perfected first lien or security interest in the Collateral; provided, however, that the interest of GMAC shall be secondary to the extent of the interest of other persons having a purchase money security interest in non-inventory personal property perfected in conformity with Section 9-312 of the Uniform Commercial Code. 5. With respect to the Collateral, Borrower shall ensure that Borrower and the Dealers: (a) maintain, secure and protect it from diminution in value; and (b) except for purchase money security interests granted in connection with Indebtedness permitted under subparagraph 8(e) of this Loan Agreement, keep it free and clear of the claims, liens, mortgage, pledge, encumbrance, security interests and rights of all others; and (c) hold, control and dispose of the Used Motor Vehicles only for the purpose of storing and exhibiting it for retail sale or lease in the ordinary course of business; and (d) permit GMAC full and complete access to it in order to inventory, inspect and audit it, including review of Borrower and all Dealer books and records; and (e) insure it against all risks in such amounts and with a carrier and deductibles acceptable to GMAC. Such insurance policy shall name GMAC as loss payee, to the extent of its interests therein and shall contain a -7- cancellation provision only upon thirty (30) days prior written notice to GMAC. 6. REPRESENTATIONS AND WARRANTIES. In recognition that they will be relied upon by GMAC and in order to induce GMAC to enter into this Loan Agreement and make Advances as herein provided, Borrower represents and warrants to GMAC as follows: (a) FINANCIAL STATEMENTS. The balance sheet and the statement of profit and loss and surplus of the Borrower and any Dealer heretofore furnished to GMAC are correct and complete and fairly represent the financial condition of the subject thereof as of the relevant dates thereof and the results of its operations for the fiscal periods ended on such dates. Since the latest of such dates, there has been no material adverse change in the properties or financial condition of Borrower or any Dealer. (b) ABSENCE OF CONFLICTING OBLIGATIONS. The execution of this Loan Agreement and compliance with its terms or the issuance of the promissory notes as herein contemplated will not result in a breach of any of the terms and conditions of, or result in the imposition of any lien, charge or encumbrance upon any property of Borrower or any Dealer pursuant to, or constitute a default under, any indenture or other agreement or instrument under or to which Borrower or any Dealer is a party or its property is bound. (c) TAXES. All tax returns and reports of Borrower and any Dealer required to be filed by it have been timely filed or proper extensions have been obtained, and all taxes, assessments, fees, amounts required to be withheld and paid to a governmental agency or regulatory authority, and other governmental charges upon them or their properties, assets, income and franchises which are due and payable have been paid when due and payable. Borrower does not know of any proposed, asserted, or assessed tax deficiency against it that would be material to the condition (financial or otherwise) of Borrower or any Dealer, is not a party to, bound by, or obligated under any tax sharing or similar agreement. (d) ABSENCE OF MATERIAL LITIGATION. Neither Borrower nor any Dealer is a party to any litigation or administrative proceeding, nor is any litigation or administrative proceeding threatened against any of them, which in either case would, if adversely determined, cause any material adverse change in the properties or financial condition of any of them. Borrower shall furnish to GMAC promptly upon the -8- commencement thereof, written notice of any litigation, including arbitration, where the amount claimed exceeds $50,000 and of any proceedings before any governmental agency which would, if successful, materially, adversely affect Borrower or any Dealer, except that where the claimed amount is subject to a fully enforceable contract of insurance or indemnification and the insurer or indemnitor has acknowledged its obligation under such contract, the said notice shall not be required. (e) RECORDS. The records concerning all of the Collateral are kept at the local office of Borrower or Dealer, as the case may be. Such records shall not be moved from such location without prior written notice to GMAC. (f) ORGANIZATION/AUTHORIZATION. Borrower and Dealers are general partnerships duly organized, validly existing and in good standing under the laws of the state where originally formed, and have all requisite power and authority to own and operate their properties, to carry on their business as now conducted and proposed to be conducted. Borrower has all requisite power and authority to enter into this Loan Agreement, to issue any promissory notes and to carry out the transactions contemplated under this Loan Agreement. Borrower and Dealers possess all franchises, certificates, licenses, permits and other authorizations from governmental or regulatory authorities, free from burdensome restrictions, that are necessary in any material respects for the ownership, maintenance and operation of their properties and assets and conduct of their business as now conducted and proposed to be conducted, and are not in violation of them in any material respect. (g) GOOD TITLE. Borrower and Dealer has and will have good and marketable title to all Collateral free from all liens, encumbrances, security interests and claims except as granted to GMAC hereby. 7. AFFIRMATIVE COVENANTS. While this Loan Agreement remains in effect or any of the Group Loans remain unpaid, unless waived in writing by GMAC: a. FINANCIAL STATUS. Borrower, in aggregation with all Dealers (the "Group") shall at all times maintain (i) a Tangible Net Worth in the amount of at least Ten Million Five Hundred Thousand Dollars ($10,500,000) and (ii) a ratio of Total Liabilities of Group to Tangible Net Worth of Group of no greater than nine (9) to one (1). -9- As used herein, the term "Tangible Net Worth" shall mean the Group's paid-in capital, contributions, or investment, plus paid-in surplus, plus retained earnings and LIFO reserve, minus any intangible assets (including, but not limited to goodwill, patents, copyrights, leases, licenses, franchise rights, trade names, organization cost, debt expense, and customer lists), as defined and computed in accordance with generally accepted accounting principles applicable to the Group. As used herein, the term "Total Liabilities" shall mean with respect to the Group all obligations for borrowed money (including, without limitation, all notes payable and drafts accepted representing extensions of credit, commercial paper, all obligations evidenced by bonds, debentures, notes or other similar instruments and all obligations upon which interest charges are customarily paid), all obligations under conditional sale or other title retention agreements, all obligations issued or assumed as full or partial payment for property (whether or not any such obligations represent obligations for borrowed money), all capitalized lease obligations, and all indebtedness secured by any lien existing on property owned or acquired by the Group subject to any such lien whether or not the obligations secured thereby shall have been assumed. (b) INSURANCE. Borrower shall maintain and furnish GMAC with proof of insurance required pursuant to paragraph 5(e) herein. The receipt by GMAC of any insurance proceeds shall not release Borrower from payment of its obligations hereunder, except to the extent of such proceeds. (c) EXISTENCE AND BUSINESS OBLIGATIONS. Except as provided in subparagraph 10(d), Borrower and all Dealers shall maintain and continue its present business and maintain their existence in good standing, shall preserve and keep in full force and effect any franchise rights and trade names, and shall pay, before the same become delinquent and before penalties accrue thereon, all taxes, assessments, and other governmental charges against them or its property, and any and all other liabilities, except to the extent, and so long as the same are being contested in good faith by appropriate proceedings, with adequate reserves provided for such payments. (d) ACCOUNTING RECORDS; REPORTS. The Group shall maintain a standard and modern system for accounting in accordance with generally accepted accounting principles consistently applied throughout all accounting periods and furnish to GMAC such information respecting its business, assets and financial condition -10- as GMAC may reasonably request and, Borrower without request, shall furnish to GMAC: (i) as soon as available and in any event within one hundred twenty days after the close of each fiscal year of the Group, a copy of unqualified audited financial statements of the Group, in form and prepared by a Certified Public Accountant selected by Borrower and satisfactory to GMAC, to the effect that the same fairly presents the financial condition of the Group, and the results of its operations as of the relevant dates thereof; (ii) as soon as available, and in any event within thirty days after the end of each month, a consolidated financial statement for the Group to include a balance sheet and a statement of operations (income and expenses) with an accompanying spreadsheet showing the same information by Dealer. Individual Dealer operating reports in the format supplied to the vehicle manufacturer will be provided to GMAC upon request; (iii) within one hundred twenty (120) days after the end of each fiscal year of the Group a schedule showing all insurance policies which the Group had in force with respect to the Collateral as of the end of such fiscal year, signed by the Group; (iv) within thirty (30) days of each period beginning April 15, 1993, and every six (6) months thereafter, and more frequently upon request by GMAC, a detailed and comprehensive schedule of the disbursement, loan, transfer, deposit, investment, payment, or other direct or indirect distribution by Borrower to and amongst the Dealers of any and all proceeds from Group Loans. This provision shall not be deemed to restrict Borrower from making such disbursements, loans, etc. in its sound and absolute discretion; (v) as soon as available and in any event by August 14 of each year, a report by the Borrower's certified public accountant on the results of applying procedures satisfactory to GMAC for the parts and accessories inventory which would include, but not be limited to, the following: observation of physical inventories or test counts of physical inventories and a review of the reconciliation to the general ledger for reasonableness at selected dealerships representing at least 50% of the Dealer's total average value of parts and accessories inventory; and an analytic review for -11- all Dealer locations of the outstanding balance of the parts and accessories inventory, parts inventory aging by aged category and obsolescence or other reserves for the parts and accessories inventory at June 30 as compared to the prior June 30 review and December 31 audited balance. The results of a physical count of the parts and accessories inventory taken at each Dealer location by a reputable inventory service at each year-end will be audited by the certified public accountant and serve as the basis for the parts and accessories inventory amount stated in the annual certified audit report. (vi) from time to time, such other information as GMAC may reasonably request concerning Borrower and any Dealer. (e) INSPECTIONS. Borrower irrevocably authorizes representatives of GMAC to inspect and audit the Collateral and to visit and enter the premises of Borrower and any Dealer to audit, inspect, review, examine, copy (by electronic or other means) and abstract any of the books and accounting and records of them, and to discuss the affairs, business, finances and accounts of them with its officers and employees, at any reasonable time and as often as may be reasonably desired. (f) MONTHLY CERTIFICATION REPORTS. Borrower shall furnish GMAC within fifteen days of the fifteenth and last day of each month a report certified by the chief executive officer or the chief financial officer of Borrower, in the form attached as Exhibit 7(f), detailing the Group's Collateral Formula Amount as of the reporting date ("Monthly Certification Report"). The Monthly Certification Report submitted as of a month-end date shall have attached to it a complete and detailed listing of all Used Motor Vehicles, in the form attached to Exhibit 7(f). GMAC may, in its sole discretion, increase the frequency of such reports and demand such a report at any time. (g) PROPERTIES IN GOOD CONDITION. Borrower shall keep its respective properties in good repair, working order and condition and, from time to time, make all needful and proper repairs, renewals, replacements, additions and improvements thereto, so that the business carried on may be properly and advantageously conducted at all times in accordance with prudent business management. (h) APPLICATION TO FUTURE AFFILIATED DEALERS. Any motor vehicle dealership entity which comes into existence, is not listed on the attached Schedule A, and has -12- substantially similar and common financial, ownership, and management interests as the Group shall, upon execution of the Guaranty referred to in paragraph 9 of this Loan Agreement and documents evidencing a new vehicle floorplan financing agreement with GMAC, be deemed to be a "Dealer" within the meaning of this Loan Agreement for all intents and purposes. 8. NEGATIVE COVENANTS. While this Loan Agreement remains in effect, or any of the Group Loans remain unpaid, no member of the Group shall, without the prior written consent of GMAC: (a) MERGERS, CONSOLIDATIONS, DISPOSITION OF ASSETS. Merge or consolidate with or into any other corporation or entity, except if Borrower or Dealer remains the surviving entity, or sell, lease, transfer or otherwise dispose of all or any substantial part of the property, assets or business of the Borrower or Dealer. (b) INVESTMENTS. Make any loans or advances to, or investments in, other persons, corporations or other entities, except (i) investments in (A) bank certificates of deposit and savings accounts; (B) obligations of the United States; and (C) prime commercial paper maturing within ninety (90) days of the date of acquisition by Borrower or Dealer; (D) those existing loans to other Dealers which are disclosed on the financial statements referenced in paragraph 6(a) of this Loan Agreement; and (E) any Dealer or subsidiaries of Borrower or Dealer; and (ii) loans or advances to (A) affiliates of Borrower or Dealer other than affiliates whose principal business is the sale and service of new and used motor vehicles; (B) employees of Dealer; (C) customers of Dealer in the ordinary course of Dealer's business; and (D) any Dealer or subsidiaries of Borrower or Dealer. (c) CONTINGENT LIABILITIES. Guarantee or become a surety or otherwise contingently liable for any obligations of others, except (i) pursuant to the deposit and collection of checks and similar items in the ordinary course of business; and (ii) for transactions in the ordinary course of business; and (iii) contingent obligations owing by Dealer to GMAC pursuant to the bulk sale of chattel paper. (d) EXPENDITURES. Make any substantial or unusual disbursement of funds or expend sums for the -13- acquisition of capital assets exceeding One Million Two Hundred Thousand Dollars ($1,200,000) in any one calendar year, excluding present construction commenced or planned to commence in 1993, as set forth on the attached Exhibit 8(d). (e) RESTRICTION ON INDEBTEDNESS. Create, incur, assume or have outstanding any indebtedness for borrowed money except: (i) the amount due GMAC hereunder; (ii) indebtedness for current borrowings (maturing in twelve (12) months or less, including renewals available at the option of the Dealer), all of which indebtedness must be completely paid up for a period of not less than sixty (60) consecutive days in each calendar year; (iii) indebtedness incurred in the ordinary course of Borrower's or Dealer's business for necessary warranty, extended service contracts, materials, supplies, etc. (e.g., trade creditors), all of which shall be due not more than ninety (90) days from the date of obligation or invoice and none of which shall be past due; (iv) other indebtedness (not including current indebtedness as described in (e)(ii) of this paragraph) which was outstanding on the date of this Loan Agreement and is shown on the financial statements of Borrower or Dealer referenced in paragraph 6(a) of this Loan Agreement including, but not limited to, fully subordinated loans aggregating up to six million dollars made to any member of the Group by EMCO Motor Holdings, Inc., a Delaware corporation and/or DiFeo Partnership, Inc., a Delaware corporation, and including any refinancing, extension, or renewal thereof on substantially similar terms and conditions; and (v) for any other circumstance not otherwise set forth in subparagraphs 8(e)(i)-(iv) above, the aggregate amount of $500,000. (f) Borrower will not create, incur, or suffer any lien, mortgage, pledge, assignment, or other encumbrance on or security interest in the Collateral. 9. CONDITIONS PRECEDENT TO MAKING THE GROUP LOANS. The Group Loans shall be made or available to Borrower only upon the fulfillment of each of the following conditions: -14- (a) Execution and delivery to GMAC of an amendment to Unconditional, Continuing Guaranty of Payment dated October 1, 1992, as amended February 8, 1993, by a First Amendment thereto (the "Guaranty"), to and in favor of GMAC by each of the parties thereto, substantially in the form of Exhibit 9(a) hereto. (b) GMAC shall have received a certified copy of all partnership action taken by Borrower authorizing the execution, delivery, and performance of this Loan Agreement, and all other notes, documents, agreements, instruments, and obligations attendant thereto. (c) GMAC shall have received an opinion of counsel to Borrower, in form and substance satisfactory to counsel to GMAC as to the matters referred to in subparagraph 6(f) and further to the effect that this Loan Agreement and all attendant notes, documents, etc. have legal, valid, binding, and enforceable agreements of Borrower and other signatories thereto (excepting GMAC). (d) Execution and delivery to GMAC of all agreements, notes, documents, and instruments referred to and contemplated by this Loan Agreement. 10. EVENT OF DEFAULT. An Event of Default shall include one or more of the following: (a) a default by Borrower or any Dealer in the payment, performance or observance of any obligation or covenant under this Loan Agreement or under any other agreement now or hereafter entered into with GMAC; (b) the institution of a proceeding in bankruptcy, receivership or insolvency by or against Borrower or any Dealer or its property [provided that Dealer shall have sixty days to obtain an order of dismissal of any involuntary petition in bankruptcy filed against it unless such petition was initiated by GMAC]; (c) an assignment by Dealer for the benefit of creditors; (d) the failure of Dealer to maintain, in good standing, its present franchise, dealer, or sales and service agreement, provided that this subsection (d) shall not apply to the voluntary sale, transfer or surrender of any such agreement where the one disposed of represents not more than ten percent (10%) of total gross sales volume in dollars over the prior immediate twelve-month period; (e) the imposition of a tax or any other nonconsensual lien against any of the Borrower's or any Dealer's property other than (A) for taxes not overdue or challenged in good faith or (B) liens not discharged or bonded within 60 days of any protest or notice of filing; (f) a misrepresentation by Dealer for the purpose of obtaining credit or an extension of credit; (g) if GMAC shall deem itself insecure based on its knowledge of any event, occurrence, circumstance or fact not directly caused by GMAC, which in the reasonable judgment of GMAC will have a material adverse effect on the Collateral, or on the -15- collection by GMAC under any guaranty of the obligations of Borrower or any Dealer hereunder; (h) if any material representation, warranty or other statement of fact given herein or in any writing, certificate, report or statement at any time furnished to GMAC by Borrower or any Dealer or its agents pursuant to or in connection with this Loan Agreement, or otherwise, shall be false or misleading in any material respect when given; (i) exceeding the Line of Credit Limitations set forth in paragraph 3(b); (j) the failure of any Dealer in the Group to offer and make available to GMAC all of its floorplan financing needs, provided the Dealer is creditworthy and GMAC is customarily providing such finance accommodations; and (k) the termination of any guaranty of payment of the Group Loans provided to GMAC by any member of the Dealer Group, or any of its owners, shareholders, officers, affiliates, parents, or subsidiaries. 11. RIGHTS AND REMEDIES OF GMAC. Upon the occurrence of an Event of Default as set forth in Paragraph 10 herein or if any substantial portion of Collateral is in danger of misuse, loss, seizure or confiscation, GMAC may take immediate possession of Collateral without demand or further notice and without legal process. In furtherance thereof, Borrower shall, if GMAC so requests, assemble Collateral and make it available to GMAC at a reasonable, convenient place designated by GMAC. GMAC shall have the right, and Borrower hereby authorizes and empowers GMAC, to enter upon the premises wherever Collateral may be and remove same. In addition, GMAC shall have the right to exercise one or more of the following remedies: (a) institute proceedings to collect all or a portion of the Group Loans and to recover a judgment for the same and to collect upon such judgment out of any property of the Borrower wherever situated; (b) to offset and apply any monies, credits or other proceeds of property of Borrower that has or may come into possession or under the control of GMAC against any amount owing by Borrower to GMAC; (c) with respect to accounts, contract rights, chattel paper, tax refunds and general intangibles constituting Collateral herein, GMAC (i) may settle, adjust and compromise all present and future claims arising thereunder or in connection therewith, (ii) may sell, assign, pledge or make any other agreement with respect thereto or the proceeds thereof; -16- (iii) may notify all such account, contract right, etc., debtors of GMAC's interest therein and require direct payment to GMAC of such obligations; (iv) may receive, sign, endorse, and deliver in its name or the name of the Borrower any and all notes, instruments, documents, titles, negotiable instruments and the like necessary and appropriate to effect the collection of such intangibles, and Borrower hereby waives notice of presentment, protest and nonpayment of any instrument so endorsed. (v) is hereby constituted and appointed by Borrower as Borrower's attorney-in-fact with power to accept and to receipt and endorse Borrower's name upon any notes, acceptances, checks, drafts, money orders or other evidences of payment or Collateral that may come into GMAC's possession; to notify the Post Office authorities to change the address for delivery of mail addressed to Borrower to such address as GMAC may designate; to do all other acts and things necessary to carry out this Agreement. All acts of said attorney or designee are hereby ratified and approved, and said attorney or designee shall not be liable for any acts of omission or commission, nor for any error of judgment or mistake of fact or law; this power being coupled with an interest is irrevocable while any of the Group Loans remain unpaid. (d) sell or lease the Collateral, or any portion thereof, after five days' written notice at public or private sale for the account of the Borrower. Borrower agrees that the sale by GMAC of any new or unused property repossessed by GMAC to the Seller thereof, or to any person designated by such Seller at the invoice cost thereof to Borrower less any credits granted to Borrower with respect thereto and reasonable costs of transportation and reconditioning, shall be deemed to be a commercially reasonable means of disposing of the same. Borrower further agrees that if GMAC shall solicit bids from three or more other dealers in the type of property repossessed by GMAC hereunder, any sale by GMAC of such property in bulk or in parcels to the bidder submitting the highest cash bid therefor also shall be deemed to be a commercially reasonable means of disposing of the same. Notwithstanding the foregoing, it is expressly understood that such means of disposal shall not be exclusive, and that GMAC shall have the right to dispose of any property repossessed hereunder by any commercially reasonable means. GMAC's remedies hereunder are cumulative and may be enforced successively or concurrently. Borrower shall pay all expenses and reimburse -17- GMAC for any expenditures, including reasonable attorney fees and legal expenses, in connection with GMAC's exercise of any of its rights and remedies under this Loan Agreement. Upon the occurrence of an Event of Default, in addition to the rights specified herein, all the rights and remedies afforded GMAC by applicable law shall apply. 12. TERMINATION. This Loan Agreement shall terminate upon the earliest of the following: (a) two years from the date of this Loan Agreement; (b) the declaration by GMAC of any Event of Default; or (c) ninety (90) days after written notice to terminate provided by Borrower to GMAC. The Line of Credit Loan shall be immediately due and payable upon termination of this Loan Agreement. The Term Loan shall continue in full force and effect in accordance with the terms and conditions of the Promissory Note upon termination of this Loan Agreement except following an Event of Default, in which case the Term Loan shall also become immediately due and payable. All rights and remedies of GMAC or duties and obligations of Borrower extant upon termination of this Loan Agreement shall continue in full force and effect until all Group Loans are paid in full. 13. SUSPENSION. GMAC may, in its sole and absolute discretion and judgment, suspend its obligation to make Advances under the Line of Credit Loan due to material, adverse changes in Dealer's financial condition, material adverse change in Dealer's business or the discovery of any information which appears to constitute an Event of Default. GMAC shall provide Dealer with written notice of its decision to suspend its lending obligation as soon as is practicable, but in no event more than three (3) business days after effecting such a decision. 14. CONSENT AND WAIVER. Borrower recognizes that GMAC has ongoing business relationships with others including certain shareholders and related entities of Borrower or Dealers. GMAC's dealings with these others may require it to act in providing and administering credit different than its dealings with Borrower or Dealer. Borrower hereby acknowledges, consents to, and waives any claim or defense it may have with respect to such differences. 15. NOTICES. All notices, requests, and demands shall be in writing and be given to or made upon the respective parties at the addresses set forth in Section I of this Agreement, or to such other address as either party shall designate for itself in writing to the other party. Notice shall be deemed given when received by the addressee and may include hand delivery, overnight courier, certified mail, or electronic written transmission by public or private means. 16. ADOPTION AND RATIFICATION. Any and all acts, disclosures, notices, executions, and deliveries which may have been made -18- by Borrower to or in favor of GMAC prior to the execution of this Loan Agreement is hereby ratified and adopted as the legal, valid, and binding act of the Borrower as though authorized and empowered as of such act, etc. 17. RIGHTS AND REMEDIES NOT WAIVED. No course of dealing between the Borrower and GMAC or any failure or delay on the part of GMAC in exercising any rights or remedies hereunder shall operate as a waiver of any rights or remedies of GMAC and no single or partial exercise of any rights or remedies hereunder shall operate as a waiver or preclude the exercise of any other rights or remedies hereunder. 18. COMPLETE AGREEMENT. Except as otherwise provided or referred to herein, there are no other agreements or understandings, either oral or in writing, between the parties affecting this Loan Agreement or relating to any of the subject matters covered by this Loan Agreement. No agreement between GMAC and Borrower which relates to matters covered herein, and no change in, addition to (except the filling in of blank lines), or erasure of any printed portion of this Loan Agreement will be binding unless it is approved in a written agreement executed by a duly authorized representative of each party. 19. BINDING EFFECT. This Agreement shall be binding upon the parties' successors and assigns provided, however, that Borrower shall have absolutely no right of assignment absent prior written consent of GMAC. 20. SEVERABILITY. Any provision hereof prohibited by law shall be ineffective to the extent of such prohibitions without invalidating the remaining provisions hereof. 21. GOVERNING LAW. This Loan Agreement shall be construed in accordance with and governed by the laws of New Jersey. 21. CAPTIONS. The captions of the various sections and paragraphs of this Loan Agreement have been inserted only for the purposes of convenience; such captions are not a part of this Loan Agreement and shall not be deemed in any manner to modify, explain, enlarge or restrict any of the provisions of this Loan Agreement. -19- IN WITNESS WHEREOF, each of the parties has caused this Loan Agreement to be executed by its duly authorized representative this 7th day of April, 1993. DIFEO-EMCO MANAGEMENT PARTNERSHIP GENERAL MOTORS ACCEPTANCE a New Jersey General Partnership CORPORATION By_____________________________ By______________________ Ezra Mager for DiFeo Partnership, William F. Muir, Inc., a Delaware Corporation, Vice President as General Partner National Accounts and By:____________________________ Joseph C. DiFeo for various DiFeo Corporate Entities, as General Partners and By:_____________________________ Samuel X. DiFeo for various DiFeo Corporate Entities, as General Partners -20- SCHEDULE A to Term Loan and Borrowing Base Credit Line Loan Agreement Between GMAC and DiFeo-EMCO Management Partnership, dated April 7, 1993 (the "Loan Agreement") Dealer Name Status Address - ----------- ------ ------- County Auto Group Partnership NJ General 115 Route 59 t/a County Toyota Partnership Nyack, NY 10960 Rockland Motors Partnership NJ General 73 North Highland Avenue t/a Rockland Mitsubishi Partnership P.O. Box 724 Nyack, NY 10960 Somerset Motors Partnership NJ General Route 22 East t/a DiFeo Lexus Partnership P.O. Box 310 Bound Brook, NJ 08805 DiFeo Oldsmobile Partnership NJ General Route 22 East t/a DiFeo Volkswagen of Partnership P.O. Box 310 Bridgewater Bound Brook, NJ 08805 Fair Motors Partnership NJ General 100 Federal Road t/a Fair Mitsubishi Partnership Danbury, CT 06813 Fair Chevrolet-Geo Partnership NJ General 100 Federal Road Partnership Danbury, CT 06813 Fair Hyundai Partnership NJ General 102D Federal Road t/a Fair Suzuki Partnership Danbury, CT 06813 Fair Infiniti Partnership NJ General 100B Federal Road Partnership Danbury, CT 06813 Fair Imports Partnership NJ General 100A Federal Road t/a Fair Acura Partnership Danbury, CT 06813 Danbury-Mt. Kisco Saturn NJ General 102C Federal Road Partnership t/a Saturn Partnership Danbury, CT 06813 of Danbury and t/a Saturn of Watertown Fair Cadillac-Oldsmobile- NJ General 102 Federal Road Isuzu Partnership Partnership Danbury, CT 06813 Danbury Auto Partnership NJ General 102D Federal Road t/a Fair Honda Partnership Danbury, CT 06813 DiFeo Nissan Partnership NJ General 977 Communipaw Avenue Partnership Jersey City, NJ 07304 Schedule A/Page of 2 Dealer Name Status Address - ----------- ------ ------- DiFeo Chrysler-Plymouth NJ General 315 Clendenny Ave. Jeep-Eagle Partnership Partnership Jersey City, NJ 07304 DiFeo Autocenter Partnership NJ General Hudson Mall & Route 440 t/a DiFeo Mazda Partnership Jersey City, NJ 07304 DiFeo Subaru Partnership NJ General 315 Clendenny Avenue Partnership Jersey City, NJ 07304 DiFeo Chevrolet-Geo NJ General 315 Clendenny Ave. Partnership Partnership Jersey City, NJ 07304 DiFeo Hyundai Partnership NJ General Hudson Mall & Route 440 Partnership Jersey City, NJ 07304 DiFeo Buick-Pontiac-GMC NJ General 919 Communipaw Avenue Truck Partnership Partnership Jersey City, NJ 07304 DiFeo BMW Partnership NJ General 301 County Road Partnership Tenafly, NJ 07670 DiFeo Imports Partnership NJ General 947 Communipaw Avenue t/a Jersey City Mitsubishi Partnership Jersey City, NJ 07304 J & F Oldsmobile-Isuzu NJ General 315 Clendenny Avenue Partnership Partnership Route 440 Jersey City, NJ 07304 Hudson Motors Partnership NJ General 585 Route 440 t/a Hudson Toyota Partnership Jersey City, NJ 07304 J & S Ford Partnership NJ General 599 Route 440 TO BE FORMED Partnership Jersey City, NJ 07304 DiFeo Volkswagen Partnership NJ General 599 Route 440 Partnership Jersey City, NJ 07304 Fair Chrysler Plymouth NJ General 100 C Federal Road Partnership Partnership Danbury, CT 06813 t/a Fair Chrysler Plymouth North Jersey Manhattan Saturn NJ General 943 Communipaw Partnership Partnership Jersey City, NJ 07304 -2- EX-10.2-26 16 EXH 10.2.26 SETTLEMENT AGREEMENT Exhibit 10.2.26 SETTLEMENT AGREEMENT Dated as of October 3, 1996 among TRACE INTERNATIONAL HOLDINGS, INC. (FORMERLY "21" INTERNATIONAL HOLDINGS, INC.) UAG NORTHEAST, INC. DIFEO PARTNERSHIP, INC. DIFEO PARTNERSHIP RCT, INC. DIFEO PARTNERSHIP HCM, INC. DIFEO PARTNERSHIP HCT, INC. DIFEO PARTNERSHIP DM, INC. DIFEO PARTNERSHIP SCT, INC. DIFEO PARTNERSHIP RCM, INC. UNITED AUTO GROUP, INC. (FORMERLY, EMCO MOTOR HOLDINGS, INC.) FAIR CADILLAC-OLDSMOBILE CORP. FAIR CHEVROLET CORP. FAIR INFINITI, INC. FAIR IMPORTS CORP. FAIR HYUNDAI CORP. FAIR MOTORS CORP. DANBURY-MT. KISCO SATURN CORP. HUDSON TOYOTA, INC. J & S FORD INC. DIFEO VOLKSWAGEN INC. DIFEO HYUNDAI, INC. J & F OLDSMOBILE CORP. DIFEO SUBARU, INC. DIFEO JEEP-EAGLE, INC. DIFEO IMPORTS, INC. DIFEO BUICK, INC. DIFEO AUTOCENTER, INC. DIFEO LEASING CORPORATION SOMERSET MOTORS INC. GATEWAY OLDSMOBILE INC. DIFEO B.M.W., INC. COUNTY AUTO GROUP INC. ROCKLAND MOTORS CORP. JS1, INC. JS2, INC. JS4, INC. SAMUEL X. DIFEO and JOSEPH C. DIFEO SETTLEMENT AGREEMENT This Settlement Agreement (the "Agreement") is made as of October 3, 1996 by and among Trace International Holdings, Inc. (formerly "21" International Holdings, Inc.), a Delaware corporation, UAG Northeast, Inc. ("UAG Northeast"), a Delaware corporation, DiFeo Partnership, Inc. ("DPI"), a Delaware corporation, United Auto Group, Inc. ("UAG") (formerly EMCO Motor Holdings, Inc.), a Delaware corporation, and DiFeo Partnership RCT, Inc., DiFeo Partnership HCM, Inc., DiFeo Partnership HCT, Inc., DiFeo Partnership DM, Inc., DiFeo Partnership SCT, Inc., DiFeo Partnership RCM, Inc., each a Delaware corporation (individually, a "DPI Subsidiary" and, collectively, the "DPI Subsidiaries"), and Fair Cadillac- Oldsmobile Corp., Fair Chevrolet Corp., Fair Infiniti, Inc., Fair Imports Corp., Fair Hyundai Corp., Fair Motors Corp., Danbury-Mt. Kisco Saturn Corp., Hudson Toyota Inc., J & S Ford Inc., DiFeo Volkswagen Inc., DiFeo Hyundai Inc., J & F Oldsmobile Corp., DiFeo Subaru Inc., DiFeo Jeep-Eagle Inc., DiFeo Imports Inc., DiFeo Buick Inc., DiFeo Autocenter Inc., DiFeo Leasing Corporation, Somerset Motors Inc., Gateway Oldsmobile Inc., DiFeo B.M.W., Inc., County Auto Group, Inc., Rockland Motors Corp., JS1, Inc., JS2, Inc. and JS4, Inc. (individually a "Corporation" and, collectively, the "Corporations") and Samuel X. DiFeo and Joseph C. DiFeo (individually, a "Principal" and, collectively, the "Principals"). UAG Northeast, DPI, UAG, DPI Subsidiaries, the Corporations and the Principals are referred to collectively herein as "Parties". PRELIMINARY STATEMENTS. The Parties hereto make the following preliminary statements: A. Pursuant to the terms of a certain Master Agreement made as of March 11, 1992 as amended by Amendment No. 1 to the Master Agreement dated October 1, 1992 and by Amendment No. 2 to the Master Agreement dated July 21, 1993 (as so amended, the "Master Agreement") by and among the Parties, DPI and certain wholly-owned subsidiaries of DPI entered into certain partnerships (the "Partnerships") with the Corporations to operate automobile dealerships, as the franchisees under franchise agreements with various automobile manufacturers and to lease real property in connection therewith. B. This Agreement settles certain disputes, claims and issues among the Parties relative to the Corporations, the Partnerships and certain third parties and upon the Closing, as hereinafter defined, is intended to supersede the Master Agreement and all related agreements thereto (including, but not limited to, all leases, employment and consulting agreements, pledge agreements and such other ancillary documents executed in connection with the Master Agreement, but not including the partnership agreements and subleases executed in connection with the Master Agreement) (collectively with the Master Agreement, the "1992 Transaction Documents") in their entirety. C. The Parties desire that the transactions contemplated by this Agreement be implemented through the execution and simultaneous closing of the transactions contemplated by the 1996 Transaction Documents (as defined in Section 1.2(b) hereof). D. The Parties agree that this Agreement and the transactions contemplated hereunder are subject to UAG consummating its initial public offering (the "Initial Public Offering") by December 31, 1996. NOW, THEREFORE, in consideration of the mutual agreements and on the terms and conditions contained herein, and intending to be legally bound, the Parties hereby agree as follows: ARTICLE 1 EFFECT OF SETTLEMENT AGREEMENT AND CLOSING Section 1.1 EFFECT OF AGREEMENT. Upon the Closing (as hereinafter defined) and execution of the 1996 Transaction Documents contemplated hereunder and subject to the fulfillment (or waiver) of the conditions specified in Article 5 herein, the 1992 Transaction Documents and the non-binding Memorandum of Understanding executed by UAG and the Principals on August 7, 1996 shall be superseded by this Agreement and the 1996 Transaction Documents in their entirety. From and after the Closing, the 1992 Transaction Documents and the Memorandum of Understanding executed by UAG and the Principals on August 7, 1996 shall be -2- considered terminated and shall no longer be in force and effect. Section 1.2 CLOSING. (a) The closing of the transactions contemplated hereby (the "Closing") shall take place at the offices of Arnold & Porter, 399 Park Avenue, New York, New York 10022 (or at such different location as the Parties shall mutually agree), at such time and date as the Parties shall mutually agree, so long as such date is not later than December 31, 1996, provided that all conditions to the obligations of the Parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the Parties will take at the Closing itself) have been satisfied or waived (the "Closing Date"). All of the actions contemplated to be taken pursuant to this Agreement on the Closing Date and taken or occurring on such date shall be deemed to occur simultaneously. (b) At the Closing, the following transaction documents (the "1996 Transaction Documents") associated with this Agreement shall be delivered by each of the parties thereto: (i) A Merger Agreement as to each of the Mergers referred to in Section 6.2 in the form attached hereto as EXHIBIT 6.2; (ii) B Reorganization Agreements referred to in Section 6.2; (iii) UAG Options referred to in Section 6.1 in the form attached hereto as EXHIBIT 6.1; (iv) Registration Rights Agreement referred to in Section 6.1 in the form attached hereto as EXHIBIT 6.1(A); (v) Consulting Agreements with respect to Samuel DiFeo, Sr. and Joseph C. DiFeo referred to in Section 7.2; (vi) Employment Agreement of Samuel X. DiFeo referred to in Section 7.3; (vii) Partnership Exchange Agreement and related documents and instruments referred to in Article 8; -3- (viii) Leases referred to in Article 11; (ix) Assignment of Claims Agreement and related documents referred to in Article 9; and (x) Assignment and Assumption Agreement and related documents referred to in Article 13. (c) ADDITIONAL DELIVERIES OF UAG, UAG NORTHEAST, DPI AND DPI SUBSIDIARIES. At the Closing, UAG, UAG Northeast, DPI and DPI Subsidiaries shall deliver the following additional documents to the Principals and Corporations: (i) A certificate of good standing regarding each of UAG, UAG Northeast, DPI and DPI Subsidiaries dated as of a recent date and issued by the Secretary of State of the State of Delaware; (ii) A closing certificate by UAG, UAG Northeast, DPI and DPI Subsidiaries dated as of the Closing Date to the effect that each of the conditions specified in Article 5 are satisfied in all material respects; (iii) A certificate of authority and incumbency with respect to the authority of the officers of UAG, UAG Northeast, DPI and DPI Subsidiaries executing any Closing documents, in a form reasonably acceptable to the Principals and Corporations; (iv) A legal opinion of counsel to UAG, UAG Northeast, DPI and DPI Subsidiaries in a form reasonably acceptable to the Principals and Corporations; and (v) Such other documents, certificates and instruments as may reasonably be requested by the Principals and Corporations. (d) ADDITIONAL DELIVERIES OF THE PRINCIPALS AND CORPORATIONS. At the Closing, the Principals and Corporations shall deliver the following additional documents to UAG, UAG Northeast, DPI and DPI Subsidiaries: -4- (i) A certificate of good standing regarding each of the Corporations dated as of a recent date and issued by the Secretary of State of the State of its incorporation; (ii) A closing certificate by the Principals and Corporations dated as of the Closing Date to the effect that each of the conditions specified in Article 5 are satisfied in all material respects; (iii) A certificate of authority and incumbency with respect to the officers of the Corporations, in a form reasonably acceptable to UAG, UAG Northeast, DPI and DPI Subsidiaries; (iv) A legal opinion of counsel to the Principals and Corporations, in a form reasonably acceptable to UAG, UAG Northeast, DPI and DPI Subsidiaries; and (v) Such other documents, certificates and instruments as may reasonably be requested by UAG, UAG Northeast, DPI and DPI Subsidiaries. Section 1.3 METHOD OF PAYMENT. Any and all payments to be made under this Agreement and the agreements related thereto shall, unless otherwise specified herein or therein, be made in lawful money of the United States and in funds immediately available by wire transfer to the account specified by the party to receive such payment. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF UAG, UAG NORTHEAST, DPI AND DPI SUBSIDIARIES UAG, UAG Northeast, DPI and DPI Subsidiaries jointly and severally represent and warrant to the Corporations and the Principals, as of the date of this Agreement and as of the Closing Date, as follows: Section 2.1 CORPORATE STATUS. Each of UAG, UAG Northeast, DPI and DPI Subsidiaries is or upon the Closing shall be a corporation which is duly -5- incorporated, validly existing and in good standing under the laws of the State of Delaware. Section 2.2 POWER AND AUTHORITY. Each of UAG, UAG Northeast, DPI and DPI Subsidiaries has or upon the Closing shall have the corporate power and authority to execute, deliver and perform this Agreement and this Agreement and all transactions contemplated hereby have or will have been duly and validly authorized by all necessary corporate action on the part of UAG, UAG Northeast, DPI and DPI Subsidiaries and by all necessary partnership action on the part of the Partnerships. Section 2.3 BINDING AGREEMENT. When executed and delivered by UAG, UAG Northeast, DPI and DPI Subsidiaries, this Agreement shall be the valid and binding obligation of each of UAG, UAG Northeast, DPI and DPI Subsidiaries, enforceable in accordance with its terms. Section 2.4 CONSENTS. There are no (i) consents, approvals, authorizations or other actions of, or filings with, any court, governmental authority or regulatory body and (ii) approvals, authorizations or orders of any person under any material permits, licenses, contracts, decrees or other restrictions to which UAG, UAG Northeast, DPI, DPI Subsidiaries or any of the Partnerships is party, which UAG, UAG Northeast, DPI or DPI Subsidiaries or the Partnerships shall have not obtained, taken or filed prior to the Closing Date that are required to be obtained, taken or filed in order for this Agreement to be executed and delivered and the transactions contemplated hereby to be consummated. Section 2.5 ABSENCE OF CONFLICT OR BREACH. The execution, delivery and performance of this Agreement does not and shall not conflict with or result in a breach of any of the terms, conditions or provisions of any judgment, order, injunction, decree or ruling of any court or arbitration tribunal or governmental authority to which UAG, UAG Northeast, DPI or DPI Subsidiaries is subject, or of any provision of any agreement or understanding or arrangement to which UAG, UAG Northeast, DPI or DPI Subsidiaries is a party or by which UAG, UAG Northeast, DPI or DPI Subsidiaries is bound, which would interfere with UAG's, UAG -6- Northeast's, DPI's or DPI Subsidiaries' ability to execute, deliver and perform under this Agreement and the 1996 Transaction Documents. Section 2.6 BROKERS' FEES. Neither UAG, UAG Northeast, DPI nor DPI Subsidiaries has any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Corporations or Principals could become liable or obligated. Section 2.7 LITIGATION. There is no outstanding order, writ, judgment, stipulation, injunction, decree or determination before or by any court or arbitration tribunal or governmental authority against UAG, UAG Northeast, DPI and DPI Subsidiaries and there are no claims, actions, suits, investigations or proceedings of any kind pending, or to the knowledge of the UAG, UAG Northeast, DPI and DPI Subsidiaries, threatened before any court or arbitration tribunal or governmental authority that seek to restrain, enjoin, or otherwise prevent the consummation of the transactions contemplated by this Agreement. Section 2.8 CAPITALIZATION. The outstanding capital stock of UAG consists of (a) 3,593,750 shares of Voting Common Stock, par value $0.0001 per share (the "UAG Common Stock"); (b) 5,227,346 shares of Class A Convertible Preferred Stock, par value $0.0001 per share (the "Class A Convertible Preferred Stock"). UAG has granted Warrants for 1,016,099 shares of UAG Common Stock and Warrants for 93,747 shares of Class A Convertible Preferred Stock. UAG has granted options to purchase 873,000 shares of UAG Common Stock. Except as described in this Agreement, there are no other options, warrants, conversion privileges or other contractual rights presently outstanding to purchase any of the authorized but unissued capital stock of UAG. All outstanding shares of UAG Common Stock and Class A Convertible Preferred Stock were issued in compliance with all federal and state securities laws. In the event that the capitalization of UAG described herein changes on or prior to the Closing, UAG shall immediately notify the Principals of such changes, and the consideration to be received by the Principals at the Closing will be adjusted so that the -7- Principals, in fact, receive 2% of the UAG Common Stock as contemplated in Article 6. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE CORPORATIONS Each of the Corporations and the Principals jointly and severally represent and warrant to UAG, UAG Northeast, DPI and DPI Subsidiaries that: Section 3.1 CORPORATE STATUS. Each of the Corporations is or upon the Closing shall be a corporation which is duly incorporated, validly existing and in good standing under the laws of the State of its incorporation. Section 3.2 POWER AND AUTHORITY. Subject to Section 4.4 of Article 4, each of the Corporations has or upon the Closing shall have the corporate power and authority to execute, deliver and perform this Agreement, and this Agreement and all transactions contemplated hereby have or will have been duly and validly authorized by all necessary action on the part of each of the Corporations. Section 3.3 BINDING AGREEMENT. When executed and delivered by the Corporations and Principals, this Agreement shall be the valid and binding obligation of the Principals, and, subject to Section 4.4 of Article 4, each of the Corporations, enforceable in accordance with its terms. Section 3.4 CONSENTS. There are no (a) consents, approvals, authorizations, or other actions of, or filings with, any court, governmental authority or regulatory body and (b) approvals, authorizations or orders of any person under any material permits, licenses, contracts, decrees or other restrictions to which any of the Corporations is a party, which the Corporations or the Principals shall have not obtained, taken or filed prior to the Closing Date that are required to be obtained, taken or filed in order for this Agreement to be executed and delivered and the transactions contemplated hereby to be consummated, -8- except for any manufacturer consents which UAG and its affiliates shall have obtained prior to the Closing. Section 3.5 ABSENCE OF CONFLICT OR BREACH. The execution, delivery and performance of this Agreement do not and shall not conflict with or result in a breach of any of the terms, conditions or provisions of any judgment, order, injunction, decree or ruling of any court or arbitration tribunal or governmental authority to which each of the Corporations or the Principals is subject, or, subject to Section 4.4 of Article 4, of any provision of any agreement or understanding or arrangement to which each of the Corporations or the Principals is a party or by which each of the Corporations or the Principals is bound, which would interfere with the Corporations' and Principals' ability to execute, deliver and perform under this Agreement and the 1996 Transaction Documents. Section 3.6 BROKERS' FEES. Neither any Corporation nor any Principal has paid or will become obligated to pay any fee or commission to any broker, finder, consultant or other intermediary for or on account of the transactions provided for in this Agreement. Section 3.7 LITIGATION. There is no outstanding order, writ, judgment, stipulation, injunction, decree or determination before or by any court or arbitration tribunal or governmental authority against any of the Corporations or the Principals, and there are no claims, actions, suits, investigations or proceedings of any kind pending, or to the knowledge of any of the Corporations or the Principals, threatened, before any court or arbitration tribunal or governmental authority that would seek to restrain, enjoin or otherwise prevent the consummation of the transactions contemplated by this Agreement. Section 3.8 INVESTMENT REPRESENTATIONS. (a) The UAG Common Stock will be acquired for the Principals' own accounts not as a nominee or agent, and not with a view to, or for resale in connection with, any "distribution" thereof for purposes of the Securities Act of 1933, as amended (the -9- "Securities Act"), except in compliance with the Securities Act. (b) The Principals understand that the UAG Common Stock will not be registered under the Securities Act for purposes of the sale contemplated herein. (c) Each of the Principals is an "accredited investor" as that term is defined in Regulation D promulgated under the Securities Act. ARTICLE 4 COVENANTS The Parties agree as follows with respect to the period from and after execution of this Agreement: Section 4.1 FURTHER ASSURANCES. Each of the Parties shall, without further consideration, take all reasonable actions and do all things reasonably necessary in order to consummate and make effective the transactions contemplated by the Agreement (including satisfaction, but not waiver, of the closing conditions set forth in Article 5 below), and to that end, shall share such information and documents as reasonably required to adequately address any tax, accounting, financial and legal issues incident to the agreements provided herein and the transactions contemplated thereby. Section 4.2 NOTICE OF DEVELOPMENTS. Each Party will give prompt written notice to the other of any material adverse development causing a breach of any of its own representations and warranties in Articles 2 and 3 above. Section 4.3 THIRD PARTY CONSENTS. The Parties shall cooperate with one another in obtaining and shall use reasonable efforts to obtain consents and approvals from third parties with respect to the transactions contemplated by this Agreement. Section 4.4 MINORITY SHAREHOLDERS. The Parties acknowledge that UAG and its affiliates are currently in discussions with certain minority shareholders of -10- the Corporations (the "Minority Shareholders") in connection with securing their consent to, or as required, their approval of, the transactions contemplated hereunder. Certain of the representations and warranties and covenants of the Principals and Corporations hereunder may be subject to UAG and its affiliates obtaining such consents or approvals. UAG shall use, and shall cause its affiliates to use, reasonable efforts to obtain such consents and approvals and the Principals shall reasonably cooperate and assist UAG in such efforts. ARTICLE 5 CONDITIONS TO CLOSING Section 5.1 CONDITIONS TO OBLIGATIONS OF UAG, UAG NORTHEAST, DPI AND DPI SUBSIDIARIES. The obligations of the UAG, UAG Northeast, DPI and DPI Subsidiaries to consummate the transactions contemplated hereunder shall be subject to the fulfillment (or waiver by UAG, UAG Northeast, DPI and DPI Subsidiaries), on or prior to the Closing Date, of the following additional conditions, which the Corporations and Principals agree to use their respective reasonable efforts to cause to be fulfilled: Section 5.1.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties contained in Article 3 hereof shall be true and correct in all material respects on and as of the date hereof and shall be true and correct in all material respects on and as of the Closing Date with the same effect as though made on and as of the Closing Date. Section 5.1.2 COVENANTS. The Corporations and Principals shall have performed and complied with all of their covenants contained in Article 4 hereof in all material respects through the Closing. Section 5.1.3 CONSENTS. Each of the Corporations and Principals shall have obtained and delivered to UAG, UAG Northeast, DPI and DPI Subsidiaries any governmental or third party consents, authorizations or approvals to the transactions contemplated by this Agreement required to be obtained by each of the Corporations and Principals. -11- Section 5.1.4 INITIAL PUBLIC OFFERING. All conditions to the closing of the Initial Public Offering shall have been satisfied or waived. Section 5.1.5 DELIVERY OF ALL DOCUMENTS. At the Closing, the Corporations and Principals shall have delivered all the documents, certificates and other deliveries set forth in Article 1 hereof. Section 5.2 CONDITIONS TO OBLIGATIONS OF THE CORPORATIONS AND PRINCIPALS. The obligations of the Corporations and Principals to consummate the transactions contemplated hereunder shall be subject to the fulfillment (or waiver by the Corporations and Principals), on or prior to the Closing Date, of the following additional conditions, which UAG, UAG Northeast, DPI and DPI Subsidiaries agree to use their respective reasonable efforts to cause to be fulfilled: Section 5.2.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of UAG, UAG Northeast, DPI and DPI Subsidiaries contained in Article 2 hereof shall be true and correct in all material respects on and as of the date hereof and shall be true and correct in all material respects on and as of the Closing Date with the same effect as though made on and as of the Closing Date. Section 5.2.2 COVENANTS. UAG, UAG Northeast, DPI and DPI Subsidiaries shall have performed and complied with all of their respective covenants contained in Article 4 hereof in all material respects through the Closing. Section 5.2.3 CONSENTS. UAG, UAG Northeast, DPI and DPI Subsidiaries shall have obtained and delivered to the Corporations and Principals any governmental or third party consents, authorizations or approvals, including any manufacturer consents, to the transactions contemplated by this Agreement required to be obtained by UAG, UAG Northeast, DPI, DPI Subsidiaries or the Partnerships. Section 5.2.4 INITIAL PUBLIC OFFERING. All conditions to the closing of the Initial Public Offering shall have been satisfied or waived. -12- Section 5.2.5 DELIVERY OF ALL DOCUMENTS. At the Closing, UAG, UAG Northeast, DPI and DPI Subsidiaries shall have delivered all the documents, certificates and other deliveries set forth in Article 1 hereof. Section 5.2.6 CONSENTS OF MINORITY SHAREHOLDERS. Any consents of the Minority Shareholders necessary to consummate the transactions contemplated hereby shall have been obtained. ARTICLE 6 REORGANIZATIONS Section 6.1 REORGANIZATIONS. At the Closing, (i) each of the Corporations identified on SCHEDULE 6.1 hereto will merge with and into a wholly-owned subsidiary of UAG (collectively, the "Buyers") in reorganizations pursuant to Section 368(a)(2)(D) of the Internal Revenue Code (the "Code") (collectively, the "Mergers") and (ii) DiFeo Partnership, Inc. will acquire 100% of the capital stock of Hudson Toyota, Inc. and DiFeo Partnership, Inc. will acquire 100% of the capital stock of Somerset Motors Inc. in reorganizations pursuant to Section 368(a)(1)(B) of the Code (the "B Reorganizations"). At the Closing, the Principals will receive (a) pursuant to the Mergers and the B Reorganizations, an aggregate number of shares of UAG Common Stock equal to the number of shares that will represent 2% of the shares of UAG Common Stock outstanding immediately prior to the Initial Public Offering, on a fully diluted basis (but without regard to other Minority Roll-ups, as defined in the prospectus for the Initial Public Offering, options to acquire up to 200,000 shares of UAG Common Stock to be granted at the public offering price, and the shares issuable hereunder) and (b) pursuant to the Mergers, options ("UAG Options"), in the form attached hereto as EXHIBIT 6.1, to acquire an amount of shares of UAG Common Stock equal to $1,500,000 divided by the initial price to the public of the UAG Common Stock specified in the final prospectus with respect to the Initial Public Offering. The UAG Common Stock and the shares of UAG Common Stock issuable on the exercise of the UAG Options will be entitled to the benefits of the Registration Rights Agreement by and between UAG and -13- the Principals, in the form attached hereto as EXHIBIT 6.1(A), provided however, that in the event that UAG is unable to provide the registration rights provided for in Section 1.3 of such Registration Rights Agreement with respect to registrations demanded by any UAG stockholders having demand registration rights, then UAG shall provide the Principals with such alternative consideration as may be agreed upon between UAG and the Principals as representing the fair value of such rights. Section 6.2 MERGER AGREEMENTS. Each of the Mergers referred to in Section 6.1 will be evidenced by an Agreement and Plan of Merger substantially in the form attached hereto as EXHIBIT 6.2 (the "Merger Agreement"). The B Reorganizations will be evidenced by an agreement, which shall contain representations and warranties and covenants and other material terms substantially similar to the terms and conditions in the Merger Agreements (the "B Reorganization Agreements"). ARTICLE 7 EMPLOYMENT AND CONSULTING ARRANGEMENTS Section 7.1 CURRENT SALARY ARRANGEMENTS. The current salary arrangements of each of Joseph C. DiFeo (at a rate of $200,000 per year) and Samuel DiFeo, Sr. (at a rate of $50,000 per year) shall continue through December 31, 1996. James Hetherington's current salary arrangement shall continue through the Closing and, thereafter, UAG shall pay or reimburse J&S Ford, Inc. on account of salary for James Hetherington through December 31, 1996 at an annual rate of $50,000. Samuel X. DiFeo shall receive a base salary at the rate of $225,000 per annum for the period October 1, 1995 through December 31, 1996. Section 7.2 CONSULTING AGREEMENTS. Samuel DiFeo, Sr. and Joseph C. DiFeo shall enter into 5 year and 3 year consulting agreements ("Consulting Agreements"), respectively, with UAG at the rate of $50,000 per year. The Consulting Agreements shall commence on January 1, 1997 and shall be on terms and conditions mutually satisfactory to the parties and consistent with this Agreement. James Hetherington may -14- enter into a consulting agreement for the periods after December 31, 1996 with UAG, if at all, on terms and conditions mutually agreeable to UAG and James Hetherington. Section 7.3 EMPLOYMENT AGREEMENT OF SAMUEL X. DIFEO. From and after January 1, 1997, Samuel X. DiFeo shall continue to be employed by UAG on terms and conditions mutually satisfactory to the parties and consistent with this Agreement ("Employment Agreement"). ARTICLE 8 PARTNERSHIP EXCHANGES Section 8.1 TRANSFER OF PARTNERSHIP INTERESTS. The Principals and UAG shall take such steps as shall be necessary to cause the transfer by: J & F Oldsmobile Corp., Fair Hyundai Corp. and JS1, Inc. of their respective interests in J&F Oldsmobile-Isuzu Partnership; and Fair Hyundai Partnership and Fair Chevrolet-Geo Partnership; and DiFeo Nissan Partnership and DiFeo Chevrolet-Geo Partnership to UAG or its affiliates in exchange for the interests of UAG in each of DiFeo Imports Partnership ("Mitsubishi"), DiFeo Buick-Pontiac-GMC Partnership ("Buick"), and North Jersey-Manhattan Saturn Partnership and Engelwood Saturn Partnership (collectively, "Saturn"), as well as those certain notes of Salerno Duane Managment Group, Inc. payable to DPI and DiFeo Partnership HCM, Inc. in the original principal amounts of $60,957.40 and $53,842.60 respectively (collectively, the "Salerno Notes") issued pursuant to the Amended and Restated Master Agreement dated as of September 15, 1994 (referenced hereinafter). In addition, UAG shall confirm that all prior advances made by UAG to Buick and Mitsubishi were made as capital contributions to said Partnerships. Further, in the event UAG shall fail to transfer or cause the transfer of Saturn by reason of its inability to obtain manufacturer approval, or otherwise, on or before the Closing Date or such other date as mutually agreed upon between UAG and the Principals, but in all events not later than December 31, 1996, UAG and the Principals shall mutually agree on alternative consideration payable to the Principals commensurate with the value of UAG's -15- interest in Saturn. UAG shall insure that with respect to each of Buick, Mitsubishi and Saturn the minimum net working capital standard of each manufacturer shall be met on the date of transfer of each of Buick, Mitsubishi and Saturn, PROVIDED, HOWEVER, that the Parties acknowledge UAG's objective of aggregating capital among said Partnerships for purposes of calculating any amount required to be funded by UAG to satisfy the aggregate minimum net working capital requirements of said Partnerships, and PROVIDED FURTHER, HOWEVER, that in the event the holders of the Salerno interests in said Partnerships shall fail to exercise their right to additional ownership interests in said Partnerships, any aggregating of capital shall only occur with respect to Buick and Mitsubishi, and UAG shall otherwise satisfy the minimum net working capital requirements of Saturn, PROVIDED FURTHER, HOWEVER, that in the event UAG shall fail to transfer or cause the transfer of Saturn, UAG shall aggregate capital only with respect to Buick and Mitsubishi. Nothing contained in this Section 8.1 or elsewhere in this Agreement shall affect or otherwise be deemed to amend, modify or supersede in any respect the rights and obligations of the parties to that certain Amended and Restated Master Agreement dated as of September 15, 1994 among Salerno-Duane Management Group, Inc. and affiliates of UAG and the Principals. Section 8.2 PARTNERSHIP EXCHANGE AGREEMENT. In order to effectuate the partnership exchanges contemplated in Section 8.1, the parties referred to therein shall enter into a partnership exchange agreement (the "Partnership Exchange Agreement") in a form acceptable to such parties, which shall contain representations and warranties and covenants and other material terms substantially similar to the terms and conditions in the Merger Agreements. ARTICLE 9 ASSIGNMENT OF CLAIMS Section 9.1 ASSIGNMENT OF CLAIMS. In full settlement and release of certain disputes between the Principals and certain affiliates of the Principals, on the one hand, and UAG and affiliates of UAG, on the -16- other hand, regarding partnership allocations, capital requirements, accounting adjustments and other similar matters, UAG and their affiliates shall assign all claims held by UAG and affiliates of any kind or nature against the Principals and/or their affiliates to the Principals, and the Principals shall assign all claims held by the Principals of any kind or nature against UAG and its affiliates to UAG, in each case to the extent arising prior to the Closing, pursuant to an assignment of claims agreement (the "Assignment of Claims Agreement") in a form reasonably satisfactory to said parties. ARTICLE 10 J & S FORD, INC. Section 10.1 J & S FORD, INC. The Principals shall not be required to consummate the legal transfer of J&S Ford, Inc. to UAG as originally contemplated by the parties to the Master Agreement, and the Principals shall retain all right, title and interest in J&S Ford, Inc. and UAG shall have no interest, legal or otherwise, therein. To that end, UAG shall take any and all of the requisite steps to (i) relinquish control over any cash accounts and other assets of J&S Ford, Inc. and (ii) insure that J&S Ford, Inc. has net working capital, as of October 1, 1996 of $1,400,000 determined in accordance with the manufacturer's accounting method, with an adjustment to said $1,400,000 for delinquent receivables and obsolete parts (obsolete parts shall be parts regarding which no activity has occurred since December 31, 1995, and delinquent receivables shall be receivables on the books of J&S Ford, Inc. on December 31, 1995 and remaining outstanding on October 1, 1996), and all calculations shall be made exclusive of all intercompany accounts. ARTICLE 11 LEASES Section 11.1 LEASES. The Principals and UAG shall cause the cancellation of certain leases identified on SCHEDULE 11.1 hereto among the Principals -17- and/or certain affiliates of the Principals, on the one hand, and certain of the Partnerships, on the other hand, and shall cause the Principals and/or certain affiliates of the Principals, as landlords, and UAG, or certain affiliates of UAG, as tenants, to enter into new leases as identified on SCHEDULE 11.1(A), to be evidenced by leases in the form attached hereto as EXHIBIT 11.1 (the "Lease"), which leases shall contain INTER ALIA, the following terms: (a) The term of such leases shall be for a period of 15 years, commencing as of October 1, 1995; (b) Effective as of October 1, 1995, an increase in the aggregate rental rates of such leases of $250,000 over all other minimum rent increases provided for in the leases among the Principals and/or certain affiliates of the Principals, on the one hand, and certain of the Partnerships, on the other hand, which were in full force and effect on September 1, 1995; thus, the rental rate increase applicable as of October 1, 1995 shall be in the aggregate amount of $495,000; (c) Annual rent under such leases shall be increased on October 1 of each year commencing on October 1, 1996 by the greater of 2% of the rent as of the September 1 immediately prior thereto, or 75% of (i) the percentage increase, if any in the Consumer Price Index for Urban Consumers-New York-Northeastern New Jersey ("CPI-U") for the month of September of the year of calculation over (ii) the CPI-U for September of the year prior to the year of calculation; (d) All obligations of "tenant" under such leases shall be guaranteed by UAG to the extent UAG is not the actual tenant of any such lease; (e) UAG shall pay or cause to be paid all rent then due and payable pursuant to such new leases on or prior to the Closing Date; and (f) If agreed to by UAG and the Principals, UAG shall provide security on account of security deposit obligations under the new leases in form and amount mutually acceptable to UAG and the Principals. -18- ARTICLE 12 AUTOMOBILE STORAGE SPACE Section 12.1 AUTOMOBILE STORAGE SPACE. The lease for the property located at 559 Route 440 West, Jersey City, New Jersey shall exclude an area sufficient for the Principals to park up to 250 vehicles and shall include such reservation of ingress and egress as may be necessary to access the storage area. Section 12.2 MCCARTHY BUILDING AND LEASE. At no cost to J&S Ford, Inc., UAG shall take such steps as reasonably necessary to (i) allow J&S Ford, Inc. to use certain real property in Jersey City, New Jersey referred to as the McCarthy Building, together with its contents, and (ii) undertake and perform all obligations under the current lease of the McCarthy Building for the benefit of J&S Ford, Inc., in each instance until the earlier of the expiration of said lease of the McCarthy Building, the termination of the Principals' majority ownership of J&S Ford, Inc. or the subletting by UAG of said property to a third party on six (6) months prior notice to J&S Ford, Inc. on terms and conditions comparable to the terms and conditions in said lease. ARTICLE 13 TRANSFER OF GATEWAY PARTNERSHIPS Section 13.1 TRANSFER OF GATEWAY PARTNERSHIPS. The Principals shall cause JS4, Inc. to transfer all of its respective partnership interests in the OCT Partnership (i.e., Gateway Toyota) and the OCM Partnership (i.e., Gateway Mitsubishi) to UAG or a designated affiliate of UAG on or prior to Closing Date pursuant to an assignment and assumption agreement (the "Assignment and Assumption Agreement") in a form reasonably satisfactory to said parties which shall have representations, warranties and covenants and other material terms substantially similar to the terms and conditions in the Merger Agreement in full and final satisfaction of any and all outstanding obligations of the Principals and/or affiliates of the Principals to UAG and affiliates of UAG, including the -19- respective Partnerships, relative to the acquisition of the automobile dealerships owned by such Partnerships. ARTICLE 14 PARTNERSHIP TAX DISTRIBUTIONS Section 14.1 PARTNERSHIP TAX DISTRIBUTIONS. UAG has paid or has caused the Partnerships to distribute $600,000 to the Principals on behalf of the Corporations on account of tax distributions pursuant to Section 5.2 of the partnership agreements relative to the Partnerships for years 1992, 1993 and 1994 (receipt of which is acknowledged by the Corporations and Principals) and UAG shall pay or shall cause the Partnerships to make tax distributions to the Principals on behalf of the Corporations consistent with Section 5.2 of such partnership agreements on account of tax distributions for 1995 in the aggregate amount of $206,557, and UAG shall pay or cause the Partnerships to make tax distributions to the Principals on behalf of the Corporations with respect to any additional income allocated to the Corporations for the years 1992-1995 pursuant to tax audits, or on account of any income allocated to the Corporations for 1996 for the period prior to the Closing, including, without limitation, on account of any LIFO recapture. ARTICLE 15 DEALERSHIP LIQUIDITY CONTRIBUTIONS Section 15.1 RETURN OF DEALERSHIP LIQUIDITY CONTRIBUTIONS. UAG has caused, and the Principals acknowledge that UAG has caused, the Partnerships to return to the Principals their respective Dealership Liquidity Contributions referenced in the Master Agreement in the aggregate amount of $400,000, together with interest thereon at the rate of 6% from October 1, 1992 through the date of payment hereunder. -20- ARTICLE 16 LEGAL FEES UAG shall directly pay Arnold & Porter all of its reasonable legal fees and disbursements charged and incurred by it on behalf of its representation of the Corporations, the Principals and the affiliates of the Principals in connection with this Agreement and the transactions contemplated thereby. ARTICLE 17 INDEMNIFICATION AND RELEASES Section 17.1 INDEMNIFICATION OF THE CORPORATIONS AND PRINCIPALS. Except for the Special Tax Indemnity provided for in Section 7.3 of the Merger Agreements (and the corresponding sections of the B Reorganization Agreements, Partnership Exchange Agreement and Assignment and Assumption Agreement), UAG, UAG Northeast, DPI and DPI Subsidiaries, jointly and severally, shall defend, indemnify and hold the Corporations and the Principals harmless from and against any and all claims, liabilities, obligations, whether absolute, accrued, contingent or otherwise and whether a contractual or any other type of liability, obligation or claim (other than income tax liabilities of the Principals arising from the transactions contemplated by this Agreement) including, without limitation, all damages, losses and expenses, reasonable fees of experts and attorneys and all costs of suit, suffered or incurred or to be suffered or incurred by the Corporations and Principals (i) arising out of the breach of any or all representations and warranties and covenants made by or on behalf of UAG, UAG Northeast, DPI and DPI Subsidiaries in this Agreement or in any document delivered hereunder; (ii) arising from any and all liabilities, claims, guarantees or demands with respect to any indebtedness or obligations of the Partnerships and Corporations; (iii) arising from any and all personal guarantees of liabilities relative to floor plans and other loans from GMAC or any other lender with respect to any indebtedness or obligations of the Partnerships and Corporations; (iv) arising out of or in connection with any outstanding issues with respect to any of the -21- Minority Shareholders relative to their respective ownership interests in certain of the Corporations, (v) arising out of any claims or demands asserted by the holders of the Salerno interests relative to their interests in Buick, Mitsubishi and Saturn and (vi) arising out of or in connection with any claims under the Securities Act or any other law administered by the Securities and Exchange Commission or any State securities commission, whether asserted by a private party or any such governmental authority relating to any private or public offering of securities by UAG. Section 17.2 INDEMNIFICATION OF UAG, UAG NORTHEAST, DPI AND DPI SUBSIDIARIES. Except for the Special Tax Indemnity provided for in Section 7.3 of the Merger Agreements (and the corresponding sections of the B Reorganization Agreements, Partnership Exchange Agreement and Assignment and Assumption Agreement), the Principals jointly and severally, shall defend, indemnify and hold UAG, UAG Northeast, DPI and DPI Subsidiaries harmless from and against any and all claims, liabilities, obligations, whether absolute, accrued, contingent or otherwise and whether a contractual or any other type of liability, obligation or claim including, without limitation, all damages, losses and expenses, reasonable fees of experts and attorneys and all costs of suit, suffered or incurred or to be suffered or incurred by UAG, UAG Northeast, DPI and DPI Subsidiaries arising out of the breach of any or all representations and warranties and covenants made by the Principals and the Corporations in this Agreement and all documents delivered pursuant to this Agreement, including, but not limited to, the Merger Agreements, the B Reorganization Agreements and the Partnership Exchange Agreement. Section 17.3 INDEMNIFICATION PROCEDURE. A party seeking indemnification pursuant to this Article 17 (an "indemnified party") shall give prompt notice to the party from whom such indemnification is sought (the "indemnifying party") of the assertion of any claim, or the commencement of any action or proceeding, in respect of which indemnity may be sought hereunder. The indemnifying party shall have the right to assume the defense (in consultation and cooperation with the indemnified party, in good faith and to the extent appropriate under the circumstances) of any such suit, action or proceeding at its own expense. If an -22- indemnifying party shall elect not to assume the defense of any such suit, action or proceeding, the indemnified party may assume such defense at the expense of the indemnifying party. An indemnifying party shall not be liable under this Article 17 for any settlement effected without its consent of any claim, litigation or proceeding in respect of which indemnity may be sought hereunder. No investigation by an indemnified party at or prior to the Closing shall relieve an indemnifying party of any liability hereunder. Section 17.4 RELEASE BY LENDERS. UAG shall use its best efforts to cause the release of each of Samuel DiFeo, Sr., Joseph C. DiFeo, Samuel X. DiFeo, James Hetherington, Neale Kuperman, Robert Cohen and Richard Mutterperl from any and all personal guarantees or liabilities relative to floor plans and other loans from GMAC or any other lender with respect to any indebtedness or obligations of the Partnerships and Corporations, such release to be evidenced by releases or other documents and instruments in a form reasonably satisfactory to each party. Such release shall be effective within ninety (90) days of the Closing, and provided that if such release is not effective within said period, UAG shall pay the Principals a fee of $50,000 on the ninety-first (91st) day following the Closing and quarterly thereafter with each successive payment being $25,000 greater than the immediately proceeding quarterly payment until such release has been delivered as required hereunder. Section 17.5 RELEASE BY UAG. UAG and all of its affiliates shall release each of Samuel DiFeo, Sr., Joseph C. DiFeo and Samuel X. DiFeo from any and all liabilities, claims or demands with respect to any indebtedness or obligations of the Partnerships and Corporations, such release to be evidenced by releases or other documents and instruments in a form reasonably satisfactory to each Party except for obligations arising under this Agreement. -23- ARTICLE 18 MISCELLANEOUS Section 18.1 DIFEO LEASING CORPORATION. UAG and the Principals agree that the disposition of the interests of DPI and DiFeo Leasing Corporation in DiFeo Leasing Partnership shall be determined by the partners therein without regard to this Agreement as soon as may be practicable. Section 18.2 SURVIVAL. The Parties agree that this Agreement, including without limitation, the representations and warranties of each Party in Articles 2 and 3 and the indemnification and release provisions in Article 17, shall survive the Closing Section 18.3 NO WAIVER. No waiver of any term,condition, default, or breach of this Agreement, or of any document executed pursuant hereto, shall be effective unless in writing and executed by the party making such waiver; no such waiver shall operate as a waiver of either (i) such term, condition, default, or breach on any other occasion, or (ii) any other term, condition, default, or breach of this Agreement. No delay or failure to enforce any provision of this Agreement or of any document executed pursuant hereto shall operate as a waiver of such provision or any other provision herein or therein. The enforcement by any party of any right it may have under this Agreement or under applicable laws shall not be deemed an election of remedies or otherwise prevent such party from enforcement of one or more other remedies at any time. Section 18.4 PARTIES BOUND. All of the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of, and be enforceable by and against, the Parties hereto and their respective heirs, representatives, successors and permitted assigns. Section 18.5 NOTICES. Any and all notices, requests, communications, or demands required or permitted to be given hereunder shall be in writing, and shall be delivered either (i) in person or by electronic facsimile, (ii) by an established overnight -24- delivery service, or (iii) by certified mail, return receipt requested, addressed as follows: If to Principals or Corporations: Joseph C. DiFeo and Samuel X. DiFeo 121 Lorraine Avenue Spring Lake, New Jersey 07762 copy to: Arnold & Porter 399 Park Avenue New York, New York 10022 Fax: (212) 715-1399 Phone: (212) 715-1000 Attention: Michael J. Canning, Esq. If to UAG or its Affiliates: United Auto Group, Inc. 375 Park Avenue - 11th Floor New York, New York 10152 Fax: (212) 593-1363 Phone: (212) 230-0493 Attention: Philip N. Smith, Jr., Esq. copy to: If by Hand: Bressler, Amery & Ross, P.C. 325 Columbia Turnpike Florham Park, New Jersey 07932 Fax: (201) 514-1660 Phone: (201) 514-1200 Attention: Edward P. McKenzie, Esq. If by Mail: P.O. Box 1980 Morristown, New Jersey 07962 or to such other address or addresses as any party may designate to the others by notice given as provided above. Notices delivered in person or by electronic facsimile shall be deemed to have been given on the date of delivery; notices delivered by overnight delivery service shall be deemed to have been given on the business day following the date of deposit with -25- such overnight delivery service; and notices given by mail shall be deemed to have been given three (3) days after the date of mailing. Section 18.6 GOVERNING LAW. The rights and duties of the parties and the validity, construction, enforcement, and interpretation of this Agreement shall be determined according to the laws of the State of New York. Section 18.7 SUBMISSION TO JURISDICTION. To the extent permitted by law the Parties hereby consent to the jurisdiction of the Federal courts of the United States sitting in the Southern District of New York and the courts of the State of New York sitting in the City of New York in respect of any legal action or proceeding arising out of or relating to this Agreement or to the transactions contemplated hereunder. Section 18.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. Section 18.9 THIRD PARTY BENEFICIARIES. The terms and provisions of this Agreement are for the sole benefit of the Parties hereto and their respective heirs, personal representatives, successors and permitted assigns and no third party may benefit from such terms and provisions. -26- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. TRACE INTERNATIONAL HOLDINGS, INC. By: /s/Philip N. Smith, Jr. ------------------------- Its: ------------------------- UAG NORTHEAST, INC. By: /s/Philip N. Smith, Jr. ------------------------- Its: ------------------------- DIFEO PARTNERSHIP, INC. By: /s/Philip N. Smith, Jr. ------------------------- Its: ------------------------- UNITED AUTO GROUP, INC. By: /s/Philip N. Smith, Jr. ------------------------- Its: ------------------------- DIFEO PARTNERSHIP RCT, INC. By: /s/Philip N. Smith, Jr. ------------------------- Its: ------------------------- -27- DIFEO PARTNERSHIP HCM, INC. By: /s/Philip N. Smith, Jr. ------------------------- Its: ------------------------- DIFEO PARTNERSHIP HCT, INC. By: /s/Philip N. Smith, Jr. ------------------------- Its: ------------------------- DIFEO PARTNERSHIP DM, INC. By: /s/Philip N. Smith, Jr. ------------------------- Its: ------------------------- DIFEO PARTNERSHIP SCT, INC. By: /s/Philip N. Smith, Jr. ------------------------- Its: ------------------------- DIFEO PARTNERSHIP RCM, INC. By: /s/Philip N. Smith, Jr. ------------------------- Its: ------------------------- -28- THE CORPORATIONS: FAIR CADILLAC-OLDSMOBILE CORP. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- FAIR CHEVROLET CORP. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- FAIR INFINITI, INC. By: /s/Joseph C. DiFeo Its:_________________________ FAIR IMPORTS CORP. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- FAIR HYUNDAI CORP. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- -29- FAIR MOTORS CORP. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- DANBURY-MT. KISCO SATURN CORP. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- HUDSON TOYOTA, INC. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- J & S FORD INC. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- DIFEO VOLKSWAGEN INC. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- DIFEO HYUNDAI, INC. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- -30- J & F OLDSMOBILE CORP. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- DIFEO SUBARU, INC. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- DIFEO JEEP-EAGLE, INC. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- DIFEO IMPORTS, INC. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- DIFEO BUICK, INC. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- DIFEO AUTOCENTER, INC. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- ------------------------- -31- DIFEO LEASING CORPORATION By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- SOMERSET MOTORS INC. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- GATEWAY OLDSMOBILE INC. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- DIFEO B.M.W., INC. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- COUNTY AUTO GROUP INC. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- ROCKLAND MOTORS CORP. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- -32- JS1, INC. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- JS2, INC. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- JS4, INC. By: /s/Joseph C. DiFeo ------------------------- Its: ------------------------- THE PRINCIPALS: /s/Samuel X. DiFeo ----------------------------- Samuel X. DiFeo /s/Joseph C. DiFeo ----------------------------- Joseph C. DiFeo -33- SCHEDULE 6.1 Merging Entities CORPORATION (State of Incorporation) PARTNERSHIP -------------- ----------- COUNTY AUTO GROUP, COUNTY AUTO GROUP INC. (NY) PARTNERSHIP ROCKLAND MOTORS ROCKLAND MOTORS CORP. (NY) PARTNERSHIP DIFEO HYUNDAI, DIFEO HYUNDAI INC. (NJ) PARTNERSHIP DIFEO JEEP-EAGLE, DIFEO JEEP-EAGLE INC. (NJ) PARTNERSHIP DANBURY-MT. KISCO DANBURY-MT. KISCO SATURN CORP. (CT) SATURN PARTNERSHIP DIFEO BMW, INC. (NJ) DIFEO BMW PARTNERSHIP JS2, INC. (CT) DANBURY AUTO PARTNERSHIP JS2, INC. (CT) DANBURY CHRYSLER PLYMOUTH PARTNERSHIP SCHEDULE 11.1 Cancelled Leases 1. Lease between Fair Realty Company, as Landlord, and Fair Hyundai Partnership, as Tenant, dated October 1, 1992. 2. Lease between Fair Realty Company, as Landlord, and Danbury-Mt. Kisco Saturn Partnership, as Tenant, dated October 1, 1992. 3. Lease between Fair Realty Company, as Landlord, and Fair Cadillac-Oldsmobile-Isuzu Partnership, as Tenant, dated October 1, 1992. 4. Lease between Rockland Realty Associates, as Landlord, and Rockland Motors Partnership, as Tenant, dated October 1, 1992. 5. Lease between Boundbrook Realty Associates, as Landlord, and DiFeo Oldsmobile Partnership, as Tenant, dated October 1, 1992. 6. Lease between Boundbrook Realty Associates, as Landlord, and Somerset Motors Partnership, as Tenant, dated October 1, 1992. 7. Lease between J & S Equity Urban Renewal Corp., as Landlord, and Hudson Motors Partnership, as Tenant, dated October 1, 1992. 8. Lease between J & S Equity Associates, as Landlord, and DiFeo Jeep-Eagle Partnership, as Tenant, dated October 1, 1992. 9. Lease between J & S Equity Associates, as Landlord, and J & F Oldsmobile-Isuzu Partnership, as Tenant, dated October 1, 1992. 10. Lease between J & S Equity Associates, as Landlord, and DiFeo Subaru Partnership, as Tenant, dated October 1, 1992. 11. Lease between J & S Equity Associates, as Landlord, and DiFeo Buick-Pontiac-GMC Truck Partnership, as Tenant, dated October 1, 1992, respecting Block 1761.A, Lots S-2 & S-3; Block 1751, Lots 11-C and 11-D; Block 1753, Lots 11-23, Jersey City, New Jersey. 12. Lease between J & S Equity Associates, as Landlord, and DiFeo Buick-Pontiac-GMC Truck Partnership, as Tenant, dated October 1, 1992, respecting Block 1745, Lots 11, 12, 13, 14, 15, 16, 17 & 18, 919 Communipaw Avenue, Jersey City, New Jersey. 13. Lease between J & S Equity Associates, as Landlord, and DiFeo Buick-Pontiac-GMC Truck Partnership, as Tenant, dated October 1, 1992, respecting Block 1745, Lots 34-40; Block 1746, Lots 19A, 21A, & 22A; Block 1747, Lots 81, 82, 83 and 84, Jersey City, New Jersey. 14. Lease between J & S Equity Associates, as Landlord, and DiFeo Imports Partnership, as Tenant, dated October 1, 1992. 15. Lease between J & S Equity Associates, as Landlord, and DiFeo Autocenter Partnership, as Tenant, dated October 1, 1992. 2 SCHEDULE 11.1(A) Leases 1. Lease between Boundbrook Realty Associates, as Landlord, and Somerset Motors Partnership, as Tenant Rent -- $71,799 per month as of October 1, 1995 Property Description -- The automobile dealership buildings of approximately 25,600 square feet and 18,200 square feet, respectively, along with parking, display and storage areas located on Lot 2, Block 7201 in the Township of Bridgewater, Somerset County, New Jersey. 2. Lease between Rockland Realty Associates, as Landlord, and Rockland Motors Partnership, as Tenant Rent -- $12,901 per month as of October 1, 1995 Property Description -- 73, 75 and 77 North Highland Avenue, Nyack, New York 10960. 3. Lease between SDJD 37 Realty, Inc., as Landlord, and OCM Partnership, t/a Gateway Mitsubishi, and OCT Partnership, t/a Gateway Toyota, as Tenants Rent -- $34,030 per month as of October 1, 1995 Property Description -- Lot 6.01 in Block 691; Lot 28 in Block 691, and Lot 1 in Block 690.01, Dover Township, Ocean County, New Jersey 4. Lease between Gateway Associates, as Landlord, and OCT Partnership t/a Gateway Toyota Rent -- $18,697 per month Property Description -- Lot 12.01, Block 691, Dover Township, Ocean County, New Jersey 5. Lease between J & S Equity Associates, as Landlord, and DiFeo Nissan Partnership, as Tenant Rent -- $27,817 per month as of October 1, 1995 Property Description -- 126, 181-187 Roosevelt Avenue; 29 Marcy Avenue; 909, 911-913, 915-921 and 967-983 Communipaw Avenue 6. Lease between J & S Equity Urban Renewal Corp., as Landlord, and Hudson Motors Partnership, as Tenant Rent -- $30,000 per month as of October 1, 1995 Property Description -- Block 1290.1, Lot A.1 on the Tax Map of Jersey City, Hudson County, New Jersey 7. Lease between J & S Equity Associates, as Landlord, and Hudson Motors Partnership, as Tenant Rent -- $40,000 per month as of October 1, 1995 Property Description -- Block 1290.1, Lot A.2 on the Tax Map of Jersey City, Hudson County, New Jersey 8. Lease between J & S Equity Associates, as Landlord, and DiFeo Chevrolet-Geo Partnership, DiFeo Jeep-Eagle Partnership and DiFeo Hyundai Partnership, as Tenants Rent -- $57,000 per month as of October 1, 1995 Property Description -- 599 U.S. Route 440, known as Lots 10K1 & 10K2, Block 1751, Tax Map of City of Jersey City, Hudson County, New Jersey 2 9. Lease between Fair Realty Company, as Landlord, and Danbury-Mt. Kisco Saturn Partnership, Danbury Auto Partnership, and Fair Chevrolet-Geo Partnership, as Tenants Rent -- $80,000 per month as of October 1, 1995 Property Description -- 102 Federal Road, Danbury, Connecticut, more particularly described as a portion of the following described land currently used as the Fair Cadillac-Oldsmobile-Isuzu car dealership (i.e., List 6759, Lot 0009). 10. Lease between Fair Realty Company, as Landlord, and Danbury-Mt. Kisco Saturn Partnership, Danbury Auto Partnership, and Fair Chevrolet-Geo Partnership, as Tenants Rent -- $7,505 per month as of October 1, 1995 Property Description -- Federal Road, Danbury, Connecticut (i.e., List 6758, Lot 0007). 3 EX-10.2-27 17 EXH 10.2.27 FORM OF AGREE. AND PLAN OF MERGER Exhibit 10.2.27 FORM OF AGREEMENT AND PLAN OF MERGER THIS AGREEMENT made as of this ____ day of ________, 1996, by and among United Auto Group, Inc., a Delaware corporation ("UAG") and __________________ [Buyer] a Delaware corporation and a wholly-owned subsidiary of UAG ("Buyer"), and _________________ [Target] ("Target"), a __________________ corporation and ________________ [Target Shareholders], each a shareholder of the Target (collectively, the "Target's Shareholders"). UAG, the Buyer, the Target and the Target Shareholders are referred to collectively herein as "Parties". W I T N E S S E T H: RECITALS: A. This Agreement contemplates a tax-free merger of the Target with and into the Buyer in a reorganization pursuant to Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended. The current shareholders of the Target (collectively, the "Target Shareholders") will receive common stock in UAG ("UAG Common Stock") and options for UAG Common Stock ("UAG Options") in exchange for their rights, title and interests in and to their ownership interests in the Target. B. Pursuant to the terms of a certain Master Agreement made as of March 11, 1992 as amended by Amendment No. 1 to the Master Agreement dated October 1, 1992 and by Amendment No. 2 to the Master Agreement dated July 21, 1993 (as so amended, the "Master Agreement") the Buyer and the Target became general partners in _______________, a __________ general partnership (the "Partnership"). C. This Agreement is entered into pursuant to a Settlement Agreement by and among the Parties and/or certain affiliates of the Parties dated October 3, 1996 which by its terms supersedes the Master Agreement in its entirety. D. At present Target is the owner of a 30% interest in the Partnership ("Partnership Interest"). E. The Partnership is in the business of operating an automobile dealership in the State of _____________________, as the franchisee under a franchise agreement with one or more automobile manufacturers. F. Prior to the Effective Time (as hereinafter defined), the boards of directors and stockholders of each of the Buyer and the Target shall have approved and adopted resolutions declaring advisable the merger of Target with and into the Buyer on the terms and conditions hereinafter set forth and shall have also approved and adopted this Agreement and Plan of Merger. NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of the representations and warranties and covenants herein contained, the Parties agree as follows: 1. THE MERGER 1.1 THE MERGER. On and subject to the terms and conditions of this Agreement, the Target will merge with and into the Buyer (such transaction being hereinafter referred to as the "Merger") at the Effective Time (as hereinafter defined). The Buyer shall be the corporation surviving the Merger (the "Surviving Corporation"). The Merger shall become effective at the time (the "Effective Time") the Buyer and Target file the Certificate of Merger with the Secretary of State of their respective States of incorporation. The Surviving Corporation may, at any time after the Effective Time, take any action (including executing and delivering any document) in the name and on behalf of either of its constituent corporations in order to carry out and effectuate the transactions contemplated by this Agreement. 1.2 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of Incorporation and the Bylaws of the Buyer in effect at and as of the Effective Time will remain the Certificate of Incorporation and the Bylaws of the Surviving Corporation in the Merger, without any modification or amendment. 1.3 DIRECTORS AND OFFICERS. The directors and officers of the Buyer in office at and as of the -2- Effective Time will remain the directors and officers of the Surviving Corporation. Each of such directors and officers shall retain his or her respective position and term of office. 1.4 DELIVERY OF CONSIDERATION. At the Closing (as hereinafter defined), in satisfaction of its obligations hereunder, the Buyer shall deliver to the Target Shareholders, PRO RATA in accordance with their shareholdings of the Target, ___________ shares of UAG Common Stock and UAG Options to acquire ___________ shares of UAG Common Stock. The UAG Options shall be in the form attached to the Settlement Agreement as Exhibit 6.1(A) 2. CLOSING 2.1 CLOSING DATE. The closing of the transactions contemplated hereby (the "Closing") shall take place at the offices of Arnold & Porter, 399 Park Avenue, New York, New York 10022, at 10:00 a.m. on _____________, 1996 provided that all conditions to the obligations of the Parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the Parties will take at the Closing itself) have been satisfied or waived or such other time and date as the Parties may agree to in writing (the "Closing Date"). 2.2 ACTIONS AT THE CLOSING. At the Closing, in addition to the delivery of the consideration provided for in Section 1.4 above, (i) the Target will deliver to the Buyer the various certificates, instruments, and documents referred to in Section 2.3 below, (ii) the Buyer will deliver to the Target the various certificates, instruments, and documents referred to in Section 2.4 below, (iii) each of the Buyer and Target will file with the Secretary of State of its incorporation a Certificate of Merger, and (iv) the Buyer will deliver to the Target* a qualification form to do business in the State of the Target's incorporation, duly executed by an officer of the Buyer, unless already so qualified in such State, in order that the Target can file such qualification form - --------------- * Such action is applicable only if the Target is incorporated in New Jersey. -3- with the Secretary of State of its incorporation along with the Certificate of Merger. 2.3 DELIVERIES OF THE TARGET. At the Closing, the Target and Target's Shareholders shall deliver the following documents to the Buyer and UAG: 2.3.1 A certificate of good standing regarding the Target dated as of a recent date and issued by the Secretary of State of the State of the Target's incorporation. 2.3.2 A closing certificate in the form attached hereto as EXHIBIT 2.3.2, duly executed by an officer of the Target and dated as of the Closing Date, to the effect that each of the conditions specified in Section 6.1 are satisfied in all material respects. 2.3.3 A legal opinion of counsel to the Target, in a form reasonably acceptable to the Target and the Target's Shareholders. 2.3.4 A copy of the Target's Certificate of Incorporation certified by the Secretary of State of the State of its incorporation, and a copy of its Bylaws certified by the President or Secretary of the Target. 2.3.5 A duly executed Registration Rights Agreement, substantially in the form attached to the Settlement Agreement as Exhibit 6.1(A). 2.3.6 Share certificates of the capital stock of the Target held by the Target's Stockholders, duly endorsed to the Buyer, together with all minute books and records of the Target. 2.3.7 Such other documents, certificates and instruments as may reasonably be requested. 2.4 DELIVERIES OF THE BUYER AND UAG. At the Closing, the Buyer and UAG shall deliver the following documents to the Target: 2.4.1 A closing certificate in the form attached hereto as EXHIBIT 2.4.1 by the Buyer and UAG dated as of the Closing Date to the effect that -4- each of the conditions specified in Section 6.2 are satisfied in all material respects. 2.4.2 A legal opinion of counsel to UAG and the Buyer, in a form reasonably acceptable to the Buyer and UAG. 2.4.3 A certificate of good standing regarding the Buyer and UAG dated as of a recent date and issued by the Secretary of State of the State of [Delaware]. 2.4.4 A duly executed Registration Rights Agreement, substantially in the form attached to the Settlement Agreement hereto as Exhibit 6.1(A). 2.4.5 Such other documents, certificates and instruments as may reasonably be requested. 3. TARGET'S AND TARGET'S SHAREHOLDERS' REPRESENTATIONS AND WARRANTIES The Target and Target's Shareholders, jointly and severally, represent and warrant to the Buyer, as of the date of this Agreement and as of the Closing Date, as follows: 3.1 TITLE TO TARGET'S PARTNERSHIP INTEREST. Except for certain pledge agreements executed in connection with the Master Agreement which pledge agreements are being terminated simultaneously herewith pursuant to the Settlement Agreement, there are no liens or rights of others in the Partnership Interest, except for any such liens or rights that may have been created or suffered to be created by the Partnership or UAG. 3.2 CORPORATE STATUS. The Target is a corporation which is duly incorporated, validly existing and in good standing under the laws of the State in which it is incorporated. 3.3 POWER AND AUTHORITY. The Target has the corporate power and authority to execute, deliver and perform this Agreement. This Agreement and all transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of the Target and Target's Shareholders. -5- 3.4 BINDING AGREEMENT. When executed and delivered by the Target, this Agreement shall be the valid and binding obligation of the Target enforceable in accordance with its terms. 3.5 ABSENCE OF CONFLICT OR BREACH. The execution, delivery and performance of this Agreement do not and shall not conflict with or result in a breach of any of the terms, conditions or provisions of any judgment, order, injunction, decree or ruling of any court or arbitration tribunal or governmental authority to which the Target is subject, or of any provision of any agreement or understanding or arrangement to which the Target is a party or by which the Target is bound, which would interfere with the Target's ability to execute, deliver and perform under this Agreement. 3.6 BROKERS' FEES. The Target does not have any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. 3.7 LITIGATION. There is no outstanding order, writ, judgment, stipulation, injunction, decree or determination before or by any court or arbitration tribunal or governmental authority against the Target, and there are no claims, actions, suits, investigations or proceedings of any kind pending, or, to the knowledge of the Target, threatened, before any court or arbitration tribunal or governmental authority that seek to restrain, enjoin or otherwise prevent the consummation of the transactions contemplated by this Agreement. 3.8 TAX MATTERS. The target has timely filed all material federal, state and local tax returns and all material information returns and reports required to be filed by or with respect to it under the laws of the United States or any State or other jurisdiction, for all periods ending prior to the date hereof and will timely file all such returns and reports required to be filed from the date hereof to the Effective Time. The Target has paid all taxes shown on such returns and will pay prior to the Effective Time all taxes which shall be shown on returns to be filed from the date hereof to the Effective Time. -6- 3.9 CONDUCT OF BUSINESS AND UNDISCLOSED LIABILITIES. The Target is not and has not been engaged in any business other than holding, and owns no other material asset than, the Partnership Interest and the Target has no debts, liabilities or obligations of any nature (whether known or unknown and whether absolute, accrued, contingent, or otherwise) that have not been disclosed to the Buyer and UAG in writing, except to such extent that such undisclosed liabilities, individually or in the aggregate, would not have a material adverse effect on the Target. The Target has not entered into any material agreement other than the partnership agreement and any other agreements it may have with the Partnership. The Target has no employees and no employee benefit plans within the meaning of the Employee Retirement Income Security Act of 1974, as amended and is not a party to any collective bargaining agreement. 3.10 IDENTITY OF TARGET SHAREHOLDERS. All of the Target's Shareholders and their ownership percentages are set forth on Schedule 3.10. 3.11 INSURANCE. Set forth on Schedule 3.11 is a list of all insurance policies (including policy number, insurance company issuing the policy and amount of coverage) under which the Target is currently covered and under which it has been covered since the date it became a party to the Master Agreement. 3.12 CONSENTS. Except as disclosed on Schedule 4.4, there are no (i) consents, approvals, authorizations or other actions of, or filings with, any court, governmental authority or regulatory body and (ii) approvals, authorizations or orders of any person under any material permits, licenses, contracts, decrees or other restrictions to which the Partnership is a party, known to the Target or the Target's Shareholders that are required to be obtained, taken or filed in order for this Agreement to be executed and delivered and the transactions contemplated hereby to be consummated. 3.13 DISCLOSURE. No representation or warranty of the Target or Target's Shareholders omits to state a material fact necessary to make the statements herein, in light of the circumstances in which they were made and with respect to the subject matter thereof, not misleading. -7- 3.14 INVESTMENT REPRESENTATIONS. (a) The UAG Common Stock will be acquired for the Target Shareholders' own accounts not as a nominee or agent, and not with a view to, or for resale in connection with, any "distribution" thereof for purposes of the Securities Act of 1933, as amended (the "Securities Act"), except in compliance with the Securities Act. (b) The Target Shareholders understand that the UAG Common Stock will not be registered under the Securities Act for purposes of the sale contemplated herein. (c) Each of the Target Shareholders is an "accredited investor" as that term is defined in Regulation D promulgated under the Securities Act. 4. BUYER'S AND UAG'S REPRESENTATIONS AND WARRANTIES The Buyer and UAG, jointly and severally, represent and warrant to the Target and the Target's Shareholders, as of the date of this Agreement and as of the Closing Date, as follows: 4.1 CORPORATE STATUS. Each of the Buyer and UAG is a corporation which is duly incorporated, validly existing and in good standing under the laws of the State of [Delaware]. 4.2 POWER AND AUTHORITY. Each of the Buyer and UAG has the corporate power and authority to execute, deliver and perform this Agreement. This Agreement and all transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of the Buyer and UAG and by all necessary partnership action on the part of the Partnership. 4.3 BINDING AGREEMENT. When executed and delivered by the Buyer and UAG, this Agreement shall be the valid and binding obligation of each of the Buyer and UAG, enforceable in accordance with its terms. 4.4 CONSENTS. Except as disclosed on Schedule 4.4, there are no (i) consents, approvals, authorizations or other actions of, or filings with, 8- any court, governmental authority or regulatory body and (ii) approvals, authorizations or orders of any person under any material permits, licenses, contracts, decrees or other restrictions benefitting or affecting UAG, the Buyer or the Partnership that are required to be obtained, taken or filed in order for this Agreement to be executed and delivered and the transactions contemplated hereby to be consummated. All of the consents, approvals, authorizations, orders or other actions identified on Schedule 4.4 have been, or prior to the Effective Time shall be, obtained, taken or filed. 4.5 ABSENCE OF CONFLICT OR BREACH. The execution, delivery and performance of this Agreement do not and shall not conflict with or result in a breach of any of the terms, conditions or provisions of any judgment, order, injunction, decree or ruling of any court or arbitration tribunal or governmental authority to which the Buyer or UAG is subject, or of any provision of any agreement or understanding or arrangement to which the Buyer or UAG is a party or by which the Buyer or UAG is bound, which would interfere with the Target's ability to execute, deliver and perform under this Agreement. 4.6 UAG COMMON STOCK AND OPTIONS. All of the shares of UAG Common Stock to be issued in the Merger have been duly authorized and, upon consummation of the Merger, will be validly issued, fully paid, and nonassessable. All of the UAG Options to be issued in the Merger have been duly authorized and, upon consummation of the Merger, will grant valid rights to the holder to acquire UAG Common Stock, in accordance with the terms of the UAG Options. The shares issuable upon exercise of the UAG Options have been duly reserved for issuance by UAG and, when issued in accordance with the terms of the UAG Options, such shares will be validly issued, fully paid and nonassessable. 4.7 BROKERS' FEES. Neither UAG nor the Buyer has any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Target or Target Shareholders could become liable or obligated. 4.8 LITIGATION. There is no outstanding order, writ, judgment, stipulation, injunction, decree -9- or determination before or by any court or arbitration tribunal or governmental authority against the Buyer or UAG, and there are no claims, actions, suits, investigations or proceedings of any kind pending, or, to the knowledge of the Buyer or UAG, threatened, before any court or arbitration tribunal or governmental authority that seek to restrain, enjoin or otherwise prevent the consummation of the transactions contemplated by this Agreement. 4.9 DISCLOSURE. The final prospectus used by UAG in connection with its initial public offering and any supplement or amendment thereto when filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended did not and will 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 not misleading, in light of the circumstances in which they were made. 5. COVENANTS OF THE PARTIES The Parties agree as follows with respect to the period from and after the execution of this Agreement: 5.1 GENERAL. Each of the Parties will use its best efforts to take all action and to do all things necessary in order to consummate and make effective the transactions contemplated by the Agreement (including satisfaction, but not waiver, of the closing conditions set forth in Section 6 below). 5.2 FILINGS. Each of the Parties shall cooperate with one another in filing, supplying, or causing to be filed or supplied, as promptly as practicable, all applications, notifications and information required to be filed or supplied by it or by the Partnerships pursuant to (i) applicable law and (ii) all then applicable agreements to which the other Parties are a party, in connection with the Merger pursuant to this Agreement. 5.3 THIRD PARTY CONSENTS. The Parties shall cooperate with one another in obtaining consents and approvals from third parties with respect to the transactions contemplated by this Agreement. -10- 5.4 NOTICE OF DEVELOPMENTS. Each Party will give prompt written notice to the other of any material adverse development causing a breach of any of its own representations and warranties in Section 3 and Section 4 above. 6. CONDITIONS TO CLOSING 6.1 CONDITIONS TO OBLIGATIONS OF THE BUYER. The obligations of the Buyer to consummate the transactions contemplated hereunder shall be subject to the fulfillment (or waiver by the Buyer) on or prior to the Closing Date of the following additional conditions, which the Target agrees to use its best efforts to cause to be fulfilled: 6.1.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Target and the Target's Shareholders contained in Section 3 hereof shall be true and correct in all material respects on and as of the date hereof and shall be true and correct in all material respects on and as of the Closing Date with the same effect as though made on and as of the Closing Date. 6.1.2 COVENANTS. The Target shall have performed and complied with all of its covenants contained in Section 5 hereof in all material respects through the Closing. 6.1.3 INSTRUMENT EVIDENCING ASSUMPTION OF LIABILITY. The Buyer will deliver to the Target an instrument in the form attached hereto as EXHIBIT 6.1.3, duly executed by an officer of the Buyer, to the effect that the Buyer assumes the tax liabilities of the Target, in order that the Target can expedite the tax clearance procedure which is required to be satisfied prior to the filing of a Certificate of -11- Merger.** If any such instrument is delivered it shall have no impact upon, and shall not modify the rights of, the Parties as more fully set forth in Section 7. 6.1.4 DELIVERY OF ALL DOCUMENTS. At the Closing, the Target shall have delivered all the documents, certificates and other deliveries set forth in Section 2.3 hereof. 6.2 CONDITIONS TO OBLIGATIONS OF THE TARGET. The obligations of the Target to consummate the transactions contemplated hereunder shall be subject to the fulfillment (or waiver by the Target), on or prior to the Closing Date, of the following additional conditions, which the Buyer and UAG agree to use their best efforts to cause to be fulfilled: 6.2.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Buyer and UAG contained in Section 4 hereof shall be true and correct in all material respects on and as of the date hereof and shall be true and correct in all material respects on and as of the Closing Date with the same effect as though made on and as of the Closing Date. 6.2.2 COVENANTS. The Buyer and UAG shall have performed and complied with all of its covenants contained in Section 5 hereof in all material respects through the Closing. 6.2.3 CONSENTS. The Buyer and UAG shall have obtained and delivered to the Target any governmental or third party consents, authorizations or approvals, including any manufacturer consent, to the transactions contemplated by this Agreement required to be obtained by the Buyer, UAG or the Partnership. 6.2.4 DELIVERY OF ALL DOCUMENTS. At the Closing, the Buyer and UAG shall have delivered all the documents, certificates and other deliveries set forth in Section 2.4 hereof. - --------------- ** Such instrument is required only if the Target is incorporated in the State of New York and the Buyer is not incorporated in the State of New York. Alternatively, the Buyer may reincorporate in the State of New York, which will eliminate the Target's need to obtain tax clearance altogether. -12- 7. INDEMNIFICATION 7.1 GENERAL INDEMNIFICATION OF THE TARGET SHAREHOLDERS. Except as provided in Section 7.3, the Surviving Corporation and UAG, jointly and severally, shall defend, indemnify and hold the Target Shareholders harmless from and against any and all claims, liabilities, obligations, whether absolute, accrued, contingent or otherwise and whether a contractual or any other type of liability, obligation or claim (other than income tax liabilities of the Target Shareholders arising from the transactions contemplated by this Agreement) including, without limitation, all damages, losses and expenses, reasonable fees of experts and attorneys and all costs of suit, suffered or incurred or to be suffered or incurred by the Target and the Target Shareholders (i) arising out of the breach of any or all representations and warranties made by or on behalf of the Buyer or UAG in this Agreement or in any document delivered hereunder, and (ii) arising from or out of the operations of the Target or the Surviving Corporation. The Surviving Corporation and UAG shall indemnify and hold harmless the present and former officers and directors and employee benefit plan fiduciaries of the Target in respect of acts or omissions occurring at or prior to the Effective Time to the same extent now provided under the Target's Articles of Incorporation and By-Laws in effect on the date hereof. 7.2 INDEMNIFICATION OF UAG AND THE SURVIVING CORPORATION. Except as provided in Section 7.3, the Target Shareholders jointly and severally shall defend, indemnify and hold UAG, and the Surviving Corporation harmless from and against any and all claims, liabilities, obligations, whether absolute, accrued, contingent or otherwise and whether a contractual or any other type of liability, obligation or claim including, without limitation, all damages, losses and expenses, reasonable fees of experts and attorneys and all costs of suit, suffered or incurred or to be suffered or incurred by UAG and the Surviving Corporation arising out of the breach of any or all representations and warranties and covenants made by the Target and the Target's Shareholders in this Agreement or in any document delivered hereunder. 7.3 SPECIAL TAX INDEMNITY. Notwithstanding any other provision of this Section 7, except for the Tax Liabilities referred to in the following sentence, the -13- Target Shareholders shall be liable for, and shall indemnify and hold UAG and the Surviving Corporation harmless from and against, any and all claims, liabilities and obligations in respect of income or franchise taxes, whether absolute, accrued, contingent or otherwise (herein, "Tax Liabilities"), asserted against the Target for any period prior to the Effective Time. Each of the Buyer, Surviving Corporation and UAG shall be liable for, and shall indemnify and hold the Target Shareholders harmless from and against, any Tax Liabilities (in excess of those shown on returns filed by the Target for periods prior to the Effective Time) asserted against the Target as a result of adjustments by any tax authority or the Partnership to any items of income, gain, deduction, loss or credit allocable to the Target in respect of Target's interest in the Partnership for any period after the formation of the Partnership and prior to the Effective Time. 7.4 INDEMNIFICATION PROCEDURE. A party seeking indemnification pursuant to this Section 7 (an "indemnified party") shall give prompt notice to the party from whom such indemnification is sought (the "indemnifying party") of the assertion of any claim, or the commencement of any action or proceeding, in respect of which indemnity may be sought hereunder. The indemnifying party shall have the right to assume the defense (in consultation and cooperation with the indemnified party, in good faith and to the extent appropriate under the circumstances) of any such suit, action or proceeding at its own expense. If an indemnifying party shall elect not to assume the defense of any such suit, action or proceeding, the indemnified party may assume such defense at the expense of the indemnifying party. An indemnifying party shall not be liable under this Section 7 for any settlement effected without its consent of any claim, litigation or proceeding in respect of which indemnity may be sought hereunder. No investigation by an indemnified party at or prior to the Closing shall relieve an indemnifying party of any liability hereunder. 8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES The Buyer, UAG, the Target and the Target's Shareholders agree that the representations and warranties of each party in Section 3 and Section 4, the -14- indemnification provisions in Section 7 and the registration rights granted to the Target Shareholders in Section 9 shall survive the Closing. 9. REGISTRATION RIGHTS UAG shall grant the Target Shareholders registration rights upon the terms and conditions set forth in the form of a Registration Rights Agreement attached to the Settlement Agreement as Exhibit 6.1(A) (the "Registration Rights Agreement"). 10. CERTAIN TAX MATTERS After the Closing, the Target Shareholders shall cooperate with respect to any audit or other administrative or court proceedings with respect to taxes and tax returns of the Target for periods ending on or before the Closing Date, in each case including maintaining and making available to the Surviving Corporation and UAG all records necessary in connection with taxes payable with respect to such tax returns and in resolving all disputes and audits and refunds with respect to such tax returns and taxes and any earlier tax returns and taxes of the Target. Any refunds of or credits for taxes of the Target with respect to any taxable period ending on or before the Closing Date shall be for the account of the Target Shareholders and if received or utilized by the Surviving Corporation or UAG shall be paid to Target Shareholders within five business days after the Surviving Corporation or UAG receives such refund or utilizes such credit. The Surviving Corporation and UAG shall cooperate, and shall cause their respective officers, employees, agents, auditors and representatives to cooperate, with respect to any audit or other administrative or court proceedings with respect to taxes and returns of the Target for periods ending on or before the Closing Date, in each case including maintaining and making available to the Target Shareholders all available records necessary in connection with taxes payable with respect to such tax returns and in resolving all disputes, audits and refunds with respect to such returns and taxes and any earlier returns and taxes of Target. -15- 11. MISCELLANEOUS 11.1 NO WAIVER. No waiver of any term, condition, default, or breach of this Agreement, or of any document executed pursuant hereto, shall be effective unless in writing and executed by the party making such waiver; no such waiver shall operate as a waiver of either (i) such term, condition, default, or breach on any other occasion, or (ii) any other term, condition, default, or breach of this Agreement. No delay or failure to enforce any provision of this Agreement or of any document executed pursuant hereto shall operate as a waiver of such provision or any other provision herein or therein. The enforcement by any party of any right it may have under this Agreement or under applicable laws shall not be deemed an election of remedies or otherwise prevent such party from enforcement of one or more other remedies at any time. 11.2 CONSTRUCTION; PRONOUNS. The rule of construction construing ambiguities in documents against their drafters shall not be applicable to the construction of this Agreement. All words used herein shall be construed according to their proper gender and number, as the context shall require. 11.3 PARTIES BOUND. All of the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of, and be enforceable by and against, the Parties hereto and their respective heirs, representatives, successors and permitted assigns. 11.4 NOTICES. Any and all notices, requests, communications, or demands required or permitted to be given hereunder shall be in writing, and shall be delivered either (i) in person or by electronic facsimile, (ii) by an established overnight delivery service, or (iii) by certified mail, return receipt requested, addressed as follows: If to Target: Joseph C. DiFeo and Samuel X. DiFeo 121 Lorraine Avenue Spring Lake, New Jersey 07762 -16- copy to: Arnold & Porter 399 Park Avenue New York, New York 10022 Fax: (212) 715-1399 Phone: (212) 715-1000 Attention: Michael J. Canning, Esq. If to UAG or Buyer: United Auto Group, Inc. 375 Park Avenue - 11th Floor New York, New York 10152 Fax: (212) 593-1363 Phone: (212) 230-0493 Attention: Philip N. Smith, Jr., Esq. copy to: If by Hand: Bressler, Amery & Ross, P.C. 325 Columbia Turnpike Florham Park, New Jersey 07932 Fax: (201) 514-1660 Phone: (201) 514-1200 Attention: Edward P. McKenzie, Esq. If by Mail: P.O. Box 1980 Morristown, New Jersey 07962 or to such other address or addresses as any party may designate to the others by notice given as provided above. Notices delivered in person or by electronic facsimile shall be deemed to have been given on the date of delivery; notices delivered by overnight delivery service shall be deemed to have been given on the business day following the date of deposit with such overnight delivery service; and notices given by mail shall be deemed to have been given three (3) days after the date of mailing. 11.5 GOVERNING LAW. The rights and duties of the parties and the validity, construction, enforcement, and interpretation of this Agreement shall be determined according to the laws of the State of New York. 11.6 SUBMISSION TO JURISDICTION. The Parties hereby agree that the Federal courts of the United States sitting in the Southern District of New York and the courts of the State of New York sitting in the City of New York shall have the exclusive -17- jurisdiction in respect of any legal action or proceeding arising out of or relating to this Agreement or to the transactions contemplated hereunder. 11.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written. UNITED AUTO GROUP, INC. By: ------------------------- Name: Title: [BUYER] By: ------------------------- Name: Title: [TARGET] By: ------------------------- Name: Title: [TARGET'S SHAREHOLDERS] By: ------------------------- Name: Title: By: ------------------------- Name: Title: -18- EXHIBIT 2.3.2 CERTIFICATE OF THE TARGET Pursuant to Section 2.3.2 of the Agreement and Plan of Merger dated as of , 1996 (the "Agreement") among the undersigned and ________________ (the "Buyer") and United Auto Group Inc., the undersigned, by executing this Certificate and delivering it to the Buyer and UAG certifies to the Buyer and UAG knowing and intending that the Buyer and UAG are relying hereon that: 1. The representations and warranties of the Target contained in Section 3 of the Agreement are true and correct in all material respects on and as of the date hereof. 2. The undersigned has performed and complied in all material respects with all covenants contained in Section 5 required by the Agreement to be performed or complied with by it on or prior to the date hereof. 3. All conditions to the undersigned's obligations under the Agreement have been satisfied in all material respects. [TARGET] By: ------------------------- Name: [TARGET'S SHAREHOLDERS] By: ------------------------- Name: By: ------------------------- Name EXHIBIT 2.4.1 CERTIFICATE OF THE BUYER AND UAG Pursuant to Section 2.4.1 of the Agreement and Plan of Merger (the "Agreement") dated as of , 1996 among the undersigned and United Auto Group, Inc., and _____________________________________ (the "Target") and __________________________________ (the "Target's Shareholders"), the undersigned, by executing this Certificate and delivering it to the Target, certifies to the Target, knowing and intending that the Target is relying hereon that: 1. The representations and warranties of the undersigned contained in Section 4 of the Agreement are true and correct in all material respects on as of the date hereof. 2. Each of the undersigned has performed and complied in all material respects with all covenants contained in Section 5 required by the Agreement to be performed or complied with by it on or prior to the date hereof. 3. All conditions to the undersigneds' obligations under the Agreement have been satisfied in all material respects. [BUYER] By: ------------------------- Name: Title: UNITED AUTO GROUP, INC. By: ------------------------- Name: Title: -2- EXHIBIT 6.1.3 ASSUMPTION OF LIABILITY _____________________, a corporation organized under the laws of the State of __________, does hereby guarantee that it will file, or cause to be filed, all returns required of _____________________________, a corporation organized under the laws of the State of __________, and does assume the liability for and guarantee the payment of all taxes accrued and owing by said __________________________, the ________________ corporation. ----------------------- By --------------------- (Vice) President ATTEST: - -------------------------------- (Assistant) Secretary STATE OF ___________) ) SS.: COUNTY OF __________) I, _______________, a Notary Public, do hereby certify that on the ______ day of ________, 1996, personally appeared before me ____________________, and, being first duly sworn by me, acknowledged that he signed the foregoing document in the capacity therein set forth and declared that the statements therein contained are true. IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and year before written. ------------------------- Notary Public EX-10.2-28 18 EXH 10.2.28 FORM OF LEASE (DIFEO GROUP) Exhibit 10.2.28 FORM OF LEASE This lease ("Lease") is dated as of October 1, 1995, by and between [Fair Realty Company, a New Jersey partnership, having an office at c/o Dealership Management, 585 Route 440, Jersey City, New Jersey ("Landlord"), or such other Landlord as applicable] and [United Auto Group, Inc., a Delaware corporation, having an address at 375 Park Avenue, New York, New York 10022 or Individual Partnership (to be determined)] ("Tenant"). W I T N E S S E T H: That Landlord in consideration of the rents reserved in this Lease to be paid by Tenant and in consideration of the covenants, agreements and conditions herein contained to be observed and fulfilled by Tenant, hereby demises and leases to Tenant, and Tenant hereby hires and takes from Landlord, the real property (the "Land") situate, lying and being, and, as more particularly bounded and described, in SCHEDULE A. TOGETHER with the Buildings and the Appurtenances (as hereinafter respectively defined; the Land, the Buildings and the Appurtenances, collectively, the "Premises"). SUBJECT to the mortgages specified in EXHIBIT A and any easements, restrictions and other matters of record against the Premises as of the date hereof. TO HAVE AND TO HOLD the Premises unto Tenant, its successors and assigns, for a term commencing on October 1, 1995 (the "Term Commencement Date") and expiring on the last day of the calendar month in which occurs the end of a fifteen (15) year period from the Term Commencement Date, (September 30, 2010) unless this Lease shall sooner terminate as hereinafter provided, upon and subject to the terms and conditions hereinafter set forth. AND Landlord and Tenant covenant and agree as follows: ARTICLE I BASE, ESCALATION AND ADDITIONAL RENT Section 1.1. BASE RENT. Tenant shall pay to Landlord during the term hereof in lawful money of the United States of America, by check subject to collection, at the address of the Landlord specified above or at such place as Landlord may from time to time designate, without notice or demand, net annual base rental (the "Base Rent"), in equal monthly installments in advance on the twenty-fifth (25th) day of the calendar month preceding the month to which such installment of Base Rent relates, at a rate per annum of ____, subject to adjustment as provided in this Article 1. Notwithstanding the foregoing (and without limitation of any other rights or remedies provided to Landlord hereunder), if during any twelve (12) month period Tenant shall be more than five (5) days late in the payment of two (2) monthly installments of Base Rent hereunder, then, for the twelve (12) months following such second (2nd) instance, Base Rent hereunder shall be payable on the fifteenth (15th) day of the calendar month preceding the month to which such installment of Base Rent relates. Section 1.2. BASE RENT ADJUSTMENTS. The Base Rent shall be adjusted as follows: (a) the Base Rent shall be increased as of May 1, 2000 by an additional ______ per annum; and (b) on October 1 of each year subsequent to the year of the Term Commencement Date, the Base Rent shall be increased by the greater of (i) 2% of the Base Rent as of the September 1 immediately prior thereto, or (ii) seventy-five (75%) percent of (1) the percentage increase, if any, in the Consumer Price Index for Urban Consumers - New York - Northeastern New Jersey ("CPI-U") for the month of September of the year of calculation over (2) the CPI-U for September of the year prior to the year of calculation. Section 1.3. NET LEASE. This Lease shall be deemed and construed to be an absolutely "net lease", except as herein expressly provided to the contrary. It is the intent of Landlord and Tenant that the Base Rent shall be absolutely net to Landlord so that this Lease shall yield to Landlord the Base Rent, and that all costs, expenses, charges, assessments, impositions and obligations of every -2- kind and nature relating to the Premises which may arise or become due during the Term, whether foreseen or unforeseen, ordinary or extraordinary, shall be the responsibility of Tenant, except (i) as expressly provided to the contrary in this Lease, or (ii) for obligations relating to Fee Mortgages and liens created by Landlord, or other agreements entered into by Landlord relating to the Premises, to the extent that the same are not expressly assumed in writing by Tenant or that Tenant expressly agrees to comply with the same hereunder. Tenant shall pay to Landlord the Base Rent and other payments hereunder free of any charges, assessments, impositions or deductions of any kind and without abatement, deduction, demand, notice, or set-off, except as otherwise expressly provided in this Lease. Section 1.4. PRORATIONS; ADDITIONAL RENT; ADJUSTMENTS. (a) If the Term Commencement Date or the expiration date of the Term, or the date on which any rent adjustment shall become effective, shall be other than the first and last day, respectively, of a calendar month, the monthly installment of Base Rent for such month shall be prorated on a PER DIEM basis. If any period to which a payment of additional rent hereunder relates shall not be wholly within the Term of this Lease, such payment of additional rent shall be prorated on a PER DIEM basis. (b) All additional rent, sums, charges and other payments provided for under this Lease, other than Base Rent, shall be deemed additional rent and shall constitute rent payable hereunder with the same affect as if the same were Base Rent reserved and provided for herein and, in the event of the nonpayment by Tenant of such additional rent when due hereunder, Landlord shall have the same rights and remedies in respect thereof as Landlord shall or may have in respect of non-payment of Base Rent reserved and provided for herein. ARTICLE II CERTAIN DEFINITIONS As used herein: (a) "ADR" shall have the meaning ascribed thereto in Article 18; -3- (b) "AFFILIATE" means when used with reference to a specified Person, (i) any Person that directly or indirectly through one or more intermediaries controls or is controlled by or is under common control with the specified Person or (ii) any Person that is an executive officer or director of, partner in, or trustee of, or serves in a similar capacity with respect to, the specified Person or of which the specified Person is an officer, partner or trustee, or with respect to which the specified Person serves in a similar capacity; and, (iii) when used with reference to a natural Person, any Person that is related to the specified Person by blood or marriage in the first degree of consanguinity; PROVIDED, HOWEVER, that no natural Person shall be deemed to be controlled by any other Person; (c) "AFFILIATE LEASES" shall mean this Lease and all other leases to be entered into contemporaneously herewith by Landlord (or Affiliates of Landlord) and Tenant (or Affiliates of Tenant), a list of all such Affiliate Leases being attached hereto as Exhibit B; (d) "AFFILIATE SUBLEASES" shall mean the subleases previously entered into or to be entered into contemporaneously herewith by Landlord (or Affiliates of Landlord) and Tenant (or Affiliates of Tenant), a list of such Affiliate Subleases being attached hereto as Exhibit C; (e) "ALTERATIONS" shall have the meaning set forth in Section 10.1; (f) "APPURTENANCES" shall mean all easements, licenses, privileges, rights and appurtenances related to the Land or the Buildings; (g) "BUILDINGS" shall mean any buildings, structures or improvements now or hereafter erected or situated on the Land, the foundations and footings thereof, any and all fixtures, equipment, machinery and other tangible personal property of every kind and nature whatsoever now or hereafter affixed or attached hereto; (h) "CONDEMNATION PROCEEDS" shall have the meaning set forth in Section 9.2; (i) "CONSTRUCTIVE TOTAL TAKING" shall have the meaning set forth in Section 9.1; -4- (j) "DEALERSHIPS" shall mean Fair Cadillac-Oldsmobile Corp., Fair Chevrolet Corp., Fair Infiniti, Inc., Fair Imports Corp., Fair Hyundai Corp., Fair Motors Corp. (d/b/a Fair Mitsubishi), Danbury-Mt. Kisco Saturn Corp. (d/b/a Saturn of Danbury), Hudson Toyota Inc., J & S Ford Inc., DiFeo Volkswagen Inc., DiFeo Hyundai Inc., J & F Oldsmobile Corp., DiFeo Subaru Inc., DiFeo Jeep-Eagle Inc., DiFeo Imports Inc. (d/b/a Jersey City Mitsubishi), Park Pontiac-GMC Truck, Inc., DiFeo Buick Inc., DiFeo Autocenter Inc. (d/b/a DiFeo DiFeo Mazda), DiFeo Leasing Corporation, Somerset Motors Inc. (d/b/a DiFeo Lexus), Gateway Oldsmobile Inc. (d/b/a DiFeo Volkswagen of Bridgewater), DiFeo B.M.W., Inc., County Auto Group Inc. (d/b/a County Toyota) and Rockland Motors Corp. (d/b/a Rockland Mitsubishi); (k) "DEPOSITARY" shall have the meaning set forth in Section 11.1; (l) "DEPOSITED SUMS" shall have the meaning set forth in Section 11.1; (m) "ENVIRONMENTAL AGENCY" shall mean the EPA, NJDEPE, NYDEC, CDEP, Occupational Safety and Health Administration, or other federal, state or local agency or authority with jurisdiction over Hazardous Substances or Environmental Laws; (n) "ENVIRONMENTAL DOCUMENTS" shall mean those documents known to Landlord as follows: (a) results of any analysis including, but not limited to, analysis of water, soil, air or asbestos samples, whether or not submitted to any Environmental Agency; (b) any inspection report of the Premises by any Environmental Agency; (c) any document or communication from any Environmental Agency concerning a Notice; (o) "ENVIRONMENTAL INVESTIGATIONS" shall mean all environmental investigations, audits, assessments or occupational and health studies of the Premises known to Landlord; (p) "ENVIRONMENTAL, HEALTH AND SAFETY MATTERS" shall mean any: (a) person, place, object, substance or matter (including discharges to air, water and soil) regulated by any Environmental Law; (b) matter which falls within the jurisdiction of any Environmental Agency; (c) matter which is the subject of any Notice, Environmental -5- Investigation, Environmental Documents, or Environmental Permits; (d) Release, Notice, Environmental Law, Environmental Agency, Environmental Investigation, Environmental Documents and Environmental Permits; (e) matter which is regulated by the Occupational Health and Safety Administration pursuant to 29 CFR 1910.120, dealing with Hazardous Waste Operations and Emergency Responses and 29 CFR 1910.1200 dealing with Hazard Communication or similar matters regulated by similar state or local agencies; (f) all events, proceedings, actions, filings, reports, investigations, remediations, conditions, violations, compliance obligations, operations, claims, lawsuits, losses, liabilities, fines, penalties, judgments, damages and expenses involving any issue of the environment under any Environmental Law and arising at, about or by reason of any of the Premises, the operation of any automobile dealerships, automobile rental and financing businesses and any automobile repair business as conducted by any of the Dealerships or their Affiliates, or their successors, whenever occurring or arising; and (g) health and/or safety issues or matters which are related to any of the foregoing; (q) "ENVIRONMENTAL LAW" shall mean: (a) CERCLA; (b) RCRA; (c) OSHA; (d) ISRA; (e) the Spill Act; (f) the New Jersey Underground Storage of Hazardous Substances Act, as amended, N.J.S.A. 58:10a-21 ET SEQ.; (g) the New Jersey Water Pollution Control Act, as amended, N.J.S.A. 58:10a-1 ET SEQ. ("WPCA"); (h) the New Jersey Air Pollution Control Act, as amended, N.J.S.A. 26:2c-1 ET SEQ. ("APCA"); (i) the New York Air Pollution Control Act, E.C.L. Section 27-0101 ET SEQ. - Collection, Treatment and Disposal of Refuse and Other Solid Waste; Conn. Gen. Stat Section 22a-134 ET SEQ., the Connecticut Transfer Act; Conn. Gen. State. Section 22a-170 ET SEQ. -- Air Pollution Control; Con. Gen. State Section 22a-114 ET SEQ. -- Hazardous Waste; Conn. Gen. Stat. Section 22a-207 ET SEQ. -- Solid Waste Management; Conn. Gen. Stat. Section 22a-416 ET SEQ. -- Water Pollution Control; Conn. Gen. Stat. Section 22a-452a -- Super lien; Conn. Gen. Stat. Section 22a-449a ET SEQ -- Underground Storage Tanks; Conn. Gen. Stat. Section 22a-36 -- Inland Wetlands and Watercourses; Conn. Gen. Stat. Section 22a-342 ET SEQ. -- Stream Channel Encroachment; Conn. Gen. Stat. Section 22a-365 ET SEQ. -- The Connecticut Water Diversion Policy Act; Conn. Gen. Stat. Section 22a-401 ET SEQ. -- Dams and Reservoirs; Conn. Gen. Stat. Section 22a-600 -- Community Right-to-Know; Conn. Gen. Stat. Section 25-39e ET SEQ. -- Community Right-to-Know; and Conn. Gen. Stat. Section 29-307a ET SEQ. -- Community Right-to-Know and (n) any and all past, -6- present and future laws, including common laws, statutes, ordinances, regulations, permits, executive orders or directives, federal, state and local in any way related to the protection of human health or the environment applicable to the particular Real Property or Dealership in question; (r) "ENVIRONMENTAL PERMITS" shall mean any official documents or certificates issued by an Environmental Agency pursuant to any Environmental Law which authorizes or regulates the conduct of business or activities and which documents or certificates are required under that Environmental Law; (s) "EVENT OF DEFAULT" shall have the meaning set forth in Article 15; (t) "FEE MORTGAGE" shall mean any mortgage or deed of trust placed upon fee title to all or any portion of the Premises, and all renewals, refinancings, modifications, replacements and extensions thereof; and "FEE MORTGAGEE" shall mean the holder of any Fee Mortgage; (u) "FULL INSURABLE VALUE" shall mean the actual replacement cost of the Buildings (excluding foundation and excavation costs) and shall be determined at the request of Landlord by an architect, appraiser, appraisal company or one of the insurers, selected by Landlord and reasonably acceptable to and paid for by Tenant, but such determination shall not be required to be made more frequently than once every 36 months, unless such determination is required by an Institutional Fee Mortgagee; (v) "GUARANTOR" shall have the meaning set forth in Section 15.1. (w) "HAZARDOUS SUBSTANCE" shall be defined, for the Premises and with regard to obligations as to each particular law as hereafter referenced, as any "hazardous chemical", "hazardous substances", "hazardous waste", "hazardous material" or similar term as defined in any Environmental Law applicable to the Premises at the Closing Date, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. 9601 ET SEQ. ("CERCLA"), the Industrial Site Recovery Act, as amended N.J.S.A. 13:1k-6 ET SEQ. ("ISRA"), the New Jersey Spill Compensation and Control Act, as amended, N.J.S.A. 58:10-23.11, ET SEQ. ("Spill Act"), the Solid Waste Management Act, N.J.S.A. 13:1K-1 ET SEQ. -7- ("SWMA"), the New Jersey Spill Compensation and Control Act, as amended, N.J.S.A. 58: 10-23.11, ET SEQ. ("Spill Act"), the Solid Waste Management Act, N.J.S.A. 13:1K-1 ET SEQ., the Resource Conservation and Recovery Act, as amended, 42 U.S.C. 6901 ET SEQ. ("RCRA"), the Occupational Safety and Health Act of 1970, as amended 27 U.S.C. Section 651 ET SEQ. ("OSHA"), the New Jersey Underground Storage of Hazardous Substances Act, as amended, N.J.S.A. 58:10a-21 ET SEQ., any Article of the Environmental Conservation Law of New York State, including, but not limited to, any Title of E.C.L. Article 27, and any other present or future federal, state or local environmental law, ordinance, rule, regulation, order, directive or policy dealing with environmental protection. For real property in Connecticut, if any, the term "Hazardous Substances" with regard to obligations as to each particular law hereafter referenced shall include substances defined as "hazardous waste," "chemical liquids," "oil or petroleum," "solid liquid or gaseous products," or "Wasteoil," under Conn. Gen. Stat. Section 22a-448; "hazardous waste" under Conn. Gen. Stat. Section 22a-115; "hazardous waste" under Conn. Gen. Stat. Section 22a-134(4) (Connecticut Transfer Act); "pesticide" under Conn. Gen. Stat. Section 22a-47(w); "PCB" under Conn. Gen. Stat. Section 22a-463(b); "hazardous substance" under Conn. Gen. Stat. Section 25-39d; "hazardous material" under Conn. Gen. Stat. Section 29-307a(2); "hazardous substance" under Conn. Gen. Stat. Section 22a-134p; "carcinogenic substance" under Conn. Gen. Stat. Section 19a-329; "Connecticut Regulated Wastes" under the Connecticut Department of Environmental Protection Policy document entitled "Interim Status Standards for Commercial Connecticut Regulated Waste Facilities"; "hazardous air pollutant" under Section 22a-174-1 of the Regulations of Connecticut State Agencies; "toxic substance or hazardous substance" under Section 22a-430-3(a) (3) of the Regulations of Connecticut State Agencies (Wastewater Discharge Regulations) and "toxic substance" under Conn. Gen. Stat. Section 31-40(i); (x) "IMPOSITIONS" shall have the meaning set forth in Section 3.1; (y) "INSTITUTION" shall mean a savings and loan association, a savings bank, a commercial bank or trust company (whether acting individually or in any fiduciary capacity), an insurance company, an educational institution or a state, municipal or similar public employees' welfare, pension or retirement fund or system, a real estate investment trust, a real estate fund, or investment banking company or any other corporation or organization subject to -8- supervision and regulation by the insurance or banking departments of the State of New York, the State of New Jersey, the State of Connecticut, or the United States Treasury, or any successor department or departments hereafter exercising the same functions as said departments; (z) "INSTITUTIONAL FEE MORTGAGE" and "INSTITUTIONAL FEE MORTGAGEE" shall mean, respectively, a Fee Mortgage held by an Institution and the Institution which is the holder of an Institutional Fee Mortgage; (aa) "INSTITUTIONAL MORTGAGE" and "INSTITUTIONAL MORTGAGEE" shall mean, respectively, a Mortgage held by an Institution and the holder of an Institutional Mortgage; (bb) "LANDLORD GUARANTY" shall have the meaning ascribed thereto in Section 15.12; (cc) "LAWS" shall have the meaning set forth in Section 7.1; (dd) "MANUFACTURER" shall mean an entity with which Tenant is a party to an automobile service or franchise agreement. (ee) "MORTGAGE" shall mean any mortgage or deed of trust constituting a lien on Tenant's interest in this Lease and all renewals, refinancings, modifications, replacements and extensions thereof; (ff) "NOTICE" means any summons, citation, directive, order, claim, litigation, investigation, proceeding, judgment, letter or other written communication actually received by or known to Landlord or Tenant which is the subject of the Notice, from the New York Department of Environmental Conservation ("NYDEC"), Connecticut Department of Environmental Protection ("CDEP"), New Jersey Department of Environmental Protection and Energy ("NJDEPE"), the United States Environmental Protection Agency ("EPA") the Occupations Safety and Health Administration or any other federal, state or local agency or authority, concerning any act or omission which resulted, is resulting or which may result in a Release or any other violation of any Environmental Law. "Notice" includes the imposition of any liens on real property, assets, personal property, or revenues pursuant to any Environmental Law (as hereafter defined); -9- (gg) "PERSON" means any individual, firm, partnership, corporation, trust or other entity. (hh) "PRIME RATE" shall mean the prime commercial lending rate from time to time announced by The Chase Manhattan Bank, N.A. ("Chase") to be in effect at its principal office in New York, New York or, if Chase no longer announces such a rate, then a comparable rate selected by Landlord and reasonably acceptable to Tenant; (ii) "RELEASE" shall mean releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, ejecting, escaping, leaching, disposing or dumping of Hazardous Substances onto lands or into waters in violation of Environmental Laws; (jj) "SPACE TENANT" shall have the meaning set forth in Section 14.7; (kk) "TENANT GUARANTY" shall have the meaning, ascribed thereto in Article 29.1; (ll) "TERM" shall be as defined in the granting clause of this Lease; (mm) "TRACE" shall mean Trace International Holdings, Inc. a Delaware corporation having an office at 375 Park Avenue, New York, New York, 10022; (nn) "TRACE GUARANTY" shall have the meaning of ascribed thereto in Article 29.3; (oo) "UAG" shall mean United Auto Group, Inc., a Delaware corporation having an office at 375 Park Avenue, New York, New York, 10022; (pp) "UAG GUARANTY" shall have the meaning ascribed thereto in Article 29.2; (qq) "WORK" shall have the meaning set forth in Section 11.2. ARTICLE III IMPOSITIONS -10- Section 3.1. PAYMENT OF IMPOSITIONS. As additional rent, Tenant shall pay, before any fine, penalty, interest or cost may be added thereto for the non-payment thereof (or at such earlier and commercially reasonable time as is required by an Institutional Fee Mortgagee or a Fee Mortgagee which is not an Institution), all real estate taxes, assessments, special assessments, water and sewer rates and charges, vault charges, occupancy taxes measured by income, license and permit fees and other governmental levies and charges, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind and nature (collectively, "Impositions") which are assessed, levied, confirmed, imposed or become a lien upon or are due and payable with respect to the Premises or the sidewalks or streets in front of or adjoining the same, or are assessed, levied, confirmed or imposed upon Landlord as owner of the Premises and/or as the Landlord under this Lease or as the recipient of rents or other charges produced by this Lease, and which become or are payable, during the Term (including any interest imposed thereon by reason of an election to pay the same in installments), and any and all other taxes, assessments and charges levied, assessed or imposed upon the Premises or any portion thereof or upon Landlord as an owner of the Premises and/or as the Landlord under this Lease or in respect of the rents or other charges produced by this Lease in lieu of or in addition to the foregoing, including in substitution of or in addition to any other Impositions (for such purpose, the Imposition in question shall be calculated as if the Premises were the sole asset of Landlord); provided, that if, by law, any Imposition is payable or at the option of the taxpayer may be paid in installments (whether or not interest shall accrue on the unpaid balance thereof), Tenant may pay the same (and any accrued interest on the unpaid balance) in installments (and Landlord shall cooperate with Tenant in any application by Tenant to pay the same in installments) and shall pay only such installments as may become due during the Term as the same respectively become due and before any fine, penalty, interest or cost may be added thereto for non-payment thereof (or at such earlier and commercially reasonable time as is required by an Institutional Fee Mortgagee or a Fee Mortgagee which is not an Institution); and provided, further, that any Imposition relating to a fiscal period of a taxing authority, a part of which period is included within the Term of this Lease and a part of which is included in a period of time after the expiration or earlier termination of this Lease, shall (whether or not such Imposition shall be assessed, levied, confirmed, imposed or -11- become a lien upon the Premises, or shall become payable, during the Term) be appropriately pro-rated between Landlord and Tenant. Section 3.2. TAXES NOT INCLUDED IN IMPOSITIONS. Nothing in this Lease contained shall require Tenant to pay any franchise, income, corporate, estate, inheritance, succession, capital levy, stamp or transfer tax of Landlord or other taxes imposed on taxpayers generally as opposed to the owners of real property or on rents in particular. In the event of a dispute between Landlord and Tenant as to whether or to what extent a tax is an Imposition, such dispute shall be determined by ADR in the manner provided in Article 18. Section 3.3. RECEIPTS FOR IMPOSITIONS. Tenant shall, upon request of Landlord, furnish to Landlord within fifteen (15) days after the date when any Imposition is payable, official receipts of the appropriate taxing authority, or other evidence satisfactory to Landlord, evidencing the payment thereof. Section 3.4. RIGHT TO CONTEST IMPOSITIONS. Tenant, after prior notice to Landlord, shall have the right to contest the amount or validity, in whole or in part, of any Imposition by appropriate proceedings, and to pay any Imposition under protest or with reservation of rights. Notwithstanding Section 3.1, and only if payment of the Imposition in question would bar such contests, Tenant may postpone such payment pending resolution of such contest if (i) Tenant deposits with Landlord in cash, cash equivalents or a clean, irrevocable letter of credit in form and with an issuer reasonably acceptable to Landlord, as a reserve for payment thereof, the amount of such Impositions being contested, plus all fines, interest, penalties and costs which may become due pending the determination of such contest, in such amounts as Landlord may reasonably request from time to time, and (ii) no part of the Premises shall be in any danger of sale or forfeiture within the next 120 days by reason of such nonpayment; provided, however, that Tenant may not postpone such payment if (i) postponement of such payment would violate the terms and provisions of any Institutional Fee Mortgage (and the Institutional Fee Mortgagee refuses to waive the same), or (ii) Tenant does not comply with the terms and conditions of such Institutional Fee Mortgage, relating to such postponement (but Tenant will not be obligated to deposit sums for the same obligations with both Landlord and an Institutional Fee -12- Mortgagee). Upon the termination of such proceedings, or if the Premises at any time become in danger of sale or forfeiture by reason thereof within the next 120 days, Tenant shall pay the amount of such Imposition or part thereof, the payment of which may have been deferred during the prosecution of such proceedings, together with any costs, fees, interest, penalties or other liabilities in connection therewith. Without limiting the foregoing, Tenant shall have the right to apply for a reduction in the assessed valuation of the Premises or for an abatement of or exemption from any Imposition, for any fiscal or tax year during any part of which the Term of this Lease is in effect. Landlord shall, at Tenant's request, join in any such proceedings or permit the same to be brought in its name if required by law. Landlord shall not be subjected to any liability for the payment of any costs or expenses in connection with any such proceedings unless Landlord intervenes and takes an affirmative part therein (but Tenant shall be entitled to control such proceedings, and Tenant shall indemnify and save harmless Landlord from any such costs or expenses, except in the case of such intervention.) If Tenant has not commenced such a proceeding for a particular period or Imposition within a reasonable time prior to the last date on which such a proceeding may be commenced, and fails to commence the same within thirty (30) days after notice from Landlord referring to this Section, Landlord shall have the right to commence, maintain and control, at Landlord's sole cost and expense, such a proceeding (a "Landlord Proceeding") for such period or Imposition. Any refund or rebate of any Impositions and interest or penalties thereon shall belong to Landlord except to the extent it is based on a payment made by Tenant or to a payment made by Landlord to the extent Landlord has been reimbursed therefor by Tenant, in which case it shall belong to Tenant, notwithstanding the expiration or sooner termination of this Lease. Any refund or rebate so belonging to either party and received by the other party shall be deemed trust funds and as such are to be received by the recipient party in trust and forthwith paid to the other party, in accordance with this Article. Each party agrees, promptly upon request by the other party, to execute and deliver any receipt which may be necessary to effectuate the provisions of this Section. If any such refund or rebate is subject to apportionment between Landlord and Tenant as hereinabove provided, all costs and expenses (including experts and attorney's fees and disbursements) incurred by Tenant, or by Landlord in the case of a Landlord -13- Proceeding, in connection with obtaining such refund or rebate shall first be deducted from the amount thereof. Section 3.5. EVIDENCE OF IMPOSITIONS. The certificate, advice, bill or receipt by an appropriate official legally authorized to make or give the same shall be PRIMA FACIE evidence that an Imposition was due and payable on the date thereof, or has been paid, and either party shall be entitled to rely thereon. Section 3.6. TENANT TAXES. Tenant shall at all times be responsible for and shall pay directly to the applicable taxing authority, before delinquency, all taxes and assessments which shall or may during the Term be charged, levied, assessed or imposed on Tenant with respect to Tenant's right to occupy the Premises and any personal property of any kind owned, used or installed by Tenant at the Premises or in connection with (a) the operation of the Premises or (b) Tenant's business conducted on or at the Premises. Section 3.7. PAYMENTS TO INSTITUTIONAL FEE MORTGAGEE. If the provisions of a Fee Mortgage permit an Institutional Fee Mortgagee, or a Fee Mortgagee which is not an Institution, to require payment of some or all of the Impositions by Landlord to be held in escrow by such Fee Mortgagee to enable such Fee Mortgagee to pay the same, and such Fee Mortgagee so requires, then Tenant, at the direction of Landlord, shall make such payments to such Fee Mortgagee (or to Landlord, as directed by Landlord, in which event Landlord agrees to pay the same to such Fee Mortgagee) in the amounts and at the times required by such Fee Mortgagee. Payment of such amounts by Tenant shall be deemed, to the extent thereof, to relieve Tenant of its obligations hereunder with respect to such Impositions. If such Fee Mortgagee fails or refuses to apply the sums so paid by Tenant in payment when due of the Impositions to which such sums relate (unless applied by such Fee Mortgagee to cure a default under its Fee Mortgage, which default resulted from the failure by Tenant to perform or observe an obligation imposed against it under this Lease, within applicable grace periods hereunder), and if Landlord shall not pay or cause to be paid such Impositions within thirty (30) days after demand by Tenant, Tenant may, at its option, pay the same and offset the sums so paid against the next Base Rent due hereunder and Landlord shall, if insufficient Base Rent shall thereafter be payable, pay the same to Tenant; provided, however, that if within such thirty (30) -14- day period Landlord disputes Tenant's right to such offset by notice to Tenant, then the matter shall be resolved by ADR as provided in Article 18, pending resolution of which dispute by ADR, Tenant shall have no right to an offset. Section 3.8. ALLOCATION. If the Premises are a part of a single tax lot with the premises demised under one or more other Affiliate Leases, then Tenant and the tenants under such Affiliate Leases shall apportion the Impositions thereon between themselves on a going-forward basis, subject to the consent of the Landlords under this Lease and such Affiliate Leases, such consent not to be unreasonably withheld, or if such Landlords and Tenants shall fail to reach agreement, by ADR pursuant to Article 18 hereunder and under such Affiliate Leases, but Tenant shall in all events be jointly and severally liable with the tenants under such other Affiliate Leases for the payment of all Impositions assessed on the basis of such single tax lot. Section 3.9. SURVIVAL. The provisions of this Article 3 shall survive the expiration or sooner termination of this Lease. ARTICLE IV INSURANCE Section 4.1. REQUIRED INSURANCE. At all times during the Term of this Lease, Tenant shall, at Tenant's sole cost and expense, keep, provide and maintain in force the following insurance: (i) Property insurance covering the Buildings against loss or damage from such causes or loss as are embraced by insurance policies of the type now known as "All Risks" or "Open Perils" property insurance on a replacement cost basis with the Agreed Value Endorsement waiving co-insurance, all in an amount not less than one hundred percent (100%) of the then Full Insurable Value, without deduction for physical depreciation thereof. Such property insurance shall include a Demolition and Increased Cost of Construction Endorsement as well as such other insurance as the Landlord may from time to time reasonably require to cover other risks and hazards affecting the Premises; (ii) Flood insurance if the Premises is located in a designated flood zone area; -15- (iii) Boiler and machinery insurance insuring against loss or damage to the Premises and to the major components of any heating, air-conditioning or other ventilation systems and/or such other machinery or apparatus as may be now or hereafter installed in the Premises, in such amounts as Landlord may from time to time reasonably require; (iv) General liability insurance insuring against claims for personal injury (including, without limitation, bodily injury or death), property damage liability and such other loss or damage from such causes of loss as are embraced by insurance policies of the type now known as "Commercial General Liability Insurance," all in such amounts as Landlord may from time to time reasonably require. Landlord currently requires such insurance to be in the amount of $10,000,000 combined single limit per occurrence. Such insurance coverage shall be issued and maintained on an "occurrence" basis; (v) Workmen's compensation insurance covering employees of Tenant, in statutory limits; (vi) Business interruption or rental insurance for the benefit of Landlord covering the full monthly rental (including all Base Rent and additional rent) due from time to time hereunder. (vii) In addition to, and not in limitation of the above requirements, such insurance as may be reasonably required by any Institutional Fee Mortgagee or Fee Mortgagee not an Institution; and Subject to clause (vii) above, if applicable, if either Landlord or Tenant believes that the insurance described above is less or different than, or is greater or more extensive than, that which is then customarily maintained by prudent owners of comparable properties for comparable uses, the insurance required above shall be so adjusted if either (A) the parties agree on the adjustment, or (B) by ADR instituted by either party under Article 18, if it is determined that the party requesting the change in insurance is correct in its belief as aforesaid. Section 4.2. INSURERS; FORM OF POLICY. All insurance provided for under this Lease shall be effected under valid enforceable policies by insurers of recognized responsibility who may legally issue such insurance in the -16- State in which the Premises is located, and reasonably acceptable in form, amount and content, to Landlord and reasonably acceptable to any Institutional Fee Mortgagee. Upon the execution of this Lease, certificates in respect of the policies procured by Tenant pursuant to Section 4.1 shall be delivered to Landlord. Within fifteen (15) days after the execution hereof, Landlord shall be furnished with the original or certified copies of each policy required hereunder. At least twenty (20) days prior to the expiration of any policy required hereunder Tenant shall furnish Landlord with appropriate proofs of the issuance of a policy continuing in force the insurance covered by the policy so expiring. To the extent reasonably obtainable, all policies referred to in Section 4.1 shall contain agreements by the insurers that (a) any loss shall be payable to Landlord and to the holder of any Fee Mortgage to whom loss may be payable as hereinafter provided, notwithstanding any act or negligence of Tenant which might otherwise result in forfeiture of said insurance, or affect the validity or enforceability thereof, (b) such policies shall not be cancelled or materially modified except upon at least twenty (20) days prior written notice to each named insured and loss payee and (c) the coverage afforded thereby shall not be affected by the performance of any work in or about the Premises. Section 4.3. PAYMENT OF PROCEEDS. (a) The insurance policy described in Section 4.1(iv) shall name Landlord, any Fee Mortgagee and any Mortgagee as additional insureds. (b) The insurance policies described in Section 4.1(i), (ii) and (iii) shall name Landlord, Tenant, any Fee Mortgagee and any Mortgagee as named insureds, as their interests may appear, and shall provide that proceeds shall be paid to Landlord or any Fee Mortgagee, as their interests may appear, and not to Tenant or any Mortgagee, which proceeds shall be held by Landlord or by any Fee Mortgagee pursuant to the terms of this Lease, and shall, to the extent required by an Institutional Fee Mortgagee or a Fee Mortgagee which is not an Institution, contain a standard, non-contributory mortgagee clause or Lender Loss Payable Endorsement. (c) So long as there shall be an Institutional Fee Mortgagee, any business interruption or rental value policy or similar policy for the Premises shall name such Institutional Fee Mortgagee as the loss payee thereunder, or -17- if there shall be no Institutional Fee Mortgagee then Tenant shall be named as the loss payee thereunder. Upon receipt of such proceeds by an Institutional Fee Mortgagee, such proceeds shall be deemed payments of Base Rent and additional rent hereunder and shall be deemed to have been so applied by the Institutional Fee Mortgagee; to the extent that such proceeds relate to Impositions or insurance premiums, and the Institutional Fee Mortgagee fails or refuses to apply the same to such Impositions or insurance premiums, then Tenant shall have rights comparable to the rights specified in Section 3.7 as to payments on account of Impositions which an Institutional Fee Mortgagee so fails to apply; the balance of any proceeds after restoration of the Buildings shall be promptly paid to Tenant (or, if not so paid, Tenant shall be entitled to offset the same against the next Base Rent or additional rent due hereunder). (d) All such policies shall expressly provide that loss thereunder shall be adjusted and paid as provided in Section 4.4 and this Section. Any loss paid to Landlord or Tenant which, pursuant to the requirements contained in this Lease, should have been paid to the other party, or to any Fee Mortgagee, shall be held by the receiving party in trust and shall be promptly turned over to the person entitled thereto under this Lease. Section 4.4. ADJUSTMENT OF LOSS. Landlord and Tenant shall cooperate reasonably and in good faith and shall use their reasonable efforts to cause any Fee Mortgagee or Mortgagee to cooperate reasonably and in good faith to adjust any loss under a policy of insurance required to be maintained by Tenant under this Lease expeditiously and favorably, recognizing Landlord's ownership of the Buildings and Tenant's obligation to effect restoration at its expense, without an abatement of Base Rent and additional Rent hereunder. Subject to the rights of an Institutional Fee Mortgagee or a Fee Mortgagee which is not an Institution, adjustment of any such loss shall be subject to the consent of Landlord and Tenant, which consent shall not be unreasonably withheld. Section 4.5. BLANKET POLICIES. Nothing in this Article shall prevent Tenant from taking out insurance of the kind and in the amounts and with companies provided for under Section 4.1, under a blanket insurance policy or policies which can cover other properties owned, leased or operated by Tenant (or any Affiliate of Tenant) as well as the Premises; provided, that any such policy of insurance -18- provided for under Section 4.1(i) shall specify therein, or Tenant shall furnish Landlord and the holder of any Fee Mortgage with a written statement from the insurers under such policies specifying, the amount of the total insurance allocated to the Buildings, which amount shall comply with the requirements of Section 4.1. Tenant shall furnish to Landlord and to the holder of any Fee Mortgage, within thirty (30) days after the filing thereof with any insurance rate-making body, copies of the schedule or make-up of all property covered by every such policy of blanket insurance. Notwithstanding the foregoing, if the taking out by Tenant of any such blanket insurance policy would require the consent or waiver of an Institutional Fee Mortgagee, so as not to constitute a default under the terms of an Institutional Fee Mortgage, then Tenant must obtain such consent or waiver in order to benefit from the provisions of this Section as to the insurance question. Section 4.6. DEDUCTIBLES. All insurance provided for under Section 4.1 may contain loss deductible clauses in such reasonable and customary maximum amounts as Landlord shall approve, which approval shall not be unreasonably withheld. In the event of a dispute between Landlord and Tenant as to the amount which may be deductible under a policy, or otherwise as to the insurance required under this Article, such dispute shall be determined by ADR in the manner provided in Article 18. Section 4.7. WAIVER OF SUBROGATION. Landlord hereby waives its rights of recovery against Tenant, its subtenants and their respective successors and assigns for any losses to the Premises covered by fire and extended coverage insurance (or otherwise covered by insurance maintained by either party), but only to the extent of the actual recovery. In consideration therefore Tenant hereby waives its rights of recovery against Landlord, its successors and assigns, for any losses to the Premises covered by fire and extended coverage insurance (or otherwise covered by insurance maintained by either party) but only to the extent of the actual recovery. The above referred to waivers shall only be applicable with respect to loss or damage occurring during such time as the waiving party's policy shall contain a clause or endorsement to the effect that any such waiver shall not adversely affect or impair the right of the party so waiving from recovering thereunder. Each party shall obtain from its insurance carriers, at its expense, and will deliver to the other party waivers of the subrogation rights and the statement -19- described in the preceding sentence under its respective policies as herein provided. Section 4.8. OTHER INSURANCE. (a) Tenant may insure its own property at the Premises in such manner as Tenant deems advisable and shall be entitled to all proceeds therefrom. (b) Neither Landlord nor Tenant shall carry any insurance concurrent in coverage or contributory in the event of loss with any insurance which is required to be carried by Tenant hereunder if the effect of such separate insurance would be to reduce the protection or the payment to be made under the insurance policy required to be maintained by Tenant hereunder. Landlord shall immediately notify Tenant of the taking out of any such insurance and the terms thereof. Section 4.9. RENEWAL. Notwithstanding anything hereinabove to the contrary, Tenant shall annually provide Landlord with a renewal policy and paid receipt at least 30 days prior to expiration of the then current policies, for one year's premium for all insurance required under this Lease. ARTICLE V RIGHT TO PERFORM OTHER PARTY'S COVENANTS Section 5.1. RIGHT TO PERFORM OTHER PARTY'S COVENANTS. (a) If Tenant shall default in the performance of any of Tenant's obligations under this Lease, Landlord may perform the same at the expense of Tenant (i) immediately and without notice in the case of (x) emergency, or (y) the taking of any action required to prevent an imminent lapse or termination of any insurance policy required to be obtained by Tenant hereunder, or (z) the taking of any action required to prevent an imminent default under any Fee Mortgage (but will provide Tenant with prompt notice thereafter); and (ii) in any other case if Tenant shall fail to remedy such default after Landlord shall have notified Tenant of such default and the applicable grace period for curing such default shall have expired, and such failure continues after three (3) business days from the date of the giving by Landlord to Tenant of a further notice of Landlord's intention to so perform; provided, however, that, in the case of a failure which for -20- causes beyond Tenant's reasonable control (the failure to pay money shall not be deemed beyond a party's reasonable control) cannot with due diligence be cured within such grace period, such grace period shall be deemed extended if Tenant (x) shall promptly upon the receipt of such first notice, advise Landlord of Tenant's intention to institute all steps necessary to cure such failure and (y) shall institute and thereafter with reasonable dispatch prosecute to completion all steps necessary to cure the same. (b) If Landlord shall default in the performance of any of its obligations under this Lease, Tenant may perform the same at the expense of Landlord (i) immediately and without notice in the case of (x) emergency, (y) the taking of any action required to prevent an imminent lapse or termination of any insurance policy required to be obtained by Tenant hereunder due to such default, or (z) the taking of any action required to prevent an imminent default under any Mortgage (but will provide Landlord with prompt notice thereafter) and (ii) in any other case if such failure continues after thirty (30) days from the date of the giving by Tenant to Landlord of notice of intention so to perform the same or, in the case of a failure which for causes beyond Landlord's reasonable control (the failure to pay money shall not be deemed beyond a party's reasonable control) cannot with due diligence be cured within such thirty (30) day period, such thirty (30) day period shall be deemed extended if Landlord (x) shall promptly upon the receipt of such notice, advise Tenant of Landlord's intention to institute all steps necessary to cure such failure and (y) shall institute and thereafter with reasonable dispatch prosecute to completion all steps necessary to cure the same; provided that, at the expiration of the period described in this clause (ii), such default continues after three (3) business days from the date of the giving by Tenant to Landlord of a further notice of Tenant's intention to perform the same. Section 5.2. REIMBURSEMENT OF CURING PARTY. All sums paid by either party affecting a cure pursuant to Section 5.1 and all necessary incidental costs and expenses paid or incurred by such party in connection with the performance of any act by such party pursuant to said Section, together with interest thereon from the date of making of such expenditure by such party at a rate two (2%) percent above the Prime Rate, shall be payable by the other party to such curing party within thirty (30) days after demand therefor accompanied by evidence reasonably -21- establishing that the expenditure has reasonably been made. Nothing contained herein shall be deemed or construed to permit Tenant to make any set-off against Tenant's obligations to pay Base Rent or additional rent, except as may otherwise be expressly provided in this Lease. ARTICLE VI USE; CONDITION OF PREMISES; COVENANTS AGAINST WASTE AND TO REPAIR AND MAINTAIN THE PREMISES Section 6.1. USE. (a) Tenant shall have the right to use the Premises for (i) a motor vehicle dealership, vehicle showroom, vehicle storage, used vehicle sales, vehicle body shop (but only if a vehicle body shop use was a use of the Premises during December, 1991), service and maintenance facilities, general executive and administrative offices in connection with such uses, any uses ancillary or customarily exercised in connection therewith, and (ii) any other uses for which the Premises during December, 1991 were in fact used (collectively, "Vehicle-Related Uses"). (b) Intentionally omitted. (c) Tenant shall be entitled to use all or any portion of the Premises for any lawful use other than as described in subsection (a) of this Section, provided that Tenant shall have received Landlord's consent to such use, which consent Landlord shall not unreasonably withhold (without limitation, it shall not be unreasonable for Landlord to withhold its consent to such use if such use is disreputable, would cause the Premises to become subject to compliance with the remedial provisions of ISRA (or a similar state statute requiring environmental testing and/or remediation) prior to the sale or other transfer of the Premises, upon the occurrence of any assignment of this Lease or sublease of all or part of the Premises, or upon the expiration or sooner termination of this Lease or cessation of operations at the Premises, or would increase in any material respect the risk of environmental contamination of the Premises, and it shall not be unreasonable for Landlord to take into account any material adverse effect of such change in use on contiguous properties owned by Landlord or Affiliates of Landlord, including those which are subject to Affiliate Leases or -22- Affiliate Subleases). The parties acknowledge that there is no agreement under this Lease that Tenant shall use all or any portion of the Premises for any particular use or uses during the term of this Lease. Any dispute between the parties under this subsection (c) or subsection (d) hereafter shall be determined by ADR as provided in Article 18. (d) Tenant shall not use or occupy or permit the Premises to be used or occupied, nor do or permit anything to be done in or on the Premises, in whole or in part, in a manner which in any way (i) violates any certificate of occupancy affecting the Premises; (ii) violates or breaches the provisions of any recorded easement, restriction or the like affecting the Premises on the date hereof or entered into after the date hereof with the prior consent of Tenant; (iii) violates any present or future law, rule or requirement of any governmental, public or quasi public authority having jurisdiction over the Premises; (iv) makes void or voidable any insurance in force with respect to the Premises; or (v) constitutes a public or private nuisance. Section 6.2. CONDITION OF PREMISES. (a) The parties hereto hereby acknowledge and agree that Landlord is delivering, and Tenant is accepting, the Premises in their "as is" condition on the date hereof. Tenant acknowledges that it has inspected, examined and investigated to its full satisfaction the Premises and the uses thereof and any other matter of concern to Tenant with respect to the Premises, that Tenant accepts the Premises in their present condition (after having occupied same) without any representation or warranty whatsoever by Landlord as to the condition of the Premises or the value thereof or the utility thereof or usefulness for any particular purpose or any other matter or thing relating in any way to the Premises, and that Tenant acknowledges that Landlord has not made and does not make, and Tenant is not relying upon, any representation or warranty, except as herein expressly provided, as to the physical condition, quality, value or character or any other matter relating to or affecting the Premises. (b) Landlord represents and warrants to Tenant, which representations and warranties are a material inducement to Tenant entering into this Lease, as follows: (i) The mortgages specified in Exhibit A are the only Fee Mortgages encumbering or affecting all or any part of the Premises as of the date hereof, and true and -23- complete copies of the Fee Mortgage documents or documents evidencing or affecting such lien, as in effect on the date hereof, have been previously delivered to Tenant. (ii) The easements, restrictions and other matters of record as of December, 1991, and any unrecorded agreements of a similar nature to which Tenant would be subject hereunder, do not materially adversely affect, individually or in the aggregate, the use of the Premises, as the Premises were used in December, 1991. (iii) The actual uses being made of the Premises during December 1991 were permitted by all applicable zoning laws, or (if not permitted by zoning laws) were lawful nonconforming uses, and all certificates of occupancy required for such use in December 1991 were obtained and were in full force and effect. (iv) To the actual knowledge of Landlord, Joseph C. DiFeo and Samuel X. DiFeo, as of December, 1991 there were no material structural defects in the Premises on the date hereof, except as set forth on EXHIBIT D. (v) Landlord is a fee owner of the Premises and all prior tenancies and rights of occupancy at the Premises or any part thereof, other than those of Tenant, have been terminated. Section 6.3. NO WASTE. Tenant shall not cause or permit any waste to the Premises. Section 6.4. MAINTENANCE AND REPAIR. Tenant shall keep the Premises, all systems, and the adjoining sidewalks, curbs and any vaults clean and in good condition and repair, free of accumulations of dirt, rubbish, snow and ice, and shall make all necessary repairs and replacements, whether structural or non-structural, interior or exterior, ordinary as well as extraordinary, foreseen as well as unforeseen. Section 6.5. REMOVAL OF PROPERTY. Tenant shall not remove or permit the removal of any of the permanent furnishings or of any of the fixtures or other property or equipment constituting a part of the Premises (other than property of Tenant or other tenants or occupants of the Buildings or obsolescent fixtures, property or equipment) unless other fixtures, property or equipment at least equal -24- in value and utility shall be promptly substituted therefor, provided this Section shall not apply if Tenant demolishes existing Buildings and erects new Buildings on the Land, or a portion thereof, in accordance with Article 10. Section 6.6. UTILITIES AND SERVICES; SIGNAGE. (a) Landlord shall not be responsible to furnish any utilities or services to the Premises, and shall not be liable for any interruption or failure in the supply of any such utility or service. The interruption or failure in the supply of any such utility or service or the inability to obtain such utility or service shall not affect, alter, negate or diminish Tenant's obligations hereunder. (b) Tenant shall make its own arrangements with the appropriate utility companies supplying electricity, water, gas, steam, telephone and other utilities to the Premises, and for garbage disposal from the Premises, and shall arrange to have all bills for such utilities or services forwarded directly to Tenant. Tenant shall pay when due all charges for such utilities or services accruing during the term of this Lease. (c) Subject to Landlord's consent, which Landlord shall not unreasonably withhold, Tenant shall have the right to enter into agreements with public utility companies and municipal and other governmental authorities, agencies and departments creating such easements or other similar rights in favor thereof, or to apply for permits, licenses, certificates or other governmental or quasi-governmental authorizations relating to Alterations or the use and operation of the Premises ("Permits"), as may be necessary or convenient to the use or servicing of the Premises or the making of any Alterations required or permitted hereunder; provided, however, that Landlord shall have the right, in its sole and absolute discretion, to withhold granting its consent to any zoning variance which would have the effect of prohibiting any use being made of the Premises in December, 1991. If pursuant to this Lease Landlord shall consent (or shall be deemed hereunder to have consented or shall be required by ADR to consent) thereto, Landlord shall, at Tenant's expense, (i) cooperate with Tenant in obtaining any necessary consent of any mortgagee or ground or underlying lessee to such agreements, (ii) join in any request for such consent or Permit or permit the same to be brought in Landlord's name (if necessary to obtain such consent or Permit or to effectuate such agreement), or (iii) join in any such agreement. Landlord shall incur no -25- liability for the payment of any costs or expenses in connection with Landlord's review, execution and delivery of the same, or involvement with respect to the same, and Tenant shall indemnify and hold harmless Landlord and within thirty (30) days after demand, reimburse Landlord, from any such costs or expenses. (d) Tenant, at its expense and subject to compliance with applicable Laws pursuant to Article 7, and subject to the applicable provisions of Article 10, shall be entitled to construct and maintain such signage at the Premises as Tenant shall elect to construct and maintain. ARTICLE VII COMPLIANCE WITH LAWS Section 7.1. COMPLIANCE WITH LAWS. (a) Tenant shall, at its sole cost and expense, promptly comply with all present and future laws and ordinances and the orders, rules, regulations and requirements of all federal, state and municipal governments and appropriate departments, commissions, boards and officers thereof, which may be applicable to the Premises and sidewalks, curbs and vaults adjoining the same or to the use or manner of use of the Premises, whether or not such requirement shall be foreseen or unforeseen, ordinary or extraordinary (collectively, "Laws"). (b) Intentionally Omitted. (c) Intentionally Omitted. (d) Intentionally Omitted. Section 7.2. RIGHT TO CONTEST LAWS. Tenant shall have the right, after prior notice to Landlord, to contest by appropriate legal proceedings, in the name of Tenant or Landlord (but only if legally required to so contest) or both, without cost or expense to Landlord, the validity or application of any Laws, and if, by the terms of any such Law, compliance therewith pending the prosecution of any such proceeding may legally be held in abeyance without the incurrence of a lien, charge or liability of any kind against the Premises or Tenant's leasehold interest therein and without subjecting Tenant or Landlord to any criminal liability or (unless Tenant shall indemnify Landlord -26- therefor) civil liability for failure so to comply therewith, and without adversely affecting any insurance policy required to be obtained by Tenant hereunder, Tenant may postpone compliance therewith until the final determination of any proceedings, provided that all such proceedings shall be prosecuted with due diligence and dispatch, and if any lien, charge or civil liability is incurred by reason of non-compliance, Tenant may nevertheless make the contest and delay compliance as aforesaid, provided that Tenant furnishes to Landlord security, reasonably satisfactory to Landlord, against any loss or injury by reason of such non-compliance or delay and prosecutes the contest with due diligence. Landlord shall, at the cost and expense of Tenant, execute and deliver any papers which may be necessary or proper to permit Tenant to contest the validity or application of any such Law. In the event that a contest is not concluded prior to the expiration of the Term of this Lease, if at the termination of the contest a determination is to the effect that some or all of the work in question should have been or must be performed, Tenant shall pay to Landlord a sum sufficient to pay for the cost of the work required to be performed. This provision shall survive the termination or sooner expiration of this Lease. Notwithstanding anything to the contrary contained hereon, Tenant's right to contest the validity or applicability of any Law is subject to the applicable provisions contained in any Institutional Fee Mortgage, and shall be limited thereby and shall be subject to compliance with the requirements thereof. Section 7.3. TENANT'S TERMINATION RIGHT. If Tenant is, or would be, required to do any work or incur any expenses to comply with the requirements of Section 7.1 during the last year of the Term which, in Tenant's reasonable judgment will, in the aggregate cost more than one-half of the Base Rent payable for the then remainder of such Term, Tenant may, by notice to Landlord, decline to comply with such requirements, and upon giving of such notice, Tenant shall not be obligated to comply with the same (but Landlord, at the cost and expense of Landlord, may comply with same), but this Lease shall not be otherwise affected. Notwithstanding the foregoing, the provisions of this Section 7.3 shall not be applicable if the Law which must be complied with became effective and required compliance to be effected prior to the last year of the Term. -27- Section 7.4. ARBITRATION AS TO LAWS. In the event of any dispute between the parties as to an issue covered by this Article, the matter shall be resolved by ADR as provided in Article 18. ARTICLE VIII DAMAGE TO OR DESTRUCTION OF THE BUILDINGS Section 8.1. RESTORATION AND REPAIR. (a) In case of damage to or destruction of the Buildings, in whole or in part, by fire or any other cause, similar or dissimilar (a "Casualty"), Tenant shall, regardless of the availability of insurance proceeds (but subject to Section 8.5), restore, repair, replace or rebuild the Buildings as nearly as may be reasonably possible to the condition, quality and class the same were in immediately prior to such damage or destruction, or with such changes or alterations as Tenant shall elect to make in conformity with Article 10. Such restoration, repairs, replacement or rebuilding shall be commenced with reasonable promptness and prosecuted with reasonable diligence. (b) Provided that there does not then exist an Event of Default hereunder, all insurance money collected by Landlord or Tenant from any policy of insurance maintained by Tenant pursuant to Article 4 on account of such Casualty, less the cost, if any, incurred in connection with the adjustment of the loss and the collection thereof (herein sometimes referred to as the "insurance proceeds"); shall be held in an interest bearing account by an Institutional Fee Mortgagee (as provided in Section 11.1) or, if there is no such Institutional Fee Mortgagee, by an Institution, as insurance trustee, selected by Landlord and reasonably approved by Tenant, shall be applied to the payment of the cost of rebuilding, and shall be paid out to or for the account of Tenant from time to time, upon requisition by Tenant, as such work progresses, subject to Article 10 and Article 11. However, if the insurance proceeds for any Casualty are less than $50,000, such insurance proceeds shall be paid to Tenant, and shall be held by Tenant in trust for the purpose of paying the cost of such reconstruction. (c) Upon Landlord's receipt of evidence reasonably acceptable to it that the reconstruction has been completed and paid for in full, that there are no liens on -28- the Premises as a result thereof, that reconstruction has been completed in a good and workmanlike manner, in accordance in all material respects with applicable Laws and in substantial accordance with plans and specifications theretofore submitted to (and if required hereunder approved by) Landlord, and that a certificate of occupancy, if required by Law, has been issued or is otherwise in effect with respect to such reconstruction, Landlord shall pay or cause to be paid to Tenant any remaining balance of said insurance proceeds. Section 8.2. NO ABATEMENT. No provision of this Article shall be construed to entitle Tenant to any abatement, allowance, reduction or suspension of Base Rent or additional rent, unless this Lease is terminated as herein provided. Section 8.3. TERMINATION. If in the final year of the Term the Premises are damaged to such an extent that the cost to repair and restore will exceed one-half of the Base Rent payable for the then remainder of the Term, or repair and restoration will take longer than ninety (90) days to complete and in either case the damage occurs in the last year of the Term, Tenant may by notice to Landlord given within thirty (30) days after the occurrence of such damage terminate this Lease effective as of a date specified in such notice and upon such effective date this Lease shall terminate as if such date were the scheduled date for expiration of the Term, but Tenant shall remain liable to pay the Base Rent and additional rent relating to Impositions and insurance premiums due hereunder until the originally scheduled date for such expiration. In such case all proceeds of insurance shall be payable outright and belong solely to Landlord, anything herein to the contrary notwithstanding. Section 8.4. NOTICE OF CASUALTY. Tenant shall immediately notify Landlord of the occurrence of a Casualty. Section 8.5. ISSUES RELATING TO INSURANCE PROCEEDS. (a) Tenant acknowledges that Tenant bears the risk that the insurance coverage maintained by Tenant shall be sufficient to provide the funds required to effect restoration of the Buildings after a Casualty (including due to the financial inability of the insurance carrier to pay the same). -29- (b) If a Casualty occurs, Landlord will use its reasonable efforts (but Landlord shall not be obligated to give up any right or to make any payment to the Fee Mortgagee, unless Tenant shall agree to be responsible for such payment) to cause any Fee Mortgagee to agree to apply, and thereafter to apply, the applicable insurance proceeds to restoration on terms consistent with those which a sophisticated Institutional Fee Mortgagee would customarily impose ("Customary Conditions"), so long as Tenant is not in default beyond applicable grace periods in its obligations hereunder. (c) If any of the following events shall occur: (i) Within sixty (60) days after a Casualty shall have occurred and the insurance proceeds are made available by the insurer for restoration, the Fee Mortgagee shall not agree to make such proceeds available for restoration on Customary Conditions or if thereafter for a period in excess of sixty (60) days such Fee Mortgagee shall refuse to so apply all or any portion of the insurance proceeds (unless such refusal to agree is due to (x) an Event of Default by Tenant hereunder unless Tenant is disputing the existence of such Event of Default as hereinafter provided or (y) a failure by Tenant to comply with the Customary Conditions); or (ii) The Fee Mortgagee shall apply any such insurance proceeds to the payment, in whole or in part, of the indebtedness secured by the Fee Mortgage in question (unless caused by a default by Tenant hereunder beyond applicable grace periods); or (iii) Due to the negligence or willful misconduct of Landlord or such Fee Mortgagee, or a default by Landlord hereunder beyond applicable grace periods, a reasonable amount of insurance proceeds under the circumstances cannot be obtained under the policies of insurance maintained by Tenant within a reasonable period of time under the circumstances; or (iv) If the insurance proceeds are within Landlord's control and Landlord refuses to apply the same toward restoration in accordance -30- with Customary Conditions, unless such refusal is due to an Event of Default then existing under this Lease; and, in addition, if within sixty (60) days thereafter (thirty (30) days thereafter in respect to clause (iv) above) Landlord does not make available the proceeds in question, then Tenant, by notice to Landlord, may terminate this Lease on a date specified in such notice, and upon such date this Lease shall terminate, as if such date were the scheduled expiration date of this Lease, and in such event neither party shall have any further obligations to the other party hereunder. ARTICLE IX CONDEMNATION Section 9.1. CONDEMNATION. (a) If there shall be a total taking or a Constructive Total Taking of the fee title to the Premises in condemnation proceedings, by deed in lieu of condemnation proceedings or by any right of eminent domain, this Lease shall terminate on the date of such taking and the Base Rent and other charges payable by Tenant hereunder shall be apportioned and paid to the date of such taking. "Constructive Total Taking" means a taking of less than all of the Premises, but of such scope that the untaken portion of the Premises is insufficient or has insufficient access to public streets to permit the restoration of the existing Buildings so as to constitute an economically viable property for the conduct of Tenant's business. (b) If a Constructive Total Taking shall occur and this Lease is terminated, then from and after the date of such termination for the remainder of the Term of this Lease absent such termination, Tenant shall pay to the Landlord, in equal monthly installments on the same dates as Base Rent would have been payable hereunder, a sum per annum equal to the "Annual CTT Payment". For such purposes, the Base Rent hereunder shall first be recomputed pursuant to Section 9.5, as if the Constructive Total Taking were a partial taking subject to Section 9.3, and the Annual CTT Payment shall be equal to fifty (50%) percent of the annual Base Rent and Impositions for the Premises, as so recomputed. Any dispute between the parties pursuant to this Section shall be resolved by ADR pursuant to Article -31- 18. Tenant's failure to pay these sums, subject to grace periods comparable to those set forth in Article 15 for a failure by Tenant to pay Base Rent hereunder, shall be deemed an Event of Default for purposes of Section 15.1(c) notwithstanding that this Lease may be deemed to have been terminated. Section 9.2. CONDEMNATION AWARD. In the event of any such total taking or Constructive Total Taking, the award or awards for said taking, less the cost of the determination of the amount thereof (the "Condemnation Proceeds"), shall be paid to Landlord, who shall be entitled to receive the entire award with respect to any taking, without deduction therefrom for any estate vested in Tenant other than with respect to Tenant's property as described in Section 10.3 and for Tenant's moving expenses ("Tenant's Share") and Tenant shall receive no part of such award other than Tenant's Share. Tenant hereby assigns to Landlord all of its right, title and interest in and to such award (other than to Tenant's Share). Tenant may, at its sole cost and expense, make a claim with the condemning authority for Tenant's Share and, provided that Landlord's award is not thereby reduced or otherwise adversely affected, for other sums to which Tenant may be entitled under applicable law. Section 9.3. PARTIAL CONDEMNATION. In the event of a taking which is less than a Constructive Total Taking, this Lease shall not terminate or be affected in any way, except as provided in Section 9.5, and the Condemnation Proceeds shall be paid as follows: (a) The portion of the Condemnation Proceeds with interest thereon as shall be awarded for or shall be required for restoration of the Buildings shall be payable (i) so long as there shall be an Institutional Fee Mortgagee, to such Institutional Fee Mortgagee, or (ii) if there shall be no Institutional Fee Mortgagee, in trust to Landlord for application by Tenant to the cost of restoring, repairing, replacing or rebuilding the Buildings. Such portion of the Condemnation Proceeds shall be held and disbursed as Deposited Sums, in the same manner as insurance proceeds are treated in accordance with Article 10 and Article 11. (b) The remainder of the Condemnation Proceeds shall be treated as provided in section 9.2. -32- Section 9.4. RESTORATION AND REPAIR. In the event of a taking of less than a Constructive Total Taking, Tenant shall, to the extent Condemnation Proceeds are available, proceed, with due diligence to restore, repair, replace or rebuild the remaining part of the Buildings to substantially their former condition or with such changes or alterations as Tenant may elect to make in conformity with Article 10 so as to constitute a complete, usable building and property. For that purpose, the provisions of Section 8.5(b) and (c) shall be applicable, except that references to casualty and to insurance proceeds shall be deemed references to Condemnation and to Condemnation Proceeds, and the following clause (v) shall be deemed added to Section 8.5(c): "(v) If sufficient Condemnation Proceeds for restoration are not obtained from the condemning authority within a reasonable period of time under the circumstances and the cost of restoration is more than 110% of the Condemnation Proceeds obtained and available for restoration;". Section 9.5. ABATEMENT OF RENT. In the event of a taking of the character referred to in Section 9.3, this Lease shall terminate as to the portion of the Premises so taken and from and after the date of such taking a just proportion of the Base Rent, according to the extent and nature of such taking, shall abate for the remainder of the Term. If Landlord and Tenant cannot agree on the amount of such abatement of rent, such dispute shall be determined by ADR as provided in Article 18. Until the amount of the reduction of the Base Rent shall have been determined, Tenant shall continue to pay to Landlord the Base Rent provided for herein; when the amount of the abatement shall have been agreed upon or determined, Landlord shall permit Tenant to credit against the next installments of Base Rent due hereunder (to the extent thereof), or shall refund to Tenant, the amount of the Base Rent paid from the date of the taking which is in excess of the amount to which the Base Rent has been reduced by such abatement, together with interest thereon at the Prime Rate for the period from the date the Base Rent was paid until the date of reimbursement to Tenant. Section 9.6. TEMPORARY TAKING. If the whole or any part of the Premises, or of Tenant's leasehold estate under this Lease, shall be taken in condemnation proceedings or by any right of eminent domain for temporary use or occupancy (for these purposes, for a period of twelve (12) months or less), the foregoing provisions of this Article -33- shall not apply and Tenant shall continue to pay, in the manner and at the times herein specified, the full amounts of the Base Rent and all additional rent and other charges payable by Tenant hereunder, and, except only to the extent that Tenant may be prevented from so doing pursuant to the terms of the order of the condemning authority, Tenant shall perform and observe all of the other terms, covenants, conditions and obligations hereof upon the part of Tenant to be performed and observed, as though such taking had not occurred. Tenant shall be entitled to receive the entire amount of the Condemnation Proceeds made for such taking, whether paid by way of damages, rent or otherwise, unless such period of temporary use or occupancy shall extend beyond the expiration or termination of this Lease, in which case the Condemnation Proceeds shall be apportioned between Landlord and Tenant upon receipt thereof as of the date of the expiration or termination of this Lease; provided, however, that the portion of such award which represents reimbursement for the cost of restoration (and is not required to pay Base Rent or additional rent accruing hereunder during the period of temporary taking) shall be used by Tenant to pay or to reimburse Tenant for payment of the costs of restoration and shall be treated hereunder as provided in Section 9.4. Tenant shall, upon the expiration of any such period of temporary use or occupancy during the Term and to the extent Condemnation Proceeds are available for the purpose, restore the Buildings, as nearly as may be reasonably practicable, to the condition in which the same were immediately prior to such taking, subject to Section 9.4. The provisions of Section 4.3(c) shall apply, with appropriate modifications to reflect the difference between rent insurance proceeds and Condemnation Proceeds for a temporary taking. Section 9.7. ALLOCATION OF AWARD. If the order or decree in any condemnation or similar proceeding shall fail separately to state the amount to be awarded to Landlord and the amount to be awarded to Tenant under this Article, or the amount of the compensation for the restoration of the Buildings under this Article, and if Landlord and Tenant cannot agree thereon within thirty (30) days after the final award or awards shall have been fixed and determined, any such dispute shall be determined by ADR in the manner provided in Article 18. Section 9.8. ASSIGNMENTS OF CONDEMNATION PROCEEDS. Tenant shall be entitled to assign to the holder of any Mortgage any Condemnation Proceeds to which it shall -34- be entitled under this Article and Landlord shall recognize such assignment and shall consent to the payment of said Condemnation Proceeds to said assignee as its interest may appear. Nothing in this Section 9.8 shall grant a Mortgagee any greater rights than Tenant possesses under this Article. Section 9.9. PARTICIPATION IN CONDEMNATION PROCEEDINGS. Tenant and the holder of any Mortgage or Fee Mortgage shall have the right to participate in any condemnation proceeding for the purpose of protecting their rights hereunder (consistent with the above); provided, however, that Landlord shall have the sole right to settle such condemnation proceeding, but Tenant shall not be bound by any determination in such proceeding as to, and shall have the right to dispute, by ADR as provided in Article 18, the portion of any Condemnation Proceeds to which Tenant is entitled under this Article. ARTICLE X CHANGES AND ALTERATIONS Section 10.1. ALTERATIONS. Tenant shall have the right, at any time and from time to time, to make such changes and alterations, structural or otherwise, to the Buildings as Tenant shall deem necessary or desirable, including the right to increase or reduce the height of the Buildings, or to demolish the Buildings, or any part thereof, provided that in the case of any demolition Tenant shall erect in substitution thereof a new building or (in the event of the demolition of part of a Building) a new part thereof. Such changes, alterations, demolition or new construction (collectively, "Alterations") shall be made in all cases subject to the following conditions: (a) no Alterations shall be undertaken until Tenant shall have procured and paid for, so far as the same may be required from time to time, all municipal and other governmental permits and authorizations of the various municipal departments and governmental subdivisions having jurisdiction, and Landlord shall join, at Tenant's expense, in the application for such permits or authorizations whenever such action is necessary; (b) any structural Alterations, or any Alterations undertaken as a single project and involving an estimated cost aggregating more than $75,000 shall be -35- conducted under the supervision of an architect or engineer selected by Tenant, and in accordance with plans and specifications approved in writing in advance by Landlord; (c) all Alterations shall be of such a character that, when completed, the value of the Building shall be not less than the value of the Buildings immediately before any such Alterations; (d) all work done in connection with any Alterations shall be done in a good and workmanlike manner, in accordance with applicable Laws, and in substantial accordance with the plans and specifications approved by Landlord; (e) workmen's compensation insurance covering all persons employed in connection therewith and with respect to whom death or bodily injury claims could be asserted against Landlord, Tenant or the Premises and general liability and property damage insurance, and insurance covering all risks generally related to construction and which would reasonably be required by a prudent Institutional Fee Mortgagee for similar construction (which may be effected by endorsement, if obtainable, on the insurance required to be carried pursuant to Section 4.1) for the mutual benefit of Landlord, any Fee Mortgagee, and Tenant with limits of not less than those required to be carried pursuant to Section 4.1 shall be maintained by Tenant at all times when any work is in process in connection with any Alterations, and evidence of the procuring of such policies shall be submitted to Landlord before construction of any such Alteration is commenced; (f) any structural Alterations, including Alterations which involve the demolition and reconstruction of any material structure on the Premises, shall be subject to Landlord's prior written consent, which consent shall not be unreasonably withheld by Landlord (in the case of the demolition and reconstruction of any material structure on the Premises, it shall not be unreasonable for Landlord to withhold its consent if Tenant cannot reasonably demonstrate that Tenant has obtained or can obtain the funds required to pay the cost of such demolition or reconstruction and it shall not be unreasonable for Landlord to take into account any material adverse effect of such Alterations on contiguous properties owned by Landlord or Affiliates of Landlord, including those properties which are subject to Affiliate Leases or Affiliate Subleases, but it shall be -36- unreasonable for Landlord to withhold its consent to any such Alterations required by a Manufacturer if Tenant has otherwise satisfied the conditions hereunder); (g) subject to Section 10.3, all Alterations shall immediately upon installation become Landlord's property and shall remain on and be surrendered with the Premises as part thereof at the termination of this Lease; (h) the cost of any Alteration shall be paid by Tenant so that, subject to Article 12, the Premises shall at all times be free of liens for labor and materials supplied or claimed to have been supplied to the Premises in connection with such Alteration; (i) within a reasonable time after completion of any Alteration, Tenant shall provide Landlord with complete as-built mylar drawings thereof, if such drawings were prepared for Tenant, and otherwise with such final plans and specification for such Alteration as are in Tenant's possession; (j) any Alterations commenced by Tenant shall be processed diligently to completion by Tenant; and (k) any Alterations (a) shall be subject to the consent of any Institutional Fee Mortgagee if and to the extent required under the Institutional Fee Mortgage in question, and (b) shall be performed in compliance with the applicable requirements of the Institutional Fee Mortgage in question. (l) notwithstanding subsections (b) and (d) above, with respect to any Alterations requested by a Manufacturer, Landlord's prior consent shall not be required as to plans and specification with respect thereto, but Tenant shall nevertheless deliver copies of such plans and specifications to Landlord. Any dispute under this Section shall be determined by arbitration in the manner provided in Article 18. Section 10.2. APPLICABILITY OF CONDITIONS. In performing any work or repairs to, or restoration, replacement or rebuilding of, the Buildings required to be performed by Tenant under Article 6, 7, 8 or 9, Tenant shall observe and perform, insofar as the nature of such repairs, restoration, replacement or rebuilding make such observance -37- and performance appropriate, the conditions of Section 10.1 relating to changes or alterations. Section 10.3. TENANT'S PROPERTY. All items of personal property, all business and trade fixtures and equipment and any other property of Tenant at the Premises, which is not a part of any structure or building system, or required for the operation of any building as a building, shall remain the property of Tenant and shall be removed by Tenant at any time prior to the expiration or sooner termination of this Lease. Tenant, at its expense, shall repair any damage to the Building caused by any such removal. Tenant's property shall include (a) equipment (for example, hoists) installed by Tenant and not required for the use and operation of the Buildings as buildings and (b) any property previously transferred by Landlord or Affiliates of Landlord outright to Tenant. Any of the foregoing enumerated property of Tenant which shall remain in the Premises within thirty (30) days after the expiration or sooner termination of this Lease (but the foregoing provision shall not relieve Tenant of any obligations or liabilities hereunder on account of such holdover) may, at the option of Landlord, subject to Section 10.4, be deemed abandoned and may either be retained by Landlord as its property or be promptly disposed of without accountability as Landlord sees fit and Tenant shall reimburse Landlord, within thirty (30) days after demand, for the reasonable costs and expenses incurred by Landlord in such disposal. Section 10.4. LIENS ON TENANT'S PROPERTY. (a) Except as otherwise provided in Section 14.2(c) with respect to a Mortgage, and as provided in subsection (b) of this Section, all property installed by Tenant in the Premises shall be installed and maintained free and clear of any liens, encumbrances and security interests. (b) Notwithstanding subsection (a) of this Section, Tenant may install and maintain items of Tenant's property in the Premises subject to conditional sales agreements, equipment leases and similar financing, provided that (i) the removal of such property, if not movable personal property, would not adversely affect the value of the Buildings as real estate (as opposed to their value for a particular use) and would not adversely affect the operation, function, or use of the Buildings as buildings, (ii) Tenant agrees to restore any damage to the Premises caused by the removal thereof, and (iii) the term of such financing does not extend beyond the expiration date of the -38- Term. The other party to such conditional sales agreement, equipment lease or similar financing shall have the right to remove the property in question from the Premises within thirty (30) days after the expiration or ninety (90) days after the sooner termination of the Term, but this sentence shall not relieve Tenant of any obligations or liabilities hereunder on account of such holdover. ARTICLE XI DISBURSEMENT OF DEPOSITED MONEYS Section 11.1. DEPOSITED SUMS. All sums (collectively, the "Deposited Sums") paid to or deposited with an Institutional Fee Mortgagee or to an Institution described in Section 8.1 (the "Depositary"), shall be disbursed in the manner hereinafter provided. Section 11.2. DISBURSEMENT. From time to time as the restoration, repair, replacement or rebuilding of any Buildings or any portion thereof damaged or destroyed by fire or any other cause, or not taken in a proceeding of the character described in Section 9.3, progresses (collectively, the "Work"), disbursement of the Deposited Sums shall be made in accordance with good and sophisticated construction lending practices which a prudent Institutional Fee Mortgagee would adopt in order to insure that the Work shall be completed in a good and workmanlike manner, shall be paid for in full, shall be completed free of any lien against the Premises, and shall be completed in accordance with applicable law and in substantial accordance with the plans and specifications submitted to (and if required hereunder, approved by) Landlord. In the event that a reputable independent architect or engineer selected by Landlord and reasonably approved by Tenant shall determine, or if the Institutional Fee Mortgagee or a Fee Mortgagee which is not an Institution, shall determine, as provided in the applicable Fee Mortgage, that the Deposited Sums are insufficient to pay for the cost to complete the Work, (i) Tenant shall be responsible for paying for any such shortfall (which obligation shall survive the expiration or sooner termination of this Lease), and (ii) no further disbursement of the Deposited Sum shall be made until Tenant shall have deposited with the Institution cash, cash equivalents or other security for the shortfall, which deposit shall be made promptly after demand therefor by Landlord, and shall be treated in the same manner as the -39- Deposited Sums are treated (but any unused portion thereof, shall in all events be returned to Tenant upon completion of the Restoration in question). At any time after the completion of the Work the balance of the Deposited Sums shall be disbursed to Tenant (and Tenant may retain any insurance proceeds held by Tenant). Section 11.3. DISBURSEMENT AFTER DEFAULT. If this Lease shall be terminated pursuant to Section 15.1 prior to the disbursement of the Deposited Sums or any part thereof, Landlord may notify the Depositary thereof and thereupon the Depositary shall have no further right or obligation to disburse any of the Deposited Sums to Tenant, but shall disburse the same to or for the account of Landlord upon Landlord's direction so to do, provided that if Tenant disputes the termination of this Lease, the Depositary shall take no action until the issue is resolved between Landlord and Tenant by ADR as provided in Article 18. Section 11.4. EXPENSES OF DEPOSITORY. The Depository shall have the right to deduct from the Deposited Sums its reasonable charges for acting as Depository hereunder. ARTICLE XII MECHANICS' LIENS Section 12.1. MECHANICS' LIENS. Tenant shall not suffer or permit any mechanics' liens to be filed against the Premises, nor against Tenant's leasehold estate hereunder, by reason of work, labor, services or materials supplied or claimed to have been supplied to Tenant or anyone holding any interest in the Premises or any part thereof through or under Tenant. If any such mechanic's lien shall at any time be filed against the Premises, Tenant shall, within thirty (30) days after notice of the filing thereof, or sooner, and within ten (10) days after demand from Landlord if required in order to close a sale or financing involving the Premises (and which notice shall refer to such ten (10) day period and this sentence), cause the same to be discharged of record by payment, deposit, bond, order of a court of competent jurisdiction or otherwise. If Tenant shall fail to cause such lien to be discharged within the period aforesaid, then Landlord may (without complying with any other provision contained in -40- this Lease) discharge the same either by paying the amount claimed to be due or by procuring the discharge of such lien by deposit or by bonding proceedings, and in any such event Landlord shall be entitled, if Landlord so elects, to compel the prosecution of an action for the foreclosure of such lien by the lienor and to pay the amount of the judgment in favor of the lienor with interest, costs and allowance. Nothing in this Lease contained shall be deemed or construed in any way as constituting the consent or request of Landlord, express or implied, by inference or otherwise, to any contractor, subcontractor, laborer or materialman for the performance of any labor or the furnishing of any materials for any specific improvement, alteration to or repair of the Premises or any part thereof, nor as giving Tenant a right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials that would give rise to the filing of any mechanic's lien against the Premises. ARTICLE XIII SURRENDER OF THE PREMISES; INSPECTION OF THE PREMISES Section 13.1. SURRENDER. Upon the expiration or sooner termination of this Lease, Tenant shall surrender to Landlord the Premises, free of subtenants (except as provided in Section 14.7), occupants or the like, in good order and repair (except in the event of termination upon a Casualty, a total taking or Constructive Total Taking in condemnation proceedings), reasonable wear and tear and damage by casualty or condemnation (except to the extent Tenant was theretofore obligated under this Lease to restore such casualty or condemnation prior to the date of such expiration or sooner termination) excepted and also except as Tenant may have been prevented from maintaining the Premises in good order and repair by occupation thereof by any entity having the power of eminent domain which shall have taken the temporary use thereof and shall then be in possession thereof. If the Premises are not surrendered at the end of the Term, Tenant shall compensate Landlord for all damages which Landlord shall suffer by reason thereof, and Tenant shall indemnify, defend and hold Landlord harmless from and against all claims made by any succeeding tenant against Landlord founded upon delay by Landlord in delivering possession of the Premises to such succeeding tenant to the extent that all or any portion of such delay is occasioned by the failure of Tenant to surrender the -41- Premises as and when required by this Lease. Without limiting the provisions of Section 13.1 hereof, if Tenant shall, without the written consent of Landlord, hold over after the expiration of the Term, Tenant's use shall be deemed a month-to-month tenancy, which tenancy may be terminated upon demand of Landlord. During such tenancy, Tenant agrees to pay to Landlord, each month, (i) the following percentage of the Base Rent in effect upon the expiration of the Term: (A) 125% of such Base Rent for the first ninety (90) days after the expiration or sooner termination of this Lease; (B) 150% of such Base Rent for the next ninety (90) days (that is, until the 180th day thereafter); (C) 175% of such Base Rent for the next ninety (90) days (that is, until the 270th day thereafter); and (D) 200% of such Base Rent for the period from and after such 270th day after the expiration or sooner termination of this Lease, plus (ii) all additional rent payable by Tenant hereunder for such month. Section 13.2. INSPECTION. Tenant shall permit Landlord and Landlord's authorized representatives to enter the Premises at reasonable times during usual business hours upon reasonable prior notice (except in the case of an emergency or to prevent an imminent default under a Fee Mortgage, which entry may be made without notice at any time) for the purpose of inspecting the same and of exhibiting the same to prospective purchasers or mortgagees thereof, or others to whom Landlord shall desire to so exhibit the Premises. ARTICLE XIV ASSIGNMENT AND SUBLETTING Section 14.1. ASSIGNMENT AND SUBLETTING. Except as otherwise provided in this Article 14, or as expressly provided elsewhere in this Lease, Tenant shall not, without -42- the prior written consent of Landlord, assign, mortgage, pledge or encumber this Lease, or sublease the Premises, or any part thereof. The consent of Landlord to any assignment, mortgage, pledge, encumbrance or subletting shall not relieve Tenant from obtaining Landlord's consent to any further such transaction which requires Landlord's consent hereunder. Section 14.2. PERMITTED TRANSACTIONS. Without Landlord's consent, but upon at least fifteen (15) days, prior notice to Landlord, and subject to Section 14.3(c), Tenant may: (a) Assign this Lease or sublease all or any part of the Premises to an Affiliate of Tenant; (b) Assign this Lease or sublet all or substantially all of the Premises for all or any portion of the Term in connection with a sale or other transfer to the assignee or sublessee of all or substantially all of the business conducted by Tenant at the Premises; (c) Mortgage, pledge or encumber this Lease, except as provided in Section 14.3(a); or (d) Sublease the Premises, in whole or in part, other than a sublease of all or substantially all of the Premises for all or substantially all of the term (except as provided in subsection (b) above). Section 14.3. TRANSACTIONS REQUIRING LANDLORD'S CONSENT. (a) So long as Landlord is an Affiliate of Joseph C. DiFeo or Samuel X. DiFeo, Landlord's consent shall be required to any mortgage, pledge or encumbrance of this Lease (but not to a transaction described in Section 10.4(b)), which consent may be withheld in Landlord's sole discretion, notwithstanding any provision of this Lease which contemplates the potential existence of any Mortgage, or otherwise gives to Tenant the right to mortgage this Lease and the leasehold estate created hereby. (b) Tenant may assign this Lease, and may sublease all or any part of the Premises, other than as provided in Section 14.2, subject to Landlord's prior consent, which consent Landlord shall not unreasonably withhold, upon the following terms and conditions: -43- (i) Tenant shall furnish Landlord with the name and business address of the proposed assignee or subtenant and with information with respect to the nature and character of the proposed assignee's or subtenant's business or activities as are reasonably satisfactory to Landlord; (ii) Landlord shall not be entitled to take into account the financial net worth, credit or financial responsibility of the proposed assignee or subtenant; (iii) Tenant shall deliver an executed assignment or sublease to Landlord at the time Landlord's consent is requested; (iv) The nature and character of the proposed assignee or subtenant, and its business or activities are, in Landlord's reasonable judgment, in keeping with the standards of the Premises (and its intended use of the Premises is not in violation of the provisions of this Lease); (v) Each assignment or sublease, whether or not Landlord's consent is required thereto, shall specifically state that (i) it is subject to all of the terms, covenants, agreements, provisions and conditions of this Lease (except, as otherwise provided herein as to Sections 3.8, and 15.1(c), and provided, further, that no assignee or subtenant shall be obligated to enter into, assume or otherwise be liable for obligations under any Tenant Guaranty); and (ii) the assignee or subtenant will not have the right to further assign or sublet all or part of the Premises except in accordance with the provisions of this Lease. (vi) With respect to any assignment or sublease, whether or not Landlord's consent is required thereto: (A) the receipt by Landlord of any amounts from an assignee or subtenant, or other occupant of any part of the Premises, shall not be deemed or construed as releasing Tenant from Tenant's obligations hereunder or of the acceptance of that party as a direct Tenant; (B) Tenant shall reimburse Landlord within thirty (30) days after demand for any reasonable costs -44- incurred by Landlord to review the proposed assignment or sublease in connection with the requested consent, including the cost of making investigations as to the acceptability of the proposed assignee or subtenant and any reasonable attorney's fees incurred by Landlord; (C) consent by Landlord thereto shall not be deemed or construed to modify, amend or affect the terms and provisions of this Lease, or Tenant's obligations hereunder, which shall continue to apply to the Premises as if the assignment or sublease had not been made; and (D) if Tenant defaults in the payment of any rent, Landlord is authorized to collect any rents due or accruing from any assignee, subtenant or other occupant of the Premises and to apply the net amounts collected to the rent due hereunder. (c) No assignment or sublease permitted under Section 14.2, Section 14.3, or otherwise permitted hereunder shall be permitted if the assignee or sublessee, in Landlord's reasonable judgment, is not reputable, or if the assignment or sublease, in Landlord's reasonable judgment, would cause the Premises to become subject to compliance with the remedial provisions of ISRA (or a similar state statute requiring environmental testing and/or remediation) prior to the sale or other transfer of the Premises, upon such assignment of this Lease or sublease of all or any portion of the Premises, or upon the expiration or sooner termination of this Lease or cessation of operations at the Premises. Landlord will advise Tenant, by notice to Tenant within thirty (30) days of Tenant's request therefor, if Landlord judges a proposed assignee or subtenant named in such request not to be reputable, or a proposed assignment or sublease to cause the Premises to become subject to ISRA or such similar statute as aforesaid, which notice from Landlord shall specify, in reasonable detail, the grounds for Landlord's determination. Failure or refusal of Landlord to respond within such thirty (30) day period shall be deemed a determination by Landlord that the proposed assignee or subleasee is reputable and the proposed assignment or sublease does not cause the Premises to become subject to ISRA or such other similar statute. In making such determination, the financial condition of the proposed assignee or sublessee shall not be taken into account by Landlord. If Tenant disputes Landlord's determination, such dispute shall be resolved by ADR pursuant to Article 18. -45- (d) Notwithstanding anything to the contrary in this Lease, Tenant shall not assign this Lease or sublease the Premises to a government or any subdivision or agency thereof, without Landlord's consent, which consent Landlord may withhold in its sole discretion. Section 14.4. TAKEBACK RIGHT. If at any time Tenant shall request Landlord's consent (if such consent is required hereunder) (a) to assign this Lease, other than to an Affiliate or in connection with a sale of all or substantially all of Tenant's business at the Premises to the assignee, or (b) to sublease all or substantially all of the Premises for all or substantially all of the Term, other than to an Affiliate or in connection with sale or all or substantially all of Tenant's business at the Premises to the sublessee, or (c) to change the use of all or substantially all of the Premises to a use other than a Vehicle-Related Use, and shall have notified Landlord of such proposal, then Landlord shall have a period of thirty (30) days following such notification to terminate this Lease as to the entire Premises, by notice to Tenant, in which event such termination shall occur on the forty-fifth (45th) day after the date of such notice, as if such forty-fifth (45th) day were the date herein specified for the expiration of the Term, and, from and after such termination, neither party shall have any further obligation hereunder to the other party, except for obligations which accrued prior to the date of termination or which by their terms survive the termination of this Lease Nothing herein in this Section shall be deemed or construed to limit Landlord's right to withhold consent to an assignment or sublease, in accordance with the provisions of this Lease, if such consent is required hereunder, and the existence of this takeback right shall not be taken into account in determining whether Landlord is entitled to withhold consent to an assignment or sublease, if such consent is required hereunder. Section 14.5. REQUIREMENTS AS TO ASSIGNMENTS OR SUBLEASES. (a) Anything in this Article 14 to the contrary notwithstanding, any assignment of this Lease, whether made with Landlord's consent or without Landlord's consent, as the case may be, shall not be effective unless and until (i) the assignee shall execute, acknowledge and deliver to Landlord an agreement in form and substance reasonably satisfactory to Landlord, and with respect to which Landlord shall be a direct beneficiary, whereby the assignee shall (x) assume the obligations and performance of this Lease and -46- agree to be personally bound by all of the covenants, agreements, terms, provisions and conditions hereof on the part of Tenant to be performed and observed from and after the effective date of any such assignment and (y) agree that the provisions of this Article 14 shall, notwithstanding such assignment or sublease, continue to be binding upon it in the future. Tenant covenants that, notwithstanding any assignment or sublease, whether or not in violation of the provisions of this Lease, and notwithstanding the acceptance of rent by Landlord from any assignee or subtenant or any other party, Tenant and Guarantors shall remain fully and primarily and jointly and severally liable for the payment of rent due and to become due under this Lease and for the performance and observance of all the covenants, agreements, terms, provisions and conditions of this Lease on the part of Tenant to be performed or observed. (b) The liability of Tenant, and the due performance by Tenant of the obligations on its part to be performed under this Lease, shall not be discharged, released or impaired in any respect by an agreement or stipulation made by Landlord or any grantee or assignee of Landlord or any other agreement with a third party extending the term of or modifying any of the obligations contained in this Lease, or by any waiver or failure of Landlord to enforce any of the obligations on Tenant's part to be performed under this Lease, and Tenant shall continue liable hereunder. If any such agreement or modification operates to increase the obligations of Tenant under this Lease the liability of the Tenant under this Lease or any of its successors in interest (all such parties shall be deemed to have expressly consented in writing to such agreement or modification) shall continue to be no greater than if such agreement or modification had not been made. Section 14.6. LEASEHOLD MORTGAGES. (a) Without the prior consent of Landlord, Tenant shall have the right to mortgage this Lease and the leasehold estate hereby created. The execution and delivery of a Mortgage shall not be deemed to constitute an assignment or transfer of this Lease nor shall the holder of any Mortgage, as such, be deemed an assignee or transferee of this Lease so as to require such holder to assume the performance of any of the covenants or agreements on the part of Tenant to be performed hereunder. No action or agreement hereafter taken or entered into by Tenant to cancel, surrender, modify or amend this Lease shall be binding upon or enforceable -47- against a Mortgagee, without the prior written consent of such Mortgagee. (b) A Mortgagee shall only have the rights provided for herein if there has been delivered to Landlord a true, correct and complete copy of the Mortgage in question, together with written notice executed by Tenant setting forth the name and address of the Mortgagee. Landlord shall not be bound to recognize any assignment of a Mortgage unless and until Landlord shall be given written notice of such assignment and the name and address of the assignee. A Mortgagee shall cease to be entitled to any of the rights provided for herein if its Mortgage is satisfied or discharged of record or if Mortgagee has given written notice to Landlord that its Mortgage has been satisfied. Tenant shall not grant any Mortgage unless such Mortgage shall expressly state that the proceeds of any insurance policies and condemnation awards shall be held, used and applied for the purposes and in the manner provided in this Lease, and a Mortgagee whose Mortgage does not so provide shall have no rights hereunder. Section 14.7. SUBLEASE RECOGNITION. Landlord confirms, for the benefit of any tenant under any Major Sublease (such tenant being called a "Space Tenant"), that, upon the termination of this Lease pursuant to Section 15.1, Landlord will recognize the Space Tenant under such sublease as the direct tenant of Landlord (provided that such Space Tenant attorns to Landlord) and will, upon the request of Tenant with respect to a Major Sublease consented to by Landlord, enter into a reasonable and customary form of recognition and attornment agreement with such Space Tenant which will provide for the recognition by Landlord of such Space Tenant as the direct tenant of Landlord and the attornment by such Space Tenant to Landlord, provided that, among other things, at the time of the termination of this Lease no default exists under the Space Tenant's sublease which at such time would then permit the landlord thereunder to terminate the same or to exercise any dispossess remedy provided for therein. The term "Major Sublease" shall mean a sublease of all of the Premises for all of the Term (less one day), provided that the sublease requires the sublessee to perform all of Tenant's obligations hereunder, subject to Section 3.8, grants to the sublandlord all of Landlord's rights hereunder other than pursuant to Section 15.1(c) (which shall not apply to the Major Sublease) and that the sublessee shall not be obligated to enter into, assume or -48- otherwise be liable for obligations under any Tenant Guaranty as otherwise provided in Article 29. ARTICLE XV DEFAULT PROVISIONS; CONDITIONAL LIMITATION Section 15.1. EVENTS OF DEFAULT. In the event that any one or more of the following events occur, an event of default (an "Event of Default") shall be deemed to exist under this Lease: (a) default shall be made in the payment of the Base Rent when due and such default shall continue for a period of ten (10) days after notice thereof, specifying such default, shall have been given to Tenant, or default shall be made in the payment of any item of additional rent and such latter default shall continue for a period of thirty (30) days after notice thereof, specifying such default, shall have been given to Tenant; or (b) default shall be made in the performance of any other covenant or agreement on the part of Tenant to be performed hereunder, and such default shall continue for a period of thirty (30) days after notice thereof, specifying such default, shall have been given to Tenant; provided, however, in the case of a default which cannot with due diligence be remedied by Tenant within a period of thirty (30) days, if Tenant during such thirty (30) day period advises Landlord of Tenant's intentions to cure such default, and proceeds as promptly as may be reasonably possible after the service of such notice and with all due diligence, and continuity of purpose to remedy the default and thereafter to prosecute the remedying of such default with all due diligence (including by appropriate actions against a subtenant of all or part of the Premises to compel performance by such subtenant or to recover possession of the Premises so as to permit Tenant to cure such default to the extent that Tenant is unable to cure the same without recovering possession), the period of time after the giving of such notice within which to remedy the default shall be extended for such period as may be necessary to remedy the same with all due diligence; or (c) an Event of Default, subject to Section 15.3, shall have occurred under any Affiliate Lease or under any Affiliate Sublease; provided, however, that if any Affiliate -49- Lease or Affiliate Sublease, other than this Lease, is assigned, in a transaction permitted thereunder, to a person or entity which is not an Affiliate of the Tenant thereunder, and does not thereafter become an Affiliate of the Tenant thereunder, then this subsection shall thereafter apply only with respect to such Affiliate Lease or Affiliate Sublease to a monetary Event of Default under such Affiliate Lease or Affiliate Sublease and shall not thereafter apply to a non-monetary Event of Default under such Affiliate Lease or Affiliate Sublease; or (d) whenever Tenant shall default in complying with the provisions of Article 12 with respect to the discharging of mechanics' liens within the time period provided therein and such default shall exist for thirty (30) days after notice from Landlord specifying such default, or, if applicable, for ten (10) days after notice from Landlord specifying such default if such discharge is required in order to close a sale or refinancing involving the Premises (which notice shall refer to such ten (10) day period and Article 12); or (e) if any execution or attachment shall be issued against Tenant or any of Tenant's property pursuant to which execution or attachment the Premises or any part thereof shall be taken or occupied by someone other than Tenant, except as permitted under this Lease; or (f) (i) the making by Tenant, Trace, UAG or a Tenant under any Affiliate Lease or Affiliate Sublease (each of Trace, UAG and any Tenant under any Affiliate Lease or Affiliate Sublease, being herein called a "Guarantor" and collectively the "Guarantors") of any general assignment for the benefit of creditors; (ii) the filing by or against Tenant or any Guarantor of any petition to have Tenant or any Guarantor adjudged a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant or any Guarantor, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Tenant's or any Guarantor's assets, or substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease; or -50- (g) if Tenant's right, title and interest in this Lease or the estate of Tenant hereunder shall be transferred to or shall pass to or devolve upon any person or entity whether by action of Tenant, by operation of law or otherwise, in violation of the terms of this Lease, and such default shall not be cured within thirty (30) days after notice from Landlord of such default; or (h) if any Mortgagee commences an action to foreclose or otherwise realize upon its Mortgage or Tenant's interest in this Lease, unless such action has been dismissed or discontinued. Section 15.2. Intentionally Omitted. Section 15.3. MULTIPLE NOTICES. If a monetary Event of Default occurs hereunder, then Landlord shall have the right to send to Tenant a second (2nd) notice, referring to this Section and specifying such default and stating that it is a "Second Notice" of such default, and, if such monetary Event of Default shall not be cured within five (5) business days after such notice is given, then Landlord shall have the right to send Tenant a third (3rd) notice, referring to this Section and specifying that it is a "Third Notice" of such default, and, if such monetary Event of Default shall not be cured within ten (10) business days after such notice is given, Landlord may thereafter proceed to exercise all rights and remedies which Landlord may exercise upon such Event of Default (but prior to Landlord's commencing to exercise its rights and remedies, Landlord shall be obligated to accept such a cure). The provisions of this Section shall only apply to the first two (2) monetary Events of Default of the same type in any period of twelve (12) consecutive calendar months. Tenant specifically acknowledges that it will not argue before any court, ADR tribunal or anyone that Landlord is obligated or required to accept any cure of an Event of Default described in this Section after the expiration of the applicable time frame provided for after the Third Notice, Tenant having negotiated for the giving of the Second and Third Notices in lieu of any other benefit or right provided to Tenant at law, in equity or otherwise with respect to the right to cure such Events of Default. Section 15.4. NOTICES OF DEFAULT TO MORTGAGEES. (a) If Landlord shall give a notice to Tenant regarding the Tenant's failure to observe or perform any -51- obligation imposed upon Tenant under this Lease, Landlord shall at the same time give a copy of each such notice to each Mortgagee, and no such notice shall be deemed to have been effected unless and until notice is so given to each Mortgagee. If a Mortgage is held by more than one person, corporation or other entity, no provision of this Lease requiring Landlord to give a notice to a Mortgagee shall be binding upon Landlord unless and until all of said holders shall designate in writing one of their number to receive all such notices and shall have given to Landlord an original executed counterpart of such designation in form reasonably satisfactory to Landlord. (b) Landlord shall permit a Mortgagee the right (without obligation on the part of the Mortgagee to do so) to perform any term, covenant, condition or agreement and to remedy any default by Tenant hereunder, within the time periods provided to the Tenant hereunder or otherwise provided to the Mortgagee hereunder and together with any and all rights of Tenant hereunder with respect to remedying or contesting any such default, and Landlord shall accept such performance by Mortgagee with the same force and effect as if furnished by Tenant; provided, however, that Mortgagee shall not thereby or hereby be subrogated to the rights of Landlord. (c) If an Event of Default shall occur hereunder, then, before Landlord shall be entitled to terminate this Lease on account of such Event of Default, Landlord shall give to the holder of any such Mortgage a further notice that such specified Event of Default remains unremedied, and the holder of such Mortgage shall have the right to remedy any Event of Default arising from a failure to pay Base Rent or additional rent within a period of twenty (20) days after the service of such notice and to commence to remedy any other Event of Default within a period of thirty (30) days after the service of such notice. Section 15.5. RIGHTS OF MORTGAGEES. In case of the occurrence of an Event of Default (other than an Event of Default of the character of a failure to pay Base Rent or additional rent) if, within thirty (30) days after the further notice referred to in Section 15.4 is given by Landlord to the holder of a Mortgage, such holder shall: (a) notify Landlord of its election to proceed with due diligence promptly to acquire possession of the -52- Premises or to foreclose the Mortgage or otherwise to extinguish Tenant's interest in this Lease; (b) deliver to Landlord an instrument in writing duly executed and acknowledged wherein the holder of the Mortgage agrees that: (i) during the period that such holder or a receiver of rents and profits appointed upon application of such holder shall benefit from the provisions of this Section (until, by notice to Landlord, such holder waives any further benefits under this Section with respect to such Event of Default), it will pay or cause to be paid to Landlord all sums from time to time becoming due under this Lease for the Base Rent and additional rent; and (ii) if delivery of possession of the Premises shall be made to such holder or such receiver or, in the event such holder is an Institution, to its nominee, whether voluntarily or pursuant to any foreclosure or other proceedings or otherwise, such holder shall, promptly following such delivery of possession, perform or cause such nominee to perform, as the case may be, such of the covenants and agreements herein contained on Tenant's part to be performed as Tenant shall have failed to perform to the extent the same are of a type which can reasonably be performed by a party other than the Tenant and the defaults which cannot so reasonably be performed shall no longer be deemed to be defaults hereunder as respects Mortgagee or any nominee, or their successors and assigns; and (c) If such holder is not an Institution deliver to Landlord security sufficient in Landlord's reasonable opinion to secure the obligations undertaken pursuant to clauses (a) and (b) above; and provided that such default is in a nature that the same cannot practically be cured by such Mortgagee without taking possession of the Premises, then Landlord shall not be entitled to terminate this Lease on account of such Event of Default and shall accept such performance, for such period or periods of time as may be necessary for such holder, with the exercise of due diligence, to extinguish Tenant's -53- interest in this Lease and to perform or cause to be performed all of the covenants and agreements to be performed by Tenant to the extent the same are of a type which can reasonably be performed by a party other than Tenant. Nothing herein contained shall be deemed to require the holder of a Mortgage to continue with any foreclosure or other proceedings or, in the event such holder or receiver shall acquire possession of the Premises, to continue such possession, if the Event of Default in respect of which Landlord shall have given a notice shall be remedied. If prior to any sale pursuant to any proceeding brought to foreclose any Mortgage, or if prior to the date on which Tenant's interest in this Lease shall otherwise be extinguished, the Event of Default in respect of which Landlord shall have given a notice shall have been remedied and possession of the Premises shall have been restored to Tenant, then the obligation of the holder of the Mortgage pursuant to the instrument referred to in clause (b) of this Section shall be null and void and of no further effect. Nothing herein contained shall affect the right of Landlord, upon the subsequent occurrence of any Event of Default, to exercise any right or remedy herein reserved to Landlord. Section 15.6. REMEDIES. (a) Upon the occurrence of an Event of Default, subject, however, to Section 15.3, in addition to any other remedies available to Landlord at law or in equity or provided for herein, Landlord shall have the option, upon five (5) business days' prior notice to Tenant, to terminate this Lease and all rights of Tenant hereunder. In the event that Landlord elects to so terminate this Lease, then Landlord may recover from Tenant all Base Rent and additional rent through the end of the term hereof and under all Affiliates Leases and Affiliate Subleases. (b) From and after the occurrence of an Event of Default, subject, however, to Section 15.3, Landlord shall also have the right, with, or without terminating this Lease, upon notice to Tenant, to re-enter the Premises and remove all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant. No re-entry or taking possession of the Premises by Landlord pursuant to this Section 15.6(b) shall be construed as an election to terminate this Lease unless a written notice of such intention is given to Tenant. No entry or re-entry by Landlord, whether had or taken under summary proceeding or -54- otherwise, shall absolve or discharge Tenant from any liability hereunder. (c) In the event that Landlord shall elect to re-enter as provided in subsection (b) above or shall take possession of the Premises pursuant to legal proceedings or pursuant to any notice provided by law, then if Landlord does not elect to terminate this Lease as provided above, Landlord may, from time to time, without terminating this Lease, either recover all rent (which shall be deemed to include all Base Rent, additional rent, and other payments and charges required to be made by Tenant hereunder), as it becomes due or relet the Premises or any part thereof on terms and conditions as Landlord in its sole discretion may deem advisable for the whole or any part of the remainder of the term or for a longer period, in Landlord's name, or as agent of Tenant, and in connection therewith, Landlord may make repairs or alterations to the Premises in such manner as Landlord may deem necessary or advisable. (d) In the event Landlord shall, pursuant to subsection (c) above, elect to so relet, the rents received by Landlord from such reletting shall be applied: first to the cost and expenses of re-taking, repossessing, repairing and/or altering the Premises and the expense of removing all persons and property therefrom; second, to the costs and expenses incurred in securing any new tenant or tenants; and third, to the payment of rent due and unpaid hereunder and the residue, if any, shall be held by Landlord and applied to payment of future Base Rent and additional rent as the same may become due and payable. Should that portion of such rents received from such reletting during any month, which is applied to the payment of Base Rent and additional rent hereunder, be less than the Base Rent and additional rent payable during the month by Tenant hereunder, then Tenant shall pay such deficiency to Landlord immediately upon demand therefor by Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to the Landlord, as soon as ascertained, any reasonable costs and expenses incurred by Landlord in reletting or in making such alterations and repairs not covered by the rents received from such reletting. Suit or suits for the recovery of such deficiency or damage, or for a sum equal to any installment or installments of rent, may be brought by Landlord from time to time at Landlord's election and nothing herein contained shall be deemed to require Landlord to await the date on which this Lease or the term hereof would have expired by limitation had there been no such default by -55- Tenant; provided, however, that this subsection (d) shall cease to be applicable on a going forward basis if Landlord makes the election described in subsection (a) of this Section. (e) Landlord shall have no obligation to mitigate damages upon the exercise of any of Landlord's rights or remedies under this Article 15. Section 15.7. NO WAIVERS. All rights, options and remedies of Landlord contained in this Lease shall be construed and held to be cumulative, and no one of them shall be exclusive of the other, and Landlord shall have the right to pursue any one or all of such remedies or any other remedy or relief which may be provided by law, whether or not stated in this Lease. Tenant hereby expressly waives any and all rights to recover or regain possession of the Premises or to reinstate or redeem its tenancy or this Lease as is permitted or provided by or under any statue, law or a decision now or hereafter in force and effect. Tenant also waives the provisions of any law now or hereafter in effect relating to notice and delay in levy of execution in case of an eviction or dispossess of Tenant for non-payment of rent. Tenant waives and shall waive any and all rights to a trial by jury in the event that summary proceedings shall be instituted by Landlord. The term "enter", "re-enter" "entry", or "re-entry" as used in this Lease is not restricted to their technical legal meanings. Section 15.8. NEW LEASES. In case of the termination of this Lease by reason of the happening of any Event of Default, Landlord shall give prompt notice thereof to the holder of any Mortgage. So long as the Mortgagee has complied with Sections 15.4 and 15.5, Landlord shall, on written request of such holder, made at any time within 60 days after the giving of such notice by Landlord, enter into a new Lease of the Premises with such holder, or its designee, within thirty (30) days after receipt of such request, which new Lease shall be effective as of the date of such termination of this Lease for the remainder of the term of this Lease, at the same Base Rent and additional rent and upon the same terms, covenants, conditions and agreements as are herein contained; provided that the holder of the Mortgage shall (a) contemporaneously with the delivery of such request pay to Landlord the Base Rent and items of additional rent which Landlord has specified as due in any notice to such holder, (b) pay to Landlord at the time of the execution and delivery of said new Lease any and -56- all sums for the Base Rent and additional rent which would have been due hereunder from the date of termination of this Lease (had this Lease not been terminated) to and including the date of the execution and delivery of said new Lease, together with all expenses, reasonably incurred by Landlord, in connection with the termination of this Lease and with the execution and delivery of such new Lease, less the net amount of all sums received by Landlord from any occupants of any part or parts of the Premises up to the date of commencement of such new Lease, and (c) on or prior to the execution and delivery of said new Lease, agree in writing that promptly following the delivery of such new Lease, such holder or its designee will perform or cause to be performed all of the other covenants and agreements herein contained on Tenant's part to be performed to the extent that Tenant shall have failed to perform the same to the date of delivery of such new Lease. Nothing herein contained shall be deemed to impose any obligation on the part of Landlord to deliver physical possession of the Premises to such holder of a Mortgage or its designee unless Landlord at the time of the execution and delivery of such new Lease shall have obtained physical possession thereof. Upon execution and delivery of such new Lease, any subleases which may have theretofore been assigned and transferred to Landlord shall thereupon be assigned and transferred, without recourse, by Landlord to the new tenant. If a new Lease of the Premises be entered into pursuant to the above, then the holder of the Mortgage, or any assignee or designee thereof, or a purchaser at a foreclosure sale shall, for the remainder of the term of this Lease, succeed to the interest of the Tenant hereunder, subject to the terms, provisions, covenants and agreements on the part of Tenant to be performed as provided above. If more than one Mortgagee shall request such new Lease, such new Lease shall be made with and delivered to the Mortgagee whose Mortgage is prior in lien to those of any others, without regard to the time of request. Landlord shall have no obligation to determine the lien priority as among Mortgagees, but shall base its actions in dealing with a Mortgagee on information contained in a title report issued by a title company acceptable to Landlord. Any such new lease shall be expressly made subject to the rights, if any, of Tenant under the terminated lease and of the rights of parties in possession. Section 15.9. Intentionally Omitted. Section 15.10. MULTIPLE MORTGAGES. If at any time there shall be more than one Mortgage, the holder of -57- the Mortgage prior in lien shall be vested with the rights under Sections 15.3 and 15.8 to the exclusion of the holder of any junior Mortgage; provided, however, that if the holder of a Mortgage prior in lien to any other Mortgage shall fail or refuse to exercise the rights set forth in said Section, each holder of a Mortgage in the order of the priority of their respective liens shall have the right to exercise such rights; and provided further, however, that with respect to the right of the holder of a Mortgage under Section 15.8 to request a new Lease, such right may, notwithstanding the limitation of time set forth in said Section, be exercised by the holder of any junior Mortgage, in the event the holder of a prior Mortgage shall not have exercised such right, more than 120 days but not more than 140 days after the giving of notice by Landlord of the termination of this Lease as in said Section provided. Section 15.11. ELIMINATION OF CROSS-DEFAULT AND CROSS-COLLATERALIZATION. (a) The provisions of Section 15.1(c) shall no longer apply to this Lease, and Landlord shall cease to be entitled to consider an Event of Default to exist or to terminate this Lease on account of an Event of Default under Section 15.1(c), in any of the following circumstances: (i) If this Lease shall be assigned (but only if Landlord's consent, if required hereunder, has been obtained), in a transaction permitted hereunder, to an assignee which is not an Affiliate of Tenant and provided that (i) such assignee or transferee does not thereafter become an Affiliate of Tenant, or (ii) Tenant, or an Affiliate of Tenant, does not thereafter become the Tenant under this Lease; or (ii) If the holder of an Institutional Mortgage permitted hereunder or its successors and assigns shall succeed Tenant as the Tenant under this Lease. Section 15.12. LANDLORD DEFAULTS; LANDLORD GUARANTY. Landlord has guaranteed the performance by the landlords under the Affiliate Leases and the sublandlords under the Affiliate Subleases pursuant to the Landlord Guaranty, in form attached hereto as Exhibit __. Any successor to Landlord's interest hereunder shall be deemed to have agreed to be bound by the terms of any such Landlord Guaranty (but shall have no liability under such Landlord -58- Guaranty at such time if it is not an Affiliate of Joseph C. DiFeo or Samuel X. DiFeo, other than the obligation in the next sentence). Landlord agrees that it will not assign or otherwise transfer the Premises or this Lease unless the assignee or other transferee enters into a Landlord Guaranty substantially in the same form of the Landlord Guaranty entered into by Landlord (subject to the limitations on liability contained in the foregoing sentence). Section 15.13. TENANT GUARANTY. Pursuant to the Tenant Guaranty, Tenant has guaranteed the performance of the tenants under the Affiliate Leases and subtenants under the Affiliate Subleases. Section 15.14. INTEREST ON DEFAULTED SUMS. If either party shall fail to pay any sums due hereunder within ten (10) days after the due date thereof, such unpaid sums shall bear interest, payable on demand, from and after the due date thereof until paid at a rate per annum equal to the Prime Rate plus two (2%) percent. Section 15.15. LATE CHARGE. If Tenant shall fail to pay all or part of any installment of Base Rent on the date on which the same shall be due and payable hereunder more than once in any twelve (12) month period, Tenant shall pay to Landlord, within twenty (20) days after demand therefor by Landlord, a late charge equal to the greater of (a) two (2%) percent of all or the portion of such installment not paid when due, or (b) any late charge, interest charge or other charge imposed upon Landlord by a Fee Mortgagee because Landlord was unable to pay when due sums required to be paid under the Fee Mortgage because of Tenant's failure as aforesaid. In applying this provision, it shall be assumed that Landlord has no funds from which to pay sums required to be paid under the Fee Mortgage in question other than the sums required to be paid by Tenant to Landlord under this Lease. ARTICLE XVI INDEMNIFICATION Section 16.1. INDEMNIFICATION. (a) Except to the extent due to negligence or willful misconduct of Landlord, its agents, employees or contractors, from and after the date hereof, Tenant shall indemnify and save harmless Landlord against and from any and all claims arising during -59- the Term (even if asserted after the end of the Term) (i) by or on behalf of any person for injury to persons or damage to property occurring in, on or about the Premises, or (ii) arising from the conduct or management of or from any work or thing whatsoever done in or on the Premises, or the use and occupancy of the Premises, or (iii) arising from any condition of the Premises or any sidewalk adjoining the Premises, or of any vaults, passageways or space therein or appurtenant thereto, or arising from any act of negligence of Tenant, or any occupant of the Premises or any part thereof, or of its or their agents, contractors, servants, employees, invitees or licensees and from and against all judgments, costs, expenses and liabilities incurred in or about any such claim or action or proceeding brought therein; and in case any action or proceeding be brought against Landlord by reason of any such claim, Tenant upon notice from Landlord shall defend such action or proceeding by counsel reasonably satisfactory to Landlord. The provisions contained in this subsection shall not be applicable to any environmental or other matters which are the subject matter of Article 22 of this Lease, and the rights and obligations of the parties with respect to such matters shall be governed by such Section(s) of this Lease and not by this subsection. (b) Landlord shall indemnify and save harmless Tenant against and from any and all claims arising during the Term (even if asserted after the end of the Term) to the extent due to negligence or willful misconduct of Landlord, its agents, employees or contractors, from and after the date hereof, solely with respect to and arising from any entry of any thereof into or upon the Premises, (i) by or on behalf of any person for injury to persons or damage to property occurring in, on or about the Premises, or (ii) any act of negligence or willful misconduct of Landlord, or of its agents, contractors, servants, employees, invitees or licensees (other than Tenant), from and after the date hereof, and from and against all judgments, costs, expenses and liabilities incurred in or about any such claim or action or proceeding brought therein, solely with respect to an entry of any thereof into or upon the Premises; and in case any action or proceeding be brought against Tenant by reason of any such claim, Landlord, upon notice from Tenant, shall defend such action or proceeding by counsel reasonably satisfactory to Landlord. The provisions contained in this subsection shall not be applicable to any environmental or other matters which are the subject matter of Article 22 of this Lease, and the rights and obligations of the parties -60- with respect to such matters shall be governed by such Section(s) of this Lease and not by this subsection. ARTICLE XVII Intentionally omitted. ARTICLE XVIII ARBITRATION AND APPRAISAL Section 18.1. RULES. All matters under this Lease shall be settled and finally determined by means of alternative dispute resolution as provided in the New Jersey Alternative Procedure for Dispute Resolution Act, N.J.S.A. 2A:23A-1, ET SEQ., as in effect on the date of this Lease, [or CT or NY equivalent, as appropriate] (the "Act"), other than as provided in Section 18.2, upon written notice given by any party to the other (the "Dispute Notice"), and to the umpire hereafter established. Except to the extent required by law, the proceedings under the Act shall be confidential and shall not be disclosed or discussed with persons not parties to this Lease without the consent of all parties to the dispute. In the event a party to a dispute may suffer irreparable harm or injury, such party shall have the ability to seek provisional remedies, including but not limited to injunctive relief and other equitable remedies, to the fullest extent permitted by law pending completion of the process provided under this Article 18. Section 18.2. UMPIRES. (a) Within thirty (30) days after the Dispute Notice is given the parties shall select three (3) umpires from among the persons listed in Subparagraphs (1) through (4) below in the order of priority listed below, i.e., if a person meeting the requirements of Subparagraph (1) is not able or willing to serve, a person meeting the requirements of Subparagraph (2) shall be selected, and so forth. In addition to meeting the requirements of Subparagraph (1), (2), (3) or (4) below, the umpires must also satisfy the requirements described in Subparagraphs (b) and (d) below. A potential umpire is: (1) Any retired judge of a United States District Court or a United States Circuit Court of Appeals; -61- (2) Any retired judge of any State Superior, Appellate or Supreme Court; (3) Any attorney licensed to practice law for more than fifteen (15) years or certified public accountant who has been certified for more than fifteen (15) years; and, in either case, who has either directly or indirectly, no conflict of interest; or (4) Such other person upon whom the members of the selecting group agree. (b) In addition to the requirements described in Section 18.2 (a) above, the umpires selected hereunder must: (i) Be free of any potential for bias or conflict of interest with respect to either of the parties hereto, directly or indirectly or by virtue of any direct or indirect financial interest, family relationship or close friendship; and (ii) Be in a position to immediately hear the dispute and thereafter render a resolution within the time specified in Section 18.7 below. (c) If the umpires are not selected within the period of time specified in Section 18.2(a) above, Landlord, on the one hand, and Tenant, on the other hand, each shall promptly select an umpire which umpires shall select a third umpire who shall be the solo umpire. If the parties fail to so select umpires pursuant to the foregoing provisions within twenty (20) days after the expiration of the period described in Section 18.2(a), the solo umpire shall be selected by the Chief Judge of the United States District Court for the District of New Jersey or, if the Chief Judge is unable or unwilling to act, by the Chief Judge of the Southern District of New York or the President of the Bar Association of the City of New York. Such selection shall be in accordance with the requirements of Sections 18.2(a) and 18.2(b) above. The umpire to be selected pursuant to this Section 18.2(c) must be designated within thirty (30) days after the expiration of the period described in Section 18.2(a) above. (d) Anything to the contrary herein notwithstanding, the following persons are not eligible to -62- be an umpire under this Article: a party to this Lease or any affiliate thereof; an employee or co-employee or any party to the dispute; or any person having material or undisclosed, financial or personal interests dependent on the success or failure of any of the parties. (e) An umpire shall disqualify himself or herself if he or she is unable to handle the process promptly so as to render a resolution within a reasonable time, in no event to exceed forty-five (45) days after final testimony and/or briefs and in all events not to extend beyond six months form the date the umpire is chosen, or such longer period to which the parties to the dispute and the umpire may agree. Section 18.3. TIME AND PLACE OF ALTERNATIVE RESOLUTION. The alternative resolution shall be held at such place as the umpire may determine within Essex County, New Jersey or such other location to which the parties may agree, to commence not later than ten (10) days after the umpire has been determined in accordance with Section 18.2. Section 18.4. FEES. All fees and expense (including transcripts, room rental and fees of the umpire) of alternative dispute resolution, shall be paid as follows: 25% by the party or parties served with the Dispute Notice and 25% by the person(s) serving the Dispute Notice, with the remaining 50% allocated 10% to the prevailing party (or parties) and 40% to the non-prevailing party (or parties), as determined by the umpire (if the umpire does not determine a prevailing party then pro-rata to each of the material parties to the dispute as determined by the umpire) provided that the umpire shall have the right to order that such fees be paid in a different percentage if any of the parties has acted in bad faith (in which case he may shift other's shares to the bad faith party(ies)). The fees payable to the umpire shall be his usual hourly rates for consulting or dispute resolution services, as the same may be in effect from time to time. Each party shall pay his own legal fees, costs and disbursements. Section 18.5. DISCOVERY. Each party shall be entitled to discovery by way of oral deposition, inspection and copying of all relevant documents within the care, custody or control of a party or a witness, and when authorized by the umpire, by way of interrogatories. All discovery shall be complete within forty-five (45) days of the appointment of the umpire. All documents to be relied -63- upon by any party to the proceeding shall be provided to the others no later than two weeks before the hearing date for the proceedings. The time periods for discovery may be extended by the umpire for good cause, provided that he is able to meet the time requirement of Section 18.7. Section 18.6. PROVISIONAL REMEDIES. When appropriate under applicable New Jersey substantive and procedural law, the umpire shall have full and complete authority to award provisional relief, on an ex parte basis or otherwise. Section 18.7. TIME AND METHOD FOR RESOLUTION. The umpire shall make the award and serve notice thereof upon all parties within six (6) months of the date the umpire is designated, or such longer period to which the parties to the dispute and the umpire may agree. If the umpire fails to make his decision in accordance with substantive law, or to properly apply the facts to the law, the umpire's award will be deemed to have been procured by "undue means" and "beyond his power." Any party may apply to court in accordance with the Act to have the umpire's decision confirmed, reviewed, modified, affirmed or remanded to the umpire with directions. Section 18.8. ACT AND AGREEMENT GOVERN. Except as otherwise provided herein, the Act shall govern the procedures and methods for any Alternative Dispute Resolution undertaken pursuant to this Lease. Except as expressly provided above, the umpire may not modify the provisions of this Article. Section 18.9. INTENTIONALLY OMITTED. ARTICLE XIX REMEDIES Section 19.1. REMEDIES NOT EXCLUSIVE. The specified remedies to which either party may resort under the terms of this Lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which such party may be lawfully entitled in case of any breach or threatened breach by the other party hereto of any provision of this Lease. The failure of either party to insist in any one or more cases upon the strict performance of any of the covenants of this Lease or to exercise any -64- option herein contained shall not be construed as a waiver or a relinquishment for the future of such covenant or option (except as otherwise expressly provided herein). A receipt by Landlord of the Base Rent or additional rent with knowledge of the breach of any covenant hereof shall not be deemed a waiver of such breach, and no waiver by either party of any provision of this Lease shall be deemed to have been made unless expressed in writing and signed by such party. In addition to the other remedies in this Lease provided, both parties shall be entitled to the restraint by injunction of the violation, or attempted or threatened violation, of any of the covenants, conditions or provisions of this Lease by the other party hereto. In the event of any litigation between the parties, the party which does not prevail shall reimburse the other party, within ten (10) days after demand therefor, for the reasonable legal fees and disbursements incurred by the prevailing party in such litigation. ARTICLE XX CERTIFICATES OF LANDLORD AND TENANT Section 20.1. CERTIFICATES. Either party hereto shall, at any time and from time to time, upon not less than fifteen (15) days' prior notice from the other party, execute, acknowledge and deliver to the other party (or to such person or entity designated by the other party) a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that this Lease is in full force and effect as modified and stating the modifications), and the dates to which the Base Rent and other charges have been paid, stating whether or not to the best knowledge of the signer of such statement the other party is in default in keeping, observing or performing any covenant or agreement contained in this Lease and, if there be a default, specifying each such default, and containing such other customary certifications as the other party may reasonably request, it being intended that any such statement delivered pursuant to this Article may be relied upon by the other party (or by the person or entity designated by the other party), but reliance on such statement may not extend to any default as to which the signer shall have had no actual knowledge, after due inquiry. -65- ARTICLE XXI SUBORDINATION Section 21.1. SUBORDINATION. This Lease shall be subject and subordinate to each Fee Mortgage which may now or subsequently affect Landlord's interest in the Premises; provided, that this Lease shall not be so subject or subordinate unless and until the holder of each Fee Mortgage shall execute and deliver to Tenant a non-disturbance agreement, in form reasonably acceptable to Tenant, providing in substance that, so long as this Lease shall be in full force and effect, and Tenant shall not be in default hereunder, this Lease shall not be terminated, nor shall Tenant's use, possession or enjoyment of the Premises or exercise of its rights under this Lease be terminated, nor shall Tenant's use, possession or enjoyment of the Premises or exercise of its rights under this Lease be interfered with, nor shall the leasehold estate granted by this Lease be affected in any other manner, by any foreclosure of or other action to enforce any Fee Mortgage. Section 21.2. ATTORNMENT. In the event of the enforcement by the holder of any Fee Mortgage to which this Lease is subject and subordinate, as provided in Section 21.1, of the remedies provided for by law or by such Fee Mortgage, then Tenant shall automatically become the tenant of such holder, or any person succeeding to the interest of such holder, without change in the terms or provisions of this Lease; provided, that neither such holder nor successor in interest (unless such holder or successor is an Affiliate of Landlord) shall be bound by (a) any payment of Base Rent for more than one month in advance except prepayments in the nature of security for the performance by Tenant of its obligations under this Lease or (b) any surrender, termination (other than in accordance with the terms of this Lease), cancellation, amendment or modification of this Lease made subsequent to the making of the Fee Mortgage in question and the notification of Tenant as to the name and address of such holder, without the consent of such holder or successor in interest, and (c) neither such holder nor successor in interest shall be liable for any act or omission of Landlord (but shall be obligated to perform all continuing obligations of Landlord hereunder after such holder or successor in interest shall succeed to Landlord's rights in the Premises). Upon request by such holder or successor in interest, Tenant shall execute and deliver an instrument or instruments, reasonably requested by such -66- holder or successor in interest, confirming the subordination and attornment provided for herein. Section 21.3. CURRENT FEE MORTGAGE. It shall be a condition precedent to any of Tenant's obligations hereunder that Landlord has obtained, for the benefit of Tenant, from the holder of any current Fee Mortgage, a reasonable non-disturbance agreement customarily given by commercial mortgage lenders in the state where the Premises is located and satisfying the requirements of Section 21.1 above. Section 21.4. PERFORMANCE OF OBLIGATIONS. Landlord agrees to perform all of Landlord's obligations under any Fee Mortgage encumbering all or any part of the Premises, except to the extent that, under this Lease, such obligations are the responsibility of Tenant to perform. Section 21.5. Intentionally omitted. ARTICLE XXII HAZARDOUS MATERIALS Section 22.1. (a) DISCHARGES. If Tenant receives any actual notice of the happening of any event involving an emission, spill, release or discharge (including any "Release" as defined herein) into or upon (i) the air, (ii) soils or (iii) surface water or ground water, of any toxic or hazardous substances or wastes (intended hereby and hereafter to include any and all such material listed in any federal, state or local law, code and ordinance and all rules and regulations promulgated thereunder (including all "Environmental Law" as defined herein), as hazardous (including all "Hazardous Substances" as defined herein) (any of which is hereafter referred to as a "Hazardous Discharge"), or any complaint, order, directive, claim, citation or notice by any governmental authority (including any "Notice" as defined herein) or any other person or entity (including any "Environmental Agency" as defined herein) with respect to the following events or matters occurring prior to the Landlord and Tenant entering into this Lease and/or during the term of this Lease: (a) air emissions, (b) spills, releases or discharges to soils or any improvements located thereon, surface water, ground water or the sewer, septic system or waste treatment, storage or disposal systems servicing the Premises, (c) -67- noise emissions, (d) solid or liquid waste disposal, (e) the use, generation, storage, transportation or disposal of toxic or hazardous substances or wastes (f) other Environmental, Health and Safety Matters (as defined herein) affecting Tenant, the Premises, any improvements located thereon, or the business therein conducted or, (g) violations of any Environmental Law or Environmental Permit (any of which is hereafter referred to as an "Environmental Complaint"), then Tenant at its sole expense shall give immediate notice to Landlord. Subject to Landlord's rights and obligations hereinafter provided, Tenant shall initiate and complete all steps and actions necessary or advisable to cleanup, remove, restore, resolve and minimize the impacts of any Hazardous Discharge or Environmental Complaint and to otherwise comply and cause the Premises to comply with any Environmental Law or Environmental Permit pertaining to the Premises. (b) Without limitation of the foregoing, Landlord shall have the option, but shall not be obligated, to exercise any of its rights as provided in this Lease, and may enter onto the Premises and/or take any actions as it deems necessary or advisable upon notice to Tenant (except no notice shall be required in emergent situations) to cleanup, remove, resolve or minimize the impact of, or otherwise deal with, any Hazardous Discharge or Environmental Complaint or otherwise to comply and cause the Premises to comply with any Environmental Law or Environmental Permit, upon and after Landlord's receipt of any notice from any person or entity asserting the happening of a Hazardous Discharge or an Environmental Complaint or a violation of an Environmental Law or Environmental Permit on or pertaining to the Premises. All costs and expenses incurred by Landlord in the exercise of any such rights shall be deemed to be additional rent hereunder. Section 22.2. LIEN. If any federal, state or local agency imposes a lien in a liquidated amount upon the Premises or any portion thereof by reason of the occurrence of a Hazardous Discharge or Environmental Complaint at the Premises or Tenant's failure to perform as required under this Lease then Tenant shall within thirty (30) days thereafter either (i) eliminate or satisfy such lien or (ii) post security or financial assurances in form and amount reasonably satisfactory to Landlord to secure against enforcement of the lien. As to liens in unliquidated amounts, Tenant shall act promptly and in good faith to obtain the removal or satisfaction of such lien. -68- Section 22.3. REPORTS. (a) Tenant shall promptly provide to Landlord true, accurate and complete copies of any and all documents, including reports, submissions, notices, orders, directives, findings and correspondence made by Tenant to New Jersey's Department of Environmental Protection ("NJDEP") [or CT or NY counterparts], the United States Environmental Protection Agency ("EPA"), the United States Occupation Safety and Health Administration ("OSHA") or any other federal, state or local authority pursuant to any federal, state or local law, code or ordinance and all rules and regulations thereunder which require or involve information and submissions concerning Environmental Health and Safety Matters (including any "Environmental Law" as defined herein). (b) Without limitation of the foregoing, Landlord and Tenant shall promptly furnish to the other: (i) true and complete copies of all documents, submissions, and correspondence provided to or received from any environmental agencies; (ii) true and complete copies of any Notice; (iii) true and complete copies of all sampling and test results obtained from samples and tests taken in and around the Premises; and (iv) notice of the date and time of all meetings with any Environmental Agency. Section 22.4. RIGHTS. Upon reasonable notice to Tenant, Tenant shall give any representatives of Landlord access during normal business hours to, and permit any of them to examine, audit, copy or make extracts from, any and all books, records and documents in possession of Tenant, its agents or any independent contractor relating to Tenant's or the Premises environmental, health or safety affairs and to inspect the Premises. Section 22.5. COMPLIANCE. (a) Upon any and every appropriate occurrence, Tenant shall, at Tenant's expense, promptly comply with all laws and regulations governing sales, transfer or cessation of operations at a place of business including the Industrial Site Recovery Act N.J.S.A. 13: 1K-6 ET SEQ., The Connecticut Transfer Act, and -69- the Connecticut General Statute Section 22a-134 ET SEQ. if applicable, and any other law, rule or regulation or legal requirement applicable to the Premises by reason of which law there is a requirement for sampling, investigation, remediation and/or filings concerning the environmental condition of the Premises, as to all events happening after the date of this Lease (collectively "ISRA"). (b) At no expenses to Landlord, Tenant shall promptly provide all information requested by Landlord to determine ISRA applicability to the Tenant (or any subtenant or assignee of Tenant) and shall promptly sign affidavits evidencing any and all facts relevant to that determination when requested by Landlord. (c) Tenant and Landlord shall immediately furnish to the other party true and complete copies of all documents, reports, submissions, notices, orders, directives, findings and correspondence and other materials pertinent to compliance with ISRA as such are issued or received by such party. Tenant and Landlord shall also promptly furnish to the other party true and complete copies of all sampling and test results obtained from all environmental and/or health samples and tests taken at and around the Premises. Section 22.6. Intentionally Omitted. Section 22.7. INDEMNIFICATION. Landlord and Tenant acknowledge that Tenant, or Affiliates of Tenant, have been in use and occupancy of the Premises for several years prior to entering into this Lease. Accordingly, Tenant agrees that Landlord shall have no liability for any Hazardous Discharge or Environmental Complaint, or for compliance with any Environmental Law or Environmental Permit relative to the Premises, on account of any action or omission by Landlord or others either prior to this Lease or arising during the term of this Lease (other than on account of Landlord's negligence or willful misconduct). Tenant hereby further agrees, at its sole cost and expense, to defend, indemnify and hold Landlord harmless from and against any and all claims, lawsuits, liabilities, losses, damage and expenses (including, without limitation, cleanup costs and reasonable attorney's fees arising by reason of any of the aforesaid or an action against the Tenant under this indemnity) of any kind or nature whatsoever by whomsoever asserted which may at any time be imposed upon, incurred by or asserted or awarded against Landlord, Joseph -70- C. DiFeo or Samuel X. DiFeo arising directly or indirectly from, out of or by reason of any breach of this Article 22 occurring during the term of this Lease, or arising out of: (a) Use of the Premises (or any part thereof) for the storage, treatment, generation, transportation, processing, handling, production or disposal of any Hazardous Substance or as a landfill or other waste disposal site or for manufacturing or industrial purposes (or any part thereof); (b) Presence of any Hazardous Substances or a Release or the threat of a Release on, at or from the Premises (or any part thereof); (c) Appropriate and necessary investigative, containment, removal, clean up and other remedial actions with respect to a Release or the threat of any Release on, at or from the Premises (or any part thereof); (d) Human exposure to any Hazardous Substance to the extent the same arise from the condition of the Premises (or any part thereof) or the use or operation thereof; (e) Violation of any applicable Environmental Law; (f) Non-compliance with any Environmental Permit; and (g) Failure to perform any covenant made by a Tenant pursuant to the terms of this Article 22. The liability of Tenant hereunder shall in no way be limited, abridged, impaired or otherwise affected by: 1. Any amendment or modification of this Lease; 2. Any extensions of time for payment or performance required by Tenant under the Lease; 3. The release of any Guarantor or any other person from the performance or observance of any of the agreements, covenant, terms or conditions contained in the Lease; 4. Any investigation or inquiry conducted by or on the behalf of Landlord or any agent of Landlord during -71- the Term or any information which Landlord or any agent of Landlord may obtain with respect to the environmental or ecological condition of the Premises (or any part thereof); 5. The granting of a Fee Mortgage on the Premises; 6. The sale, transfer, conveyance or lease of the Premises (or any part thereof), or the assignment of the Lease by Landlord, or the assignment or sublease of the Lease, as provided for herein, by Tenant; 7. The dissolution or liquidation of any entity; and/or 8. Any other circumstances which constitutes a legal or equitable release or discharge, in whole or in part, of Tenant under this Article 22 of this Lease and as to which Tenant may not lawfully waive the effect of such circumstance. Section 22.8. (a) ENVIRONMENTAL MANAGER. In the event Landlord shall exercise its rights under Section 22.1(b) above, Tenant hereby appoints Landlord, which appointment shall be effective, if at all, only during the last three (3) years of the Term, (which position may be delegated by Landlord) as the manager of all environmental issues and Environmental Claims. The Landlord's rights under these provisions are notwithstanding the provisions of any other agreement to the contrary, and are intended to give the Landlord the unfettered discretion to act practically and in a cost efficient manner to deal with such issues effectively, over such period as Landlord deems appropriate, choosing from the available alternatives as Landlord deems appropriate, without interference or hindrance from any other party as long as the Landlord's actions satisfy the requirements of any Environmental Agency. Without limitation of the foregoing, but by way of explication, the Landlord shall have the following rights: (i) LICENSE. To the extent necessary or advisable in the Landlord's opinion to permit the Landlord to exercise rights under this Article, the Tenant shall permit the Landlord full and non-exclusive use, occupancy, possession and enjoyment of the Premises, for purposes including the installation and operation of permanent improvements, and the sampling, removal and -72- remediation of soils, groundwater and improvements, at reasonable times and in a reasonable manner, using reasonable efforts to minimize the intrusion upon and inconvenience to the Tenant and its ongoing operations, without charge or liability of any kind (whether by reason of a breach of the obligation to be reasonable or otherwise) for the interference with the business of the Tenant resulting from the exercise of such rights. (ii) CONTROL. The Landlord shall have the right to: (a) control the investigation and remediation of any Environmental Claim, decide among available alternatives for remediation or correction (including the right to choose inaction, or alternatives which result in higher operational expenses as opposed to capital expenses); (b) initiate, assume and control the prosecution or defense of any action, proceeding, litigation or suit involving an Environmental Claim; (c) settle or compromise any Environmental Claim; (d) exercise its rights under this Article, to bind the Tenant after consultation with Tenant; and (e) hire lawyers, consultants, advisors and contractors acceptable to the Landlord. The Landlord may cause Tenant to incur expenses by acting in its name, or it may incur expenses itself, all of which are subject to reimbursement in accordance with Subparagraph 22.7. (iii) COOPERATION. Tenant shall cooperate in all respects with the exercise by Landlord of its rights hereunder and shall not interfere with the implementation of decisions made by Landlord hereunder. Tenant and its Affiliates shall not initiate contact directly or indirectly with any Environmental Agency in a manner intended or likely to result in the initiation of an enforcement action or in interference with decisions of Landlord unless such contact is required by law and failure to initiate contact will subject the Tenant or its Affiliates to civil or criminal penalties. Tenant may retain and consult with its own experts and lawyers concerning the performance by the Landlord of its rights and obligations. -73- (iv) BOUND BROOK. Without limitation of the foregoing, the Landlord may arrange to cause the move of any automobile franchise operated by any Tenant from the present Bound Brook Premises to another location mutually acceptable to the parties hereto in order to permit more efficient investigation and or remediation of the Bound Brook site. (v) Intentionally Omitted. (vi) Intentionally Omitted. (b) Notwithstanding any other provision of this Article, Tenant agrees to cooperate with Landlord with respect to any environmental matters, shall keep Landlord fully apprised in this regard and shall provide Landlord with copies of any reports, investigations or Notices received or undertaken relative to the Premises. (c) DISCLAIMER. The transactions covered by this Agreement and all other agreements between or among any or all parties hereto involve properties and operations that are conveyed "AS IS, WHERE IS.", and are subject only to any specific representations, warranties or covenants made herein. Tenant is aware that the Premises have had instances of environmental contamination or noncompliance and Tenant has been given authority acceptable to Tenant to conduct investigations and due diligence independent of this Lease to determine the nature and extent of such conditions and has determined to proceed with the transactions contemplated hereunder subject to the provisions of this Lease. As noted above, Tenant, or Affiliates of Tenant, have been in use and occupancy of the Premises for several years prior to entering into this Lease. In no event shall there by any liability of Landlord, Joseph C. DiFeo or Samuel X. DiFeo for lost profits, consequential damages or otherwise by reason of any Environmental Claim or by reason of the Landlord's or Dealership's actions or omissions under or by reason of any Environmental Claim or this Lease. Section 22.9. SURVIVAL. Tenant's obligations under this Lease shall survive the expiration or sooner termination of this Lease. ARTICLE XXIII -74- NOTICES; CONSENTS Section 23.1. NOTICES. Any notice, demand, request, approval or other communication (a "NOTICE") which, under the terms of this Lease or under any statute, must or may be given by the parties hereto, must be in writing, and must be given by mailing the same by registered or certified mail, return receipt requested, postage prepaid, addressed to the respective parties as follows: If to Landlord: Samuel X. DiFeo 121 Lorraine Avenue Spring Lake, New Jersey 08755 with a Copy to: Arnold & Porter 399 Park Avenue New York, New York 10022 Attn: Michael J. Canning If to Tenant: United Auto Group, Inc. 375 Park Avenue Suite 2201 New York, New York 10022 Attn: Philip Smith with a Copy to: Edward McKenzie Bressler Amery & Ross 325 Columbia Turnpike Florham Park, N.J. 07932 Either party, and the holder of any Mortgage or Fee Mortgage who shall have made the request referred to in the last sentence of this Section 23.1, may designate by notice in writing given in the manner herein specified a new or other address to which a notice shall thereafter be so given. All notices shall be deemed given when received. If requested in writing by the holder of any Mortgage or Fee Mortgage (which request shall be made in the manner provided in this Section 23.1 and shall specify an address to which notices -75- shall be given) any such notice shall also be given contemporaneously to such holder in the manner herein specified. Section 23.2. LANDLORD'S CONSENT. (a) No consent, approval or other exercise of discretion (a "Consent") by Landlord shall, unless this Lease specifies that such Consent is within Landlord's sole discretion, be unreasonably withheld or refused. If Landlord shall fail to respond to any request by Tenant for any Consent, within twenty (20) days after the date of such request, and within ten (10) days after a further notice from Tenant, stating that it is a "Second Notice" and referring to this Section, such request shall be conclusively deemed to have been approved by Landlord. In any refusal to grant Consent, Landlord shall specify in reasonable detail the reasons for its refusal. Any dispute between the parties as to whether Landlord should have granted a Consent shall be resolved by ADR in the manner described in Article 18. (b) With respect to any provision of this Lease which provides, in effect, that Landlord shall not unreasonably withhold, delay or refuse its consent, Tenant, in no event shall be entitled to make, nor shall Tenant make, any offset against rent otherwise due nor shall Tenant withhold any rent otherwise due pursuant to the terms of this Lease based upon any claim or assertion by Tenant that Landlord has unreasonably withheld, refused or delayed any consent or approval; but, unless Landlord's unreasonable withholding, refusal or delay is arbitrary, capricious or in bad faith (in which event Tenant's rights and remedies against Landlord shall not be so limited), Tenant's sole remedy shall be an action or proceeding to enforce any such provision, or for specific performance, injunction or declaratory judgment. ARTICLE XXIV QUIET ENJOYMENT Section 24.1. QUIET ENJOYMENT. Subject to the terms of this Lease, Tenant, upon paying the Base Rent, additional rent and all other charges herein provided for and upon observing and keeping all of the covenants, agreements and provisions of this Lease on its part to be observed and kept, shall lawfully and quietly hold, occupy -76- and enjoy the Premises during the Term without hindrance or molestation. ARTICLE XXV INVALIDITY OF PARTICULAR PROVISIONS Section 25.1. INVALIDITY. If any provision of this Lease or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. ARTICLE XXVI BROKERAGE Section 26.1. BROKERAGE. Each party represents and warrants to the other that it has dealt with no broker or finder in connection with this Lease. Each party agrees to indemnify and hold harmless the other party from and against any claims, liabilities, suits, actions, loss, damage or expense (including attorneys, fees and disbursements) resulting from any breach of the foregoing representation and warranty. ARTICLE XXVII MEMORANDUM OF LEASE Section 27.1. MEMORANDUM OF LEASE. Each party shall execute and deliver, and Tenant may at any time record in the appropriate land records, a notice or memorandum of this Lease in recordable form reasonably acceptable to both parties. From time to time, promptly at the request of either party, each party shall execute and deliver, and the requesting party may thereafter record in the appropriate land records, an amendment or modification to such notice or memorandum of lease in recordable form reasonably acceptable to both parties. This Lease shall not be recorded. Upon any termination of this Lease, Tenant shall, within ten (10) -77- days after demand, execute and deliver to Landlord a document sufficient to discharge of record any such notice or memorandum. ARTICLE XXVIII MISCELLANEOUS Section 28.1. NO ORAL MODIFICATIONS. This Lease may not be modified or amended except by a writing executed by both parties. Section 28.2. GOVERNING LAW. This Lease shall be governed by and shall be construed in accordance with the laws of the State in which the Premises is located. Section 28.3. UNAVOIDABLE DELAYS. If, during the term of this Lease, either party shall be prevented or delayed from punctually performing any obligations or satisfying any conditions of this Lease by any strike, lockout, labor dispute, inability to obtain labor or materials, Act of God, legal requirements, governmental restriction, regulation or control, enemy or hostile action, civil commotion or other condition beyond the reasonable control of such party, then the time to perform such obligation or satisfy such condition shall be extended by the delay caused by such event. If either party shall, as a result of any such event, be unable to exercise any right or option contained in this Lease within any time period provided for in this Lease, such time period shall be deemed extended for a period equal to the duration of the delay caused by such event. Nothing herein contained shall apply to either party's obligations to pay monies to the other party (including, as to Tenant, a failure by Tenant to pay any Base Rent or Additional Rent due under this Lease). Section 28.4. SUCCESSORS AND ASSIGNS. The covenants and agreements herein contained shall bind and inure to the benefit of Landlord and Tenant and their respective successors and assigns (but, in the case of Tenant, only permitted assigns). Section 28.5. CONSTRUCTION. The terms "include", "including" and similar terms as used herein, shall be construed as if followed by the phrase "without limitation". All reference in this Lease to Articles, Sections, subsections or Exhibits shall be deemed references to -78- Articles, Sections or subsections of or Exhibits to and incorporated into this Lease, unless expressly provided to the contrary. Section 28.6. NO JOINT VENTURE. Landlord and Tenant agree that they are not partners or joint venturers by reason of this Lease. Section 28.7. AUTHORIZATION. The person and entity signing this Lease for Landlord and Tenant, respectively, each represents and warrants that this Lease has been duly authorized, executed and delivered by Landlord and Tenant, as the case may be. Section 28.8. RELATIONSHIP OF LANDLORD TO TENANT. Landlord, an Affiliate of Landlord, or persons comprising Landlord, may be a stockholder, partner or the like in Tenant or an Affiliate of Tenant, which fact shall not impose any duty or obligation (fiduciary or otherwise) on the Landlord in acting as landlord under this Lease, it being specifically understood and agreed that Landlord shall have the right to do or not do anything with respect to this Lease to the same extent as if Landlord, an Affiliate of Landlord or persons comprising Landlord were not a stockholder, partner or the like with or in Tenant or any Affiliate of Tenant. Section 28.9. NO SERVICE. Landlord will furnish no services of any kind in or to the Premises. All required services shall be procured by Tenant at its cost and expense. Section 28.10. NO ABATEMENT UNLESS SPECIFIED. Except as may be otherwise expressly provided in this Lease there shall be no abatement or reduction of rents or other charges payable by Tenant under this Lease because of inconvenience, interruption, cessation or loss of business or otherwise, caused directly or indirectly by any present or future laws, rules, requirements, orders, directions or regulations or any governmental authority whatever or by priorities, rationing or curtailment of labor or materials or by war or any manner or thing resulting therefrom, or by any other cause or causes, nor shall this Lease be affected by any such causes. Section 28.11. CAPTIONS. The captions herein are for convenience of reference only and shall not be deemed to -79- define, limit or describe the scope or intendment of any provision of this Lease. Section 28.12. SURRENDER. Neither acceptance of the keys nor any other act or thing done by Landlord or any agent or employee of Landlord during the term of this Lease shall be deemed to be an acceptance of a surrender of the Premises. Surrender of the Premises can only be affected by agreement in writing signed by Landlord accepting or agreeing to accept such a surrender. Section 28.13. LANDLORD FOR TIME BEING. The term "Landlord" means the owner, at the applicable time, of the Premises. If the named Landlord or any successor landlord shall convey the Premises or transfer its interest therein and the assignee shall assume Landlord's obligations hereunder, the assigning Landlord shall thereupon cease to be liable for any subsequently accruing obligations under this Lease. Section 28.14. NON-RECOURSE. There shall be absolutely no personal liability on the part of the Landlord, its partners, shareholders, officers, directors, agents and employees or their successors or assigns with respect to any of the terms, covenants and conditions of this Lease or with respect to any act, omission or negligence of the Landlord. Tenant shall look solely to Landlord's estate and property in the Premises and net proceeds therefrom for the satisfaction of Tenant's remedies for the collection of any judgment or any other judicial process requiring the payment of money by Landlord, and no other property or assets of Landlord shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to this Lease, the relationship of Landlord and Tenant or Tenant's use of occupancy of the Premises. Section 28.15. CROSS-DEFAULT; CROSS- COLLATERALIZATION. (a) Any one or more events constituting a default by Tenant hereunder or by Tenants under any Affiliate Leases or Affiliate Subleases shall, at Landlord election, constitute a default under this Lease and all Affiliate Leases and Affiliate Subleases. (b) Any item of security under this Lease or any Affiliate Lease or Affiliate Sublease shall constitute security under all such Leases and Subleases. -80- Section 28.16. LEASE MODIFICATIONS. Tenant agrees that in the event any Institutional Fee Mortgagee shall require modifications to this Lease in connection with the granting of a Fee Mortgage to Landlord, Tenant shall reasonably cooperate with such Institutional Fee Mortgage and Landlord to effectuate such modifications, and shall execute any reasonable Lease amendment or Lease modification relative thereto; provided, however, that any such amendment or modification shall not increase any financial obligations or materially increase any obligations or decrease any rights of Tenant under this Lease. Section 28.17. LANDLORD ASSIGNMENT. Anything herein to the contrary notwithstanding Landlord shall have the right to assign this Lease, without the prior consent of Tenant, provided any such assignee shall execute, acknowledge and deliver to Tenant an agreement assuming all obligations and performance of this Lease to be rendered by Landlord from and after the effective date of such assignment, other than the Landlord Guaranty if such assignee is not an Affiliate of Landlord. ARTICLE XXIX LEASE GUARANTIES Section 29.1. TENANT GUARANTY. (a) In order to induce Landlord to enter into the Lease, and Affiliates of Landlord to enter into Affiliate Leases and Affiliate Subleases, Tenant agrees to unconditionally guarantee to each Landlord of an Affiliate Lease and an Affiliate Sublease (a) the full prompt and unconditional payment of all sums owed by each Tenant (and each successor and assign of such Tenant with respect to its interest therein) pursuant to such Affiliate Lease and Affiliate Sublease (which includes, but is not limited to, the Annual CTT Payments) which may become due under such Affiliate Lease and Affiliate Sublease; and (b) the full, prompt and unconditional performance of every obligation of each Tenant (and each successor and assign of such Tenant with respect to its interest therein) to be performed under such Affiliate Lease and Affiliate Sublease. The Tenant hereby agrees that if any amount as aforesaid is not paid under any Affiliate Lease or Affiliate Sublease when and as the same shall be due and payable, or if any obligation under any Affiliate Lease or Affiliate Sublease is not fully performed on a timely manner, the Tenant shall, from an after the Performance Date (as hereinafter defined) cause such amount -81- to be paid or cause such performance to be rendered, as if the same were to be paid or performed by the Tenant hereunder. The term "Performance Date" shall mean, with respect to each Affiliate Lease or Affiliate Sublease, the date upon which an Event of Default (as defined therein) shall have occurred under such Affiliate Lease or Affiliate Sublease with respect to which Event of Default the Landlord thereunder shall be entitled to proceed to exercise the rights and remedies provided for therein upon the occurrence of such Event of Default without the requirement under such Affiliate Lease or Affiliate Sublease to give any further notice of default to the Tenant thereunder, and any applicable grace period provided to such Tenant shall have expired. (b) The obligations of the Tenant pursuant to this Guaranty shall be absolute and unconditional, irrespective of any (a) legal or equitable defense; (b) discharge of one or more Tenants from its obligations under their respective Affiliate Lease or Affiliate Sublease; (c) the validity or enforceability of the any Affiliate Lease or Affiliate Sublease or any provision thereof; (d) the absence or delay of any action to enforce the provisions of any Affiliate Lease or Affiliate Sublease; and (e) any assignment of any Affiliate Lease or Affiliate Sublease of the premises subject thereto. (c) The Tenant hereby waives (a) all demands for payment or performance hereunder, notice of acceptance of this Guaranty and all other notices in connection herewith or in connection with the liabilities, obligations and duties guaranteed hereby, including notices of default by a Tenant or Tenants under any Affiliate Lease or Affiliate Sublease or any of them and waives diligence, presentment and suit on the part of any Landlord in the enforcement of any liability, obligation or duty guaranteed hereby; and (b) any right to have the Landlords proceed against the defaulting Tenant(s) (or their successors or assigns with respect to their interests under any Affiliate Lease or Affiliate Sublease) under any Affiliate Lease or Affiliate Sublease or any other guarantor of the Tenant's obligations under any Affiliate Lease or Affiliate Sublease before proceeding against the Tenant, or any right to have the Landlords enforce their rights against any Tenant, any other guarantor of the Tenant's obligations under any Affiliate Lease or Affiliate Sublease and/or exhaust any collateral security securing the Tenant's performance thereunder. Suit may be brought and maintained against the Tenant by any -82- Landlord under any Affiliate Lease or Affiliate Sublease to enforce any liability, obligation or duty guaranteed hereby without joinder of any other Tenant or other person. This Guaranty shall not be discharged except by the full performance of all obligations and liabilities of all Tenants under the Affiliate Lease or Affiliate Sublease. (d) The Landlords under any Affiliate Lease or Affiliate Sublease may deal with their respective Tenants in the same manner and as freely as if this Guaranty did not exist, and shall be entitled to grant to their respective Tenants such extension of time to perform any of their obligations pursuant to their respective Affiliate Lease or Affiliate Sublease from time to time and at any time, without in any way affecting, impairing, releasing or modifying, limiting or discharging, in whole or in part, the Tenant's liability and obligations hereunder. Such Landlords shall have the full right in their sole discretion and without any notice to their respective Tenants, from time to time and at any time, without affecting the liability and obligations of the Tenants hereunder, to make any change, amendment or modification whatsoever in any term or condition of the respective Affiliate Lease or Affiliate Sublease. Furthermore, no impairment, change, release or limitation of the liability of any or some of the Tenants in bankruptcy or any remedy for the enforcement thereof, resulting from the operation of any present or future provision of the Bankruptcy Code (11 U.S.C. Section 101 et seq.), or any similar law or statute of the United States or any state thereof shall impair, modify, change, release or limit in any manner the liabilities and obligations of the Tenant hereunder. (e) This Guaranty shall be binding upon the Tenant an its respective successors and assigns. Nothing contained in the preceding sentence shall be deemed to impose upon any assignee or subtenant of Tenant's interest in the Lease the obligation to guarantee contained herein. 29.2. UAG GUARANTY. This Lease and all Tenant's obligations hereunder are guaranteed in all respects and in all events pursuant to the UAG Guaranty, a copy of which is attached hereto as Exhibit __. 29.3. TRACE GUARANTY. This Lease and all Tenant's obligations hereunder are further guaranteed to the extent provided in the Trace Guaranty, a copy of which is attached hereto as Exhibit ____. -83- IN WITNESS WHEREOF, Landlord and Tenant have duly executed and delivered this Lease as of the day and year first above written. LANDLORD: FAIR REALTY COMPANY By:_________________________ Name:_______________________ Title:______________________ TENANT: [UNITED AUTO GROUP, INC. OR INDIVIDUAL PARTNERSHIP (to be determined)] By:_________________________ Name:_______________________ Title:______________________ -84- SCHEDULE OF LEASES 1. Lease between Boundbrook Realty Associates, as Landlord, and Somerset Motors Partnership, as Tenant Rent -- $71,799 per month as of October 1, 1995 Property Description -- The automobile dealership buildings of approximately 25,600 square feet and 18,200 square feet, respectively, along with parking, display and storage areas located on Lot 2, Block 7201 in the Township of Bridgewater, Somerset County, New Jersey 2. Lease between Rockland Realty Associates, as Landlord, and Rockland Motors Partnership, as Tenant Rent -- $12,901 per month as of October 1, 1995 Property Description -- 73, 75 and 77 North Highland Avenue, Nyack, New York 10960. 3. Lease between SDJD 37 Realty, Inc., as Landlord, and OCM Partnership, t/a Gateway Mitsubishi, and OCT Partnership, t/a Gateway Toyota, as Tenants Rent -- $34,030 per month as of October 1, 1995 Property Description -- Lot 6.01 in Block 691; Lot 28 in Block 691, and Lot 1 in Block 690.01, Dover Township, Ocean County, New Jersey. 4. Lease between Gateway Associates, as Landlord, and OCT Partnership t/a Gateway Toyota Rent -- $18,697 per month Property Description -- Lot 12.01, Block 691, Dover Township, Ocean County, New Jersey 5. Lease between J & S Equity Associates, as Landlord, and DiFeo Nissan Partnership, as Tenant Rent -- $27,817 per month as of October 1, 1995 Property Description -- 126, 181-187 Roosevelt Avenue; 29 Marcy Avenue; 909, 911-913, 915-921 and 967-983 Communipaw Avenue 6. Lease between J & S Equity urban Renewal Corp., as Landlord, and Hudson Motors Partnership, as Tenant Rent -- $30,000 per month as of October 1, 1995 Property Description -- Block 1290.1, Lot A.1 on the Tax Map of Jersey City, Hudson County, New Jersey 7. Lease between J & S Associates, as Landlord, and Hudson Motors Partnership, as Tenant Rent -- $40,000 per month as of October 1, 1995 Property Description -- Block 1290.1, Lot A.2 on the Tax Map of Jersey City, Hudson County, New Jersey 8. Lease between J & S Equity Associates, as Landlord, and DiFeo Chevrolet-Geo Partnership, DiFeo Jeep-Eagle Partnership and DiFeo Hyundai Partnership, as Tenants Rent -- $57,000 per month as of October 1, 1995 Property Description -- 599 U.S. Route 440, known as Lots 10K1 & 10K2, Block 1751, Tax Map of City of Jersey City, Hudson County, New Jersey 9. Lease between Fair Realty Company, as Landlord, and Danbury-Mt. Kisco Saturn Partnership, Danbury Auto Partnership, and Fair Chevrolet-Geo Partnership, as Tenants Rent -- $80,000 per month as of October 1, 1995 Property Description -- 102 Federal Road, Danbury, Connecticut, more particularly described as a portion of the following described land currently used as the Fair Cadillac-Oldsmobile-Isuzu car dealership (i.e., List 6759, Lot 0009). 10. Lease between Fair Realty Company, as Landlord, and Danbury-Mt Kisco Saturn Partnership, Danbury Auto Partnership, and Fair Chevrolet-Geo Partnership, as Tenants Rent -- $7,505 per month as of October 1, 1995 Property Description -- Federal Road, Danbury, Connecticut (i.e., List 6758, Lot 0007). -2- EX-10.2-29 19 EXHIBIT-10.2.29 THIS LEASE entered into this 27th day of September, 1990, by and between J & F ASSOCIATES and TJGHCC ASSOCIATES, Connecticut Partnerships having offices in the Town of Danbury, County of Fairfield and State of Connecticut (hereinafter cumulatively called "Lessor"), both acting herein by JOHN D. D'ELIA, General Partner and FAIR IMPORTS CORP. d/b/a FAIR ACURA, a Connecticut Corporation having its principal office in the City of Danbury, County of Fairfield and State of Connecticut (hereinafter called "Lessee"). ARTICLE I Premises 1.1 Lessor, in consideration of the rent hereinafter reserved and of the agreements and covenants herein contained on the part of the Lessee to be kept, performed and fulfilled, has demised and leased, and by these presents does demise and lease, unto Lessee and Lessee does hereby accept such leasehold interest in reliance upon the agreements and covenants herein contained on the parts of Lessor to be kept and performed on the terms and subject to the limitations and conditions herein expressed, all that certain tract of land with the buildings and improvements thereon more particularly described in Exhibit A attached hereto and made part hereof, together with Lessors' right, title and interest in and to all occupancy agreements and Leases listed on Exhibit B attached hereto and made part hereof. The Building occupied by Lessee, together with the land upon which it is located as described in Exhibit A, are hereinafter collectively called the demised premises. Said premises are subject (insofar as the same may be in effect or applicable) to: (a) Building restrictions and regulations now in force and present and future zoning laws, ordinances, resolutions and regulations affecting the demised property and all present and future ordinances, laws, regulations and orders of all boards, bureaus, commissions and bodies of any municipal, county, state or federal sovereigns, now or hereafterhaving acquired jurisdiction of the demised premises and the use and improvement thereof. (b) Violation of law, ordinances, orders or requirements that might be disclosed by an examination and inspection or search of the demised premises by any federal, state or municipal departments or authority having jurisdiction, as the same may exist on the date of the commencement of the term of this Lease, subject to the provisions of Paragraph 5.1(C), (D), (E) and (F) hereof. (c) The condition and state of repair of the demised premises as the same may be on the date of the commencement of the term of this Lease. (d) Any state of facts which an accurate survey of the demised premises may show, provided such does not render title unmarketable. Lessor represents that the survey attached hereto as Exhibit A is a true and accurate representation of the premises. (e) All taxes, assessment, water charges and sewer rents, accrued or unaccrued, fixed or not fixed, not yet due and payable. (f) Covenants, easements, restrictions, utility and other agreements of record, provided such do not prohibit the intended -2- use of the premises, contain forfeiture or divestment clauses or render title unmarketable. ARTICLE II Term 2.1 The term of this Lease shall be for a period of ten (10) years, commencing on the day of closing of the purchase contract between COLONIAL SUZUKI, INC. and ACCURATE MOTORS, INC. and JAMES G. HETHERINGTON dated March 27, 1990 (hereinafter the "Purchase Agreement"). 2.2 Lessee shall have the option to cancel this Lease effective on the 61st through the 63rd months of the Lease if Lessee gives Lessor six (6) months prior notice of the exercise of this option to cancel and pays to Lessor the sum of Two Hundred Thousand ($200,000.00) Dollars in five (5) equal monthly payments of $40,000.00 commencing on the effective date of the cancellation and on the monthly anniversaries thereof. Time shall be of the essence with regard to the exercise of this option. In the event that the option is not exercised within the time periods provided herein, it shall be of no further force and effect. Once the option to cancel is exercised, Lessor shall have the right to show the premises to prospective tenants and/or prospective purchasers at reasonable times. 2.3 The Lessor grants to Lessee an option to extend the within Lease for two periods of five (5) years each at the end of the basic term hereof conditioned upon Lessee's not being in default under any of the terms and conditions of this Lease. The terms and conditions of the Lease during each of such option periods shall be the same as those set forth in the within Lease, -3- except for the rent and except that there shall be no further rights of extension. In order to exercise each of the options set forth herein, Lessee must give written notice of its intention to exercise at least six (6) months prior to the commencement of each of said option periods, which notice shall be by registered or certified mail and time is of the essence with regard to such notice. The monthly rent payable during the first option period shall be the lesser of $49,500.00 or one (1%) percent of the fair market value of such premises, but in no event shall such monthly rent during such first option period be less than $47,000.00 per month. If the parties cannot agree upon such new rent sixty (60) days prior to the effective date of each option period each party shall then appoint an MAI Appraiser and such two appraisers shall establish the Fair Market Value of the premises leased hereunder for such option period. In the event that the two appraisers shall be unable to agree on said fair market value, they shall choose a third appraiser whose decision on such fair market value shall be binding, such appraisal to be no lower than the lower of the two appraisals nor higher than the higher of the two appraisals. In the event that the Lessee shall exercise its second option to extend, then the monthly rent payable during the second option period shall be the lesser of $51,500.00 or one (1%) per cent of the fair market value of the Premises at the commencement of such second extended term, but in no event shall the rent be less than the rent paid during the first extended term. If the parties cannot agree upon such new rent sixty (60) days prior to the effective date thereof, then the fair market valuation shall be determined by the appraisers -4- as set forth in this Paragraph. During the second five-year option period the fair market value shall again be determined in the same manner as provided for during the first option period but utilizing the Sixteenth Lease Year instead of the Eleventh Lease Year. ARTICLE III Rental 3.1 Basic Annual Net Rent. In consideration of the leasing aforesaid, Lessee agrees to pay to Lessor as net basic rent for the demised premises the amounts set forth in this Article III. The monthly rental for the premises which shall be on the 1st day of each and every month in advance, shall be payable as follows: First Lease Year..................................$36,000.00 Second Lease Year.................................$36,000.00 Third Lease Year..................................$40,000.00 Fourth Lease Year.................................$40,000.00 Fifth Lease Year..................................$42,500.00 Sixth through Tenth Lease Years...................$47,000.00. 3.2 Net Rent: The Basic Annual Net Rent provided for in this Article shall be in addition to and over and above all other payments to made by Lessee as herein provided, it being the intention of the parties hereto that the Basic Annual Net Rent shall be absolutely Net to Lessor and that Lessee shall pay all costs and expenses relating to the premises. 3.3 Lease Year: The term "Lease Year" as used herein shall mean a period of twelve (12) consecutive calendar months, the first of which lease years shall commence on the date of closing of the Purchase Agreement previously described. Subsequent lease -5- years shall run consecutively, each commencing upon an anniversary of the commencement of the first lease year. Any period prior to the commencement of the first lease year shall be a partial lease year. 3.4 No Set Off: The Basic Annual Net Rent, and all other rental hereunder, shall be paid to Lessor without Notice or demand and without abatement, deduction or set-off unless otherwise provided. Lessee shall pay interest at the rate of twelve (12%) per cent per annum by law on any overdue installment which is not paid by Lessee for a period of ten (10) days, computed from the date such installment first became due. 3.5 Placement of Payment: Said basic Annual Net Rent and additional rent shall be paid in lawful money of the United States of America c/o John D'Elia, 289 Mason Street, Greenwich, Connecticut 06830, or at such other place as may hereafter be designated by Lessor in writing. 3.6 Additional Rental. All sums due and payable under this Lease other than Basic Annual Net Rent shall be additional rent. 3.7 Covenant to Pay. Lessee covenants to pay the above rent herein reserved and all other sums which may become due hereunder, or be payable by Lessee hereunder, at the times and in the manner in this Lease provided. 3.8 Allocation. One Thousand ($1,000.00) Dollars per Month shall be the rent allocated to property owned by TJGHCC and the balance to property owned by J & F. -6- ARTICLE IV Taxes and Assessments 4.1 Taxes. Lessee covenants and agrees to pay, as additional rent, before any fine, penalty, interest or cost may be added therefor for the payment thereof, except as provided in Section 4.6 of this Article, all real estate taxes, assessments, water rate and charges, and other governmental charges, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind and nature whatsoever, including but not limited to assessments for public improvements or benefits, which shall during the term hereby demised be laid, assessed, levied, confirmed or imposed upon or become due or payable or a lien upon the premises of which the demised premises are part or any part thereof (all of which taxes, assessments, water rates ???? charges, levies and other governmental charges are hereinafter referred to as "Impositions"); provided, however, that any imposition relating to a fiscal period of the taxing authority, a part of which period is included in a period of ?????? either prior to commencement or after the termination of ?????? term of this Lease, shall (whether or not, during the term of this Lease, such imposition shall be laid, assessed, levied, confirmed or imposed upon or become due or payable or a lien upon the demised premises or any part thereof) be adjusted as between Lessor and Lessee as of the commencement or termination of the term of this Lease, so that Lessor shall pay that proportion of such imposition which that part of such fiscal period included in the period of time before commencement or after the termination of the term of this Lease bears to such fiscal period, and Lessee -7- shall pay the remainder thereof. With respect to any imposition for public improvements or benefits which by law is payable, or at the option of the taxpayer may be paid in installments, Lessor shall pay the installments thereof which become due and payable subsequent to the termination of the term of this Lease, and Lessee shall pay those installments which become due and payable during the term of this Lease. The Lessee shall pay such taxes directly to the applicable taxing body and shall arrange with the cooperation of Lessor to have all bills sent directly to Lessee. 4.2 Tax on Rents. If, at any time during the term of this Lease, under the laws of the State of Connecticut or a political subdivision thereof, a tax or excise on rents or other tax, however described, is assessed or levied by said state or political subdivision against Lessor on the basic rent expressly reserved hereunder, as a substitute, in whole or in part, for taxes assessed or imposed by said state or political subdivision on land and buildings or on land or buildings, Lessee covenants to pay and discharge such tax or excise on rents or other tax but only to the extent of the amount thereof which, so far as is ascertainable, is a substitute, in whole or in part for taxes assessed or imposed by said state or political subdivision on land and buildings or on land or buildings, and is lawfully assessed or imposed upon Lessor and which was so assessed or imposed as a direct result of Lessor's ownership of the demised premises, or of this Lease or of the rentals accruing under this Lease, it being the intention of the parties hereto that the basic rent to be paid hereunder shall be paid to Lessee in full and without deduction of any amount whatsoever, except as in this -8- Lease otherwise expressly provided. The payment to be made by Lessee pursuant to this section shall be made before any fine, penalty, interest or cost may be added thereto for the non-payment thereof. Such tax or excise on rents or other tax shall be deemed to be an "imposition", as defined in Section 4.1 of this Article. 4.3 Personal Property Tax. Lessee shall pay all taxes assessed on fixtures and personal property installed by or for the Lessee in the demised premises or used by Lessee thereat and all taxes on improvements made by or for the Lessee in and to the demised premises even though the same may be assessed against the Lessor. 4.4 Proof of Payment. Lessee shall make all tax payments within thirty (30) days after receipt of bills from the taxing authority. If the holder of Lessor's existing mortgage so requires Lessee shall pay to such mortgage holder one-twelfth (1/12) thereof monthly in advance, together with its monthly payment of the net basic rent. After each lease year, Lessor shall furnish Lessee with a statement in reasonable detail of the actual imposition of taxes incurred by Lessor during such period. Thereupon, there shall be an adjustment between Lessor and Lessee with payment to or repayment by Lessor, as the case may require, to the end that Lessor shall receive the entire amount of Lessee's pro rata share of such costs and expenses for such period and no more. 4.5 Evidence of Tax. The certificate, advice or bill of the appropriate official designated by law to make or issue the same or to receive payment of any such imposition, or the non- -9- payment of any such imposition, shall be prima facie evidence that such imposition is due and unpaid at the time of the making or issuance of such certificate, advise or bill. 4.6 Nothing herein contained shall require Lessee to pay municipal, state or Federal income taxes assessed against Lessor, municipal, state or Federal capital levy, estate, succession, inheritance or transfer taxes of Lessor, nor corporation franchise taxes imposed upon any corporate owner of the fee of the Premises. ARTICLE V BUILDING 5.1. Lessor represents, warrants and covenants to Lessee as of the Commencement Date that: (A) During the period between the date of this Agreement and the Commencement Date, Lessor shall, at Lessor's sole cost and expense, keep the Property in reasonably good repair and conditions as is commercially prudent in Danbury for similar Property and that on the Commencement Date the property shall be in substantially the same condition as the Property is at the date of this Lease, reasonable wear and tear, damage by fire, or condemnation as provided below, excepted. (B) Lessor is sole owner of the good, record and marketable title to the Premises, has full authority to enter into this Lease and to perform all of its obligations hereunder. The execution and delivery of this Lease and the performance by Lessor of its obligations hereunder have been duly authorized by _________ requisite action and no further action or approval is -10- required in order to constitute this contract as a binding and enforceable obligation of Lessor; (C) To Lessor's knowledge (and Lessor warrants that it has received no notice of violations) the Property is free of any ___________ble explosives, radioactive materials, organic compound ___________as polychlorinated biphenyls, chemicals known to cause cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes, toxic substances or related materials, including, without limitation, any substances defined as or included in the definition of "hazardous substances" (collectively, "Hazardous Materials") under any federal, state or local laws, ordinances or regulations, now or hereafter in effect, relating to environmental conditions, industrial hygiene or Hazardous Materials on, under or about the Property, including, without limitation, the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq, the Resource Conservation and Recovery act, 42 U.S.C. Section 6901, et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section 6901, et seq., the Clean Water Act, 33 U.S.C. Section 1251, et seq., the Clean Air Act, 42 UY.S.C. Section 7401, et seq., the Toxic Substance Control Act, 15 U.S.C. Section 2601 through 2629, the Safe Drinking Water Act, 42 U.S.C. Sections 300f through 300j, and any similar state and local laws and ordinances and the regulations now or hereafter adopted, published and/or promulgated pursuant thereto (collectively, the "Hazardous Materials Laws"). The property is not currently used in a manner, and no prior use (by Lessor, prior owners, or any tenant) has occurred which violates -11- any Hazardous Materials Laws. Neither the Lessor nor any tenant has received any notice from a governmental agency for violation of Hazardous Materials Laws. (D) Lessor has not received (and has no actual knowledge of) any notice or request from any insurance company or Board of Fire Underwriters (or organization exercising functions similar thereto) or from the holder or servicing agent of the holder of any Mortgage, or from any state or municipal authority, requesting the performance of any work or alteration in respect to the Property. (E) Lessor now has no actual knowledge of pending or contemplated condemnation proceedings affecting the Property or any part thereof. (F) Lessor is not now a party to any litigation, and Lessor knows of no litigation or claims affecting the physical condition or title to the Property except a certain action against Lessor by R & D Contractors against which Lessor will hold Lessee harmless and Lessor shall give to Lessee prompt notice of the institution prior to the Commencement Date of any such litigation, except summary process proceedings against defaulting tenants of the Property. (G)) Lessor represents that as of the date hereof the premises are zoned so as to allow the Lessee to carry on the use provided hereunder (paragraph 6.1) and to the best of Lessor's knowledge the buildings comply with applicable zoning regulations. All of the representations, warranties and covenants of the Lessor contained in this Lease or in any document delivered to -12- Lessee pursuant to the terms of this Lease shall be true and correct in all material respects and not in material default at the time of the Commencement Date of this Lease. 5.2 Repairs and Maintenance. Except as otherwise provided in this Paragraph 5.2, Lessee covenants throughout the initial term of this Lease or any renewal term, at Lessee's sole cost and expense, to take good care of the demised premises and all improvements now or at any time erected on the demised premises, such as the meters, sewage disposal, heating, plumbing and electrical systems serving same, if any, and to keep the same in good order and condition, and in a first rate state of decoration, and shall promptly at Lessee's own cost and expense make all necessary repairs, whether structural or nonstructural, interior and exterior, ordinary as well as extraordinary, foreseen as well as unforeseen, all subject to reasonable wear and tear. When used in this Article, the term "repairs" shall include replacements or renewals when necessary, and all such repairs made by Lessee shall be equal in quality and class of the original work. Lessee shall keep and maintain all portions of the building and the demised premises, and the sidewalks, ramps and steps adjoining same, in a clean and orderly condition, free of accumulation of dirt, rubbish, snow and ice. Lessee further covenants throughout the term of this Lease, at Lessee's sole cost and expense, promptly to comply with all laws and ordinances and the orders, rules, regulations and requirements of all federal, state and municipal governments and appropriate departments, commissions, boards, bureaus, agencies and officers thereof, and the orders, rules, regulations and requirements of -13- the local board of fire underwriters (or any other body now or hereafter constituted exercising similar functions) whether such laws, ordinances, orders, rules, regulations and requirements are foreseen or unforeseen, ordinary or extraordinary, which may be applicable to the Building, the furniture, fixtures, decoration equipment thereof and the sidewalk, curbs and vaults, if any, adjoining the demised premises or the use or manner of use of the Building. Lessee will likewise observe and comply with the requirements of all policies of public liability, fire and all other policies of insurance at any time in force with respect to the demised premises or the Building. Notwithstanding the above provisions, Lessor shall have the obligation to repair, maintain and replace the foundation, exterior walls, roof and structural beams and columns, unless the required repairs or replacements are necessitated by the negligence or other acts of Lessee. 5.3 Changes or Alterations. Lessee, at its sole cost and expense, shall have the right at any time and from time to time to make non-structural changes and alterations, to the Building, or any portion thereof. All improvements shall be done in a good and workmanlike manner and shall comply with laws, regulations and requirements of municipal and other governmental departments having jurisdiction, and in accordance with the orders, rules, and regulations of the Board of Fire Underwriters or any other body now or hereafter constituted exercising similar functions; and Lessee shall procure certificates of occupancy and other certificates if required by law. The consent by Lessor to any such improvements shall not be so construed as to subject Lessor or the Demised Premises to any liability whatsoever for the -14- payment of any labor performed materials furnished in connection therewith and in the event that any claim therefor is asserted against Lessor or the Demised Premises, Lessee agrees to forthwith pay the same, or cause such security to be deposited for the payment thereof as may be reasonably satisfactory to Lessor. 5.4 Contest of Validity. Lessee shall have the right to contest by appropriate legal proceedings, without cost or expense to Lessor, the validity of any law, ordinance, order, rule, regulation or requirement of the nature referred to in this Article V, and if by the terms of any such law, ordinance, order, rule, regulation or requirement, compliance therewith may legally be held in abeyance without subjecting Lessee or Lessor to any liability of whatsoever nature for failure to so comply therewith, Lessee may postpone compliance therewith until the final determination of any such proceedings, provided that all such proceedings shall be prosecuted with all due diligence and dispatch. 5.5 Payment for Services. The Lessee agrees to pay or cause to be paid all charges for gas, fuel, oil, water, sewer, electricity, light, heat, air conditioning, power, telephone or other communication service or other utility or service used, rendered or supplied to, upon or in connection with the Building and the demised premises throughout the demised term, and to indemnify the Lessor and save it harmless against any liability or damages on such account. The Lessee shall also at its sole cost and expense procure or cause to be procured any and all necessary permits, licenses or other authorizations required for -15- the lawful and proper use, occupation, operation and management of the demised premises and for the lawful and proper installation and maintenance upon the Building of wires, pipes, conduits, tubes and other equipment or appliances for use in supplying any such service to or upon the Building. The Lessee expressly agrees that the Lessor is not, nor shall it be, required to furnish to the Lessee or any other occupant of the Building, during the demised term, any water, sewer, gas, fuel, oil, heat air conditioning, electricity, light, power or any other facilities, equipment, labor, materials or services of any kind whatsoever. 5.6 Indemnity. Lessee agrees to and does hereby indemnify Lessor against damages, losses, costs and expenses with respect to liens which shall attach to the demised premises. The Lessee further agrees that in the use and occupation of the Building, the Lessee will comply with all requirements of all laws, ordinances, orders and regulations of the federal, state, county and municipal authorities and with any direction or certificate of occupancy issued pursuant to any law by any public office or officer. The Lessee covenants that it will not use or permit to be used any part of the Building or the premises for any dangerous, noxious or offensive trade or business and will not cause or maintain any nuisance in, at or on the Building or the premises. ARTICLE VI Use 6.1 Use. Lessee may use the premises as a multiple automobile agency, together with uses incidental thereto. -16- ARTICLE VII Indemnity and Insurance 7.1 Indemnity. (a) Lessee hereby agrees to defend, pay, indemnify and save free and harmless Lessor, and/or any fee owner or ground or underlying lessors of the demised premises, from and against any and all claims, demands, fines, suits, actions, proceedings, orders, decrees and judgments of any kind or nature by or in favor of anyone whomsoever and from and against any and all costs and expenses, including attorneys' fees, resulting from or in connection with loss of life, bodily or personal injury or property damage arising, directly or indirectly, out of or from or on account of any occurrence, in, upon, about, at or from the demised premises occasioned wholly or in part by any negligent or willful act or omission of Lessee or any sub-tenant, concessionaire or licensee of Lessee, or their respective employees, agents, contractors or invitees in, upon, about, at or from the demised premises or its appurtenances or by reason of the failure of all or any sub-tenant to perform any acts required of them pursuant to the provisions of this Lease. (b) Lessee and all those claiming by, through or under Lessee shall store their property in and shall occupy and use the demised premises and any improvements therein and appurtenances thereto and solely at their own risk and Lessee and all those claiming by, through or under Lessee hereby release Lessor from any and all claims of every kind, including loss of life, personal or bodily injury, damage to merchandise, equipment, fixtures of other property, or damage to business or for business interruption, arising directly or indirectly, out of or from or on account of such occupancy and -17- use or resulting from any present or future condition or state of repair thereof. (c) Lessor and Lessor's agents or employees shall not be responsible or liable at any time to Lessee, or to those claiming by, through or under Lessee, for any loss of life, bodily or personal injury, or damage to property or business, or for business interruption, that may be occasioned by or through the acts, omissions or negligence of any other persons. (d) Lessor's and Lessor's agents and employees shall not be responsible or liable at any time for any defects, latent or otherwise, in the demised premises or any of the systems, equipment including plumbing, heating or air conditioning, electrical wiring or insulation thereof, stairs, porches, railings or walks, machinery utilities, appliances or apparatus therein, nor shall Lessor be responsible or liable at any time for loss of life, or injury or damage to any person or to any property or business of Lessee, or those claiming by, through or under Lessee, caused by or resulting from the bursting, breaking, leaking, running, seeping, overflowing or backing up of sewer pipes, downspouts, tanks, tubs, water closets, waste pipe, drain or other pipes, or caused by water, steam, gas sewage, snow or ice in any part of the demised premises, or caused by or resulting from injury done or occasioned by wind, rain, snow or leakage of water or from the interruption in the supply of any utilities, acts of God or the elements, or resulting from any defect or negligence in the occupancy, construction, operation or use of any Building or improvement on or in the demised premises, including the demised premises or any of the equipment, fixtures, machinery, appliances or apparatus therein or from broken glass, -18- water, snow or ice coming through the roof, doors, windows, walks or other place or the falling of any fixtures, plaster, tile, stucco or other matter, or any equipment, or appurtenance becoming out of order or repair or interruption of any service. (e) Lessee shall give prompt notice to Lessor in case of fire or other casualty or accidents in the demised premises or any defects therein or in any of its fixtures, machinery or equipment. (f) Lessee expressly acknowledges that all of the foregoing and following provisions of this Section shall apply and become effective from and after the commencement date of this Lease and shall be effective to the full extent permitted by law. In case Lessor shall be made a party to any litigation, commenced by or against Lessee, its agents, licensees, concessionaires, contractors, customers or employees, or arising out of Lessee's use or occupancy of the demised premises or other action of the Lessee or its agents, then Lessee shall protect and hold Lessor harmless and, in addition, shall pay all costs, expenses and reasonable attorney's fees incurred or paid by Lessor in connection with such litigation. The Lessee shall maintain at its own expense insurance in such amounts and for such purposes and on such terms as follows: 7.2 Fire Insurance. Lessee,shall, at Lessee's sole cost and expense, keep the Building and improvements constituting the Premises, insured against: (a) loss or damage by flood, fire, icing, wind damage, and against loss or damage by other risks now or hereafter embraced on an "all risk basis", so-called, including difference in conditions coverage and against such other risks as Lessor may designate, in amounts equal to the then -19- "full replacement Cost", as increased annually to reflect the then current replacement cost, such replacement cost to be established by appraisal by Lessors. It is agreed that the total replacement cost for the buildings presently located on the premises as of the Commencement Date of this lease is at least $2,800,000.00; (b) loss or damage from leakage of systems now or hereafter installed in the Premises, in such amount as Lessor may reasonably require; (c) loss or liability resulting from property damage, personal injury or death by explosion of hot-water boiler, air conditioning equipment, pressure vessels or similar apparatus, if any, now or hereafter installed in the premises, in such limits with respect to any one accident shall be not less than $1,000,000.00 or as reasonably be requested by Lessors from time to time; (d) Rent abatement insurance covering risk of loss during a one-year period due to the occurrence of any of the foregoing hazards. At Lessor's request, Lessee shall furnish Lessor a certificate of insurance certifying that the insurance coverage required hereby is in force. Lessor shall be named as an insured party as owner. All policies of insurance required hereby shall provide, to the extent available, that they will not be cancelled upon less than fifteen (15) days' prior notice to Lessor. Any insurance required by the terms of this Lease to be carried by Lessee may be under a blanket policy (or policies) covering other properties of Lessee. If such insurance is maintained under a blanket policy, Lessee shall procure and deliver to Lessor a statement from the insurer or general agent of the insurer setting forth the coverage maintained and the -20- amounts thereof allocated to the risks intended to be insured hereunder. 7.3 Workmen's Compensation Insurance. The Lessee in compliance with the workmen's compensation law of the State of Connecticut shall carry a policy of Workmen's Compensation and Employer's Liability Insurance. Unless the laws of such state prohibit placing a dollar limit on the liability of an insurance company for employer's liability, the policy shall be written with an employer's liability limit of at least $100,000.00. Such insurance shall be maintained in full force at all times during the terms of the Lease. 7.4 General Liability Insurance. The Lessee, at its own cost and expense, shall purchase and maintain in force a policy of general liability insurance. This policy shall provide at least the coverages and limits specified immediately below: (a) The policy shall be written on a so-called "comprehensive" general liability form; (b) The Lessor shall be a named insured under the policy; (c) The policy shall be endorsed with a cross-liability endorsement stating that in the event that a claim is brought by one insured against another insured under the policy, or by an employee of one insured against another insured under the policy, each insured shall be considered a separate insured for purposes of the insurance; (d) The policy shall be written on the "caused by any occurrence" rather than written on the "caused by accident" basis for bodily injury and property damage liability coverage; -21- (e) The policy shall be written with a blanket contractual liability endorsement providing automatic coverage for bodily injury or property damage assumed under any type of written contract in addition to types of contracts defined in the policy form; (f) The policy shall be written using a "personal injury" endorsement providing coverage for claims arising out of false arrest, false imprisonment, defamation of character, libel and slander, wrongful eviction and invasion of privacy and such endorsement shall not contain an exclusion of coverage for claims for "personal injury" brought by employees of an insured; (g) Unless by special agreement, the Lessee and Lessor have mutually agreed in writing each to hold the other harmless for damage to its property caused by the negligence of the other, and unless each shall have had its policies of property damage or business interruption insurance endorsed to acknowledge receipt and acceptance of advices that such hold harmless agreements have been undertaken, the policy effected by the Lessee shall specifically include coverage for legal liability for damage to the demised premises and/or any portion of the demised premises by fire and inherent explosion, or by water damage (the latter including, where pertinent, sprinkler leakage damage); (h) The policy shall be written with bodily injury limits of $1,000,000 per person, $5,000,000 per occurrence (which limits shall also apply per person and aggregate for "personal injury" coverage) and with a property damage limit of at least $1,000,000 per occurrence and $1,000,000 aggregate (which limits shall also apply to fire and explosion legal liability coverage). -22- 7.5 Proceeds. All such policies of insurance hereinabove referred to shall provide that the proceeds thereof shall be payable to Lessee and Lessor as their respective interests may appear, in accordance with the provisions of Paragraph 7.10 below. 7.6 Insurance Companies. All such policies of insurance hereinablve referred to shall be written in companies reasonably satisfactory to Lessor and authorized to do business in the State of Connecticut and shall be written in such form and distributed in such companies as shall be reasonably acceptable to Lessor. Lessee shall deliver to Lessor on or before the commencement of the term of this Lease all such policies of insurance or binders in the amounts and covering the risks hereinabove provided, and all policies to be carried by Lessee in which Lessor is named as an insured shall provide that the insurer shall not cancel the same unless not less than 30 days prior written notice thereof is given to Lessor. 7.7 Maintenance of Insurance. It is the intention of the parties that Lessee, as to that insurance, it is to take out, maintain in force at all times, pay for and deliver to Lessor all of the policies of insurance, binders or certificates of insurance hereinabove referred to at such times and in such manner so that Lessor shall at all times during the initial term and any renewal term of the lease be in possession of policies or binders of insurance which are in full force and effect. 7.8 Rent Insurance. The loss of rental insurance referred to in paragraph 7.2 above shall be purchased by Lessor at Lessee's expense in any amount equal to at least the Basic Annual -23- Net Rent for one year, plus, for one year, additional rent hereunder, as estimated by Lessor. 7.9 Waiver of Subrogation Rights. The parties hereto hereby waive any and all rights of recovery, claim, action or cause of action, against each other, their respective agents, officers and employees for any loss or damage that may occur to the Leased Premises or the Building and to all property, whether real, personal or mixed, located in the Leased Premises, or the Building, by reason of fire, the elements, or any other cause normally insured against under the terms of standard fire and extended coverage insurance policies or the type prescribed from time to time for use in respect of the Building, regardless of cause or origin, including negligence of the parties hereto, their respective agents and employees. Each party agrees to provide the other with reasonable evidence of its insurance carrier's consent to such waiver of subrogation. 7.10 Insurance Proceeds Escrow. For the purpose of paying the cost of repair, replacement, or rebuilding, the proceeds of insurance policies shall be kept in an escrow account and disbursed by the Lessor during the course of the work. If the amount of the insurance proceeds is insufficient to pay the cost of the necessary repair, replacement, or rebuilding of such damaged building or improvements the Lessee shall pay any additional sum required, and if the amount of the insurance proceeds is in excess of the cost thereof the amount of the excess shall be retained by the Lessor. -24- ARTICLE VIII Lessor's Right to Perform Covenants of Lessee 8.1 Lessor's Right to Make Payments. Lessee covenants and agrees that if it shall at any time fail to pay any imposition pursuant to the provisions of this Lease or to take out, pay for, maintain or deliver any of the insurance policies provided for herein, or shall fail to make any other payment (all of which payments under this Lease shall be deemed additional rent) or perform any other act on its part to be make or performed as in this Lease provided, then Lessor may, but shall not be obligated to do so, and without notice to or demand upon Lessee and without waiving or releasing Lessee from any obligations of Lessee in this Lease contained, pay any such imposition, effect any such insurance coverage and pay premiums therefor, and may make any other payment or perform any other act on the part of Lessee to be made and performed as in this Lease provided, in such manner and to such extent as Lessor may deem desirable, and in exercising any such rights pay necessary and incidental costs and expenses, employ counsel and incur and pay reasonable attorneys' fees. All sums so paid by Lessor and all necessary and incidental costs and expenses in connection with the performance of any such act by Lessor, together with interest thereon at the rate of twelve per cent (12%) per annum from the date of the making of such expenditure by lessor, shall be payable to Lessor on demand, and Lessee covenants to pay any such sum or sums with interest as aforesaid and Lessor shall have (in addition to any other right or remedy of Lessor) the same rights and remedies in -25- the event of the non-payment thereof by Lessee as in the case of default by Lessee in the payment of the Basic Annual Net Rent. ARTICLE IX Mechanics' Liens 9.1 Mechanic's Liens. Lessee shall not suffer or permit any mechanic's liens to be filed against the Building, the demised premises, or any part thereof, by reason of work, labor, services or materials supplied or claimed to have been supplied to Lessee or anyone occupying the Building, the demised premises or any part thereof through or under Lessee. If any such mechanic's lien shall at any time be filed against the Building or the demised premises of which Lessee shall have received written notice from Lessor or the lienor, Lessee shall cause the same to be discharged of record within thirty (30) days after the date of filing the same except as provided in Section 9.2 of this Article. If Lessee shall fail to discharge such mechanic's lien within such period, then in addition to any other right or remedy of Lessor, Lessor may, but shall not be obligated to, discharge the same either by paying the amount claimed to be due or by procuring the discharge of such lien by deposit in court or by giving security or in such other manner as is, or may be prescribed by law. Any amount paid by Lessor for any of the aforesaid purposes,and all reasonable legal and other expenses of Lessor, including reasonable counsel fees, in or about procuring the discharge of such lien, with necessary disbursements in connection therewith, with interest thereon at the rate of twelve per cent (12%) per annum from the date of payment shall be repaid by Lessee to Lessor on demand as provided in Article VIII hereof. -26- Nothing herein contained shall imply any consent or agreement on the part of Lessor to subject Lessor's estate to liability under any mechanic's lien law. 9.2 Right to Challenge. Lessee shall have the right to contest the amount or validity of any such lien by appropriate legal proceedings provided Lessee, within twenty (20) days after notice of the attachment of such lien, shall give written notice to Lessor of its intention to contest the same which shall specify the amount of the lien to be contested, and provided that at the time of giving such notice Lessee shall deposit with Lessor or as directed by a court of law as security for the payment of such lien money or other security satisfactory to Lessor in an amount sufficient, in the sole judgment of Lessor, to pay or secure payment of such lien together with interest, court costs, attorneys' fees and any other charges in connection therewith that may be assessed against or become a charge on the Building, the demised premises or any part thereof, in said proceedings. As long as Lessee shall continue diligently to prosecute such proceedings and is not in default under any provision of this Lease, and further provided neither Lessor nor Lessee, or any interest of either of them is subject to loss, forfeiture, attachment or criminal process, Lessor shall not have the right to pay, remove or discharge any such lien so contested. If at any time while such proceedings are pending the money or other security held by Lessor shall in the reasonable judgment of Lessor be insufficient to pay or secure payment or such lien together with interest, court costs, attorney's fees and any other charges in connection therewith that may be assessed -27- against or become a charge on its Building, demised premises or any part thereof in said proceedings, Lessee shall forthwith pay over to Lessor an amount of money sufficient, together with the money or other security so deposited pursuant to this Section, to pay the same. In the event of any default by Lessee under this Lease, or in the event Lessor or Lessee or any interest of either is subject to forfeiture, attachment or criminal process, Lessor is authorized to use any money or other security deposited under this Section (together with any interest on any securities deposited hereunder) to apply at its option, on account of such default or to pay said lien. Lessee shall not be entitled to interest on any money deposited pursuant to this Section, but shall be entitled to receive from time to time any interest on any securities deposited hereunder so long as the amount of such deposit is sufficient in the reasonable judgment of Lessor to pay or secure payment of such lien together with all interest, court costs, reasonable attorneys' fees and other charges in connection therewith that may be assessed against or become a charge on the Building, the demised premises, or any part thereof, in said proceedings and provided that Lessee is not in default under any provision of this Lease of which Lessee shall have written notice. Upon the termination of such proceedings, the money or other security so deposited (together with any interest on any security deposited hereunder) shall be applied to the payment, removal and discharge of such lien, if any, then payable and the interest, court costs, attorneys' fees and other charges in connection therewith accruing in such proceedings, and when such lien has been discharged of record, the balance, if any, shall -28- be paid or returned to Lessee, provided Lessee is not in default under this Lease. ARTICLE X Covenant Against Waste 10.1 Covenant Against Waste. Lessee covenants not to do or suffer any waste or damage, disfigurement or injury to the Building or the demised premises except as may be caused by reasonable wear and tear or other loss specifically provided for elsewhere in this Lease. Nothing in this Article shall be construed to prevent Lessee from making changes and alterations permitted under this Lease. ARTICLE XI Paramount Title of Lessor 11.1 Paramount Title of Lessor. Nothing in this Lease contained shall authorize Lessee to do or refrain from doing any act which shall in any way encumber the title of Lessor in and to the demised premises, nor shall the title, interest or estate of Lessor therein be in any way subject to any claim by way of lien or encumbrance, whether arising by operation of law or by virtue of an express or implied contract by Lessee. Any claim to a lien or encumbrance upon said demised premises, arising from any act or omission of Lessee, shall accrue only against the leasehold estate of Lessee and shall in all respects be subject or subordinate to this paramount title and right of Lessor in and to said demised premises. The whole world and particularly every person furnishing, manufacturing or preparing any material, fixtures, apparatus or machinery for, or on account of, said -29- demised premises, or the Building, or the appurtenances or furnishings therein, or performing any labor or services in, upon or about said demised premises, or the Building, or appurtenances, or dealing in any wise with Lessee or any other claiming under it, shall take and be held charged with notice of this condition, and shall have and acquire no lien upon Lessor's interest through the furnishing of such material, fixtures, apparatus, machinery, labor or services. ARTICLE XII Mortgages, Assignments and Subleases 12.1 Assignment and Subletting. The Lessee shall not assign, mortgage, or encumber this Lease (whether by operation of law or otherwise), without the prior written consent to the Lessor in each instance. Lessee may assign this Lease without consent of Lessor to one or more partnerships or corporations of which it shall be a general partner or stockholder, or which are owned and controlled to the extent of 50% or more by Lessee or SAMUEL X. DiFEO and JOSEPH DiFEO, as the case may be. In the event that Lessee is a corporation, the sale or transfer of more than thirty-five (35%) per cent of its stock shall be deemed an assignment and shall require Lessor's consent. Lessee may sublet all or portions of the Demised Premises for rental periods within the term of this Lease without the prior written consent of the Lessor, provided, however, that the Lessee shall remain primarily liable for the payment of all rent due Lessor under this Lease and for the performance of all the other terms of this Lease required to be performed by the Lessee. If this Lease is assigned, or if the Demised Premises or any part thereof is -30- sublet, or occupied by anybody other than Lessee, Lessor may, after default by the Lessee, collect rents from the assignee, subtenant or occupant and apply the net amount collected to the rent payable by Lessee under this Lease. No such assignment, subletting, occupancy, or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, subtenant, or occupant as tenant, or a release of Lessee from the further performance by Lessee of the covenants in this Lease. The consent by the Lessor to an assignment of mortgage or encumbering of this Lease shall not be construed to relieve the Lessee from obtaining the consent of Lessor to any further assignment. Notwithstanding the foregoing, if Lessee assigns this Lease entirely to one or more corporations of which he shall be a stockholder, then Lessee shall have no further obligation or personal liability except as otherwise provided in this Lease. ARTICLE XIII Surrender of Leased Premises 13.1 Condition of Demised Premises Upon Surrender. All erections, alterations, improvements or additions made upon the demised premises either by Lessor or Lessee, except furniture, business equipment or movable partitions or trade fixtures installed by Lessee or set forth in the Purchase Agreement, shall be the property of Lessor and shall remain and be surrendered with the demised premises as a part thereof at the termination of this Lease without compensation to Lessee. 13.2 Expiration. Lessee for itself and its successors in, under and to this Lease, in, under and to said Building, expressly covenants and agrees with the Lessor that upon -31- expiration of the term of this Lease by lapse of time or upon the earlier termination of this Lease for any reason whatsoever (except as a consequence of default hereunder by the Lessor), all right and interest of the Lessee in the Building, together with all of the right, title and interest of the Lessee in and to all personal property and materials and supplies in the Building used in the maintenance or operation of the Building, shall be and become the property solely of Lessor, and Lessee shall have no further right, title or interest therein. 13.3 Surrender. Upon the expiration of the term of this Lease by lapse of time or upon the earlier termination of this Lease for any reason whatsoever (except as a consequence of default hereunder by the Lessor), and also in the event that pursuant to any of the provisions of this Lease the right of the Lessee to possession of the demised premises and of the Building ceased and the Lessor under the terms of this Lease has such right of possession even though the term of this Lease has not expired, Lessee shall and will surrender and deliver up the Building and the demised premises into the possession and use of the Lessor immediately, and Lessee hereby acknowledges and agrees that Lessor shall have the right in any such event to enter into and upon said demised premises and the Building, to take possession thereof, with or without process of law, and the right to expel and remove Lessee, using such force as may reasonably be necessary, and such entry or possession shall not constitute a trespass or forcible entry or detainer. -32- ARTICLE XIV Default 14.1 Default. If the Lessee shall: (a) default in the payment of the Basic Annual Net Rent reserved herein or any additional rental herein mentioned or any part of either or in making any other payment herein provided for a period of ten (10) days or more and after written notice from Lessor which shall allow Lessee a three-day period within whIch to cure any default. Lessor shall not Be required to give Lessee more than three written notices in any calendar year or (b) default in the observance of any of the other terms, convenants and conditions of this Lease and such default shall continue for more than thirty (30) days after written notice of such default; or (c) make any assignment of Lessee's leasehold interest for the benefit of creditors or any of its leasehold interest shall be attached, or if Lessee shall file a voluntary petition in bankruptcy or be by any court adjudicated a bankrupt or take the benefit of any insolvency act or be dissolved, and such appointment, if made in proceedings instituted by Lessee, shall not to be vacated within sixty (60) days after it has been made, or if made in proceedings instituted by Lessee, shall not be vacated within sixty (60) days after it has been made, then, upon the happening of any one or more of the defaults or events above mentioned in this Article XIV, this Lease and the term hereof shall, at Lessor's option, upon the date specified in a notice, which date shall not be less than thirty (30) days after the date of mailing of such notice by Lessor to Lessee, wholly cease and expire, with the same force and effect as though the date so -33- specified were the date hereinabove first set forth as the date of the expiration of the lease term unless remedied by Lessee within such period or if such default cannot reasonably be remedied by Lessee within such period and Lessee has commenced and diligently proceeded to remedy such default (but Lessee shall remain liable to Lessor as hereinafter provided); and thereupon, or at any time thereafter, Lessor may re-enter the demised premises either by force or otherwise, and have the possession thereof in the manner prescribed by the statute relating to summary proceedings, or similar statutes (but Lessee shall remain liable to Lessor as hereinafter provided), it being understood that no demand for the rent and no re-entry for condition broken and no notice to quit possession or other notices prescribed by statute shall be necessary to enable Lessor to recover such possession, but that all right to any such demand and any such re-entry and any notice to quit possession or other statutory notices or pre-requisites are hereby expressly waived by Lessee. 14.2 Rental Upon Default. In case of any such default, re-entry, expiration and/or dispossess by summary proceedings or otherwise: (a) All Basic Annual Net Rent and additional rental shall become due thereupon and be paid up to the time of such re-entry, dispossess and/or expiration, together with such reasonable expenses as Lessor may incur for legal expenses, attorneys' fees, brokerage, and/or puttng the demised premises in good order, or for preparing the same for re-rental (whether or not judgment is sought or obtained; (b) Lessor may relet the demised premises or any part or parts thereof, either in the name of Lessor or otherwise, for a term or terms which may at Lessor's -34- option be less than or exceed the period which would otherwise have constituted the balance of the lease term and may grant concessions or free rent; and (3) Lessee or the legal representative of Lessee shall also pay Lessor as liquidated damages for failure of Lessee to observe and perform said Lessee's covenants herein contained, any deficiency between all rental hereby reserved and/or covenanted to be paid and the net amount, if any, of all rental collected on account of the demised premises for each month of the period which would otherwise have constituted the balance of the lease term. In computing such liquidated damages there shall be added to the said deficiency such expenses as Lessor may incur in connection with reletting, such as legal expenses, attorneys' fees, brokerage and for keeping the demised premises in good order or for preparing the same for reletting. Any such liquidated damages shall be paid in monthly installments by Lessee on the rent day specified in this Lease and any suit brought to collect the amount of the deficiency for any month shall not prejudice in any way the rights of the Lessor to collect the deficiency for any subsequent month by a similar proceeding. 14.3 Damages upon Default. In case of any default, reentry, expiration and/or dispossess, by summary proceedings, or otherwise, pursuant to this Section 14 Lessor shall (notwithstanding any other provisions of this Lease), be entitled, at its option, in addition to and without prejudice to any other rights and remedies it may have hereunder or at law or in equity to recover from Lessee as damages, in addition to any unpaid Basic Annual Net Rent or additional rental accrued to the -35- date of such re-entry, expiration and/or dispossess, an amount equal to the difference between the Basic Annual Net Rent and additional rent reserved hereunder for what would otherwise have been the expired portion of the lease term (had such re-entry, expiration and/or dispossess not occurred) and the then fair and reasonable rental value of the demised premises for such unexpired portion of the lease term, both discounted at the rate of six (6%) per cent per annum to present worth. Lessee shall be entitled to recover and receive the full amount of such damages at whatever time after such re-entry, expiration and/or dispossess it seeks to recover the same. However, nothing herein contained shall limit or prejudice the right of Lessor to prove for and obtain as damages, by reason of the default or other event or occurrence as a result of which such re-entry, expiration and/or dispossess shall have occurred, an amount equal to the maximum amount allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved, whether or not such an amount be greater, equal to or less than the amount of the difference referred to above. If any reletting is for an amount greater than Lessee is required to pay hereunder such coverage shall be retained by Lessor and Lessee shall not be entitled to any portion of such overage. In determining the then fair and reasonable rental value of the demised premises, the rental realized upon any reletting, if such reletting shall be accomplished within a reasonable time after such re-entry, expiration and/or dispossess, shall be deemed prima facie to be such rental value. Lessee shall be entitled, in addition to the -36- amount of such difference, to also recover such expenses as Lessor may incur in connection with such re-entry and/or dispossess and such reletting, such as legal expenses, attorneys' fees, brokerage and the costs and expenses incurred in connection therewith and in keeping the demises premises in good order and in preparing the same for such reletting. 14.4 Repair and Alteration Upon Default. Lessor at Lessor's option may make such reasonable alterations, repairs, replacements and/or decorations in the demised premises as Lessor, in Lessor's sole judgment, considers advisable and necessary for the purpose of reletting the demised premises; and the making of such alterations and/or decorations shall not operate or be construed to release Lessee from liability hereunder as aforesaid. Lessor shall in no event be liable in any way whatever for failure to relet the demised premised, or in the event that the demised premises are relet, for failure to collect the rent thereof under such reletting. 14.5 Injunctive Relief. In the event of a breach or threatened breach by Lessee of any of the covenants or provisions of this Lease, Lessor shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if re-entry, summary proceedings and other remedies were not herein provided for. Mention in this Lease of any particular remedy shall not preclude Lessor from any other remedy, in law or in equity. 14.6 Rental After Termination. No receipt of any Basic Annual Net Rent or additional rental by Lessor from Lessee after the proper legal termination in any way of this Lease or after -37- giving any notice, shall reinstate, continue or extend the lease term, or affect any notice. No receipt of any rental after the commencement of suit, or after final judgment for possession of the demised premises, shall reinstate, continue or extend the lease term or affect said suit or said judgment. 14.7. Waiver. The obligations set forth in this Article XIV shall be binding on the Lessee whether or not Lessor has taken possession of the premises, and whether or not Lessee has been evicted from the premises by summary process, and Lessee hereby waives the right to interpose any defense to any action hereunder based upon such possession or summary process. ARTICLE XV Condemnation 15.1 Eminent Domain. The parties hereto agree that should the demised premises, or any substantial part thereof which renders the use of the premises for the intended purpose impractical as reasonably determined by Lessee, be taken or condemned by competent authority for public or quasi-public use, or acquired by such authority by negotiation and sale in lieu thereof then, and in that event, this Lease shall cease and come to an end as of the time of such actual taking, and then, and thenceforth, all obligations of the parties hereunder, the one to the other, shall cease and terminate. All damages awarded as a result of any condemnation of the premises or any part thereof except as otherwise herein set forth, shall become the sole and absolute property of Lessor, including without limitation, any damages awarded as compensation for diminution in value of the leasehold and/or loss of the fee title to the premises. Lessee -38- assigns any rights in and to any condemnation award to Lessor except as provided in Paragraph 15.2 hereof. 15.2 Lessee Damage. In the event of any such taking as described above, the Tenant shall have the right to apply for any relief provided by statute or regulation for Lessee's benefit, provided that such benefit does not reduce the damages or compensation due the Lessor above described or provided above. ARTICLE XVI Damage or Destruction 16.1 Damage. If the demised premises, or the building or buildings of which the premises may form a part, are damaged by fire or other casualty to such an extent that the damage cannot, in the opinion of Lessor, be repaired or restored within two hundred seventy (270) days of the date of such occurrence, this lease may be terminated at the option of the Landlord upon notice to Lessee within such two hundred seventy (270) day period, even though the premises have not become untenantable, and upon such termination shall shall be an adjustment of rent to said date of termination, except that Lessee shall have the right to negate such termination by agreeing to rebuild the premises as herein provided in Paragraph 16.2. If Lessor does not exercise the foregoing option, or if the premises are damaged by fire or other insured casualty, and such damage can be repaired within two hundred seventy (270) days of the date of such occurrence, or if the Lessee shall elect to repair or rebuild the premises this lease shall remain in full force and effect and Lessee shall promptly repair such damage at its expense and Lessor will make available to Lessee the proceeds of insurance carried by Lessee -39- for the parties' benefit for Lessee's use in paying for such repairs. If this lease is not terminated as aforesaid, there shall be no abatement of rental payable hereunder but Lessee shall receive a credit against rental in an amount equal to the proceeds of rent insurance, if any, received by Lessor. The provisions of this paragraph shall not prejudice any other rights and remedies of Lessor in the event the Premises shall be damaged by fire or other casualty due to the fault or neglect of Lessee, Lessee's servants, employees, contractors, agents, visitors or licensees. Except to the extent provided for in this lease Lessor's obligations under this Lease shall not be affected by any damage to or destruction of the premises by any cause whatsoever, and Tenant hereby expressly waives any and all additional right it might otherwise have under any law or statute. Tenant agrees that its fire insurance policies for its contents, furniture, furnishings, fixtures and other property removable by Lessee under the provisions of this lease shall include appropriate clauses pursuant to which the insurance carriers (a) waive all rights of subrogation against Lessor with respect to losses payable under such policies and/or (b) agree that such policies shall not be invalidated should the insured waive in writing prior to a loss any or all right of recovery against any party for losses covered by such policies. Lessee shall have Lessor named in such policies as one of the assureds. If Lessor shall be named as one of the assured under the policies covering Lessee's contents, furniture, furnishings and fixtures in accordance with the foregoing provisions, Lessor shall promptly endorse to the order of Lessee, without recourse, any -40- check, draft, or order for the payment of money representing the proceeds of any such policy or representing any other payment growing out of or connected with said policies, and Lessor does hereby irrevocably waive any and all rights in and to such proceeds and payments, provided, however, that Lessee's right of full recovery under its aforesaid policies is not thereby prejudiced or otherwise adversely affected. Lessee hereby waives any and all right or recovery which it might otherwise have against Landlord, its agents and employees, for loss or damage to Lessee's contents, furniture, furnishings, fixtures and other property removable by Lessee under the provisions of this lease to the extent that the same is covered by Lessee's insurance, notwithstanding that such loss of damage may result from the negligence or fault of Landlord, its agents or employees. Lessee agrees to advise Lessor promptly as to the coverage or language of the clauses included in its insurance policies pursuant to this paragraph. Lessee also agrees to notify Lessor promptly of any cancellation or change of the terms of any such policy which would affect such clauses or naming. 16.2 Lessee Repair. Notwithstanding paragraph 16.1, Lessee, in the event that Lessor does not exercise the option to repair in accordance with said paragraph, may by giving notice to Lessor, undertake the restoration of the damage to the demised premises by notifying Lessor within five (5) days after it received notification from Lessor that Lessor shall not be undertaking repairs to the damaged premises. In case of damage to or destruction of any building on the demised premises or of the machinery, fixtures and equipment (except movable trade -41- fixtures, furniture, and furnishings) used in the operation and maintenance thereof, by fire or otherwise, the Lessee will, at such time and upon the conditions hereinafter set forth, restore, repair, replace, rebuild, or alter the same as nearly as possible to the conditions such property was in immediately prior to such damage or destruction. Such restoration, repair, replacement, rebuilding, or alteration shall be commenced as soon as practicable after the receipt by the Lessor or the holder of any mortgage of the insurance money to be paid on account of such damage or destruction, and, after such work has been commenced, it shall be prosecuted with reasonable diligence. Before commencement, any and all permissions required under any existing mortgage on the premises must be obtained and appropriate plans for such work approved by Lessor, which approval shall not be unreasonably withheld. In addition, Lessor must be adequately assured that the insurance proceeds are sufficient to cover the cost of repair. Upon such consents and proof of financial ability to complete, the following provisions shall apply: (a) All insurance money received by the Lessor or any such mortgagee on account of such damage or destruction, less the cost, if any, of such recovery, shall be applied by the Lessor or such mortgagee to the payment of the cost of such restoration, repair, replacement, rebuilding, or alteration, hereinafter referred to as the work, including expenditures made for temporary repairs or for the protection of property pending the completion of permanent restoration, repair, replacement, rebuilding, or alteration to the leased property, and shall be paid out, as hereinafter provided, from time to time, as such -42- work progresses, upon the written request of the Lessee which shall be accompanied by the following: (i) A certificate of the architect or engineer in charge of the work, dated not more than thirty (30) days prior to such request, setting forth that the sum then requested either has been paid by the Lessee or is justly due to contractors, subcontractors, materialmen, engineers, architects, or other persons (whose names and addresses shall be stated), who have rendered services or furnished materials for certain work. Such certificate shall give a brief description of such services and materials, shall list the several amounts so paid or due to each of such persons, shall state the fair value of such work at the date of the requisition, and shall state that no part of such expenditures has been or is being made the basis for any other request for payment. Such certificate shall state also that except for the amounts listed therein, there is no outstanding indebtedness known to such architect or engineer, after due inquiry, which is then due for labor, wages, materials, supplies, or services in connection with such work which, if unpaid, might become the basis of a vendor's mechanic's, laborers, materialmen's or similar lien upon such work or upon the demised premises. (ii) An affidavit sworn to by the Lessee that all materials and all property constituting the work described in such certificate of the architect or engineer are free and clear of all security interest, liens, charges, or encumbrances, except encumbrances, if any, securing indebtedness due to persons specified in such certificate which are to be discharged upon -43- payment of such indebtedness, as well as appropriate waivers of mechanics liens properly signed by all contractors and materialmen. (b) Upon compliance with the foregoing provisions of subparagraph (a), the Lessor or such mortgagee shall, out of such insurance money, on request of the Lessee, pay to the persons named in such certificate the respective amounts stated in such certificate to be due to them, or shall pay to the Tenant the amount stated in such certificate to have been paid by the Tenant; provided, however, that such payments shall not exceed in amount the fair value of the relevant work as stated in such certificate. If the insurance money in the hands of the Lessor or such mortgagee exceed the amount required to pay the cost of such work the Lessor or such mortgagee, as the case may be, shall be entitled to retain such excess. (c) The Lessee's obligation to pay the basic rent and all other charges and to perform all other terms of this lease shall not be affected by any such damage to or destruction of any building on the leased property or of the machinery, fixtures, and equipment used in the operation and maintenance thereof, and the Lessee hereby waives the provisions of any statute or law now or hereafter in effect contrary to such obligation of the Tenant as herein set forth or which releases the Lessee therefrom. (d) Notwithstanding the foregoing provisions of the paragraph, any insurance moneys in the hands of the Lessor or such mortgagee shall not be required to be paid out if, at the time of the request for payment, the Lessee is in default in the performance of any term in this Lease as to which notice of -44- default has been given and which has not been remedied within the time limit specified in this lease, or if such mortgagee uses such insurance moneys to reduce the mortgage debt. In the event that the mortgagee so elects to use such moneys to reduce its debt and Lessor does not rebuild at Lessor's expense, Lessee shall have the option to re-building at Lessee's cost or of cancelling this Lease. ARTICLE XVII CONSUMER PRICE INDEX 17.1 Consumer Price Index. As used herein, the term "Consumer Price Index" shall mean the Index for Urban Wage Earners and Clerical Workers, N.Y. - --Northeastern N.J, All Items --Series A (1982-84=100) issued by the U.S. Department of Labor, Bureau of Labor Statistics, Washington, D.C. (the "Index") or the successor of such index. Should Lessor lack sufficient data to make the determination specified in this Lease on the date of any required adjustment, Lessee shall continue to pay the monthly Rent payable immediately prior to such adjustment date. As soon as Lessor obtains the necessary data, it shall determine the Rent payable from and after such adjustment date and if it shall exceed the amount previously paid by Lessee for such period, Lessee shall forthwith pay the difference to Landlord, and if it shall be less than the amount previously paid, Lessor shall reimburse Lessee for any overpayment. In the event that the aforementioned Index shall be discontinued, the parties hereto shall accept comparable statistics established by the United States Department of Labor or some other similar authority and if the parties cannot agree on a comparable index then such matter -45- shall be submitted to arbitration under the rules of the American Arbitration Association in Stamford and the arbitrators' determination shall be binding upon the parties. ARTICLE XVIII Definition of Certain Terms and Liabilities of Successors and Assigns 18.1 Definitions. For the purposes of this Lease, unless the context otherwise requires: (a) The term "Lessor" shall mean only the owner from time to time of the fee simple title to the land comprising the demised premises. (b) The term "Lessee" shall mean the owner from time to time of the Lessee's interest in this Lease and the leasehold estate created hereby. 18.2 Successor Lessor. In the event the Lessor named in this Lease, or any successor Lessor as hereinabove defined, shall convey the fee simple title to the land constituting the demised premises, then the Lessor so conveying or transferring shall be automatically freed and relieved from and after the date of such conveyance or transfer of and from all liabilities and obligations, express or implied, on the part of the Lessor contained in or resulting from the Lease, and each successor, transferee or grantee of the fee simple title to said land shall become and be bounded by such covenants and obligations, express or implied, but only during the period, respectively, of such grantee's or transferee's respective ownership of such fee simple title; provided, always that upon any such conveyances or transfer, any funds in the hands of the Lessor so conveying or -46- transferring awaiting distribution, payment or application in the manner and for the purposes provided in this Lease, shall be paid over and transferred to such a successor, grantee or transferee, to be held and used for the same uses and purposes under and pursuant to this Lease as the funds so transferred. ARTICLE XIX Estoppel Certificates of Lessee 19.1 Estoppel Certificate. Lessor or Lessee shall, without charge, at any time, and from time to time hereafter, within ten (10) days after written request of the other, certify by a written instrument duly executed and acknowledged to any mortgagee or purchaser, or proposed mortgagee or proposed purchaser, or any other person specified in such request: (a) As to whether this Lease has been supplemented or amended, and if so, the substance and manner of said supplement or amendment; (b) As to the validity and force and effect of this Lease, in accordance with its provisions as then constituted; (c) As to the existence of any default hereunder; (d) As to the existence of any offset, counter-claims, or defenses hereto on the part of the Lessee; (e) As to the commencement and expiration dates of the term; (f) As to any other matter as may reasonably be so requested. Any such certificates may be relied upon by requesting same and any other person to whom the same may be exhibited or -47- delivered and the contents of such certificate shall be binding upon the certifying party. 19.2 Attornment. Lessee shall, in the event any proceedings are brought for the foreclosure of, or in the event of exercise of the power of sale under any mortgage made by the Lessor covering the premises or if any party succeeds to the interest of the Lessor, attorn to the purchaser upon any such foreclosure or sale or to the ground Lessor and recognize such purchaser or ground Lessor as the Lessor under this lease. 19.3 Subordination. This lease is hereby made subject and subordinate to the lien of any first mortgage or mortgages, or the lien resulting from any other method of financing or refinancing, now or hereafter in force against the land and buildings of which the premises are a part or upon any buildings hereafter placed upon the land of which the premises are a part, and to all advances made or hereafter to be made upon the security thereof. This section shall be self-operative and no further instrument of subordination shall be required by any mortgagee. In the event of such subsequent refinancing, the Lessor shall use reasonable efforts to obtain a non-disturbance agreement in form satisfactory to mortgagor. Lessor, provided that Lessee is not in default hereof, hereby agrees to make all payments under the existing mortgage or any future mortgage. 19.4 Attorney-in-Fact. Lessee, upon request of any party in interest, shall execute promptly such instruments or certificates to carry out the intent of Sections 19.1, 19.2 and 19.3 above as shall be requested by the Lessor. The Lessee hereby irrevocably appoints the Lessor as attorney-in-fact for -48- the Lessee with full power and authority to execute and deliver in the name of Lessor any such instruments or certificates. If fifteen (15) days after the date of a written request by Lessor to execute such instruments, the Lessee shall not have executed the same, the Lessor may, at its option, treat such failure as a default under this Lease. ARTICLE XX Cumulative Remedies - No Waiver No Oral Change 20.1 Cumulative Remedies. The specified remedies to which the Lessor may resort under the terms of this Lease are cumulative and are not intended to be exclusive with any other remedies or means of redress to which the Lessor may be lawfully entitled in case of any breach or threatened breach by the Lessee of any provision of this Lease. The failure of the Lessor to insist in any one or more cases upon the strict performance of any of the covenants of this Lease or to exercise any option herein contained shall not be construed as a waiver or a relinquishment for the future of such covenant or option. A receipt by the Lessor of any rent or other payment hereunder with or without knowledge of the breach of any covenant hereof shall not be deemed a waiver of such breach, and no waiver by the Lessor of any provision of this Lease shall be deemed to have been made unless expressed in writing and signed by the Lessor. In addition to the other remedies in this Lease provided, the Lessor shall be entitled to the restraint by injunction of the violation or attempted or threatened violation, of any of the covenants, conditions or provisions of this Lease or to a decree -49- compelling performance of any of the covenants, conditions or provisions of this Lease. 20.2 No Oral Change. This Lease may not be changed orally. ARTICLE XXI Captions and Headlines 21.1 Captions. The captions and headings throughout this Lease are for convenience and reference only and the words contained therein shall in no way be held or deemed to define, limit, describe, explain, modify, amplify or add to the interpretation, construction or meaning of any provisions of or the scope or intent of this Lease nor in any way affect this Lease. 21.2 Inferences. In the event that it shall be necessary to interpret any portion of this Lease, no inferences shall be drawn against either party since the parties agree that they each participated in the drawing and finalization of this Lease. ARTICLE XXII Recordation of Lease 22.1 Memorandum. The parties prefer to record a short form of this Lease, rather than the Lease itself, and contemporaneously with the execution hereof they have executed a Memorandum of Lease which may be recorded by either party, or upon the request of either party shall execute such Memorandum. -50- ARTICLE XXIII Covenants to Bind and Benefit Respective Parites 23.1 Binding Effect. The covenants and agreements herein contained shall bind and inure to the benefit of Lessor and Lessee and their respective heirs, legal representatives, successors and assigns, except as otherwise provided herein. ARTICLE XXIV Quiet Enjoyment - Lessee's Liability 24.1 Quiet Enjoyment. Lessee, upon paying the basic rent and all additional rent and other charges herein provided for and observing and keeping all covenants, agreements and conditions of this Lease on its part to be performed, shall quietly have and enjoy the demised premises during the term of this Lease without hindrance or molestation by anyone claiming by, or through Lessor, subject, however, to the exceptions, reservations and conditions of this Lease. ARTICLE XXV Miscellaneous 25.1 Inspection of Premises. Lessee has inspected the buildings on the demised premises and acknowledges that it is fully familiar with the condition thereof. No representations, promises or assurances, except such as are specified or endorsed herein have been made on the part of the Lessor prior to or at the execution of this Lease. Lessee will make no claim on account of any representations, promises or assurances whatsoever, whether made by any renting agent, broker, officer or other representative of Lessor or which may be contained in any -51- circular, prospectus or advertisement relating to the premises, or otherwise, unless the same is specifically set forth in this Lease. 25.2 Waiver of Jury Trial. In the event of any dispute between the parties under or arising out of this Lease the parties waiver any right to a trial by jury. 25.3 No Partnership or Joint Venture. Nothing in this Lease nor any action taken pursuant to it shall be construed to create a partnership or joint venture between the Lessor and Lessee for any purpose. 25.4 Covenants and Conditions. Each provision of this Lease to be performed by the Lessee or Lessor shall be construed as both a covenant and a condition. 25.5 Waiver. Failure of the Lessor or Lessee to enforce or insist upon performance of any of the terms of this Lease shall not be construed as a waiver of any other term or as a waiver of any future right to enforce or insist upon the performance of the same term. 25.6 Applicable Law. This Lease shall be construed pursuant to the laws of the State of Connecticut. 25.7 Brokerage. The Lessee represents that it has not had dealings with brokers or agents in connection with the negotiations of this lease. Lessee agrees to save and hold Lessor harmless and to indemnify the Lessor from and with respect to any and all costs, expenses and/or liabilities (including costs of suit and reasonable attorney's fees) for any compensation, commission or charges claimed by any realtor, broker or agent with respect to this Lease. Lessor represents -52- that it knows of no claim that has been made or can be made for a commission with regard to the within Lease. 25.8 Merger. No oral statement or prior written matters shall have any force or effect after the signing of this Lease. All such matters shall be merged herein and be superseded hereby. Lessee agrees that it is not relying on any representations or agreements other than those contained in this Lease. This Agreement shall not be modified except by a writing subscribed to by all parties nor may this Lease be cancelled by Lessee except with the written consent of Lessor. If any provision of this Lease shall become invalid or unenforceable, it shall not affect any other provision. This Lease shall not be binding upon Lessor until signed by both parties and delivered in executed form to each. This Lease may be executed in any number of counterparts and each such counterpart shall for all purposes be deemed to be an original; and all such counterparts shall together constitute but one and the same Lease. 25.9 Holding Over. Any holding over after the expiration of the term hereof, with the consent of the Lessor, shall be construed to be a tenancy at will at double the rents herein specified (pro rated on a monthly basis) and shall otherwise be on the terms and conditions herein specified, so far as applicable. 25.10 "Lessor" Defined, Exculpation. The term "Lessor" as used in this Lease means only the owner or the mortgagee in possession for the time being of the building in which the premises are located or the holder of a lease of both said building and the land thereunder so that in the event of any sale -53- of said building and the land thereunder or any assignment of this lease or any underlying lease or a demise of both said building and land, Lessor shall be and hereby is entirely freed and relieved of all obligations of Lessor hereunder and it shall be deemed without further agreement between the parties and such purchaser(s), assignee(s) or lessee(s) that the purchaser, assignee or lessee has assumed and agreed to observe and perform all obligations of Lessor hereunder. Notwithstanding anything to the contrary provided in this Lease it is specifically understood and agreed that there shall be absolutely no personal liability on the part of Lessor, or any individual partner thereof, with respect to any of the terms, covenants and conditions of this Lease, and that Lessee shall look solely to the equity of Lessor or its successor in interest in the premises or the leasehold estate of Lessor or such successor in the premises for the satisfaction of each and every remedy of Lessee in the event of any breach by Lessor or by such successor in interest of any of the terms, covenants and conditions of this Lease to be performed by Lessor, such exculpation of personal liability to be absolute and without any exception whatsoever. 25.11 Late Penalty. In the event that Lessee is more than fifteen (15) days late in the monthly payment of the basic annual rent, Lessee shall pay an amount equal to three (3%) per cent of any such monthly payment, which payment shall be due within five (5) days of billing by Lessor. -54- ARTICLE XXVI Security Deposit 26.1 Security Deposit. Lessee has deposited with Lessor as security for the performance by Lessee of the terms of this lease the sum of Fifty-four Thousand ($54,000.00) Dollars. Lessor may use, apply on Lessee's behalf or retain (without liability or interest except as hereinafter set forth) during the term the whole or any part of the security so deposited to the extent required for the payment of any rent or other sum as to which Lessee may be in default hereunder or for any sum which Lessor may expend by reason of Lessee's default in respect of any of the terms of this Lease, including but not limited to any deficiency or damage incurred in reletting the leased premises. The covenants of this paragraph are personal covenants between Lessor and Lessee and not covenants running with the land, and in no event will Lessor's mortgagee(s) or any purchaser at a foreclosure sale or a sale in lieu of foreclosure be liable to Lessee for the return of the security deposit. After each application from Lessee's security deposit, Lessee shall upon demand replenish said deposit to the amount set forth above. ARTICLE XXVII HAZARDOUS WASTE (a) Subject to the provisions of paragraph 5.1C hereof, Lessee shall during the term of this Lease comply with all applicable Governmental Requirements and precautions now or hereafter mandated or advised by any federal, state, local or other governmental agency with respect to the use, generation, storage, or disposal of hazardous, toxic or radioactive materials -55- (collectively, "Hazardous Materials") with respect to the Demised Premises. As herein used, Hazardous Materials shall include, but not be limited to, those substances defined as "hazardous substances", "hazardous materials", "hazardous wastes", "toxic substances", or other similar designations in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq. and any other governmental statutes, laws, ordinances, rules, regulations, advisories and guidelines. Lessee shall not cause, or allow anyone claiming under Lessee to cause, any Hazardous Materials to be used, generated, stored, or disposed of on or about the Premises, Building or Land without the prior written consent of Lessor, which consent may be withheld in the sole discretion of Lessor, and which consent may be revoked at any time. (b) Lessee's indemnification of Lessor shall extend to all liability, including all foreseeable and unforeseeable consequential damages, directly or indirectly arising out of the use, generation, storage or disposal of Hazardous Materials by Lessee or any other person claiming under Lessee during the terms of this Lease, including without limitation, the cost of any required or necessary repair, removal, cleanup, or detoxification and the preparation of any closure or other required plans, whether such action is required or necessary prior to or following the termination of this Lease, to the full extent that such action is attributable, directly or indirectly, to the use, -56- general, storage or disposal of Hazardous Materials by Lessee or any person claiming under Lessee, nor the strict compliance by Lessee with all Governmental Requirements and precautions pertaining to Hazardous Materials, shall excuse Lessee from Lessee's obligation of indemnification pursuant to this subsection (b). (c) If the presence of hazardous materials on the Premises caused or permitted by Lessee or any sub-tenant of Lessee results in contamination or deterioration of water or soil resulting in a level of contaminating greater than the levels established by any governmental agency having jurisdiction over such contamination, then Lessee shall promptly take any and all action necessary to clean up such contamination if required by law or as a condition to the issuance or continuing effectiveness of any governmental approval which related to the use of the premises. Lessee shall further be solely responsible for, and hereby indemnifies, and shall defend and hold Lessor and its agents harmless from and against all claims, cost, damages and liabilities, including attorney's fees and costs, arising out of or in connection with any removal, clean-up and restoration work and materials required hereunder to return the premises and any other property of whatever nature their condition existing prior to the appearance of the Hazardous Materials caused or permitted by Lessee. The Lessee shall have the right on or before May 1, 1990 to cause environmental tests and structural examination to take place at the premises. In the event that such tests or examination shall reveal any material faults in the structures or hazardous waste on the premises, Lessee shall have the right to terminate this -57- Lease and the Purchase Agreement referred to herein upon ten (10) days' written notice by registered or certified mail to Lessor. Notwithstanding such right to terminate, Lessor shall have the right to cure faults revealed by either such examination within ten (10) days of receipt of the notice from Lessee and in the event of such cure, the right to terminate shall become null and void and of no further force and effect. ARTICLE XXVIII OPTION TO PURCHASE Provided that Lessee is not In Default at the time of the exercise of this option or at the time of the closing as herein described, Lessee shall have the option to purchase from Lessor the premises described in Schedule "A" attached Hereto and made part hereof; and subject to the matters set forth in said schedule. The purchase price shall be in the following: During the First through the Fifth Lease Years ...............................................$6,800,000.00 During the Sixth Lease Year................................$7,600,000.00 During the Seventh through the Tenth Lease Years......................................................$8,150,000.00 During the Eleventh through the Twentieth Lease Years, at the fair market value of said premises but in no event at a price less than..................................................$7,600,000.00 In the event that the parties cannot agree on the fair market value of said premises, then the determination of said fair market value shall be made in the same manner as is set forth in Paragraph 2.3 hereof. The purchase price shall be paid in cash, certified check, or cashier's check at the time of closing, such checks to be -58- issued by a State or Federally chartered banking institution doing business in Fairfield County, Connecticut, or at Lessor's or Lessee's option, by a wire transfer. Notice of the exercise of this option shall be given at least ninety (90) days prior to the date on which title is to close and such notice shall designate the closing date. The closing shall be held at the offices of Wofsey Rosen Kweskin & Kuriansky, 600 Summer Street, Stamford, Connecticut. At the closing the following shall be apportioned in the manner normally used by the Danbury Bar Association. Rent, utilities, taxes and sewer rents, if any. Lessor shall deliver to Lessee a good and valid Connecticut Form of Warranty Deed conveying Lessor's fee simple interest in the property to Lessee, subject only to the matters set forth in Exhibit C attached hereto. Such exception to title will not materially affect the marketability of the premises nor the use allowed under this Lease. Lessor shall pay any conveyance taxes due. ARTICLE XXIX NOTICES All notices, demands and requests under this Lease shall be in writing and shall be sent by United States registered or certified mail, postage prepaid, return receipt requested, and addressed as follows: To Lessor: John D'Elia c/o Saul Kwartin, Esquire 600 Summer Street Stamford, Connecticut 06901 Copy to: John D'Elia 289 Mason Street Greenwich, CT 06830 -59- To Lessee: James G. Hetherington 102 Federal Road P.O. Box 436 Danbury, CT 06810 Lawrence Iannaconne c/o Dealership Management Associates 585 Route 440 Jersey City, NJ 07304 Robert W. Perrotti 3035 Whitney Avenue Hamden, Connecticut Either party may, by notice given to the other party, designate a new address to which notices, demands and requests shall be sent and, thereafter, any of the foregoing shall be sent to the address most recently designated by such party. Notices, demands and request shall be sent and, thereafter, any of the foregoing shall be sent to the address most recently designated by such party. Notices, demands and requests which shall be served upon Lessor or Lessee in the manner aforesaid shall be deemed to have been served or given for all purposes under this Lease at the time such notice, demand or request shall be mailed by United States registered are certified mail as aforesaid, in any post office or branch post office regularly maintained by the United States Government. ARTICLE XXXI GUARANTY SAMUEL X. DiFEO and JOSEPH DiFEO shall individually guarantee all of Lessee's obligations hereunder in accordance with the Guaranty Agreement attached hereto and made part hereof. Further, Fair Realty Company which Lessee represents is a General Partnership whose General Partners include SAM DiFEO and JOSEPH -60- DiFEO, will guarantee Lessee's obligation hereunder. The guarantee of Fair Realty Company and its partners shall be limited to its ownership interest in premises known as 102 Federal Road, Danbury, Connecticut presently owned by Fair Realty Company. In the event that Fair Realty Company shall sell or in any other way convey the said premises, then and in such event Fair Realty Company's Guaranty will be assumed by Sam DiFeo and Joseph DiFeo without the three-year limitation on the Guaranty which is attached hereto and made part hereof. ARTICLE XXXII CONDITION PRECEDENT This Lease shall not become effective unless and until a certain Contract dated March 27, 1990 between COLOMIAL SUZUKI, INC. and ACCURATE MOTORS, INC. as SELLERS and JAMES G. HETHERINGTON, or his assigns as BUYERS have been signed and the closing thereunder shall have been completed. IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease to be executed in duplicate, and their respective seals to be hereunto affixed, as of the day and year first above written. ATTEST: LESSOR ________________________ _________________________ ________________________ LESSEE _________________________ _________________________ _________________________ _________________________ -61- GUARANTY In consideration of the execution of the within Lease by Lessor, at the request of the undersigned and in reliance of this guaranty, the undersigned hereby guarantees unto Lessor, its successors and assigns, the prompt payment of all rent and the performance of all of the terms, covenants and conditions provided in said Lease, hereby waiving all notice of default, and consenting to any extensions of time or changes in the manner of payment or performance of any of the terms and conditions of the said Lease the Lessor may grant the Lessee, and further consenting to the assignments of the said Lease, and any modifications thereof, including the sub-letting and changing of the use of the demised premises, all without notice to the undersigned. The undersigned agrees to pay the Lessor all expenses incurred in enforcing the obligations of the Lessee under the within Lease and in enforcing this guaranty. This Guaranty shall be effective for a period of three (3) years and shall expire and terminate at the end of such period; except that any obligations which arose during such three-year period shall not expire or terminate until they have been fully satisfied. Witness:/s/_______________________ /s/ Sam X. DeFeo -------------------------------- SAM DeFEO /s/________________________ /s/ Joseph C. DeFeo -------------------------------- JOSEPH DeFEO MODIFICATION OF LEASE WHEREAS, the parties hereto are parties to or guarantors of a certain Lease dated September 27, 1990, covering premises on Federal Road, Danbury, Connecticut; and WHEREAS, it is the desire of the parties to modify said Lease as hereinafter set forth. NOW, THEREFORE, in consideration of the mutual agreements set forth herein, and in further consideration of One ($1.00) Dollar by each party paid to the other, the parties agree as follows: 1. Paragraph 2.2 is amended by adding the following language thereto: "In the event that SAMUEL X. DiFEO, JOSEPH C. DiFEO and ________________ shall not close title to certain real estate on Federal Road, Danbury, which is the subject of the Purchase Contract attached hereto and made part hereof as Exhibit A on or before November 15, 1992, then and in such event the option to cancel the Lease as set forth in Paragraph 2.2 shall become effective on November 15, 1997, subject to the notice provisions set forth in Paragraph 2.2. If the Lesssee shall exercise the option to cancel, Lessee shall pay to Lessor the sum of $120,000.00 in five (5) equal monthly payments of $24,000.00 each, commencing on the effective date of the cancellation". 2. Paragraph 2.3 is amended as follows. The first sentence of Paragraph 2.3 is eliminated and the following substituted therefor: "The Lessor grants to Lessee an option to extend the within Lease for two periods at the end of the basic term hereof, the first being for a period of five (5) years and the second being for a period of three (3) years. The right to exercise such option to extend is conditioned upon Lessee not being in default under any of the terms and conditions of this Lease. The rental provisions set forth in Paragraph 2.3 are changed as follows: "The monthly rent payable during the First Option Period shall be the lesser of $54,500.00 or one (1%) per cent of the value of said premises, but in no event said monthly rent during the First Option Period be less than $52,000.00 per month. Monthly rent payable during the Second Option Period shall be the lesser of $56,500.00 or one (1%) per cent of the fair market value of the premises at the commencement of said Second Extended Term, but in no event shall the rent be less than the rent paid during the First Extended Period. Reference to 'the Second Five (5) Year Option Period' in the last sentence of Paragraph 2.2 is changed to the phrase 'the Three-Year Option Period'. 3. Paragraph 3.1. In the event that the Purchaser does not close title to the premises covered by the Contract attached hereto as Exhibit A on or before September 15, 1993, then and in such event the rent payable pursuant to this Paragraph shall increase by $5,000.00 per month. 4. Article XXXI is amended by adding the following language thereto: -2- "The guarantees provided for in this Article shall be effective with respect not only to the basic Lease but also with respect to the modified Lease." 5. Paragraph 12.1 is amended by adding the following language after the words "Joseph DiFeo", to wit: "and/or _______ Holdings, Inc. of ____________________. Except as otherwise modified herein, the parties hereby confirm and ratify all of the other terms and conditions of the Lease above described. -3- IN WITNESS WHEREOF, the parties have hereunto set their hand and seal this _______ day of __________ 1992. FAIR IMPORTS CORP. d/b/a FAIR ACURA By____________________________ TJGHCC ASSOCIATES By____________________________ J & F ASSOCIATES By____________________________ ______________________________ SAMUEL X. DiFEO ______________________________ JOSEPH C. DiFEO -4- EX-10.2-30 20 EXHIBIT-10.2.30 LEASE AGREEMENT BY AND BETWEEN MANLY CHEVROLET, INC. Landlord, - and - COUNTY TOYOTA, INC., Tenant. ------------------------------ DATED: October 1, 1992 ------------------------------ COLE, SCHOTZ, BERNSTEIN, MEISEL & FORMAN, P.A. A PROFESSIONAL CORPORATION COURT PLAZA NORTH 25 MAIN STREET P.O. BOX 800 HACKENSACK, NEW JERSEY 07602-0800 (201) 489-3000 AGREEMENT OF LEASE Between MANLY CHEVROLET, INC. (hereinafter called "Landlord"), and COUNTY TOYOTA, INC., a New York corporation (hereinafter called "Tenant"). PREAMBLE BASIC LEASE PROVISIONS AND DEFINITIONS. In addition to other terms elsewhere defined in this Lease, the following terms whenever used in this lease should have only the meanings set forth in this section, unless such meanings are expressly modified, limited or expanded elsewhere herein. (1) Date of Lease: October 1, 1992 (2) Exhibits: The following Exhibits attached to this lease are incorporated herein and made a part hereof: Exhibit "A": Legal Description of the Property Exhibit "B": Site Plan (3) Building: 115 Route 59, Central Nyack, New York (4) Premises: The Land together with the Building, except as leased to Autocraft Body and Collision, Inc. and shown on Exhibit "B". (5) Land: The parcel of land described on Exhibit "A" (6) Term: ten (10) years (7) Commencement Date: October 1, 1992 (8) Fixed Rent: Two million Five Hundred Eighty Thousand ($2,580,000.00) Dollars, payable as follows: Lease Year Annual Rent Monthly Rent ---------- ----------- ------------ 1 $204,000 $17,000.00 2 224,000 18,666.67 3 224,000 18,666.67 4 224,000 18,666.67 5 264,000 22,000.00 6 264,000 22,000.00 7 264,000 22,000.00 8 304,000 25,333.33 9 304,000 25,333.33 10 304,000 25,333.33 -2- (9) Termination Date: Midnight on the last day of the month in which the tenth (10th) anniversary of the Commencement Date shall fall. (10) Permitted Uses: Auto dealership and ancillary uses, provided that in the exercise of said use, the Premises will not be in violation of the provisions of any "Environmental Acts", as hereinafter defined. (11) Tenant's address: 115 Route 59, Central Nyack, New York (12) Landlord's address: 215 Bush Avenue, Mahwah, New Jersey (13) Broker: None (14) Overlandlord: Estate of Mannie Rosen (15) Security: A Letter of Credit in accordance with the provisions of Paragraph 39 hereof to secure the lease obligations and Promissory Note of Tenant to Landlord in the principal face amount of Two Hundred Thousand ($200,000.00) Dollars, which Letter of Credit shall be in the following sums: Amount of Lease Year Letter of Credit ---------- ---------------- 1-4 $250,000 5-7 200,000 8-10 125,000 -3- W I T N E S S E T H : 1. Premises. The Landlord hereby leases the Premises to Tenant and Tenant hereby takes the Premises from Landlord, subject however, to all of the terms, covenants, provisions and conditions herein set forth and to all present and future encumbrances, conditions, rights, easements, restrictions, rights-of-way, covenants, other matters of record and zoning and building laws, ordinances, regulations and codes affecting or governing the Building and/or Land or which hereafter may affect or govern the Building and/or Land, and such matters as -may be disclosed by inspection or survey. TO HAVE AND TO HOLD the Premises for the Term and at the rents herein set forth. 2. Term. (a) The Term shall commence on the Commencement Date and shall terminate on the Termination Date, unless sooner terminated or extended as herein expressly provided. (b) For purposes of this lease, a "Lease Year" shall be deemed to be each consecutive period of twelve (12) full calendar months during the Term, except that the first Lease Year also shall include the fractional portion of the month, if any, immediately following the Commencement Date, and the last Lease Year shall run only from the day following the termination of the previous Lease Year to the Termination Date of the lease. 3. Possession. (a) Tenant, by entering into possession of the Premises, shall be conclusively deemed to have agreed that Landlord up to the time of such possession has performed all of its obligations hereunder, and that the Premises are in satisfactory condition as of the date of such possession. (b) Tenant, at its sole cost and expense, shall be required to procure any and all approvals from any governmental authorities having jurisdiction thereover, relating to or arising out of, the business of Tenant or its use or occupancy of the Premises, which approvals shall include but shall not be limited to, applicable use permits, Certificates of Continued Occupancy, any other permits and environmental protection approvals. Tenant agrees to make prompt application and to proceed diligently and in good faith to procure all necessary approvals (collectively, "approvals"), including all work in connection therewith, to furnish Landlord with true copies of all writing submitted or received in connection therewith and forthwith to notify Landlord in writing of all determinations regarding such approvals. If the applicable governmental authority shall require work to be performed to the Premises in order to issue a Certificate of Continued Occupancy, then Tenant forthwith shall notify Landlord and set forth in reasonable detail, the estimated cost of such work. Tenant shall bear the cost of such work up to a maximum amount of Five Thousand ($5,000.00) Dollars and Landlord shall bear the cost of such work over Five Thousand ($5,000.00) up to a maximum amount of Ten Thousand ($10,000.00) Dollars. If the cost of such work shall be reasonably estimated to exceed Ten Thousand ($10,00.00) Dollars, then the parties, within ten (10) days following Landlord's receipt of the said notice, shall agree on who shall bear the cost of such work. If the parties fail to agree, either party thereafter may terminate this Lease upon ten (10) days written notice to the other, provided that the other party may cancel the termination by agreeing to pay all additional costs. (c) Following the Commencement Date, Tenant shall not have the right to cancel this lease, seek a diminution of Rental, sue for damages, or assert any other contractual, legal or equitable remedy based either on a claim that Landlord failed to deliver possession in accordance with the terms of this lease or based on a claim that the size, location, layout, dimensions or construction of the Premises or the Building or any part thereof, were not completed or furnished in accordance with the terms hereof. Notwithstanding the foregoing, if during the Term hereof, Landlord is in default of any of its obligations hereunder, Tenant shall have such rights at law or equity to which it may be entitled, except that Tenant hereby waives any right to cancel or terminate this lease. As of the Commencement Date, Tenant shall be deemed to have certified to Landlord and to the holder of any mortgage to which this lease, is or at any time during the Term hereof shall be, subject and subordinate, that except as otherwise herein specifically provided, the Premises have been delivered to it in accordance with the terms of this lease and that possession thereof has been fully and completely accepted by Tenant and that the Term and the date for the payment of Rental hereunder shall have commenced, and that there is not then any offset against any Rental to be paid hereunder nor any violation of any of the terms of this lease on the part of Landlord. The foregoing provisions shall be self-operative and no further instrument or other writing shall be required unless Landlord and/or any mortgagee shall deem the same appropriate, in which event Tenant promptly shall execute any instrument or other writing containing the foregoing and such other similar provisions in regard to the condition of the Premises, the Rental and the Term, as shall be requested by the Landlord and/or said mortgagee(s), and Tenant hereby irrevocably constitutes and appoints Landlord as its attorney-in-fact having a power coupled with an interest to execute any such instrument or other writing for and on behalf of Tenant following at least ten (10) days' prior notice to Tenant or ten (10) days after Tenant's failure or refusal to execute the documents referred to above. 4. Intentionally Omitted. -2- 5. Rental. (a) Tenant covenants and agrees to pay to Landlord the Fixed Rent in equal monthly installments on or before the first day of each calendar month during the Term. If the Commencement Date shall be other than the first day of a month, Fixed Rent shall be paid on the Commencement Date on a pro-rata basis for the fractional part of the month between the date same is due and the last day of said month (based on a thirty (30) day month). (i) All other charges payable pursuant to this lease hereinafter are called "Additional Rental". All payments of Additional Rental, unless otherwise provided herein, shall be due and payable to Landlord in the same manner as is set forth in Paragraph 5(a) on the first day of the calendar month or ten (10) days following demand therefor, whichever shall later occur. (ii) If the Commencement Date shall be other than the first day of a month, then Tenant shall pay on the Commencement Date, any Additional Rental for the fractional portion of the month on a per them basis until the first day of the next succeeding month. Fixed Rent and Additional Rental herein are referred to collectively as "Rental". (b) If any payment of Rental due hereunder shall be overdue, a "late charge" may be charged at the rate of five (5%) percent per month on any Rental which is overdue, computed from the due date until payment thereof. This charge shall be in addition to and not in lieu of any other remedy Landlord may have under the circumstances and is in addition to any charge by Landlord to Tenant for reasonable fees and charges of any agents or attorneys Landlord may employ as a result of any default in the payment of Rental hereunder whether authorized herein or by law. Any such "late charges", if not previously paid, at the option of the Landlord, shall be added to and shall become cart of the succeeding Rental payment to be made hereunder and shall be deemed to constitute Additional Rental. (c) It is the intention of the parties hereto that t-e Fixed Rent payable hereunder shall be absolutely net to Landlord, so that this lease shall yield to Landlord the net annual Fixed Rent specified herein during the Term, and that all costs, expenses and obligations of every kind and nature whatsoever relating to the Premises shall be paid by Tenant, except as otherwise specifically provided for herein. 6. Use. The Premises are to be used by Tenant solely for the Permitted Use, and with the consent of Landlord, for any other uses lawfully permitted thereon without the obtaining of any variance in connection therewith. In all events, the Premises shall be used in accordance with all rules, regulations, laws, ordinances and requirements of all governmental -3- authorities, the Fire Insurance Rating or Service Organizations and any similar bodies having jurisdiction thereof and for no other purposes. Landlord represents that the Premises can be used for the Permitted Uses. 7. Insurance. (a) Tenant shall provide, on or before the Commencement Date, and shall keep in force at all times during the Term, at its sole cost and expense, a comprehensive public liability insurance policy insuring against any claim or liability for personal injury to or death of any person(s), and/or damage to property occurring in, on or about the Premises, or any appurtenances thereto. Such policy shall provide for combined single limits of liability thereunder of not less than Five Million ($5,000,000.00) Dollars in respect to personal injury or death to any one or to any number of persons or in respect to property damage, on a per occurrence basis. Tenant shall increase said limit from time to time upon the reasonable request of Landlord. (b) Tenant shall to obtain and keep in full force and effect at all times during the Term at its sole cost and expense: (i) fire, extended coverage and all risk insurance, on a full replacement basis, without co-insurance; (ii) policies of insurance insuring all improvements, alterations, additions, fixtures and contents installed or owned by Tenant in, on or at the Premises, against fire, vandalism, riot, malicious mischief, sprinkler leakage or other casualty with extended coverage, in amounts equal to the full replacement value, without co-insurance, of such improvements, alterations, additions, fixtures and contents; (iii) policies of rental insurance insuring at a minimum the Fixed Rent and Additional Rental due and payable hereunder for a minimum of twelve (12) months; and (iv) such other insurance as Landlord reasonably may request, from time to time. (c) Tenant agrees that its insurance policies to be obtained hereunder shall provide that the insurance carriers shall waive all rights of subrogation against Landlord and Overlandlord and that such policies shall not be invalidated should the insured waive in writing prior to a loss any or all right of recovery against any party for losses covered by such policies. Landlord agrees that any insurance policies relating to the Premises which it may obtain shall provide for a waiver of subrogation against Tenant. Tenant hereby waives and releases any and all right of recovery which it might otherwise have against Landlord, Overlandlord, their agents and employees, and all liability or responsibility of Landlord, Overlandlord, their agents and employees, for all injury and for loss or damage to its business, contents, furniture, furnishings, fixtures and other property of Tenant, to the extent that the same are insurable under any insurance policy, notwithstanding that such -4- injury, loss or damage may result from the negligence or fault of Landlord, Overlandlord or any of their agents or employees. (d) Tenant agrees to deliver to Landlord, at or prior to the Commencement Date, and thereafter at least thirty (30) days prior to the expiration of any such policy, either a duplicate original or a certificate of insurance and true copies of all policies procured by Tenant in compliance with its obligations hereunder, together with evidence of payment therefor. All of said policies of insurance shall be for the mutual benefit of and shall name Landlord, Overlandlord and their designees (without any obligation to pay premium) as well as Tenant as insureds as their interests may appear, and shall be in form, amounts and with insurance companies licensed to do business in the State of New York and satisfactory to Landlord. All such policies shall contain an endorsement stating that such insurance may not be canceled and/or amended except upon not less than thirty (30) days' prior written notice to Landlord and any designee of Landlord. (e) Landlord shall have the right, but shall not be required, to obtain any insurance policies relating to the Premises. 8. Increase of Insurance Rates. Tenant, at its sole cost and expense, agrees to comply promptly with all of the rules and regulations of the Fire Insurance Rating or Service Organizations and any similar bodies having jurisdiction over the Premises. If, at any time, as a result of or in connection with any failure by Tenant to comply with the foregoing provision, or as a result of any act of omission or commission by Tenant, its employees, agents, contractors, invitees, licensees or subtenants, or as a result of or in connection with the use to which the Premises are put, notwithstanding that such use may be for the Permitted Use or that such use may have been consented to by Landlord, any insurance rate applicable to the Building and/or to the contents thereof shall be increased or shall be higher than that which would be applicable for the least hazardous types of occupancy legally permitted therein, then and in any of such events, Tenant shall pay such additional premiums for all insurance policies in force with respect to the Premises. Tenant, at its sole cost and expense, promptly shall make whatever changes are necessary to prevent or remedy such condition and to comply with all requirements of Landlord, Landlord's insurers, the Board of Fire Insurance Underwriters or Service Organization or any similar body and any governmental authority having jurisdiction thereof. For the purposes of this Paragraph, any finding or schedule of the Fire Insurance Rating or Service Organization or any similar organization having jurisdiction shall be deemed to be conclusively binding on the parties hereto. -5- 9. Fire and Other Casualty. (a) If at any time during the Term, the Premises shall be damaged in whole or in part or wholly or partially destroyed from fire or other casualty (including any casualty for which insurance coverage was not obtained) of any kind or nature, regardless of whether said damage or destruction resulted from an act of God, the fault of Tenant, Landlord, Overlandlord, or from any other cause whatsoever, Tenant promptly shall replace, repair and rebuild the damaged or destroyed improvements and buildings, at least to the extent of the value of the improvements and buildings, and as nearly practicable to the character of the buildings or improvements, existing immediately prior to such occurrence, herein referred to as "Rebuilding". Such Rebuilding shall be in accordance with all applicable governmental requirements and in accordance with plans and specifications therefor which first shall be submitted to and approved by Landlord, which approval shall not be unreasonably withheld. (b) All insurance proceeds paid pursuant to any policy of insurance on account of such destruction or damages, less the cost, if any, incurred in connection with the adjustment of the loss and the collection thereof (herein sometimes referred to as the "insurance proceeds"), shall be applied to the payment of the cost of the Rebuilding, and shall be endorsed to and held by Landlord, in trust, and shall be paid out to or for the account of the Rebuilding from time to time as such work progresses, in accordance with usual lending institution procedures for funding of construction loans, provided Landlord reasonable determines that the insurance proceeds are sufficient to pay all costs and expenses related to the Rebuilding. If said proceeds are insufficient, then such proceeds shall not be paid out unless and until Tenant shall satisfy Landlord that Tenant has sufficient funds to pay such deficit and such portion of the cost of Rebuilding shall have been paid for by Tenant so that the funds held by Landlord pursuant to this Paragraph 9(b) shall be sufficient to pay for the remaining cost of the Rebuilding. if Tenant shall fail to satisfy Landlord that it has sufficient funds to pay such deficit within twenty (20) days following receipt of insurance proceeds, Landlord at any time thereafter, until it shall be so satisfied, shall have the right to retain all insurance proceeds and to terminate this lease on not more than one (1) year's notice to Tenant. (c) Upon Landlord's receipt of evidence reasonably satisfactory to it that the Rebuilding has been completed in accordance herewith and paid for in full and that there are no liens on the Premises as a result thereof, Landlord shall pay to Tenant from said insurance proceeds, any remaining unreimbursed costs resulting from the Rebuilding. All excess funds shall be retained by Landlord. (d) Under no circumstances shall Landlord be obligated to make any payment, disbursement or contribution towards the -6- cost of the Rebuilding except to the extent of the insurance proceeds actually received by the Landlord in accordance herewith. (e) In the last year of the Term, Tenant shall have the option not to Rebuild in the event of a major casualty requiring the expenditure of more than One Hundred Thousand ($100,000.00) Dollars to complete the Rebuilding thereof, in which event, Landlord shall be entitled to all insurance proceeds, and Tenant shall remain liable for Rental payments for the balance of the Term. 10. Repairs and Maintenance. Tenant acknowledges that as of the Commencement Date, it shall have inspected and examined the Premises and that it has entered into this lease without any representations on the part of Landlord, Overlandlord, their agents or representatives, as to the condition thereof, including, but not limited to, its environmental condition, is leasing and accepting the Premises "as-is" subject only to the provisions hereof, and is not relying upon any representation or statement made by Landlord as to the condition, character, quality or value of the same. Tenant, at its sole cost and expense, shall take good care of the Premises and shall keep, repair, replace and maintain the Premises in good order, condition and repair, and each and every part thereof including, without limitation, the structure, roof, exterior walls, floors, downspouts, gutters, glass, electrical, plumbing, heating, ventilating and air-conditioning systems, elevators, painting and decorating and repairs and replacements to the parking and outside areas and any improvements located thereon including, without limitation, all landscaping). Tenant shall not cause nor permit any dirt, debris or rubbish to be put, placed or maintained an the sidewalks, driveways, parking lots, yards, entrances and curbs and shall remove same at its sole cost and expense. Tenant further agrees to keep the Premises in a clean and sightly condition and well lit during appropriate hours and to keep same free of snow and ice. 11. Covenants Against Liens. (a) Tenant shall not do any act, nor make any contract which may create any lien or other encumbrance upon all or any part of the Premises, nor permit nor suffer same, on account of work performed or materials supplied or furnished for or to Tenant or the Premises. if, because of any act or omission (or alleged act or omission) of Tenant, any mechanic's or other lien or encumbrance shall be filed against all or any part of the Premises, whether or not such lien or encumbrance is valid or enforceable as such, Tenant, at its sole cost and expense, shall cause same to be discharged of record or bonded within ten (10) days after notice to Tenant of the filing thereof; and Tenant shall indemnify and save harmless Landlord and Overlandlord against and from all damages, costs, liabilities, suits, penalties, claims and demands, including reasonable counsel fees, -7- resulting from the creation of such lien or encumbrance. if Tenant fails to so comply, Landlord shall have the option, in addition to declaring a default hereunder, of discharging or bonding any such lien or encumbrance, and Tenant agrees to reimburse Landlord and/or Overlandlord for all costs, legal fees and other expenses incurred in connection therewith, together with interest thereon at the lesser of: (i) the annual rate equal to four (4t) percent above the annual prime interest rate extended by Chase Manhattan Bank, N.A. at its New York office as of the date of payment by Landlord; or (ii) the highest rate permitted by law (said rate of interest hereinafter being called the "Lease Interest Rate"), which interest shall commence to run as of the date of payment and which sums, including the said interest, shall be deemed to constitute Additional Rental. All materialmen, contractors, artisans, mechanics, laborers and any other persons now or hereafter contracted by Tenant for the furnishing of any labor, services, materials, supplies or equipment, at any time from the date hereof until the end of the Term, are hereby charged with notice that they must look exclusively to Tenant to obtain payment for same. Tenant, following notice to Landlord, shall have the right to contest by appropriate legal proceedings, at its sole cost and expense, the validity of any mechanic's lien filed against the Premises; provided, however, that: (i) any noncompliance or contest shall not constitute a crime on the part of Landlord and/or Overlandlord or otherwise adversely affect, jeopardize or threaten the interests of Landlord and/or Overlandlord; (ii) Tenant diligently shall prosecute any such contest to a final determination by a court, department or governmental authority having final jurisdiction and shall keep Landlord advised in writing as to all changes in status and determinations in connection with any such proceedings; (iii) Tenant shall indemnify and save harmless Landlord and Overlandlord against and from any and all losses, costs, expenses, claims, penalties, actions, demands, liabilities, judgments or other damages which Landlord and/or Overlandlord may sustain by reason of such contest or as a result of Tenant's failure or delay in compliance, including, without limitation, reasonable attorneys' fees; and (iv) Tenant shall provide such reasonable security as shall be requested by Landlord. In no event shall Tenant defer compliance if such deferment would constitute a violation of any of the provisions of any mortgage. Landlord agrees to cooperate reasonably with Tenant and to execute any documents or pleadings reasonably required for the purpose of any such contest; provided that the same shall be without cost, expense or obligation to Landlord and/or Overlandlord. Landlord shall have the right, but not the obligation, to contest by appropriate legal proceedings, at Landlord's expense, any such law, ordinance, rule, regulation or requirement. (b) Nothing in this lease shall be deemed to be, or construed in any way as constituting, the consent or request of Landlord and/or Overlandlord, expressed or implied, by inference or otherwise, to any person, firm or corporation for the -8- performance of any labor or the furnishing of any materials for any construction, rebuilding, alteration, addition or repair of or to the Premises or any part thereof, nor as giving Tenant any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials which might in any way give rise to the right to file any lien against the Premises. Landlord shall have the right to post and keep posted on the Premises any notices which Landlord shall deem necessary for the protection of Landlord, Overlandlord and/or the Premises from any such lien. 12. Alterations. (a) Tenant shall not make or cause or permit the making of any repairs, alterations, additions, or improvements in or to the Premises without obtaining Landlord's prior written consent thereto in each instance. Such work shall not be commenced until Tenant shall submit to Landlord plans and specifications relating to any such repairs, alterations, additions or improvements, and all such work shall be performed in accordance with the provisions of this lease. Landlord shall have the right to determine if such work would reduce the value, size or general utility of the Premises or any portion thereof, or whether such work maintains the architectural harmony of the Building. Any approval by Landlord as aforesaid may be upon condition that Tenant furnish to Landlord such evidence of Tenant's financial ability to assure completion thereof and payment therefor, as Landlord reasonably may require, including the furnishing of adequate security. All repairs, alterations, additions or improvements, when installed or attached to the Premises, shall belong to and become the property of Landlord and shall be surrendered with the Premises and as part thereof, upon the expiration or sooner termination of this lease without compensation to Tenant. However, if Landlord shall elect, Tenant, at its sole cost and expense, shall remove any alterations, additions and improvements prior to the expiration or other termination of this lease and repair all damage caused by such removal and restore the Premises to the condition they were in prior to the installation of any such alteration, addition or improvement. Nothing herein contained shall be construed to restrict Tenant's right to make any alterations, additions or improvements in Tenant's own movable trade fixtures. The provisions of this Paragraph are subject to the terms and conditions of any mortgage, including the necessity of obtaining the consent of such mortgagee and .he approval of its architect, if required. (b) Any work performed by Tenant shall be subject to Landlord's inspection and approval after completion to determine whether it complies with the requirements of this lease. The approval or consent of Landlord shall not relieve Tenant of its obligation that all such repairs, alterations, improvements and/or additions be constructed and performed in a good and workmanlike manner and in accordance with all applicable -9- governmental and fire underwriting requirements, nor constitute a waiver of any rights of Landlord if Tenant fails to perform its obligations. Tenant, at its sole cost and expense, shall procure all necessary governmental approvals, permits or certificates in connection with all work performed by Tenant in, on or at the Premises and shall deliver the original of all such approvals, permits or certificates to Landlord to be retained by Landlord. (c) During the course of any and all repairs, alterations, additions or improvements which the Tenant either shall be required to perform or which the Tenant shall elect to perform, Tenant, at its sole cost and expense, at all times, shall obtain and maintain or cause to be obtained and maintained, workmen's compensation insurance and any other insurance which shall then be required by law, together with public liability insurance as set forth in Paragraph 7 hereof, to insure against any additional hazards created in connection with the performance of any of the aforesaid work. Prior to the commencement of any such work, Tenant shall deliver to Landlord copies of all policies of insurance required pursuant to this subparagraph 12(c). 13. Condemnation. (a) If the whole or substantially all of the Premises shall be taken for any public or quasi-public use under any statute or by right of eminent domain, or by private purchase in lieu thereof, then this lease shall automatically terminate as of the date that title shall be taken. If a part of the Premises shall be so taken as to render the remainder thereof unusable for the purpose for which the Premises are leased, then Landlord and Tenant each shall have the right to terminate this lease on thirty (30) days' notice to the other, given within ninety (90) days following the date of such taking. If this lease shall terminate or be terminated, the Rental hereunder shall be equitably adjusted as of the date of termination. (b) If a part of the Premises shall be so taken and this lease shall not be terminated pursuant to the provisions of subparagraph (a) above, then the Rental shall be equitably apportioned according to the square footage of the Building so taken and this lease, in all other respects, shall remain in full force and effect, and Tenant, at its own cost and expense, shall restore the remaining portion of the Premises to the extent necessary to render it reasonably suitable for the purposes for which the Premises are leased, provided that such work need not exceed the scope of the work necessary to restore the remainder of the Premises to the condition in which they were delivered at the Commencement Date, ordinary wear and tear excepted. Landlord shall hold in trust the portion of net proceeds received on account of such condemnation award directly related to the performance of such work and shall disburse same in accordance with the provisions of Paragraph 9 hereof. -10- (c) Subject only to the provisions of subparagraph (b), all compensation awarded or paid upon such a total or partial taking of the Premises shall belong to and shall be the property of Landlord and/or overlandlord, and without any sharing by Tenant, whether such compensation results from diminution in value of the leasehold or to the fee interest in the Premises. Tenant, however, shall have the right to seek and prosecute any claim directly against the condemning authority in such condemnation proceedings for moving expenses, inventory and/or movable trade fixtures, furniture and other personal property belonging to Tenant, so long as such claim shall not diminish or otherwise adversely affect the award of Landlord, Overlandlord, any mortgagee. (d) Tenant agrees to execute and deliver such instruments as may be deemed necessary or required to expedite any condemnation proceedings or to effectuate a proper transfer of title to such governmental or other public authority, agency, body or public utility seeking to take or acquire the Premises or any portion thereof. Tenant covenants and agrees to vacate the Premises, remove all of its personal property therefrom and to deliver up peaceable possession thereof to Landlord or to such other party designated by Landlord. Failure by Tenant to comply with any provision hereof shall subject Tenant to such costs, expenses, damages and losses as Landlord may incur, including attorneys' fees, by reason of Tenant's breach hereof. 14. Access and Right to Exhibit. (a) Landlord, Overlandlord and their designees shall have the right to place and maintain all utility equipment of any kind in or on the Premises as may be necessary or desirable to serve the Premises or any portion thereof. Landlord, Overlandlord and their designees shall have the right to enter upon the Premises at all reasonable hours (and in emergencies at all times): (i) to inspect the same; (ii) to make repairs, additions or alterations to the Premises and/or the utility lines serving same or to prevent waste or depreciation thereof; (iii) to exhibit the Premises to any prospective purchaser or mortgagee; (iv) to determine and/or comply with its obligations pursuant to Paragraph 21(b) hereof; or (v) for any other lawful purpose. This Paragraph shall not be deemed to be a covenant by Landlord and/or Overlandlord nor be construed to create an obligation or duty on the part of Landlord and/or Overlandlord to make such installation, maintenance, inspection, repairs, additions or alterations except as otherwise specifically herein provided. Any performance by Landlord and/or Overlandlord hereunder shall not be deemed a constructive eviction or a waiver of Tenant's default in failing to perform same, nor shall Landlord and/or Overlandlord be liable for any inconvenience, disturbance, loss of business, loss of use of the Premises or any other damage suffered by Tenant due to said performance by Landlord and/or Overlandlord, and the obligations of Tenant pursuant to this lease shall not be affected in any manner -11- whatsoever. Landlord agrees to exercise due care to cause the least reasonably possible interference with Tenant's business in the exercise of its rights hereunder but Landlord and/or Overlandlord shall not be required to employ labor on weekends or on an overtime basis to avoid or reduce any such interference. (b) For a period commencing nine (9) months prior to the end of the Term, Landlord and its designees shall have reasonable access to the Premises for the purpose of exhibiting the same to prospective tenants and during the last three (3) months of the Term, to post any "To Let" or "To Lease" signs upon the Premises. 15. Assignment. (a) Tenant shall not sublet the Premises or any part thereof, nor assign, mortgage or otherwise encumber or dispose of this lease or any interest therein, nor grant concessions or licenses for the occupancy of the Premises or any part thereof without Landlord's prior consent. Landlord shall not be obligated to consider any request for approval unless the following conditions are satisfied: (i) Tenant shall request Landlord's consent in writing, which writing shall set forth the name and address of the assignee or sublessee, the rental to be paid by said assignee or sublessee, the proposed effective date of such assignment or subletting, together with all other terms and conditions of said assignment or subletting; (ii) At the time of such assignment and/or subletting, this lease must be in full force and effect without any breach or default thereunder on the part of Tenant or without any act or omission which, with the passage of time, would constitute a breach or default hereunder; (iii) The assignee or sublessee shall assume, by written recordable instrument, in form and content reasonably satisfactory to Landlord, the due performance of all of Tenant's covenants, conditions and obligations hereunder, including any accrued obligations at the time of the assignment or subletting; (iv) A copy of the assignment or sublease and the original assumption agreement, in form and content satisfactory to Landlord, fully executed and acknowledged by the assignee and/or sublessee; a certified copy of a properly executed corporate resolution, if applicable, authorizing and accepting such assignment, subletting or assumption agreement; unaudited financial statements of the proposed assignee or sublessee for its three (3) most recently completed fiscal years prior to the request for consent hereunder prepared in accordance with generally accepted accounting principles and evidencing a financial condition that in Landlord's sole opinion is satisfactory; and such other information as Landlord reasonably -12- may request; shall be delivered to Landlord together with the notice required pursuant to subparagraph 15(a)(i) above; (v) Such assignment and/or subletting shall be upon and subject to all of the provisions, terms, covenants and conditions of this lease, and Tenant and any prior assignee or sublessee shall continue to be and remain primarily, jointly and severally liable hereunder for the due performance of all of the provisions, terms, covenants, conditions and obligations hereunder, including, but not limited to, all payment of Rental; and (vi) Tenant and said assignee or subtenant shall comply with all applicable governmental laws, ordinances, rules and regulations in connection with said assignment or subletting, and Tenant, its assignee or subtenant shall bear the sole cost and expense of complying therewith. (b) Notwithstanding anything herein contained to the contrary and notwithstanding any prior consent by Landlord, no subtenant or assignee shall assign or sublease further all or any portion of the Premises without Landlord's prior consent in each such instance and without compliance with the provisions of this Paragraph. (c) Any and all payments agreed to be made to Tenant by any assignee or sublessee shall accrue to and be paid over to Landlord, it being understood and agreed that said assignee or sublessee shall pay the Rental and all other monies and charges directly to Landlord, but in no event shall Tenant be entitled to a credit for any part of such payment in excess of the Rental to be paid to Landlord hereunder for a corresponding period. (d) Intentionally Omitted. (e) Notwithstanding the foregoing provisions of this Paragraph, Tenant shall have the right, without the necessity of obtaining Landlord's consent, but subject to all other provisions of this Paragraph 15, to: (i) Sublet all or part of the Premises to any parent or wholly owned subsidiary of Tenant; (ii) Assign this lease to any parent or wholly owned subsidiary of Tenant; or (iii) Assign this lease to a corporation, partnership or other entity which succeeds to all or substantially all of the assets and business of Tenant or into which Tenant is merged, if the net worth of such to ration, following such assignment, equals or exceeds the net worth of Tenant at the date hereof or immediately prior to such assignment, whichever is greater; -13- provided, however, that Tenant, at all times, shall be and remain primarily, jointly and severally liable under this lease despite any such subletting or assignment and provided further that the income tax consequences to Landlord from the income derived hereunder shall not be adversely affected. (f) In addition to the right of the Landlord to declare this lease to be in default, the failure of the Tenant or its assignee or sublessee to comply with any of the provisions and conditions of this Paragraph, at Landlord's option, shall render any purported assignment or subletting null and void and of no force and effect. (g) It is acknowledged that the sale, transfer, conveyance or other disposition of fifty (50%) percent or more of the outstanding capital shares of Tenant, and/or any disposition or modification of the voting control of the present shareholders of Tenant, shall constitute an assignment of lease pursuant to the provisions of this Paragraph 15. 16. Rules and Regulations, Compliance With Laws. (a) Tenant, at all times during the Term hereof, and at its sole cost and expense, agrees: (i) to pay promptly and when due, all taxes, licenses, fees, assessments or other charges levied or imposed upon the business of Tenant or upon any fixtures, furnishings or equipment in, on or at the Premises; (ii) not to commit, permit nor allow any waste, defacement, damage or nuisance to the Premises or any portion(s) thereof, nor use, permit nor allow the plumbing facilities to be used for any purpose injurious to same or dispose of any garbage or any other foreign substance therein, nor place a load on any floor in the Premises exceeding the floor load per square foot which such floor was designed to carry, nor install, attach, operate and/or maintain in the Premises any heavy equipment or apparatus without the consent of Landlord, nor install, operate and/or maintain in the Premises any electrical equipment which will overload the electrical system therein, or any part thereof, beyond its capacity for proper and safe operation as determined by Landlord or which does not have Underwriter's approval; (iii) to keep the Premises in a neat, clean, orderly and sanitary condition, free of all insects, rodents, vermin, pests, animals or pets of every type and kind; (iv) not to use, permit or allow the Premises to be used for any purpose or business which would: cause excessive depreciation or which is illegal, noxious, offensive because of the emission of noise, smoke, dust, vapors or odors or which could damage the Premises or any portion(s) thereof; or be a nuisance or menace to or interfere with, the public; or require -14- any plan and/or bond to be furnished or require any work to be performed to cure and/or correct any condition created by Tenant, pursuant to any applicable governmental law or requirement; or be for a purpose not permitted by this lease; (v) to comply with the requirements of all suppliers of utility services to the Premises and not to suffer or permit any act or omission, the consequence of which could be to cause the interruption, curtailment, limitation or cessation of any utility service to the Premises. (b) Tenant, at its sole cost and expense, agrees to comply promptly with all ordinances, orders, rules, regulations and requirements of all federal, state, county and municipal governments and appropriate departments, commissions, boards and offices thereof, foreseen or unforeseen, ordinary as well as extraordinary, and whether or not the same presently shall be within the contemplation of the parties hereto or shall involve any change of governmental policy or require extraordinary or structural repairs, alterations, equipment or additions or any work of any kind, which may be applicable to the Premises, or the purposes to which the Premises are put, or the manner of use of the Premises at the commencement of or during the Term. The provisions of Paragraph 12 shall apply to all work to be performed by Tenant pursuant to this Paragraph. (c) No abatement, diminution or reduction of the Rental or other charges required to be paid by Tenant pursuant to the terms of this lease shall be claimed by or allowed to, the Tenant for any inconvenience, interruption, cessation or loss of business or otherwise caused directly or indirectly by any present or future laws, rules, requirements, orders, directions, ordinances or regulations of any governmental or lawful authority whatsoever, or as a result of any diminution of the amount of space used by Tenant caused by legally required changes in the construction, equipment, operation or use of the Premises. (d) Tenant, following notice to Landlord, shall have the right to contest by appropriate legal proceedings, at its sole cost and expense, the validity of any law, ordinance, order, rule, regulation or requirement of the nature referred to in subparagraph 16(b); provided, however, that: (i) any noncompliance shall not constitute a crime on the part of Landlord and/or Overlandlord or otherwise adversely affect, jeopardize or threaten the interest of Landlord and/or Overlandlord; (ii) Tenant shall prosecute diligently any such contest to a final determination by a court, department or governmental authority having final jurisdiction and shall keep Landlord advised in writing as to all changes in status and determinations in connection with any such proceedings; and (iii) Tenant shall indemnify and save harmless Landlord and Overlandlord against any and all losses, costs, expenses, claims, penalties, actions, demands, liabilities, judgments or other damages which Landlord and/or Overlandlord may sustain by reason -15- of such contest or as a result of Tenant's failure or delay in compliance, including, without limitation, reasonable attorneys, fees. It is agreed however, that Landlord has the right to demand that the Tenant furnish adequate security to ensure its ability to perform its indemnity obligations hereunder, which security if so requested, shall be furnished to Landlord prior to the Tenant commencing or continuing with such contest, as the case may be. In no event shall Tenant defer compliance if such deferment would constitute a violation of any of the provisions of any mortgage. Landlord agrees to cooperate reasonably with Tenant, and to execute any documents or pleadings reasonably required for the purpose of any such contest, provided that the same shall be without cost, expense or obligation to Landlord. Landlord shall have the right, but not the obligation, to contest by appropriate legal proceedings, at Landlord's expense, any such law, ordinance, rule, regulation or requirement. (e) Tenant, at its sole cost and expense, shall fulfill, observe and comply with all of the terms and provisions of and shall cure all violations arising during the Term hereof from all applicable governmental laws, rules, regulations, ordinances and/or requirements relating to air, ground and/or water pollution, the use, storage, discharge, creation or maintenance of Hazardous Substances and Wastes (as defined in any applicable Environmental Act) in, on, under, above or around the Premises, and protection and/or preservation of the environment, as the same may be amended from time to time (all such laws, rules, regulations, ordinances and requirements herein called the "Environmental Acts"), including, without limitation, all rules, regulations, ordinances, opinions, orders and directives issued or promulgated by any Department of Environmental Protection, or any subdivision or bureau thereof or any other governmental or quasi-governmental agency, authority or body having jurisdiction over such matter(s) (herein referred to collectively and individually as applicable, as the "DEP"). Without limiting the foregoing, Tenant agrees that it shall properly and accurately label and segregate all materials stored at the Premises; prepare, deliver and/or file with the applicable governmental authorities, all forms, certificates, notices, documents, plans and other writings, and furnish all such other information as may be required or requested by Landlord, any mortgagee or any applicable governmental authority, in connection with compliance or curing of any applicable requirement during the Term hereof, related to the ownership, leasing or use of the Premises; the termination of this lease; the sale, transfer or mortgaging of the Premises; or the closing, terminating or transferring of operations, as the same are defined in the Environmental Acts. (f) Tenant agrees: (i) At its sole cost and expense, to promptly discharge and remove any lien or other encumbrance arising out of Tenant's failure to comply with the provisions of this lease and/or any Environmental Acts, placed against the Premises or any -16- other property owned or controlled in whole or in part by Landlord, Overlandlord or any related entity or party; and (ii) It shall and hereby agrees to indemnify and hold Landlord and/or overlandlord harmless from and against any and all liability, penalties, losses, expenses, damages, costs, claims, causes of action, judgments and/or the like, of whatever nature, including but not limited to, reasonable attorneys' fees and other costs of litigation or preparation therefor, arising out of or in connection with Tenant's failure or inability, for any reason whatsoever, to observe or comply with any Environmental Acts pursuant hereto. (iii) Upon delivery or receipt, as the case may be, to deliver to Landlord, copies of all documents which it shall forward to or receive from any governmental authority with respect to all Environmental Acts. (iv) Whenever any Environmental Act requires the "owner or operator" to do any act, related to any act or conduct occurring during the Term hereof, Tenant shall do such act at its sole cost and expense, it being the intention of the parties hereto that Landlord and Overlandlord shall be free of all expenses and obligations arising from or in connection with compliance with any Environmental Act arising from or relating to any act or conduct occurring during the Term hereof and that Tenant shall fulfill all such obligations and pay all such expenses. (g) Tenant agrees that each and every provision of this Paragraph 16 shall survive the expiration or earlier termination of the Term of this lease, regardless of the reason for such termination, it being agreed and acknowledged that Landlord would not have entered into this lease but for the provisions of this Paragraph 16 and the survival thereof. 17. Utilities. Tenant agrees to pay as and when the same become due and payable, all water rents, rates and charges, all sewer rents and all similar charges assessed or charged to the Premises during the Term, all charges for electricity, gas, heat, steam, hot water and all other utilities supplied to the Premises during the Term, together with the cost of repair, maintenance, replacement and reading of all meters measuring Tenant's use or consumption thereof, whether supplied by Landlord, Overlandlord or by a public or private utility company. If Landlord and/or Overlandlord shall supply any or all of the aforesaid services, the charges therefor shall be deemed Additional Rental and shall be collectible as such on the first day of the month following the demand for payment thereof. If any or all of the aforesaid services shall be supplied by others and are not paid as the same become due and payable, Landlord shall have the right, but not the obligation, to make such payments, in which event, a sum equal to any such payments shall be paid on the first day of the month following the demand for payment thereof, as Additional -17- Rental, and shall be collectible as such, together with interest thereon at the Lease Interest Rate, and which interest shall commence to run from the date of payment. In no event shall Landlord and/or Overlandlord be responsible or liable for the failure to supply Tenant or for the failure of the Tenant to receive or for fluctuations in the supply of any utility service, nor shall Tenant be entitled to any cessation, abatement, reduction or other offset of Rental in the event of any failure to receive any utility service. 18. Signs. Tenant, at its sole cost and expense, may provide, install and maintain such signs as Tenant may be requested by Toyota Motor Company, provided: (i) such installation be made in such manner as will not affect any roofing bond and/or other guarantee which then shall be in force and effect and (ii) all such signs, at all times, shall conform to all applicable rules, regulations, codes and ordinances of any governmental agencies having jurisdiction thereover. All such signs shall be provided, installed, maintained in good condition and repair and removed at the termination of the lease, at Tenant's sole cost and expense. Tenant further agrees that it will not place any advertisements or other type of structure or obstruction on the roof facade or walls of the Premises and that it shall not operate any loudspeaker or other device which can be heard outside of the Premises. If Landlord, Overlandlord and/or their agents deem it necessary to remove any such signs in order to paint or make any repairs, alterations or improvements in or upon the Building or any part thereof, they may be so removed, but shall be replaced at Landlord's expense when the said repairs, alterations or improvements shall have been completed. Nothing contained in this Paragraph shall create any obligation on the part of the Landlord and/or Overlandlord to make any repairs, alterations or improvements. 19. Taxes. (a) Tenant covenants and agrees that it shall pay all real estate taxes, assessments, added assessments and other governmental charges or substitutes therefor (hereinafter collectively called "Taxes") levied, imposed, assessed or fixed on or against the Land and improvements thereon or arising from the use, occupancy or possession thereof, during the Term hereof. (b) Tenant shall have the right to contest in good faith any of said Taxes, at its own cost and expense, provided, however, that notwithstanding such contest, Tenant, at all times, shall: when due, pay all of the Taxes then due; comply with all applicable laws, rules and regulations regarding the payment of taxes; not take any action which would adversely affect, threaten or jeopardize the interest of the Landlord and/or Overlandlord in the Land, improvements, or any part thereof; and promptly pay, indemnify and save Landlord and Overlandlord harmless from, all penalties and interest which may be charged or imposed as a result of or during the pendency of, any such contest. In the -18- event of any such contest, Landlord agrees to reasonably cooperate and to execute any necessary documents, provided, however, that the same shall be without any cost or expense to Landlord and/or Overlandlord. Tenant shall notify Landlord of the filing of any tax appeal or contest not later than forty-five (45) days prior to the deadline for the filing of any such tax appeal or contest for each such tax year during the Term hereof. (c) In the event that Tenant shall fail to contest all of such Taxes or shall fail to notify Landlord or its filing of any such appeal or contest, then and in either of such events, Landlord and/or Overlandlord shall have the right, but not the obligation, to contest, at its own cost and expense, any of such Taxes, and Landlord shall be entitled to all of the proceeds of any refund received as a result of such contest, together with the receipt of payments by Tenant of sums equal to all reductions or savings in future Taxes resulting from or arising out of said appeal or contest, which sums shall be paid on an annual basis, within thirty (30) days following demand therefor, or pursuant to the provisions of Paragraph 19(e). Said payments shall be deemed to constitute Additional Rental. (d) Tenant shall pay Taxes directly to the applicable taxing authority prior to the date same are due and payable (without penalty or interest being imposed) and shall forward Landlord a copy of the check and receipted tax bill within five (5) days after payment. (e) Landlord, at any time and from time to time, may elect to have Tenant pay one-twelfth (1/12) of the Taxes on the first day of each and every month following such election, together with such escrow amounts as Landlord reasonably may request. Tenant shall pay an amount reasonably estimated by Landlord until a different amount is designated by Landlord, which payments are designated as Additional Rental. There shall be appropriate adjustment at the expiration of each Lease Year to the effect that any overpayment by Tenant shall be applied to the next succeeding payment of Taxes and any amount due to Landlord shall be paid to Landlord within ten (10) days after Landlord has requested same. (f) For the first and last Lease Years of the Term hereof, the portion of all Taxes, other than such as result from added assessments, shall be prorated, depending on the proportion which each such Lease Year shall bear to the tax year in which it falls. The portion of Taxes resulting from added assessments during the first and last Lease Years of the Term shall be pro rated depending on the proportion which such Lease Year shall bear to the portion of the tax year for which the added assessment is charged. (g) If at any time during the Term hereof, a tax or excise on rents or other tax, however described, is levied or assessed by said Municipality, County, State or Country or any -19- political subdivision thereof, against Landlord, Overlandlord or the Rental reserved hereunder, or any part thereof, as a substitute or addition, in whole or in part, for any revenues derived from any tax assessed or imposed by any such political entity on land and buildings, Tenant covenants to pay to Landlord such sum as shall be necessary to pay and discharge such tax or excise on rents or other tax, which sum shall be paid to Landlord in the manner herein set forth for Taxes. (h) Except as otherwise provided herein, Tenant shall not be obligated or required hereunder to pay any franchise, excise, corporate, estate, inheritance, succession, capital levy or transfer tax of Landlord, or any income, profit or revenue tax upon the income or receipts of Landlord. (i) Tenant shall be responsible for and shall pay prior to the time when such payment shall be deemed delinquent, all taxes assessed during the Term against any leasehold interest, or any improvements, alterations, additions, fixtures or personal property of any nature placed in, on or about the Premises by Tenant, whether such tax shall have been levied or assessed against Landlord, Overlandlord or Tenant. 20. Non-Liability of Landlord. (a) Except for their negligent acts or conduct, neither Landlord, Overlandlord, nor any of their agents, representatives, employees, constituent members, successors or assigns shall be liable for any damage or injury which may be sustained by Tenant or by any other person, nor shall Tenant have any right to claim an eviction or constructive eviction as a consequence of: any defect, latent or apparent; any change of conditions in the Premises; the failure, breakage, leakage or obstruction of the street or sub-surface; the water, plumbing, steam, sewer, waste or soil pipes; the roof, walls, drains, leaders, gutters, valleys, downspouts or the like; the electrical, gas, power, conveyor, refrigeration, sprinkler, air conditioning or heating systems; the elevators or hoisting equipment; any other structural failure; the elements; any theft or pilferage; any fire, explosion or other casualty; the carelessness, negligence or improper conduct on the part of Tenant, or of Landlord, overlandlord, their agents, employees, guests, licensees, invitees, subtenants, assignees or successors; any interference with, interruption of or failure, beyond the control of Landlord, of any services to be furnished or supplied by Landlord; or any other cause whatsoever. All property kept, maintained or stored in, on or at the Premises shall be so kept, maintained or stored at the sole risk of the Tenant (b) Neither Landlord, Overlandlord, nor any of their agents, representatives, employees, constituent members, successors or assigns shall be liable to Tenant or to any person or entity claiming through the Tenant, nor shall Tenant be excused from the performance of any obligation hereunder, due to -20- any breach or violation by Landlord or by any other person or entity of any provision, covenant, term or condition of any other agreement affecting the Premises or any portion thereof. 21. Indemnity. (a) Tenant, at its sole cost and expense, agrees to indemnify and save Landlord, Overlandlord and each of their agents, representatives, employees, constituent members, successors and assigns harmless from and against any and all claims, actions, demands and suits, for, in connection with, or resulting from, any accident, injury or damage whatsoever (including, without limitation, reasonable attorneys' fees) caused to any person or property arising, directly or indirectly, in whole or in part, out of the business conducted in or the use of the Premises, or occurring in, on or about the Premises or any part thereof (including, without limitation, adjacent sidewalks), or arising, directly or indirectly, in whole or in part, from any act or omission of Tenant or any concessionaire or subtenant or their respective licensees, servants, agents, employees or contractors, or arising out of the breach or default by Tenant of any term, provision, covenant or condition herein contained, and from and against any and all losses, costs, expenses, judgments and liabilities incurred in connection with any claim, action, demand, suit or other proceeding brought thereon. Said indemnity shall include defending or resisting any proceeding by attorneys reasonably satisfactory to Landlord. It is agreed that attorneys designated by Tenant's insurance carrier shall be deemed to be satisfactory. The within indemnity shall be insured as a contractual obligation under the policy of liability insurance Tenant is required to carry hereunder. Notwithstanding the foregoing, if Tenant's obligations pursuant to this Paragraph 21(a) shall result from the negligent acts or conduct of the indemnitors, then such obligations shall be limited to the extent of the coverage of the insurance policies which it is obligated to maintain pursuant to this lease and if such insurance policies are maintained, Tenant shall not have any additional liability on account of this Paragraph 21(a). (b) Landlord, at its sole cost and expense, shall fulfill, observe and comply with all of the terms and provisions of and shall cure all violations relating to the Premises arising prior to the Commencement Date from all applicable Environmental Acts, including, without limitation, all rules, regulations, ordinances, opinions, orders and directives issued or promulgated by any applicable DEP. Without limiting the foregoing, Landlord agrees that it shall prepare, deliver and/or file with the applicable governmental authorities, all forms, certificates, notices, documents, plans and other writings, and furnish all such other information as may be required by any mortgagee or any applicable governmental authority, in connection with compliance or curing of any applicable requirement related to the ownership, leasing or use of the Premises prior to the Commencement Date. -21- (c) Landlord agrees: (i) It shall and hereby agrees to indemnify and hold Tenant harmless from and against any and all liability, penalties, losses, expenses, damages, costs, claims, causes of action, judgments and/or the like, of whatever nature, including but not limited to, reasonable attorneys' fees and other costs of litigation or preparation therefor, arising out of or in connection with Landlord's failure or inability, for any reason whatsoever, to observe or comply with any Environmental Acts pursuant hereto. (ii) Upon delivery or receipt, as the case may be, to deliver to Tenant, copies of all documents which it shall forward to or receive from any governmental authority with respect to all Environmental Acts. (iii) Whenever any Environmental Act requires the "owner or operator" to do any act relating to acts or conduct occurring prior to the Commencement Date, Landlord shall do such act at its sole cost and expense, it being the intention of the parties hereto that Tenant shall be free of all expenses and obligations arising from or in connection with compliance with any Environmental Act relating to any act or conduct occurring prior to the Commencement Date and that Landlord shall fulfill all such obligations and pay all such expenses. (d) In order to secure the ability of Landlord to indemnify Tenant pursuant to Paragraph 21(c), Landlord agrees that during the Term hereof, it shall not encumber the Premises with any mortgage(s) which shall be prior to any lien of Tenant to enforce its rights pursuant to the indemnity given by Landlord in Paragraph 21(c) hereof which in the aggregate shall be in an amount in excess of an amount equal to two-thirds (2/3) of the appraised value of the Land and all improvements thereon at the time said mortgages) are placed against the Premises. The appraised value shall be determined by an MAI appraiser selected by Landlord or by such appraiser as may be selected by the holder of any such mortgage. In the event this provision shall be breached, Tenant's remedies shall be limited to obtaining a lien against the Property which shall be superior to the liens of any mortgage(s) encumbering the Property to the extent the amount of such mortgages exceed the amounts permitted hereunder. In no event shall such breach permit Tenant to terminate this lease or to create any further liability on Landlord. Tenant shall have the right to record a Memorandum of Lease to reflect the provisions of this Paragraph 21(d) provided that on the Commencement Date it shall deliver to Landlord's attorney, a Discharge of Memorandum of Lease, to be released from escrow and filed of record upon any termination of this lease. (e) If Landlord shall fail to indemnify and hold harmless Tenant pursuant to Paragraph 21(c) for a period of thirty (30) days following receipt of demand therefor, then and -22- until Landlord shall do so, and in addition to its other rights, Tenant shall be entitled to a credit against payments of Fixed Rent due hereunder of a sum equal to all monies expended by Tenant on account of reasonable costs and expenses, for which Landlord is to indemnify and save Tenant harmless, provided that in all instances, Tenant shall have furnished Landlord with a prior written statement detailing the monies which it expended and which it alleges are within the indemnification set forth in Paragraph 21(c). 22. Right to Cure Default. If Tenant shall fail to comply fully with any of its obligations hereunder, then Landlord shall have the right, at its option, to cure such breach, at Tenant's expense, upon fifteen (15) days' prior notice to Tenant, except in cases of emergency (in which event no notice need be given), and if Tenant shall fail to cure said default within such period (provided, however, that if said default cannot be cured within said period, if Tenant shall not have commenced in good faith to cure such default within said fifteen (15) day period and shall not be continuing the curing thereof diligently thereafter), Tenant agrees to reimburse Landlord promptly (as Additional Rental) for all costs and expenses incurred as a result thereof or in connection therewith, together with interest at the Lease Interest Rate, which shall commence as of the date on which Landlord shall have made any such payment. Any action so taken by Landlord pursuant to this lease shall not serve to waive or release Tenant from its performance of any obligation hereunder. 23. Remedies Upon Default. (a) If Tenant shall: (i) default in payment of the Rental reserved herein or in making any payment herein provided; or (ii) default in the observance of any of the other terms, covenants and conditions of this lease, which default continues for fifteen (15) days following the delivery of notice thereof, as hereinafter required; or (iii) abandon, desert or vacate the Premises; or (iv) assign, sublet or permit the Premises to be occupied by someone other than Tenant, except as herein provided; or (v) make any assignment for the benefit of creditors, file a voluntary petition in bankruptcy, be by any court adjudicated a bankrupt, take the benefit of any insolvency act or be dissolved or liquidated, voluntarily or involuntarily, or if a receiver or trustee of Tenant and/or its property shall be appointed in any proceedings; or (vi) default in payment or performance of any other obligation pursuant to the Promissory Note given by Tenant to Landlord concurrently herewith; or (vii) record or attempt to record this lease or any memorandum thereof except as otherwise permitted herein; or (viii) suffer or permit any execution, attachment or other similar process to issue against Tenant or a substantial portion of its property or assets, or suffer or permit the Premises to be taken and/or occupied or attempted to be taken and/or occupied by one other than Tenant; or (ix) remove or attempt to remove, or in the judgment of Landlord, manifest an intention to remove, its goods or property from the Premises, -23- other than in the ordinary course of its business; or (x) fail to make any Rental payment within fifteen (15) days following its due date on more than two (2) occasions during any twelve (12) month period; then, upon the happening of any of the events set forth in this Paragraph, Landlord shall have the right to terminate this lease and the Term hereof upon not less than five (5) days' notice to Tenant, except as otherwise herein provided, or as otherwise required by applicable law, with the same force and effect as though the date so specified was the date hereinabove first set forth as the date of the expiration of the Term (but Tenant shall remain liable to Landlord as herein provided), and at the expiration of the period provided in said notice, the Term hereof and all of the Tenant's right, title and interest hereunder shall cease and terminate, and Landlord without further notice, may reenter the Premises, remove the Tenant and its property therefrom, and have possession and enjoyment of the same, and/or may recover possession thereof as prescribed by law relating to summary proceedings or otherwise, without any liability for damages or prosecution therefrom, it being understood that no demand for the Rental, no reentry for condition broken and no notice to quit or other notice prescribed by law shall be necessary nor shall any notice of non-payment of Rental be required to be given to enable Landlord to recover such possession, to terminate this lease and/or to exercise any other right(s) to which it may be entitled hereunder or pursuant to law, but that all rights to any such demand, reentry, notice or other prerequisites are hereby expressly waived by Tenant. (b) In the event of any such default, reentry, expiration and/or dispossess: (i) the Rental shall become due and shall be paid up to the time of such reentry, dispossess and/or expiration, together with such costs and expenses as Landlord may incur in reacquiring possession of the Premises, for legal expenses, attorneys' and brokerage fees, putting or restoring the Premises in or to good order and altering or preparing the same for re-rental, and/or in enforcing its rights hereunder; (ii) the Fixed Rent for the balance of the Term and the Additional Rental for the balance of the Term, as the same can be determined from time to time, shall become due and payable immediately, together with such costs and expenses, including but not limited to, legal expenses and attorneys' fees, as Landlord may incur in enforcing its rights; (iii) Landlord shall have the right, but shall not be obligated, to relet the Premises or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms which, at Landlord's option, may be less than or exceed the period which otherwise would have constituted the balance of the Term, for such rental and on such terms as Landlord shall deem reasonable; (iv) if Landlord shall not have exercised or shall be unable to exercise its rights pursuant to subparagraph (b)(ii) above, Tenant, or the legal representatives of Tenant, shall pay Landlord any deficiency between the Rental hereby covenanted to be paid and the net amount, if any, of the rents collected on account of any reletting of the Premises for each month of the period which otherwise would have constituted the balance of the -24- Term. In computing such sum, there shall be added to the Rental hereby covenanted to be paid, such expenses of Landlord as are referred to in subparagraph (b)(i) of this Paragraph. Any such deficiency shall be paid in monthly installments by Tenant on the first day of each month, in advance, and any suit brought to collect the amount of the deficiency for any month shall not prejudice in any way the rights of Landlord to collect the deficiency for any subsequent month by a similar proceeding or by joining, consolidating or otherwise including in one action, any and all claims for subsequent periods; (v) notwithstanding any other provisions of this lease, Landlord shall be entitled, at its option, in addition and without prejudice to any other rights and remedies it may have hereunder or at law or in equity, to recover from Tenant as damages, in addition to any Rental unpaid or accrued to the date of such reentry, expiration and/or dispossess, together with all of the additional costs and expenses incurred by Landlord, an amount equal to the difference between the Rental covenanted to be paid hereunder for what otherwise would have been the unexpired portion of the Term had such reentry, expiration and/or dispossess not occurred, and the then fair and reasonable rental value of the Premises for such unexpired portion of the Term, both discounted at the rate of six (6%) percent per annum to present worth. Landlord shall be entitled to recover and receive the full amount of such damages at whatever time after such reentry, expiration and/or dispossess it seeks to recover the same, without limiting or prejudicing the right of Landlord to seek as damages an amount equal to the maximum amount allowed by applicable law at the time when such damages are sought or an amount equal to the maximum amount of damages to which Landlord may be entitled by virtue of the provisions of this lease. In determining the then fair and reasonable rental value of the Premises, the rental realization upon any reletting, if such reletting shall be accomplished within a reasonable time after such reentry, expiration and/or dispossess, shall be deemed prima facie to be such fair and reasonable rental value. Landlord shall be entitled, in addition to the amount of such difference, to also recover such expenses as are referred to in subparagraph (b)(i) of this Paragraph; (vi) Landlord hereby is granted a lien, in addition to any statutory lien or right to distrain which may exist, on all personal property of Tenant in or on the Premises, to secure payment of the Rental and performance of the terms, provisions, covenants and conditions of this lease. Landlord shall have the right, as agent of Tenant or any affiliated or related person or entity, to take possession of any such furniture, fixtures or other personal property found in or about the Premises and sell the same at public or private sale and to apply the proceeds thereof to the payment of any monies becoming due under this lease, Tenant hereby waiving the benefit of all laws exempting property from execution, levy and sale on distress or judgment. Tenant agrees to pay all legal expenses, attorneys' and brokerage fees and all other costs and expenses incurred by Landlord in exercising its rights hereunder or in enforcing any of the obligations of Tenant -25- under this lease, which monies are deemed to constitute Additional Rental. (c) Landlord may make such alterations, repairs, replacements and/or decorations in or on the Premises as in its sole judgment, it considers advisable or necessary for the purpose of reletting the Premises; and the making of such alterations, repairs, replacements and/or decorations shall not operate or be construed to relieve Tenant from its liability hereunder. Landlord, in no event, shall be liable in any way whatsoever for any failure to relet and/or to attempt to relet the Premises and/or any portion thereof, or in the event that the Premises and/or any portion thereof, are relet, for the reasonableness of the rental or for the failure to collect any rental under such reletting. (d) In the event of a breach or violation by Tenant of any of the covenants, conditions, terms or provisions of this lease, Landlord shall have the right to obtain an injunction or to invoke any remedy allowed at law or in equity, without limitation, in addition to any and all rights and remedies provided for herein. (e) No receipt of Rental by Landlord after the termination in any manner of this lease, or the performance by Tenant of any obligation hereunder after the period stated in any notice given pursuant to this lease, shall reinstate, continue or extend the lease or the Term thereof, affect any such notice or cure any default theretofore arising hereunder. No receipt of Rental or the performance by Tenant of any obligation hereunder after the commencement of suit, or after final judgment for possession of the Premises, shall reinstate, cure, continue or extend the lease or the Term thereof or affect said suit or said judgment. (f) The rights and remedies of Landlord specified in this lease, as well as the rights and remedies to which Landlord is entitled by law or in equity, are cumulative and are not intended to be exclusive of or preclude the exercise of any other rights or remedies which may be available to Landlord in the event of a breach by Tenant of any provision of this lease and shall survive the expiration or termination of this lease. (g) In no event shall Tenant be entitled to receive all or any portion of any net surplus monies obtained or received by Landlord either in connection with any reletting or as a result of the exercise of any other right or remedy to which Landlord may be entitled. (h) Landlord shall have the right to institute proceedings for the recovery of damages, including the payment of Rental, at any time and from time to time, and shall not be required to postpone the institution of any proceeding until the date when the Term would have expired if it had not been so -26- terminated pursuant to the provisions hereof, or pursuant to any provision of law, or had Landlord not re-entered the Premises. Nothing herein contained shall be construed to limit or preclude any recovery by Landlord against Tenant of any damages to which, in addition to the damages particularly set forth herein, Landlord may be entitled by reason of any default hereunder on the part of Tenant, nor limit or prejudice the right of Landlord to prove and obtain as damages by reason of the default of Tenant hereunder, an amount equal to the maximum allowed by any stature or law in effect at the time when such damages are to be proved, whether or not such amount shall be greater than, equal to, or less than any damages or monies to which Landlord is entitled hereunder. (i) Notwithstanding the foregoing, if the applicable law of the State of New York provides that the parties to a commercial lease cannot waive the duty of Landlord to mitigate its damages or if Landlord elects to attempt to mitigate its damages, then Landlord only shall be obligated to use commercially reasonable efforts to mitigate damages. Landlord shall be deemed to have used reasonable efforts to mitigate if: (i) It uses leasing practices and seeks such rent, period and other terms and conditions as then are being utilized by Landlord or an affiliate for similar properties in the same geographic area; or (ii) It uses leasing practices and seeks such rent, period and other terms and conditions as then are reasonable or usual for similar properties in the same geographic area. Landlord, in no event, shall be required to relinquish or jeopardize any economic benefit or opportunity, including, without limitation, the leasing of other property owned or controlled by Landlord or an affiliate in order to mitigate damages. The rental of any other property owned or controlled by Landlord or an affiliate shall not reduce any damages which Landlord would be entitled to receive from Tenant and any such damages shall include any late fees chargeable pursuant to the terms of this lease. If Landlord shall be under a duty to or shall elect to mitigate damages, then only the "net proceeds" of any such reletting received by Landlord shall be credited against Tenant's existing or future outstanding obligations under this lease, in such manner and in such order as Landlord, in its sole discretion, may determine. As used herein, "net proceeds" shall mean the full amount of rent and other similar charges paid to Landlord, reduced by all Landlord's expenses incurred in connection with reletting, operating or maintaining the Premises (including, but not limited to, expenses for work done to the Premises in connection with such reletting, brokerage fees, attorneys' fees and disbursements and any costs or expenses of -27- Landlord paid or reimbursed by a tenant, whether as Additional Rental or otherwise). 24. Waiver of Redemption. Upon the expiration or sooner termination of this lease or in the event of entry of judgment for the recovery of the possession of the Premises in any action or proceeding, or if Landlord shall enter the Premises by process of law or otherwise, Tenant, for itself and all persons claiming through or under Tenant, including, but not limited to, its creditors, hereby waives and surrenders any right or privileges of redemption provided or permitted by any statute, law or decision now or hereafter in force, to the extent legally authorized, and does hereby waive and surrender up all rights or privileges which it may or might have under and by reason of any present or future law or decision, to redeem the Premises or for a continuation of this lease after having been dispossessed or ejected therefrom by process of law, or otherwise. 25. Mortgage Priority. (a) This lease shall be and hereby is made subject and subordinate at all times to all ground and underlying leases and to any amendments thereof made from time to time, and to he rights of any ground lessor thereunder, to any and all reciprocal easement agreements and to all mortgages and all advances made thereon which, now or hereafter, may affect the Premises, and to all increases, renewals, modifications, consolidations participations, replacements and extensions thereof, irrespective of the time of recording thereof, without the necessity of any further instrument of subordination. If Landlord or any lease holder, mortgagee or ground lessor desires confirmation of such subordination, Tenant shall promptly execute and deliver any certificate or instrument that may be requested. Tenant hereby constitutes and irrevocably appoints Landlord as its attorney-in-fact having a power coupled with an interest to execute any such certificates for and on its behalf. (b) Tenant agrees that in the event the interest of the Landlord becomes vested in the holder of any mortgage or in any ground lessor, or in anyone claiming by, through or under any of them, then such holder or ground lessor shall not be: (i) liable for any act or omission on any prior landlord (including Landlord herein); or (ii) subject to any offsets or defenses which Tenant may have against any prior landlord (including Landlord herein); or (iii) bound by any Rental which Tenant may have paid for more than the current month to any landlord (including Landlord herein); or -28- (iv) bound by any alteration or modification of any provision hereof, nor any cancellation or surrender of this lease unless the same shall have been approved in writing by such holder, or unless specific provision therefor is set forth in this lease. (c) Tenant agrees that, upon the request of Landlord, Tenant will execute, acknowledge and deliver such document or instrument as may be requested by the holder of any mortgage and/or ground lessor confirming or agreeing that this lease is assigned to such mortgagee and/or ground lessor as collateral security for such mortgage and/or ground lease and agreeing to abide by such assignment, provided that a copy of such assignment has in fact been delivered to Tenant. (d) Tenant shall do nothing to cause a default under any ground lease and/or mortgage now or hereafter affecting the Premises. 26. Surrender of Premises. (a) On the expiration date or sooner termination of the Term, Tenant shall deliver to Landlord all keys to the Premises which are in its possession and/or control, shall quit and surrender the Premises to Landlord in broom-clean, good condition and repair, reasonable wear and tear excepted, in compliance with all applicable governmental laws, rules, regulations and other requirements, including but not limited to, all Environmental Acts, together with all alterations, additions and improvements which may have been made in, on or to the Premises, except for movable furniture and equipment, or unattached movable trade fixtures put in at the sole expense of Tenant; provided, however, that Tenant shall ascertain from Landlord, at least thirty (30) days prior to the end of the Term, whether Landlord desires to have the Premises or any part thereof restored to the condition in which it was originally delivered to Tenant, ordinary wear and tear excepted. If Landlord shall desire, then Tenant, prior to the end of the Term, at its sole cost and expense, shall restore the Premises, remove therefrom all of its property together with such alterations, additions and improvements as may be requested by Landlord, and fix and repair any and all damage or defacement to the Premises caused by the installation and/or removal of alterations, additions, improvements, furniture, equipment, trade fixtures or any other property. Any or all of such property, alterations, additions or improvements not so removed, at Landlord's option, shall become the exclusive property of Landlord and/or may be disposed of by Landlord, at Tenant's cost and expense, without further notice or demand. If the Premises is not surrendered as and when aforesaid, Tenant shall indemnify Landlord against any damages, loss or liability resulting therefrom, including, without limitation, any claims made by any succeeding occupant founded on such delay. Tenant's obligation under this Paragraph shall survive the expiration or sooner termination of the Term. -29- (b) Notwithstanding anything herein contained to the contrary, Tenant shall not have the right to remove any movable furniture or equipment, unattached movable trade fixtures or any other property at any time as Tenant shall be in breach or default hereunder, whether prior to, upon or subsequent to the expiration or termination of this lease. 27. Unavoidable Delays. (a) If, as a result of strikes, lockouts, labor disputes, inability to obtain labor, materials or reasonable substitutes therefor, acts of God, governmental restrictions, regulations or controls, enemy or hostile governmental action, civil commotion, insurrection, revolution, sabotage, fire or other casualty, acts or failure to act by either party or other conditions beyond the control of Landlord and/or Overlandlord, whether prior to or during the Term, Landlord shall fail punctually to perform any lease obligation, then and in any of such events, such obligation shall be punctually performed as soon as practicable after such condition shall abate. If Landlord, as a result of any such condition, shall be unable to exercise any right or option within any time limit provided in this lease, such time limit shall be deemed extended for a period equal to the duration of such condition. The failure of Landlord to perform any lease obligation for the reasons set forth herein shall not affect, curtail, impair or excuse this lease or the obligations of Tenant hereunder, including but not limited to, the obligation of Tenant to pay Rental. (b) No diminution or abatement of Rental, or any other form of compensation, shall be claimed or allowed for inconvenience or discomfort arising from the making of repairs or improvements to the Premises, or arising from the construction of or repairs or improvements to, other buildings, structures, lands or appliances, whether or not the same shall be owned by Landlord and/or Overlandlord. With respect to the various "services", if any, to be furnished by Landlord to Tenant, is agreed that there shall be no diminution or abatement of Rental, or any other form of compensation, for interruption or curtailment of such "service", when such interruption or curtailment shall be due to accident, alterations or repairs necessary to be made or to inability or difficulty in securing supplies or labor for the maintenance of such "service" or to any other cause. No such interruption or curtailment of any such "service" nor any non-performance by Landlord pursuant to subparagraph (a) of this Paragraph, shall be deemed a constructive eviction, nor shall there be any abatement or diminution of Rental, or any other form of compensation, because of making of repairs, improvements or decorations to the Premises after the Commencement Date, it being understood that the Rental, in any event, shall commence to run at such date so above fixed. -30- 28. Landlord Consent. Any consent required by Landlord hereunder shall be in writing and, except as otherwise provided herein, shall not be unreasonably withheld. Tenant, in no event, shall be entitled to make any claim, and Tenant hereby waives any claim for money damages, whether by way of setoff, counterclaim, defense or otherwise, based upon any claim or assertion by Tenant that Landlord has unreasonably withheld or delayed any consent or approval, notwithstanding Landlord has covenanted herein not to unreasonably withhold its consent. Tenant's sole remedies shall be an action or proceeding to enforce any such provision, or for an injunction or for a declaratory judgment. All expenses reasonably incurred by Landlord in reviewing and acting upon any rest for consent hereunder, including but not limited to, attorneys' and architects' fees, shall be reimbursed by Tenant to Landlord, shall be deemed to constitute Additional Rental and shall be paid over to Landlord on the first day of the month following demand therefor. 29. Certification. (a) Tenant, without charge and at any time, within ten (10) days after written request of Landlord, agrees to certify by a written instrument duly executed, acknowledged and delivered t Landlord or any other person, firm or corporation specified in such request: (i) as to whether this lease has been modified or amended, and if so, the date, substance and manner of such modification or amendment; (ii) as to the validity and force and effect of this lease; (iii) as to the existence of any default thereunder, and if so, the nature, scope and extent thereof; (iv) as to the existence of any offsets, counterclaims or defenses thereto on the part of Tenant, and if so, the nature, scope and extent thereof; (v) as to the commencement and expiration dates of the Term; (vi) as to the dates to which Rental payments have been made; (vii) as to the existence of any Hazardous Wastes or Substances or as to similar environmental matters; (viii) as to any other matters as reasonably may be so requested. Any such certificate may be relied upon by Landlord and any other person, firm or corporation to whom the same may be exhibited or delivered, and Tenant shall be bound by the contents of such certificate. Tenant hereby constitutes and irrevocably appoints Landlord as its attorney-in-fact having a power coupled with an interest to execute any such instrument or other writing for and on its behalf if Tenant shall fail or refuse to execute the instrument within the aforesaid ten (10) day period. (b) Tenant further agrees to furnish to Landlord at any time, but not more frequently than once per calendar year, within ten (10) days after request of Landlord, and solely in connection with the sale, lease or mortgaging of the Premises, a copy of its annual unaudited financial statement for its last full fiscal year, prepared by independent Certified Public Accountants, including, but not limited to, a profit and loss statement. -31- 30. Waiver of Trial by Jury. The parties hereby waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matters whatsoever arising out of or in any way connected with this lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises, and/or any claim of injury or damage. 31. Quiet Enjoyment. (a) Landlord covenants and agrees with Tenant that upon Tenant's paying the Rental and observing and performing all of the terms, provisions, covenants and conditions on its part to be observed and performed, Tenant, peaceably and quietly, may enjoy the Premises during the Term hereof, subject however, to all of the terms, conditions, covenants and provisions of this lease and to any mortgage and/or ground lease to which this lease is subject. In the event of any breach by Landlord of this covenant, provided the same would in law or equity entitle Tenant to cancel, Tenant, by not less than thirty (30) days' notice given to Landlord, may cancel this lease, unless within such thirty (30) day period, Landlord shall have commenced appropriate action to cure such breach and thereafter shall proceed diligently to cure such breach. Upon such cancellation, all rights of either party against the other shall cease and the Term shall expire with the same force and effect as if the date of such cancellation were the date originally fixed herein for the expiration of the Term. Such right of cancellation shall be Tenant's sole remedy hereunder for a breach by Landlord of the covenants herein set forth. (b) It is acknowledged that this lease is a sub-lease and that Landlord herein is a tenant of Overlandlord pursuant to a certain Overlease. It is agreed that so long as Tenant is not in default hereunder, it shall have the right to remain in possession of the Premises, to exercise its rights and perform its obligations hereunder, notwithstanding any breach or termination of the Overlease. If the Overlease shall terminate, and if Landlord no longer shall have the interest of Landlord hereunder, this lease shall remain in full force and effect and Overlandlord, its successors and assigns, shall become the Landlord hereunder. 32. Landlord. (a) The term "Landlord" as used in this lease means only the holder of this lease or the mortgagee in possession for the time being of the Premises, so that in the event of any sale of or assignment of this lease, Landlord herein shall be and hereby is entirely freed and relieved of all obligations of Landlord hereunder without the necessity of further agreement between the parties and such purchaser or assignee that the purchaser or assignee has assumed and agreed to observe and perform all of the obligations of Landlord hereunder. -32- (b) Notwithstanding anything herein contained to the contrary, it is specifically understood and agreed that there shall be no personal liability on the part of Landlord, Overlandlord, their agents, representatives, employees, successors, assigns or any of their constituent members, with respect to any of the terms, provisions, covenants and conditions of this lease or otherwise, and that Tenant shall look solely to the estate, property and equity of Landlord or such successor in interest in the Premises and subject to the prior rights of any mortgagee or lease holder, for the satisfaction of each and every remedy of Tenant in the event of any breach of any of the terms, provisions, covenants and conditions of this lease to be performed by Landlord, or in the event of any other claim which Tenant may allege against Landlord, Overlandlord, their agents, representatives, employees, constituent members, successors or assigns, which exculpation of personal liability shall be absolute and without exception. 33. Notices. All notices, demands, requests, approvals or consents required under the terms of this lease shall be given in writing by either party or its attorney to the other and except as otherwise set forth herein, shall be complete by personal delivery, by mailing such notices by certified or registered mail, return receipt requested, or by delivery by a postal or private expedited delivery service, to the party at the address set forth hereinabove, or to such other address as either party may designate in writing, which notice of change of address shall be given in the same manner. A copy of any notice given to Landlord shall be forwarded to Cole, Schotz, Bernstein, Meisel & Forman, P.A., Court Plaza North, 25 Main Street, P. O. Box 800, Hackensack, New Jersey 07602-0800, Attention: Stanley Stern, Esq., and a copy of any notice given to Tenant shall be forwarded to Mandelbaum, Salsburg, Gold, Lazris, Discenza & Steinberg, P.A., 155 Prospect Avenue, West Orange, New Jersey 07052, Attention: Joseph A. Vena, Esq. 34. Covenants, Effect of Waiver. (a) Every term, condition, agreement or provision set forth in this lease shall be deemed also to constitute a covenant. (b) The waiver of any term, provision, covenant or condition by Landlord shall not be construed as a waiver of a subsequent breach of the same or any other term, provision, covenant or condition, and the consent or approval by Landlord to or of any act by Tenant, whether or not requiring Landlord's consent or approval, shall not be construed to waive or render unnecessary Landlord's consent or approval to or of any subsequent similar act by Tenant. The failure of Landlord to insist in any one or more instances upon the strict performance of any term, condition, provision, covenant or agreement or to exercise any option or any right hereunder, shall not be construed as a waiver or relinquishment of the same for the -33- future. The receipt by Landlord of any Rental payment or the acceptance by Landlord of the performance of anything required to be performed by this lease, with knowledge of a breach of any term, condition, provision or covenant of this lease shall not be deemed a waiver of such breach. No payment by Tenant or receipt and/or acceptance by Landlord of a lesser sum than the agreed upon Rental shall operate or be deemed or construed to be other than on account of the earliest Rental then unpaid, nor shall any endorsement or statement on any check or any letter or writing accompanying any check nor the acceptance of any check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to its right to recover the balance of any Rental or to pursue any other remedy to which it may be entitled. 35. Holding Over. Any holding over or continued occupancy by Tenant after the expiration of the Term of this lease shall not operate to extend or renew this lease or to imply or create a new lease. in such event, Landlord shall have the right to immediately terminate Tenant's occupancy or to treat Tenant's occupancy as a month-to-month tenancy, in which event Tenant shall continue to perform all obligations, including the payment of Fixed Rent at a rate equal to the greater of: two hundred (200%) percent of the Fixed Rent as shall be in effect immediately prior to the termination of the Term hereof; or the maximum rental otherwise permitted by applicable law. In no event however, shall Tenant be relieved of any liability to Landlord for damages resulting from such holding over. 36. References. Wherever herein the singular or plural number is used, the same shall include the other, and the use of masculine, feminine or neuter genders shall include or shall be deemed to mean such other genders as the sense and circumstances dictate. The paragraph headings, index and captions used herein are for reference and convenience only. The words "reenter" and "reentry" as used herein are not restricted to their technical legal meaning. 37. Entire Agreement. This lease contains the entire agreement between the parties. No oral statement or prior written matter shall have any force or effect nor shall the waiver of any provision of this lease be effective unless in writing, signed by the waiving party. Tenant agrees that it is not relying on any representations or agreements other than those contained in this lease. This lease shall not be modified except by a writing executed by both parties, nor may this lease be canceled by Tenant except with the written consent of Landlord, unless otherwise specifically provided herein. The covenants, provisions, terms, conditions and agreements contained in this lease shall bind Landlord and Tenant and their respective successors and assigns and shall inure to the benefit of Landlord and Tenant, the successors and assigns of Landlord, and the successor and assigns of Tenant who shall -34- have succeeded or shall have obtained an assignment of lease in accordance with the provisions of this lease. 38. Attornment. At the option of Landlord, Overlandlord, a purchaser of the Premises or the holder of any mortgage or ground lease affecting the Premises, Tenant agrees that neither the cancellation nor the termination of the Overlease or any ground or other underlying lease to which this lease is now or hereafter may become subject or subordinate, nor the sale of the Premises, nor the foreclosure of any mortgage affecting the Premises, nor the institution of any suit, action, summary or other proceeding by Landlord or any mortgagee, by operation of law or otherwise, shall result in the cancellation or termination of this lease or the obligations of Tenant hereunder, and Tenant covenants and agrees in such event and upon request of Landlord, Overlandlord, or any such holder of a mortgage or ground lease (as the case may be) to attorn to Landlord or to the holder of such mortgage or ground or underlying lease or to the purchaser of the Premises whether by foreclosure or otherwise. 39. Security. (a) Tenant, simultaneously herewith, has deposited with Landlord, the Security. If Tenant defaults with respect to any of the terms, covenants, provisions or conditions of this lease, including, but not limited to, the payment of Rental, and/or the payment and performance of its obligations pursuant to the Promissory Note, then in addition to any other remedies to which Landlord may be entitled by virtue of the provisions of this lease, or pursuant to law or equity, Landlord shall have the right to use, apply or retain the whole or any part of the Security to the extent required for the payment of any Rental, any payment pursuant to the Promissory Note or any other sum as to which Tenant is in default or any sum which Landlord may expend or may be required to expend by reason of Tenant's default, including, but not limited to, damages or deficiencies resulting from the reletting of the Premises, whether such damages or deficiencies accrued before or after summary proceedings or other reentry by Landlord. (b) If the entire Security or any portion thereof is appropriated or applied by Landlord for the payment of Rental, on account of the Promissory Note or any other sums due and payable to Landlord by Tenant hereunder, or for the payment or reimbursement of any cost or expense incurred by Landlord as a result of any default or failure of performance by Tenant hereunder, then Tenant, upon the demand of Landlord, forthwith shall remit to Landlord a sufficient Letter of Credit and/or good funds to restore the Security to the sum required to be deposited hereunder, the delivery of such Letter of Credit and/or good funds hereby deemed to be Additional Rental, and Tenant's failure to do so within five (5) days after the forwarding of such demand shall constitute a breach of this lease. -35- (c) If Tenant shall fully and faithfully comply with all of the terms, provisions, covenants and conditions of the Promissory Note and this lease, including the delivery of the Premises to Landlord in accordance with the provisions hereof and compliance with all Environmental Acts, then the Security shall be returned to Tenant within thirty (30) days following the expiration of the Term hereof. (d) If Tenant shall exercise its Renewal Option hereunder, then upon the commencement of the First Renewal Term and the receipt of the Security required pursuant to the exercise thereof, Landlord shall return the Letter of Credit to Tenant. (e) Tenant shall not be entitled to any interest on the aforesaid deposit of Security or the proceeds thereof. Tenant further covenants that it will not assign or encumber or attempt to assign or encumber the Security except as permitted pursuant to the provisions of Paragraph 15 hereof, and that neither Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. (f) It is expressly understood and agreed that the exercise of any remedy by Landlord for any default on the part of Tenant shall not be deemed such a termination of this lease as to entitle Tenant to the recovery of the Security, and said Security shall be retained and remain in the possession of Landlord as hereinbefore stated. (g) In the event of a sale, leasing or assignment of Landlord's interest in this lease by Landlord, Landlord shall have the right to transfer the Security to the purchaser, lessee or assignee, shall furnish Tenant with notice thereof and thereupon shall be released by Tenant from all liability for the return of the Security, and Tenant agrees to look solely to the transferee for the application of the Security. It is agreed that the provisions hereof shall apply to every transfer or assignment made of the Security to a new transferee. (h) Each Letter of Credit to be deposited hereunder shall be a clean, irrevocable Letter of Credit, shall be in the amount set forth herein, shall be issued by a bank and shall be in form and substance, satisfactory to Landlord, and shall provide, inter alia, the following: (i) It shall be renewed in the agreed upon amount, automatically from year to year unless the issuing bank, not less than forty-five (45) days prior to its expiration, shall notify Landlord and Tenant in writing that the Letter of Credit shall not be renewed; (ii) Landlord shall have the right to draw upon all or any part(s) of the Letter of Credit, immediately upon delivering a certification to the issuing bank setting forth that -36- it is entitled to draw upon the Letter of Credit pursuant to the provisions of the Promissory Note, and/or this lease and setting forth the amount of the money sought to be received, which Letter of Credit may be drawn upon, to the extent necessary, to satisfy said request in full. (iii) Landlord shall have the right to draw upon the entire Letter of Credit, whether or not Tenant shall be 4n default hereunder, within the last twenty (20) days of the thereof, upon delivering a certification to the issuing bank setting forth that the bank has elected not to renew the Letter of Credit and that Tenant has not provided Landlord with a substitute Letter of Credit in accordance with the provisions of this Agreement. (i) Landlord shall retain the proceeds of the Letter of Credit received pursuant to the provisions of Paragraph 39(h)(iii) in accordance with the provisions hereof and shall return such proceeds to Tenant upon receipt of a new Letter of Credit in compliance herewith. 40. Renewal Option. (a) Subject to the provisions set forth below, Tenant shall have the option to renew this lease for two (2) additional terms of five (5) years each (the "Renewal Term(s)"). The First Renewal Term shall commence upon the expiration of the original Term of this lease (the "Initial Term") and the Second Renewal Term shall commence on the expiration of the First Renewal Term. All of the terms, covenants and conditions of this lease shall govern the Renewal Terms, except as otherwise specifically set forth hereinafter or if inapplicable thereto. (b) The Fixed Rent during the initial Lease Year of the First Renewal Term shall be equal to the sum of: (i) the Fixed Rent for the last year of the Initial Term (hereinafter called the "Last Year Rent"); and (ii) the product of (x) the Last Year Rent and (y) fifty (50%) percent of the percentage increase in the Index (as hereinafter defined) between the Index for the month one (1) year immediately prior to the commencement of the Initial Term and the Index for the first month of the last Lease Year of the Initial Term. (c) The Fixed Rent during each Lease Year of the First Renewal Term and for each Lease Year of the Second Renewal Term shall be equal to the sum of (i) the Fixed Rent for the prior Lease Year; and (ii) the product of (x) the Fixed Rent for the prior Lease Year and (y) the percentage increase in the Index between the Index for the first month of the prior Lease Year and the Index for the first month of the then current Lease Year. (d) The term Index shall mean the Consumer Price Index for Urban Wage Earners and Clerical Workers, New York-Northeastern New Jersey, All Items revised 1982-1984 equal 100, -37- published by the Bureau of Labor Statistics, U.S. Department of Labor (herein referred to as the "Index"). If the Index (or a successor or substitute index) becomes unavailable, a reliable governmental or other non-partisan publication evaluating the information theretofore used in determining the Index shall be used in lieu of such Index. If the Index is not known as of the applicable month of calculation, Tenant shall pay a monthly Fixed Rent equal to that which was paid for the last month prior to the Lease Year in which a rent adjustment occurs until the Index is known and the necessary computation can be made by Landlord to determine the increase in the Fixed Rent, if any, at which time Tenant shall pay all arrearages based upon such increased Fixed Rent within ten (10) days of Landlord's rendition to Tenant of its invoice for same. (e) Tenant's option to renew, as provided in subparagraph (a) above, shall be conditioned upon and subject to each of the following: (i) Tenant shall notify Landlord in writing of its exercise of its option to renew at least nine (9) months prior to the expiration of the Initial Term or the First Renewal Term, whichever shall be applicable; (ii) At the time Landlord receives Tenant's notice as provided in (i) above and at the date of commencement of the applicable Renewal Term, Tenant shall not be in default under the terms or provisions of this lease or have acted or failed to act in such manner as with the passage of time, would constitute a default hereunder; (iii) Tenant shall have no further renewal option beyond the two (2) renewal options set forth herein; (iv) This option to renew shall be deemed part of the lease and may not be assigned or transferred, other than as part of an assignment of this lease in accordance with the provisions of this lease; (v) Landlord shall have no obligation to do any work or perform any services for the Renewal Term(s) with respect to the Premises, and Tenant agrees to accept same in its then "as is" condition; and (vi) In no event shall the Fixed Rent during any Lease Year of any Renewal Term be less than the Fixed Rent for the immediately preceding Lease Year. (f) The Tenant shall deposit with Landlord as Security on or before the Commencement Date of the First Renewal Term, an amount equal to three (3) months' Fixed Rent and on or before the commencement of each subsequent Lease Year shall deposit with Landlord, such additional monies as may be necessary so as to -38- provide Landlord with Security equal to three (3) months', Fixed Rent. 41. Easements, Rights to Lease Additional Space. (a) The parties acknowledge that a portion of the lands described on Exhibit "A" and a building located thereon presently are leased to Autocraft Body and Collision, Inc. ("Autocraft") pursuant to a certain lease agreement dated as of April 1, 1991 and terminating on March 31, 1996. ("Autocraft Premises"). Tenant shall not have any liability for any breach of an Environmental Act occurring on the Autocraft Premises and Landlord shall indemnify and save Tenant therefrom, unless such breach shall be due to the acts and/or conduct of Tenant, unless and until Tenant shall lease the Autocraft Premises. (b) It is agreed that Tenant and Autocraft, their employees, agents, guests and invitees shall have the right to travel on the lands leased to the other for purposes of ingress and egress. Landlord shall provide Tenant with a writing from Autocraft consenting to and accepting such rights and limitations. (c) Provided that Tenant shall not be in default hereunder at the time it exercises its option hereunder, or shall not have acted or failed to act in such manner as with the passage of time, would constitute a default hereunder, Tenant shall have the right to lease the Autocraft Premises upon expiration of the Autocraft lease, provided that it shall submit notice thereof to Landlord on or before July 1, 1995, after which time the right to lease the Autocraft premises pursuant hereto shall cease and terminate. (d) If Tenant exercises its right to lease the Autocraft Premises, said leasing shall take effect on April 1, 1996, at which time this lease shall be deemed amended to include as the Premises all of the Land and all of the improvements thereon, including the Autocraft Premises; and to provide that the Fixed Rent shall increase by Thirty-Six Thousand ($36,000.00) Dollars per Lease Year, payable at the rate of Three Thousand ($3,000.00) Dollars per month. In all other respects, this lease shall remain in full force and effect. (e) The right to lease the Autocraft Premises shall be deemed a part of this lease and may not be assigned or transferred, other than as part of an assignment of this lease in accordance with the provisions of this lease. 42. Adjacent Excavation and Shoring. In the event that any excavation shall be made upon land adjacent to the Building, or shall be authorized to be made, whether or not same shall be on lands owned or controlled by Landlord and/or Overlandlord, then and in any of such events, Tenant agrees to permit the person(s) causing or authorized to cause such excavation, the right to -39- enter upon the Premises for the purposes of doing such work as shall be necessary to preserve and/or protect all or any portion of the Building and all persons in and around the Building from injury or damage and/or to support the Building, and Tenant hereby waives any and all rights to make any claim for damages, indemnity, cost and/or other expense against Landlord and/or Overland, or to make any claim for a diminution or abatement of Rental. 43. Validity of Lease. The terms, conditions, covenants and provisions of this lease shall be deemed to be severable. if any clause or provision herein contained shall be adjudged to be invalid or unenforceable by a court of competent jurisdiction or by operation of any applicable law, the same shall be deemed to be severable and shall not affect the validity of any other clause or provision herein, but such other clauses or provisions shall remain in full force and effect. 44. Representations. Tenant represents that it is a corporation in good standing of the State of New York, that there are no judgments or suits pending against it, that it does not owe any taxes, that and are its President and Secretary respectively, and that they are empowered and authorized to enter into this lease for and on behalf of Tenant. Tenant agrees to deliver to Landlord simultaneously with the execution hereof, a certified copy of a resolution of its Board of Directors authorizing the execution of this lease. 45. No Option. The submission of this lease for examination and/or signature does not constitute a reservation of, or option for, the Premises, and Tenant has hereunto affixed its signature with the understanding that this lease shall not become effective or in any way bind Landlord until such time as the same has been approved and executed by Landlord and a copy thereof delivered to Tenant. IN WITNESS WHEREOF, the parties hereto have hereunto caused these presents to be signed and sealed by duly authorized persons, the day and year first above written. MANLY CHEVROLET, INC. (Landlord) By /s/ Paul Rosen --------------------- Paul Rosen, President COUNTY TOYOTA, INC. (Tenant) By /s/ Joseph DiFeo ----------------------- Joseph DiFeo, President -40- The Overlandlord hereby agrees to be bound by the applicable provisions, terms, covenants and conditions of the above lease and acknowledges that the applicable provisions, terms, covenants and conditions of the above lease are for his benefit. ESTATE OF MANNIE ROSEN By /s/ Paul Rosen -------------------- Paul Rosen, Executor -41- EXHIBIT "A" Tax Map #392089120-G-30 and #392089120-G-31 EX-10.2-31 21 EXH 10.2.31 SUBLEASE DATED 10/1/92 SUBLEASE This Sublease is made this 1st day of October, 1992 by and between DIFEO BMW, INC., a New Jersey corporation, having an address at c/o Dealership Management, 585 Route 440, Jersey City, New Jersey ("Sublandlord") and DIFEO BMW PARTNERSHIP, a New Jersey partnership, having an address at c/o EMCO Motor Holdings, Inc., 153 East 53rd Street, New York, New York 10022 ("Subtenant"). W I T N E S S E T H WHEREAS, Sublandlord is the tenant under that certain lease, more particularly described on Exhibit A attached hereto and made part hereof (said lease being hereinafter referred to as the "Overlease"), demising certain premises as more particularly described in the Overlease (said premises being hereinafter referred to as the "Demised Premises"); WHEREAS, Subtenant desires to sublease from Sublandlord the Demised Premises. NOW, THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Subleasing Sublandlord, in consideration of the rents reserved in this Sublease to be paid by Subtenant and in consideration of the covenants, agreements and conditions herein contained to be observed and fulfilled by Subtenant, hereby subleases to Subtenant, and Subtenant hereby hires from Sublandlord, the Demised Premises. 2. Term The term of this Sublease shall commence on the date hereof and shall terminate at 5 o'clock p.m. (local time) on the day preceding the last day of the term of the Overlease in effect on the date of this Sublease, unless extended or earlier terminated pursuant to the provisions of this Sublease. 3. Incorporation This Sublease is expressly subject and subordinate to the Overlease, and all that to which the Overlease is subject and subordinate. Except as otherwise provided herein, the terms, covenants, provisions and conditions of the Overlease are incorporated herein by this reference with the same force and effect as if fully set forth herein and shall be binding upon both parties hereto. This Section shall be self-operative and no further instrument of subordination shall be required. Whenever reference is made in the terms, covenants, provisions and conditions of the Overlease to "Landlord" or "Lessor" (or the like), "Tenant" or "Lessee" (or the like), "Demised Premises" or "Premises" (or the like) and "Lease" (or the like), unless otherwise provided for in this Sublease, the same shall be deemed to refer to Sublandlord, Subtenant, the Demised Premises hereunder, and to this Sublease, respectively. All of the duties, obligations and requirements owed by Sublandlord to the Landlord under the Overlease ("Overlandlord") are during the term hereof owed by subtenant to the Sublandlord under this Sublease and Subtenant shall timely perform and observe the same as if expressly set forth herein. Subtenant shall not take or suffer any action in connection with its use and enjoyment of the Demised Premises which would constitute a default under or be a violation of, the Overlease (nothing contained in this Sublease shall be deemed to impose upon Subtenant any obligation which, under this Sublease, is the responsibility of the Sublandlord). All of the rights and benefits conferred by the Overlease upon the Overlandlord are hereby upon Sublandlord with respect to the Demised Premises and the Subtenant and all of the obligations, duties and requirements imposed by the Overlease upon the Sublandlord are hereby imposed upon Subtenant with respect to the Demised Premises. 4. Services 4.1 Any provision in this Sublease to the contrary notwithstanding, including, without limitation, the provisions of Section 3 hereof, Sublandlord shall, except as otherwise expressly provided for in this Sublease or in the Transaction Agreements (hereinafter defined), have no obligation during the term of this Sublease, under this Sublease or otherwise, to render any services to Subtenant of any nature or to expend any money for the preservation or repair of the Demised Premises, or to perform any obligation imposed upon the Overlandlord under the Overlease. Subtenant agrees to look solely to the Overlandlord for furnishing of any services or the maintenance, rebuilding or repair of the Demised Premises or equipment therein or access thereto to which Subtenant is entitled under the provisions of the Overlease incorporated herein and for the performance or fulfillment of any promise, obligation, covenant, warranty or representation made by or imposed upon Overlandlord under the Overlease. If the Overlandlord is not obligated for arranging, doing or providing for the same then Subtenant shall arrange, provide and do the same at Subtenant's sole cost and expense unless, under this Sublease or the Transaction Agreements, Sublandlord (or an Affiliate of Sublandlord) is responsible for the same. Sublandlord shall not be obligated to perform and shall not be liable for the performance by the Overlandlord of any of the obligations imposed or assumed or undertaken by the Overlandlord under the Overlease and Subtenant shall have no claim against Sublandlord by reason of any default upon the part of the Overlandlord, and Sublandlord shall not be liable to -2- Subtenant nor shall Subtenant's obligations hereunder be impaired or the performance thereof excused (including the payment of rent and additional rent) because of any failure or delay on the Overlandlord's part in furnishing any such service or making any such repairs or alterations or in providing equipment or access or because of Subtenant's inability to obtain said service or for any other reason whatsoever. 4.2 If Overlandlord shall default in any of its obligations with respect to the Demised Premises, or there shall exist a bona fide dispute with Overlandlord under the terms of the Overlease and Subtenant notifies Sublandlord in writing that Subtenant shall have previously notified Overlandlord of such dispute and that such notice shall have been disregarded or not reasonably satisfactorily acted upon, then Sublandlord shall notify Overlandlord of such default or dispute in its name on Subtenant's behalf. Subtenant shall be entitled to participate with Sublandlord in the enforcement of Sublandlord's rights against Overlandlord, but Sublandlord shall have no obligation to bring any action or proceeding or to take any steps to enforce Sublandlord's rights against Overlandlord. If, after written request from Subtenant, Sublandlord shall fail or refuse to take appropriate action for the enforcement of Sublandlord's rights against Overlandlord with respect to the Demised Premises, Subtenant shall have the right to take such action in its own name, and for such purpose and only to such extent, all of the rights of Sublandlord under the Overlease are hereby conferred upon and assigned to Subtenant and Subtenant hereby is subrogated to such rights to the extent that the same shall apply to the Demised Premises or Subtenant may, at Subtenant's sole cost and expense, upon not less than five (5) business days prior notice to Sublandlord (or in the event of an emergency, without any notice) take such action in Sublandlord's name; provided Subtenant shall, in connection with any of the foregoing, indemnify and hold Sublandlord harmless from and against all liability, loss or damage, including, without limiting the foregoing, reasonable attorney's fees (as well as attorneys fees incurred to enforce this indemnity), which Sublandlord shall suffer by reason of such action, which obligation to indemnify shall survive the expiration or earlier termination of this Sublease. Without limiting the foregoing, Subtenant shall reimburse Sublandlord for all reasonable costs incurred by Sublandlord in connection with the provisions of this Section 4.2. 5. Utilities Subtenant shall make its own arrangements with the appropriate utility company supplying electricity, water, gas, steam, telephone and other utilities to the Demised Premises and for garbage disposal from the Demised Premises, and shall arrange to have all bills for such utilities or services to be forwarded directly to Subtenant. Subtenant shall pay when due all charges for such utilities or services accruing during the term of this -3- Sublease. 6. Indemnification 6.1 Except to the extent due to negligence or willful misconduct of Sublandlord, its agents, employees, or contractors from and after the date hereof, Subtenant shall indemnify and save harmless Sublandlord against and from any and all claims arising during the term hereof (even if asserted after the end of the term hereof) (i) by or on behalf of any person for injury to persons or damage to property occurring in, on or about the Demised Premises, or (ii) arising from the conduct or management of or from any work or thing whatsoever done in and on the Demised Premises, or the use and occupancy of the Demised Premises, or (iii) arising from any condition of the Demised Premises or any sidewalk adjoining the Demised Premises, or of any vaults, passageways or space therein or appurtenant thereto or arising from any act of negligence of Subtenant, or any occupant of the Demised Premises or any part thereof, or of its or their agents, contractors, servants, employees, invitees or licensees and from and against all judgments, costs, expenses or liabilities incurred in or about any such claim or action or proceeding brought therein; and in case any action or proceeding be brought against Sublandlord by reason of any such claim, Subtenant upon notice from Sublandlord shall defend such action or proceeding by counsel reasonably satisfactory to Sublandlord. Nothing contained herein shall be deemed or construed to deal with environmental related matters. 6.2 Sublandlord shall indemnify and save harmless Subtenant against and from any and all claims arising during the term hereof (even if asserted after the end of the term hereof) to the extent due to negligence or willful misconduct of Sublandlord, its agents, employees or contractors, from and after the date hereof, solely with respect to and arising from any entry of any thereof into or upon the Demised Premises, (i) by or on behalf of any person for injury to persons or damage to property occurring in, on or about the Demised Premises, or (ii) any act of negligence or willful misconduct of Sublandlord, or of its agents, contractors, servants, employees, invitees or licensees, from and after the date hereof, and from and against all judgments, costs, expenses and liabilities incurred in or about any such claim or action or proceeding brought therein solely with respect to an entry of any thereof into or upon the Demised Premises; and in case any such action or proceeding be brought against Subtenant by reason of any such claim, Sublandlord upon notice from Subtenant shall defend such action or proceeding by counsel reasonably satisfactory to Sublandlord. Nothing contained herein shall be deemed or construed to deal with environmental related matters. 7. Payment of Rent 7.1 Subtenant shall make payment of all forms of rent -4- (which shall be deemed to include base rent, additional rent and all other charges required to be paid by the tenant under the Overlease, regardless of whether to the Overlandlord) required to be paid by tenant under the Overlease directly to the person, entity or party to whom the Overlease requires such payment to be made. However, if the Overlandlord refuses to accept payments directly from the Subtenant, then Subtenant shall make payment of the same to Sublandlord who will, after receipt, promptly make payment of the same to the Overlandlord. All such payments shall be made by Subtenant no later than the date when the Overlease requires such payment to be made by the tenant thereunder except that if the Overlandlord refuses to accept payments directly from the Subtenant, then Subtenant shall make such payments to Sublandlord no later than five (5) days prior to the date when the Overlease requires such payment to be made by the tenant thereunder and Sublandlord shall, after receipt, but subject to Subtenant's timely compliance with the foregoing, make payment of the same to the Overlandlord within the time required by the Overlease. Without limiting any of the foregoing, Subtenant shall, upon request from Sublandlord, provide evidence to the Sublandlord that all such payments have been made. 7.2 All sums, charges, costs, expenses and payments which this Sublease requires the Subtenant to pay (regardless of to whom) shall be deemed rent hereunder and Sublandlord shall have all of the rights and remedies afforded to the Overlandlord pursuant to the Overlease in the case of the non-payment of basic rent, all rights and remedies afforded to the Sublandlord pursuant to this Sublease for failure to pay the same, as well as all rights and remedies afforded to landlords under law or at equity. 7.3 With respect to sums and charges required to be paid by the Subtenant hereunder, which sums and charges are not required by the Overlease to be paid by the tenant thereunder, if this Sublease does not set forth a time frame for the payment of such sums and charges, then the same shall be due and payable within fifteen (15) days after demand. 8. Permitted Use Subtenant shall not have the right to use the Demised Premises for any use which (i) would cause the Demised Premises to become subject to compliance with the remedial provisions of the New Jersey Environmental Clean Up Responsibility Act (N.J.S.A. 13:1k-6 et seq., or the regulations promulgated thereunder ("ECRA")), or a similar state statute requiring environmental testing and/or remediation, in any case prior to the sale or other transfer of the Demised Premises, upon the circumstance of an assignment of this Sublease or sublease of the Demised Premises, upon the expiration or sooner termination of this Sublease or any such sublease or upon the cessation of operations at the Demised Premises or (ii) would increase in any material respect the risk of environmental contamination of the -5- Demised Premises (the increase in risk to be measured from the uses being made of the Demised Premises during December, 1991 by Sublandlord (or an Affiliate of Sublandlord)). If Subtenant desires to use the Demised Premises for a use not being made thereof during December, 1991, it shall notify Sublandlord. Sublandlord will advise Subtenant, by notice within thirty (30) days of Subtenant's notice, if Sublandlord believes that the proposed use to which the Subtenant desires to put the Demised Premises violates the prohibitions contained above, which notice from Sublandlord shall specify in reasonable detail grounds for Sublandlord's determination. Failure or refusal of Sublandlord to respond within such thirty (30) day period shall be deemed a determination by Sublandlord that the proposed use does not violate the above prohibitions. If Subtenant disputes Sublandlord's determination, such dispute shall be resolved by ADR pursuant to Section 36 hereof. Nothing contained in this Section 8 shall be deemed or construed to prohibit Subtenant from using the Demised Premises for the uses being made thereof by Sublandlord (or an Affiliate of Sublandlord) during December, 1991. 9. Net Sublease It is the purpose and intent of Sublandlord and Subtenant that except for Sublandlord's obligations which are expressly provided for herein (or in the Transaction Agreements), that this be an absolutely net sublease and that Subtenant shall make all payments hereunder free of any charges, assessments, impositions or deductions of any kind and without abatement, deduction, demand, notice or setoff and that all costs, expenses, charges, assessments, impositions and obligations of every kind and nature whatsoever relating to the Demised Premises which are the tenant's obligations under the Overlease or which otherwise relate to the Demised Premises and/or the use and occupancy thereof, whether foreseen or unforeseen, ordinary or extraordinary, shall be the responsibility of the Subtenant. 10. Notices from Overlandlord Subtenant shall promptly furnish Sublandlord with copies of all notices which Subtenant shall receive from the Overlandlord (or anyone claiming by, through or under Overlandlord) with respect to the Overlease and/or the Demised Premises. Sublandlord shall promptly furnish Subtenant with copies of all notices which Sublandlord shall receive from the Overlandlord (or anyone claiming by, through or under Overlandlord) with respect to the Overlease and/or the Demised Premises. 11. Absence of Representations by Sublandlord 11.1 The parties hereto acknowledge and agree that, except as otherwise provided in this Sublease, in the Master Agreement and in the other transaction agreements, Sublandlord is -6- delivering, and Subtenant is accepting, the Demised Premises in their "as is" condition on the date hereof. Subtenant acknowledges that it has inspected, examined and investigated to its full satisfaction the Demised Premises and the uses thereof and any other matter of concern to Subtenant with respect to the Demised Premises, that Subtenant accepts the Demised Premises in their present condition without any representation or warranty whatsoever by Sublandlord, except as herein expressly provided, as to the condition of the Demised Premises or the value thereof or the utility thereof or usefulness for any particular purpose or any other matter or thing relating in any way to the Demised Premises, and that Subtenant acknowledges that Sublandlord has not made and does not make, and Subtenant is not relying upon, any representation or warranty, except as herein expressly provided, as to the physical condition, quality, value or character or any other matter relating to or affecting the Demised Premises. Nothing in this Sublease, including this Section, however, shall waive or modify any of the obligations, rights or remedies of the parties to the Master Agreement and the other Transaction Agreements pursuant to the Master Agreement and the other Transaction Agreements. 11.2 Sublandlord represents and warrants to Subtenant as follows: (a) The actual uses being made of the Demised Premises by Sublandlord during December 1991 and the use of the Demised Premises by Subtenant on the date hereof for the same uses were and are permitted by all applicable zoning laws, or (if not permitted by zoning laws) are lawful nonconforming uses, and all certificates of occupancy required for such use in December 1991 were obtained and were in full force and effect immediately prior to the commencement of the term hereof. (b) To the actual knowledge of Sublandlord, Joseph C. DiFeo and Samuel X. DiFeo, there are no material structural defects in the Demised Premises on the date hereof, except as set forth on Exhibit B. (c) The representations and warranties set forth in Exhibit C are true, correct and complete as of the date hereof. 11.3 Notwithstanding anything in this Sublease to the contrary, in the event that any representation or warranty of Sublandlord set forth in Section 11.2 are false or incorrect when made (an "Inaccuracy") in any material respect, then Sublandlord shall, in its sole expense (but subject to the cost sharing provisions contained in the Master Agreement) after receipt of notice from Subtenant of the specifics of the Inaccuracy institute steps necessary to cure the same and proceed with reasonable dispatch to effectuate the same. If, by reason of such Inaccuracy, Subtenant's ability to use the Demised Premises for the December Uses is materially adversely interfered with -7- then there shall be an equitable reduction of the rent until such time as the material interference caused by the Inaccuracy has been eliminated, which reduction shall not extend beyond six months from the date Subtenant notified Sublandlord of such Inaccuracy. If by reason of the Inaccuracy the Subtenant's use of the Demised Premises for the December Uses is materially adversely interfered with for a period of six (6) consecutive months from the date of such notice, then Subtenant shall have the right, prior to the cessation of such material interference, as its sole remedy with respect to such Inaccuracy, to terminate this Sublease in which event neither party hereto shall have any further liability or obligation to the other under this Sublease except those which are expressly stated to survive the expiration or sooner termination of this Sublease. Any notice by Subtenant to Sublandlord advising of the Inaccuracy must be given by six (6) months from the date of this Sublease and must specifically identify the Inaccuracy, failing which Sublandlord shall have no responsibility to Subtenant hereunder with respect to any Inaccuracy. 12. No Violations 12.1 Subject to the provisions of Section 29.7 hereof, Subtenant shall not do or permit to be done anything which would constitute a violation or breach of any of the terms, conditions or provisions of the Overlease or which would cause the Overlease to be terminated or forfeited by virtue of any rights of termination or forfeiture reserved or vested in Overlandlord. Nothing contained in this Section 12.1 shall be deemed or construed to obligate Subtenant to perform any obligation imposed upon Sublandlord hereunder. If Subtenant shall default in the performance of any of Subtenant's obligation under this Sublease, Sublandlord may perform same at the expense of Subtenant (i) immediately without notice in the case of an emergency, which shall be deemed to include, without limitation, the lapse or termination of any insurance policy required to be obtained by Subtenant hereunder or the taking of any action required to prevent an imminent default under the Overlease (but will provide Subtenant with prompt notice thereafter) and (ii) in any other case if Subtenant shall fail to remedy such default after Sublandlord shall have notified Subtenant of such default (Sublandlord shall not be entitled to notify Subtenant of a default which respects Subtenant's failure to perform or observe any covenant or agreement on the part of Subtenant to be performed hereunder which involves the observance and performance of a covenant or agreement imposed upon the tenant under the Overlease (excepting from the foregoing, however, the failure to make payment of rent, additional rent or any other payment required to be made by Subtenant hereunder, and excepting from the foregoing any obligation which is independently imposed upon the Subtenant under this Sublease) unless Sublandlord receives notice from the Overlandlord with respect to such failure to perform or observe) and the applicable grace period, if any, for curing such default shall have expired, provided, however, in the -8- case of a failure for which for causes beyond Subtenant's reasonable control cannot with due diligence be cured within such applicable grace period, such grace period shall be deemed extended if Subtenant (x) shall promptly upon the receipt of such notice, advise Sublandlord of Subtenant's intention to institute all steps necessary to cure such failure and (y) shall institute and thereafter with reasonable dispatch prosecute to completion all steps necessary to cure the same. 12.2 Sublandlord shall not do or permit to be done anything which would constitute a violation or breach of any of the terms, conditions or provisions of the Overlease or which would cause the Overlease to be terminated or forfeited by virtue of any rights of termination or forfeiture reserved or vested in Overlandlord. Nothing contained in this Section 12.2 shall be deemed or construed to obligate Sublandlord to perform any obligation imposed upon Subtenant hereunder. If Sublandlord shall default in the performance of any of Sublandlord's obligations under this Sublease (if any), Subtenant may perform same at the expense of Sublandlord (i) immediately and without notice in the case of any emergency which shall be deemed to include the taking of any action required to prevent an imminent default under the Overlease (but will provide Sublandlord with prompt notice thereafter) and (ii) in any other case if such failure continues after thirty (30) days from the date of the giving by Subtenant to Sublandlord of notice of intention so to perform the same or, in the case of a failure which for causes beyond Sublandlord's reasonable control (the failure to pay money shall not be deemed beyond a party's reasonable control) cannot with due diligence be cured within such thirty (30) day period, such thirty (30) day period shall be deemed extended if Sublandlord (x) shall promptly upon the receipt of such notice, advise Subtenant of Sublandlord's intention to institute all steps necessary to cure such failure and (y) shall institute and thereafter with reasonable dispatch prosecute to completion all steps necessary to cure the same; provided that, at the expiration of the period described in this clause (ii) such default continues after three (3) business days from the date of the giving by Subtenant to Sublandlord of a further notice of Subtenant's intention to perform the same. 12.3 All sums paid by either party affecting a cure pursuant to this Section 12 and all necessary incidental costs and expenses paid or incurred by such party in connection with the performance of any act by such party pursuant to such section, together with interest thereon from the date of the making of such expenditure by such party at the rate of two (2%) per cent above the prime commercial lending rate from time to time announced by The Chase Manhattan Bank, N.A. ("Prime Rate") to be in effect at its principal office in New York, New York, or if Chase no longer announces such a rate, then a comparable rate selected by Sublandlord and reasonably acceptable to Subtenant, shall be payable by the other party to such curing party within thirty (30) days after demand therefore accompanied by evidence -9- reasonably establishing that the expenditure has reasonably been made. Nothing contained herein shall be deemed or construed to permit Subtenant to make any set-off against Subtenant's obligations hereunder. 13. Consents Whenever the consent or approval of the Overlandlord shall be required under the Overlease, the consent or approval of the Sublandlord shall not be required under this Sublease. Subtenant agrees that Sublandlord shall not have any duty or responsibility with respect to obtaining the consent or approval of Overlandlord when the same is required other than (i) the transmission by Sublandlord to Overlandlord of Subtenant's request for such consent or approval; and (ii) Sublandlord's cooperation (at Subtenant's expense) with Subtenant to obtain, and providing assistance to Subtenant in obtaining such approval or consent. Subtenant shall be entitled to take the actions specified in Section 4.2 of this Sublease as it respects the obtaining of the Overlandlord's consent. Subtenant, in no event, shall be entitled to make, nor shall Subtenant make, any setoff against rent otherwise due, nor shall Subtenant withhold any rent otherwise due pursuant to the terms of this Sublease based upon any claim or assertion by Subtenant that overlandlord has unreasonably withheld, conditioned or delayed any consent or approval. Nothing contained herein shall be deemed or construed to limit the obligation of Subtenant to obtain Sublandlord's consent where expressly provided for in this Sublease. 14. Compliance with Laws 14.1 Notwithstanding anything in this Sublease to the contrary, Subtenant shall not be in default hereunder if Subtenant shall fail to comply with any Law to the extent that the Demised Premises, or their use, prior to the date hereof, were not in compliance with such Law, except to the extent that Subtenant is otherwise obligated to comply with such Law pursuant to the Master Agreement or the other Transaction Agreements. 14.2 If the Demised Premises and the use thereof for the actual uses being made of the Demised Premises by Sublandlord during December 1991 are not, on the day preceding the date hereof, in compliance with all Laws (such non-compliance being hereinafter referred to as "Non-Compliance"), and if Non-Compliance is not Subtenant's responsibility to correct pursuant to the Master Agreement and the other Transaction Agreements, or this Sublease, and if such Non-Compliance would, under the Overlease, be the obligation of the tenant thereunder to cure or correct, Sublandlord shall, at its sole cost and expense (but subject to the cost sharing provisions provided for in Section 4.231 of the Master Agreement), after receipt of notice from Subtenant of the specifics of such Non-Compliance, institute steps necessary to cure such Non-Compliance and proceed with reasonable dispatch to effectuate the same. Nothing contained -10- herein shall be deemed or construed to obligate Sublandlord to make any changes, alterations or repairs to the structural elements of the Demised Premises unless the existence of the condition which caused the need to make the same constitutes a violation of the warranty and representation contained in Section 11.2(b) hereof. The Demised Premises shall not be deemed to be in Non-Compliance (that is, shall be deemed to be in compliance) if on the date hereof the time by which such Law must be complied with had not expired, although such Law had been enacted. If by reason of such Non-Compliance a governmental authority or agency takes action or refuses to take action (any such action or refusal, including a refusal to permit the transfer or continued effectiveness of any certificate of occupancy or other license or permit, being herein called a "Governmental Action"), which Governmental Action materially adversely interferes with Subtenant's ability to use the Demised Premises for the uses for which the Premises during December, 1991 were in fact used by Sublandlord ("December Uses"), then there shall be an equitable reduction of the rent until such time as the material interference caused by the Non-Compliance has been eliminated, which reduction shall not, however, extend beyond six (6) months from the date Subtenant notifies Sublandlord of such Non-Compliance or Governmental Action. If, by reason of the Non-Compliance or Governmental Action, Subtenant's use of the Demised Premises for the December Uses is materially adversely interfered with for a period of six (6) consecutive months after the date of such notice, then Subtenant shall have the right, prior to the cessation of such material interference as its sole remedy with respect to such Non-Compliance, to terminate this Sublease, in which event neither party hereto shall have any further liability or obligation to the other under this Sublease except those which are expressly stated to survive the expiration or sooner termination of this Sublease. Any notice by Subtenant to Sublandlord advising of Non-Compliance must be given by six (6) months after the date hereof and must specifically identify the Non-Compliance, failing which Sublandlord shall have no responsibility to Subtenant under this Section with respect to such Non-Compliance. The provisions contained in this subsection shall not be applicable to any environmental related matters. 15. Adjustments Sublandlord and Subtenant shall cooperate with each other in making usual and customary closing type adjustments and apportionment's for real estate taxes, rents, security deposits, utility charges, water and sewer charges and premiums on transferable insurance policies which are in fact transferred to Subtenant except to the extent that such adjustments were taken into account under the Transaction Agreements, it being the intention of the parties to avoid duplication of such adjustments. Sublandlord shall pay to Subtenant or Subtenant shall pay to Sublandlord, as the case may be, the net amount owing by one to the other promptly after such adjustments have been agreed upon. Any dispute between the parties hereto in -11- connection with the making of such adjustment shall be resolved pursuant to the alternative dispute resolution mechanism set forth in Section 36 hereof. 16. Brokers Each party represents and warrants to the other that it has dealt with no broker or finder in connection with this Sublease. Each party agrees to indemnify and hold harmless the other from and against any claims, liabilities, suits, actions, losses, damages or expenses (including attorney's fees and disbursements, including those incurred to enforce this indemnity) resulting from any breach of the foregoing representation and warranty. 17. Notices Any notice, demand, request, approval or other communication (a "Notice") which, under the terms of this Sublease or under any statute, must, or may be given by the parties hereto must be in writing and shall be sent by any of the following means: registered or certified mail, return receipt requested; reputable overnight delivery service; or by "fax." Any Notice given by registered or certified mail shall be deemed given when received (as evidenced by the return receipt); any Notice given by overnight delivery notice shall be deemed given one (1) business day after mailed; any Notice given by fax shall be deemed given when received. Any Notice given by fax shall only be effective if a copy thereof is sent by reputable overnight delivery service to arrive on the day after it is dispatched by fax. All Notices shall be addressed as follows: If to Sublandlord: c/o Joseph DiFeo and Samuel X. DiFeo 585 Route 440 Jersey City, New Jersey 07034 With a Copy to: Hannoch Weisman A Professional Corporation 4 Becker Farm Road Roseland, New Jersey 07068-3788 Attn: Stephen P. Lichtstein If to Subtenant: c/o EMCO Motor Holdings, Inc. 153 East 53rd Street Suite 5900 New York, New York 10022 Attn: Ezra P. Mager With a Copy to: -12- Akin, Gump, Haver & Feld 1700 Pacific Avenue 4100 First City Center Dallas, Texas 75201-2800 Attn: Gary M. Lawrence, P.C. Either party may designate by Notice in writing given in the manner herein specified a new or other address to which a Notice shall thereafter be so given. 18. Insurance 18.1 Subtenant agrees to name Sublandlord as an additional insured in all insurance policies which the tenant under the Sublease is required to carry and maintain. Subtenant shall, as it respects Sublandlord, be entitled to solely control the adjustment of any loss under a casualty insurance policy. 18.2 In addition to, and not in limitation of, any of the Subtenant's obligations hereunder, Subtenant shall maintain general liability insurance insuring against claims for personal injury (including, without limitation, bodily injury or death), property damage liability and such other loss or damage from such causes of loss as are embraced by insurance policies of the type now known as "Commercial General Liability" insurance, all in such amounts as Sublandlord may from time to time reasonably require. Sublandlord currently requires such insurance to be in the amount of Five Million ($5,000,000) Dollars combined single limit per occurrence. Such insurance coverage shall be issued and maintained on an "occurrence" basis. Subtenant's obligations with respect to such insurance policy shall be governed by the Overlease as if such insurance policy were expressly required to be maintained by the tenant thereunder. 18.3 Subtenant shall consult with sublandlord before adjusting or settling any loss under any insurance policy required to be maintained by the tenant under the Overlease. 19. Subordination This Sublease shall, to the extent provided for in the Overlease, be subject and subordinate to any ground lease, underlying lease and/or mortgages made or given by Overlandlord which now or hereafter affect the Demised Premises and to all renewals, modifications, consolidations, replacements and extensions of such ground or underlying leases and mortgages. This Sublease is, to the extent provided for in the Overlease, made subject and subordinate to all liens, claims, encumbrances and other title matters affecting the Demised Premises. This paragraph shall be self-operative and no further instrument of subordination shall be required. However, in confirmation of such subordination, Subtenant shall promptly execute and deliver at its own cost and expense any instrument, in recordable form if -13- requested, that Overlandlord shall request be executed pursuant to the provisions of the Overlease. 20. Entry Subtenant shall, upon prior notice (except in the event of an emergency which shall include, without limitation, prevention of imminent default under the Overlease in which event no notice shall be required) permit entry to the Demised Premises by Sublandlord and authorized representatives of Sublandlord at reasonable times (or at any and all times in the event of an emergency) for the purpose of inspecting the Demised Premises and making any necessary repairs or performing any work at the Demised Premises that may be necessary by reason of Subtenant's failure to make them or otherwise (subject to the provisions of Section 12 hereof). Nothing contained herein shall imply any duty on the part of Sublandlord to do any such work which under any provision of this Sublease, Subtenant may be required to perform, and the performance by Sublandlord shall not constitute a waiver of Subtenant's default in failing to perform. 21. Estoppel Certificates Either party hereto shall, at any time and from time to time, upon not more than fifteen (15) days prior notice from the other party, execute, acknowledge and deliver to the other party (or to such person or entity designated by the other party) a statement in writing certifying that this Sublease is unmodified and in full force and effect (or if there have been modifications, that this Sublease is in full force and effect as modified and stating the modifications), and the dates to which rent and other charges have been paid, stating whether or not to the best knowledge of the signer of such statement the other party is in default in keeping, observing or performing any covenant or agreement contained in this Sublease and, if there be a default, specifying each such default, and containing any such customary certifications as the other party may reasonably request, it being intended that any such statement delivered pursuant to this Section may be relied upon by the other party (or by the person or entity designated by the other party), but reliance on such statement may not extend to any default as to which the signor shall have had no actual knowledge, after due inquiry. 22. Right of First Refusal Sublandlord hereby grants to Subtenant the right of first refusal to acquire the Sublandlord's interest in the Overlease ("Sublandlord's Interest") on the terms and conditions contained herein. If Sublandlord, during the term of this Sublease and provided that this Sublease is then in full force and effect and there does not then exist an Event of Default hereunder, desires to sell or transfer Sublandlord's Interest, then Sublandlord shall, prior thereto, submit to the Subtenant a -14- writing ("Writing") executed by the Sublandlord and the proposed acquiror of Sublandlord's Interest (the "Acquiror"), which Writing shall set forth the material terms and conditions of the sale by the Sublandlord to the Acquiror of the Sublandlord's Interest. The Writing need not be a legally binding agreement. If Subtenant desires to acquire the Sublandlord's Interest upon the terms and conditions contained in the Writing it shall give notice ("Reply Notice") to that effect to the Sublandlord within fifteen (15) days after it receives the Writing, time being of the essence. Upon the giving of the Reply Notice, the Sublandlord shall be obligated to sell and Subtenant shall be obligated to purchase the Sublandlord's Interest upon the terms and conditions contained in the Writing. The Sublandlord and Subtenant shall, in such circumstance, proceed expeditiously, in good faith and with due diligence to consummate the transfer of the Sublandlord's Interest to the Subtenant in accordance with the terms and conditions contained in the Writing. If the Subtenant does not timely give a Reply Notice then Sublandlord shall be permitted to sell the Sublandlord's Interest to the Acquiror upon substantially the same terms and conditions contained in the Writing and, upon the consummation of such sale, Subtenant's right of first refusal shall cease to exist forever. If the Sublandlord and the Acquiror do not consummate the transaction contemplated by the Writing or desire to consummate the transaction contemplated by the Writing on terms and conditions which are not substantially the same as those set forth in the Writing, then Sublandlord shall, before selling the Sublandlord's Interest, follow the procedure above set forth granting the Subtenant a right of first refusal. Notwithstanding anything to the contrary contained herein the right of first refusal provided for above shall not be applicable to (i) a transfer of the Sublandlord's Interest to an Affiliate of Sublandlord, Joseph C. DiFeo and/or Samuel X. DiFeo (but such Affiliate shall comply with the right of first refusal herein granted to Subtenant in the event it desires to sell or transfer Subtenant's Interest and shall confirm in writing its obligation to so comply at the time of the transfer of the Sublandlord's Interest to such Affiliate); or (ii) a transaction entered into between Sublandlord, or an Affiliate of Sublandlord, Joseph C. Difeo and/or Samuel X. Difeo and another which is not an Affiliate of Sublandlord, Joseph C. Difeo and/or Samuel X. Difeo which involves other significant property or properties in addition to the transfer of the Sublandlord's Interest ("Other Matters"). Upon the consummation of a transaction involving Other Matters the right of first refusal granted to Subtenant hereunder shall cease to exist forever. Any dispute between the parties hereto regarding the application of the provisions contained herein shall be resolved by ADR in accordance with the provisions of Section 36 hereof. 23. End of Term Upon the expiration or other termination of the term hereof, Subtenant shall quit and surrender the Demised -15- Premises in the condition and state of repair required under the provisions of the Overlease, free and clear of any and all lettings and rights to occupy or use the Demised Premises or any part thereof created by Subtenant or by anyone claiming by, through or under Subtenant and free and clear of liens or encumbrances created by any act or omission on the part of Subtenant or anyone claiming by, through or under Subtenant. No reference in this Section to lettings, right to occupy or use and to liens and encumbrances shall in and of itself be construed to authorize any of the same. 24. Termination of Lease If for any reason whatsoever the Overlease shall terminate prior to the expiration of the term hereof, then this Sublease shall likewise terminate simultaneously with such termination and, except for the termination of the Overlease because of a default of Sublandlord as tenant thereunder, or any other act of Sublandlord causing the Overlease to terminate, Subtenant shall acquire no right or cause of action against Sublandlord by reason of such termination. Sublandlord hereby agrees that it will not voluntarily cancel or terminate the Overlease or otherwise modify or amend the same. If the Overlease grants to the tenant thereunder an express right to elect to terminate the Overlease, then the Subtenant shall have the same right to elect to terminate this Sublease, subject, however, to compliance with the provisions of Section 28 hereof. 25. Casualty; Condemnation Anything in this Sublease or the provisions of the Overlease incorporated herein by reference to the contrary notwithstanding: (a) in the event the Demised Premises shall be damaged or destroyed as a result of any fire or other casualty, or taken in condemnation proceedings, by deed in lieu of condemnation and by any right of eminent domain, Subtenant shall have the same right to terminate this Sublease as Sublandlord, as tenant under the Overlease, has to terminate or otherwise cause the term of the Overlease to expire or be forfeited (subject to the provisions of Section 28 hereof); and (b) Subtenant shall have no right to an abatement of fixed rent or additional rent or any other similar charge unless Sublandlord is entitled to a corresponding abatement with respect to its corresponding obligation under the Overlease as it relates to the Demised Premises (the dollar amount of such abatement shall be limited to the amount of the abatement to which Sublandlord is entitled under the Overlease). If, by reason of such fire or casualty or condemnation, the Overlandlord elects to terminate the Overlease in accordance with the provisions of the Overlease, then, upon such termination of the Overlease, this Sublease automatically shall be terminated as if such date of termination were the expiration date. 26. Options to Extend -16- 26.1 Subtenant shall have the right (but not the obligation), at its election and as hereinafter provided, to extend the original term of this Sublease in effect on the date of this Sublease for the same number of additional periods as shall be permitted under the Overlease and Sublandlord shall duly exercise the respective additional periods under the Overlease, upon the following terms and conditions: (a) Subtenant shall give Sublandlord written notice of each such election not earlier than one hundred eighty (180) days, nor later than thirty (30) days prior to the last day in the Overlease on which such notice must be given to the Overlandlord; (b) At the time of exercise of such election and at the commencement of such additional period (which condition Sublandlord may waive in its sole and absolute discretion), Subtenant shall not be in default under this Sublease beyond any applicable grace period or notice periods and this Sublease shall be in full force and effect; (c) Each such additional periods shall be upon the same terms and conditions as during the initial term hereof, except as otherwise provided in the Overlease and except that Subtenant shall have no further right to extend the term of this Sublease (i) beyond such additional periods, or (ii) if Subtenant shall have failed to timely elect to extend the term for any prior additional period; and (d) the term of each such additional period shall be one (1) day less than the respective additional period under the Overlease. 26.2 Sublandlord hereby agrees that, if the extension of the initial term or any additional period under the Overlease is an automatic extension, to occur unless notice to the contrary is given by the tenant thereunder, Sublandlord shall timely notify the Overlandlord that Sublandlord does not wish to extend such term or period, provided that Subtenant shall notify Sublandlord to give notice electing against the automatic extension not less than sixty (60) days prior to the latest date such notice must be given under the terms of the Overlease. 26.3 If, under the Overlease, the rent to be paid during any renewal term is not a sum certain, or is not capable of being determined by reference to a state of facts (for example, by reference to a consumer price index) but is to be determined by agreement of the parties to the Overlease or another mechanism which requires input of the parties, agreement of the parties or determination by others (for example, fair market rental, appraisal procedures, arbitration procedures or the like) then Subtenant shall have the right to be directly involved in and solely control such rental determination process to the exclusion of the Sublandlord but shall, nevertheless keep -17- the Sublandlord advised in connection therewith. 27. Assignment; Subletting 27.1 Subject to the provisions of Sections 27.2 and 27.3 below, and subject to the applicable provisions of the Overlease (including, without limitation, all prohibitions contained therein and consents required thereby), Subtenant may assign this Sublease or sublet the Demised Premises. Nothing contained in this Section 27.1 shall be deemed or construed to permit the Subtenant to assign, mortgage, pledge, encumber or otherwise transfer this Sublease, or sublet the Demised Premises in contravention of the terms and provisions of the Overlease. 27.2 Any assignment of the Sublease shall not be effective unless and until (i) the assignee shall execute, acknowledge and deliver to Sublandlord an agreement in form and substance reasonably satisfactory to Sublandlord, and with respect to which Sublandlord shall be a direct beneficiary, whereby the assignee shall (x) assume the obligations and performance of this Sublease and agree to be personally bound by all the covenants, agreements, terms, provisions and conditions hereof on the part of Subtenant to be performed and observed from and after the effective date of any such assignment and (y) agree that the provisions of this Section 27 shall, notwithstanding such assignment or transfer, continue to be binding upon it in the future. Subtenant covenants that, notwithstanding any assignment, sublease or transfer, whether or not in violation of the provisions of this Sublease, and notwithstanding the acceptance of rent by Sublandlord from any assignee, subtenant or transferee or any other party, Subtenant shall remain fully and primarily and jointly and severally liable for the payment of rent due and to become due under this Sublease and for the performance and observance of all the covenants, agreements, terms, provisions and conditions of this Sublease on the part of Subtenant to be performed or observed. The liability of Subtenant, and the due performance by Subtenant of the obligations on its part to be performed under this Sublease shall not be discharged, released or impaired in any respect by an agreement or stipulation made by Sublandlord or any assignee of Sublandlord or any other agreement with a third party extending the term or modifying any of the obligations contained in this Sublease, or by any waiver or failure of Sublandlord to enforce any of the obligations on Subtenant's part to be performed under this Sublease, and Subtenant shall continue liable hereunder. If any such agreement or modification operates to increase the obligations of Subtenant under this Sublease the liability of Subtenant under this Sublease or any of its successors in interest (all such parties shall be deemed to have expressly consented in writing to such agreement or modification) shall continue to be no greater than if such agreement or modification had not been made. Each sublease entered into by Subtenant shall provide that in the event of cancellation or termination of this Sublease because of a default by Subtenant hereunder or of the -18- surrender of this Sublease whether voluntary, involuntary or by operation of law, prior to the expiration date of the sub-sublease, including extensions and renewals granted thereunder, at Sublandlord's option, the sub-subtenant shall make full and complete attornment to the Sublandlord for the balance of the term of the sub-sublease, which attornment shall be evidenced by an agreement in form and substance reasonably satisfactory to Sublandlord, which the sub-subtenant shall execute and deliver at any time within ten (10) days after request by Sublandlord, its successors and assigns and that the sub-subtenant waives the provisions of any law now or hereafter in effect which may give the sub-subtenant any right of election to terminate the sub-sublease or surrender possession of the demised premises in the event any proceeding is brought by the Sublandlord to terminate this Sublease. 27.3 Subtenant shall not have the right to sublet the Demised Premises or assign this Sublease if the same would cause the Demised Premises to become subject to compliance with the remedial provisions of the New Jersey Environmental Clean Up Responsibility Act (N.J.S.A. 13:lk-6 et seq., or the regulations promulgated thereunder ("ECRA")), or a similar state statute requiring environmental testing and/or remediation, in any case prior to the sale or other transfer of the Demised Premises, upon the circumstance of such assignment or sublease, upon the expiration or sooner termination of this Sublease or any such sublease or upon the cessation of operations at the Demised Premises. If Subtenant desires to so assign or sublet, it shall notify Sublandlord. Sublandlord will advise Subtenant, by notice within thirty (30) days of Subtenant's notice, if Sublandlord believes that the proposed assignment or sublet violates the prohibitions contained above, which notice from Sublandlord shall specify in reasonable detail grounds for Sublandlord's determination. Failure or refusal of Sublandlord to respond within such thirty (30) day period shall be deemed a determination by Sublandlord that the proposed assignment or sublet does not violate the above prohibitions. If Subtenant disputes Sublandlord's determination, such dispute shall be resolved by ADR pursuant to Section 36 hereof. 27.4 Sublandlord confirms, for the benefit of any subtenant under any Major Sublease (such subtenant being called a "Space Subtenant"), that upon the termination of this Sublease pursuant to Section 29.1 hereof, Sublandlord will recognize the Space Subtenant under such sublease as a direct tenant of Sublandlord (provided that such Space Subtenant attorns to Sublandlord) and will, upon the request of Subtenant with respect to a Major Sublease consented to by Sublandlord, enter into a reasonable and customary form of recognition and attornment agreement with such Space Subtenant which would provide for the recognition by Sublandlord of such Space Subtenant as a direct tenant of Sublandlord and the attornment by such Space Subtenant to Sublandlord, provided that, among other things, at the time of the termination of this Sublease no default exists under the -19- Space Subtenant's sublease which at such time would then permit the landlord thereunder to terminate the same or to exercise any dispossess remedy provided for therein. The term "Major Sublease" shall mean a sublease of all of the Demised Premises for all of the term hereof (less one day), provided that the sublease requires the sublessee to perform all of the Subtenant's obligations hereunder, grants to the sublandlord all of Sublandlord's rights hereunder other than pursuant to Section 29.1(c) or (d) (which shall not apply to the Major Sublease) and that the sublessee shall not be obligated to enter into, assume or otherwise be liable for obligations under any Tenant Cross-Guaranty. 28. Time Periods The time limits set forth in the various provisions of the Overlease for the giving of notices are (unless a different time frame is set forth herein) changed for the purposes of this Sublease by lengthening or shortening the same in each instance, as appropriate, by two (2) business days so that notices may be given Sublandlord or Subtenant, as the case may be, within the time limit relating thereto contained in the Overlease. 29. Defaults and Remedies 29.1 The occurrence of any one or more of the following events shall constitute an event of default ("Event of Default") hereunder by Subtenant: (a) The failure by Subtenant to make any payment of base rent required to be made by Subtenant hereunder, as and when due, when such failure shall continue for a period of three (3) business days after written notice thereof from Sublandlord to Subtenant; (b) The failure of Subtenant to observe or perform any other covenant or agreement on the part of Subtenant to be performed hereunder which does not include the payment of rent, additional rent or any other payment required to be made by Subtenant hereunder (with respect to which the provisions of Subsection (a) hereof shall govern) and which does not involve the observance or performance of a covenant or agreement imposed upon the tenant under the Overlease and such default shall continue for a period of twenty (20) days after notice thereof, specifying such default shall have been given to Subtenant. However, in the case of a default which cannot with due diligence be remedied by Subtenant within a period of twenty (20) days, if Subtenant, during such twenty day period advises Sublandlord of Subtenant's intention to duly institute all steps necessary to remedy such situation and proceeds as promptly as may be reasonably possible after the service of such notice and with all due diligence and continuity of purpose to remedy the default and thereafter prosecutes the remedy of such default with due -20- diligence, the period of time after the giving of such notice within which to remedy the default shall be extended for such period as may be necessary to remedy the same with all due diligence; (c) An Event of Default, subject to the provisions of Section 15.3 of a Group Lease, shall have occurred under any Group Lease; provided, however, that if any Group Lease is assigned in a transaction permitted thereunder to a person or entity which is not an Affiliate of the Tenant thereunder, and does not thereafter become an Affiliate of the Tenant thereunder, then this Subsection shall thereafter apply only with respect to such Group Lease to a monetary Event of Default under such Group Lease and shall not thereafter apply to a non-monetary Event of Default under such Group Lease; (d) An Event of Default, subject to the provisions of Section 29.9 of a Group Sublease, shall have occurred under any Group Sublease; provided, however, that if any Group Sublease is assigned in a transaction permitted thereunder, to a person or entity which is not an Affiliate of the Subtenant thereunder, and does not thereafter become an Affiliate of the Subtenant thereunder, then this Subsection shall thereafter apply only with respect to such Group Sublease to a monetary Event of Default under such Group Sublease and shall not thereafter apply to a non-monetary Event of Default under such Group Sublease; (e) (i) The making by Subtenant or '21' International Holdings, Inc., while the TIHI Guaranty is in effect or any EMCO Sub, while its EMCO pledge is in effect (said entities, during such periods of time only, being each called a "Guarantor") of any general assignment for the benefit of creditors; (ii) the filing by or against Subtenant or a Guarantor of any petition to have Subtenant or a Guarantor adjudged a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Subtenant or a Guarantor, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Subtenant's or a Guarantor's assets, or substantially all of Subtenant's or a Guarantor's assets, or substantially all of Subtenant's assets located at the Demised Premises or of Subtenant's interest in this Sublease; or (iv) the attachment, execution or the judicial seizure of substantially all of Subtenant's or a Guarantor's assets, or substantially all of Subtenants assets located at the Demised Premises or of Subtenant's interest in this Sublease; or (v) the liquidation or dissolution of Subtenant or a Guarantor; or (f) Subject to the provisions of Section 29.7 hereof, the occurrence of any act or event or the existence of any other matter, circumstance, state of fact or thing (as it respects Subtenant) which would constitute a default under the Overlease, including, without limitation, the failure of -21- Subtenant to observe or perform any covenant or agreement on the part of Subtenant to be performed hereunder which does involve the observance or performance of a covenant or agreement imposed upon the tenant under the Overlease (but which does not involve the payment of base rent required to be made by Subtenant hereunder, with respect to which the provisions of Subsection (a) hereof shall govern) if the same is not cured or remedied by the date when the same would (taking into account applicable grace periods provided for in the Overlease) constitute a default under the Overlease. 29.2 From and after the occurrence of an Event of Default, Sublandlord shall also have the right, with or without terminating this Sublease and without any further notice to Subtenant , to re-enter the Demised Premises and remove all persons and property from the Demised Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of an for the account of Subtenant. No re-entry or taking possession of the Demised Premises by Sublandlord pursuant to this Section 29.2 shall be construed as an election to terminate this Sublease unless a written notice of such intention is given to Subtenant. No entry or re-entry by Sublandlord, whether had or taken under summary proceedings or otherwise, shall absolve or discharge Subtenant from any liability hereunder. Sublandlord agrees that it will cease exercising any right it may have under this Sublease by reason of the occurrence of an Event of Default hereunder which relates to the Subtenant's failure to observe or perform a covenant or agreement imposed upon the tenant under the Overlease if subsequent to the occurrence of such Event of Default such failure to observe or perform is remedied by the Subtenant and the Overlandlord accepts such cure and waives any default occasioned thereby. 29.3 In the event that Sublandlord shall elect to re-enter as provided above or shall take possession of the Demised Premises pursuant to legal proceedings or pursuant to any notice provided by law, then if Sublandlord does not elect to terminate this Sublease as provided above, Sublandlord may, from time to time, without terminating this Sublease, either recover all rent (which shall be deemed to include all base rent, additional rent and other payments and charges required to be made by Subtenant hereunder) as it becomes due or relet the Demised Premises or any part thereof on terms and conditions as Sublandlord in its sole discretion may deem advisable for the whole or any part of the remainder of the term or for a longer period, in Sublandlord's name, or as agent of Subtenant, and in connection therewith Sublandlord may make repairs or alterations to the Demised Premises in such a manner as Sublandlord may deem necessary or advisable. Subtenant specifically acknowledges and agrees that Sublandlord shall have no obligation or duty to mitigate damages hereunder. 29.4 In the event Sublandlord shall elect to so relet, the rents received by Sublandlord from such reletting -22- shall be applied: first, to the cost and expenses or retaking, repossessing, repairing and/or altering the Demised Premises and the expense of removing all persons and property therefrom; second, to the cost and expenses incurred in securing any new tenant or tenants; and third, to the payment of rent due and unpaid hereunder and the residue, if any, shall be held by Sublandlord and applied to payment of future rent as the same may become due and payable. Should that portion of such rents received from such reletting during any month, which is applied to the payment of rents hereunder, be less than the rent payable during the month by Subtenant hereunder, then Subtenant shall pay such deficiency to Sublandlord immediately upon demand therefor by Sublandlord. Such deficiency shall be calculated and paid monthly. Subtenant shall also pay to the Sublandlord, as soon as ascertained, any costs and expenses incurred by Sublandlord in reletting or in making such alternations and repairs not covered by the rents received from such reletting. Suit or suits for the recovery of such deficiency or damage, or for a sum equal to any installment or installments of rent may be brought by Sublandlord from time to time at Sublandlord's election and nothing herein contained shall be deemed to require Sublandlord to await the date on which the Sublease or the term hereof would have expired by limitation had there been no such default by Subtenant. 29.5 All rights, options and remedies of Sublandlord contained in this Sublease shall be construed and held to be cumulative and no one of them shall be exclusive of the other, and Sublandlord shall have the right to pursue any one or all of such remedies or any other remedy or relief which may be provided by law, whether or not stated in this Sublease. Subtenant expressly waives service of any notice of intention to re-enter subsequent to the occurrence of an Event of Default. Subtenant hereby expressly waives any and all rights to recover or regain possession of the Demised Premises or to reinstate or redeem its tenancy or this Sublease as is permitted or provided by or under any statute, law or a decision now or thereafter in force and effect. Subtenant also waives the provisions of any law now or hereafter in effect relating to notice and delay in levy of execution in case of an eviction or dispossess of Subtenant for non-payment of rent. Subtenant waives and shall waive any and all right to a trial by jury in the event that summary proceedings shall be instituted by Sublandlord. The term "enter", "re-enter", "entry", or "re-entry", as used in this Sublease is not restricted to their technical legal meanings. 29.6 In addition to and not in limitation of any right or remedy provided to Sublandlord in this Section 29, Sublandlord shall have all rights and remedies which the Overlandlord is entitled to pursuant to the provisions of the Overlease, at law, equity or otherwise upon the occurrence of a default by the tenant thereunder. 29.7 Sublandlord agrees that it will not be entitled to give a default notice to Subtenant with respect to -23- Subtenant's failure to perform or observe any covenant or agreement on the part of Subtenant to be performed hereunder which involves the observance or performance of a covenant or agreement imposed upon the tenant under the Overlease (excepting from the foregoing, however, the failure to make payment of rent, additional rent or any other payment required to be made by Subtenant hereunder, and excepting from the foregoing any obligation which is independently imposed upon the Subtenant under this Sublease; the provisions of the first sentence of Section 12.1 hereof shall not be deemed an obligation which is independently imposed upon the Subtenant under this Lease) unless Sublandlord receives notice from the Overlandlord with respect to such failure to perform or observe. Nothing contained in this Section 29.7 shall be deemed or construed to limit Sublandlord's right to take any action pursuant to Section 12.1 in the event of any emergency. 28.8 If Sublandlord shall give Subtenant a notice pursuant to Section 29.1(b) of a default or an event which may, with the giving of such notice, or the passage of time, or both, become an Event of Default, and if Subtenant within fifteen (15) days after the giving of any such notice from Sublandlord pursuant to Section 29.1(b) shall dispute by notice to Sublandlord (a "Section 29.8" Notice) the existence of such default, the matter shall be determined by ADR as provided in Article 36 and, pending such determination, Sublandlord shall not be entitled to terminate this Sublease, nor shall a default or Event of Default be deemed to exist hereunder on account thereof; provided, however, that if it shall be determined by ADR that Subtenant is so in default, the time within which Subtenant shall have to remedy the same under Section 29.1(b) shall be computed from the date of such determination. Any such Section 29.8 Notice to Sublandlord shall specify in reasonable detail the grounds for such dispute. 29.9 If a monetary Event of Default occurs hereunder (other than a monetary Event of Default which respects the payment of rent, additional rent or any other payment required to be made by the tenant under the Overlease) then Sublandlord shall have the right to send to Subtenant a second (2nd) notice, referring to this Section and specifying such default and stating that it is a "Second Notice" of such default, and, if such monetary Event of Default shall not be cured within five (5) business days after such notice is given, then Sublandlord shall have the right to send Subtenant a third (3rd) notice, referring to this Section and specifying that it is a "Third Notice" of such default, and if such monetary Event of Default shall not be cured within ten (10) business days after such notice is given, Sublandlord may thereafter proceed to exercise all rights and remedies which Sublandlord may exercise upon such Event of Default and Sublandlord shall not thereafter be obligated to accept a cure by Subtenant of such monetary Event of Default (but prior to Sublandlord's commencing to exercise its rights and remedies, Sublandlord shall be obligated to accept -24- such a cure). The provisions of this Section shall only apply to the first two (2) monetary Events of Default (as above noted, the provisions of this Section shall not be applicable to a default relating to the payment of rent, additional rent or any other payment required to be made by the tenant under the Overlease) in any period of twelve (12) consecutive calendar months. Subtenant specifically acknowledges that it will not argue before any court, ADR tribunal or anyone that Sublandlord is obligated or required to accept any cure of any such Event of Default described in this Section after the expiration of the applicable time frame provided for after the Third Notice, Subtenant having negotiated for the giving of the Second and Third Notices in lieu of any other benefit or right provided to Subtenant at law, in equity or otherwise with respect to the right to cure such Events of Default. 29.10 (a) The provisions of Section 29.1(d) shall no longer apply to this Sublease, and Sublandlord shall cease to be entitled to consider an Event of Default to exist or to terminate this Sublease on account of an Event of Default under Section 29.1(d) in any of the following circumstances: (i) If this Sublease shall be assigned (but only if Sublandlord's consent, if required hereunder, has been obtained), in a transaction permitted hereunder, to an assignee which is not an Affiliate of Subtenant and provided that (i) such assignee or transferee does not thereafter become an Affiliate or Subtenant, or (ii) Subtenant, or an Affiliate of Subtenant, does not thereafter become the Subtenant under this Sublease; or (ii) if Sublandlord shall cease to be (and so long thereafter as Sublandlord shall continue not to be) an Affiliate of Joseph C. DiFeo or Samuel X. DiFeo. (b) For purposes of Sections 29.1(c) and 29.1(d) a sublease other than this Sublease, or a lease which is originally considered a Group Sublease or a Group Lease shall cease to be a Group Sublease or Group Lease for such purposes if the sublandlord or landlord under such sublease or lease shall cease to be an Affiliate of Joseph C. DiFeo or Samuel X. DiFeo, but shall again be considered a Group Sublease or Group Lease if and so long as the sublandlord or landlord under such sublease or lease shall again be an Affiliate of Joseph C. DiFeo or Samuel X. DiFeo. 29.11 Pursuant to the Tenant Cross-Guaranty, Subtenant has guaranteed the performance of the tenants under the Group Leases and the subtenants under the Group Subleases. 30. Purchase of Demised Premises The Overlease may grant the Sublandlord an option to purchase the Demised Premises, a right of first refusal to purchase the -25- Demised Premises, the right of first offer to purchase the Demised Premises or other rights (collectively "Rights") concerning the purchase of the Demised Premises. Subtenant specifically acknowledges that Sublandlord has retained all of its rights with respect to the foregoing and Subtenant does not have any rights with respect to the foregoing. If Sublandlord, or an Affiliate of Sublandlord, acquires title to the Demised Premises at any time during the term of this Sublease, then this Sublease shall automatically be deemed to be a direct lease between Sublandlord (or the Affiliate of Sublandlord), as landlord, and Subtenant, as tenant, except that this Sublease shall automatically be deemed modified to incorporate all of the terms and provisions of the lease in the form of Exhibit D hereto, it being agreed, however, that the term of the direct lease between Sublandlord (or an Affiliate of Sublandlord) and Subtenant shall be for a term which is coterminous with the balance of the then effective term of this Sublease and that the Subtenant shall have the options to renew provided for in the Overlease and that the base rent, additional rent and other charges to be paid by the Subtenant, as tenant, to Sublandlord (or an Affiliate of Sublandlord), as landlord, shall be the same rent and additional rent which the Subtenant was required to pay under this Sublease. If a successor ("Successor") in interest to the Sublandlord with respect to this Sublease (other than an Affiliate of Sublandlord) or the Sublandlord's Rights acquires title to the Demised Premises then this Sublease shall automatically be deemed to be a direct lease between the Successor, as landlord, and Subtenant, as tenant. Each Successor shall execute a writing so assuming the obligations contained herein with respect to it. 31. Taxes Subtenant shall be responsible for paying (or reimbursing Sublandlord, as appropriate) any and all taxes, assessments and charges, levied, assessed or imposed upon Sublandlord (other than income taxes, but including occupancy taxes which are measured by income) measured by (x) Sublandlord's ownership of its interest in this Sublease; (y) this Sublease; or (z) the rent or other charges produced by this Sublease. Nothing contained in the foregoing sentence shall require Subtenant to pay any franchise, income, corporate, estate succession, capital levy, stamp or transfer tax of Sublandlord or other taxes imposed on taxpayers generally as opposed to the owners or landlords of real property or on rents in particular. Nothing contained herein shall be deemed or construed to limit or diminish Subtenant's obligations contained elsewhere in this Sublease. 32. No Fiduciary Obligation Sublandlord, an affiliate of Sublandlord, or persons comprising Sublandlord, may be a stockholder, partner or the like in Subtenant or an affiliate of Subtenant, which fact shall not impose any duty or obligation (fiduciary or otherwise) on the -26- Sublandlord in acting as sublandlord under this Sublease, it being specifically understood and agreed that Sublandlord shall have the right to do or not to do anything with respect to this Sublease to the same extent as if Sublandlord, an affiliate of Sublandlord or persons comprising Sublandlord were not a stockholder, partner or the like with or in Subtenant or an affiliate of Subtenant. 33. Warranties and Representations Sublandlord represents to the Subtenant that, as of the date of this Sublease: (i) the Overlease is in full force and effect; (ii) attached hereto as Exhibit E is a complete copy of the Overlease, together with all amendments thereto and modifications thereof; (iii) to the best of its knowledge, there exists no default on its part under the Overlease (iv) The Sublandlord is the holder of the tenants interest under the Overlease and has not assigned the same; and (v) There are no presently effective subleases or rights of occupancy entered into or granted by Sublandlord with respect to the Demised Premises. 34. Non-Recourse There shall be absolutely no personal liability on the part of Sublandlord, its partners, agents, employees, shareholders, officers and directors or their successors or assigns with respect to any of the terms, covenants and conditions of this Sublease or with respect to any act, omission or negligence of the Sublandlord. Subtenant shall look solely to Sublandlord's estate and property in the Demised Premises for the satisfaction of Subtenant's remedies for the collection of any judgment or any other judicial process requiring the payment of money by Sublandlord, and no other property or assets of Sublandlord shall be subject to levy, execution or other enforcement procedure or for the satisfaction of Subtenant's remedies under or with respect to this Sublease, the relationship of Sublandlord and Subtenant or of Subtenant's use or occupancy of the Demised Premises. 35. Certain Definitions As used herein: (a) "Affiliate" shall have the meaning ascribed thereto in the Master Agreement. -27- (b) "TIHI Guaranty" shall have the meaning ascribed thereto in the Master Agreement. (c) "EMCO Sub" shall mean the pledgor(s) under the EMCO Pledge(s). (d) "Transaction Agreements" means, collectively, the Master Agreement and the Transaction Documents (as defined in the Master Agreement). (e) Master Agreement" shall mean the Master Agreement, dated as of March 11, 1992, among Emco Motor Holdings, Inc., DiFeo Partnership, Inc., '21' International Holdings, Inc., Fair Cadillac-Oldsmobile Corp., Fair Chevrolet Corp., Fair Infiniti, Inc., Fair Imports Corp. (d/b/a Fair Acura), Fair Hyundai Corp., Fair Motors Corp. (d/b/a Fair Mitsubishi), Danbury-Mt. Kisco Saturn Corp. (d/b/a/ Saturn of Danbury), Hudson Toyota Inc., J & S Ford Inc., DiFeo Volkswagen Inc., DiFeo Hyundai Inc., J & F Oldsmobile Corp., DiFeo Subaru Inc., DiFeo Jeep-Eagle Inc., DiFeo Imports, Inc. (d/b/a/ Jersey City Mitsubishi), Park Pontiac-GMC Truck, Inc., DiFeo Buick Inc., DiFeo Autocenter Inc. (d/b/a/DiFeo Mazda), DiFeo Leasing Corporation, Somerset Motors Inc. (d/b/a/ DiFeo Lexus), Gateway Oldsmobile Inc. (d/b/a DiFeo Volkswagen of Bridgewater), DiFeo B.M.W., Inc., County Auto Group, Inc. (d/b/a County Toyota), Rockland Motors Corp. (d/b/a Rockland Mitsubishi), Samuel X. DiFeo and Joseph DiFeo, as the same may have been amended. (f) "Group Leases" means the leases to be entered into contemporaneously herewith by Sublandlord (or Affiliates of Sublandlord) and Subtenant (or Affiliates of Subtenant) pursuant to the Master Agreement, a list of such Group Leases being attached hereto as Exhibit F. (g) "Group Subleases" means this Sublease and all other subleases to be entered into contemporaneously herewith by Sublandlord (or Affiliates of Sublandlord) and Subtenant (or Affiliates of Subtenant) pursuant to the Master Agreement, a list of all such Group Subleases being attached hereto as Exhibit G. (h) "ADR" shall have the meaning ascribed thereto in Article 36. (i) "EMCO pledge(s)" shall have the meaning ascribed to "EMCO Sub-Pledge Agreements (Leases)" in the Mater Agreement. (j) "laws" shall mean all present and future laws and ordinances and the orders, rules, regulations and requirements of all federal, state and municipal governments and appropriate departments, commissions, board and officers thereof, which may be applicable to the Demised Premises and the sidewalks, curbs and vaults adjoining the same or to the use or -28- manner of use of the Demised Premises, whether or not such requirement shall be foreseen or unforeseen, ordinary or extraordinary. (k) "Tenant Cross-Guaranty" shall have the meaning ascribed thereto in the Master Agreement. 36. ADR 36.1 In such cases where this Sublease provides for the determination of any matter by arbitration or ADR, the same shall be settled and finally determined by the means of alternative dispute resolution as provided in the New Jersey Alternative Procedure for Dispute Resolution Act, N.J.S.A. 2A:23A-1, et seq., as in effect on the date of this Sublease, (the "Act") upon written notice given by any party to the other (the "Dispute Notice"), and to the umpire hereafter established. Except to the extent required by law, the proceedings under the Act shall be confidential and shall not be disclosed or discussed with persons not parties to this Sublease without the consent of all parties to the dispute. In the event a party to a dispute may suffer irreparable harm or injury, such party shall have the ability to seek provisional remedies, including but not limited to injunctive relief and other equitable remedies, to the fullest extent permitted by law pending completion of the process provided under this Article 36. 36.2 (a) Within thirty (30) days after the Dispute Notice is given the parties shall select three (3) umpires from among the persons listed in Subparagraphs (1) through (4) below in the order of priority listed below, i.e., if a person meeting the requirements of Subparagraph (1) is not able or willing to serve, a person meeting the requirements of Subparagraph (2) shall be selected, and so forth. In addition to meeting the requirements of Subparagraph (1), (2), (3) or (4) below, the umpires must also satisfy the requirements described in Subparagraphs (b) and (d) below. A potential umpire is: (1) Any retired judge of a United States District Court or a United States Circuit Court of Appeals; (2) Any retired judge of any State Superior Appellate or Supreme Court; (3) Any attorney licensed to practice law for more than fifteen (15) years or certified public accountant who has been certified for more than fifteen (15) years; and, in either case, who has either directly or indirectly, no conflict of interest; or (4) Such other person upon whom the members of the selecting group agree. (b) In addition to the requirements described in -29- Section 36.2(a) above, the umpires selected hereunder must: (1) Be free of any potential for bias or conflict of interest with respect to either of the parties hereto, directly or indirectly or by virtue of any direct or indirect financial interest, family relationship or close friendship; and (2) Be in a position to immediately hear the dispute and thereafter render a resolution within the time specified in Section 36.7 below. (c) If the umpires are not selected within the period of time specified in Section 36.2(a) above, Sublandlord, on the one hand, and Subtenant, on the other hand, each shall promptly select an umpire which umpires shall select a third umpire who shall be the sole umpire. If the parties fail to so select umpires pursuant to the foregoing provisions within twenty (20) days after the expiration of the period described in Section 36.2(a), the sole umpire shall be selected by the Chief Judge of the United States District Court for the District of New Jersey or, if the Chief Judge is unable or unwilling to act, by the Chief Judge of the Southern District of New York or the President of the Bar Association of the City of New York. Such selection shall be in accordance with the requirements of Sections 36.2(a) and 36.2(b) above. The umpire to be selected pursuant to this Section 36.2(c) must be designated within thirty (30) days after the expiration of the period described in Section 36.2(a) above. (d) Anything to the contrary herein notwithstanding, the following persons are not eligible to be an umpire under this Article: a party to this Sublease or any affiliate thereof; an employee or co-employee of any party to the dispute; or any person having material or undisclosed, financial or personal interests dependent on the success or failure of any of the parties. (e) An umpire shall disqualify himself or herself if he or she is unable to handle the process promptly so as to render a resolution within a reasonable time, in no event to exceed forty-five (45) days after final testimony and/or brief and in all __________ not to extend beyond six months from the date the umpire is chosen, or such longer period to which the parties to the dispute and the umpire may agree. 36.3. The alternative resolution shall be held at such place as the umpire may determine within Essex County, New Jersey or such other location to which the parties may agree, to commence not later than ten (10) days after the umpire has been determined in accordance with Section 36.2. 36.4. All fees and expenses (including transcripts, room rental and fees of the umpire) of alternative dispute resolution, shall be paid as follows: 25% by the party -30- or parties served with the Dispute Notice and 25% by the person(s) serving the Dispute Notice, with the remaining 50% allocated 10% to the prevailing party (or parties) and 40% to the non-prevailing party (or parties), as determined by the umpire (if the umpire does not determine a prevailing party then pro-rata to each of the material parties to the dispute as determined by the umpire) provided that the umpire shall have the right to order that such fees be paid in a different percentage if any of the parties have acted in bad faith (in which case he may shift other's shares to the bad faith party(ies). The fees payable to the umpire shall be his usual hourly rates for consulting or dispute resolution services, as the same may be in effect from time to time. Each party shall pay his own legal fees, costs and disbursements. 36.5. Each party shall be entitled to discovery by way of oral deposition, inspection and copying of all relevant documents within the care, custody or control of a party or a witness, and when authorized by the umpire, by way of interrogatories. All discovery shall be complete within forty-five (45) days of the appointment of the umpire. All documents to be relied upon by any party to the proceeding shall be provided to the others no later than two weeks before the hearing date for the proceedings. The time periods for discovery may be extended by the umpire for good cause, provided that he is able to meet the time requirement of Section 36.7. 36.6. When appropriate under applicable New Jersey substantive and procedural law, the umpire shall have full and complete authority to award provisional relief, on an ex parte basis or otherwise. 36.7. The umpire shall make the award and serve notice thereof upon all parties within six (6) months of the date the umpire is designated, or such longer period to which the parties to the dispute and the umpire may agree. If the umpire fails to make his decision in accordance with substantive law, or to properly apply the facts to the law, the umpire's award will be deemed to have been procured by "undue means" and "beyond his power." Any party may apply to court in accordance with the Act to have the umpire's decision confirmed, reviewed, modified, affirmed or remanded to the umpire with directions. 36.8. Except as otherwise provided herein, the Act shall govern the procedures and methods for any Alternative Dispute Resolution undertaken pursuant to this Sublease. Except as expressly provided above, the umpire may not modify the provisions of this Article. Except as expressly provided to the contrary above, and to the extent otherwise not inconsistent with this Sublease and the Act, proceedings under this Article, including efforts to mediate the dispute, shall be governed by the "Rules for Non-Administered Arbitration of Business Disputes" (Final Draft, June 14, 1989) by the CPR (NY). -31- 37. Miscellaneous 37.1 This Sublease may not be modified or amended except by a writing executed by both parties. 37.2 This Sublease shall be governed by and shall be construed in accordance with the laws of the State in which the Demised Premises is located. 37.3 The covenants and agreements herein contained shall bind and inure to the benefit of Sublandlord and Subtenant and their respective successors and assigns (but in the case of Subtenant only, permitted assigns). 37.4 Sublandlord and Subtenant agree that they are not partners or joint venturers by reason of this Sublease. 37.5 The persons and entities signing this Sublease for Sublandlord and Subtenant respectively each represents and warrants that this Sublease has been duly authorized, executed and delivered by Sublandlord and Subtenant, as the case may be. 37.6 Neither acceptance of the keys nor any other act or thing done by Sublandlord or any agent or employee of Sublandlord during the term of this Sublease shall be deemed to be an acceptance or a surrender of the Demised Premises. Surrender of the Demised Premises can only be effected by agreement in writing signed by Sublandlord accepting or agreeing to accept such a surrender. 37.7 Sublandlord and Subtenant hereby waive trial by jury in any action or proceeding (including counterclaims) brought by either against the other in any matters arising out of or relating to this Sublease which are not required to be decided pursuant to the alternative dispute resolution mechanism set forth herein. 37.8 This Sublease contains the entire agreement between the parties concerning the subleasing of the Demised Premises by Sublandlord to Subtenant. All prior descriptions and negotiations between the parties regarding the subject matter of this Sublease are merged into and superseded by this Sublease. 37.9 The captions herein are for convenience of reference only and shall not be deemed to define, limit or describe the scope or intendment of any provision of this Sublease. IN WITNESS WHEREOF, Sublandlord and Subtenant have duly executed and delivered this Sublease as of the day and year first above written. -32- WITNESS DIFEO BMW, INC. By: Name: Its: DIFEO BMW PARTNERSHIP By: /s/ Ezra P. Mager Name: Ezra P. Mager Its: CEO -33- EXHIBIT A TO SUBLEASE BETWEEN DIFEO BMW, INC. AND DIFEO BMW PARTNERSHIP Lease dated January 6, 1992 between Michael Zullo, Sr. and Bertha Zullo, as landlord, and DiFeo BMW, Inc., as tenant. -34- EXHIBIT B TO SUBLEASE BETWEEN DIFEO BMW, INC. AND DIFEO BMW PARTNERSHIP Report Of Site Investigation For Various Automobile Dealerships In New Jersey, New York and Connecticut - SE # 2519, Prepared For: EMCO Motor Holdings, Inc. by Storch Engineers - Dated June 2, 1992, as amended. -35- EXHIBIT C TO SUBLEASE BETWEEN DIFEO BMW, INC. AND DIFEO BMW PARTNERSHIP Additional Representations And Warranties of Sublandlord 1. Existence. Sublandlord is a corporation duly organized, validly existing and in good standing under the laws of its state of organization and has all requisite power and authority to enter into this Sublease and the Rent Adjustment and Takeback Agreement (collectively, the "Lease Documents") to which it is a party and to perform its obligations hereunder and thereunder; and has all requisite corporate power and authority to own its properties and assets and conduct its business as it is now being conducted. 2. Authority; Consents. The execution, delivery performance by Sublandlord of the Lease Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate, partnership or other action, and no other corporate, partnership or other action on the part of Sublandlord is necessary for the execution, delivery and performance by Sublandlord of any Lease Document to which it is a party and the consummation by it of the transactions contemplated hereby and thereby. Subject to Section 4.23 of the Master Agreement (which exclusively governs Environmental Health and Safety Matters) and except as disclosed on Schedule C-1 hereto, or in the Master Agreement, neither the execution nor the delivery by Sublandlord of any Lease Document to which it is a party, nor the consummation of any of the transactions contemplated hereby or thereby, nor compliance with nor fulfillment by Sublandlord of the terms and provisions hereof or thereof, will, except as disclosed on Schedule C-1 hereto, (i) conflict with or result in a breach of the terms, conditions or provisions of or constitute a default under (A) the Certificate or Articles of Incorporation, Bylaws, partnership agreement, or other organizational documents of Sublandlord, or (B) any lease, contract, instrument, mortgage, deed of trust, trust deed or deed to secure debt evidencing or securing indebtedness for borrowed money, any financing lease, any law, rule, regulation, judgment, order, award, decree or other restriction of any kind to which Sublandlord is a party or by which it is bound and the Demised Premises is subject, (ii) require Sublandlord to obtain the consent, approval, authorization or other order or action of, or filing with, any court, governmental authority or regulatory body, (iii) require the consent, approval, authorization or order of any person or entity under, and will not conflict with, or result in the breach, lapse or termination of, or constitute a default under, or result in the acceleration of the performance by Sublandlord -36- under, any material lease, permit, license, contract, mortgage, deed of trust, trust deed, deed to secure debt, other lease, indenture or other instrument to which Sublandlord is a party and by which the Demised Premises is subject, (iv) give any party with rights under any instrument, contract (including any sale/leaseback agreement), lease, mortgage, deed of trust, trust deed, deed to secure debt, judgment, order, award, decree or other restriction the right to terminate, modify or otherwise change the rights or obligations of any party under such instrument, contract, lease, mortgage, deed of trust, trust deed, deed to secure debt, judgment, order, award, decree or other restriction or (v) require any declaration, filing or registration with any governmental or regulatory authority by Sublandlord. Each Lease Document has been duly executed and delivered by Sublandlord and (assuming the due authorization, execution and delivery hereof and thereof by the other parties hereto and thereto), constitutes a legal, valid and binding obligation of Sublandlord, enforceable against Sublandlord in accordance with its respective terms (except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditor's rights generally and laws restricting the availability of equitable remedies and may be subject to general principles of equity whether or not such enforceability is considered in a proceeding at law or in equity). 3. No Litigation. There is no action, lawsuit, claim, counterclaim, proceeding or investigation (or group of related actions, lawsuits, claims, proceedings or investigations) pending or, to the knowledge of Sublandlord, Joseph DiFeo or Samuel DiFeo, threatened against or affecting Sublandlord that seeks to restrain or enjoin the consummation of the transactions contemplated by any Lease Document. 4. Title to Assets. Sublandlord has the legal right to use all of the Demised Premises. 5. Compliance. Except as otherwise disclosed in the Master Agreement, Sublandlord is not in default under or in violation of, any applicable franchise, permit or license, its Articles or Certificate of Incorporation (or other charter document), Bylaws, partnership agreement or other organizational document, any promissory note, indenture or any evidence of indebtedness or security therefor, mortgage, lease, Contract (as hereinafter defined) or any other instrument to which it is a party and by which it or the Premises is or may be bound. 6. Litigation. Except as disclosed in Schedule C-1 hereto or in the Master Agreement and except for Environmental Health and Safety Matters which are governed exclusively by Section 4.23 of the Master Agreement, there is no action, lawsuit, claim, counterclaim, proceeding, or investigation (or group or related actions, lawsuits, claims, proceedings or investigations) pending or, to the knowledge of Sublandlord, -37- threatened, against or affecting Sublandlord in any court, or before any Federal, state, provincial, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or before any arbitrator of any kind, and as of the date hereof Landlord knows of no reasonable basis for any such action, lawsuit, claim, proceeding, or investigation (or group of related actions, lawsuits, claims, proceedings or investigations) which seeks to restrain or enjoin the consummation of the transactions contemplated by the Lease Documents or would materially adversely affect Subtenant or Subtenant's use and occupancy of the Demised Premises. Except as disclosed in Schedule C-1 or in the Master Agreement, Sublandlord is not in default, and no condition exists that with notice or the lapse of time or both would constitute a default, with respect to any judgment, order writ, injunction or decree of any court or before any Federal, state, provincial, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting or relating to the business of Sublandlord. No condemnation proceeding has commenced or, to the knowledge of Sublandlord, is threatened to be commenced against any of the Demised Premises. 7. Contracts. Except as otherwise disclosed in the Master Agreement, Schedule C-1 hereto lists all of the following contracts of Sublandlord relating to the Demised Premises ("Contracts"): (i) any lease, sublease or other right of occupancy, (ii) any contract, commitment or option to sell or lease the Demised Premises, (iii) any mortgage, hypothecation, deed of trust, equipment lease, conditional sales agreement or similar instrument which place a lien or encumbrance upon the Demised Premises, (iv) any other contract relating to rights in the Demised Premises which will, or has the reasonable likelihood to, materially adversely interfere with Subtenant, this Sublease or the use and occupancy of the Demised Premises by Subtenant pursuant to this Sublease, or (v) any other contract which would be binding on Subtenant hereunder. Sublandlord has made available to Subtenant true and complete copies of all Contracts, all as presently in effect. This representation shall not be deemed to affect, or to be affected, by any environmental matter or Environmental Claims, each of which is governed exclusively by the Master Agreement. Any dispute with respect to the foregoing representations and warranties shall be resolved by ADR pursuant to Article 36. -38- SCHEDULE C-1 The consent of the overlandlord of the Demised Premises is required. The Sublandlord is a party to the Overlease. Incorporated herein by reference is all that which is disclosed in the Master Agreement. -39- LEASE This LEASE is dated as of October 1, 1992, by and between J & S Equity Associates, a New Jersey partnership, having an office at c/o Dealership Management, 585 Route 440, Jersey City, New Jersey ("Landlord"), and DiFeo Buick-Pontiac-GMC Truck Partnership, a New Jersey general partnership, having an address c/o EMCO Motor Holdings, Inc., 153 East 53rd Street, New York, New York 10022 ("Tenant"). W I T N E S S E T H: That Landlord in consideration of the rents reserved in this Lease to be paid by Tenant and in consideration of the covenants, agreements and conditions herein contained to be observed and fulfilled by Tenant, hereby demises and leases to Tenant, and Tenant hereby hires and takes from Landlord, the real property (the "Land") situate, lying and being in Jersey City, New Jersey, as more particular bounded and described in Exhibit A. TOGETHER with the Buildings and the Appurtenances (as hereinafter respectively defined; the Land, the Buildings and the Appurtenances, collectively, the "Premises"). SUBJECT to the mortgages specified in Exhibit A and any easements, restrictions and other matters of record against the Premises as of the date hereof. TO HAVE AND TO HOLD the Premises unto Tenant, its successors and assigns, for a term commencing on the date hereof (the "Term Commencement Date") and expiring on the last day of the calendar month in which occurs the tenth (10th) anniversary of the Term Commencement Date, subject to extension as provided in Article 17, unless this Lease shall sooner terminate as hereinafter provided, upon and subject to the terms and conditions hereinafter set forth. AND Landlord and Tenant covenant and agree as follows: ARTICLE 1. BASE, ESCALATION AND ADDITIONAL RENT Section 1.1. Base Rent. Tenant shall pay to Landlord during the term hereof in lawful money of the United States of America, by check subject to collection, at the address of the Landlord specified above or at such place as Landlord may from time to time designate, without notice or demand, a net annual base rental (the "Base Rent"), in equal monthly installments in advance on the twenty-fifth (25th) day of the calendar month preceding the month to which such installment of Base Rent relates, at a rate of $156,000 per annum, subject to adjustment as provided in this Article 1 and Article 17. Notwithstanding the foregoing (and without limitation of any other rights or remedies provided to Landlord hereunder), if during any twelve (12) month period Tenant shall be more than five (5) days late in the payment of two (2) monthly installments of Base Rent hereunder, then, for the twelve (12) months following such second (2nd) instance, Base Rent hereunder shall be payable on the fifteenth (15th) day of the calendar month preceding the month to which such installment of Base Rent relates. Section 1.2. Base Rent Adjustments. (a) The Base Rent shall be adjusted as and to the extent required in Section 11 of the Rent Adjustment and Takeback Agreement. (b) The Base Rent shall be adjusted as of the third (3rd) anniversary of the Term Commencement Date (the "First Adjustment"), and as of the ninety-first (91st) calendar month anniversary of the Term Commencement Date (the "Second Adjustment"), to an amount equal to the fair market rental value of the Premises, determined as provided in this Section, as of said third (3rd) anniversary (for the First Adjustment) and as of such ninety-first (91st) month anniversary (for the Second Adjustment), which fair market rental value shall be determined by agreement of the parties or, failing such agreement within 180 days prior to the respective date referred to above, by arbitration which shall be conducted in the manner provided in Article 18 in which the arbitrator shall determine the fair market rental value of the Premises (for automobile dealership use only (or any other Vehicle-Related Use or other use for which the Premises are in fact being used, but only to the extent that such other Vehicle-Related Use or other use is a higher and better use of the Premises than as an automobile dealership) and taking into consideration the obligations of Tenant under this Lease (the arbitrator is to conclusively presume that the Premises are in good condition and repair, are undamaged by any fire or other casualty and are free of any environmental contamination), the character and location of the Premises, the absence of a brokerage commission, work letter or rent concessions, any further provisions for adjustment of Base Rent, and other factors customarily taken into account in calculating fair market rental value of real property, but excluding any valued added by Alterations in the nature of new Buildings (other than where Tenant has demolished and replaced a Building existing on the date hereof, in which event any value added by such Alternations shall be included) or additions to Buildings existing on the date hereof and undertaken by Tenant, but including renovations or restorations to (but not expansions of) Buildings existing as of the date hereof, determined as of the date the Base Rent is to be adjusted). (c) With respect to the First Amendment, by a separate Rent Adjustment and Takeback Agreement, the parties have agreed that the First Adjustment under all of the Group Leases shall in -2- the aggregate result in an increase in Base Rent under all Group Leases of at least $288,000 per annum, but not more than $864,000 per annum (although under certain circumstances these numbers may be adjusted, as provided in the Rent Adjustment and Takeback Agreement). The First Adjustment determined pursuant to subsection (b) of this Section shall therefore be subject to further adjustment pursuant to the Rent Adjustment and Takeback Agreement. (d) With respect to the Second Adjustment, by a separate Rent Adjustment and Takeback Agreement, the parties have agreed that the Second Adjustment under all of the Group Leases shall in the aggregate result in an increase (together, cumulatively with the aggregate increase of the First Adjustment) in Base Rent under all Group Leases of at least $576,000 per annum (although under certain circumstances this number may be adjusted, as provided in the Rent Adjustment and Takeback Agreement), but not more than a maximum amount, in excess of the $576,000 per annum minimum (as such minimum may be so adjusted), determined pursuant to the Rent Adjustment and Takeback Agreement. The Second Adjustment determined pursuant to subsection (b) of this Section shall therefor be subject to further adjustment pursuant to the Rent Adjustment and Takeback Agreement. (e) After the First Adjustment or the Second Adjustment, or any other adjustment pursuant to Section 11 of the Rent Adjustment and Takeback Agreement, has been determined, then, at either party's request, the parties shall enter into an agreement confirming the amount of the First Adjustment or the Second Adjustment, or such other adjustment, but failure to enter into the same shall not affect the rights or obligations of the parties hereunder. Section 1.3. Net Lease. This Lease shall be deemed and construed to be an absolutely "net lease", except as herein expressly provided to the contrary. It is the intent of Landlord and Tenant that the Base Rent shall be absolutely net to Landlord so that this Lease shall yield to Landlord the Base Rent, and that all costs, expenses, charges, assessments, impositions and obligations of every kind and nature relating to the Premises which may arise or become due during the Term, whether foreseen or unforeseen, ordinary or extraordinary, shall be the responsibility of Tenant, except (i) as expressly provided to the contrary in this Lease, or (ii) for obligations relating to Fee Mortgages and liens created by Landlord, or other agreements entered into by Landlord relating to the Premises, to the extent that the same are not expressly assumed in writing by Tenant or that Tenant expressly agrees to comply with the same hereunder. Tenant shall pay to Landlord the Base Rent and other payments hereunder free of any charges, assessments, impositions or deductions of any kind and without abatement, deduction, demand, notice, or set-off, except as otherwise expressly provided in this Lease. -3- Section 1.4. Prorations; Additional Rent; Adjustments. (a) If the Term Commencement Date or the expiration date of the Term, or the date on which the First Adjustment or the Second Adjustment shall become effective, shall be other than the first and last day, respectively, of a calendar month, the monthly installment of Base Rent for such month shall be prorated on a per diem basis. If any period to which a payment of additional rent hereunder relates shall not be wholly within the Term of this Lease, such payment of additional rent shall be prorated on a per diem basis. (b) All additional rent, sums, charges and other payments provided for under this Lease, other than Base Rent, shall be deemed additional rent and shall constitute rent payable hereunder with the same effect as if the same were Base Rent reserved and provided for herein and, in the event of the non-payment by Tenant of such additional rent when due hereunder, Landlord shall have the same rights and remedies in respect thereof as Landlord shall or may have in respect of non-payment of Base Rent reserved and provided for herein. (c) Landlord and Tenant shall cooperate with each other in making apportionments for Impositions, utility payments and premiums on transferable insurance policies which are in fact transferred to Tenant, except to the extent that such apportionments are taken into account under the Master Agreement, it being the intention of the parties to avoid duplication of such adjustments. Landlord shall pay to Tenant or Tenant shall pay to Landlord, as the case may be, the net amount, if any, owing by one to the other promptly after such apportionments have been agreed upon. Any dispute between the parties hereto in connection with the making of such apportionments shall be resolved pursuant to ADR as set forth in Article 18. ARTICLE 2. CERTAIN DEFINITIONS As used herein: (a) "ADR" shall have the meaning ascribed thereto in Article 18; (b) "Affiliate" shall have the meaning ascribed thereto in the Master Agreement; (c) "Alterations" shall have the meaning set forth in Section 10.1; (d) "Appurtenances" means all easements, licenses, privileges, rights and appurtenances related to the Land or the Buildings; (e) "Buildings" means any buildings, structures or improvements now or hereafter erected or situated on the Land, -4- the foundations and footings thereof, any and all fixtures, equipment, machinery and other tangible personal property of every kind and nature whatsoever now or hereafter affixed or attached thereto; (f) "Condemnation Proceeds" shall have the meaning set forth in Section 9.2; (g) "Constructive Total Taking" shall have the meaning set forth in Section 9.1; (h) "Dealerships" shall have the meaning ascribed thereto in the Master Agreement; (i) "Depositary" shall have the meaning set forth in Section 10.1; (j) "Deposited Sums" shall have the meaning set forth in Section 11.1; (k) "EMCO" means EMCO Motor Holdings, Inc., a Delaware corporation; (l) "EMCO SUB" shall mean the pledgor(s) under the EMCO Pledge(s); (m) "EMCO Pledge(s)" shall have the meaning ascribed to "EMCO SUB Pledge Agreements (Leases)" in the Master Agreement. (n) "Event of Default" has the meaning set forth in Article 15; (o) "Fee Mortgage" shall mean any mortgage or deed of trust placed upon fee title to all or any portion of the Premises, and all renewals, refinancings, modifications, replacements and extensions thereof, and "Fee Mortgagee" shall mean the holder of any Fee Mortgage; (p) "Full Insurable Value" means the actual replacement cost of the Buildings (excluding foundation and excavation costs) and shall be determined at the request of Landlord by an architect, appraiser, appraisal company or one of the insurers, selected by Landlord and reasonably acceptable to and paid for by Tenant, but such determination shall not be required to be made more frequently than once every 36 months, unless such determination is required by an Institutional Fee Mortgage (subject to Section 21.5); (q) "Group Leases" means this Lease and all other leases to be entered into contemporaneously herewith by Landlord (or Affiliates of Landlord) and Tenant (or Affiliates of Tenant) pursuant to the Master Agreement, a list of all such Group Leases being attached hereto as Exhibit B; -5- (r) "Group Subleases" means the subleases to be entered into contemporaneously herewith by Landlord or Affiliates of Landlord and Tenant or Affiliates of Tenant pursuant to the Master Agreement, a list of such Group Subleases being attached hereto as Exhibit C; (s) "Impositions" shall have the meaning set forth in Section 3.1; (t) "Institution" means a savings and loan association, a savings bank, a commercial bank or trust company (whether acting individually or in any fiduciary capacity), an insurance company, an educational institution or a state, municipal or similar public employees' welfare, pension or retirement fund or system, a real estate investment trust or any other corporation or organization subject to supervision and regulation by the insurance or banking departments of the State of New York, the State of New Jersey, the State of Connecticut, or the United States Treasury, or any successor department or departments hereafter exercising the same functions as said departments; (u) "Institutional Fee Mortgage" and "Institutional Fee Mortgagee" mean, respectively, a Fee Mortgage held by an Institution and the Institution which is the holder of an Institutional Fee Mortgage; (v) "Institutional Mortgage" and "Institutional Mortgagee" mean, respectively, a Mortgage held by an Institution and the holder of an Institutional Mortgage; (w) "Landlord Guaranty" shall have the meaning ascribed to the "Landlord Cross-Guaranty" in the Master Agreement. (x) "Laws" shall have the meaning set forth in Section 7.1; (y) "Master Agreement" shall mean the Master Agreement, dated as of March 11, 1992, among Emco Motor Holdings, Inc., DiFeo Partnership, Inc., '21' International Holdings, Inc., Fair Cadillac-Oldsmobile Corp., Fair Chevrolet Corp., Fair Infiniti, Inc., Fair Imports Corp. (d/b/a Fair Acura), Fair Hyundai Corp., Fair Motors Corp. (d/b/a Fair Mitsubishi), Danbury-Mt. Kisco Saturn Corp. (d/b/a Saturn of Danbury), Hudson Toyota Inc., J & S Ford Inc., DiFeo Volkswagen Inc., DiFeo Hyundai Inc., J & F Oldsmobile Corp., DiFeo Subaru Inc., DiFeo Jeep-Eagle Inc., DiFeo Imports, Inc. (d/b/a Jersey City Mitsubishi), Park Pontiac-GMC Truck, Inc., DiFeo Buick Inc., DiFeo Autocenter Inc. (d/b/a DiFeo Mazda), DiFeo Leasing Corporation, Somerset Motors Inc. (d/b/a DiFeo Lexus), Gateway Oldsmobile Inc. (d/b/a DiFeo Volkswagen of Bridgewater), DiFeo B.M.W., Inc., County Auto Group, Inc. (d/b/a County Toyota), -6- Rockland Motors Corp. (d/b/a Rockland Mitsubishi), Samuel X. DiFeo and Joseph DiFeo, as the same may have been amended. (z) "Mortgage" means any mortgage or deed of trust constituting a lien on Tenant's interest in this Lease and all renewals, refinancings, modifications, replacements and extensions thereof; (aa) "Prime Rate" means the prime commercial lending rate from time to time announced by The Chase Manhattan Bank, N.A. ("Chase") to be in effect at its principal office in New York, New York or, if Chase no longer announces such a rate, then a comparable rate selected by Landlord and reasonably acceptable to Tenant; (bb) "Rent Adjustment and Takeback Agreement" shall mean the Rent Adjustment and Takeback Agreement, dated as of the date hereof, among Fair Imports Corp., J & S Equity Associates, Fair Motors Corp. and DiFeo BMW, Inc. (collectively, the sublandlords), Fair Imports Partnership, DiFeo Volkswagen Partnership, DiFeo Hyundai Partnership, Fair Motors Partnership, DiFeo BMW Partnership, and DiFeo Autocenter Partnership (collectively, the subtenants), Fair Realty Company, Rockland Realty Associates, Boundbrook Realty Associates, J & S Equity Urban Renewal Corp. and J & S Equity Associates (collectively, the landlords), Fair Hyundai Partnership, Danbury-Mt. Kisco Saturn Partnership, Fair Cadillac-Oldsmobile-Isuzu Partnership, Rockland Motors Partnership, DiFeo Oldsmobile Partnership, Somerset Motors Partnership, Hudson Motors Partnership, DiFeo Jeep-Eagle Partnership, J & F Oldsmobile-Isuzu Partnership, DiFeo Subaru Partnership, DiFeo Autocenter Partnership, DiFeo Buick-Pontiac-GMC Truck Partnership, and DiFeo Imports Partnership (collectively, the tenants). (cc) "Space Tenant" shall have the meaning set forth in Section 14.7; (dd) "Tenant Guaranty" shall have the meaning ascribed to the "Tenant Cross-Guaranty" in the Master Agreement. (ee) "Term" means the initial term and each successive renewal term effected pursuant to Article 17; (ff) "TIHI Guaranty" shall have the meaning ascribed thereto in the Master Agreement; (gg) "Transaction Agreements" means, collectively, the Mater Agreement and the Transaction Documents (as defined in the Master Agreement); (hh) "Work" shall have the meaning set forth in Section 11.2. -7- ARTICLE 3. IMPOSITIONS Section 3.1. Payment of Impositions. As additional rent, Tenant shall pay, before any fine, penalty, interest or cost may be added thereto for the non-payment thereof (or at such earlier and commercially reasonable time as is required by a Institutional Fee Mortgagee or a Fee Mortgagee on the date hereof which is not an Institution), all real estate taxes, assessments, special assessments, water and sewer rates and charges, vault charges, occupancy taxes measured by income, license and permit fees and other governmental levies and charges, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind and nature (collectively, "Impositions") which are assessed, levied, confirmed, imposed or become a lien upon or are due and payable with respect to the Premises or the sidewalks or streets in front of or adjoining the same, or are assessed, levied, confirmed or imposed upon Landlord as owner of the Premises and/or as the Landlord under this Lease or as the recipient of rents or other charges produced by this Lease, and which become or are payable, during the Term (including any interest imposed thereon by reason of an election to pay the same in installments), and any and all other taxes, assessments and charges levied, assessed or imposed upon the Premises or any portion thereof or upon Landlord as an owner of the Premises and/or as the Landlord under this Lease or in respect of the rents or other charges produced by this Lease in lieu of or in addition to the foregoing, including in substitution of or in addition to any other Impositions (for such purpose, the Imposition in question shall be calculated as if the Premises were the sole asset of Landlord); provided, that if, by law, any Imposition is payable or at the option of the taxpayer may be paid in installments (whether or not interest shall accrue on the unpaid balance thereof), Tenant may pay the same (and any accrued interest on the unpaid balance) in installments (and Landlord shall cooperate with Tenant in any application by Tenant to pay the same in installments) and shall pay only such installments as may become due during the Term as the same respectively become due and before any fine, penalty, interest or cost may be added thereto for non-payment thereof (or at such earlier and commercially reasonable time as is required by an Institutional Fee Mortgagee or a Fee Mortgagee on the date hereof which is not an Institution); and provided, further, that any Imposition relating to a fiscal period of a taxing authority, a part of which period is included within the Term of this Lease and a part of which is included in a period of time before the Term Commencement Date or after the expiration or earlier termination of this Lease, shall (whether or not such Imposition shall be assessed, levied, confirmed, imposed or become a lien upon the Premises, or shall become payable, during the Term) be appropriately pro-rated between Landlord and Tenant, subject to Section 1.4(c). -8- Section 3.2. Taxes Not Included In Impositions. Nothing in this Lease contained shall require Tenant to pay any franchise, income, corporate, estate, inheritance, succession, capital levy, stamp or transfer tax of Landlord or other taxes imposed on taxpayers generally as opposed to the owners of real property or on rents in particular. In the event of a dispute between Landlord and Tenant as to whether or to what extent a tax is an Imposition, such dispute shall be determined by ADR in the manner provided in Article 18. Section 3.3. Receipts for Impositions. Tenant shall, upon request of Landlord, furnish to Landlord within fifteen (15) days after the date when any Imposition is payable, official receipts of the appropriate taxing authority, or other evidence satisfactory to Landlord, evidencing the payment thereof. Section 3.4. Right to Contest Impositions. Tenant, after prior notice to Landlord, shall have the right to contest the amount or validity, in whole or in part, of any Imposition by appropriate proceedings, and to pay any Imposition under protest or with reservation of rights. Notwithstanding Section 3.1, and only if payment of the Imposition in question would bar such contest, Tenant may postpone such payment pending resolution of such contest if (i) Tenant deposits with Landlord in cash, cash equivalents or a clean, irrevocable letter of credit in form and with an issuer reasonably acceptable to Landlord, as a reserve for payment thereof, the amount of such Impositions being contested, plus all fines, interest, penalties and costs which may become due pending the determination of such contest, in such amounts as Landlord may reasonably request from time to time, and (ii) no part of the Premises shall be in any danger of sale or forfeiture within the next 120 days by reason of such nonpayment; provided, however, that Tenant may not postpone such payment if, subject to Section 21.5, (i) postponement of such payment would violate the terms and provisions of any Institutional Fee Mortgage (and the Institutional Fee Mortgagee refuses to waive the same), or (ii) Tenant does not comply with the terms and conditions of such Institutional Fee Mortgage, relating to such postponement (but Tenant will not be obligated to deposit sums for the same obligations with both Landlord and an Institutional Fee Mortgagee). Upon the termination of such proceedings, or if the Premises at any time become in danger of sale or forfeiture by reason thereof within the next 120 days, Tenant shall pay the amount of such Imposition or part thereof, the payment of which may have been deferred during the prosecution of such proceedings, together with any costs, fees, interest, penalties or other liabilities in connection therewith. Without limiting the foregoing, Tenant shall have the right to apply for a reduction in the assessed valuation of the Premises or for an abatement of or exemption from any Imposition, for any fiscal or tax year during any part of which the Term of this Lease is in effect. Landlord shall, at Tenant's request, join in any such proceedings or permitting the same to be brought in its name if required by law. Landlord shall not be subjected to any -9- liability for the payment of any costs or expenses in connection with any such proceedings unless Landlord intervenes and takes an affirmative part therein (but Tenant shall be entitled to control such proceedings), and Tenant shall indemnify and save harmless Landlord from any such costs or expenses, except in the case of such intervention. If Tenant has not commenced such a proceeding for a particular period or Imposition within a reasonable time prior to the last date on which such a proceeding may be commenced, and fails to commence the same within thirty (30) days after notice from Landlord referring to this Section, Landlord shall have the right to commence, maintain and control, at Landlord's sole cost and expense, such a proceeding (a "Landlord Proceeding") for such period or Imposition. Any refund or rebate of any Impositions and interest or penalties thereon shall belong to Landlord except to the extent it is based on a payment made by Tenant or to a payment made by Landlord to the extent Landlord has been reimbursed therefor by Tenant, in which case it shall belong to Tenant, notwithstanding the expiration or sooner termination of this Lease. Any refund or rebate so belonging to either party and received by the other party shall be deemed trust funds and as such are to be received by the recipient party in trust and forthwith paid to the other party, in accordance with this Article. Each party agrees, promptly upon request by the other party, to execute and deliver any receipt which may be necessary to effectuate the provisions of this Section. If any such refund or rebate is subject to apportionment between Landlord and Tenant as hereinabove provided, all costs and expenses (including experts and attorneys' fees and disbursements) incurred by Tenant, or by Landlord in the case of a Landlord Proceeding, in connection with obtaining such refund or rebate shall first be deducted from the amount thereof. Section 3.5. Evidence of Impositions. The certificate, advice, bill or receipt by an appropriate official legally authorized to make or give the same shall be prima facie evidence that an Imposition was due and payable on the date thereof, or has been paid, and either party shall be entitled to rely thereon. Section 3.6. Tenant Taxes. Tenant shall at all times be responsible for and shall pay directly to the applicable taxing authority, before delinquency, all taxes and assessments which shall or may during the Term be charged, levied, assessed or imposed on Tenant with respect to Tenant's right to occupy the Premises and any personal property of any kind owned, used or installed by Tenant at the Premises or in connection with (a) the operation of the Premises or (b) Tenant's business conducted on or at the Premises. Section 3.7. Payments to Institutional Fee Mortgagee. If the provisions of a Fee Mortgage permit an Institutional Fee Mortgagee, or a Fee Mortgagee on the date hereof which is not an Institution, to require payment of some or all of the Impositions by Landlord to be held in escrow by such Fee Mortgagee to enable -10- such Fee Mortgagee to pay the same, and such Fee Mortgagee so requires, then Tenant, at the direction of Landlord, shall make such payments to such Fee Mortgagee (or to Landlord, as directed by Landlord, in which event Landlord agrees to pay the same to such Fee Mortgagee) in the amounts and at the times required by such Fee Mortgagee. Payment of such amounts by Tenant shall be deemed, to the extent thereof, to relieve Tenant of its obligations hereunder with respect to such Impositions. If such Fee Mortgagee fails or refuses to apply the sums so paid by Tenant in payment when due of the Impositions to which such sums relate (unless applied by such Fee Mortgagee to cure a default under its Fee Mortgagee, which default resulted from the failure by Tenant to perform or observe an obligation imposed against it under this Lease, within applicable grace periods hereunder), and if Landlord shall not pay or cause to be paid such Impositions within thirty (30) days after demand by Tenant, Tenant may, at its option, pay the same and offset the sums so paid against the next Base Rent due hereunder and Landlord shall, if insufficient Base Rent shall thereafter be payable, pay the same to Tenant; provided, however, that if within such thirty (30) day period Landlord disputes Tenant's right to such offset by notice to Tenant, then the matter shall be resolved by ADR as provided in Article 18, pending resolution of which dispute by ADR, Tenant shall have no right to an offset. Section 3.8. Allocation. If the Premises are a part of a single tax lot with the premises demised under one or more other Group Leases, then Tenant shall pay its allocable share of the Impositions thereon as determined in the Rent Adjustment and Takeback Agreement, but shall be jointly and severally liable with the tenants under the other such Group Leases for the payment of all Impositions assessed on the basis of such single tax lot; provided, however, that if a transaction described in Section 15.11(a)(i) or (a)(ii) shall occur to this Lease, then the assignee or subtenant in question shall only be liable for its allocable share of such Impositions thereon, as so determined. Section 3.9. Survival. The provisions of this Article 3 shall survive the expiration or sooner termination of this Lease. ARTICLE 4. INSURANCE Section 4.1. Required Insurance. At all times during the Term of this Lease, Tenant shall, at Tenant's expense, keep, provide and maintain in force the following insurance: (i) Property insurance covering the Buildings against loss or damage from such causes of loss as are embraced by insurance policies of the type now known as "All Risks" or "Open Perils" property insurance on a replacement cost basis with an Agreed Value Endorsement waiving co- -11- insurance, all in an amount not less than one hundred per cent (100%) of the then Full Insurable Value, without deduction for physical depreciation thereof. Such property insurance shall include a Demolition and Increased Cost of Construction Endorsement as well as such other insurance as the Landlord may from time to time reasonably require to cover other risks and hazards affecting the Premises; (ii) Flood insurance if required by law, in amounts required by law; (iii) Boiler and machinery insurance insuring against loss or damage to the Premises and to the major components of any heating, air-conditioning or other ventilation systems and/or such other machinery or apparatus as may be now or hereafter installed in the Premises, in such amounts as Landlord may from time to time reasonably require; (iv) General liability insurance insuring against claims for personal injury (including, without limitation, bodily injury or death), property damage liability and such other loss or damage from such causes of loss as are embraced by insurance policies of the type now known as "Commercial General Liability" insurance, all in such amounts as Landlord may from time to time reasonably require. Landlord currently requires such insurance to be in the amount of $5,000,000 combined single limit per occurrence. Such insurance coverage shall be issued and maintained on an "occurrence" basis; (v) Workmen's compensation insurance covering employees of Tenant, in statutory limits; and (vi) In addition to and not in limitation of the above requirements, subject to Section 21.5, such insurance as may be reasonably required by any Institutional Fee Mortgagee. Subject to clause (vi) above, if applicable, if either Landlord or Tenant believes that the insurance described above is less or different than, or is greater or more extensive than, that which is then customarily maintained by prudent owners of comparable properties for comparable uses, the insurance required above shall be so adjusted if either (A) the parties agree on the adjustment, or (B) by ADR instituted by either party under Article 18, if it is determined that the party requesting the change in insurance is correct in its belief as aforesaid. Section 4.2. Insurers; Form of Policy. All insurance provided for under this Lease shall be effected under valid enforceable policies issued by insurers of recognized responsibility who may legally issue such insurance in the State in which the Premises is located, and reasonably acceptable in -12- form, amount and content, to Landlord and, subject to Section 21.5, reasonably acceptable to the Institutional Fee Mortgagee. Upon the execution of this Lease, certificates in respect of the policies procured by Tenant pursuant to Section 4.1 shall be delivered to Landlord. Within fifteen (15) days after the execution hereof Landlord shall be furnished with the original or certified copies of each policy required hereunder. At least twenty (20) days prior to the expiration of any policy required hereunder Tenant shall furnish Landlord with appropriate proofs of the issuance of a policy continuing in force the insurance covered by the policy so expiring. To the extent reasonably obtainable, all policies referred to in Section 4.1 shall contain agreements by the insurers that (a) any loss shall be payable to Landlord and to the holder of any Fee Mortgage to whom loss may be payable as hereinafter provided, notwithstanding any act or negligence of Tenant which might otherwise result in forfeiture of said insurance, or affect the validity or enforceability thereof, (b) such policies shall not be cancelled or materially modified except upon at least twenty (20) days' prior written notice to each named insured and loss payee and (c) the coverage afforded thereby shall not be affected by the performance of any work in or about the Premises. Section 4.3. Payment of Proceeds. (a) The insurance policy described in Section 4.1(iv) shall name Landlord, any Fee Mortgagee and any Mortgagee as additional insureds. (b) The insurance policies described in Section 4.1(i), (ii) and (iii) shall name Landlord, Tenant, any Fee Mortgage and any Mortgagee as named insureds as their interests may appear and shall provide that proceeds shall be paid to Landlord or any Fee Mortgagee, as their interests may appear, and not to Tenant or any Mortgagee, which proceeds shall be held by Landlord or by any Fee Mortgagee (but only if such Fee Mortgagee is neither a Fee Mortgagee on the date hereof nor an Institutional Fee Mortgagee) pursuant to the terms of this Lease, and shall, to the extent required by an Institutional Fee Mortgagee or a Fee Mortgagee on the date hereof which is not an Institution, contain a standard, non-contributory mortgagee clause or Lender Loss Payable Endorsement. (c) So long as there shall be an Institutional Fee Mortgagee, any rental value policy or similar policy for the Premises shall name such Institutional Fee Mortgagee as the loss payee thereunder or if there shall be no Institutional Fee Mortgagee then Tenant shall be named as the loss payee thereunder. Upon receipt of such proceeds by an Institutional Fee Mortgagee, such proceeds shall be deemed payments of Base Rent and Additional Rent hereunder and shall be deemed to have been applied by the Institutional Fee Mortgagee as provided in the next sentence; to the extent that such proceeds relate to Impositions or insurance premiums, and the Institutional Fee Mortgagee fails or refuses to apply the same to such Impositions or insurance premiums, then Tenant shall have rights comparable -13- to the rights specified in Section 3.7 as to payments on account of Impositions which an Institutional Fee Mortgagee so fails to apply; the balance of any proceeds after Restoration of the Buildings shall be promptly paid to Tenant (or, if not so paid, Tenant shall be entitled offset the same against the next Base Rent or Additional Rent due hereunder). (d) All such policies shall expressly provide that loss thereunder shall be adjusted and paid as provided in Section 4.4 and this Section. Any loss paid to Landlord or Tenant which, pursuant to the requirements contained in this Lease, should have been paid to the other party, or to any Fee Mortgagee, shall be held by the receiving party in trust and shall be promptly turned over to the person entitled thereto under this Lease. Section 4.4. Adjustment of Loss. Landlord and Tenant shall cooperate reasonably and in good faith and shall use their best efforts to cause any Fee Mortgagee or Mortgagee to cooperate reasonably and in good faith to adjust any loss under a policy of insurance required to be maintained by Tenant under this Lease expeditiously and favorably, recognizing Landlord's ownership of the Buildings and Tenant's obligation to effect restoration at its expense, without an abatement of Base Rent and Additional Rent hereunder. Subject to the rights of an Institutional Fee Mortgagee or a Fee Mortgagee on the date hereof which is not an Institution (subject to Section 21.5), adjustment of any such loss shall be subject to the consent of Landlord and Tenant, which consent shall not be unreasonably withheld. Section 4.5. Blanket Policies. Nothing in this Article shall prevent Tenant from taking out insurance of the kind and in the amounts and with companies provided for under Sections 4.1, under a blanket insurance policy or policies which can cover other properties owned, leased or operated by Tenant (or any Affiliate of Tenant) as well as the Premises; provided, that any such policy of insurance provided for under Section 4.1(i) shall specify therein, or Tenant shall furnish Landlord and the holder of any Fee Mortgage with a written statement from the insurers under such policies specifying, the amount of the total insurance allocated to the Buildings, which amount shall comply with the requirements of Section 4.1. Tenant shall furnish to Landlord and to the holder of any Fee Mortgagee, within thirty (30) days after the filing thereof with any insurance rate-making body, copies of the schedule or make-up of all property covered by every such policy of blanker insurance. Notwithstanding the foregoing, subject to Section 21.5, if the taking out by Tenant of any such blanket insurance policy would require the consent or waiver of an Institutional Fee Mortgagee, so as not to constitute a default under the terms of an Institutional Fee Mortgage, then Tenant must obtain such consent or waiver in order to benefit from the provisions of this Section as to the insurance in question. -14- Section 4.6. Deductibles. All insurance provided for under Section 4.1(a) may contain loss deductible clauses in such reasonable and customary maximum amounts as Landlord shall approve, which approval shall not be unreasonably withheld. In the event of a dispute between Landlord and Tenant as to the amount which may be deductible under a policy, or otherwise as to the insurance required under this Article, such dispute shall be determined by ADR in the manner provided in Article 18. Section 4.7. Waiver of Subrogation. Landlord hereby waives its rights of recovery against Tenant, its subtenants and their respective successors and assigns for any losses to the Premises covered by fire and extended coverage insurance (or otherwise covered by insurance maintained by either party), but only to the extent of the actual recovery. In consideration therefor, Tenant hereby waives its rights of recovery against Landlord, its successors and assigns, for any losses to the Premises otherwise covered by insurance maintained by either party), but only to the extent of the actual recovery. The above referred to waivers shall only be applicable with respect to loss or damage occurring during such time as the waiving party's policy shall contain a clause or endorsement to the effect that any such waiver shall not adversely affect or impair the right of the party so waiving from recovering thereunder. Each party shall obtain from its insurance carriers, at its expense, and will deliver to the other party waivers of the subrogation rights and the statement described in the preceding sentence under its respective policies as herein provided. Section 4.8. Other Insurance. (a) Tenant may insure its own property at the Premises in such manner as Tenant deems advisable and shall be entitled to all proceeds therefrom. (b) Neither Landlord nor Tenant shall carry any insurance concurrent in coverage or contributory in the event of loss with any insurance which is required to be carried by Tenant hereunder if the effect of such separate insurance would be to reduce the protection or the payment to be made under the insurance policy required to be maintained by Tenant hereunder. Landlord shall immediately notify Tenant of the taking out of any such insurance and the terms thereof. ARTICLE 5. RIGHT TO PERFORM OTHER PARTY'S COvenanTS - ADDITIONAL RENT Section 5.1. Right to Perform Other Party's Covenants. (a) If Tenant shall default in the performance of any of Tenant's obligations under this Lease, Landlord may perform the same at the expense of Tenant (i) immediately and without notice in the case of (x) emergency, or (y) the taking of any action required to prevent an -15- imminent lapse or termination of any insurance policy required to be obtained by Tenant hereunder, or (ii) if the taking of any action is required to prevent an imminent default under any Fee Mortgage, and such default continues after three (3) business days from the date of the giving by Landlord to Tenant of a notice of Landlord's intention to so perform; and (iii) in any other case if Tenant shall fail to remedy such default after Landlord shall have notified Tenant of such default and the applicable grace period for curing such default shall have expired, and such failure continues after three (3) business days from the date of the giving by Landlord to Tenant of a further notice of Landlord's intention to so perform; provided, however, that, in the case of a failure which for causes beyond Tenant's reasonable control (the failure to pay money shall not be deemed beyond a party's reasonable control) cannot with due diligence be cured within such grace period, such grace period shall be deemed extended if Tenant (x) shall promptly upon the receipt of such first notice, advise Landlord of Tenant's intention to institute all steps necessary to cure such failure and (y) shall institute and thereafter with reasonable dispatch prosecute to completion all steps necessary to cure the same. (b) If Landlord shall default in the performance of any of its obligations under this Lease, Tenant may perform the same at the expense of Landlord (i) immediately and without notice in the case of (x) emergency, (y) the taking of any action required to prevent an imminent lapse or termination of any insurance policy required to be obtained by Tenant hereunder due to such default, or (z) the taking of any action required to prevent an imminent default under any Mortgage (but will provide Landlord with prompt notice thereafter) and (ii) in any other case if such failure continues after thirty (30) days from the date of the giving by Tenant to Landlord of notice of intention so to perform the same or, in the case of a failure which for causes beyond Landlord's reasonable control (the failure to pay money shall not be deemed beyond a party's reasonable control) cannot with due diligence be cured within such thirty (30) day period, such thirty (30) day period shall be deemed extended if Landlord (x) shall promptly upon the receipt of such notice, advise Tenant of Landlord's intention to institute all steps necessary to cure such failure and (y) shall institute and thereafter with reasonable dispatch prosecute to completion all steps necessary to cure the same; provided that, at the expiration of the period described in this clause (ii), such default continues after three (3) business days from the date of the giving by Tenant to Landlord of a further notice of Tenant's intention to perform the same. Section 5.2. Reimbursement of Curing Party. All sums paid by either party effecting a cure pursuant to Section 5.1 and all necessary incidental costs and expenses paid or incurred by such party in connection with the performance of any act by such party pursuant to said Section, together with interest thereon from the date of making of such expenditure by such party at a rate two (2%) percent above the Prime Rate, shall be payable by the other party to such curing party within thirty (30) days -16- after demand therefor accompanied by evidence reasonably establishing that the expenditure has reasonably been made. Nothing contained herein shall be deemed or construed to permit Tenant to make any set-off against Tenant's obligations to pay Base Rent or Additional Rent, except as may otherwise be expressly provided in this Lease. ARTICLE 6. USE; CONDITION OR PREMISES; COVENANTS AGAINST WASTE AND TO REPAIR AND MAINTAIN THE PREMISES Section 6.1. Use. (a) Tenant shall have the right to use the Premises for (i) a motor vehicle dealership, vehicle showroom, vehicle storage, used vehicle sales, vehicle body shop (but only if a vehicle body shop use was a use of the Premises during December, 1991), service and maintenance facilities, general, executive and administrative offices in connection with such uses, any uses ancillary or customarily exercised in connection therewith, and (ii) any other uses for which the Premises during December, 1991 were in fact used (collectively, "Vehicle-Related Uses"). (b) During the period ending on the third (3rd) anniversary of the Term Commencement Date, Tenant shall not use any material portion of the Premises for a use other than as described in subsection (a) of this Section without Landlord's consent, which consent Landlord may withhold in Landlord's sole discretion. (c) From and after the third (3rd) anniversary of the Term Commencement Date, Tenant shall be entitled to use all or any portion of the Premises for any lawful use other than as described, or in addition to those described, in subsection (a) of this Section, provided that Tenant shall have received Landlord's consent to such use, which consent Landlord shall not unreasonably withhold (without limitation, it shall not be unreasonable for Landlord to withhold its consent to such use if such use is disreputable, would cause the Premises to become subject to compliance with the remedial provisions of ECRA (or a similar state statute requiring environmental testing and/or remediation) prior to the sale or other transfer of the Premises, upon the occurrence of any assignment of this Lease or sublease of all or part of the Premises, or upon the expiration or sooner termination of this Lease or cessation of operations at the Premises, or would increase in any material respect the risk of environmental contamination of the Premises, and it shall not be unreasonable for Landlord to take into account any material adverse effect of such change in use on contiguous properties owned by Landlord or Affiliates of Landlord, including those which are subject to Group Leases). The parties acknowledge that there is no agreement under this Lease that Tenant shall use all or any portion of the Premises for any particular use or uses during the term of this Lease. Any dispute between the parties -17- under this subsection (c) or subsection (d) shall be determined by ADR as provided in Article 18. (d) Tenant shall not use or occupy or permit the Premises to be used or occupied, nor do or permit anything to be done in or on the Premises, in whole or in part, in a manner which in any way (i) violates any certificate of occupancy affecting the Premises; (ii) violates or breaches the provisions of any recorded easement, restriction or the like affecting the Premises on the date hereof or entered into after the date hereof with the prior consent of Tenant; (iii) violates any present or future law, rule or requirement of any governmental, public or quasi public authority having jurisdiction over the Premises; (iv) makes void or voidable any insurance in force with respect to the Premises; or (v) constitutes a public or private nuisance. Section 6.2. Condition of Premises. (a) The parties hereto hereby acknowledge and agree that, except as otherwise provided in this Lease, in the Master Agreement and in the other Transaction Agreements, Landlord is delivering, and Tenant is accepting, the Premises in their "as is" condition on the date hereof. Tenant acknowledges that it has inspected, examined and investigated to its full satisfaction the Premises and the uses thereof and any other matter of concern to Tenant with respect to the Premises, that Tenant accepts the Premises in their present condition without any representation or warranty whatsoever by Landlord, except as herein expressly provided, as to the condition of the Premises or the value thereof or the utility thereof or usefulness for any particular purpose or any other matter or thing relating in any way to the Premises, and that Tenant acknowledges that Landlord has not made and does not make, and Tenant is not relying upon, any representation or warranty, except as herein expressly provided, as to the physical condition, quality, value or character or any other matter relating to or affecting the Premises. Nothing in this Lease, including in this Section, however, shall waive or modify any of the obligations, rights or remedies of the parties to the Master Agreement and the other Transaction Agreements pursuant to the Master Agreement and the other Transaction Agreements. (b) Landlord represents and warrants to Tenant as follows: (i) The mortgages specified in Exhibit A are the only Fee Mortgages encumbering or affecting all or any part of the Premises as of the date hereof, and true and complete copies of the Fee Mortgage documents or documents evidencing or affecting such lien, as in effect on the date hereof, have been delivered to Tenant, nor, except as otherwise provided in the Master Agreement, is any portion of the Premises subject to a security interest, equipment lease, conditional sales agreement or similar financing arrangement, or to a ground or underlying lease. -18- (ii) The easements, restrictions and other matters of record as of the date hereof, and any unrecorded agreements of a similar nature to which Tenant would be subject hereunder, do not materially adversely affect, individually or in the aggregate, the use of the Premises, as the Premises were used in December, 1991. (iii) The actual uses being made of the Premises during December 1991 and the use of the Premises by Tenant on the date hereof for the same uses were and are permitted by all applicable zoning Laws, or (if not permitted by zoning laws) are lawful nonconforming uses, and all certificates of occupancy required for such use in December 1991 were obtained and were in full force and effect immediately prior to the commencement of the Term. (iv) To the actual knowledge of Landlord, Joseph C. DiFeo and Samuel X. DiFeo, there are no material structural defects in the Premises on the date hereof, except as set forth on Exhibit D. (v) Landlord is a fee owner of the Premises and all prior tenancies and rights of occupancy at the Premises or any part thereof have been terminated. (vi) The representations and warranties set forth on Exhibit E are true, correct and complete as of the date hereof. Section 6.3. No Waste. Tenant shall not cause or permit any waste to the Premises. Section 6.4. Maintenance and Repair. Tenant shall keep the Premises and the adjoining sidewalks, curbs and any vaults clean and in good condition and repair, free of accumulations of dirt, rubbish, snow and ice, and shall make all necessary repairs and replacements, whether structural or non-structural, interior or exterior, ordinary as well as extraordinary, foreseen as well as unforeseen. Notwithstanding the foregoing, unless this Lease is assigned or the Premises is sublet to a person or entity which is not an Affiliate of Tenant, Tenant shall only be obligated hereunder to repair or maintain the Premises in accordance with ordinary and prudent standards of repair and maintenance for comparable uses. In the event of any dispute between the parties as to the standard for the repair or maintenance of the Premises, the dispute shall be resolved by ADR as provided in Article 18. Section 6.5. Removal of Property. Tenant shall not remove or permit the removal of any of the permanent furnishings or of any of the fixtures or other property or equipment constituting a part of the Premises (other than property of Tenant or other tenants or occupants of the Buildings or obsolescent fixtures, property or equipment) unless other -19- fixtures, property or equipment at least equal in value and utility shall be promptly substituted therefor, provided this Section shall not apply if Tenant demolishes existing Buildings and erects new Buildings on the Land, or a portion thereof, in accordance with Article 10. Section 6.6. Utilities and Services; Signage. (a) Landlord shall not be responsible to furnish any utilities or services to the Premises, and shall not be liable for any interruption or failure in the supply of any such utility or service. The interruption or failure in the supply of any such utility or service or the inability to obtain such utility or service shall not affect, alter, negate or diminish Tenant's obligations hereunder. (b) Tenant shall make its own arrangements with the appropriate utility companies supplying electricity, water, gas, steam, telephone and other utilities to the Premises, and for garbage disposal from the Premises, and shall arrange to have all bills for such utilities or services to be forwarded directly to Tenant. Tenant shall pay when due all charges for such utilities or services accruing during the term of this Lease. (c) Subject to Landlord's consent, which Landlord shall not unreasonably withhold, Tenant shall have the right to enter into agreements with public utility companies and municipal and other governmental authorities, agencies and departments creating such easements or other similar rights in favor thereof, or to apply for permits, licenses, certificates or other governmental or quasi-governmental authorizations relating to Alterations or the use and operation of the Premises ("Permits"), as may be necessary or convenient to the use or servicing of the Premises or the making of any Alterations required or permitted hereunder; provided, however, that Landlord shall have the right, in its sole and absolute discretion, to withhold granting its consent to any zoning variance which would have the effect of prohibiting any use being made of the Premises in December, 1991. If pursuant to this Lease Landlord shall consent (or shall be deemed hereunder to have consented or shall be required by ADR to consent) thereto, Landlord shall, at Tenant's expense, (i) cooperate with Tenant in obtaining any necessary consent of any mortgagee or ground or underlying lessee to such agreements, (ii) join in any request for such consent or Permit or permit the same to be brought in Landlord's name (if necessary to obtain such consent or Permit or to effectuate such agreement), or (iii) join in any such agreement. Landlord shall incur no liability for the payment of any costs or expenses in connection with Landlord's review, execution and delivery of the same, or involvement with respect to the same, and Tenant shall indemnify and hold harmless Landlord and, within thirty (30) days after demand, reimburse Landlord, from any such costs or expenses. (d) Tenant, at its expense and subject to compliance with applicable Laws pursuant to Article 7, and subject to the -20- applicable provisions of Article 10, shall be entitled to construct and maintain such signage at the Premises as Tenant shall elect to construct and maintain. ARTICLE 7. COMPLIANCE WITH LAWS Section 7.1. Compliance with Laws. (a) Subject to the provisions of subsections (b) and (c) hereof, Tenant shall, at its sole cost and expense, promptly comply with all present and future laws and ordinances and the orders, rules, regulations and requirements of all federal, state and municipal governments and appropriate departments, commissions, boards and officers thereof, which may be applicable to the Premises and the sidewalks, curbs and vaults adjoining the same or to the use or manner of use of the Premises, whether or not such requirement shall be foreseen or unforeseen, ordinary or extraordinary (collectively, "Laws"). (b) Notwithstanding anything in this Lease to the contrary, Tenant shall not be in default hereunder if Tenant shall fail to comply with any Law to the extent that the Premises, or their use, prior to the Term Commencement Date, were not in compliance with such Law, except to the extent that Tenant is otherwise obligated to comply with such Law pursuant to the Master Agreement or the other Transaction Agreements. (c) If the Premises and the use thereof for the actual uses of the Premises during December 1991 are not, on the day preceding the date hereof, in compliance with all Laws (such non-compliance being hereinafter referred to as "Non-Compliance"), and if Non-Compliance is not Tenant's responsibility to correct pursuant to the Master Agreement and the other Transaction Agreements, or this Lease, Landlord shall, at its sole cost and expense (but subject to the cost sharing provisions provided for in Section 4.231 of the Master Agreement), after receipt of notice from Tenant of the specifics of such Non-Compliance, institute steps necessary to cure such Non-Compliance and proceed with reasonable dispatch to effectuate the same. Nothing contained herein shall be deemed or construed to obligate Landlord to make any changes, alterations or repairs to the structural elements of the Premises unless the existence of the condition which causes the need to make the same constitutes a violation of the warranty and representation contained in Section 6.2(b)(iv) hereof. The Premises shall not be deemed to be in Non-Compliance (that is, shall be deemed to be in compliance) if on the date hereof the time by which such Law must be complied with had not expired, although such Law had been enacted. If by reason of such Non-Compliance a governmental authority or agency takes action or refuses to take action (any such action or refusal, including a refusal to permit the transfer or continued effectiveness of any certificate of occupancy or other license or permit, being herein called a "Governmental Action"), which Governmental Action materially adversely interferes with Tenant's -21- ability to use the Premises for the uses for which the Premises during December, 1991 were in fact used ("December Uses"), then there shall be an equitable reduction of the Base Rent and Additional Rent until such time as the material interference caused by the Non-Compliance has been eliminated, which reduction shall not, however, extend beyond six (6) months from the date Tenant notifies Landlord of such Non-Compliance or Governmental Action. If, by reason of the Non-Compliance or Governmental Action, Tenant's use of the Premises for the December Uses is materially adversely interfered with for a period of six (6) consecutive months after the date of such notice, then Tenant shall have the right, prior to the cessation of such material interference as its sole remedy with respect to such Non-Compliance, to terminate this Lease, in which event neither party hereto shall have any further liability or obligation to the other under this Lease except those which are expressly stated to survive the expiration or sooner termination of this Lease. Any notice by Tenant to Landlord advising of Non-Compliance must be given by six (6) months after the date hereof and must specifically identify the Non-Compliance, failing which Landlord shall have no responsibility to Tenant under this Section with respect to such Non-Compliance. The provisions contained in this subsection shall not be applicable to any environmental or other matters which are the subject matter of Section 22 of this Lease and the rights and obligations of the parties with respect to such matters shall be governed by that Section of this Lease and not by this subsection. (d) Notwithstanding anything in this Lease to the contrary, in the event that any representation or warranty of Landlord set forth in Section 6.2(b)(ii), (iii) or (v) are false or incorrect when made (an "Inaccuracy") in any material respect, then Landlord shall, in its sole expense (but subject to the cost sharing provisions contained in the Master Agreement) after receipt of the notice from Tenant of the specifics of the Inaccuracy institute steps necessary to cure the same and proceed with reasonable dispatch to effectuate the same. If, by reason of such Inaccuracy, Tenant's ability to use the Premises for the December Uses is materially adversely interfered with then there shall be an equitable reduction of the Base Rent and Additional Rent until such time as the material interference caused by the Inaccuracy has been eliminated, which reduction shall not extend beyond six months from the date Tenant notifies Landlord of such Inaccuracy. If by reason of the Inaccuracy the Tenant's use of the Premises for the December Uses is materially adversely interfered with for a period of six (6) consecutive months from the date of such notice, then Tenant shall have the right, prior to the cessation of such material interference, as its sole remedy with respect to such Inaccuracy, to terminate this Lease in which event neither party hereto shall have any further liability or obligation to the other under this Lease except those which are expressly stated to survive the expiration or sooner termination of this Lease. Any notice by Tenant to Landlord advising of the Inaccuracy must be given by six (6) -22- months from the date of this Lease and must specifically identify the Inaccuracy, failing which Landlord shall have no responsibility to Tenant hereunder with respect to any Inaccuracy. Section 7.2. Right to Contest Laws. Tenant shall have the right, after prior notice to Landlord, to contest by appropriate legal proceedings, in the name of Tenant or Landlord (but only if legally required to so contest) or both, without cost or expense to Landlord, the validity or application of any Laws, and if, by the terms of any such Law, compliance therewith pending the prosecution of any such proceeding may legally be held in abeyance without the incurrence of a lien, charge or liability of any kind against the Premises or Tenant's leasehold interest therein and without subjecting Tenant or Landlord to any criminal liability or (unless Tenant shall indemnify Landlord therefor) civil liability for failure so to comply therewith, and without adversely affecting any insurance policy required to be obtained by Tenant hereunder, Tenant may postpone compliance therewith until the final determination of any proceedings, provided that all such proceedings shall be prosecuted with due diligence and dispatch, and if any lien, charge or civil liability is incurred by reason of non-compliance, Tenant may nevertheless make the contest and delay compliance as aforesaid, provided that Tenant furnishes to Landlord security, reasonably satisfactory to Landlord, against any loss or injury by reason of such non-compliance or delay and prosecutes the contest with due diligence. Landlord shall, at the cost and expense of Tenant, execute and deliver any papers which may be necessary or proper to permit Tenant to contest the validity or application of any such Law. In the event that a contest is not concluded prior to the expiration of the Term of this Lease, if at the termination of the contest a determination is to the effect that some or all of the work in question should have been or must be performed, Tenant shall pay to Landlord a sum sufficient to pay for the cost of the work required to be performed. This provision shall survive the termination or sooner expiration of this Lease. Notwithstanding anything to the contrary contained herein, Tenant's right to contest the validity or applicability of any Law is subject to the applicable provisions contained in any Institutional Fee Mortgage, subject to Section 21.5, and shall be limited thereby and shall be subject to compliance with the requirements thereof. Section 7.3. Tenant's Termination Right. If Tenant is, or would be, required to do any work or incur any expenses to comply with the requirements of Section 7.1 during the last year of the Term which, in Tenant's reasonable judgment will, in the aggregate cost more than one-half of the Base Rent payable for the then remainder of such Term, Tenant may, by notice to Landlord, decline to comply with such requirements, and upon giving of such notice, Tenant shall not be obligated to comply with the same (but Landlord, at the cost and expense of Landlord, may comply with same), but this Lease shall not be otherwise -23- affected. Notwithstanding the foregoing, the provisions of this Section 7.3 shall not be applicable if the Law which must be complied with became effective and required compliance to be effected prior to the last year of the Term. Section 7.4. Arbitration as to Laws. In the event of any dispute between the parties as to an issue covered by this Article, the matter shall be resolved by ADR as provided in Article 18. ARTICLE 8. DAMAGE TO OR DESTRUCTION OF THE BUILDINGS Section 8.1. Restoration and Repair. (a) In case of damage to or destruction of the Buildings, in whole or in part, by fire or any other cause, similar or dissimilar (a "Casualty"), Tenant shall, regardless of the availability of insurance proceeds (but subject to Section 8.5), restore, repair, replace or rebuild the Buildings as nearly as may be reasonably possible to the condition, quality and class the same were in immediately prior to such damage or destruction, or with such changes or alterations as Tenant shall elect to make in conformity with Article 10. Such restoration, repairs, replacement or rebuilding shall be commenced with reasonable promptness and prosecuted with reasonable diligence. (b) Provided that there does not then exist an Event of Default hereunder, all insurance money collected by Landlord or Tenant from any policy of insurance maintained by Tenant pursuant to Article 4 on account of such Casualty, less the cost, if any, incurred in connection with the adjustment of the loss and the collection thereof (herein sometimes referred to as the "insurance proceeds"), shall be held in an interest bearing account by an Institutional Fee Mortgagee (as provided in Section 11.1) or, if there is no such Institutional Fee Mortgagee, by an Institution, as insurance trustee, selected by Landlord and reasonably approved by Tenant, shall be applied to the payment of the cost of rebuilding, and shall be paid out to or for the account of Tenant from time to time, upon requisition by Tenant, as such work progresses, subject to Article 10 and Article 11. However, if the insurance proceeds for any Casualty are less than $50,000, such insurance proceeds shall be paid to Tenant, and shall be held by Tenant in trust for the purpose of paying the cost of such reconstruction. (c) Upon Landlord's receipt of evidence reasonably acceptable to it that the reconstruction has been completed and paid for in full, that there are no liens on the Premises as a result thereof, that reconstruction has been completed in a good and workmanlike manner, in accordance in all material respects with applicable Laws and in substantial accordance with plans and specifications theretofore submitted to (and if required hereunder approved by) Landlord, and that a certificate of occupancy, if required by Law, has been issued or is otherwise in -24- effect with respect to such reconstruction, Landlord shall pay or cause to be paid to Tenant any remaining balance of said insurance proceeds. Section 8.2. No Abatement. No provision of this Article shall be construed to entitle Tenant to any abatement, allowance, reduction or suspension of Base Rent or Additional Rent, unless this Lease is terminated as herein provided. Section 8.3. Termination. If the Premises are damaged to such an extent that the cost to repair and restore will exceed one-half of the Base Rent payable for the then remainder of the Term or repair and restoration will take longer than ninety (90) days to complete and in either case the damage occurs in the last year of the Term, Tenant may by notice to Landlord given within thirty (30) days after the occurrence of such damage terminate this Lease effective as of a date specified in such notice, not earlier than thirty (30) days after the date of such notice, and upon such effective date this Lease shall terminate as if such date were the scheduled dated for expiration of the Term, but Tenant shall remain liable to pay the Base Rent and Additional Rent relating to Impositions and insurance premiums due hereunder until the originally scheduled date for such expiration. Section 8.4. Notice of Casualty. Tenant shall immediately notify Landlord of the occurrence of a casualty. Section 8.5. Issues Relating to Insurance Proceeds. (a) Tenant acknowledges that Tenant bears the risk that the insurance coverage maintained by Tenant shall be insufficient to provide the funds required to effect restoration of the Buildings after a casualty (including due to the financial inability of the insurance carrier to pay the same). (b) If a casualty occurs, Landlord will use its best efforts (but Landlord shall not be obligated to give up any right or to make any payment to the Fee Mortgagee, unless Tenant shall agree to be responsible for such payment) to cause any Fee Mortgagee to agree to apply, and thereafter to apply, the applicable insurance proceeds to restoration on terms consistent with those which a sophisticated Institutional Fee Mortgagee would customarily impose ("Customary Conditions"), so long as Tenant is not in default beyond applicable grace periods in its obligations hereunder. (c) If any of the following events shall occur: (A) Within sixty (60) days after a casualty shall have occurred and the insurance proceeds are made available by the insurer for restoration, the Fee Mortgagee shall not agree to make such proceeds available for restoration on Customary Conditions or if thereafter for a period in excess of sixty (60) days such Fee Mortgagee shall refuse to so apply all or any portion of the insurance proceeds (unless -25- such refusal to agree is due to (x) an Event of Default by Tenant hereunder unless Tenant is disputing the existence of such Event of Default as hereinafter provided or (y) a failure by Tenant to comply with the Customary Conditions); or (B) The Fee Mortgagee shall apply any such insurance proceeds to the payment, in whole or in part, of the indebtedness secured by the Fee Mortgage in question (unless caused by a default by Tenant hereunder beyond applicable grace periods); or (C) Due to the negligence or willful misconduct of Landlord or such Fee Mortgagee, or a default by Landlord hereunder beyond applicable grace periods, a reasonable amount of insurance proceeds under the circumstances cannot be obtained under the policies of insurance maintained by Tenant within a reasonable period of time under the circumstances; or (D) If the insurance proceeds are within Landlord's control and Landlord refuses to apply the same toward restoration in accordance with Customary Conditions, unless such refusal is due to an Event of Default then existing under this lease; and, in addition, if within sixty (60) days thereafter (thirty (30) days thereafter in respect of clause (D) above) Landlord does not make available the proceeds in question to Tenant, then Tenant, by notice to Landlord, may terminate this Lease on a date specified in such notice, and upon such date this Lease shall terminate, as if such date were the scheduled expiration date of this Lease, and in such event neither party shall have any further obligations to the other party hereunder. ARTICLE 9. CONDEMNATION Section 9.1. Condemnation. (a) If there shall be a total taking or a Constructive Total Taking of the fee title to the Premises in condemnation proceedings, by deed in lieu of condemnation or by any right of eminent domain, this Lease shall terminate on the date of such taking and the Base Rent and other charges payable by Tenant hereunder shall be apportioned and paid to the date of such taking. "Constructive Total Taking" means a taking of less than all of the Premises, but of such scope that the untaken portion of the Premises is insufficient or has insufficient access to public streets to permit the restoration of the existing Buildings so as to constitute an economically viable property for the conduct of Tenant's business. (b) If a Constructive Total Taking shall occur and this Lease is terminated, then from and after the date of such termination for the remainder what would have been of the then- -26- current Term of this Lease absent such termination, Tenant shall pay to Landlord, in equal monthly installments on the same dates as Base Rent would have been payable hereunder, a sum per annum equal to the "Annual CTT Payment." For such purposes, the Base Rent hereunder shall first be recomputed pursuant to Section 9.5, as if the Constructive Total Taking were a partial taking subject to Section 9.3, and the Annual CTT Payment shall be equal to fifty (50%) percent of the annual Base Rent and Impositions for the Premises, as so recomputed. Notwithstanding the foregoing, Tenant's obligation to pay the Annual CTT Payment shall cease if a circumstance occurs to the remaining Premises analogous to a circumstance described in Section 3(e)(iii)(A) or (B) of the Rent Adjustment and Takeback Agreement. Any dispute between the parties pursuant to this Section shall be reduced by ADR pursuant to Article 18. Tenant's failure to pay these sums, subject to grace periods comparable to those set forth in Article 15 for a failure by Tenant to pay Base Rent hereunder, shall be deemed an Event of Default for purposes of Section 15.1(c) notwithstanding that this Lease may be deemed to have been terminated. Section 9.2. Condemnation Award. In the event of any such total taking or Constructive Total Taking, the award or awards for said taking, less the cost of the determination of the amount thereof (the "Condemnation Proceeds"), shall be paid to Landlord, who shall be entitled to receive the entire award with respect to any taking, without deduction therefrom for any estate vested in Tenant other than with respect to Tenant's property as described in Section 10.3 and for Tenant's moving expenses ("Tenant's Share") and Tenant shall receive no part of such award other than Tenant's Share. Tenant hereby assigns to Landlord all of its right, title and interest in and to such award (other than to Tenant's Share). Tenant may, at its sole cost and expense, make a claim with the condemning authority for Tenant's Share and, provided that Landlord's award is not thereby reduced or otherwise adversely affected, for other sums to which Tenant may be entitled under applicable law. Section 9.3. Partial Condemnation. In the event of a taking which is less than a Constructive Total Taking, this Lease shall not terminate or be affected in any way, except as provided in Section 9.5, and the Condemnation Proceeds shall be paid as follows: (a) The portion of the Condemnation Proceeds with interest thereon as shall be awarded for or shall be required for restoration of the Buildings shall be payable (i) so long as there shall be an Institutional Fee Mortgagee, to such Institutional Fee Mortgagee, or (ii) if there shall be no Institutional Fee Mortgagee, in trust to Landlord for application by Tenant to the cost of restoring, repairing, replacing or rebuilding the Buildings. Such portion of the Condemnation Proceeds shall be held and disbursed as Deposited Sums, in the same manner as insurance -27- proceeds are treated in accordance with Article 10 and Article 11. (b) The Remainder of the Condemnation Proceeds shall be treated as provided in Section 9.2. Section 9.4. Restoration and Repair. In the event of a taking less than a Constructive Total Taking, Tenant shall, to the extent Condemnation Proceeds are available, proceed with due diligence to restore, repair, replace or rebuild the remaining part of the Buildings to substantially their former condition or with such changes or alterations as Tenant may elect to make in conformity with Article 10 so as to constitute a complete, usable building and property. For that purpose, the provisions of Section 8.5(b) and (c) shall be applicable, except that references to casualty and to insurance proceeds shall be deemed references to condemnation and to Condemnation Proceeds, and the following clause (E) shall be deemed added to Section 8.5(c): "(E) If sufficient Condemnation Proceeds for restoration are not obtained from the condemning authority within a reasonable period of time under the circumstances and the cost of restoration is more than 110% of the Condemnation Proceeds obtained and available for restoration;". Section 9.5. Abatement of Rent. In the event of a taking of the character referred to in Section 9.3, this Lease shall terminate as to the portion of the Premises so taken and from and after the date of such taking a just proportion of the Base Rent, according to the extent and nature of such taking, shall abate for the remainder of the Term. If Landlord and Tenant cannot agree on the amount of such abatement of rent, such dispute shall be determined by ADR as provided in Article 18. Until the amount of the reduction of the Base Rent shall have been determined, Tenant shall continue to pay to Landlord the Base Rent provided for herein; when the amount of the abatement shall have been agreed upon or determined, Landlord shall permit Tenant to credit against the next installments of Base Rent due hereunder (to the extent thereof), or shall refund to Tenant, the amount of the Base Rent paid from the date of the taking which is in excess of the amount to which the Base Rent has been reduced by such abatement, together with interest thereon at the Prime Rate for the period from the date the Base Rent was paid until the date of reimbursement to Tenant. Section 9.6. Temporary Taking. If the whole or any part of the Premises, or of Tenant's leasehold estate under this Lease, shall be taken in condemnation proceedings or by any right of eminent domain for temporary use or occupancy (for these purposes, for a period of twelve (12) months or less), the foregoing provisions of this Article shall not apply and Tenant shall continue to pay, in the manner and at the times herein specified, the full amounts of the Base Rent and all additional rent and other charges payable by Tenant hereunder, and, except only to the extent that Tenant may be prevented from so doing -28- pursuant to the terms of the order of the condemning authority, Tenant shall perform and observe all of the other terms, covenants, conditions and obligations hereof upon the part of Tenant to be performed and observed, as though such taking had not occurred. Tenant shall be entitled to receive the entire amount of the Condemnation Proceeds made for such taking, whether paid by way of damages, rent or otherwise, unless such period of temporary use or occupancy shall extend beyond the expiration or termination of this Lease, in which case the Condemnation Proceeds shall be apportioned between Landlord and Tenant upon receipt thereof as of the date of the expiration or termination of this Lease; provided, however, that the portion of such award which represents reimbursement for the cost of restoration (and is not required to pay Base Rent or Additional Rent accruing hereunder during the period of temporary taking) shall be used by Tenant to pay or to reimburse Tenant for payments of the costs of restoration and shall be treated hereunder as provided in Section 9.4. Tenant shall, upon the expiration of any such period of temporary use or occupancy during the Term and to the extent Condemnation Proceeds are available for the purpose, restore the Buildings, as nearly as may be reasonably practicable, to the condition in which the same were immediately prior to such taking, subject to Section 9.4. The provisions of Section 4.3(c) shall apply, with appropriate modifications to reflect the difference between rent insurance proceeds and Condemnation Proceeds for a temporary taking. Section 9.7. Allocation of Award. If the order or decree in any condemnation or similar proceeding shall fail separately to state the amount to be awarded to Landlord and the amount to be awarded to Tenant under this Article, or the amount of the compensation for the restoration of the Buildings under this Article, and if Landlord and Tenant cannot agree thereon within thirty (30) days after the final award or awards shall have been fixed and determined, any such dispute shall be determined by ADR in the manner provided in Article 18. Section 9.8. Assignments of Condemnation Proceeds. Tenant shall be entitled to assign to the holder of any Mortgage any Condemnation Proceeds to which it shall be entitled under this Article and Landlord shall recognize such assignment and shall consent to the payment of said Condemnation Proceeds to said assignee as its interest may appear. Nothing in this Section 9.8 shall grant a Mortgagee any greater rights than Tenant possesses under this Article. Section 9.9. Participation in Condemnation Proceedings. Tenant and the holder of any Mortgage or Fee Mortgage shall have the right to participate in any condemnation proceeding for the purpose of protecting their rights hereunder (consistent with the above); provided, however, that Landlord shall have the sole right to settle such condemnation proceeding, but Tenant shall not be bound by any determination in such proceeding as to, and shall have the right to dispute, by ADR as -29- provided in Article 18, the portion of any Condemnation Proceeds to which Tenant is entitled under this Article. ARTICLE 10. CHANGES AND ALTERATIONS Section 10.1. Alterations. Tenant shall have the right, at any time and from time to time, to make such changes and alterations, structural or otherwise, to the Buildings as Tenant shall deem necessary or desirable, including the right to increase or reduce the height of the buildings, or to demolish the Buildings, or any part thereof, provided that in the case of any demolition Tenant shall erect in substitution thereof a new building or (in the event of the demolition of part of a Building) a new part thereof. Such changes, alterations, demolition or new construction (collectively, "Alterations") shall be made in all cases subject to the following conditions: (a) no Alterations shall be undertaken until Tenant shall have procured and paid for, so far as the same may be required from time to time, all municipal and other governmental permits and authorizations of the various municipal departments and governmental subdivisions having jurisdiction, and Landlord shall join, at Tenant's expense, in the application for such permits or authorizations whenever such action is necessary; (b) any structural Alterations, or any Alterations undertaken as a single project and involving an estimated cost aggregating more than $75,000, shall be conducted under the supervision of an architect or engineer (who may be an employee of Tenant) selected by Tenant, and no such work shall be undertaken until ten (10) business days after plans and specifications and budget estimates therefor, prepared and approved in writing by such architect or engineer shall have been submitted to Landlord; (c) all Alterations shall be of such a character that, when completed, the value of the Buildings shall be not less than the value of the Buildings immediately before any such Alterations; (d) all work done in connection with any Alterations shall be done in a good and workmanlike manner, in compliance with applicable Laws, and in substantial accordance with the plans and specifications submitted to Landlord; (e) workmen's compensation insurance covering all persons employed in connection therewith and with respect to whom death or bodily injury claims could be asserted against Landlord, Tenant or the Premises and general liability and property damage insurance, and insurance covering all risks generally related to construction and which would reasonably -30- be required by a prudent Institutional Fee Mortgagee for similar construction (which may be effected by endorsement, if obtainable, on the insurance required to be carried pursuant to Section 4.1) for the mutual benefit of Landlord, any Fee Mortgagee, and Tenant with limits of not less than those required to be carried pursuant to Section 4.1 shall be maintained by Tenant at all times when any work is in process in connection with any Alterations, and evidence of the procuring of such policies shall be submitted to Landlord before construction of any such Alteration is commenced; (f) any structural Alterations, including Alterations which involve the demolition and reconstruction of any material structure on the Premises, shall be subject to Landlord's consent, which consent shall not be unreasonably withheld by Landlord (in the case of the demolition and reconstruction of any material structure on the Premises, it shall not be unreasonable for Landlord to withhold its consent if Tenant cannot reasonably demonstrate that Tenant has obtained or can obtain the funds required to pay the cost of such demolition or reconstruction and it shall not be unreasonable for Landlord to take account any material adverse effect of such Alterations on contiguous properties owned by Landlord or Affiliates of Landlord, including those properties which are subject to Group Leases); (g) subject to Section 10.3, all Alterations shall immediately upon installation become Landlord's property and shall remain on and be surrendered with the Premises as part thereof at the termination of this Lease; (h) the cost of any Alteration shall be paid by Tenant so that, subject to Article 12, the Premises shall at all times be free of liens for labor and materials supplied or claimed to have been supplied to the Premises in connection with such Alteration; (i) within a reasonable time after completion of any Alteration, Tenant shall provide Landlord with complete as-built mylar drawing thereof, if such drawings were prepared for Tenant, and otherwise with such final plans and specification for such Alteration as are in Tenant's possession; (j) any Alterations commenced by Tenant shall be prosecuted diligently to completion by Tenant; and (k) Subject to Section 21.5, any Alterations (i) shall be subject to the consent of any Institutional Fee Mortgagee if and to the extent required under the Institutional Fee Mortgage in question, and (ii) shall be performed in compliance with the applicable requirements of the Institutional Fee Mortgage in question. -31- Any dispute under this Section shall be determined by arbitration in the manner provided in Article 18. Section 10.2. Applicability of Conditions. In performing any work or repairs to, or restoration, replacement or rebuilding of, the Buildings required to be performed by Tenant under Article 6, 7, 8 or 9, Tenant shall observe and perform, in so far as the nature of such repairs, restoration, replacement or rebuilding make such observance and performance appropriate, the conditions relating to changes or alterations set forth in Section 10.1. Section 10.3. Tenant's Property. All items of personal property, all business and trade fixtures and equipment and any other property of Tenant at the Premises which is not a part of any structure or building system, or required for the operation of any building as a building, shall remain the property of Tenant and shall be removed by Tenant at any time prior to the expiration or sooner termination of this Lease. Tenant, at its expense, shall repair any damage to the Building caused by any such removal. Tenant's property shall include (a) equipment (for example, hoists) installed by Tenant and not required for the use and operation of the Buildings as buildings and (b) any property transferred to Tenant pursuant to the Master Agreement and the other Transaction Agreements. Any of the foregoing enumerated property of Tenant which shall remain in the Premises within thirty (30) days after the expiration or sooner termination of this Lease (but the foregoing provision shall not relieve Tenant of any obligations or liabilities hereunder on account of such holdover) may, at the option of Landlord, subject to Section 10.4, be deemed abandoned and may either be retained by Landlord as its property or be promptly disposed of without accountability as Landlord sees fit and Tenant shall reimburse Landlord, within thirty (30) days after demand, for the reasonable costs and expenses incurred by Landlord in such disposal. Section 10.4. Liens on Tenant's Property. (a) Except as otherwise provided in Section 14.2(c) with respect to a Mortgage, and as provided in subsection (b) of this Section, all property installed by Tenant in the Premises shall be installed and maintained free and clear of any liens, encumbrances and security interests. (b) Notwithstanding subsection (a) of this Section, Tenant may install and maintain items of Tenant's property in the Premises subject to conditional sales agreements, equipment leases and similar financing, provided that (i) the removal of such property, if not movable personal property, would not adversely affect the value of the Buildings as real estate (as opposed to their value for a particular use) and would not adversely affect the operation, function, or use of the Buildings as buildings, (ii) Tenant agrees to restore any damage to the Premises caused by the removal thereof, and (iii) the term of -32- such financing does not extend beyond the then-scheduled expiration date of the Term. The other party to such conditional sales agreement, equipment lease or similar financing shall have the right to remove the property in question from the Premises within thirty (30) days after the expiration or ninety (90) days after the sooner termination of the Term, but this sentence shall not relieve Tenant of any obligations or liabilities hereunder on account of such holdover. ARTICLE 11. DISBURSEMENT OF DEPOSITED MONEYS Section 11.1. Deposited Sums. All sums (collectively, the "Deposited Sums") paid to or deposited with an Institutional Fee Mortgagee or to an Institution described in Section 8.1 (the "Depositary"), shall be disbursed in the manner hereinafter provided. Section 11.2. Disbursement. From time to time as the restoration, repair, replacement or rebuilding of any Buildings or any portion thereof damaged or destroyed by fire or any other cause, or not taken in a proceeding of the character described in Section 9.3, progresses (collectively, the "Work"), disbursement of the Deposited Sums shall be made in accordance with good and sophisticated construction lending practices which a prudent Institutional Fee Mortgagee would adopt in order to insure that the work shall be completed in a good and workmanlike manner, shall be paid for in full, shall be completed free of any lien against the Premises, and shall be completed in accordance with applicable law and in substantial accordance with the plans and specifications submitted to (and if required hereunder, approved by) Landlord. In the event that a reputable independent architect or engineer selected by Landlord and reasonably approved by Tenant shall determine or if (subject to Section 21.5) the Institutional Fee Mortgagee or a Fee Mortgagee on the date hereof which is not an Institution, shall determine, as provided in the applicable Fee Mortgage, that the Deposited Sums are insufficient to pay for the cost to complete the Work, (i) Tenant shall be responsible for paying for any such shortfall (which obligation shall survive the expiration or sooner termination of this Lease), and (ii) no further disbursement of the Deposited Sum shall be made until Tenant shall have deposited with the Institution cash, cash equivalents or other security for the shortfall, which deposit shall be made promptly after demand therefor by Landlord, and shall be treated in the same manner as the Deposited Sums are treated (but any unused portion thereof shall in all events be returned to Tenant upon completion of the Restoration in question). At any time after the completion of the work the balance of the Deposited Sums shall be disbursed to Tenant (and Tenant may retain any insurance proceeds held by Tenant). Section 11.3. Disbursement After Default. If this Lease shall be terminated pursuant to Section 15.1 prior to the -33- disbursement of the Deposited Sums or any part thereof, Landlord may notify the Depositary thereof and thereupon the Depositary shall have no further right or obligation to disburse any of the Deposited Sums to Tenant, but shall disburse the same to or for the account of Landlord upon Landlord's direction so to do, provided that if Tenant disputes the termination of this Lease, the Depositary shall take no action until the issue is resolved between Landlord and Tenant by ADR as provided in Article 18. Section 11.4. Expenses of Depositary. The Depositary shall have the right to deduct from the Deposited Sums its reasonable charges for acting as Depositary hereunder. ARTICLE 12. MECHANICS' LIENS Tenant shall not suffer or permit any mechanics' liens to be filed against the Premises, nor against Tenant's leasehold estate hereunder, by reason of work, labor, services or materials supplied or claimed to have been supplied to Tenant or anyone holding any interest in the Premises or any part thereof through or under Tenant. If any such mechanic's lien shall at any time be filed against the Premises, Tenant shall, within thirty (30) days after notice of the filing thereof, or sooner and within ten (10) days after demand from Landlord if required in order to close a sale or financing involving the Premises (and which notice shall refer to such ten (10) day period and this sentence), cause the same to be discharged of record by payment, deposit, bond, order of a court of competent jurisdiction or otherwise. If Tenant shall fail to cause such lien to be discharged within the period aforesaid, then Landlord may (without complying with any other provision contained in this Lease) discharge the same either by paying the amount claimed to be due or by procuring the discharge of such lien by deposit or by bonding proceedings, and in any such event Landlord shall be entitled, if Landlord so elects, to compel the prosecution of an action for the foreclosure of such lien by the lienor and to pay the amount of the judgment in favor of the lienor with interest, costs and allowance. Nothing in this Lease contained shall be deemed or construed in any way as constituting the consent or request of Landlord, express or implied, by inference or otherwise, to any contractor, subcontractor, laborer or materialman for the performance of any labor or the furnishing of any materials for any specific improvement, alteration to or repair of the Premises or any part thereof, nor as giving Tenant a right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials that would give rise to the filing or any mechanic's lien against the Premises. -34- ARTICLE 13. SURRENDER OF THE PREMISES; INSPECTION OF THE PREMISES Section 13.1. Surrender. Upon the expiration or sooner termination of this Lease, Tenant shall surrender to Landlord the Premises, free of subtenants (except as provided in Section 14.7), occupants or the like, in good order and repair (except in the event of termination upon a Casualty, a total taking or Constructive Total Taking in condemnation proceedings), reasonable wear and tear and damage by casualty or condemnation (except to the extent Tenant was theretofore obligated under this Lease to restore such casualty or condemnation prior to the date of such expiration or sooner termination) excepted and also except as Tenant may have been prevented from maintaining the Premises in good order and repair by occupation thereof by any entity having the power of eminent domain which shall have taken the temporary use thereof and shall then be in possession thereof. If the Premises are not surrendered at the end of the Term, Tenant shall compensate Landlord for all damages which Landlord shall suffer by reason thereof, and Tenant shall indemnify, defend and hold Landlord harmless from and against all claims made by any succeeding tenant against Landlord founded upon delay by Landlord in delivering possession of the Premises to such succeeding tenant to the extent that all or any portion of such delay is occasioned by the failure of Tenant to surrender the Premises as and when required by this Lease. Without limiting the provisions of Section 13.1 hereof, if Tenant shall, without the written consent of Landlord, hold over after the expiration of the Term, Tenant's use shall be deemed a month-to-month tenancy, which tenancy may be terminated upon demand of Landlord. During such tenancy, Tenant agrees to pay Landlord, each month, (i) the following percentage of the Base Rent in effect upon the expiration of the Term: (A) 125% of such Base Rent for the first ninety (90) days after the expiration or sooner termination of this Lease; (B) 150% of such Base Rent for the next ninety (90) days (that is, until the 180th day thereafter); (C) 175% of such Base Rent for the next ninety (90) days (that is, until the 270th day thereafter); and (D) 200% of such Base Rent for the period from and after such 270th day after the expiration or sooner termination of this Lease, plus (ii) all Additional Rent payable by Tenant hereunder for such month. -35- Section 13.2. Inspection. Tenant shall permit Landlord and Landlord's authorized representatives to enter the Premises at reasonable times during usual business hours upon reasonable prior notice (except in the case of an emergency or to prevent an imminent default under a Fee Mortgage, which entry may be made without notice at any time) for the purpose of inspecting the same and of exhibiting the same to prospective purchasers or mortgagees thereof, or others to whom Landlord shall desire to so exhibit the Premises. ARTICLE 14. ASSIGNMENT AND SUBLETTING Section 14.1. Assignment and Subletting. Except as otherwise provided in this Article 14, or as expressly provided elsewhere in this Lease, Tenant shall not, without the prior written consent of Landlord, assign, mortgage, pledge or encumber this Lease or sublease the Premises, or any part thereof. The consent of Landlord to any assignment, mortgage, pledge, encumbrance or subletting shall not relieve Tenant from obtaining Landlord's consent to any further such transaction which requires Landlord's consent hereunder. Section 14.2. Permitted Transactions. Without Landlord's consent, but upon at least fifteen (15) days' prior notice to Landlord, and subject to Section 14.3(c), Tenant may: (a) Assign this Lease or sublease all or any part of the Premises to an Affiliate of Tenant; (b) Assign this Lease or sublet all or substantially all of the Premises for all or any portion of the Term in connection with a sale or other transfer to the assignee or sublessee of all or substantially all of the business conducted by Tenant at the Premises; (c) Mortgage, pledge or encumber this Lease, except as provided in Section 14.3(a); or (d) Sublease the Premises, in whole or in part, other than a sublease of all or substantially all of the Premises for all or substantially all of the term (except as provided in subsection (b) above). Section 14.3. Transactions Requiring Landlord's Consent. (a) So long as Landlord is an Affiliate of Joseph C. DiFeo or Samuel X. DiFeo, Landlord's consent shall be required to any mortgage, pledge or encumbrance of this Lease (but not to a transaction described in Section 10.4(b)), which consent may be withheld in Landlord's sole discretion, notwithstanding any provision of this Lease which contemplates the potential -36- existence of any Mortgage, or otherwise give to Tenant the right to mortgage this Lease and the leasehold estate created hereby. (b) Tenant may assign this Lease, and may sublease all or any part of the Premises, other than as provided in Section 14.2, subject to Landlord's prior consent, which consent Landlord shall not unreasonably withhold, upon the following terms and conditions: (i) Tenant shall furnish Landlord with the name and business address of the proposed assignee or subtenant and with information with respect to the nature and character of the proposed assignee's or subtenant's business or activities as are reasonably satisfactory to Landlord. (ii) Landlord shall not be entitled to take into account the financial net worth, credit or financial responsibility of the proposed assignee or subtenant; (iii) Tenant shall deliver an executed assignment or sublease to Landlord at the time Landlord's consent is requested; (iv) The nature and character of the proposed assignee or subtenant, and its business or activities are, in Landlord's reasonable judgment, in keeping with the standards of the Premises (and its intended use of the Premises is not in violation of the provisions of this Lease); (v) Each assignment or sublease, whether or not Landlord's consent is required thereto, shall specifically state that (i) it is subject to all of the terms, covenants, agreements, provisions and conditions of this Lease (except as otherwise provided herein as to Sections 3.8, and 15.1(c), and provided, further, that no assignee or subtenant shall be obligated to enter into, assume or otherwise be liable for obligations under any Tenant Guaranty, and provided, further, that no assignee or subtenant shall be obligated to enter into, assume or otherwise be liable for obligations under any Tenant Guaranty; and (ii) the assignee or subtenant will not have the right to further assign or sublet all or part of the Premises except in accordance with the provisions of this Lease. (vi) With respect to any such assignment or sublease, whether or not Landlord's consent is required thereto: (A) the receipt by Landlord of any amounts from an assignee or subtenant, or other occupant of any part of the Premises, shall not be deemed or construed as releasing Tenant from Tenant's obligations hereunder or of the acceptance of that party as a direct Tenant; (B) Tenant shall reimburse Landlord within thirty (30) days after -37- demand for any reasonable costs incurred by Landlord to review the proposed assignment or sublease in connection with the requested consent, including the cost of making investigations as to the acceptability of the proposed assignee or subtenant and any reasonable attorney's fees incurred by Landlord; (C) consent by Landlord thereto shall not be deemed or construed to modify, amend or affect the terms and provisions of this Lease, or Tenant's obligations hereunder, which shall continue to apply to the Premises as if the assignment or sublease had not been made; and (D) if Tenant defaults in the payment of any rent, Landlord is authorized to collect any rents due or accruing from any assignee, subtenant or other occupant of the Premises and to apply the net amounts collected to the rent due hereunder. (c) No assignment or sublease permitted under Section 14.2, Section 14.3, or otherwise permitted hereunder shall be permitted if the assignee or sublessee, in Landlord's reasonable judgment, is not reputable, or if the assignment or sublease, in Landlord's reasonable judgment, would cause the Premises to become subject to compliance with the remedial provisions of ECRA (or a similar state statute requiring environmental testing and/or remediation) prior to the sale or other transfer of the Premises, upon such assignment of this Lease or sublease of all or any portion of the Premises, or upon the expiration or sooner termination of this Lease or cessation of operations at the Premises. Landlord will advise Tenant, by notice to Tenant within thirty (30) days of Tenant's request therefor, if Landlord judges a proposed assignee or subtenant named in such request not to be reputable, or a proposed assignment or sublease to cause the Premises to become subject to ECRA or such similar statute as aforesaid, which notice from Landlord shall specify, in reasonable detail, the grounds for Landlord's determination. Failure or refusal of Landlord to respond within such thirty (30) days period shall be deemed a determination by Landlord that the proposed assignee or sublessee is reputable and the proposed assignment or sublease does not cause the Premises to so become subject to ECRA or such other similar statute. In making such determination, the financial condition of the proposed assignee or sublessee shall not be taken into account by Landlord. If Tenant disputes Landlord's determination, such dispute shall be resolved by ADR pursuant to Article 18. (d) Notwithstanding anything to the contrary in this Lease, Tenant shall not assign this Lease or sublease the Premises to a government or any subdivision or agency thereof, without Landlord's consent, which consent Landlord may withhold in its sole discretion. Section 14.4 Takeback Right. If at any time Tenant shall request Landlord's consent (if such consent is required hereunder) (a) to assign this Lease, other than to an Affiliate or in connection with a sale of all or substantially all of Tenant's business at the Premises to the assignee, or (b) to -38- sublease all or substantially all of the Premises for all or substantially all of the Term, other than to an Affiliate or in connection with sale or all or substantially all of Tenant's business at the Premises to the sublessee, or (c) to change the use of all or substantially all of the Premises to a use other than a Vehicle-Related Use, and shall have notified Landlord of such proposal, then Landlord shall have a period of thirty (30) days following such notification to terminate this Lease as to the entire Premises, by notice to Tenant, in which event such termination shall occur on the forty-fifth (45th) day after the date of such notice, as if such forty-fifth (45th) day were the date herein specified for the expiration of the Term, and, from and after such termination, neither party shall have any further obligation hereunder to the other party, except for obligations which accrued prior to the date of termination or which by their terms survive the termination of this Lease. Nothing herein in this Section shall be deemed or construed to limit Landlord's right to withhold consent to an assignment or sublease, in accordance with the provisions of this Lease, if such consent is required hereunder, and the existence of this takeback right shall not be taken into account in determining whether Landlord is entitled to withhold consent to an assignment or sublease, if such consent is required hereunder. Section 14.5. Requirements as to Assignments or Subleases. (a) Any assignment of this Lease, whether made with Landlord's consent or without Landlord's consent, as the case may be, shall not be effective unless and until (i) the assignee shall execute, acknowledge and deliver to Landlord an agreement in form and substance reasonably satisfactory to Landlord, and with respect to which Landlord shall be a direct beneficiary, whereby the assignee shall (x) assume the obligations and performance of this Lease and agree to be personally bound by all of the covenants, agreements, terms, provisions and conditions hereof on the part of Tenant to be performed and observed from and after the effective date of any such assignment; and (y) agree that the provisions of this Article 14 shall, notwithstanding such assignment or sublease, continue to be binding upon it in the future. Tenant covenants that, notwithstanding any assignment or sublease, whether or not in violation of the provisions of this Lease, and notwithstanding the acceptance of rent by Landlord from any assignee or subtenant or any other party, Tenant shall remain fully and primarily and jointly and severally liable for the payment of rent due and to become due under this Lease and for the performance and observance of all the covenants, agreements, terms, provisions and conditions of this Lease on the part of Tenant to be performed or observed. (b) The liability of Tenant, and the due performance by Tenant of the obligations on its part to be performed under this Lease, shall not be discharged, released or impaired in any respect by an agreement or stipulation made by Landlord or any grantee or assignee of Landlord or any other agreement with a -39- third party extending the term of or modifying any of the obligations contained in this Lease, or by any waiver or failure of Landlord to enforce any of the obligations on Tenant's part to be performed under this Lease, and Tenant shall continue liable hereunder. If any such agreement or modification operates to increase the obligations of Tenant under this Lease the liability of the Tenant under this Lease or any of its successors in interest (all such parties shall be deemed to have expressly consented in writing to such agreement or modification) shall continue to be no greater than if such agreement or modification had not been made. Section 14.6. Leasehold Mortgages. (a) Without the prior consent of Landlord, Tenant shall have the right to mortgage this Lease and the leasehold estate hereby created. The execution and delivery of a Mortgage shall not be deemed to constitute an assignment or transfer of this Lease nor shall the holder of any Mortgage, as such, be deemed an assignee or transferee of this Lease so as to require such holder to assume the performance of any of the covenants or agreements on the part of Tenant to be performed hereunder. No action or agreement hereafter taken or entered into by Tenant to cancel, surrender, modify or amend this Lease shall be binding upon or enforceable against a Mortgage, without the prior written consent of such Mortgagee. (b) A Mortgagee shall only have the rights provided for herein if there has been delivered to Landlord a true, correct and complete copy of the Mortgage in question, together with written notice executed by Tenant setting forth the name and address of the Mortgagee. Landlord shall not be bound to recognize any assignment of a Mortgage unless and until Landlord shall be given written notice of such assignment and the name and address of the assignee. A Mortgagee shall cease to be entitled to any of the rights provided for herein if its Mortgage is satisfied or discharged of record or if Mortgagee has given written notice to Landlord that its Mortgage has been satisfied. Tenant shall not grant any Mortgage unless such Mortgage shall expressly state that the proceeds of any insurance policies and condemnation awards shall be held, used and applied for purposes and in the manner provided in this Lease, and a Mortgagee whose Mortgage does not so provide shall have no rights hereunder. Section 14.7. Sublease Recognition. Landlord confirms, for the benefit of any tenant under any Major Sublease (such tenant being called a "Space Tenant"), that, upon the termination of this Lease pursuant to Section 15.1, Landlord will recognize the Space Tenant under such sublease as the direct tenant of Landlord (provided that such Space Tenant attorns to Landlord) and will, upon the request of Tenant with respect to a Major Sublease consented to by Landlord, enter into a reasonable and customary form of recognition and attornment agreement with such Space Tenant which will provide for the recognition by -40- Landlord of such Space Tenant as the direct tenant of Landlord and the attornment by such Space Tenant to Landlord, provided that, among other things, at the time of the termination of this Lease no default exists under the Space Tenant's Sublease which at such time would then permit the landlord thereunder to terminate the same or to exercise any dispossess remedy provided for therein The term "Major Sublease" shall mean a sublease of all of the Premises for all of the Term (less one day), provided that the sublease requires the sublessee to perform all of Tenant's obligations hereunder, subject to Section 3.8, grants to the sublandlord all of Landlord's rights hereunder other than pursuant to Section 15.1(c) (which shall not apply to the Major Sublease) and that the sublessee shall not be obligated to enter into, assume or otherwise be liable for obligations under any Tenant Guaranty. ARTICLE 15. DEFAULT PROVISIONS; CONDITIONAL LIMITATION Section 15.1. Events of Default. In the event that any one or more of the following events occur, an event of default (an "Event of Default") shall be deemed to exist under this Lease: (a) default shall be made in the payment of the Base Rent when due and such default shall continue for a period of ten (10) days after notice thereof, specifying such default, shall have been given to Tenant, or default shall be made in the payment of any item of additional rent and such latter default shall continue for a period of thirty (30) days after notice thereof, specifying such default, shall have been given to Tenant; or (b) default shall be made in the performance of any other covenant or agreement on the part of Tenant to be performed hereunder, and such default shall continue for a period of thirty (30) days after notice thereof, specifying such default, shall have been given to Tenant; provided, however, in the case of a default which cannot with due diligence be remedied by Tenant within a period of thirty (30) days, if Tenant during such thirty (30) day period advised Landlord of Tenant's intentions to cure such default, and proceeds as promptly as may be reasonably possible after the service of such notice and with all due diligence, and continuity of purpose to remedy the default and thereafter to prosecute the remedying of such default with all due diligence (including by appropriate actions against a subtenant of all or part of the Premises to compel performance by such subtenant or to recover possession of the Premises so as to permit Tenant to cure such default to the extent that Tenant is unable to cure the same without recovering possession), the period of time after the giving of such notice within which to remedy the default shall be extended for such period as may be necessary to remedy the same with all due diligence; or -41- (c) an Event of Default, subject to Section 15.3, shall have occurred under any Group Lease or under any Group Sublease; provided, however, that if any Group Lease or Group Sublease, other than this Lease, is assigned, in a transaction permitted thereunder, to a person or entity which is not an Affiliate of the Tenant thereunder, and does not thereafter become an Affiliate of the Tenant thereunder, then this subsection shall thereafter apply only with respect to such Group Lease or Group Sublease to a monetary Event of Default under such Group Lease or Group Sublease and shall not thereafter apply to a non-monetary Event of Default under such Group Lease or Group Sublease; or (d) whenever Tenant shall default in complying with the provisions of Article 12 with respect to the discharging of mechanics' liens within the time period provided therein and such default shall exist for thirty (30) days after notice from Landlord specifying such default, or, if applicable, for ten (10) days after notice from Landlord specifying such default if such discharge is required in order to close a sale or refinancing involving the Premises (which notice shall refer to such ten (10) day period and Article 12); or (e) if any execution or attachment shall be issued against Tenant or any of Tenant's property pursuant to which execution or attachment the Premises or any part thereof shall be taken or occupied by someone other than Tenant, except as permitted under this Lease; or (f) (i) the making by Tenant or '21' International Holdings, Inc. ("TIHI"), while the TIHI Guaranty is in effect, or by any EMCO Sub, while its EMCO Pledge is in effect (each of TIHI and Emco Sub, during such respective period of time only, being herein called a "Guarantor") of any general assignment for the benefit of creditors; (ii) the filing by or against Tenant or any Guarantor of any petition to have Tenant or any Guarantor adjudged a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant or any Guarantor, the same is dismissed within sixty (60) days; (iii) the appointment of a trustee or receiver to take possession of substantially all of Tenant's or any Guarantor's assets, or substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease; or (iv) the attachment, execution or the judicial seizure of substantially all of Tenant's or any Guarantor's assets, or substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease; or (g) if Tenant's right, title and interest in this Lease or the estate of Tenant hereunder shall be transferred to or shall pass to or devolve upon any person or entity whether by action of Tenant, by operation of law or otherwise, in violation of the terms of this Lease, and such default shall not be cured -42- within thirty (30) days after notice from Landlord of such default; or (h) if any Mortgagee commences an action to foreclose or otherwise realize upon its Mortgage or Tenant's interest in this Lease, unless such action has been dismissed or discontinued. Section 15.2. Right to ADR. If Landlord shall give Tenant a notice, pursuant to any of subsections (a) through (h) of Section 15.1, of a default or an event which may, with the giving of such notice, or the passage of time, or both, become an Event of Default, and if the default in question is other than a failure by Tenant to pay an installment of Base Rent due hereunder, and if Tenant within fifteen (15) days after the giving of any such notice from Landlord pursuant to subsections (a) through (h) of this Section, shall dispute by notice to Landlord (a "Section 15.2 Notice") the existence of such default, the matter shall be determined by ADR as provided in Article 18 and, pending such determination, Landlord shall not be entitled to terminate this Lease, nor shall a default or Event of Default be deemed to exist hereunder on account thereof; provided, however, that if it shall be determined by ADR that Tenant is so in default, the time within which Tenant shall have to remedy the same under subsection (a) through subsection (h) above shall be computed from the date of such determination. Any such Section 15.2 Notice to Landlord shall specify in reasonable detail the grounds for such dispute. Section 15.3. Multiple Notices. If a monetary Event of Default occurs hereunder, then Landlord shall have the right to send to Tenant a second (2nd) notice, referring to this Section and specifying such default and stating that it is a "Second Notice" of such default, and, if such monetary Event of Default shall not be cured within five (5) business days after such notice is given, then Landlord shall have the right to send Tenant a third (3rd) notice, referring to this Section and specifying that it is a "Third Notice" of such default, and, if such monetary Event of Default shall not be cured within ten (10) business days after such notice is given, Landlord may thereafter proceed to exercise all rights and remedies which Landlord may exercise upon such Event of Default and Landlord shall not thereafter be obligated to accept a cure by Tenant of such monetary Event of Default (but prior to Landlord's commencing to exercise its rights and remedies, Landlord shall be obligated to accept such a cure). The provisions of this Section shall only apply to the first two (2) monetary Events of Default of the same type in any period of twelve (12) consecutive calendar months. Tenant specifically acknowledges that it will not argue before any court, ADR tribunal or anyone that Landlord is obligated or required to accept any cure of an Event of Default described in this Section after the expiration of the applicable time frame provided for after the Third Notice, Tenant having negotiated for the giving of the Second and Third Notices in lieu of any other -43- benefit or right provided to Tenant at law, in equity or otherwise with respect to the right to cure such Events of Default. Section 15.4. Notices of Default to Mortgages. (a) If Landlord shall give a notice to Tenant regarding the Tenant's failure to observe or perform any obligation imposed upon Tenant under this Lease, Landlord shall at the same time give a copy of each such notice to each Mortgagee, and no such notice shall be deemed to have been effected unless and until notice is so given to each Mortgagee. If a Mortgage is held by more than one person, corporation or other entity, no provision of this Lease requiring Landlord to give a notice to a Mortgagee shall be binding upon Landlord unless and until all of said holders shall designate in writing one of their number to receive all such notices and shall have given to Landlord an original executed counterpart of such designation in form reasonably satisfactory to Landlord. (b) Landlord shall permit a Mortgagee the right (without obligation on the part of the Mortgagee to do so) to perform any term, covenant, condition or agreement and to remedy any default by Tenant hereunder, within the time periods provided to the Tenant hereunder or otherwise provided to the Mortgagee hereunder and together with any and all rights of Tenant hereunder with respect to remedying or contesting any such default, and Landlord shall accept such performance by Mortgagee with the same force and effect as if furnished by Tenant; provided, however, that Mortgagee shall not thereby or hereby be subrogated to the rights of Landlord. (c) If an Event of Default shall occur hereunder, then, before Landlord shall be entitled to terminate this Lease on account of such Event of Default, Landlord shall give to the holder of any such Mortgage a further notice that such specified Event of Default remains unremedied, and the holder of such Mortgage shall have the right to remedy any Event of Default arising from a failure to pay Base Rent or Additional Rent within a period of twenty (20) days after the service of such notice and to commence to remedy any other Event of Default within a period of thirty (30) days after the service of such notice. Section 15.5. Rights of Mortgagees. In case of the occurrence of an Event of Default (other than an Event of Default of the character of a failure to pay Base Rent or Additional Rent) if, within thirty (30) days after the further notice referred to in Section 15.4 is given by Landlord to the holder of a Mortgage, such holder shall: (a) notify Landlord of its election to proceed with due diligence promptly to acquire possession of the Premises or to foreclose the Mortgage or otherwise to extinguish Tenant's interest in this Lease; -44- (b) deliver to Landlord an instrument in writing duly executed and acknowledged wherein the holder of the Mortgage agrees that: (i) during the period that such holder or a receiver of rents and profits appointed upon application of such holder shall benefit from the provisions of this Section (until, by notice to Landlord, such holder waives any further benefits under this Section with respect to such Event of Default), it will pay or cause to be paid to Landlord all sums from time to time becoming due under this Lease for the Base Rent and Additional Rent; and (ii) if delivery of possession of the Premises shall be made to such holder or such receiver or, in the event such holder is an Institution, to its nominee, whether voluntarily or pursuant to any foreclosure or other proceedings or otherwise, such holder shall, promptly following such delivery of possession, perform or cause such nominee to perform, as the case may be, such of the covenants and agreements herein contained on Tenant's part to be performed as Tenant shall have failed to perform to the extent the same are of a type which can reasonably be performed by a party other than the Tenant and the defaults which cannot so reasonably be performed shall no longer be deemed to be defaults hereunder as respects Mortgagee or any nominee, or their successors and assigns; and (c) If such holder is not an Institution deliver to Landlord security sufficient in Landlord's reasonable opinion to secure the obligations undertaken pursuant to clauses (a) and (b) above; and provided that such default is in a nature that the same cannot practically be cured by such Mortgagee without taking possession of the Premises, then Landlord shall not be entitled to terminate this Lease on account of such Event of Default and shall accept such performance, for such period or periods of time as may be necessary for such holder, with the exercise of due diligence, to extinguish Tenant's interest in this Lease and to perform or cause to be performed all of the covenants and agreements to be performed by Tenant to the extent the same are of a type which can reasonably be performed by a party other than Tenant. Nothing herein contained shall be deemed to require the holder of a Mortgage to continue with any foreclosure or other proceedings or, in the event such holder or receiver shall acquire possession of the Premises, to continue such possession, if the Event of Default in respect of which Landlord shall have given a notice shall be remedied. If prior to any sale pursuant to any proceeding brought to foreclose any Mortgage, or if prior to the date on which Tenant's interest in this Lease shall -45- otherwise be extinguished, the Event of Default in respect of which Landlord shall have given a notice shall have been remedied and possession of the Premises shall have been restored to Tenant, then the obligation of the holder of the Mortgage pursuant to the instrument referred to in clause (b) of this Section shall be null and void and of no further effect. Nothing herein contained shall affect the right of Landlord, upon the subsequent occurrence of any Event of Default, to exercise any right or remedy herein reserved to Landlord. Section 15.6. Remedies. (a) Upon the occurrence of an Event of Default, subject, however to Section 15.3, in addition to any other remedies available to Landlord at law or in equity or provided for herein, Landlord shall have the option, upon five (5) business days' prior notice to Tenant, to terminate this Lease and all rights of Tenant hereunder. In the event that Landlord elects to so terminate this Lease, then Landlord may recover from Tenant: (i) the worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of rent loss that Tenant proves could have been avoided; plus (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of aware exceeds the fair market rental value for the Premises for such period. As used in clauses (i) and (ii) above, the "worth at the time of award" is computed by allowing interest at the Prime Rate plus two (2%) percent. As used in clause (iii) above, the "worth at the time of award" is computed by discounting such award at an appropriate interest rate determined at the time. (b) From and after the occurrence of an Event of Default, subject, however, to Section 15.3, Landlord shall also have the right, with or without terminating this Lease, upon notice to Tenant, to re-enter the Premises and remove all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant. No re-entry or taking possession of the Premises by Landlord pursuant to this Section 15.6(b) shall be construed as an election to terminate this Lease unless a written notice of such intention is given to Tenant. No entry or re-entry by Landlord, whether had or taken under summary proceeding or otherwise, shall absolve or discharge Tenant from any liability hereunder. -46- (c) In the event that Landlord shall elect to re-enter as provided in subsection (b) above or shall take possession of the Premises pursuant to legal proceedings or pursuant to any notice provided by law, then if Landlord does not elect to terminate this Lease as provided above, Landlord may, from time to time, without terminating this Lease, either recover all rent (which shall be deemed to included all Base Rent, Additional Rent, and other payments and charges required to be made by Tenant hereunder), as it becomes due or relet the Premises or any part thereof on terms and conditions as Landlord in its sole discretion may deemed advisable for the whole or any part of the remainder of the term or for a longer period, in Landlord's name, or as agent of Tenant, and in connection therewith, Landlord may make repairs or alterations to the Premises in such manner as Landlord may deem necessary or advisable. If the Premises, or any part thereof, are leased to or occupied by Landlord, Joseph C. DiFeo, Samuel X. DiFeo or any Affiliate of any thereof, the tenant or occupant shall be deemed to be leasing or occupying the same on arms-length terms at the then applicable fair market rental value of the premises in question, regardless of the actual terms of or rental with respect to such leasing or occupancy. (d) In the event Landlord shall, pursuant to subsection (c) above, elect to so relet, the rents received by Landlord from such reletting shall be applied: first to the cost and expenses of re-taking, repossessing, repairing and/or altering the Premises and the expense of removing all persons and property therefrom; second, to the costs and expenses incurred in securing any new tenant or tenants; and third, to the payment of rent due and unpaid hereunder and the residue, if any, shall be held by Landlord and applied to payment of future Base Rent and Additional Rent as the same may become due and payable. Should that portion of such rents received from such reletting during any month, which is applied to the payment of Base Rent and Additional Rent hereunder, be less than the Base Rent and Additional Rent payable during the month by Tenant hereunder, then Tenant shall pay such deficiency to Landlord immediately upon demand therefor by Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to the Landlord, as soon as ascertained, any reasonable costs and expenses incurred by Landlord in reletting or in making such alterations and repairs not covered by the rents received from such reletting. Suit or suits for the recovery of such deficiency or damage, or for a sum equal to any installment or installments of rent, may be brought by Landlord from time to time at Landlord's election and nothing herein contained shall be deemed to require Landlord to await the date on which this Lease or the term hereof would have expired by limitation had there been no such default by Tenant; provided, however, that this subsection (d) shall cease to be applicable on a going forward basis if Landlord makes the election described in subsection (a) of this Section. -47- (e) Landlord shall have no obligation to mitigate damages upon the exercise of any of Landlord's rights or remedies under this Article 15. Section 15.7. No Waivers. All rights, options and remedies of Landlord contained in this Lease shall be construed and held to be cumulative, and no one of them shall be exclusive of the other, and Landlord shall have the right to pursue any one or all of such remedies or any other remedy or relief which may be provided by law, whether or not stated in this Lease. Tenant hereby expressly waives any and all rights to recover or regain possession of the Premises or to reinstate or redeem its tenancy or this Lease as is permitted or provided by or under any statue, law or a decision now of hereafter in force and effect. Tenant also waives the provisions of any law now or hereafter in effect relating to notice and delay in levy of execution in case of an eviction or dispossess of Tenant for non-payment of rent. Tenant waives and shall waive any and all rights to a trial by jury in the event that summary proceedings shall be instituted by Landlord. The term "enter", "re-enter" "entry", or "re-entry" as used in this Lease is not restricted to their technical legal meanings. Section 15.8. New Leases. In case of the termination of this Lease by reason of the happening of any Event of Default, Landlord shall give prompt notice thereof to the holder of any Mortgage. So long as the Mortgagee has complied with Sections 15.4 and 15.5, Landlord shall, on written request of such holder, made at any time within 60 days after the giving of such notice by Landlord, enter into a new Lease of the Premises with such holder, or its designee, within thirty (30) days after receipt of such request, which new Lease shall be effective as of the date of such termination of this Lease for the remainder of the term of this Lease, at the same Base Rent and upon the same terms, covenants, conditions and agreements as are herein contained; provided that the holder of the Mortgage shall (a) contemporaneously with the delivery of such request pay to Landlord the Base Rent and items of Additional Rent which Landlord has specified as due in any notice to such holder, (b) pay to Landlord at the time of the execution and delivery of said new Lease any and all sums for the Base Rent and Additional Rent which would have been due hereunder from the date of termination of this Lease (had this Lease not been terminated) to and including the date of the execution and delivery of said new Lease, together with all expenses, reasonably incurred by Landlord, in connection with the termination of this Lease and with the execution and delivery of such new Lease, less the net amount of all sums received by Landlord from any occupants of any part or parts of the Premises up to the date of commencement of such new Lease, and (c) on or prior to the execution and delivery of said new Lease, agree in writing that promptly following the delivery of such new Lease, such holder or its designee will perform or cause to be performed all of the other covenants and agreements herein contained on Tenant's part to be performed to -48- the extent that Tenant shall have failed to perform the same to the date of delivery of such new Lease. Nothing herein contained shall be deemed to impose any obligation on the part of Landlord to deliver physical possession of the Premises to such holder of a Mortgage or its designee unless Landlord at the time of the execution and delivery of such new Lease shall have obtained physical possession thereof. Upon execution and delivery of such new Lease, any subleases which may have theretofore been assigned and transferred to Landlord shall thereupon be assigned and transferred, without recourse, by Landlord to the new tenant. If a new lease of the premises be entered into pursuant to the above, then the holder of the Mortgage, or any assignee or designee thereof, or a purchaser at a foreclosure sale shall, for the remainder of the term of this Lease, succeed to the interest of the Tenant hereunder, subject to the terms, provisions, covenants and agreements on the part of Tenant to be performed as provided above. If more than one Mortgagee shall request such new lease, such new Lease shall be made with and delivered to the Mortgagee whose Mortgage is prior in lien to those of any others, without regard to the time of request. Landlord shall have no obligation to determine the lien priority as among Mortgagees, but shall base its actions in dealing with a Mortgagee on information contained in a title report issued by a title company acceptable to Landlord. Any such new lease shall be expressly made subject to the rights, if any, of Tenant under the terminated lease and of the rights of parties in possession. Section 15.9. [Intentionally deleted.] Section 15.10. Multiple Mortgages. If at any time there shall be more than one Mortgage, the holder of the Mortgage prior in lien shall be vested with the rights under Sections 15.3 and 15.8 to the exclusion of the holder of any junior Mortgage; provided, however, that if the holder of a Mortgage prior in lien to any other Mortgage shall fail or refuse to exercise the rights set forth in said Sections, each holder of a Mortgage in the order of the priority of their respective liens shall have the right to exercise such rights; and provided further, however, that with respect to the right of the holder of a Mortgage under Section 15.8 to request a new Lease, such right may, notwithstanding the limitation of time set forth in said Section, be exercised by the holder of any junior Mortgage, in the event the holder of a prior Mortgage shall not have exercised such right, more than 120 days but not more than 140 days after the giving of notice by Landlord of the termination of this Lease as in said Section provided. Section 15.11. Elimination of Cross-Default and Cross-Collateralization. (a) The provisions of Section 15.1(c) shall no longer apply to this Lease, and Landlord shall cease to be entitled to consider an Event of Default to exist or to terminate this Lease -49- on account of an Event of Default under Section 15.1(c), in any of the following circumstances: (i) If this Lease shall be assigned (but only if Landlord's consent, if required hereunder, has been obtained), in a transaction permitted hereunder, to an assignee which is not an Affiliate of Tenant and provided that (i) such assignee or transferee does not thereafter become an Affiliate of Tenant, or (ii) Tenant, or an Affiliate of Tenant, does not thereafter become the Tenant under this Lease; or (ii) If the holder of an Institutional Mortgage permitted hereunder or its successors and assigns shall succeed Tenant as the Tenant under this Lease; or (iii) If Landlord shall cease to be (and so long thereafter as Landlord shall continue not to be) an Affiliate of Joseph C. DiFeo or Samuel X. DiFeo. (b) For purposes of Section 15.1(c) a lease other than this Lease or a Sublease which is originally considered a Group Lease or Group Sublease shall cease to be a Group Lease or Group Sublease for such purposes if the landlord or sublandlord under such lease or sublease shall cease to be an Affiliate of Joseph D. DiFeo or Samuel X. DiFeo, but shall again be considered a Group Lease or Group Sublease if and so long as the landlord or sublandlord under such lease or sublease shall again be an Affiliate of Joseph C. DiFeo or Samuel X. DiFeo. Section 15.12. Landlord Defaults; Landlord Guaranty. Pursuant to the Landlord Guaranty, Landlord has guaranteed the performance by the landlords under the Group Leases and the sublandlords under the Group Subleases. Any successor to Landlord's interest hereunder shall be deemed to have agreed to be bound by the terms of any such Landlord Guaranty (but shall have no liability under such Landlord Guaranty at such time as it is not an Affiliate of Joseph C. DiFeo or Samuel X. DiFeo, other than the obligation in the next sentence). Landlord agrees that it will not assign or otherwise transfer the Premises or this Lease unless the assignee or other transferee enters into a Landlord Guaranty substantially in the same form of the Landlord Guaranty entered into by Landlord (subject to the limitations on liability contained in the foregoing sentence). Section 15.13. Tenant Guaranty. Pursuant to the Tenant Guaranty, Tenant has guaranteed the performance of the tenants under the Group Leases and subtenants under the Group Subleases. Section 15.14. Interest on Defaulted Sums. If either party shall fail to pay any sums due hereunder within ten (10) days after the due date thereof, such unpaid sums shall bear interest, payable on demand, from and after the due date thereof -50- until paid at a rate per annum equal to the Prime Rate plus two (2%) percent. Section 15.15. Late Charge. If Tenant shall fail to pay all or part of any installment of Base Rent on the date on which the same shall be due and payable hereunder more than once in any twelve (12) month period, Tenant shall pay to Landlord, within twenty (20) days after demand therefor by Landlord, a late charge equal to the greater of (a) two (2%) percent of all or the portion of such installment not paid when due, or (b) any late charge, interest charge or other charge imposed upon Landlord by a Fee Mortgagee because Landlord was unable to pay when due sums required to be paid under the Fee Mortgage because of Tenant's failure as aforesaid. In applying this provision, it shall be assumed that Landlord has no funds from which to pay sums required to be paid under the Fee Mortgage in question other than the sums required to be paid by Tenant to Landlord under this Lease. ARTICLE 16. INDEMNIFICATION (a) Except to the extent due to negligence or willful misconduct of Landlord, its agents, employees or contractors, from and after the date hereof, Tenant shall indemnify and save harmless Landlord against and from any and all claims arising during the Term (even if asserted after the end of the Term) (i) by or on behalf of any person for injury to persons or damage to property occurring in, on or about the Premises, or (ii) arising from the conduct or management of or from any work or thing whatsoever done in or on the Premises, or the use and occupancy of the Premises, or (iii) arising from any condition of the Premises or any sidewalk adjoining the Premises, or of any vaults, passageways or space therein or appurtenant thereto, or arising from any act of negligence of Tenant, or any occupant of the Premises or any part thereof, or of its or their agents, contractors, servants, employees, invitees or licensees and from and against all judgments, costs, expenses and liabilities incurred in or about any such claim or action or proceeding brought therein; and in case any action or proceeding be brought against Landlord by reason of any such claim, Tenant upon notice from Landlord shall defend such action or proceeding by counsel reasonably satisfactory to Landlord. The provisions contained in this subsection shall not be applicable to any environmental or other matters which are the subject matter of Article 22 of this Lease, and the rights and obligations of the parties with respect to such maters shall be governed by such Section(s) of this Lease and not by this subsection. (b) Landlord shall indemnify and save harmless Tenant against and from any and all claims arising during the Term (even if asserted after the end of the Term) to the extent due to negligence or willful misconduct of Landlord, its agents, employees or contractors, from and after the date hereof, solely -51- with respect to and arising from any entry of any thereof into or upon the Premises, (i) by or on behalf of any person for injury to persons or damage to property occurring in, on or about the Premises, or (ii) any act of negligence or willful misconduct of Landlord, or of its agents, contractors, servants, employees, invitees or licensees, from and after the date hereof, and from and against all judgments, costs, expenses and liabilities incurred in or about any such claim or action or proceeding brought therein, solely with respect to an entry of any thereof into or upon the Premises; and in case any action or proceeding be brought against Tenant by reason of any such claim, Landlord upon notice from Tenant shall defend such action or proceeding by counsel reasonably satisfactory to Landlord. The provisions contained in this subsection shall not be applicable to any environmental or other matters which are the subject matter of Article 22 of this Lease, and the rights and obligations of the parties with respect to such matters shall be governed by such Section(s) of this Lease and not by this subsection. ARTICLE 17. RENEWAL PRIVILEGES Section 17.1. First Renewal Term. Provided that this Lease is in full force and effect and provided that no Event of Default exists at the time of Tenant's exercise of the renewal option, Tenant shall have the option to renew this Lease and extend the Term, by giving notice as provided in Section 17.4, for a further period of five (5) years, to commence on the expiration of the initial Term hereof and to expire on the fifth (5th) anniversary of such commencement date upon all of the terms, covenants and conditions set forth in this Lease except as otherwise provided in Section 17.3, and except that Tenant shall only have the right to further renew this Lease in accordance with Section 17.2. Section 17.2. Second Renewal Term. Provided that this Lease is in full force and effect and provided that no Event of Default exists at the time of Tenant's exercise of the renewal option, and provided that Tenant has exercised the renewal option contained in Section 17.1, Tenant shall have the further option to renew this Lease and extend the Term, by giving notice as provided in Section 17.4, for a further period of five (5) years, to commence on the expiration of the first renewal term pursuant to Section 17.1 and to expire on the fifth (5th) anniversary of such commencement date, upon all of the terms, covenants and conditions set forth in this Lease except as otherwise provided in Section 17.3, and except that Tenant shall have no further right to renew this Lease. Section 17.3. Renewal Rent. The Base Rent shall be adjusted as of the commencement date of each renewal term pursuant to Sections 17.1 and 17.2, to an amount equal to the fair market rental value of the Premises, determined as provided below, as of the first (1st) day of the renewal term in question, -52- which fair market rental value shall be determined by agreement of the parties or, failing such agreement within one (1) year prior to the first day of the renewal term in question, by an arbitration which shall be conducted in the manner provided in Article 18 in which the arbitrator shall determine the fair rental value of the Premises (for automobile dealership use only (or any other Vehicle-Related Use or other use for which the Premises is in fact being used, but only to the extent that such other Vehicle-Related Use or other use is a higher and better use of the Premises than as an automobile dealership), and taking into consideration the obligations of Tenant under this Lease (the arbitrator is to conclusively presume that the Premises are in good condition and repair, are undamaged by any fire or other casualty and are free of any environmental contamination), the character and location of the Premises, the absence of a brokerage commission, work letter or rent concessions, any further provisions for adjustment of Base Rent, and other factors customarily taken into account in calculating fair market rental value of real property, but excluding any value added by Alterations in the nature of new Buildings (other than where Tenant has demolished and replaced a Building existing on the date hereof, in which event any value added by such Alterations shall be included) or additions to Buildings existing on the date hereof and undertaken by Tenant, but including renovations or restorations to (but not expansions of) Buildings existing on the date hereof, determined as of the date the Base Rent is to be adjusted). In no event shall Base Rent for any renewal term (a) be reduced below an amount determined pursuant to the Rent Adjustment and Takeback Agreement, or(b) be increased to an amount greater than the amount determined pursuant to the Rent Adjustment and Takeback Agreement. Section 17.4. Renewal Notices. (a) Tenant shall exercise its right to renewal terms pursuant to Sections 17.1 and 17.2 by giving Landlord notice of its election to do not less than six (6) months prior to the commencement date of the renewal term in question (or, if later, ten (10) business days after the applicable Meeting (as defined in Article 18) with respect thereto) and upon the giving of such notice, this Lease, subject to the provisions of this Article, shall be deemed to be renewed and the Term shall be deemed extended for the period of the relevant renewal term without the execution of any further lease or instrument. Section 17.5. Confirmation. After Base Rent for either renewal term has been determined, then, at either party's request, the parties shall enter into an agreement confirming the amount of such Base Rent, but failure to enter into the same shall not affect the rights or obligations of the parities hereunder. -53- ARTICLE 18. ARBITRATION AND APPRAISAL Section 18.1. Rules. In such cases where this Lease provides for the determination of any matter by arbitration or ADR, other than as provided in Section 18.2, the same shall be settled and finally determined by means of alternative dispute resolution as provided in the New Jersey Alternative Procedure for Dispute Resolution Act, N.J.S.A. 2A:23A-1, et seq., as in effect on the date of this Lease, (the "Act") upon written notice given by any party to the other (the "Dispute Notice"), and to the umpire hereafter established. Except to the extent required by law, the proceedings under the Act shall be confidential and shall not be disclosed or discussed with persons not parties to this Lease without the consent of all parties to the dispute. In the event a party to a dispute may suffer irreparable harm or injury, such party shall have the ability to seek provisional remedies, including but not limited to injunctive relief and other equitable remedies, to the fullest extent permitted by law pending completion of the process provided under this Article 18. Section 18.2. Umpires. (a) Within thirty (30) days after the Dispute Notice is given the parties shall select three (3) umpires from among the persons listed in Subparagraphs (1) through (4) below in the order of priority listed below, i.e., if a person meeting the requirements of Subparagraph (1) is not able or willing to serve, a person meeting the requirements of Subparagraph (2) shall be selected, and so forth. In addition to meeting the requirements of Subparagraph (1), (2), (3) or (4) below, the umpires must also satisfy the requirements described in Subparagraphs (b) and (d) below. A potential umpire is: (1) Any retired judge of a United States District Court or a United States Circuit Court of Appeals; (2) Any retired judge of any State Superior, Appellate or Supreme Court; (3) Any attorney licensed to practice law for more than fifteen (15) years or certified public accountant who has been certified for more than fifteen (15) years; and, in either case, who has either directly or indirectly, no conflict of interest; or (4) Such other person upon whom the members of the selection group agree. (b) In addition to the requirements described in Section 18.2 (a) above, the umpires selected hereunder must: (1) Be free of any potential for bias or conflict of interest with respect to either of the parities hereto, directly or indirectly or by virtue of any direct or indirect financial interest, family relationship or close friendship; and -54- (2) Be in a position to immediately hear the dispute and thereafter render a resolution within the time specified in Section 18.7 below. (c) If the umpires are not selected within the period of time specified in Section 18.2(a) above, Landlord, on the one hand, and Tenant, on the other hand, each shall promptly select an umpire which umpires shall select a third umpire who shall be the sole umpire. If the parties fail to so select umpires pursuant to the foregoing provisions within twenty (20) days after the expiration of the period described in Section 18.2(a), the sole umpire shall be selected by the Chief Judge of the United States District Court for the District of New Jersey or, if the Chief Judge is unable or unwilling to act, by the Chief Judge of the Southern District of New York or the President of the Bar Association of the City of New York. Such selection shall be in accordance with the requirements of Sections 18.2(a) and 18.2(b) above. The umpire to be selected pursuant to this Section 18.2(c) must be designated within thirty (30) days after the expiration of the period described in Section 18.2(a) above. (d) Anything to the contrary herein notwithstanding, the following persons are not eligible to be an umpire under this Article: a party to this Lease or any affiliate thereof; an employee or co-employee or any party to the dispute; or any person having material or undisclosed, financial or personal interests dependent on the success or failure of any of the parties. (e) An umpire shall disqualify himself or herself if he or she is unable to handle the process promptly so as to render a resolution within a reasonable time, in no event to exceed forty-five (45) days after final testimony and/or briefs and in all events not to extend beyond six months from the date the umpire is chosen, or such longer period to which the parties to the dispute and the umpire may agree. Section 18.3. Time and Place of Alternative Resolution. The alternative resolution shall be held at such place as the umpire may determine within Essex County, New Jersey or such other location to which the parties may agree, to commence not later than ten (10) days after the umpire had been determined in accordance with Section 18.2. Section 18.4. Fees. All fees and expense (including transcripts, room rental and fees of the umpire) of alternative dispute resolution, shall be paid as follows: 25% by the party or parties served with the Dispute Notice and 25% by the person(s) serving the Dispute Notice, with the remaining 50% allocated 10% to the prevailing party (or parties) and 40% to the non-prevailing party (or parties), as determined by the umpire (if the umpire does not determine a prevailing party then pro-rata to each of the material parties to the dispute as determined by the umpire) provided that the umpire shall have the right to order -55- that such fees be paid in a different percentage if any of the parties has acted in bad faith (in which case he may shift other's shares to the bad faith party(ies)). The fees payable to the umpire shall be his usual hourly rates for consulting or dispute resolution services, as the same may be in effect from time to time. Each party shall pay his own legal fees, costs and disbursements. Section 18.5. Discovery. Each party shall be entitled to discovery by way of oral deposition, inspection and copying of all relevant documents within the care, custody or control of a party or a witness, and when authorized by the umpire, by way of interrogatories. All discovery shall be complete within forty-five (45) days of the appointment of the umpire. All documents to be relied upon by any party to the proceeding shall be provided to the others no later than two weeks before the hearing date for the proceedings. The time periods for discovery may be extended by the umpire for good cause, provided that he is able to meet the time requirement of Section 18.7. Section 18.6. Provisional Remedies. When appropriate under applicable New Jersey Substantive and procedural law, the umpire shall have full and complete authority to award provisional relief, on an ex parte basis or otherwise. Section 18.7. Time and Method for Resolution. The umpire shall make the award and serve notice thereof upon all parties within six (6) months of the date the umpire is designated, or such longer period to which the parties to the dispute and the umpire may agree. If the umpire fails to make his decision in accordance with substantive law, or to properly apply the facts to the law, the umpire's award will be deemed to have been procured by "undue means" and "beyond his power". Any party may apply to court in accordance with the Act to have the umpire's decision confirmed, reviewed, modified, affirmed or remanded to the umpire with directions. Section 18.8. Act and Agreement Govern. Except as otherwise provided herein, the Act shall govern the procedures and methods for any Alternative Dispute Resolution undertaken pursuant to this Lease. Except as expressly provided above, the umpire may not modify the provisions of this Article. Except as expressly provided to the contrary above, and to the extent otherwise not inconsistent with this Lease and the Act, proceedings under this Article, including efforts to mediate the dispute shall be governed by the "Rules for Non-Administered Arbitration of Business Disputes" (Final Draft, June 14, 1989) by the CPR (NY). Section 18.9. Procedure for Determining Fair Market Rental Value. (a) In each instance under this Lease where it shall become necessary to determine the fair market rental value of the Premises, the fair market rental value shall be determined in accordance with the provisions of this Section. If by the -56- date which is two hundred seventy (270) days before the date on which the First Adjustment, or the Second Adjustment, is to become effective, or by the date which is one year before the commencement date of any renewal term hereunder, the parties have been unable to agree on the fair market rental value, then Landlord shall send Tenant a notice (the "Meeting Notice") specifying in Landlord's order of preference those alternative dates (on business days) and times (between 9:00 a.m. and 5:00 p.m. local time) for Landlord and Tenant to meet at the office of the Landlord or such other locations in the northern New Jersey, New York Metropolitan area to exchange notices ("Valuation Notice") specifying Landlord's and Tenant's respective determinations of the fair market rental value for the Premises. Within thirty (30) days after the giving of the Meeting Notice, Tenant shall give Landlord a notice (the "Meeting Designation Notice") designating which of the alternative days and times specified in the Meeting Notice shall be acceptable to Tenant (such date and time for the meeting between Landlord and Tenant at the location specified by Landlord being herein call the "Meeting"). At the Meeting Landlord and Tenant shall exchange their Valuation Notices and both Landlord and Tenant shall initial a copy thereof for both Landlord's and Tenant's records. If Landlord's determination of the fair market rental value for the Premises as set forth in Landlord's Valuation Notice is less than Tenant's determination as set forth in Tenant's Valuation Notice, the fair market rental value for the Premises shall be the average of the Landlord's and Tenant's determinations. If Landlord's determination is greater than Tenant's determination and within ten (10) business days after the Meeting the parties shall fail to agree upon the fair market rental value for the Premises, the same shall then be determined as herein provided. If either party shall fail to appear at the Meeting, for other than force majeure reasons (in the event of a force majeure reason the parties shall endeavor in good faith to have the Meeting within one week thereafter in which event all references herein to the Meeting shall be to such delayed Meeting or, failing that, the Meeting shall take place on the tenth (10th) business day following the original specified Meeting Date at 10:00 o'clock a.m. at the place designated in the Meeting Notice), then the first sentence of subsection (b) of this Section shall apply. If the Landlord shall fail to give the Meeting Notice by the date which is two hundred forty (240) days (in the case of the First Adjustment or Second Adjustment) or eleven (11) months before the commencement of the renewal term in question (in the case of an adjustment to be made in connection with a renewal term) Tenant shall have the right to so notify Landlord in writing and Landlord shall be obligated to deliver the Meeting Notice, within ten (10) business days after its receipt of Tenant's notification of such failure on its part. If Landlord again fails to deliver the Meeting Notice, Tenant shall have the right to deliver the Meeting Notice, prior to delivery by Landlord of such Meeting Notice. If Tenant so elects to deliver any Meeting Notice, the above provisions shall apply thereto as if Landlord were Tenant and Tenant were Landlord as -57- appropriate give the sense and circumstance. In each Valuation Notice the parties shall also designate the name of an appraiser. The parties shall cause the appraiser designated by them in each Valuation Notice to meet towards the end of agreeing on a single appraiser (the "Deciding Appraiser") to determine the fair market rental value of the Premises. If, within thirty (30) days after the Meeting, the appraisers selected by the parties are unable to agree on a Deciding Appraiser then either Landlord or Tenant, on behalf of both, may request such appointment by the presiding justice of the highest court in the county in which the premises are located for the appointment of a Deciding Appraiser and neither party shall raise any questions as to the court's full power and jurisdiction to entertain the application and make the appointment. The appraiser designated by the parties in their Valuation Notices, the appraiser selected by such two appraisers (to the extent that they can agree) and the appraiser designated by the presiding justice (if the need therefor arises) shall all be members of the American Institute of Real Estate Appraisers (or a successor organization), shall be impartial, shall have M.A.I. credentials, and shall be doing business as such in the county in which the Premises are located for a period of at least ten (10) years before the date of his appointment. In determining fair market rental value for the Premises the Deciding Appraiser shall choose which of Landlord's or Tenant's determination of fair market rental value as set forth in their Valuation Notices is closest to the Deciding Arbitrator's determination of fair market rental value and such determination for all purposes shall be deemed to be the fair market rental value. It is the intention of the parties that Valuation Notices be exchanged with respect to all Premises subject to Group Leases at the Meeting. It is also the intention of the parties that the Deciding Appraiser be the same person for all Premises with respect to Group Leases which are in the same county; that is, the same person shall determine fair market rental value for all Premises in the same county in which the application of these provisions contemplate that such determination will be made by the Deciding Appraiser. The decision of the Deciding Appraiser shall be final and conclusive on the parties. The Deciding Appraiser shall offer the parties a reasonable opportunity to present their cases as to fair market rental value, including the testimony of other appraisers and the introduction of appraisal reports. Each party shall bear the costs of its appraiser, and the fees and expenses of the Deciding Appraiser shall be shared equally by both parties. (b) If, on the date on which Base Rent hereunder is to be adjusted, the new Base Rent has not been finally determined pursuant to this Section, Tenant shall pay, until the new Base Rent is finally determined, as new Base Rent an amount equal to one-half of the difference between Landlord's proposal and Tenant's proposal (notwithstanding the foregoing, if either party shall fail to appear at the Meeting, if such party is Tenant, Tenant shall pay, until the new Base Rent is finally determined, as new Base Rent an amount equal to Landlord's proposal, and if -58- such party is Landlord, Tenant shall pay, until the new Base Rent is finally determined, as new Base Rent an amount equal to Tenant's proposal.) When the new Base Rent is finally determined, appropriate adjustments shall be made as follows: (i) any underpayment by Tenant shall be paid by Tenant within thirty (30) days after the new Base Rent is finally determined, and (ii) any overpayment by Tenant shall be credited against the next installments of Base Rent due hereunder. ARTICLE 19. REMEDIES Section 19.1. Remedies Not Exclusive. The specified remedies to which either party may resort under the terms of this Lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which such party may be lawfully entitled in case of any breach or threatened breach by the other party hereto of any provision of this Lease. The failure of either party to insist in any one or more cases upon the strict performance of any of the covenants of this Lease or to exercise any option herein contained shall not be construed as a waiver or a relinquishment for the future of such covenant or option (except as otherwise expressly provided herein). A receipt by Landlord of the Base Rent or Additional Rent with knowledge of the breach of any covenant hereof shall not be deemed a waiver of such breach, and no waiver by either party of any provision of this Lease shall be deemed to have been made unless expressed in writing and signed by such party. In addition to the other remedies in this Lease provided, both parties shall be entitled to the restraint by injunction of the violation, or attempted or threatened violation, of any of the covenants, conditions or provisions of this Lease by the other party hereto. In the event of any litigation between the parties, the party which does not prevail shall reimburse the other party, within ten (10) days after demand therefor, for the reasonable legal fees and disbursements incurred by the prevailing party in such litigation. ARTICLE 20. CERTIFICATES OF LANDLORD AND TENANT Either party hereto shall, at any time and from time to time, upon not less than fifteen (15) days' prior notice from the other party, execute, acknowledge and deliver to the other party (or to such person or entity designated by the other party) a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that this Lease is in full force and effect as modified and stating the modifications), and the dates to which the Base Rent and other charges have been paid, stating whether or not to the best knowledge of the signer of such statement the other party is in default in keeping, observing or performing any covenant or agreement contained in this Lease and, if there be a default, specifying each such default, and containing such other customary -59- certifications as the other party may reasonably request, it being intended that any such statement delivered pursuant to this Article may be relied upon by the other party (or by the person or entity designated by the other party), but reliance on such statement may not extend to any default as to which the signer shall have had no actual knowledge, after due inquiry. ARTICLE 21. SUBORDINATION Section 21.1. Subordination. This Lease shall be subject and subordinate to each Fee Mortgage which may now or subsequently affect Landlord's interest in the Premises; provided, that this Lease shall not be so subject or subordinate unless and until the holder of each Fee Mortgage shall execute and deliver to Tenant a non-disturbance agreement, in form reasonably acceptable to Tenant, providing in substance that, so long as this Lease shall be in full force and effect, this Lease shall not be terminated, nor shall Tenant's use, possession or enjoyment of the Premises or exercise of its rights under this Lease be terminated, nor shall Tenant's use, possession or enjoyment of the Premises or exercise of its rights under this Lease be interfered with, nor shall the leasehold estate granted by this Lease be affected in any other manner, by any foreclosure of or other action to enforce any Fee Mortgage. Section 21.2. Attornment. In the event of the enforcement by the holder of any Fee Mortgage to which this Lease is subject and subordinate, as provided in Section 21.1, of the remedies provided for by law or by such Fee Mortgage, then Tenant shall automatically become the tenant of such holder, or any person succeeding to the interest of such holder, without change in the terms or provisions of this Lease; provided, that neither such holder nor successor in interest (unless such holder or successor is an Affiliate of Landlord) shall be bound by (a) any payment of Base Rent for more than one month in advance except prepayments in the nature of security for the performance by Tenant of its obligations under this Lease or (b) any surrender, termination (other than in accordance with the terms of this Lease), cancellation, amendment or modification of this Lease made subsequent to the making of the Fee Mortgage in question and the notification of Tenant as to the name and address of such holder, without the consent of such holder or successor in interest, and (c) neither such holder nor successor in interest shall be liable for any act or omission of Landlord (but shall be obligated to perform all continuing obligations of Landlord hereunder after such holder or successor in interest shall succeed to Landlord's rights in the Premises). Upon request by such holder or successor in interest, Tenant shall execute and deliver an instrument or instruments, reasonably requested by such holder or successor in interest, confirming the subordination and attornment provided for herein. Section 21.3. Current Fee Mortgage. -60- (a) It shall be a condition precedent to any of Tenant's obligations hereunder that Landlord has obtained, for the benefit of Tenant, from the holder of any Fee Mortgage described in Section 6.2(b)(i), a non-disturbance agreement satisfying the requirements of Section 21.1 and, in addition, pursuant to which such Fee Mortgagee: (i) agrees (A) not to require Tenant to pay Impositions earlier than the date, or in some manner other than as, required under Section 3.1, not to require Tenant to pay some or all of the Impositions in escrow to such Fee Mortgagee as contemplated under Section 3.7, not to require insurance in addition to that required in Section 4.1(a)(i) through (v), not to prohibit or limit Tenant's rights under Section 4.5, and not to prohibit or limit Tenant's rights under Article 10 or Article 14, and (B) to waive any right of such Fee Mortgagee in the Fee Mortgage to approve or consent to, or to declare a default under the Fee Mortgage on account of, Tenant's exercise of any of the foregoing rights; and (ii) agrees to apply or permit application of insurance proceeds and Condemnation Proceeds in accordance with the provisions of Articles 8, 9, 10 and 11. Section 21.4. Performance of Obligations. Landlord agrees to perform all of Landlord's obligations under any Fee Mortgage encumbering all or any part of the Premises, except to the extent that, under this Lease, such obligations are the responsibility of Tenant to perform. Section 21.5. Special Fee Mortgage Provisions. (a) Whenever in this Lease a right of Tenant to do or not to do something is conditioned upon the consent or approval of a Fee Mortgagee (including an Institutional Fee Mortgagee) or upon such doing or not doing of the thing in question being consistent with the provisions of the Fee Mortgage in question, or wherever a Fee Mortgagee is granted a right hereunder, the following provisions shall apply as respects the rights of Tenant being limited thereby: (a) Neither Landlord nor any Affiliate of Landlord, or of Joseph C. DiFeo or Samuel X. DiFeo shall be deemed to be a Fee Mortgagee for such purposes, or shall any mortgage held thereby be deemed a Fee Mortgage (including a purchase money mortgage held by any thereof upon a sale of the Premises) for such purposes. (b) If a consent, approval or waiver is obtained or is not required from the holder of a first Fee Mortgage, no consent, approval or waiver for the matter in question is required from any subordinate Fee Mortgagee. -61- (c) If Landlord is obligated to or does grant a consent or approval, or is not required to grant a consent or approval hereunder, to any action or failure to act by Tenant, or any other matter relating to this Lease, but this Lease requires a consent, approval or waiver from a Fee Mortgagee, then Landlord agrees, at its sole cost and expense, to use its best efforts to obtain such consent, approval or waiver (but Landlord shall not be obligated to give up any right or to make any payment to the Fee Mortgagee, unless Tenant shall agree to be responsible for such payment, in order to grant such consent, approval or waiver), and agrees that if Landlord shall fail or refuse to use its best efforts to obtain such consent or approval, then Tenant shall have the right to request the same separately (but upon prior notice to Landlord) in the name of Tenant or, if required, in the name of Landlord, from the Fee Mortgagee. (d) If and so long as the reason for the Fee Mortgagee's failure or refusal to grant such consent, approval or waiver is due to a default by Landlord under the Fee Mortgage in question (other than a default caused by a default by Tenant under this Lease), then any requirement of this Lease that Tenant needs to obtain such consent, approval or waiver shall not apply to Tenant. (e) Notwithstanding any provisions of this Lease to the contrary, this Lease is not intended to, and shall not, grant rights to any Fee Mortgagee greater than the rights, if any, possessed by a Fee Mortgagee under any Fee Mortgage on the date hereof (as such rights may have been modified by an agreement described in Section 21.3 or any other agreement in favor of Tenant entered into by such Fee Mortgagee on or before the date hereof), but, subject to subsection (f) of this Section, if, after the date hereof, a Fee Mortgage is entered into by Landlord securing an amount equal to or less than the Refinanced Amounts (as hereinafter defined), then the Fee Mortgagee holding such Fee Mortgage shall be entitled to the benefit of the rights granted hereunder to a Fee Mortgagee to the extent possessed by any Fee Mortgagee on the date hereof (as such rights may have been modified by an agreement described in the parenthetical in the first sentence of this subsection). Notwithstanding any provision of this Lease granting any rights to a Fee Mortgagee, qualifying any of Tenant's rights if the same would constitute a default under a Fee Mortgage, requiring Tenant to obtain a consent, approval or waiver of a Fee Mortgagee in order to exercise any of its rights hereunder, or requiring Tenant to pay any sums to a Fee Mortgagee, such provisions shall only apply to the -62- extent that, as of the date hereof, under the existing terms of a Fee Mortgage, such rights are required to be granted to the Fee Mortgagee, such rights of Tenant would constitute such a default, such consent, approval or waiver is required, or such payments are required to be made. In no event shall Tenant be restricted by any rights of any Fee Mortgagee which such a Fee Mortgagee on the Premises does not so possess on the date hereof. (f) If, after the date hereof, a Fee Mortgage is entered into by Landlord securing an amount greater than the amounts (the "Refinanced Amounts") required to refinance the sums secured by the prior Fee Mortgage, plus customary costs incurred in the refinancing transaction (for example, without limitation, commitment fees, attorneys' fees, mortgage title insurance premiums, and recording charges or taxes), or if and so long as the Fee Mortgagee is an Affiliate of Landlord, Joseph C. DiFeo, Samuel X. DiFeo or the then Landlord, then, for purposes of subsection (e) of this Section, there shall be deemed to have been no Fee Mortgage in effect on the date hereof (that is, no provision of this Lease which limits Tenant's rights subject to the provisions of Section 21.5 shall apply which requires the consent, approval or waiver of a Fee Mortgagee for Tenant to exercise its rights hereunder, or requires Tenant to conform to the provisions of a Fee Mortgage). If, to circumvent the foregoing sentence, a refinancing shall be split into more than one (1) Fee Mortgage with the same Fee Mortgagee or with more than one (1) Fee Mortgagee which are Affiliates of each other, and the Fee Mortgages in the aggregate would secure an amount greater than the Refinanced Amounts, then to all such Fee Mortgages there shall be deemed to have been no Fee Mortgage as the date hereof. ARTICLE 22. HAZARDOUS MATERIALS Section 22.1. (a) Discharges. If Tenant receives any actual notice of the happening of any event on or after the date of this Lease involving an emission, spill, release or discharge (including any "Release" as defined in the Master Agreement) into or upon (i) the air, (ii) soils or (iii) surface water or ground water, of any toxic or hazardous substances or wastes (intended hereby and hereafter to include any and all such material listed in any federal, state or local law, code or ordinance and all rules and regulations promulgated thereunder (including all "Environmental Law" as defined in the Master Agreement), as hazardous (including all "Hazardous Substances" as defined in the Master Agreement) (any of which is hereafter referred to as a "Hazardous Discharge"), or any complaint, order, directive, claim, citation or notice by any governmental authority -63- (including any "Notice" as defined in the Master Agreement) or any other person or entity (including any "Environmental Agency" as defined in the Master Agreement) with respect to the following events or matters occurring on or after the date of this Lease (a) air emissions, (b) spills, releases or discharges to soils or any improvements located thereon, surface water, ground water or the sewer, septic system or waste treatment, storage or disposal systems servicing the Premises, (c) noise emissions, (d) solid or liquid waste disposal, (e) the use, generation, storage, transportation or disposal of toxic or hazardous substances or wastes or (f) other Environmental, Health and Safety Matters (as defined in the Master Agreement) affecting Tenant, the Premises, any improvements located thereon, or the business therein conducted (any of which is hereafter referred to as an "Environmental Complaint"), then Tenant at its sole expense shall give immediate notice to Landlord. Subject to Landlord's rights and obligations hereinafter provided and the Dealership's rights and obligations under Section 4.231 of the Master Agreement and subject to cost allocation pursuant to Subparagraph 22.7 below and Section 4.231 of the Master Agreement, Tenant shall initiate and complete all steps and actions necessary or advisable to cleanup, remove, restore, resolve and minimize the impacts of the Hazardous Discharge or Environmental Complaint. Tenant shall not be in breach of its duties under this Section 22.1 by reason of Dealership's exercise of its right to act as manager of environmental issues under Section 4.231 of the Master Agreement. (b) Without limitation of the foregoing, Landlord shall have the option, but shall not be obligated, to exercise any of its rights as provided in this Lease, and may enter onto the Premises and/or take any actions as it deems necessary or advisable upon notice to Tenant (except no notice shall be required in emergent situations) to cleanup, remove, resolve or minimize the impact of, or otherwise deal with, any Hazardous Discharge or Environmental Complaint upon and after Landlord's receipt of any notice from any person or entity asserting the happening of a Hazardous Discharge or an Environmental Complaint on or pertaining to the Premises. All costs and expenses incurred by Landlord in the exercise of any such rights shall be deemed to be additional rent hereunder, subject however to allocation of costs pursuant to Subparagraph 22.7 below. Section 22.2. Lien. If any federal, state or local agency imposes a lien in a liquidated amount upon the Premises or any portion thereof by reason of the occurrence of a Hazardous Discharge or Environmental Complaint as a result of Tenant's operations at the Premises or Tenant's failure to perform as required under this Lease then Tenant shall within thirty (30) days thereafter either (i) eliminate or satisfy such lien or (ii) post security or financial assurances in form and amount reasonably satisfactory to Landlord to secure against enforcement of the lien. As to liens in unliquidated amounts, Tenant shall act promptly and in good faith to obtain the removal or satisfaction of such lien. -64- Section 22.3. Reports. (a) Tenant shall promptly provide to Landlord true, accurate and complete copies of any and all documents, including reports, submissions, notices, orders, directives, findings and correspondence made by Tenant to New Jersey's Department of Environmental Protection and Energy ("NJDEPE"), the United States Environmental Protection Agency ("EPA"), the United States Occupation Safety and Health Administration ("OSHA") or any other federal, state or local authority pursuant to any federal, state or local law, code or ordinance and all rules and regulations promulgated thereunder which require or involve information and submissions concerning Environmental Health and Safety Matters (as defined in the Master Agreement) (including any "Environmental Law" as defined in the Master Agreement). (b) Without limitation of the foregoing, unless otherwise furnished by the Dealerships, Landlord and Tenant shall promptly furnish to the other: (i) true and complete copies of all documents, submissions, and correspondence provided to or received from any environmental agencies; (ii) true and complete copies of any Notice; (iii) true and complete copies of all sampling and test results obtained from samples and tests taken in and around the Premises; and (iv) notice of the date and time of all meetings with any Environmental Agency. Section 22.4. Rights. Upon reasonable notice to Tenant, Tenant shall give any representatives of Landlord access during normal business hours to, and permit any of them to examine, audit, copy or make extracts from, any and all books, records and documents in possession of Tenant, its agents or any independent contractor relating to Tenant's or the Premise's environmental, health or safety affairs and to inspect the Premises. Section 22.5. Compliance. (a) Tenant shall, at Tenant's initial expense, but subject to the cost allocations in Subparagraph 22.7 below, promptly comply with all laws and regulations governing sales, transfer or cessation of operations at a place of business including he Environmental Cleanup Responsibility Act N.J.S.A. 13: 1K-6 et seq. and the Connecticut Transfer Act, Connecticut General Statute Section 22a-134 et seq. and any other law, rule or regulation or legal requirement applicable to the Premises by reason of which law there is a requirement for sampling, investigation, remediation and/or filings concerning the environmental condition of the Premises, as to all events happening after the date of this Lease (collectively "ECRA"). -65- (b) At no expenses to Landlord, Tenant shall promptly provide all information requested by Landlord to determine ECRA applicability to the Tenant (or any subtenant or assignee of Tenant) and shall promptly sign affidavits evidencing any and all facts relevant to that determination when requested by Landlord. (c) Tenant and Landlord shall immediately furnish to the other party true and complete copies of all documents, reports, submissions, notices, orders, directives, findings and correspondence and other materials pertinent to compliance with ECRA as such are issued or received by such party. Tenant and Landlord shall also promptly furnish to the other party true and complete copies of all sampling and test results obtained from all environmental and/or health samples and tests taken at and around the Premises. Section 22.6. Partnerships. (a) Notwithstanding any provision of this Article 22 to the contrary, it is agreed that the Partnership (as defined in the Master Agreement) as Tenant shall not bear responsibility for Environmental Claims (as defined in Sections 4.23 and 4.231 of the Master Agreement) (i) which preexist the date of this Lease and (ii) which are unrelated to Vehicle Related Uses and are unrelated to the use, ownership or operation of the Premises by the applicable Dealerships (the "Landlord Environmental Claims") provided, however, that, in consideration of the Landlord entering into this Lease, the parties hereto until the termination of this Lease (or until the later expiration of the then current term of this Lease) if terminated by reason of a Tenant default, shall deem all Landlord Environmental Claims to be Class I Environmental Claims governed by Section 4.231(a)(1) (to the extent relating to the Bound Brook, New Jersey Premises problem which is the subject of that Section) and otherwise Class II Environmental Claims governed by Section 4.231(a)(2) of the Master Agreement in all respects (except that the amounts set forth in such paragraph shall be allocated with the aggregate of all amounts paid by Landlords and Dealerships on the one hand and Partnerships (under the Master Agreement and/or as Tenant) on the other in counting to satisfy the limits of the levels of cost sharing set forth in Section 4.231). The parties hereto acknowledge and agree that there shall be a presumption that an Environmental Claim is not a Landlord Environmental Claim. Tenant's liability for Landlord Environmental Claims will terminate with this Lease. (b) Subject to the foregoing, Landlord agrees to indemnify, defend and hold Tenant harmless from and against all claims, lawsuits, liabilities, losses, damages and expenses (including without limitation cleanup costs and reasonable attorneys fees arising by reason of any of the aforesaid or an action against the Landlord under this indemnity) arising by reason of a Landlord Environmental Claim. -66- (c) In further consideration of the Landlord entering into this Lease, the parties hereto agree that, to the extent that the Landlord is obligated to indemnify the Tenant pursuant to Subparagraph 22.6(b) above in respect of a claim other than a Landlord Environmental Claim, then the Landlord's liability shall be subject to the same aggregate limitations on indemnification contained in Section 8.5 of the Master Agreement as if Landlord was a Dealership. Section 22.7. Indemnification. Tenant hereby agrees to defend, indemnify and hold Landlord harmless from and against any and all claims, law suits, liabilities, losses, damages and expenses (including without limitation cleanup costs and reasonable attorney's fees arising by reason of any of the aforesaid or an action against the Tenant under this indemnity) arising directly or indirectly from, out of or by reason of any breach of this Article 22 occurring during the term of this Lease. The sole exclusion to Tenant's obligation under this Subparagraph 22.7 shall be for Landlord Environmental Claims, provided further however, that Tenant shall be obligated to indemnify Landlord for Tenant's share of such claims under Subparagraph 22.6(a) above and Section 4.231 of the Master Agreement, integrated with the relative obligations of the parties therein, as if it was a signatory partnership to the Master Agreement and Landlord was an indemnified Dealership. Section 22.8. (a) Environmental Manager. Tenant hereby appoints the Landlord, which may be delegated by Landlord to a manager acting under the Master Agreement, as the manager of all environmental issues and Landlord Environmental Claims which are the subject of any obligation of the Landlord to indemnify Tenant under this Article. The Landlord's rights under these provisions are notwithstanding the provisions of any other agreement to the contrary, and are intended to give the Landlord the unfettered discretion to act practically and in a cost-efficient manner to deal with such issues effectively, over such period as they deem appropriate, choosing from the available alternatives as they deem appropriate, without interference or hindrance from any of the other parties as long as the Landlord's actions satisfy the requirements of any Environmental Agency. Without limitation of the foregoing, but by way of explication, the Landlord shall have the following rights: (i) License. To the extent necessary or advisable in the Landlord's opinion to permit the Landlord to exercise rights under this Article, the Tenant shall permit the Landlord full and non-exclusive use, occupancy, possession and enjoyment of the Premises, for purposes including the installation and operation of permanent improvements, and the sampling, removal and remediation of soils, groundwater and improvements, at reasonable times and in a reasonable manner, using reasonable efforts to minimize the intrusion upon and inconvenience to the Tenant and its ongoing operations, without charge or liability of any kind (whether by reason of a breach of -67- the obligation to be reasonable or otherwise) for the interference with the business of the Tenant resulting from the exercise of such rights. (ii) Control. The Landlord shall have the right to: (a) control the investigation and remediation of any Landlord Environmental Claim, decide among available alternatives for remediation or correction (including the right to choose inaction, or alternatives which result in higher operational expenses as opposed to capital expenses); (b) initiate, assume and control the prosecution or defense of any action, proceeding, litigation or suit involving a Landlord Environmental Claim; (c) settle or compromise any Landlord Environmental Claim; (d) exercise its rights under this Article, to bind the Tenant and any indemnified party after consultation with Tenant; and (e) hire lawyers, consultants, advisors and contractors acceptable to the Landlord. The Landlord may cause Tenant to incur expenses by acting in its name, or it may incur expenses itself, all of which are subject to reimbursement in accordance with Subparagraph 22.7 (and accordingly with the escrow and indemnity provisions of Section 4.231 of the Master Agreement). (iii) Cooperation. Tenant shall cooperate in all respects with the exercise by Landlord of its rights hereunder and shall not interfere with the implementation of decisions made by Landlord hereunder or under Section 4.231 of the Master Agreement. Tenant and its Affiliates shall not initiate contact directly or indirectly with any Environmental Agency in a manner intended or likely to result in the initiation of an enforcement action or in interference with decisions of Landlord unless such contact is required by law and failure to initiate contact will subject the Tenant or its Affiliates to civil or criminal penalties. EMCO and any EMCO Sub may retain and consult with their own experts and lawyers concerning the performance by the Landlord of their rights and obligations, provided that the costs of such experts and lawyers shall be borne solely by EMCO and such EMCO Sub. (iv) Bound Brook. Without limitation of the foregoing, the Landlord may arrange to cause the move of any automobile franchise operated by any Tenant from the present Bound Brook Premises to another location mutually acceptable to the parties hereto in order to permit more efficient investigation and or remediation of the Bound Brook site. (v) Assumption of Control. Tenant or its Affiliates may cause the termination of the Landlord rights hereunder by notifying the Landlord that it assumes the obligation to indemnify for all amounts otherwise to be borne by the Landlord, without limitation or exclusion. (vi) Certain Environmental Claims. The Tenant shall have sole control of all dealings with regulators for, and shall have the sole obligations to accomplish at the -68- Premises: (a) ongoing compliance with Environmental Laws unrelated to an Environmental Claim which is the subject of an indemnity obligation of the Dealerships under Section 4.231 of the Master Agreement or of the Landlord under this Section of the Lease (e.g. obtaining permits and complying with Environmental Laws for new underground tanks or tanks presently in compliance with laws); and (b) resolution of events or conditions which are not Environmental Claims or as to which the Dealerships under Section 4.231 of the Master Agreement or Landlord under this Section of the Lease have no obligation to indemnify (because, for example, they occur or arise after the date of this Lease [e.g. a new Release]). (b) Exclusive Remedy. Notwithstanding any other provision of this Lease or any of the other agreements among the parties hereto, and notwithstanding any other provision of Environmental Law or other law to the contrary, and excluding only the intentional actual fraud of the Landlord: (i) it is intended that the sole remedy among the parties hereto for the correction of any Environmental Claim or condition now existing at the Premises or by reason of the operations of the Dealerships, Partnerships (as defined in the Master Agreement) or their successors in interest shall be as provided in this Section and the Master Agreement, and that all contrary provisions of any other agreement are superseded and amended to be consistent with this Lease and the Master Agreement; (ii) without limitation of the foregoing, the environmental indemnity provision in this Lease and in Section 4.231 of the Master Agreement is in lieu of any rights otherwise available to the Partnerships, Tenant, the Dealerships, EMCO and any EMCO Sub under this and all other agreements; and (iii) the Landlord's obligations, as well as those of any other seller or owner or operator affiliated with the Landlord, and its and their respective equity owners, officers, agents, servants, employees, with regard to Environmental Claims, now known or unknown, presently existing or hereafter arising, shall be solely as provided in this Section of the Lease and Section 4.231 of the Master Agreement and any and all other claims, rights and remedies under Environmental Law (as for example, without limitation, may arise under CERCLA, the Spill Act, RCRA, ECRA, Clean Water Act), or under those other agreements among the parties hereto, are hereby waived and released. (c) Disclaimer. The transactions covered by this Agreement and all other agreements between or among any or all parties hereto involve properties and operations that are conveyed "AS IS, WHERE IS" except only as expressly provided in this Lease to the contrary. No representations, warranties or covenants are or have been made outside of this Lease and the Master Agreement with regard to the environmental condition, liabilities or compliance of the Premises, or the Dealerships or the accuracy, completeness of any environmental information (except that the Landlord has not intentionally altered any of the test results assembled as part of any environmental studies). -69- Tenant is aware that the Premises and the Dealerships have had instances of environmental contamination or noncompliance and Tenant, EMCO and the EMCO Sub(s) have been given authority acceptable to them to conduct investigations and due diligence independent of this Lease to determine the nature and extent of such conditions and have determined to proceed with the transactions contemplated hereunder subject to the provisions of this Lease. In no event shall there be any liability of the Dealerships or the Landlord for lost profits or other consequential damages by reason of any Environmental Claim or by reason of the Landlord's or Dealership's actions or omissions under or by reason of an Environmental Claim or this Lease. Section 22.9. Survival. Tenant's obligations under this Article shall survive the expiration or sooner termination of this Lease. ARTICLE 23. NOTICES; CONSENTS Section 23.1. Notices. Any notice, demand, request, approval or other communication (a "notice") which, under the terms of this Lease or under any statute, must or may be given by the parties hereto, must be in writing, and must be given by mailing the same by registered or certified mail, return receipt requested, postage prepaid, addressed to the respective parties as follows: If to Landlord: c/o Joseph DiFeo and Samuel X. DiFeo 585 Route 440 Jersey City, New Jersey 07034 with a Copy to: Hannoch Weisman A Professional Corporation 4 Becker Farm Road Roseland, New Jersey 07068-3788 Attn: Stephen P. Lichtstein If to Tenant: c/o EMCO Motor Holdings, Inc. 153 East 53rd Street Suite 5900 New York, New York 10022 Attn: Ezra P. Mager with a Copy to: Akin, Gump, Hauer & Feld 1700 Pacific Avenue -70- 4100 First City Center Dallas, Texas 75201-2800 Attn: Gary M. Lawrence, P.C. Either party, and the holder of any Mortgage or Fee Mortgage who shall have made the request referred to in the last sentence of this Section 23.1, may designate by notice in writing given in the manner herein specified a new or other address to which a notice shall thereafter be so given. All notices shall be deemed given when received. If requested in writing by the holder of any Mortgage or Fee Mortgage (which request shall be made in the manner provided in this Section 23.1 and shall specify an address to which notices shall be given) any such notice shall also be given contemporaneously to such holder in the manner herein specified. Section 23.2. Landlord's Consent. (a) No consent, approval or other exercise of discretion (a "Consent") by Landlord shall, unless this Lease specifies that such Consent is within Landlord's sole discretion, be unreasonably withheld or refused. If Landlord shall fail to respond to any request by Tenant for any Consent, within twenty (20) days after the date of such request, and within ten (10) days after a further notice from Tenant, stating that it is a "Second Notice" and referring to this Section, such request shall be conclusively deemed to have been approved by Landlord. In any refusal to grant Consent, Landlord shall specify in reasonable detail the reasons for its refusal. Any dispute between the parties as to whether Landlord should have granted a Consent shall be resolved by ADR in the manner described in Article 18. (b) With respect to any provision of this Lease which provides, in effect, that Landlord shall not unreasonably withhold, delay or refuse its consent, Tenant, in no event shall be entitled to make, nor shall Tenant make, any offset against rent otherwise due nor shall Tenant withhold any rent otherwise due pursuant to the terms of this Lease based upon any claim or assertion by Tenant that Landlord has unreasonably withheld, refused or delayed any consent or approval; but, unless Landlord's unreasonable withholding, refusal or delay is arbitrary, capricious or in bad faith (in which event Tenant's rights and remedies against Landlord shall not be so limited), Tenant's sole remedy shall be an action or proceeding to enforce any such provision, or for specific performance, injunction or declaratory judgment. ARTICLE 24. QUIET ENJOYMENT Subject to the terms of this Lease, Tenant, upon paying the Base Rent, additional rent and all other charges herein provided for and upon observing and keeping all of the covenants, agreements and provisions of this Lease on its part to be observed and kept, shall lawfully and quietly hold, occupy and -71- enjoy the Premises during the Term without hindrance or molestation. ARTICLE 25. INVALIDITY OF PARTICULAR PROVISIONS If any provision of this Lease or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. ARTICLE 26. BROKERAGE Section 26.1. Brokerage. Each party represents and warrants to the other that it has dealt with no broker or finder in connection with this Lease. Each party agrees to indemnify and hold harmless the other party from and against any claims, liabilities, suits, actions, loss, damage or expense (including attorneys' fees and disbursements) resulting from any breach of the foregoing representation and warranty. ARTICLE 27. MEMORANDUM OF LEASE Section 27.1. Memorandum of Lease. Each party shall execute and deliver, and Tenant may at any time record in the appropriate land records, a notice or memorandum of this Lease in recordable form reasonably acceptable to both parties. From time to time, promptly at the request of either party, each party shall execute and deliver, and the requesting party may thereafter record in the appropriate land records, an amendment or modification to such notice or memorandum of lease in recordable form reasonably acceptable to both parties. This Lease shall not be recorded. Upon any termination of this Lease, Tenant shall, within ten (10) days after demand, execute and deliver to Landlord a document sufficient to discharge of record any such notice or memorandum. ARTICLE 28. MISCELLANEOUS Section 28.1. No Oral Modifications. This Lease may not be modified or amended except by a writing executed by both parties. Section 28.2. Governing Law. This Lease shall be governed by and shall be construed in accordance with the laws of the State in which the Premises is located. -72- Section 28.3. Unavoidable Delays. If, during the term of this Lease, either party shall be prevented or delayed from punctually performing any obligations or satisfying any conditions of this Lease by any strike, lockout, labor dispute, inability to obtain labor or materials, Act of God, legal requirements, governmental restriction, regulation or control, enemy or hostile action, civil commotion or other condition beyond the reasonable control of such party, then the time to perform such obligation or satisfy such condition shall be extended by the delay caused by such event. If either party shall, as a result of any such event, be unable to exercise any right or option contained in this Lease within any time period provided for in this Lease, such time period shall be deemed extended for a period equal to the duration of the delay caused by such event. Nothing herein contained shall apply to either party's obligations to pay monies to the other party (including, as to Tenant, a failure by Tenant to pay any Base Rent or Additional Rent due under this Lease). Section 28.4. Successors and Assigns. The covenants and agreements herein contained shall bind and inure to the benefit of Landlord and Tenant and their respective successors and assigns (but, in the case of Tenant, only permitted assigns). Section 28.5. Construction. The terms "include", "including" and similar terms, as used herein, shall be construed as if followed by the phrase "without limitation". All references in this Lease to Articles, Sections, subsections or Exhibits shall be deemed references to Articles, Sections or subsections of or Exhibits to and incorporated into this Lease, unless expressly provided to the contrary. Section 28.6. No Joint Venture. Landlord and Tenant agree that they are not partners or joint venturers by reason of this Lease. Section 28.7. Authorization. The person and entity signing this Lease for Landlord and Tenant, respectively, each represents and warrants that this Lease has been duly authorized, executed and delivered by Landlord and Tenant, as the case may be. Section 28.8. Relationship of Landlord to Tenant. Landlord, an Affiliate of Landlord, or persons comprising Landlord, may be a stockholder, partner or the like in Tenant or an Affiliate of Tenant, which fact shall not impose any duty or obligation (fiduciary or otherwise) on the Landlord in acting as landlord under this Lease, it being specifically understood and agreed that Landlord shall have the right to do or not to do anything with respect to this Lease to the same extent as if Landlord, an Affiliate of Landlord or persons comprising Landlord were not a stockholder, partner or the like with or in Tenant or any Affiliate of Tenant. -73- Section 28.9. No Services. Landlord will furnish no services of any kind in or to the Premises. All required services shall be procured by Tenant at its cost and expense. Section 28.10. No Abatement Unless Specified. Except as may be otherwise expressly provided in this Lease there shall be no abatement or reduction of rents or other charges payable by Tenant under this Lease because of inconvenience, interruption, cessation or loss of business or otherwise, caused directly or indirectly by any present or future laws, rules, requirements, orders, directions or regulations or any governmental authority whatever or by priorities, rationing or curtailment of labor or materials or by war or any manner or thing resulting therefrom, or by any other cause or causes, nor shall this Lease be affected by any such causes. Section 28.11. Captions. The captions herein are for convenience of reference only and shall not be deemed to define, limit or describe the scope or intendment of any provision of this Lease. Section 28.12. Surrender. Neither acceptance of the keys nor any other act or thing done by Landlord or any agent or employee of Landlord during the term of this Lease shall be deemed to be an acceptance of a surrender of the Premises. Surrender of the Premises can only be affected by agreement in writing signed by Landlord accepting or agreeing to accept such a surrender. Section 28.13. Landlord for Time Being. The term "Landlord" means the owner, at the applicable time, of the Premises. If the named Landlord or any successor landlord shall convey the Premises or transfer its interest therein and the assignee shall assume Landlord's obligations hereunder, the assigning Landlord shall thereupon cease to be liable for any subsequently accruing obligations under this Lease. Section 28.14. Non-Recourse. There shall be absolutely no personal liability on the part of the Landlord, its partners, agents and employees or their successors or assigns with respect to any of the terms, covenants and conditions of this Lease or with respect to any act, omission or negligence of the Landlord. Tenant shall look solely to Landlord's estate and property in the Premises and net proceeds therefrom for the satisfaction of Tenant's remedies for the collection of any judgment or any other judicial process requiring the payment of money by Landlord, and no other property or assets of Landlord shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to this Lease, the relationship of Landlord and Tenant or Tenant's use of occupancy of the Premises. -74- IN WITNESS WHEREOF, Landlord and Tenant have duly executed and delivered this Lease as of the day and year first above written. LANDLORD: J & S EQUITY ASSOCIATES By:________________________________ Name:______________________________ Title:_____________________________ TENANT: DIFEO BUICK-PONTIAC-GMC TRUCK PARTNERSHIP By:________________________________ Name:______________________________ Title:_____________________________ -75- EXHIBIT A LEGAL DESCRIPTION AND MORTGAGES Block 1745, Lots 11, 12, 13, 14, 15, 16, 17 & 18 919 Communipaw Avenue, Jersey City, New Jersey. 1. Mortgage made by J & S Equity Associates to The Trust Company of New Jersey, dated May 4, 1990 and recorded May 8, 1990 in the Hudson County Register's Office in Mortgage Book 4562, Page 122. 2. Mortgage made by J & S Equity Associates to The Trust Company of New Jersey, dated May 4, 1990 and recorded May 8, 1990 in the Hudson County Register's Office in Mortgage Book 4562, Page 222. 3. Mortgage made by J & S Equity Associates to The Trust Company of New Jersey, dated December 1, 1978 and recorded December 13, 1978 in the Hudson County Register's Office in Mortgage Book 3041, Page 965. 4. Mortgage made by Samuel C. DiFeo and Julia DiFeo, his wife, to The Trust Company of New Jersey, dated October 29, 1976 and recorded November 3, 1976 in the Hudson County Register's Office in Mortgage Book 2982, Page 876. 5. Mortgage made by Sam-Jul Realty Corp., et al. to The Trust Company of New Jersey, dated October 29, 1976 and recorded November 3, 1976 in the Hudson County Register's Office in Mortgage Book 2982, Page 872. 6. Mortgage made by Samuel C. DiFeo and Julia DiFeo to The Trust Company of New Jersey, dated July 28, 1969 and recorded July 29, 1969 in the Hudson County Register's Office in Mortgage Book 2822, Page 707. 7. Mortgage made by Joseph DiFeo and Samuel X. DiFeo to The Trust Company of New Jersey, dated June 30, 1983 and recorded July 20, 1983 in the Hudson County Register's Office in Mortgage Book 3168, Page 715. 8. Mortgage made by Joseph C. DiFeo and Samuel X. DiFeo t/a J & S Equity Associates to The Trust Company of New Jersey, dated December 13, 1978 and recorded December 13, 1978 in the Hudson County Register's Office in Mortgage Book 3041, Page 1002. 9. Mortgage made by Joseph C. DiFeo and Samuel X. DiFeo t/a J & S Equity Associates to The Trust Company of New Jersey, dated August 27, 1986 and recorded September 26, 1986 in the Hudson County Register's Office in Mortgage Book 3515, Page 20. -76- 10. Mortgage made by J & S Equity Associates to The Trust Company of New Jersey, dated October 25, 1985 and recorded November 8, 1985 in the Hudson County Register's Office in Mortgage Book 3302, Page 1. -77- EXHIBIT B GROUND LEASES All leases set forth below are dated as of October 1, 1992 unless otherwise stated. 1. Lease between Fair Realty Company, as landlord and Fair Hyundai Partnership T/A Fair Suzuki, as tenant. 2. Lease between Fair Realty Company, as landlord and Danbury-Mt. Kisco Saturn Partnership T/A Saturn of Danbury, as tenant. 3. Lease between Fair Realty Company, as landlord and Fair Cadillac-Oldsmobile-Isuzu Partnership, as tenant. 4. Lease between Rockland Realty Associates, as landlord and Rockland Motors Partnership T/A Rockland Mitsubishi, as tenant. 5. Lease between Boundbrook Realty Associates, as landlord and DiFeo Oldsmobile Partnership, as tenant. 6. Lease between Boundbrook Realty Associates, as landlord and Somerset Motors Partnership T/A DiFeo Lexus, as tenant. 7. Lease between J & S Equity Urban Renewal Corp., as landlord and Hudson Motors Partnership T/A Hudson Toyota, as tenant. 8. Lease between J & S Equity Associates, as landlord and DiFeo Jeep-Eagle Partnership, as tenant. 9. Lease between J & S Equity Associates, as landlord and J & F Oldsmobile-Isuzu Partnership, as tenant. 10. Lease between J & S Equity Associates, as landlord and DiFeo Subaru Partnership, as tenant. 11. Lease between J & S Equity Associates, as landlords and DiFeo Buick-Pontiac-GMC Truck Partnership, as tenant (Premises: Block 1745, Lots 34-40; Block 1746, Lots 19A, 21A and 22A; Block 1747, Lots 81-84, Jersey City, New Jersey). 12. Lease between J & S Equity Associates, as landlord and DiFeo Autocenter Partnership, as tenant. 13. Lease between J & S Equity Associates, as landlord and DiFeo Buick-Pontiac-GMC Truck Partnership, as tenant (Premises: 919 Communipaw Avenue, Jersey City, New Jersey. -78- 14. Lease between J & S Equity Associates, as landlord and DiFeo Imports Partnership T/A Jersey City Mitsubishi, as tenant. 15. Lease between J & S Equity Associates, as landlord and DiFeo Buick-Pontiac-GMC Truck Partnership, as tenant (Premises: 315 Clendenny Avenue, Jersey City, New Jersey). -79- EXHIBIT C GROUP SUBLEASES All leases set forth below are dated as of October 1, 1992 unless otherwise stated. 1. Sublease between Fair Imports Corp., as sublandlord and Fair Imports Partnership t/a Fair Acura, as subtenant. 2. Sublease between J & S Equity Associates, as sublandlord and DiFeo Volkswagen Partnership, as subtenant. 3. Sublease between J & S Equity Associates, as sublandlord and DiFeo Hyundai Partnership, as subtenant. 4. Sublease between Fair Motors Corp., as sublandlord and Fair Motors Partnership t/a Fair Mitsubishi, as subtenant. 5. Sublease between DiFeo BMW, Inc., as sublandlord and DiFeo BMW Partnership, as subtenant. 6. Sublease between J & S Equity Associates, as sublandlord and DiFeo Autocenter, as subtenant. -80- EXHIBIT D STRUCTURAL DEFECTS All such structural defects as set forth in that certain Report of Site Investigation for Various Automobile Dealerships in New Jersey, New York and Connecticut, SE #2519, dated June 2, 1992, as amended, prepared by Storch Engineers. -81- EXHIBIT E Additional Representations And Warranties of Landlord 1. Existence. Landlord is a partnership organized validly existing and in good standing under the laws of its state of organization and has all requisite power and authority to enter into this Lease, the Lease Takeback and Rent Adjustment Agreement and the Landlord Guaranty (collectively, the "Lease Documents") to which it is a party and to perform its obligations hereunder and thereunder; and has all requisite corporate power and authority to own its properties and assets and conduct its business as it is now being conducted. 2. Authority; Consents. The execution, delivery performance by Landlord of the Lease Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate, partnership or other action, and no other corporate, partnership or other action on the part of Landlord is necessary for the execution, delivery and performance by Landlord of any Lease Document to which it is a party and the consummation by it of the transactions contemplated hereby and thereby. Subject to Article 22, which Article exclusively governs Environmental Health and Safety Matters and except as disclosed on Schedule E-1 hereto, neither the execution nor the delivery by Landlord of any Lease Document to which it is a party, nor the consummation by any of the transactions contemplated hereby or thereby, nor compliance with nor fulfillment by Landlord of the terms and provisions hereof or thereof, will, except as disclosed on Schedule E-2 hereto, (i) conflict with or result in a breach of the terms, conditions or provisions of or constitute a default under (A) the Certificate or Articles of Incorporation, Bylaws, partnership agreement, or other organizational documents of Landlord, or (B) any lease contract, instrument, mortgage, deed of trust, trust deed or deed to secure debt evidencing or securing indebtedness for borrowed money, any financing lease, any law, rule, regulation, judgment, order, award, decree or other restriction of any kind to which Landlord is a party or by which it is bound, or the Premises is subject, (ii) require Landlord to obtain the consent, approval, authorization or other order or action of, or filing with, any court, governmental authority or regulatory body, (iii) require the consent, approval, authorization or order of any person or entity under, and will not conflict with, or result in the breach, lapse or termination of, or constitute a default under, or result in the acceleration of the performance by Landlord under, any material lease, permit, license, contract, mortgage, deed of trust, trust deed, deed to secure debt, other lease, indenture or other instrument to which Landlord is a party or by which the Premises is subject, (iv) give any party with rights under any instrument, contract (including any sale/leaseback agreement), lease, -82- mortgage, deed or trust, trust deed, deed to secure debt, judgment, order, award, decree or other restriction the right to terminate, modify or otherwise change the rights or obligations of any party under such instrument, contract, lease, mortgage, deed of trust, trust deed, deed to secure debt, judgment, order, award, decree or other restriction or (v) require any declaration, filing or registration with any governmental or regulatory authority by Landlord. Each Lease Document has been duly executed and delivered by Landlord and (assuming the due authorization, execution and delivery hereof and thereof by the other parties hereto and thereto), constitutes a legal, valid and binding obligation of Landlord, enforceable against Landlord in accordance with its respective terms (except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditor's rights generally and laws restricting the availability of equitable remedies and may be subject to general principles of equity whether or not such enforceability is considered in a proceeding at law or in equity). 3. No Litigation. There is no action, lawsuit, claim counterclaim, proceeding or investigation (or group of related actions, lawsuits, claims, proceedings or investigations) pending or, to the knowledge of Landlord, Joseph DiFeo or Samuel DiFeo, threatened against or affecting Landlord that seeks to restrain or enjoin the consummation of the transactions contemplated by any Lease Document. 4. Title to Assets. Landlord owns, and has the legal right to use, all of the Premises. None of the personal property or fixtures on the Premises by the prior tenant have reverted to Landlord as a result of the termination of the prior lease of the Premises. 5. Compliance. Landlord is not in default under or in violation of, any applicable franchise, permit or license, its Articles or Certificate of Incorporation (or other charter document), Bylaws, partnership agreement or other organizational document, any promissory note, indenture or any evidence of indebtedness or security therefor, mortgage, lease, Contract (as hereinafter defined) or any other instrument to which it is a party or by which it or the Premises is or may be bound. 6. Litigation. Except as disclosed in Schedule E-4 hereto and except for Environmental Health and Safety Matters which are governed exclusively by Article 22, there is no action, lawsuit, claim, counterclaim, proceeding or investigation (or group or related actions, lawsuits, claims, proceedings or investigations) pending or, to the knowledge of Landlord threatened, against or affecting Landlord in any court, or before and Federal, state, provincial, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or before any arbitrator of any kind, and as of the date hereof Landlord knows of no reasonable basis for any -83- such action, lawsuit, claim, proceeding, or investigation (or group of related actions, lawsuits, claims, proceedings or investigations) which seeks to restrain or enjoin the consummation of the transactions contemplated by the Lease Documents or would materially adversely affect Tenant or Tenant's use and occupancy of the Premises. Landlord is not in default, and no condition exists that with notice or the lapse of time or both would constitute a default, with respect to any judgment, order writ, injunction or decree of any court or before any Federal, state, provincial, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting or relating to the business of Landlord. No condemnation proceeding has commenced or, to the knowledge of Landlord, is threatened to be commenced against any of the Premises. 7. Contracts. Schedule E-5 hereto lists all of the following contracts of Landlord relating to the Premises ("Contracts"): (i) any lease, sublease or other right of occupancy, (ii) any contract, commitment or option to sell or lease the Premises, (iii) any mortgage, hypothecation, deed of trust, equipment lease, conditional sales agreement or similar instrument which place a lien or encumbrance upon the Premises, (iv) any other contract relating to rights in the Premises which will, or has the reasonable likelihood to, materially adversely interfere with Tenant, this Lease or the use and occupancy of the Premises by Tenant pursuant to this Lease, or (v) any other contract which would be binding on Tenant hereunder. Landlord had made available to Tenant true and complete complies of all Contracts, all as presently in effect. This representation shall not be deemed to affect, or to be affected, by any environmental matter or Environmental Claims, each of which is governed exclusively by Article 22. 8. Insurance. Except as disclosed in writing to Tenant on or before April 29, 1992, the insurance maintained by the occupant of the Premises as of March 11, 1992 is sufficient to comply with the provisions of the Lease. Any dispute with respect to the foregoing representations and warranties shall be resolved by ADR pursuant to Article 18. -84- EXHIBIT E TO SUBLEASE BETWEEN DIFEO BMW, INC. AND DIFEO BMW PARTNERSHIP LEASE Lease dated January 6, 1992, between Michael Zullo, Sr. and Bertha Zullo, with an address at 40 Knoll Road, Tenafly, New Jersey 07670 ("Landlord") and DIFEO BMW, INC., with an address of 820 River Road, Edgewater, New Jersey ("Tenant"). Landlord hereby leases to Tenant and Tenant hereby rents from Landlord the Demised Premises described hereinbelow for the Term and at the rent provided for hereinbelow subject to the conditions set forth in the General Conditions of Lease attached hereto and made a part hereof. Intending to be legally bound hereunder and in consideration of $1.00 and other good and valuable consideration, Landlord and Tenant hereby agree with each other as follows: DEFINITIONS AND SPECIFIC TERMS OF LEASE (a) Demised Premises: Demised Premises means the property described in Exhibit A which Exhibit has been initialed by the parties and attached hereto and made a part hereof, together with the building and other improvements located thereon. The Demised Premises includes any alterations, additions or repairs made thereto and all lifts and fixtures attached hereto or used in connection with the business operated on the Demised Premises. (b) Building: Means the Building located on the Demised Premises, commonly known as 301 County Road, Tenafly, New Jersey. (c) Commencement Date: Means January 6, 1992. (e) Renewals: Tenant shall have the option to renew this Lease for two additional five (5) year period, each five year period being referred to respectively as the First Renewal Period and Second Renewal Period. (d) Term: Means the term of ten (10) years unless sooner terminated in accordance herewith. (f) Rent: The "triple net" rent herein reserved to Landlord during the Term of this lease shall be as set forth below and shall be payable by Tenant in equal monthly installments, on or before the first day of each month in advance to Landlord at the office of Landlord as designated below, or to such other recipient or place as shall be designated by Landlord, without any prior demand therefor and without any deduction or set-off whatsoever. Notwithstanding the foregoing, the "triple net" rent from the Commencement Date until January 31, 1992 shall be $9,000.00. TERM ANNUAL RENT ---- ----------- Lease Year 1 264,000.00 Lease Year 2 264,000.00 Lease Year 3 288,000.00 Lease Year 4 288,000.00 Lease Year 5 288,000.00 Lease Year 6 372,000.00 Lease Year 7 372,000.00 Lease Year 8 372,000.00 Lease Year 9 372,000.00 Lease Year 10 372,000.00 First Renewal Period 480,000.00 Second Renewal Period 600,000.00 (g) Security Deposit: $22,000 payable $5,500 per month for the first four (4) months of the Term. (h) Use: The Demised Premises are to be used for a car dealership or any other lawful purpose. Tenant at its own cost and expense shall obtain any and all licenses and permits necessary for such use. (i) Notice Addresses: (1) Landlord's Notice Address: Michael Zullo, Sr. 301 County Road Tenafly, New Jersey (2) Landlord's Notice Copy Address: Hannoch Weisman, A Professional Corporation 4 Becker Farm Road Roseland, New Jersey 07068 Attn: Ira B. Marcus, Esq. (3) Tenant's Notice Address: DiFeo BMW, Inc. 820 River Road Edgewater, New Jersey 07020 Attn: Robert Cohen (4) Tenant's Notice Copy Address: Lawrence Iannacone, Esq. Dealer Management Associates DiFeo Automotive Group 585 Route 440 Jersey City, New Jersey 07304 Joseph A. Vena, Esq. Mandelbaum Salsburg Gold Lazris Discensza & Steinberg 155 Prospect Avenue West Orange, New Jersey 07052 (j) Liability Insurance Limits: (1) Combined Single Limit Death or Injury Limit: $500,000 (2) Combined Single Limit Property Damage Limit: $500,000 (3) Umbrella Liability Coverage: $5,000,000 (k) Interest: Any payment required to be made by Tenant under the provisions of this Lease or as set forth in the General Conditions of Lease not made by Tenant when and as due shall thereupon be deemed to be due and payable on demand with interest thereon at the lesser of twelve percent (12%) per year or at the highest legal rate computed from the date when the particular amount became due to the date of payment thereof to Landlord. (l) Late Charge: In order to cover the extra expense involved in handling delinquent payments, Tenant, at Landlord's option, shall pay a "late charge" of four percent (4%) of any payment of Rent when such payment of Rent is paid more than ten (10) days after the due date thereof. It is understood and agreed that this charge is for additional expense incurred by Landlord and shall not be considered interest. (m) Option to Purchase: (1) Provided the Tenant is not in Default (as defined in the General Conditions of Lease), the Tenant shall be given the right and privilege to purchase the Demised Premises upon the terms set forth in the Purchase Agreement attached hereto as Exhibit C. (2) The right, option, and privilege of the Tenant to purchase the Demised Premises as hereinabove set forth is expressly conditioned upon the Tenant delivering to the Landlord, in writing by certified mail, return receipt requested, at any time upon three (3) months' prior notice of its intention to purchase, which notice shall be given to the Landlord by the Tenant no later than six (6) months prior to the date fixed for termination of the Term hereinbefore provided. The notice shall only be effective if accompanied by the Purchase Agreement executed by the Tenant. Time is hereby made of the essence. (n) Tenant shall have the option to terminate the Lease at the expiration of Lease Year 3 upon payment to Landlord the sum of $275,000.00 payable in monthly installments of $20,000.00. Tenant shall have a second option to terminate the Lease at the expiration of Lease Year 4 upon payment to Landlord the sum of $250,000.00 payable in monthly installment of $20,000.00. Tenant shall have a third option to terminate the Lease at the expiration of Lease Year 5 upon payment to Landlord the sum of $250,000.00 payable in monthly installments of $20,000.00. The exercise of the foregoing options shall be exercised by Tenant by written notice to Landlord not less than ninety (90) days prior to the expiration of the respective lease year. In the event that Tenant has exercised any of the foregoing options and Landlord subsequently sells the Demised Premises, upon such closing all obligations of Tenant pursuant to the exercised termination option shall lease. IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed as of the day and year first above written. Landlord: WITNESS: /s/ /s/Michael Zullo -------------------- --------------------- Michael Zullo, Sr. /s/Bertha Zullo --------------------- Bertha Zullo Initial (Landlord): /s/ BZ ------------ Initial (Tenant): /s/ JD ------------ ATTEST or WITNESS: DIFEO BMW INC. /s/ By: /s/ Joseph C. DiFeo - ------------------------- ------------------------- (Signature) Joseph C. DiFeo ----------------------------- President ----------------------------- Title Initial (Landlord): /s/ BZ ------------ Initial (Tenant): /s/ JD ------------ EXHIBIT F TO SUBLEASE BETWEEN DIFEO BMW, INC. AND DIFEO BMW PARTNERSHIP 1. Lease between Fair Realty Company, as landlord, and Fair Hyundai Partnership, as tenant. 2. Lease between Fair Realty Company, as landlord, and Danbury-Mt. Kisco Saturn Partnership, as tenant. 3. Lease between Fair Realty Company, as landlord, and Fair Cadillac-Oldsmobile-Isuzu Partnership, as tenant. 4. Lease between Rockland Realty Associates, as landlord, and Rockland Motors Partnership, as tenant. 5. Lease between Boundbrook Realty Associates, as landlord, and DiFeo Oldsmobile Partnership, as tenant. 6. Lease between Boundbrook Realty Associates, as landlord, and Somerset Motors Partnership, as tenant. 7. Lease between J & S Equity Urban Renewal Corp., as landlord, and Hudson Motors Partnership, as tenant. 8. Lease between J & S Equity Associates, as landlord, and DiFeo Subaru Partnership, as tenant. 9. Lease between J & S Equity Associates, as landlord, and J & F Oldsmobile-Isuzu Partnership, as tenant. 10. Lease between J & S Equity Associates, as landlord, and DiFeo Jeep-Eagle Partnership, as tenant. 11. Lease between J & S Equity Associates, as landlord, and DiFeo Buick-Pontiac-GMC Truck Partnership, as tenant (for 315 Clendenny Avenue, Jersey City, New Jersey). 12. Lease between J & S Equity Associates, as landlord, and DiFeo Autocenter Partnership, as tenant. 13. Lease between J & S Equity Associates, as landlord, and DiFeo Buick-Pontiac-GMC Truck Partnership, as tenant (for premises designated as Block 1745, Lots 34-40, Block 1746, Lots 19A, 21A and 22A; Block 1747, Lots 81-84, Jersey City, New Jersey). 14. Lease between J & S Equity Associates, as landlord, and DiFeo Imports Partnership, as tenant. 15. Lease between J & S Equity Associates, as landlord, and DiFeo Buick-Pontiac-GMC Truck Partnership, as tenant (for 919 Commnipaw Avenue, Jersey City, New Jersey). EXHIBIT G TO SUBLEASE BETWEEN DIFEO BMW, INC. AND DIFEO BMW PARTNERSHIP 1. Sublease between Fair Imports Corp., as sublandlord, and Fair Imports Partnership t/a Fair Acura, as subtenant. 2. Sublease between J & S Equity Associates, as sublandlord, and DiFeo Volkswagen Partnership, as subtenant. 3. Sublease between J & S Equity Associates, as sublandlord, and DiFeo Hyundai Partnership, as subtenant. 4. Sublease between Fair Motors Corp., as sublandlord, and Fair Motors Partnership t/a Fair Mitsubishi, as subtenant. 5. Sublease between DiFeo BMW, Inc., as sublandlord, and DiFeo BMW Partnership, as subtenant (for premises commonly known as 301 County Road, Tenafly, New Jersey). 6. Sublease between J & S Equity Associates, as sublandlord, and DiFeo Autocenter Partnership, as subtenant. LANDLORD'S ESTOPPEL CERTIFICATE Landlord: Michael Zullo, Sr. and Bertha Zullo Tenant: DiFeo BMW, Inc. Subtenant: DiFeo BMW Partnership Leased Property: 301 County Road, Tenafly, New Jersey Overlease: Dated January 6, 1992 The undersigned Landlord, being the landlord pursuant to the Overlease, certifies to Subtenant as follows: 1. The Overlease, together with all modifications or amendments thereof, is attached hereto as Schedule A; the Overlease has not been amended, modified or superseded since its original execution and no other agreements or understandings exist with respect to the property demised under the Overlease except as set forth in Schedule A; and the Overlease is in full force and effect. 2. To Landlord's best knowledge, there are no uncured defaults on the part of Tenant under the Overlease and there are no events that have occurred which, with the giving of notice or passage of time or both, would constitute a default by Tenant thereunder, and at the present time, to the best of Landlord's knowledge, Landlord has no claims or disputes against Tenant under the Overlease. Any improvements required by the terms of the Overlease to be made by Tenant have been completed to the satisfaction of Landlord, and Tenant's current use and operation complies with any use covenants or operating requirements contained in the Overlease. 3. The current fixed rent required under the Lease is $22,000 per month, payable on the first day of each calendar month, not including taxes, assessments or expenses that Tenant is obligated to pay. Fixed rent has been fully and currently paid by Tenant in advance through Sept., 1992. All other monetary obligations due under the Overlease to date have been fully and currently paid. 4. The term of the Overlease commenced on the 6th day of January, 1992, and expires on the 5th day of January, 2002, and there are no provisions for, and Lessee has no rights with respect to, renewal or extension of the term, terminating the term, or leasing additional space, except as expressly set forth in the Lease. 5. No controversy presently exists between Landlord and Tenant, including any litigation or arbitration, over the Lease or the performance of the terms thereof. IN WITNESS WHEREOF, Landlord has duly executed this Estoppel Certificate this 23 day of Sept., 1992. /s/ -------------------------------- Michael Zullo, Sr. /s/ -------------------------------- Bertha Zullo LANDLORD'S CONSENT Michael Zullo, Sr. and Bertha Zullo (collectively the "Landlord"), the landlord under a certain lease agreement ("Lease") dated January 6, 1992 (as the same may have been amended) entered into between the Landlord and DiFeo BMW, Inc. ("Tenant"), hereby consents to the Tenant's subleasing of the premises demised under the Lease to DiFeo BMW Partnership. Landlord hereby certifies that it is the holder of the landlord's interest under the Lease and that it has not assigned, transferred or otherwise disposed of the landlord's interest under the Lease. IN WITNESS WHEREOF, the Landlord has executed this Landlord's consent on this 23 day of Sept., 1992. /s/ -------------------------------- Michael Zullo, Sr. /s/ -------------------------------- Bertha Zullo GENERAL CONDITIONS OF LEASE FOR SPACE AT 301 County Road, Tenafly, New Jersey GENERAL CONDITIONS OF LEASE The Lease to which this document is attached and made a part is subject to the following general conditions: ARTICLE I. DEFINITIONS. As used herein, the following words and phrases have the following meanings: Section 1.01. Expiration Date: Means the last day of the Term. If the Lease is cancelled or terminated prior to the originally fixed Expiration Date, then the Expiration Date shall be the date on which the Lease is so cancelled or terminated. But if the Lease is cancelled or terminated prior to the originally fixed Expiration Date by reason of Tenant's Default (as hereinafter defined), Tenant's liability under the provisions of the Lease shall continue until the date the Term would have expired and such cancellation or termination not occurred. Section 1.02. Force Majeure: Means any of the following events: Acts of God; strikes, lock-outs, or labor difficulty; explosion, sabotage, accident, riot or civil commotion; act of war; fire or other casualty; legal requirements; delays caused by the other party; any causes beyond the reasonable control of a party. Section 1.03. Insurance Requirements: Means the applicable provisions of the insurance policies carried by Landlord and/or Tenant covering the demised Premises; all requirements of the issuer of any such policy; and all orders, rules, regulations and other requirements of any insurance service office which serves the community in which the Demised Premises is situated. Section 1.04. Mortgage: Means any mortgage, deed to secure debt, trust indenture, or deed of trust which may now or hereafter affect, encumber or be a lien upon the Demised Premises, or Landlord's interest therein. Section 1.05. Mortgagee: Means the holder of any Mortgage, at any time. Section 1.06. Parking Area: Means all portions of the Demised Premises other than the Building. Section 1.07. Person: Means an individual, fiduciary, estate, trust, partnership, firm, association, corporation, or other organization, or a government or governmental authority. Section 1.08. Repair: Includes the words "replacement and restoration", "replacement or restoration", "replace and restore", "replace or restore", as the case may be, unless specifically indicated to the contrary herein. Section 1.09. Tenant's Agents: Includes Tenant's employees, servants, licensees, tenants, subtenants, assignees, contractors, heirs, successors, legatees and devisees. Section 1.10. Tenant's Guarantor: Means Samuel X. DiFeo, individually. ARTICLE II. CONDITION OF DEMISED PREMISES. Section 2.01. Certificate of Occupancy: If a Certificate of Occupancy or similar instrument from any governmental authority is required in connection with the use of the Demised Premises by Tenant, Landlord agrees to procure same at its sole cost and expense. Tenant agrees to cooperate fully with the procurement of such certificate. Section 2.02. Condition of Demised Premises: Landlord has made no representations, covenants or warranties with respect to the condition of the Demised Premises. Tenant is accepting the Demised Premises without representations, covenants or warranties as to the value, condition or suitability of the Demised Premises. ARTICLE III. TERM. Section 3.01. Term: The Term of the Lease shall be for the period indicated in the Lease exclusive of any renewal periods. Section 3.02. Renewals. Any option to renew this Lease for the periods set forth in the Lease must be exercised by giving Landlord written notice of Tenant's intention to renew at least ninety (90) days prior to the expiration of the Term of First Renewal Period, as applicable. ARTICLE IV. RENT, TAXES, UTILITY CHARGES, ETC. Section 4.01. Rent: Tenant shall pay Rent to Landlord Rent shall be payable at the rates set forth in the Lease. Rent shall be payable in equal monthly installments. Each monthly installment shall be due in advance. The first monthly installment shall be due on the execution of the Lease. Each subsequent installment shall be due on the first day of each month during the Term. If the Commencement Date is a day other than the first day of the month, the first installment shall be one thirtieth of a normal monthly installment for each day during the period commencing with the Commencement Date up to and including the last day of that month. If the Expiration Date of the Term or any Renewal Period occurs on a day other than the last day of any month, Rent for the last month during the Term shall be pro-rated in the same manner. Section 4.02. Taxes, Assessments: (a) The Tenant shall promptly pay as additional rent, all real estate taxes, assessments and water meter charges (including any expenses incident to the installing, repairing or replacing of any water meter) and all such other charges or payments of any kind and nature whatsoever, and whether or not now within the contemplation of the parties, imposed by any governmental or public authority as shall, during the Term and Renewal Periods, be imposed, or become a lien, upon the Demised Premises or any part thereof or which may become due and payable with respect thereto, and any and all assessments and other similar charges imposed upon the Demised Premises in lieu of or in addition to the foregoing, under or by virtue of any present or future laws or regulations of any governmental or lawful authority whatsoever. (b) For any period during the Tenant's occupancy of the Demised Premises which constitutes less than the full period for which any one or more of the foregoing charges are assessed, each such charge shall be pro-rated on a daily basis and adjusted between the Landlord and the Tenant. Section 4.03. Payment of Rent: (a) Rent shall be paid automatically without written or oral notice, demand, counterclaim, offset, deduction, defense, or abatement. -2- (b) All Rent payable under the Lease shall be payable at Landlord's address as set forth in the Lease or at such other address as Landlord shall designate by giving notice to Tenant. (c) If Tenant shall fail to pay any taxes, assessments or any other charges payable hereunder, Landlord shall have all remedies provided for in the Lease or at law in the case of nonpayment of Rent. Tenant's obligations, accruing during the Term, shall survive the Expiration Date of the Lease. Section 4.04. Security Deposit: (a) Tenant has deposited with or to be deposited with Landlord the sum designated as Security Deposit in the Lease, as security for the full and faithful performance by Tenant of all obligations of Tenant under the Lease or in connection with the Lease. If Tenant is in Default under the Lease, Landlord may use, apply or retain the whole or any part of the Security Deposit for the payment of (i) any Rent or any other sums of money which Tenant may not have paid or which may become due after the occurrence of a Default, (ii) any sum expended by Landlord on Tenant's behalf in accordance with the provisions of the Lease, or (iii) any sum which the Landlord may expend or be required to expend by reason of such Default, including any ages or deficiency in the reletting of the Demised Premises in connection with Article XV hereof. The use, application retention of the Security Deposit or portion thereof by Landlord shall not prevent Landlord from exercising any other right remedy provided for hereunder or at law and shall not operate a limitation on any recovery to which Landlord may otherwise be entitled. (b) The Security Deposit shall bear no interest and Landlord shall be entitled to commingle the Security Deposit with Landlord's other funds. (c) If Tenant shall fully and faithfully comply with all of the provisions of the Lease, the Security Deposit and any balance thereof shall be returned to Tenant after the Expiration Date or upon any later date after which Tenant has vacated the Demised Premises. (d) Anything in this Section 4.04 to the contrary notwithstanding, in the event any Mortgagee shall become mortgagee-in-possession or take title by foreclosure or deed in lieu of foreclosure, then, in either of such events, such Mortgagee obligation to return the Security Deposit under this Section 4.04 shall be limited to the amount of the Security Deposit which is actually transferred from Landlord to such Mortgagee. ARTICLE V. SIGNS. Section 5.01. Signs: The location, design and conter of any signs shall comply with all laws, regulations and ordinances. The cost to prepare, manufacture and install any sign shall be borne by Tenant. Tenant shall be responsible for the cost of all repairs, replacement or maintenance of signs at the Demised Premises or any other part of the Property. Landlord agrees to, prior to commencement of the Term and upon fifteen (15) days notice, remove at its own cost any signs requested by Tenant. -3- ARTICLE VI. REPAIRS, ALTERATIONS, COMPLIANCE WITH LAWS, SURRENDER. Section 6.01. No Repairs by Landlord: Landlord shall not be required to make or cause to be made any repairs, including without limitation, any structural repairs to the roof, foundation, exterior walls and load-bearing interior walls of the Demised Premises. Section 6.02. Repairs and Maintenance by Tenant: Tenant shall make all repairs to the Demised Premises necessary or desirable to keep the Demised Premises in good order and repair and in a safe, dry and tenantable condition. Without limiting the generality of the foregoing, Tenant shall be specifically required to replace or repair (a) all pipes, lines, ducts, wires, or conduits that service Tenant and are contained within the Demised Premises or which service the Demised Premises and are located outside of the Demised Premises; (b) the roof, foundation, exterior walls and interior walls; (c) windows, plate glass, doors (including overhead doors), and any fixtures or appurtenances composed of glass; (d) leaders and gutters; (e) Tenant's sign, (f) any heating or air conditioning equipment installed in or servicing the Demised Premises; (g) parking areas, sidewalks, and driveways; and (h) the Building or any part of the Demised Premises when repairs to the same are necessitated by any act, omission or negligence of Tenant or Tenant's Agents or invitees, or the failure of Tenant to perform its obligations under the Lease. Tenant shall keep the Demised Premises in a clean and sanitary condition, free from vermin and escaping offensive odors. Section 6.03. Approval by Landlord of Repairs and Alterations: (a) Tenant may not make any major or structural alterations to the Demised Premises, without the prior written consent of Landlord which shall not be unreasonably withheld. If Landlord grants consent, any such alterations shall be performed in a good and workmanlike manner in accordance with all applicable legal and Insurance Requirements. Landlord hereby specifically consents to any and all alterations and improvements which are required by either BMW or the municipality. (b) Tenant shall give Landlord prompt written notice of any major or structural repair or alteration required or permitted to be performed by Tenant under any provision of the Lease. Any alterations, additions and changes that Tenant desires to make to the Demised Premises shall be at its own cost and expense, but, before making same, Tenant shall submit to the Landlord the plans and specifications therefor for Landlord's consent and approval, and all such alterations, additions and changes (except Tenant's machinery or trade fixtures) which are attached in such manner that their separation from the Demised Premises will result in injury to the Demised Premises, are immediately to merge and become a permanent part of the realty, and all interest of Tenant therein shall become immediately vested in Landlord. Landlord, at its option, however, may require that at the expiration or other termination of the Term or any renewal thereof, the Tenant at its own cost and expense remove said alterations, additions or changes except as to those -4- alterations and additions which were required by BMW or which were consented to pursuant to the terms of this Lease or by a writing signed by Landlord provided that such changes relate to the operation of a car dealership, and restore the portion of the Demised Premises affected by such removal to their condition prior to the making of such alterations, additions or changes. The Tenant agrees to accept the alterations, additions and changes that were made previously and at the termination of the Term, Tenant will restore the Building to its original condition at the option of Landlord. Section 6.04. Compliance with Laws and Regulations: Except as otherwise provided in this Agreement, the Tenant covenants and agrees that upon and after the Commencement Date, it shall promptly execute and comply with all statutes, ordinances, rules, orders, regulations and requirements of the Federal, State and Municipal Government and of any and all their departments and bureaus hereinafter referred to as "Governmental Regulations" for the corrections, prevention and abatement of nuisances, violations or other grievances, in, upon or connected with said Demised Premises during said Term and arising from the operations of the Tenant therein at the Tenant's cost and expense; subject to the right of the Tenant to contest the decision by any such department or bureau. In the event the Tenant contests any such governmental decision, it shall indemnify, defend and save the Landlord harmless from any fine, penalty, costs and liability imposed upon the Landlord as a result of Tenant's failure so to comply, or as a result of said contest by Tenant. The Tenant covenants and agrees, at its own cost and expense, to (i) comply with such regulations or requests expressly caused by and in connection with the use and occupancy of the Demised Premises by the Tenant and the conduct of its business, as may be required by the fire or liability insurance carriers providing insurance for the demised premises, or promulgated by the Board of Fire Underwriters or their equivalent ("Insurance Regulations"); (ii) pay for the costs of interior, exterior or structural changes in the Building, fixtures or equipment, if the same are required by Governmental Regulations or Insurance Regulations, as the same may be applicable as a matter of general application to the Building; or (iii) pay for any changes in the Building, fixtures or equipment that may be required by Governmental Regulations or Insurance Regulations. Section 6.05. Environmental Cleanup Responsibility Act: (a) Landlord represents that it is not an Industrial Establishment as that term is defined in the Environmental Cleanup Responsibility Act, N.J.S.A. 13:1K-6 et seq., as same may be amended from time to time (the "Act"), and that Landlord's primary Standard Industrial Code is 5511. (b) In the event that Tenant now is or hereafter becomes an Industrial Establishment, Tenant shall comply with all conditions as set forth below. (c) Tenant agrees that it shall, at its sole cost and expense, fulfill, observe and comply with all of the terms and provisions of the Act and all rules, regulations, ordinances, options, orders and directives issued or promulgated pursuant to -5- or in connection with said Act by the Department of Environmental Protection ("DEP"), or any subdivision or bureau thereof or any other governmental or quasi-governmental agency, authority or body having jurisdiction thereof. (The Act and all said rules, regulations, ordinances, opinions, orders and directives are hereinafter collectively referred to as "ECRA"). (d) Without limiting the foregoing, upon Landlord's request therefor, and in all events no later than sixty (60) days prior to "closing, terminating or transferring operations" (as said terms are defined in ECRA) out of the Demised Premises, Tenant at its sole cost and expense, shall provide the Landlord with a true copy of: (i) an opinion letter from DEP (or such other agency or body which shall then have jurisdiction over ECRA matters) in form satisfactory to Landlord's counsel, stating that ECRA does not apply to Tenant, Tenant's use and occupancy of the Demised Premises and to the closing, terminating or transferring of operations of the Demised Premises; or (ii) a Negative Declaration (as said term is defined in ECRA) duly approved by DEP or such other agency or body then having jurisdiction over ECRA matters; or (iii) a Cleanup Plan (as said term is defined in ECRA) duly approved by DEP (or such other agency or body which shall then have jurisdiction over ECRA matters). (e) Nothing in this Section shall be construed as limiting Tenant's obligation to otherwise comply with ECRA. (f) In the event Tenant complies with paragraph (d) (iii) of this Section by obtaining an approved Cleanup Plan, Tenant agrees that it shall, at its sole cost and expense: (i) post any financial guarantee or other bond required to secure implementation and completion of such Cleanup Plan; and (ii) promptly implement and diligently prosecute to completion said Cleanup Plan, in accordance with the schedules contained therein or as may otherwise be ordered or directed by DEP or such other agency or body which shall then have jurisdiction over such Cleanup Plan. Tenant expressly understands, acknowledges and agrees that Tenant's compliance with the provisions of this paragraph (e) may require Tenant to expend funds or do acts after the expiration or termination of the Term and Tenant shall not be excused therefrom. (g) Within ten (10) days after a written request by the Landlord or any Mortgagee, Tenant shall deliver to Landlord and Mortgagee, if any, a duly executed and acknowledged affidavit of Tenant's chief executive officer, certifying: (i) the proper four digit Standard Industrial Classification number relating to Tenant's then current use of the Demised Premises (Standard Industrial Classification Number to be obtained by reference to the then current Standard Industrial Classification Manual prepared and published by the Executive Office of the President, Office of Management and Budget or the successor to such publication); and (ii) (A) that Tenant's then current use of the Demised Premises does not involve the generation, manufacture, refining, transportation, treatment, storage, handling of -6- disposal of hazardous substances or waste (as hazardous substances and hazardous waste are defined in ECRA) on site, above ground or below ground (all of the foregoing are hereinafter collectively referred to as the Presence of Hazardous Substances), or, (B) that Tenant's then current use does involve the Presence of Hazardous Substances, in which event, said affidavit shall describe in complete detail that portion of Tenant's operations which involves the Presence of Hazardous Substances. Such description shall, inter alia, identify each hazardous substance and describe the manner in which Tenant generated, handled, manufactured, refined, transported, treated, stored and/or disposed of same. Tenant shall supply Landlord and Landlord's mortgagee, if any, with such additional information relating to the Presence of Hazardous Substances as Landlord or Landlord's mortgagee requests. This provision shall not be construed to prohibit the lawful use of any Hazardous Substances by Tenant. (h) Without limiting the foregoing, Tenant agrees: (i) at its sole cost and expense, to promptly discharge and remove any lien or encumbrance against the Demised Premises, the Building, or the Complex imposed due to Tenant's failure to comply with ECRA, and (ii) to defend, indemnify and hold Landlord harmless from and against any and all liability, penalty, loss, expenses, damages, costs, claims, causes of action, judgments and/or the like, of whatever nature, including but not limited to attorney's fees and other costs of litigation or preparation therefor, to the extent such costs arise from or in connection with Tenant's failure or inability, for any reasons whatsoever, to observe or comply with ECRA and/or provisions of this Section 6.05. (i) Tenant agrees that each and every provision of this Section 6.05 shall survive the expiration or early termination of the Term. The parties hereto expressly acknowledge and agree that the Landlord would not enter into the Lease but for the provisions of this Section 6.05 and the aforesaid survival thereof. Section 6.06. Underground Storage Tanks: Tenant agrees that it shall, at its sole cost and expense, promptly comply with all Government Regulations relating to underground storage tanks, including, but not limited to, the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. ss.6991 et seq. or New Jersey's underground storage tank law, P.L. 1986 c.102, N.J.S.A. 58:10A-21 et seq. Landlord acknowledges that prior to commencement of this Lease all underground storage tanks and gasoline pumps were removed and that this provision shall only apply to tanks installed by or for Tenant. Section 6.07. Spill Act: (a) Landlord, to its knowledge, has not violated any provisions of the Spill Act (as hereinafter defined). (b) Tenant agrees that it shall, at its sole cost and expense, observe, comply and fulfill all of the terms and provisions of the Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et. seq., as the same may be amended from time to time (the "Act") and all rules, regulations, ordinances, opinions, orders and directives issued or promulgated pursuant to or in connection with said Act by DEP, any subdivision or bureau thereof or governmental or quasi-governmental agency or body having jurisdiction thereof. (Said Act and all said rules, regulations, ordinances, -7- opinions, orders and directives are hereinafter in this Section 6.07 collectively referred to as "Spill Act".) (c) Without limiting the foregoing, the Tenant agrees: (i) that it shall not do, omit to do or suffer the commission or omission of any act which is prohibited by or may result in any liability under the Spill Act including without limitation the discharge of petroleum products or other hazardous substances (as said terms are defined in the Spill Act); and (ii) whenever the Spill Act requires the "owner or operator" to do any act, Tenant shall do such act and fulfill all such obligations at its sole cost and expense, it being the intention of the parties hereto that Landlord shall be free of all expense and obligations arising from or in connection with compliance with the Spill Act. (d) Without limiting the foregoing, Tenant agrees: (i) at its sole cost and expense, to promptly discharge and remove any lien or any encumbrance against the Demised Premises, the Building or the Complex imposed by Tenant's failure to comply with the Spill Act; and (ii) to defend, indemnify and hold Landlord harmless from and against any and all liability, penalty, loss, expenses, damages, costs, claims, causes of action, judgments and/or the like, of whatever nature, including but not limited to attorneys' fees and other expenses of litigation or preparation therefor, to the extent such costs arise from or in connection with Tenant's failure or inability, for any reason whatsoever, to observe or comply with the Spill Act and/or the provisions of this Section 6.07. (e) Tenant agrees that each and every provision of this Section 6.07 shall survive the expiration or earlier termination of the Term of the Lease. The parties hereto expressly agree and acknowledge that the Landlord would not enter into this Lease but for the provisions of this Section 6.07 and the aforesaid survival thereof. (f) Tenant agrees that it shall, at its sole cost and expense, promptly comply with all federal, state and local laws, ordinances, rules, regulations and requirements relating to air, ground and water pollution and protection and/or preservation of the environment. Section 6.08. Electrical Lines: If the Tenant installs any electrical equipment that overloads the lines in the Demised Premises, Tenant shall make whatever changes to such lines as may be necessary to render the lines in good order and repair and in compliance with all Insurance Requirements and applicable legal requirements. All electrical work to the Demised Premises shall be performed by a licensed electrician. In the event that the electrical work to be performed by Tenant shall require the alteration, modification or repair of electrical equipment or lines servicing the Building, then, in such event, Tenant shall cause such electrical work to be -8- performed by a licensed electrical contractor acceptable to Landlord. Section 6.09. Repairs or Alterations: (a) If, in an emergency, it shall become necessary to make promptly any repairs or replacements required to be made by Tenant, Landlord may re-enter the Demised Premises and proceed to have such repairs or replacements made and pay the cost of such repairs or replacements. Within seven (7) days after Landlord renders a bill for such repairs or replacements, Tenant shall reimburse Landlord for the reasonable cost of making such repairs. (b) Any alterations, modifications, additions or repairs to be made by Tenant to the Demised Premises shall be performed by a licensed Contractor or a reputable contractor regularly engaged in the trade to which such work relates. All alterations, modifications, additions or repairs to the Demised Premises must be done in a workmanlike manner and must comply with existing municipal and state construction codes. Tenant shall be responsible for securing any and all permits in connection with such work. Section 6.10. Surrender of Premises: On the Expiration Date, Tenant shall quit and surrender the Demised Premises broom clean, and in good condition and repair, together with all alterations, fixtures, installations, additions and improvements which may have been made in or attached on or to the Demised Premises, including but not limited to an aggregate of at least nine (9) lifts, electric or hydraulic but exclusive of any furniture and equipment, other than lifts, which replaced damaged or obsolete items (except if such items were damaged due to the gross negligence or intentional acts of Tenant.) Landlord, at its option, may require Tenant to restore the Demised Premises to the condition the Demised Premises was in on the Commencement Date in accordance with Section 6.03(b). Any personal property of Tenant which shall remain in or on the Demised Premises after the termination of the Lease and the removal of Tenant from the Demised Premises, may, at the option of Landlord and without notice, be deemed to have been abandoned by Tenant and may either be retained by Landlord as its property or be disposed of, without accountability, in such manner as Landlord may see fit, or if Landlord shall give written notice to Tenant to such effect, such property shall be removed by Tenant, at Tenant's cost and expense; and Landlord shall not be responsible for any loss or damage occurring to any such property owned by Tenant. Tenant's obligation under this Section shall survive the Expiration Date. Section 6.11. Mechanics' Liens: If any mechanic's or materialman's lien is filed against the Demised Premises as a result of any additions, alterations, repairs, installations or improvements made by Tenant, or any other work or act of Tenant, Tenant shall discharge or bond same within twenty (20) days from the filing of the lien. If Tenant shall fail to discharge or bond the lien, Landlord may bond or pay the lien or claim for the account of Tenant without inquiring into the validity of the lien or claim. -9- Section 6.12. Insurance Covering Repairs, Etc.: Tenant shall not make any major or structural alterations, repairs or installations or any other work to or on the Demised Premises unless prior to the commencement of such work Tenant shall obtain or provide proof of (and during the performance of such work keep in force) public liability and workmen's compensation insurance coverage. Such policies shall be non-cancellable without ten (10) days prior written notice to Landlord. The policies shall be in amounts and shall be issued by companies reasonably satisfactory to Landlord. Prior to the commencement of such work, Tenant shall deliver duplicate originals of certificates of such insurance policies to Landlord. ARTICLE VII. SERVICES AND UTILITIES. Section 7.01. Electricity: Tenant shall make its own arrangements with the utility company supplying electricity for that service and arrange to have bills forwarded directly to Tenant. Tenant shall pay for all electrical service and charges relating to the Demised Premises and Tenant's sign. Section 7.02. Gas Service: Tenant shall make its arrangements with the utility company supplying gas for service and arrange to have all bills forwarded directly to Tenant. Tenant shall pay for all gas service and charges relating to the Demised Premises. Section 7.03. Water: Tenant agrees to promptly pay any sewer or water rent, charge, tax or levy imposed against the Demised Premises. Section 7.04. Heat, Hot Water, Air-Conditioning: (a) Landlord shall not be required to supply heat, hot water or air-conditioning to the Demised Premises. Tenant shall supply its own requirements of heat, hot water and air-conditioning. If the Demised Premises includes a main heating boiler and/or air-conditioning Unit(s), such equipment must be maintained in serviceable condition by Tenant. (b) Tenant agrees to maintain heat at the Demised Premises at all times at a level reasonably estimated by Landlord to keep waterpipes and sprinklers, if any, in the Demised Premises from freezing and to otherwise prevent damage to the Demised Premises, but under no circumstances less than 40 degrees Fahrenheit. Section 7.05. Disruption of Utility Services: Landlord shall not be liable for any interruption or failure in the supply of gas, electricity, water or any other service to the Demised Premises. Section 7.06. Garbage Disposal: Tenant agrees to make its own arrangements with a garbage hauler for the disposal of its garbage. Tenant shall pay for all garbage disposal charges relating to the Demised Premises. ARTICLE VIII. USE AND OPERATION. Section 8.01. Use: Tenant shall use the Demised Premises for the purposes set forth in the Lease. Section 8.02. Demised Premises Operations: (a) Tenant shall keep the Demised Premises, including exterior and interior portions of all windows, doors and all other glass, in neat and clean condition. Tenant shall also, at -10- its own cost and expense, maintain and care for such portions of the Demised Premises as have been seeded to grass. (b) Tenant shall remove snow and ice from the Demised Premises, and spread sand or other abrasive substances thereon as conditions require. (c) Tenant agrees not to permit the accumulation (unless in concealed metal containers) or burning of any rubbish or garbage in, on or about any part of the Demised Premises. All rubbish and garbage must be stored in covered containers so as not to permit the wind from blowing the rubbish and garbage around the Demised Premises, and shall keep the driveways and area on the Demised Premises free and clear of any and all obstructions and equipment. Tenant shall keep the sidewalk(s) and curbs adjacent to the Demised Premises free of debris. ARTICLE IX. TRANSFER OF INTEREST, PRIORITY OF LIEN. Section 9.01. Assignment, Subletting, etc.: Tenant may sublet the Demised Premises or any part thereof, or assign, this Lease or any interest therein (except that the option contained in Article X may only be exercised by an entity owned or controlled by Joseph DiFeo and/or Samuel DiFeo or by Joseph DiFeo or Samuel DiFeo, individually), without the prior written consent of Landlord. Tenant shall notify Landlord immediately of any such assignment or sublet. No assignment or sublet shall relieve Tenant of any obligations herein. Section 9.02. Subordination: The Lease and Tenant's rights under the Lease are subject and subordinate to the lien of any present or future mortgage, indenture or other first lien encumbrance, together with any renewals, extensions, modifications, consolidations and replacements of such first lien, encumbrance, now or after the Commencement Date, affecting, placed or enforced against the Demised Premises, or any interest of Landlord in the Demised Premises, or Landlord's interest in the Lease and the leasehold estate created by the Lease (except to the extent any such instrument will expressly provide that the Lease is superior to such instrument). This provision will be self-operative and no further instrument of subordination will be required in order to effect it. Nevertheless, Tenant will execute, acknowledge and deliver to Landlord, at any time and from time to time, upon demand by Landlord, such documents as may be requested by Landlord, or any mortgagee to confirm or effect any such subordination. If Tenant fails or refuses to execute, acknowledge and deliver any such document within twenty(20) days after written demand, Landlord, its successors and assigns will be entitled to execute, acknowledge and deliver any and all such documents for and on behalf of Tenant as attorney-in-fact for Tenant. Tenant does hereby constitute and irrevocably appoint Landlord, its successors and assigns as Tenant's attorney-in-fact to execute, acknowledge and deliver any and all documents described in this Section 9.02 for and on behalf of Tenant, as provided in this Section 9.02. Section 9.03. Attornment: If the Demised Premises is encumbered by a Mortgage and such Mortgage is foreclosed, or if the Demised Premises is sold pursuant to such foreclosure or by reason of a default under said Mortgage, then notwithstanding such foreclosure, such sale, or such default (i) Tenant shall not -11- disaffirm the Lease or any of its obligations thereunder, and (ii) at the request of the applicable Mortgagee or purchaser at such foreclosure or sale, Tenant shall attorn to such Mortgagee or purchaser and execute a new lease for the Demised Premises setting forth all of the provisions of the Lease except that the term of such new lease shall be for the balance of the Term. Section 9.04. Transfer of Landlord's Interest: The term "Landlord" as used in this Lease means the owner or the Mortgagee in possession. Section 9.05. Mortgagee's Rights: If Landlord shall notify Tenant that the Demised Premises is encumbered by a Mortgage and in such notice set forth the name and address of the Mortgagee thereof; then, notwithstanding anything to the contrary, no notice intended for Landlord shall be deemed properly given unless a copy thereof is simultaneously sent to such Mortgagee by certified or registered mail, return receipt requested. If any Mortgagee shall perform any obligation that Landlord is required to perform hereunder, such performance by Mortgagee, insofar as Tenant is concerned, shall be deemed performance on behalf of Landlord and shall be accepted by Tenant as if performed by Landlord. ARTICLE X. OPTION. Section 10.01. Option. (a) Provided the Tenant is not in Default, the current principals of DiFeo BMW, Inc. being Samuel DiFeo and/or Joseph DiFeo, individually or any entity owned or controlled by them shall have the right to purchase the Demised Premises during the first through tenth year of Term but not during any Renewal Period upon the terms and conditions set forth in the Purchase Agreement attached hereto as Exhibit C. (b) In the event that the Tenant exercises its option to purchase the Demised Premises upon the terms set forth in the attached Purchase Agreement, the purchase price shall be Two Million Six Hundred Thousand ($2,600,000) Dollars. ARTICLE XI. DESTRUCTION AND FIRE INSURANCE. Section 11.01. Insurance. (a) During the term of this Lease, the Tenant shall procure, or do and maintain, as appropriate, the following types of insurance in the amounts specified, naming the Landlord as additional insured: (i) Keep insured the Building on the Demised Premises and building equipment against loss or damage by fire (and against such other risks as would be covered by "ALL-RISK" insurance to the extent that such insurance is reasonably available), in an amount not less than 100% of the then full insurable value of said building and building equipment. The term "full insurable value" shall mean the actual replacement value (excluding foundation and excavation costs) and said "full insurable value" shall be reasonable determined by Landlord's engineers, or if Landlord also desires by one of the insurers acceptable to Landlord, at three (3) year intervals or at such other times as Landlord may reasonably request. (ii) Maintain flood insurance, as may be required by Landlord's mortgagee. (iii) Maintain such other insurance as Landlord reasonably deems necessary. -12- (b) All losses shall be adjusted with the insurance companies jointly by Landlord and Tenant and shall be paid to Landlord and Tenant as their interests appear. (c) Tenant agrees, at its sole cost and expense, to promptly comply with all of the rules and regulations of the Fire Insurance Rating Organization having jurisdiction, or any similar body. If, at any time, as a result of or in connection with any failure by Tenant to comply with the foregoing provision, or as a result of any act of omission or commission by Tenant, its employees, agents, contractors, invitees, licensees or subtenants, any insurance rate applicable to the building and/or to the contents thereof, shall be higher than that which would be applicable for the least hazardous types of occupancy legally permitted therein, then and in any of such events, Landlord shall have the right to terminate this lease upon written notice delivered to the Tenant, or to require Tenant to pay such additional premiums for all insurance policies in force with respect to the building. Tenant shall not use or install any electrical equipment that overloads the lines in the Building and Tenant, at its sole cost and expense, shall promptly make whatever changes are necessary to prevent or remedy such condition and to comply with all requirements of Landlord, the Board of Fire Insurance Underwriters or any similar body and any governmental authority having jurisdiction thereof. For the purposes of this paragraph, any finding or schedule of the Fire Insurance Rating Organization or any similar organization having jurisdiction shall be deemed to be conclusively binding on the parties hereto. (d) (i) If at any time during the Term of this Lease or any Renewal Period, the Demised Premises shall be damaged in whole or in part or wholly or partially destroyed from fire or other casualty (including any casualty for which insurance coverage was not obtained) of any kind or nature, regardless of whether said damage or destruction resulted from an act of God, the fault of the Tenant, the Landlord or from any cause whatsoever, then the Tenant shall promptly replace, repair and rebuild the damaged or destroyed improvements and buildings, at least to the extent of the value of the improvements and buildings, and as nearly as practicable to the character of the buildings or improvements, existing immediately prior to such occurrence. Such rebuilding shall be made in accordance with plans and specifications therefor which shall first be submitted to and approved in writing by the Landlord, which approval shall not be unreasonably withheld. (ii) All insurance money collected by the Landlord from any policy of insurance on account of such destruction or damages, less the cost, if any, incurred in connection with the adjustment of the loss and the collection thereof (herein sometimes referred to as the "insurance proceeds"), shall be applied to the payment of the cost of the rebuilding, and shall be paid out to or for the account of the Tenant from time to time as such work progresses. All sums so paid to the Tenant and any other insurance proceeds received or collected by or for the account of the Tenant (other than by way of reimbursement to the Tenant for sums theretofore paid by the -13- Tenant) shall be held by the Tenant in trust for the purpose of paying the cost of such reconstruction. (iii) Upon the Landlord's receipt of evidence reasonably satisfactory to it that the reconstruction has been completed and paid for in full and that there are no liens on the Demised Premises as a result thereof, the Landlord shall pay to the Tenant any remaining balance of said insurance proceeds. (iv) Under no circumstances shall the Landlord be obligated to make any payment, disbursement or contribution towards the cost of the work except to the extent of the insurance proceeds actually received by the Landlord. (v) In the last year of the Term of the Lease, in the event of any such casualty damage to the Demised Premises, Tenant shall have the option to terminate the Lease and Landlord shall be entitled to all insurance proceeds. (e) No provision of this Article shall be construed to entitle the Tenant to any abatement, allowance, reduction or suspension of Rent unless this Lease is terminated by the Landlord. ARTICLE XII. CONDEMNATION. Section 12.01. Definitions: Within the meaning of Article XII, the following words have the following meaning: (a) Taking: means the taking of or damage to the Demised Premises or any portion thereof, as the case may be, as the result of the exercise of any power of eminent domain, condemnation, or purchase under threat thereof in lieu thereof. (b) Award: means the award for or proceeds of any Taking, less all expenses in connection therewith, including reasonable attorney's fees. (c) Taking Date: means, with respect to any Taking, the date on which the condemning authority shall have the right to possession of the Demised Premises or any portion thereof, as the case may be. Section 12.02. Total or Substantial Partial Taking of Demised Premises: In the event of a Taking of the whole of the Demised Premises, other than a Taking for temporary use, the Lease shall automatically terminate as of the Taking Date. In the event of a Taking of any substantial portion of the Demised Premises, either party may, at its option, terminate the Lease by giving notice to the other within six (6) months of the date of such Taking. Section 12.03. Restoration: In the event of a Taking of a portion of the Demised Premises other than a Taking for temporary use and the Lease shall not terminate or be terminated under the provisions of Section 12.02 hereof, Rent shall be reduced in the proportion that the area so Taken bears to the entire area contained within the Demised Premises. If a part of the Demised Premises are taken, Landlord may restore or cause to be restored the remainder to the extent practical. However, Landlord may refuse to restore the remainder. If Landlord refuses to restore the remainder and gives notice of its refusal to Tenant, either party may cancel the Lease by giving notice to the other within ninety (90) days after Landlord shall have given notice of its determination not to repair the damage. -14- Section 12.04. Taking for Temporary Use: If there is a Taking of the Demised Premises for temporary use, the Lease shall continue in full force and effect, and Tenant shall continue to comply with all of the provisions thereof, except as such compliance shall be rendered impossible or impracticable by reason of such Taking and Rent shall be abate during the course of such Taking. Section 12.05. Disposition of Awards: All awards arising from a total or partial Taking of the Demised Premises, the Building, or of Tenant's leasehold interest, shall belong to Landlord without any participation by Tenant except if such Taking occurs during the period of time after Tenant has given notice to Landlord of its intention to exercise its option under Article X, in which case Tenant shall participate to the extent of the improvements made to the portion of the Premises subject to the Taking. Tenant hereby assigns to Landlord any share of such Award which may be awarded to Tenant. ARTICLE XIII. INDEMNITY AND LIABILITY. Section 13.01. Indemnity. (a) Within the meaning of Article XIII, "Claims" means any claims, suits, proceedings, actions, causes of action, responsibility, liability, demands, judgments, and executions. (b) Tenant hereby indemnifies and agrees to save harmless Landlord and Mortgagee from and against any and all Claims, which either (i) arise from or are in connection with the possession, use, occupation, management, repair, maintenance or control of the Demised Premises, or any portion thereof; (ii) arise from or are in connection with any act or omission of Tenant, or Tenant's Agents'; (iii) result from any Default, breach, violation or non-performance of the Lease or any of the conditions set forth herein; or (iv) result in injury to person or property or loss of life sustained in or about the Demised Premises. Tenant shall defend any actions, suits and proceedings which may be brought against Landlord or Mortgagee with respect to the foregoing or in which they may be impleaded. Tenant shall pay, satisfy and discharge any judgments, orders and decrees which may be recovered against Landlord or Mortgagee in connection with the foregoing. Section 13.02. Liability Insurance: Tenant shall provide on or before it enters the Demised Premise for any reason and shall keep in force during the Term for the benefit of Landlord and Tenant, liability insurance naming Landlord and any designee of Landlord with an insurable interest as additional insureds. The policy shall protect Landlord, Tenant and any designee of Landlord against any liability occasioned by any occurrence on or about the Demised Premises or any appurtenance thereto, or arising from any of the items indicated in Section 13.01 against which Tenant is required to indemnify Landlord. Such policy is to be written (i) by a good and solvent insurance company satisfactory to Landlord, and (ii) in a combined single limit of at least the amount set forth in the Lease for injury or death to one or more than one person arising from any one occurrence and in the amount set forth in the Lease with respect to property damages. -15- Section 13.03. General Provisions with Respect to Insurance: (a) Upon the execution of the Lease and before any insurance policy shall expire, Tenant shall deliver to Landlord such policy or a renewal thereof, as the case may be, together with evidence of payment of applicable premiums. Any insurance required to be carried hereunder may be carried under a blanket policy covering the Demised Premises and other locations of Tenant; and, if Tenant includes the Demised Premises in such blanket coverage, Tenant may deliver to Landlord a duplicate original of such policy or a certificate of insurance with a copy of the policy to be delivered as soon as practical. (b) All insurance policies required to be carried hereunder by or on behalf of Tenant shall provide (and any certificate evidencing the existence of any insurance policies, shall certify that): unless Landlord shall have been given ten (10) days' written notice of any cancellation, failure to renew, or material change as the case may be, (i) the insurance shall not be cancelled and shall continue in full force and effect, (ii) the insurance carrier shall not fail to renew the insurance policies for any reason, and (iii) no material change may be made in the insurance policy. (c) Each insurance policy shall be issued by an insurer of recognized responsibility reasonably satisfactory to Landlord; shall be satisfactory to Landlord in form and substance; and shall be carried in favor of Landlord, Tenant and all Mortgagees as their respective interests may appear. Within the meaning hereof, the term "insurance policy" shall include any extensions or renewals of such insurance policy. Section 13.04. Environmental Indemnification (a) Tenant shall indemnify and hold Landlord free and harmless from any and all liabilities, damages, claims, penalties, fines, settlements, causes of action, costs or expenses, including reasonable attorneys' fees, environmental consultant and laboratory fees and the cost and expenses of investigating and defending any claims or proceedings resulting from any of the following: (i) the presence, disposal, release or threatened release of any hazardous substances as defined by N.J.A.C. 7:1E ("Hazardous Substances") that is on, from or affecting the Demised Premises including the soil, water, vegetation, buildings, personal property, persons, animals or otherwise; (ii) any personal injury (including wrongful death) or property damage (real or personal) arising out of or relating to the Hazardous Substance; (c) any lawsuits or administrative order relating to the Hazardous Substance; or any violation of any laws applicable to the Hazardous Substance, and resulting from the acts, errors, omissions, negligence, gross negligence or willful misconduct of the Tenant. (b) Landlord shall indemnify and hold tenant harmless for any and all liabilities, damages, claims, penalties, fines, settlements causes of action, costs or expenses, including reasonable attorney fees, environmental consultant fees and laboratory fees resulting from (i), (ii) or (iii) as listed above, resulting from Hazardous Substances or conditions which -16- existed on the Demised Premises prior to the Commencement date of this Lease. (c) There is a presumption that any contamination not detected during the environmental site investigations performed by Langan Environmental Services, Inc. resulted from the operations of the Tenant unless Tenant can prove by clear evidence that the contamination did not result from the Tenant's actions, errors, omissions, negligence, gross negligence or willful misconduct. ARTICLE XIV. COVENANT OF QUIET ENJOYMENT. Section 14.01. Quiet Enjoyment: Landlord covenants that if Tenant pays the Rent and all other charges provided for in the Lease and herein, performs all of its obligations provided for under the Lease and hereunder, and observes all of the other conditions hereof, Tenant shall at all times during the Term peaceably and quietly have, hold and enjoy the Demised Premises, without any interruption or disturbance from Landlord, subject to the terms of the Lease and the conditions set forth herein. ARTICLE XV. FAILURE TO PERFORM, DEFAULTS, REMEDIES. Section 15.01. Defaults, Conditional Limitation: (a) Each of the following events shall constitute a Default: (i) If Tenant, or any Tenant's Guarantor, shall (x) make an assignment for the benefit of creditors, (y) file or acquiesce to a petition in any court (whether or not pursuant to any statute of the United States or of any state) in any bankruptcy, reorganization, composition, extension, arrangement or insolvency proceedings, (z) make an application in any such proceedings for or acquiesce to the appointment of a trustee or receiver for it or all of any portion of its property. (ii) If any petition shall be filed against Tenant, or any Tenant's Guarantor, to which neither of them acquiesce in any court (whether or not pursuant to any statute of the United States or any state) in any bankruptcy, reorganization, composition, extension, arrangement or insolvency proceedings, and (x) Tenant or any Tenant's Guarantor shall thereafter be adjudicated a bankrupt, or (y) such petition shall be approved by any such court, or (z) such proceedings shall not be dismissed, discontinued or vacated within thirty (30) days. (iii) If, in any proceeding, pursuant to the application of any person other than Tenant, or any Tenant's Guarantor to which neither of them acquiesce, a receiver or trustee shall be appointed for Tenant, or any Tenant's Guarantor or for all or any portion of the property of either and such receivership or trusteeship shall not be set aside within thirty (30) days after such appointment. (iv) If Tenant shall refuse to take possession of the Demised Premises upon Delivery of Possession or shall vacate the Demised Premises and permit the same to remain unoccupied and unattended. (v) If Tenant shall fail to pay any Rent within ten (10) days of when due, or any other charge required to be paid by Tenant hereunder within ten (10) days after notice of failure to pay when due. -17- (vi) If Tenant shall fail to perform or observe any term, provision or requirement of the Lease or any condition or requirement set forth herein, and such failure shall continue for sixty (60) days after notice of nonperformance. (b) The Lease is subject to the following limitation: If at any time, a Default shall occur, then upon the happening of any one or more of the aforementioned Defaults, Landlord may give to Tenant a notice of intention to end the Term of the Lease at the expiration of five (5) days from the date of service of such notice of termination. At the expiration of such five days the Lease and the Term as well as all of the right, title and interest of the Tenant thereunder shall wholly cease and expire, and Tenant shall then quit and surrender the Demised Premises to the Landlord. Notwithstanding such termination, surrender, and the expiration of Tenant's right, title, and interest, Tenant's liability under all of the provisions of the Lease shall continue. Section 15.02. Landlord's Re-Entry: If the Lease shall be terminated as herein provided, Landlord, or its agents or employees, may re-enter the Demised Premises at any time and remove therefrom Tenant, Tenant's Agents, and subtenants, and any licensees or invitees, together with any of its or their property, either by summary dispossess proceedings or by any suitable action or proceeding at law or by force or otherwise. In the event of such termination, Landlord may repossess and enjoy the Demised Premises. Landlord shall be entitled to the benefits of all provisions of law respecting any proceedings in forcible entry and detainer or all provisions of law respecting the recovery of the Demised Premises held over by Tenant. Tenant waives any rights to the service of any notice of Landlord's intention to re-enter provided for by any present or future law. Landlord shall not be liable in any way in connection with any action it takes pursuant to the foregoing. Notwithstanding any such re-entry, repossession, dispossession or removal, Tenant's liability under all of the provisions hereof and of the Lease shall continue. Section 15.03. Deficiency: (a) In case of re-entry, repossession or termination of the Lease, whether the same is the result of the institution of summary or other proceedings or not, Tenant shall remain liable (in addition to accrued liabilities) to the extent legally permissible for (i) the (x) Rent, and all other charges provided for herein until the date the Lease would have expired had such termination, re-entry or repossession not occurred, and (y) expenses to which Landlord may be put in re-entering the Demised Premises repossessing the same; making good any Default of Tenant; painting, altering or dividing the Demised Premises; combining or placing the same in proper repair; protecting and preserving the same by placing therein watchmen and caretakers; reletting the same (including attorney's fees and disbursements, marshall's fees, brokerage fees, in so doing); and any expenses which Landlord may incur during the occupancy of any new tenant; minus (ii) the net proceeds of any reletting. Under no circumstances, however, shall Landlord be under any obligation whatsoever to make any payments to Tenant on account of any -18- increase in the Rent received by Landlord by virtue of such reletting. Tenant agrees to pay to Landlord the difference between items (i) and (ii) hereinabove with respect to each month, at the end of such month. Such payment shall be made to Landlord at Landlord's notice address or such other address as Landlord may designate by giving notice to Tenant. Any suit brought by Landlord to enforce collection of such difference for any one month shall not prejudice Landlord's right to enforce the collection of any difference for any subsequent month. In addition to the foregoing, Tenant shall pay to Landlord such sums as the court which has jurisdiction thereover may adjudge reasonable as attorney's fees with respect to any successful lawsuit or action instituted by Landlord to enforce the provisions hereof. (b) Landlord shall use best efforts to relet the whole or any part of said Demised Premises for the whole of unexpired period of the Lease, or longer, or from time to time for shorter period, for any rental then obtainable, giving such concessions of rent and making such special repairs, alterations, decorations and paintings for any new tenant as it may in its sole and absolute discretion deem advisable. Tenant's liability as aforesaid shall survive the institution of summary proceedings and the issuance of any warrant thereunder. Section 15.04. Landlord's Right to Perform for Account of Tenant: If Tenant shall be in Default hereunder, Landlord may, at any time thereafter, cure said Default for the account and at the expense of Tenant. Tenant shall pay, with interest at the lesser of twelve percent (12%) or the maximum legal rate, on demand, to Landlord, the amount so paid, expended, or incurred by the Landlord and any expense of Landlord including attorney's reasonable fees incurred in connection with such Default; and all of the same shall be deemed to be Additional Rent. Section 15.05. Additional Remedies, Waivers, Etc.: With respect to the rights and remedies of and waivers by Landlord: (a) the rights and remedies of Landlord set forth herein shall be in addition to any other right and remedy now and hereafter provided by law. All such remedies shall be cumulative and not exclusive of each other. Landlord may exercise such rights and remedies at such times, in such order, to such extent, and as often as Landlord deems advisable without regard to whether the exercise of one right or remedy precedes, concurs with or succeeds the exercise of another; (b) A single or partial exercise of a right or remedy shall not preclude (i) a further exercise of a right or remedy shall not preclude (i) a further exercise thereof, or (ii) the exercise of another right or remedy, from time to time; (c) No delay or omission by Landlord in exercising a right or remedy shall exhaust or impair the same or constitute a waiver of, or acquiescence to a Default; (d) No waiver of a Default shall extend to or affect any other Default or impair any right or remedy with respect thereto; (e) No action or inaction by Landlord shall constitute a waiver of a Default; (f) No waiver of a Default shall be effective, unless it is in writing. -19- ARTICLE XVI. TENANT'S CERTIFICATE. Section 16.01. Certificate: At any time within ten (10) days after request by Landlord, by written instrument, duly executed and acknowledged, Tenant shall certify to Landlord, any Mortgagee, assignee of a Mortgagee, any purchaser, or any other person, specified by Landlord, to the effect (a) whether or not Tenant is in possession of the Demised Premises; (b) whether or not the Lease is unmodified and in full force and effect (or if there has been modification, that the same is in full force and effect as modified and setting forth such modification); (c) whether or not there are then existing set-offs or defenses against the enforcement of any right or remedy of Landlord, or any duty or obligation of Tenant (and if so, specifying the same); and (d) the dates, if any, to which any Rent or other charges have been paid in advance. ARTICLE XVII. RIGHT OF ACCESS. Section 17.01. Entry: During any reasonable time during normal business hours before and after the Commencement Date, upon notice Landlord may enter upon the Demised Premises, any portion thereof and any appurtenances thereto (with men and materials, if required) for the purpose of: (a) inspecting same; and (b) showing the Demised Premises to prospective purchasers or lessees during the last three (3) months of the Term. Landlord reserves the right to place a "For Sale" (or a "For Let") sign on the Demised Premises at any time during the last three (3) months of the Term. Landlord shall use its best efforts not to disrupt the operation of the Tenant during any such entry. ARTICLE XVIII. INTERPRETATION, NOTICE, MISCELLANEOUS. Section 18.01. Interpretation: (a) Every term, condition, agreement or provision contained in this Lease which imposes an obligation on Tenant, shall be deemed to be also a covenant by Tenant. (b) Any reference herein to subtenants or licensees shall not be deemed to imply that any subtenants or licensees are permitted hereunder. Any references herein to any extensions or renewals of the Term or any period during which Tenant may be in possession after the Expiration Date shall not be deemed to imply that any extension or renewal of the Term is contemplated hereby or that Tenant shall be permitted to remain in possession after the expiration of the Term. (c) If any provision of the Lease, or any provision set forth herein, or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of the Lease or these General Conditions of Lease, or the application of such provision to persons or circumstances other than those to which it is invalid or unenforceable, shall not be affected thereby, and each provision of the Lease or these General Conditions of Lease shall be valid and be enforced to the fullest extent permitted by law. (d) The captions and headings used throughout the Lease and these General Conditions of Lease are for convenience of reference only and shall not affect the interpretation of the Lease or these General Conditions of Lease. (e) Anything herein to the contrary notwithstanding: -20- (i) Any provision which permits or requires a party to take any particular action shall also be deemed to permit or require a party to cause such action to be taken; and (ii) Any provision which requires any party not to take any particular action shall be deemed to require the party not to permit such action to be taken by any person or by operation of law. (f) The Lease may be executed in several counterparts; but the counterparts shall constitute but one and the same instrument. (g) Wherever a requirement is imposed on any party hereto, it shall be deemed that such party shall be required to perform such requirement at its own expense unless it is specifically otherwise provided herein. (h) The singular includes the plural and the plural includes the singular. (i) The Lease and these General Conditions of Lease shall be construed and enforced in accordance with the laws of the State of New Jersey. (j) The obligations and liabilities of Tenant pursuant to the Lease and these General Conditions of Lease shall be joint and several if Tenant consists of more than one (1) entity. Section 18.02. Construing Various Words and Phrases: (a) Wherever it is provided herein that a party may perform an act or do anything, it shall be construed that that party may, but shall not be obligated to, so perform or so do. (b) The words "reenter" and "reentry" as used herein are not restricted to their technical legal meaning. (c) The following words and phrases shall be construed as follows: (i) "At any time" shall be construed as, "at any time or from time to time". (ii) "Any" shall be construed as "any and all". (iii) "Including" shall be construed as "Including but not limited to". Section 18.03. No Oral Changes: The Lease may not be changed or terminated orally. Section 18.04. Notices: No notice, request, consent, approval, waiver or other communication under the Lease or under these General Conditions of Lease shall be effective unless the same is in writing and is mailed by registered or certified mail, return receipt requested, postage prepaid, addressed: (a) If to Landlord, to the address designated as Landlord's Notice Address in the Lease or such other address as Landlord designates by giving notice thereof to Tenant, with a copy thereof to the address designated as Landlord's Notice Copy Address in the Lease or to such other person or party as Landlord shall designate by notice to Tenant, and (b) If to Tenant, to the address designated as Tenant's Notice Address in the Lease or such other address as Tenant shall designate by giving notice thereof to Landlord, with a copy of the address designated as Tenant's Notice Copy Address in the Lease or to such other person or party as Tenant shall designate by giving notice thereof to Landlord. -21- Section 18.05. Method of Payment: Except as herein otherwise expressly provided, all amounts under the Lease shall be payable in currency or by check. Section 18.06. Successors and Assigns: Subject to the provisions hereof, the Lease shall bind and inure to the benefit of the parties and their respective successors, representatives, heirs and assigns. Section 18.07. Responsibility of Tenant: Any restriction on or requirement imposed upon Tenant hereunder shall be deemed to extend to Tenant's Guarantor, Tenant's subtenants, concessionaires and licensees and it shall be Tenant's obligation to cause the foregoing persons to comply with such restriction of requirement. Section 18.08. Hold Over: If Tenant shall hold-over after the end of the Term or any Renewal Periods, such holding over shall be construed as a tenancy from month-to-month, subject to all of the provisions, conditions and obligations of the Lease and these General Conditions of Lease and Rent shall be the Rent then in effect during the last month of the Term or any Renewal Period, as applicable. Section 18.09. Liability of Landlord. Landlord shall be personally liable with respect to all provisions of this Lease except for any environmental obligations or liabilities arising out of or by virtue of the Act, the Spill Act, Governmental Regulations or otherwise ("Environmental Liabilities"). For Environmental Liabilities, Tenant shall look only to the equity of the then owner of the Demised Premises in the Demised Premises. If the owner of the Demised Premises obtains mortgage financing secured by the Demised Premises, the Tenant may recover from such owner the amount of any mortgage proceeds received thereby. Section 18.10. Execution: The Lease shall be of no force and effect unless and until it is executed by both Landlord and Tenant. Section 18.11. Short Form Lease: Landlord and Tenant shall, each on request of the other, execute a short form lease or Memorandum of Lease, in proper form for recording, setting forth the Commencement Date and any provision thereof other than Rent, Taxes and Security Deposit. The cost and expense for the preparation of such form lease shall be paid by the party requesting same. The Lease itself shall not be recorded. THE PARTIES ACKNOWLEDGE THAT THEY HAVE READ, UNDERSTAND AND AGREE TO BE BOUND BY THE GENERAL CONDITIONS OF LEASE. Landlord Tenant DIFEO BMW, INC. /s/ By: /s/ - -------------------------------- ------------------------------- Michael Zullo, Sr. /s/ - -------------------------------- Bertha Zullo -22- (Acknowledgment for Corporate Tenant) STATE OF ) ) ss.: COUNTY OF ) On this ____ day of __________, 19__, before me personally appeared _______________ to me known, who, being by me duly sworn, did depose and say that he/she is the _________________ of ________________________________, the corporation described in and which executed the foregoing Lease; that he/she knows the seal of said corporation, that the seal affixed to said instrument is such corporate seal, that it was so affixed by order of the board of directors of said corporation, and that he/she signed his/her name thereto by like order. In witness whereof I hereunto set my hand and official seal. ---------------------------- Notary Public (Notarial Seal) Exhibit A Property Description All that certain property situate, lying and being in block 168 lot 005 in the City of Tenafly, County of Bergen, State of New Jersey being more commonly known as 301 County Road, Tenafly, New Jersey. EX-10.8-1 22 EXH 10.8.1 STOCK PURCHASE AGREEMENT 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- AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT This Amendment No. 1 to Stock Purchase Agreement (the "Amendment") is made and entered into this ___ day of October, 1996 between and among United Auto Group, Inc. ("UAG"), a Delaware corporation, UAG West, Inc. ("UAG West"), a Delaware corporation, Scottsdale Jaguar, Ltd. ("Scottsdale Jaguar"), an Arizona corporation, SA Automotive, Ltd. ("SA"), an Arizona corporation, SL Automotive, Ltd. ("SL"), an Arizona corporation, SPA Automotive, Ltd. ("SPA"), an Arizona corporation, LRP, Ltd. ("LRP"), an Arizona corporation, Sun BMW, Ltd. ("Sun BMW"), an Arizona corporation, Scottsdale Management Group, Ltd. ("Scottsdale Management"), an Arizona corporation, 6725 Dealership, Ltd. ("6725"), an Arizona corporation, 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 ("Beskind") and George W. Brochick ("Brochick"). W I T N E S S E T H: WHEREAS, the parties hereto have entered into that certain Stock Purchase Agreement dated as of June 6, 1996 (the "Stock Purchase Agreement"); WHEREAS, the parties hereto desire to amend the terms of the Stock Purchase Agreement as set forth herein; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. All capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Stock Purchase Agreement. 2. Prior to the Closing, Scottsdale Jaguar shall form a subsidiary, SK Motors, Ltd., an Arizona corporation, d/b/a Scottsdale Porsche ("Scottsdale Porsche"). Scottsdale Porsche shall be authorized to issue common stock, no par value ("Porsche Stock"). Immediately prior to the transactions described in Section 4, Scottsdale Jaguar shall transfer to Scottsdale Porsche all of the assets of Scottsdale Jaguar relating to the sale or servicing of Porsche vehicles, including without limitation new Porsche automobiles, related used vehicles, Porsche special tools, and the Porsche franchise (the "Porsche Assets"). Immediately prior to the transactions described in Section 4 hereof, Scottsdale Jaguar shall own 100% of the issued and outstanding shares of Porsche Stock (the "Porsche Shares"). 3. The parties hereby acknowledge and agree that for all income tax purposes, Scottsdale Jaguar and the Stockholders will report the transfer of the Porsche Assets to Scottsdale Porsche as an "applicable asset acquisition" within the meaning of section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"), by Scottsdale Porsche for consideration equal to the Porsche Purchase Price (as defined below) and not as a tax-free contribution to the capital of the transferee pursuant to section 351 of the Code. For this purpose, the Porsche Purchase Price shall be allocated among the various Porsche Assets as set forth in IRS Form 8594, the content of which shall be mutually agreed upon by the parties hereto. In this regard, the parties hereby expressly agree that (a) all items of depreciated property shall be valued at their book value for federal income tax purposes, (b) all other transferred assets (excluding the Porsche franchise) shall be valued at their cost to Scottsdale Jaguar, and (c) the balance of the Porsche Purchase Price shall be allocated to the Porsche franchise. Each of the parties shall report this transaction for all income tax purposes in accordance with such allocation of the purchase price. Scottsdale Jaguar shall timely file such IRS Form 8594 (or an exact replica thereof), and UAG shall cause Scottsdale Porsche to timely file such IRS Form 8594. 4. At the Closing, in consideration for a portion of the Purchase Price in cash (as reasonably determined by UAG) (the "Porsche Purchase Price") paid to Scottsdale Jaguar (by which amount the Purchase Price in Section 1.2 of the Stock Purchase Agreement will be reduced), Scottsdale Jaguar shall sell, assign, transfer and deliver to UAG West the Porsche Shares, representing 100% of the capital stock of Scottsdale Porsche and shall deliver the certificates representing such shares to UAG West accompanied by stock powers duly executed in blank. In consideration for the payment of $10 in cash by Knappenberger Trust to UAG West, UAG West shall sell, assign, transfer and deliver nineteen (19%) of the Porsche Shares to Knappenberger Trust and shall deliver the certificates representing such shares accompanied by stock powers duly executed in blank, such that immediately after the transfer, Knappenberger Trust shall hold 19% of the issued and outstanding shares of Porsche Stock and UAG West shall own 81% of the issued and outstanding shares of Porsche Stock. UAG West and Knappenberger Trust shall enter into a Shareholders Agreement in the form attached hereto, which agreement, together with the transfer of Porsche Shares to Knappenberger Trust, has been approved by Porsche Cars of North America ("Porsche Cars"). 5. Scottsdale Jaguar shall distribute to the Stockholders all amounts paid to Scottsdale Jaguar as consideration for the sale to UAG West of 100% of the Porsche Shares. 6. The definition of Companies in the Stock Purchase Agreement is hereby amended to include Scottsdale Porsche. 7. The obligations of the parties hereunder including the obligations required to be performed by them at the Closing shall be subject to the Stockholders, the Companies, UAG and UAG West having obtained the consent, authorization and approval of Porsche Cars. 8. The Stockholders and Scottsdale Jaguar hereby represent and warrant that the transfer of assets pursuant to Section 2 hereof will be valid, binding and enforceable against Scottsdale Jaguar and that, after the transfer, Scottsdale Porsche will have good title to such assets. 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first above written. UNITED AUTO GROUP, INC. By: ______________________________ Its: ______________________________ UAG WEST, INC. By: ______________________________ Its: ______________________________ SCOTTSDALE JAGUAR, LTD. By: ______________________________ Its: ______________________________ SA AUTOMOTIVE, LTD. By: ______________________________ Its: ______________________________ SL AUTOMOTIVE, LTD. By: ______________________________ Its: ______________________________ SPA AUTOMOTIVE, LTD. By: ______________________________ Its: ______________________________ LRP, LTD. By: ______________________________ 3 Its: ______________________________ SUN BMW, LTD. By: ______________________________ Its: ______________________________ SCOTTSDALE MANAGEMENT GROUP, LTD. By: ______________________________ Its: ______________________________ 6725 DEALERSHIP, LTD. By: ______________________________ Its: ______________________________ STEVEN KNAPPENBERGER REVOCABLE TRUST DATED APRIL 15, 1983, AS AMENDED By: ______________________________ Steven Knappenberger, Trustee ___________________________________ Steven Knappenberger (with respect to Sections 5.11, 5.16 and 5.21 of the Stock Purchase Agreement) ___________________________________ Jay P. Beskind, Individually ___________________________________ Diana R. Beskind, Spouse of Jay Beskind 4 ___________________________________ George W. Brochick, Individually ___________________________________ Christine S. Brochick, Spouse of George Brochick BROCHICK 6725 TRUST DATED DECEMBER 29, 1992 By: ______________________________ Robert W. Wyndelts, Trustee BESKIND 6725 TRUST DATED DECEMBER 29, 1992 By: ______________________________ Robert W. Wyndelts, Trustee KNAPPENBERGER 6725 TRUST DATED DECEMBER 29, 1992 By: ______________________________ Robert W. Wyndelts, Trustee 5 AMENDMENT NO. 2 TO STOCK PURCHASE AGREEMENT This Amendment No. 2 to Stock Purchase Agreement (the "Amendment") is made and entered into this 21st day of October, 1996 between and among United Auto Group, Inc. ("UAG"), a Delaware corporation, UAG West, Inc. ("UAG West"), a Delaware corporation, Scottsdale Jaguar, Ltd. ("Scottsdale Jaguar"), an Arizona corporation, SA Automotive, Ltd. ("SA"), an Arizona corporation, SL Automotive, Ltd. ("SL"), an Arizona corporation, SPA Automotive, Ltd. ("SPA"), an Arizona corporation, LRP, Ltd. ("LRP"), an Arizona corporation, Sun BMW, Ltd. ("Sun BMW"), an Arizona corporation, Scottsdale Management Group, Ltd. ("Scottsdale Management"), an Arizona corporation, 6725 Dealership, Ltd. ("6725"), an Arizona corporation, 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 ("Knappenberger"), Jay P. Beskind ("Beskind") and George W. Brochick ("Brochick"). W I T N E S S E T H: WHEREAS, the parties hereto have entered into that certain Stock Purchase Agreement dated as of June 6, 1996 (the "Stock Purchase Agreement"); WHEREAS, the parties hereto desire to amend the terms of the Stock Purchase Agreement as set forth herein; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. All capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Stock Purchase Agreement. 2. Prior to the Closing, Scottsdale Jaguar shall form a subsidiary, Scottsdale Audi, Ltd., an Arizona corporation ("Scottsdale Audi"). Scottsdale Audi shall be authorized to issue common stock, no par value ("Audi Common Stock"). Immediately prior to the transactions described in Section 4, Scottsdale Jaguar shall contribute to Scottsdale Audi all assets owned by Scottsdale Jaguar other than those assets exclusively and specifically related to the sale and servicing of Porsche, Jaguar or Aston Martin vehicles, which assets shall include but not be limited to assets relating specifically and exclusively to the sale and servicing of Audi vehicles, as well as Scottsdale Jaguar's partnership interest in 6725 Agent. After the transfer of the assets to Scottsdale Audi and a concurrent transfer of Porsche-related assets to SK Motors, Ltd., the only assets to be owned by Scottsdale Jaguar shall be those assets specifically and exclusively related to the sale and servicing of Jaguar or Aston Martin vehicles. Immediately prior to the transactions described in Section 4, Scottsdale Jaguar shall own 100% of the issued and outstanding Audi Common Stock (the "Audi Shares"). 3. The parties hereby acknowledge and agree that for all income tax purposes, Scottsdale Jaguar and the Stockholders will report the transfer of the Audi Assets to Scottsdale Audi as an "applicable asset acquisition" within the meaning of section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"), by Scottsdale Audi for consideration equal to the Audi Purchase Price (as defined below) and not as a tax-free contribution to the capital of the transferee pursuant to section 351 of the Code. For this purpose, the Audi Purchase Price shall be allocated among the various Audi Assets as set forth in an IRS Form 8594, the content of which shall be mutually agreed upon by the parties hereto. In this regard, the parties hereby expressly agree that: (a) all items of depreciated property shall be valued at their book value for federal income tax purposes, (b) all other transferred assets (excluding Scottsdale Jaguar's interest in 6725 Agent and the Audi franchise) shall be valued at their cost to Scottsdale Jaguar, (c) Scottsdale Jaguar's interest in 6725 Agent shall be valued at an amount reasonably determined by UAG, and (d) the balance of the Audi Purchase Price shall be allocated to the Audi franchise. Each of the parties shall report this transaction for all income tax purposes in accordance with such allocation of the Audi Purchase Price. Scottsdale Jaguar shall timely file such Form 8594 (or an exact replica thereof), and UAG shall cause Scottsdale Audi to timely file such IRS Form 8594. 4. At the Closing, in consideration for a portion of the Purchase Price in cash (as reasonably determined by UAG) (the "Audi Purchase Price") paid to Scottsdale Jaguar (by which amount the Purchase Price in Section 1.2 of the Stock Purchase Agreement will be reduced), Scottsdale Jaguar shall sell, assign, transfer and deliver to UAG West and UAG West shall acquire, purchase and accept from Scottsdale Jaguar the Audi Shares, representing 100% of the capital stock of Scottsdale Audi and shall deliver the certificates representing such shares to UAG West accompanied by stock powers duly executed in blank. Scottsdale Jaguar shall distribute to the Stockholders all amounts paid to Scottsdale Jaguar as consideration for the sale to UAG West of 100% of the Audi Shares. 5. The Stockholders acknowledge that it is the parties' intent that, immediately after the Closing, Scottsdale Jaguar's assets shall consist only of those assets specifically and exclusively related to the sale and servicing of Jaguar and Aston Martin vehicles and the Stockholders agree to use their best efforts to take, or cause to be taken, all action and to do all things necessary to effect the transfer of Scottsdale Jaguar's other assets to Scottsdale Audi or SK Motors, as appropriate. 6. At the Closing, Scottsdale Jaguar and UAG West shall enter into a management agreement with UAG West (the "Management Agreement") pursuant to which Scottsdale Jaguar shall pay UAG West an annual fee in the amount of Five Hundred Thousand Dollars which fee shall be increased annually to an amount equal to the then current annual fee plus a percentage of the then current annual fee equal to the percentage increase in the Consumer Price Index published from time to time by the United States Department of Labor for the preceding 12 months; provided that Scottsdale Jaguar may defer paying the management fee during any period to the extent that the management fee for such period exceeds Scottsdale Jaguar's net income 2 after tax before the management fee for such period, subject in all cases to the specific terms of the Management Agreement. 7. The parties acknowledge that after the Closing, SK Motors, Inc., an Arizona corporation d/b/a Scottsdale Porsche ("Scottsdale Porsche"), Scottsdale Audi and Scottsdale Jaguar will each conduct business at 6725 E. McDowell Road, Scottsdale, Arizona (the "6725 Facility"). At the Closing, Scottsdale Jaguar shall enter into a lease (the "Lease") with the owner of the 6725 Facility for the non-exclusive use of the 6725 Facility by Scottsdale Jaguar. The annual lease rate shall be Seven Hundred Fifty Thousand Dollars ($750,000), payable monthly, and shall be adjusted as provided in the Lease. The term of the Lease shall be for twenty (20) years; provided, however, that the landlord thereunder shall have the right to terminate the Lease at any time until April 30, 1998. The Lease shall provide that Scottsdale Jaguar shall be responsible for a pro- rata share of the joint operating expenses of the Facility to be calculated as set forth in the Lease. The Lease shall be in a form mutually acceptable to Scottsdale Jaguar and UAG West. 8. The definition of Companies in the Stock Purchase Agreement is hereby amended to include Scottsdale Audi. The definition of Shares in the Stock Purchase Agreement is hereby amended to exclude the Scottsdale Jaguar Shares. 9. The obligations of the parties hereunder and the obligations required to be performed by them at the Closing shall be subject to the Stockholders, the Companies, UAG and UAG West having obtained the consent, authorization and approval of Audi of America, Inc. 10. The Stockholders and Scottsdale Jaguar represent and warrant that the transfer of assets pursuant to Section 2 hereof will be valid, binding and enforceable against Scottsdale Jaguar and that, after the transfer, Scottsdale Audi will have good title to such assets. 11. The parties agree that, except for the payment to Scottsdale Jaguar of the aggregate of the Audi Purchase Price and the Porsche Purchase Price (as defined in Amendment No. 1 to the Stock Purchase Agreement) in connection with the sale, assignment, transfer and delivery to UAG West of 100% of the Audi Shares and the Porsche Shares (as defined in Amendment No. 1 to the Stock Purchase Agreement), all of the Purchase Price shall be paid by UAG West to the Stockholders. 12. The S election of Scottsdale Jaguar shall be terminated within ten days after the Closing, unless the parties agree otherwise. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first above written. UNITED AUTO GROUP, INC. By: ______________________________ Its: ______________________________ UAG WEST, INC. By: ______________________________ Its: ______________________________ SCOTTSDALE JAGUAR, LTD. By: ______________________________ Its: ______________________________ SA AUTOMOTIVE, LTD. By: ______________________________ Its: ______________________________ SL AUTOMOTIVE, LTD. By: ______________________________ Its: ______________________________ 4 SPA AUTOMOTIVE, LTD. By: ______________________________ Its: ______________________________ LRP, LTD. By: ______________________________ Its: ______________________________ SUN BMW, LTD. By: ______________________________ Its: ______________________________ SCOTTSDALE MANAGEMENT GROUP, LTD. By: ______________________________ Its: ______________________________ 6725 DEALERSHIP, LTD. By: ______________________________ Its: ______________________________ 5 STEVEN KNAPPENBERGER REVOCABLE TRUST DATED APRIL 15, 1983, AS AMENDED By: ______________________________ Steven Knappenberger, Trustee ___________________________________ Steven Knappenberger (with respect to Sections 5.11, 5.16 and 5.21) ___________________________________ Jay Beskind, Individually ___________________________________ Diana R. Beskind, Spouse of Jay Beskind ___________________________________ George Brochick, Individually ___________________________________ Christine S. Brochick, Spouse of George Brochick BROCHICK 6725 TRUST DATED DECEMBER 29, 1992 By: ______________________________ Robert W. Wyndelts, Trustee 6 BESKIND 6725 TRUST DATED DECEMBER 29, 1992 By: ______________________________ Robert W. Wyndelts, Trustee KNAPPENBERGER 6725 TRUST DATED DECEMBER 29, 1992 By: ______________________________ Robert W. Wyndelts, Trustee 7 AMENDMENT NO. 3 TO STOCK PURCHASE AGREEMENT This Amendment No. 3 to the Stock Purchase Agreement is made and entered into this ____ day of October 1996, between and among United Auto Group, Inc., a Delaware corporation ("UAG"), UAG West, Inc., a Delaware corporation, Scottsdale Jaguar, Ltd., an Arizona corporation, SA Automotive, Ltd., an Arizona corporation, SL Automotive, Ltd., an Arizona corporation, SPA Automotive, Ltd., an Arizona corporation, LRP, Ltd., an Arizona corporation, Sun BMW, Ltd., an Arizona corporation, Scottsdale Management Group, Ltd., an Arizona corporation, 6725 Dealership, Ltd., an Arizona corporation, 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. W I T N E S S E T H: WHEREAS, the parties hereto have entered into that certain Stock Purchase Agreement dated as of June 6, 1996 (the "Stock Purchase Agreement"); and WHEREAS, the parties hereto desire to amend the terms of the Stock Purchase Agreement as set forth herein; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. CAPITALIZED TERMS. All capitalized terms used herein shall have the same meaning ascribed to them in the Stock Purchase Agreement. 2. ADJUSTMENTS MADE BY COOPERS & LYBRAND LLP ("C&L"). (a) Pursuant to an audit performed by C&L in connection with the initial public offering of UAG's common stock, the Companies agreed to make certain adjustments to the Companies' financial statements. Notwithstanding the foregoing, the adjustments requested by C&L shall not be included in (i) preparing the Closing Date Balance Sheets (as defined in Section 1.4(a) of the Stock Purchase Agreement); (ii) preparing the Reviewed Balance Sheets (as defined in Section 1.4(b) of the Stock Purchase Agreement); (iii) calculating the Final Net Worth (as defined in Section 1.4(g) of the Stock Purchase Agreement); (iv) determining whether there exists a Net Worth Deficiency (as defined in Section 1.4(g) of the Stock Purchase Agreement); (v) preparing the Estimated Closing Date Balance Sheets (as defined in Section 6.6 of the Stock Purchase Agreement); or (vi) determining compliance with Sections 2.25 or 6.6 (regarding working capital) of the Agreement. Instead, the Closing Date Balance Sheets, Reviewed Balance Sheets and Estimated Closing Date Balance Sheets (including the determinations of net worth and working capital) shall be prepared on the same basis as the Company Financial Statements (as defined in Section 2.5 of the Stock Purchase Agreement) without regard to the adjustments requested by C&L. Further, the fact that such adjustments were made by the Companies pursuant to C&L's request does not constitute a breach of any of the Companies' or the Stockholders' representations and warranties contained in the Stock Purchase Agreement. (b) Without limitation of the foregoing, for purposes of calculating Net Worth, including the Final Net Worth, under Section 1.4 of the Stock Purchase Agreement, or working capital under Section 2.25 or 6.6 of the Agreement (x) the net worth and working capital of Scottsdale Jaguar, Ltd. shall continue to be included in the Companies' calculations of these items, and Scottsdale Jaguar, Ltd. shall be deemed to include 100% of the Jaguar, Porsche, Aston Martin and Audi operations (and separate working capital calculations of these franchises shall not be made), notwithstanding the fact that certain of these operations will not be transferred to UAG at Closing, and (y) the effect of any transfer or assignment of the purchase option referenced in Section 5.19 of the Stock Purchase Agreement shall be disregarded. 3. CLOSING PRORATIONS. If the Closing occurs on or before the 15th day of a given month, the Closing Date Balance Sheets, Reviewed Balance Sheets and Estimated Closing Date Balance Sheets shall be prepared based upon the full months' actual results, with net income for the month prorated based upon the number of days in the month through and including the date of Closing. If the Closing occurs after the fifteenth of a given month, the Closing Date Balance Sheets, Reviewed Balance Sheets and Estimated Closing Date Balance Sheets shall reflect the results of the Companies through the end of such month. As provided in the Agreement, estimates will be made of all financial calculations on or about Closing subject to final review as provided therein. 4. REFINANCING OF INDEBTEDNESS. UAG and UAG West acknowledge and agree that all the indebtedness listed under the caption "2. Indebtedness:" of Schedule 1.2(e)(vii) to the Stock Purchase Agreement (except for the indebtedness described in Subsection C.3, which will continue as an obligation of the Companies, and in Subsections C.4, C.5 and C.6, which have been paid off, under the caption "2. Indebtedness:" of Schedule 1.2(e)(vii)) (the "Indebtedness") will be paid off or refinanced by UAG and UAG West contemporaneously with or immediately following the Closing. Without limitation of the foregoing, pursuant to a Management Agreement with Scottsdale Jaguar, Inc., UAG or UAG West shall arrange for new flooring financing. Accordingly, Sections 6.2(b) and 7.2(b) of the Stock Purchase Agreement have been satisfied to the extent Sections 6.2(b) and 7.2(b) require consents from the Companies' lenders. Moreover, notwithstanding Section 6.17(d) of the Stock Purchase Agreement, no adjustment shall be made to the Base Price with respect to any monetary liens or encumbrances that are caused to be released from the Purchased Real Property (as defined in Section 1.1(i) of the Stock Purchase Agreement) by UAG or UAG West. 2 5. TERMINATION OF SECURITY INTERESTS. UAG and UAG West acknowledge and agree that, notwithstanding Section 6.18 of the Stock Purchase Agreement, any and all liens, security interests and other encumbrances relating to the Indebtedness need not be released or terminated prior to the Closing. Accordingly, the conditions to Closing set forth in Section 6.18 of the Stock Purchase Agreement have been satisfied to the extent Section 6.18 requires evidence that all liens, security interests and 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 (but not the Maas Note or Max Consulting Agreement) have been released or terminated. 6. EXPIRATION OF OBJECTION PERIODS; COMPLETION OF DUE DILIGENCE. UAG and UAG West acknowledge and agree that the periods within which they had an opportunity to raise any issues identified during their due diligence examination (including issues related to real property, leases, title and surveys and environmental matters) or any objections to the Companies' Schedules to the Stock Purchase Agreement have expired. Similarly, the Companies and the Stockholders acknowledge and agree that the periods within which they had an opportunity to raise any issues identified during their due diligence examination or any objections to the UAG's and UAG West's Schedules to the Stock Purchase Agreement have expired. Accordingly, the conditions to Closing set forth in Sections 6.7, 6.17, 6.19, 7.7 and 7.12 of the Stock Purchase Agreement have been satisfied. 7. MANUFACTURER AND DISTRIBUTOR APPROVALS. UAG and UAG West acknowledge and agree that satisfactory consents, authorizations and approvals from all other manufacturers and distributors of the Companies have been obtained, except for approvals from Jaguar and Aston Martin which are the subject of a prior Amendment to the Stock Purchase Agreement. Accordingly, the conditions to Closing set forth in Section 6.11 of the Stock Purchase Agreement have been satisfied. 8. RELEASE OF PERSONAL GUARANTEES. Nothing contained in this Amendment shall be construed to waive or affect in any way the closing conditions set forth in Section 7.13 of the Stock Purchase Agreement relating to the release of the personal guarantees of Steve Knappenberger, his spouse and the Steven Knappenberger Revocable Trust II, including without limitation, with respect to any indebtedness, leases or other obligations of or affecting Scottsdale Jaguar, Ltd. 9. ENVIRONMENTAL INDEMNITY. (a) A new subsection (iii) shall be added to Section 9.1 (Indemnification) of the Agreement as follows: "(iii) (a) testing, remediation and costs of obtaining clearance from appropriate governmental authorities required under the Environmental Laws in respect of any previous leaking of underground storage tanks at the Companies' properties located at 6725, 6825 and 6905 E. McDowell Road, Scottsdale, Arizona, (b) registering, pursuant to Arizona law, any drywell located at 6825 and 6905 E. McDowell, 3 Scottsdale, Arizona and performing any investigation and/or remediation work required by any governmental agency pursuant to any Environmental Laws for any condition directly related to such drywell, which condition existed on or before the date of the Closing and (c) ensuring that any necessary installation of secondary containment for above-ground storage tanks located at 6825 and 6905 E. McDowell Road, and 1127 and 1144 N. Scottsdale Road, Scottsdale, Arizona is completed to bring such tanks into compliance with Environmental Laws, in each case as such laws are in effect as of the date of the Closing. (b) The indemnity provided for in subsection (iii) shall terminate on the third anniversary of the Closing Date. However, the indemnification obligations of subsection (iii) shall not be subject to the limitations of Section 9.4(a). 10. ADDITIONAL PURCHASE PRICE. The "October 1, 1996" and "September 30, 1998" dates set forth in Section 1.5 of the Stock Purchase Agreement shall be changed to the first day of the month following closing and the second anniversary of the end of the month preceding Closing, respectively. In addition, the term "Companies" in Section 1.5 includes Scottsdale Jaguar, SK Motors, Ltd. d/b/a Scottsdale Porsche and Scottsdale Audi, Ltd. 11. CALCULATION OF PRE-TAX EARNINGS. In addition to the methodology for computing Pre-Tax Earnings as set forth in Section 1.5(c) of the Stock Purchase Agreement, UAG and UAG West acknowledge and agree that Pre-Tax Earnings shall be computed by adding back payments by Scottsdale Jaguar of amounts in accordance with Section 2.1 of the Management Agreement, any incremental increase in the lease costs of the Companies over the lease costs existing as of the date of execution of the Stock Purchase Agreement and any amounts paid pursuant to that certain Indemnification Agreement between UAG, UAG West, Scottsdale Jaguar and the Stockholders. 12. TAX REPRESENTATIONS AND WARRANTIES. Notwithstanding Section 9.1 of the Stock Purchase Agreement, the Stockholders shall not have any liability thereunder in connection with any breach or inaccuracy in any representation relating to the reserve by the Companies for the payment of all Taxes with respect to periods through the Closing under Section 2.8 of the Stock Purchase Agreement if such a liability for Taxes arises by reason of any modification of the transactions contemplated by the Stock Purchase Agreement, including modifications necessitated by the refusal of Jaguar Cars, Inc. to consent to such transactions. 13. ACCOUNTING AND TAX RETURN PREPARATION. (a) With respect to each of the Companies other than Scottsdale Jaguar, SK Motors, Ltd. d/b/a Scottsdale Porsche, and Scottsdale Audi, Ltd. (each an "S Company" and collectively, the "S Companies"), the S Companies' outstanding S elections will terminate by reason of the transfers of stock of the S Companies to UAG West. 4 (b) Consistent with the termination of the S Companies' S elections, the books of each of the S Companies shall, consistent with Section 1362(e)(6)(D) of the Internal Revenue Code of 1986, as amended, close effective as of the day preceding the date of the Closing and, accordingly, a separate and distinct accounting period of each of the S Companies shall commence on the date of the Closing. (c) Each of the S Companies shall file two tax returns for the taxable year in which the Closing occurs, one return covering each S Company's "S short year" (within the meaning of Section 1362(e)(1)(A) of the Code) and a second covering each S Company's "C short year" (within the meaning of Section 1362(e)(1)(B) of the Code). The Stockholders shall have sole and exclusive authority for the preparation and filing of all tax returns relating to each S Company's S short year and UAG shall have sole and exclusive authority for the preparation and filing of the tax returns relating to each S Company's C short year. (d) UAG, UAG West, each of the S Companies, and the Stockholders shall make available to each other, as reasonably requested, all information, records or documents necessary for the filing of all tax returns for each S Company's S short year and C short year, and shall preserve all such information, records or documents until the expiration of any applicable statute of limitations. 14. REPRESENTATIONS AND WARRANTIES. UAG and UAG West hereby acknowledge that the representations and warranties of the Companies and Stockholders are hereby modified to reflect that it is currently anticipated that the proposed expansion of the Companies' Lexus facility will cost on the order of $300,000. UAG and UAG West hereby acknowledge and agree that the Companies and the Stockholders make no representations or warranties with respect to the compliance of Amendments No. 1, 2 and 3 to the Stock Purchase Agreement and the documents delivered thereunder with the Dealer Agreement between Scottsdale Jaguar, Ltd. and Jaguar Cars, Inc. 15. STOCKHOLDER PLEDGE AGREEMENTS. Jay P. Beskind and Diana R. Beskind hereby represent and warrant that, as of the Closing Date, the Stock Pledge Agreement, dated February 17, 1995, by and between Jay P. Beskind, Diana R. Beskind, Knappenberger Trust, SPA, SL, SA, Scottsdale Jaguar, Scottsdale Management and Bank One Arizona has been terminated. George W. Brochick and Christine S. Brochick also hereby represent and warrant that, as of the Closing Date, the Stock Pledge Agreement, dated February 17, 1995, by and between George W. Brochick, Christine S. Brochick, Knappenberger Trust, SPA, SL, SA, Scottsdale Jaguar, Scottsdale Management and Bank One Arizona has been terminated. 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above. UNITED AUTO GROUP, INC. By: ------------------------------------ Its: ------------------------------------ UAG WEST, INC. By: ------------------------------------ Its: ------------------------------------ SCOTTSDALE JAGUAR, LTD. By: ------------------------------------ Its: ------------------------------------ SA AUTOMOTIVE, LTD. By: ------------------------------------ Its: ------------------------------------ SL AUTOMOTIVE, LTD. By: ------------------------------------ Its: ------------------------------------ SPA AUTOMOTIVE, LTD. By: ------------------------------------ Its: ------------------------------------ LRP AUTOMOTIVE, LTD. By: ------------------------------------ Its: ------------------------------------ 6 SUN BMW, LTD. By: ------------------------------------ Its: ------------------------------------ SCOTTSDALE MANAGEMENT GROUP, LTD. By: ------------------------------------ Its: ------------------------------------ 6725 DEALERSHIP, LTD. By: ------------------------------------ Its: ------------------------------------ STEVEN KNAPPENBERGER REVOCABLE TRUST DATED APRIL 15, 1983, AS AMENDED By: ---------------------------------------- Steven Knappenberger, Trustee -------------------------------------------- Steven Knappenberger, Individually (Solely with respect to Sections 5.11, 5.16 & 5.21 of the Stock Purchase Agreement) -------------------------------------------- Jay P. Beskind, Individually -------------------------------------------- Diana R. Beskind, Spouse of Jay P. Beskind -------------------------------------------- George W. Brochick, Individually 7 -------------------------------------------- Christine Brochick, Spouse of George W. Brochick BROCHICK 6725 TRUST DATED DECEMBER 29, 1992 By: ---------------------------------------- Robert W. Wyndelts, Trustee BESKIND 6725 TRUST DATED DECEMBER 29, 1992 By: ---------------------------------------- Robert W. Wyndelts, Trustee KNAPPENBERGER 6725 TRUST DATED DECEMBER 29, 1992 By: ---------------------------------------- Robert W. Wyndelts, Trustee 8 EX-10.8-5-1 23 EXH 10.8.5.1 AUDI DEALER AGREEMENT Audi Dealer Agreement 1. Appointment. Audi of America, Inc., a division of Volkswagen of America, Inc. ("Distributor"), having a place of business at ___________________________________________________, appoints _____________________________________________("Dealer"), doing business under the fictitious name ________________________ _________________, having its place of business at ______________ _____________________________________, as an authorized dealer in Audi brand motor vehicles and genuine parts and accessories therefor. Accordingly, the parties agree as follows: 2. Standard Provisions. The Dealer Agreement Standard Provisions (the "Standard Provisions") (Form No. Deal. 92AB) are part of this Agreement. Any term not defined in this Agreement has the meaning given such term in the Standard Provisions. 3. Ownership and Management. To induce Distributor to enter into this Agreement, Dealer represents that the persons identified in the Statement of Ownership and Management, which is attached as Exhibit A, are Dealer's Owners and Executives. Distributor is entering into this Agreement in reliance upon these representations, and upon the continued provision by such persons of their personal services in fulfillment of Dealer's obligations under this Agreement. Accordingly, Dealer agrees there will be no change in Dealer's Owners without Distributor's prior written consent, and no change in Dealer's Executives without prior notice to Distributor. 4. Minimum Financial Requirements. Dealer agrees to comply and maintain compliance with the minimum financial requirements established for Dealer from time to time in accordance with the Operating Standards. Throughout the term of this Agreement those minimum financial requirements are subject to revision by Distributor, after review with Dealer, in light of operating conditions and the development of Dealer's business and business potential. 5. Dealer's Premises. Distributor has approved the location of Dealer's Premises as specified in the Dealer Premises Addendum, attached as Exhibit B, Dealer agrees that, without Distributor's prior written consent, it will not (a) make any major structural change in any of Dealer's Premises, (b) change the location of any of Dealer's Premises or (c) establish any additional premises for Dealer's Operations. 6. EXCLUSION OF WARRANTIES. EXCEPT FOR DISTRIBUTOR'S WARRANTIES, AND EXCEPT AS PROVIDED IN ARTICLE 9(1) OF THE STANDARD PROVISIONS, THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OR OBLIGATIONS OF THE MANUFACTURER OR DISTRIBUTOR AS TO THE QUALITY OR CONDITION OF AUTHORIZED PRODUCTS, OR AS TO THEIR MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, AND, TO THE EXTENT PERMITTED BY LAW, DEALER WILL EXCLUDE ANY AND ALL SUCH WARRANTIES AND OBLIGATIONS IN ITS SALES OF AUTHORIZED PRODUCTS. 7. Term. The term of this Agreement begins on the date of its delivery to Dealer or on January 1, 1992, whichever is later. This Agreement shall continue in effect until December 31, 1996, or _____________, 199__, whichever is earlier, unless sooner terminated by either party or superseded by a new Dealer Agreement with Distributor. 8. Governing Law. This Agreement will be construed in accordance with the laws of the State of ___________________. Should the performance of any obligation under this Agreement violate any valid law of such jurisdiction, then this Agreement shall be deemed modified to the minimum extent necessary to comply with such law. 9. Additional Terms and Conditions. The Addenda attached hereto as Exhibits A though _____ are part of this Agreement, and are incorporated into this Agreement by this reference. Dated: _______________, 19__. Audi Of America, Inc. By:___________________________ Zone Manager Dealer By:___________________________ Title: -2- Exhibit A to Audi Dealer Agreement Dated _____________, 19__. Statement Of Ownership And Management 1. Dealer firm name:___________________________________________ 2. Principal place of business:________________________________ 3. Dealer is a ( ) proprietorship ( ) partnership ( ) corporation, incorporated on __________ ____ under the laws of the State of ____________________________________. 4. The following persons are the beneficial and record owners of Dealer: If a Corporation, Percentage of Name and Address of Each Number and Ownership Record and Beneficial Class of Shares of Record Owner of Dealer Number Class in Dealer 5. The following persons are Dealer's Officers: Name and Address Title A-1 6. The following person functions as General Manager of Dealer. As such, he is an agent of Dealer and is authorized, and Distributor is entitled to rely on his authority, to make all decisions on behalf of Dealer with respect to Dealer's Operations. Name and Address Title Dealer hereby certifies that the foregoing information is true and complete as of the date below. Distributor has entered into this Agreement in reliance upon the qualifications, and the continued provision of personal services in the ownership and management of Dealer by, the persons identified above. This Exhibit cancels any prior Statement of Ownership and Management. Dated:_________________ 19___. Audi Of America, Inc. By:__________________________ Zone Manager Dealer By:___________________________ Title: A-2 Exhibit B to Audi Dealer Agreement Dated ___________, 19__. Dealer Premises Addendum 1. Dealer firm name:___________________________________________ 2. Distributor has approved the location of the following premises, and no others, for Dealer's Operations: a. Sales Facilities: ____________________________________________________________ b. Authorized Automobile Storage Facilities: ____________________________________________________________ c. Service Facilities: ____________________________________________________________ d. Genuine Parts Storage Facilities: ____________________________________________________________ e. Used Car Lot: ____________________________________________________________ Dealer hereby certifies that the foregoing information is true and complete as of the date below. The Exhibit cancels any prior Dealer Premises Addendum. Dated:____________________ 19__. Audi Of America, Inc. By:____________________________ Zone Manager Dealer By:____________________________ Title B-1 Audi of America, Inc. [LOGO] Sent Via Fax & Federal Express September 18, 1996 United Auto Group, Inc. 375 Park Ave., 22nd Floor New York, NY 10152 Attention of George G. Lowrance, Executive Vice President RE: LETTER OF INTENT Gentlemen: We are pleased to advise you that the application of United Auto Group, Inc. ("UAG") to acquire all the outstanding shares of capital stock of Scottsdale Jaguar, Ltd. d/b/a Scottsdale Audi ("Dealer") tentatively has been approved. Audi of America, Inc., an unincorporated division of Volkswagen of America, Inc. ("Audi") is prepared to issue a new Statement of Ownership and Management (a specimen copy of which is enclosed) to the Audi Dealer Agreement currently in effect between Audi and Dealer (the "Dealer Agreement") when, in our sole judgment, you have fulfilled our customary requirements and satisfied each of the conditions set forth below. Each of these conditions has been discussed with you by Audi's representatives. 1. The corporate existence of Dealer will continue unchanged, but for the transfer of all shares of capital stock of Dealer from Steven Knappenberger ("Knappenberger") to UAG. Dealer will operate the Audi dealership referred to herein and no other business of any kind, save and except for the other automotive operations customarily conducted by Dealer as of the date hereof. You will supply Audi upon request, for its review and approval, all documents reflecting the existence, shareholdings, organization, officers and directors of Dealer, and any agreements between or among Dealer, its affiliates and its shareholders. 2. The officers of Dealer following the contemplated stock transfer will be as follows: Chairman: Carl Spielvogel President: Steve Knappenberger Treasurer: Craig C. Lindsay Secretary: Craig C. Lindsay General Manager: George W. Brochick 3. All the capital stock of Dealer will be transferred to, and will continue to be wholly owned, by UAG. UAG has 6,987,391 issued and outstanding shares of capital stock, which are owned as follows: Trace Auto Holdings, Inc. 40.3% Aeneas Venture Corp. 32.2 AIF II, L.P. 20.5 Ezra Mager 2.2 Jeremy Grantham 1.1 Jules Kroll 1.1 Andrea Farace 0.57 Natio Vie Development 0.57 Carl Spielvogel 0.28 Jerome Markowitz 0.06 Philip Halperin 0.06 Natio Fonds Venture 2 0.04 Amo Venture 0.04 Frank Dunlevy 0.03 Derek lemke von Ammon 0.03 4. The total Invested Operating Capital of Dealer will at no time be lower than $1,000,000 of which no more than one-half will be in the form of borrowed funds. 5. The total Net Working Capital of Dealer will at no time be lower than $2,300,000. The Owner's Equity of Dealer will at no time be lower than $600,000. ("Net Working Capital" and "Owner's Equity" shall have the respective meanings ascribed to them in the Operating Standards for Audi Dealers, a copy of which you have received.) 6. A Wholesale Credit Line for Dealer of at least $1,300,000 will be established and maintained with a local financial institution acceptable to Audi for the exclusive purpose of purchasing and maintaining an inventory of Audi automobiles. 7. You acknowledge your understanding of, and to induce Audi to approve the contemplated transaction you agree, to the requirements of Audi as they relate to the dedication of a completely separate sales and service facility for Dealer's Audi operations. You agree to negotiate with Audi in good faith toward the establishment of a timetable for the separation of Audi dealership operations from any other business operations of Dealer or of UAG, and the establishment of specifications for such a separate Audi dealership facility. You understand and agree that but for the representations of Dealer and UAG as set forth in this paragraph, Audi would not enter into this Letter of Intent or any other agreement with you. 8. You understand and agree that neither this Letter of Intent, the transactions contemplated by this Letter of Intent, nor any amended Statement of Ownership and Management to the Dealer -2- Agreement which may ultimately be entered into pursuant to the terms hereof, shall waive, modify, cancel or amend any other agreement heretofore in effect between Audi and Dealer. 9. You will supply us with executed and authentic copies of the following documents: a. A letter from your financial institution verifying the amount of the wholesale credit available for your purchase of Audi automobiles. b. Proof of investment satisfactory to us verifying the amount of Dealer's total invested capital. c. Copies of both sides of all Stock Certificates issued by Dealer. d. A certified list of the Officers and the Directors of Dealer. e. All documents respecting the contemplated stock transfer. 10. Notwithstanding your compliance with the foregoing, you understand this Letter of Intent may be revoked with no further liability on our part if: a. An order is issued by any court or administrative agency, pursuant to any law or regulation denying you or Dealer any license needed to conduct the dealership operations contemplated by this letter or enjoining Audi from entering into the Audi Dealer Agreement contemplated herein; or b. In the judgment of our counsel there is a significant possibility any such license may be denied or such an order may be issued. 11. You further understand, acknowledge and agree that: a. Time is of the essence of all matters set forth in this Letter of Intent. b. In the event you or Dealer, for any reason within your control, shall fail to timely fulfill any of the terms and conditions set forth herein, Audi shall not be obligated to issue a new Statement of Ownership and Management to the Dealer Agreement or to grant you or Dealer an extension of time in which to complete your performance thereof. c. You and Dealer hereby voluntarily assume the entire risk of the undertakings contemplated herein. You and Dealer, by your approval and acceptance of this Letter of Intent, and intending to be legally bound hereby, further -3- agree and covenant not to sue Audi, its officers, directors, agents, employees, parent, subsidiaries, successors or assigns with respect to any or all damages you or Dealer may suffer by reason of taking any action in reliance upon this Letter of Intent, in the event you fail to timely fulfill any of the conditions set forth herein, and Audi thereafter fails or refuses to amend its Dealer Agreement with Dealer. d. The financial requirements set forth in this Letter of Intent are subject to periodic review and change. You agree to comply promptly with any such change in financial requirements. You also agree that an additional investment may be required if any assets required to comply with the Audi Dealer Agreement or the Operating Standards for Audi Dealers were not included in our calculation of the aforementioned financial requirements. If all the conditions set forth in this Letter of Intent are satisfied on or before October 15, 1996, Audi will issue a new Statement of Ownership and Management to the Dealer Agreement. You agree that Audi shall have no obligation to so amend such Agreement unless and until you have satisfied all conditions contained in this Letter of Intent. This Letter of Intent will not become effective unless executed by you and received by the undersigned at the above address ten days from the date hereof. Once this Letter of Intent becomes effective, it will remain valid until October 15, 1996, or the execution of a new Statement of Ownership and Management to the Dealer Agreement, whichever occurs first. Please acknowledge -4- your understanding of and agreement to the terms of this Letter of Intent by signing it below and returning it to my attention. My congratulations on behalf of Audi. Please call upon us for any assistance that we may be able to provide. Very truly yours, VOLKSWAGEN OF AMERICA, INC. d/b/a AUDI OF AMERICA, INC. By:_____________________________ The undersigned acknowledge, accept and approve the terms set forth in this Letter of Intent: UNITED AUTO GROUP, INC. SCOTTSDALE JAGUAR, LTD. By: s/George G. Lowrance By: s/Steve Knappenberger -------------------------- ---------------------------- Name:_________________________ Name: Steven Knappenberger Title: Secretary Title: Chairman Date: 9-18-96 Date: 9-19-96 _______________________________ Steven Knappenberger, Executed as Dealer Principal with no individual liability -5- UNITED AUTO GROUP, INC. George G. Lowrance Executive Vice President September 18, 1996 VIA FACSIMILE MAIL - 810/340-5140 Mr. Jerry Reich Manager, Network Development Audi of America, Inc. 3800 Hamlin Road Auburn Hills, Michigan 48326 Dear Jerry: We are in receipt of your Letter of Intent, dated September 18, 1996, relative to the proposed transfer involving Scottsdale Jaguar (on behalf of Scottsdale Audi) and United Auto Group ("UAG") and we are in agreement with the terms contained therein. By this letter, we are asking your acknowledgment that, at the time of the closing of the proposed transaction, and thereafter, UAG will be a publicly traded company and that such is not a violation of the terms of the sales and service agreement by and between Audi of America and the dealership. Audi further understands that the offering for sale of some portion of its stock on the public market will result in a change in the percentages of UAG stock owned by the individuals as listed in paragraph 3 of your Letter. At the time of the offering, and at all times thereafter, UAG will provide Audi with current percentage ownerships by all individuals and entities listed in that paragraph 3. Thank you for your attention to this request. Sincerely, s/ George George Lowrance UNDERSTOOD AND AGREED: s/________________________ JERRY REICH Audi of America, Inc. EX-10.8-5-2 24 EXH 10.8.5.2 AUDI STANDARD PROVISIONS AUDI DEALER AGREEMENT STANDARD PROVISIONS STANDARD PROVISIONS Article 1 . . . . . . . . . . . . . . . . . . . . . . . . 1 Basic Obligations of Distributor . . . . . . . . . . . . 1 Supply of Authorized Products . . . . . . . . . . . . 1 Assistance . . . . . . . . . . . . . . . . . . . . . 1 Compliance with Ethical Standards . . . . . . . . . . 1 Article 2 . . . . . . . . . . . . . . . . . . . . . . . . 1 Basic Obligations of Dealer . . . . . . . . . . . . . . 1 Sales, Service and Parts Supply . . . . . . . . . . . 1 Compliance with Ethical Standards . . . . . . . . . . 2 Operating Standards . . . . . . . . . . . . . . . . . 2 Disclaimer of Further Liability by Distributor . . . 2 Article 3 . . . . . . . . . . . . . . . . . . . . . . . . 2 General Requirements for Dealer's Facilities . . . . . . 2 Dealer's Premises . . . . . . . . . . . . . . . . . . 2 Business Hours . . . . . . . . . . . . . . . . . . . 2 Article 4 . . . . . . . . . . . . . . . . . . . . . . . . 2 Identification; Advertising . . . . . . . . . . . . . . 2 Use of Authorized Trademarks . . . . . . . . . . . . 2 Signs . . . . . . . . . . . . . . . . . . . . . . . . 3 Stationery . . . . . . . . . . . . . . . . . . . . . 3 Advertising . . . . . . . . . . . . . . . . . . . . . 3 Article 5 . . . . . . . . . . . . . . . . . . . . . . . . 3 Sales . . . . . . . . . . . . . . . . . . . . . . . . . 3 Sales Promotion . . . . . . . . . . . . . . . . . . 3 Sales Performance . . . . . . . . . . . . . . . . . . 4 Sales Outside Area . . . . . . . . . . . . . . . . . 4 Sales Facilities . . . . . . . . . . . . . . . . . . 4 Defective or Damaged Authorized Products . . . . . . 4 Changes by Dealer to Authorized Products . . . . . . 5 Product Changes by Dealer Neither Requested by Distributor nor Required by Law . . . . . . . . . . 5 Used Car Operations . . . . . . . . . . . . . . . . . 5 Article 6 . . . . . . . . . . . . . . . . . . . . . . . . 6 Parts . . . . . . . . . . . . . . . . . . . . . . . . . 6 Parts Promotion . . . . . . . . . . . . . . . . . . . 6 Parts Department . . . . . . . . . . . . . . . . . . 6 Sale of Non-genuine Parts . . . . . . . . . . . . . . . . . 6 Parts Inventory . . . . . . . . . . . . . . . . . . . . . . 6 Article 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Service . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Quality and Promotion of Service . . . . . . . . . . . . . 6 Use of Non-genuine Parts . . . . . . . . . . . . . . . . . 7 Owner's Documents . . . . . . . . . . . . . . . . . . . . 7 Maintenance and Other Services Without Customer Charge . . 7 Repeated Repairs . . . . . . . . . . . . . . . . . . . . . 7 Article 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Dealer's Purchases and Inventories . . . . . . . . . . . . . 8 Purchase Prices . . . . . . . . . . . . . . . . . . . . . 8 Orders and Acceptance . . . . . . . . . . . . . . . . . . 8 Inventories . . . . . . . . . . . . . . . . . . . . . . . 8 Product Allocation . . . . . . . . . . . . . . . . . . . . 8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Payment by Dealer . . . . . . . . . . . . . . . . . . . . 9 Passing of Title; Security Interest . . . . . . . . . . . 9 Passing of Risks . . . . . . . . . . . . . . . . . . . . . 9 Responsibility for Defects and Damage . . . . . . . . . . 10 Claims for Incomplete Delivery . . . . . . . . . . . . . . 10 Changes of Specifications . . . . . . . . . . . . . . . . 10 Failure of or Delay in Delivery by Distributor . . . . . . 11 Return or Diversion on Dealer's Failure to Accept . . . . 11 Article 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Warranty to Customers . . . . . . . . . . . . . . . . . . . . 11 Distributor's Warranties . . . . . . . . . . . . . . . . . 11 Incorporation of Distributor's Warranties in Dealer's Sales . . . . . . . . . . . . . . . . . . . . . . . . . 12 Warranty Procedures . . . . . . . . . . . . . . . . . . . 12 Article 10 . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Dealer's Record Keeping and Reports; Inspection of Dealer's Operations . . . . . . . . . . . . . . . . . . . . 12 Dealer's Forms, Business Machines, Office Equipment and Bookkeeping . . . . . . . . . . . . . . . . . . . 12 Financial Statements to be Supplied by Dealer . . . . . 13 Reports to be Supplied by Dealer . . . . . . . . . . . . 13 Inspection of Dealer's Operations and Records . . . . . 13 Article 11 . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Dealer Performance Review . . . . . . . . . . . . . . . . . . 13 Evaluation and Assistance . . . . . . . . . . . . . . . . 13 -2- Evaluation of Dealer's Vehicle Sales Performance . . . . 13 Evaluation of Dealer's New Authorized Automobile Sales Performance . . . . . . . . . . . . . . . . 13 Other Dealers in Dealer's Area . . . . . . . . . . . 14 Market Analysis Data . . . . . . . . . . . . . . . . 14 Evaluation of Dealer's Used Car Sales Performance . . . 14 Evaluation of Dealer's Service Performance . . . . . . . 14 Evaluation of Dealer's Parts Performance . . . . . . . . 15 Evaluation of Dealer's Premises . . . . . . . . . . . . 15 Article 12 . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Succeeding Dealers . . . . . . . . . . . . . . . . . . . . . 15 Procedure . . . . . . . . . . . . . . . . . . . . . . . . 15 Approvals . . . . . . . . . . . . . . . . . . . . . . . . 15 Right of First Refusal . . . . . . . . . . . . . . . . . . 16 Successorship . . . . . . . . . . . . . . . . . . . . . . 17 Modification of Terms of Payment . . . . . . . . . . . . . 17 Article 13 . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Termination . . . . . . . . . . . . . . . . . . . . . . . . . 18 Immediate Termination by Distributor . . . . . . . . . . . 18 Termination by Distributor on 90 Days' Notice . . . . . . 19 Discussions with Dealer. . . . . . . . . . . . . . . . . . 19 Modification of Terms of Payment . . . . . . . . . . . . . 20 No Waiver by Failure to Terminate . . . . . . . . . . . . 20 Termination by Dealer . . . . . . . . . . . . . . . . . . 20 Continuation of Business Relations after Termination . . . 20 Superseding Agreements . . . . . . . . . . . . . . . . . . 20 Agreements with Affiliates of Distributor . . . . . . . . 21 Article 14 . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Rights and Liabilities upon Termination . . . . . . . . . . . 21 Distributor's Obligations . . . . . . . . . . . . . . . . 21 New Authorized Automobile Inventory . . . . . . . . . . 21 New Genuine Parts Inventory . . . . . . . . . . . . . . 21 Tools and Equipment . . . . . . . . . . . . . . . . . . 22 Authorized Signs . . . . . . . . . . . . . . . . . . . 22 Terms of Sale . . . . . . . . . . . . . . . . . . . . . . 22 Pending Orders and Dealer's Obligations . . . . . . . . . 23 Removal of Authorized Signs . . . . . . . . . . . . . . . 23 Authorized Trademarks . . . . . . . . . . . . . . . . . . 23 Orders and Files . . . . . . . . . . . . . . . . . . . . . 23 Customer Lists . . . . . . . . . . . . . . . . . . . . . . 23 Literature . . . . . . . . . . . . . . . . . . . . . . . . 23 Specific Performance . . . . . . . . . . . . . . . . . . . 24 -3- Article 15 . . . . . . . . . . . . . . . . . . . . . . . . . 24 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 24 Authorized Automobiles . . . . . . . . . . . . . . . . . 24 Authorized Products . . . . . . . . . . . . . . . . . . 24 Authorized Signs . . . . . . . . . . . . . . . . . . . . 24 Authorized Trademarks . . . . . . . . . . . . . . . . . 25 Dealer's Area . . . . . . . . . . . . . . . . . . . . . 25 Dealer's Executives . . . . . . . . . . . . . . . . . . 25 Dealer's Nominee . . . . . . . . . . . . . . . . . . . . 25 Dealer's Operations . . . . . . . . . . . . . . . . . . 26 Dealer's Owners . . . . . . . . . . . . . . . . . . . . 26 Dealer's Premises . . . . . . . . . . . . . . . . . . . 26 Distributor . . . . . . . . . . . . . . . . . . . . . . 26 Distributor's Warranties . . . . . . . . . . . . . . . . 26 Genuine Parts . . . . . . . . . . . . . . . . . . . . . 26 Manufacturer . . . . . . . . . . . . . . . . . . . . . . 26 Net Working Capital, Owner's Equity and Wholesale Credit . . . . . . . . . . . . . . . . . . . . . . . . 26 Operating Standards . . . . . . . . . . . . . . . . . . 26 Owner's Documents . . . . . . . . . . . . . . . . . . . 26 Recommendations . . . . . . . . . . . . . . . . . . . . 26 Article 16 . . . . . . . . . . . . . . . . . . . . . . . . . 27 General Provisions. . . . . . . . . . . . . . . . . . . . . 27 Dealer Not an Agent . . . . . . . . . . . . . . . . . . 27 Authority to Sign . . . . . . . . . . . . . . . . . . . 27 Variations; Modifications; Amendments . . . . . . . . . 27 Entire Agreement . . . . . . . . . . . . . . . . . . . . 27 Release of Claims under Prior Agreements . . . . . . . . 27 Agreement Non-transferable . . . . . . . . . . . . . . . 27 Defense and Indemnification . . . . . . . . . . . . . . 28 Notices . . . . . . . . . . . . . . . . . . . . . . . . 28 Waivers . . . . . . . . . . . . . . . . . . . . . . . . 28 Titles . . . . . . . . . . . . . . . . . . . . . . . . . 28 -4- STANDARD PROVISIONS ARTICLE 1 BASIC OBLIGATIONS OF DISTRIBUTOR SUPPLY OF AUTHORIZED PRODUCTS (1) Distributor will sell and deliver Authorized Products to Dealer in accordance with this Agreement. ASSISTANCE (2) Distributor will actively assist Dealer in all aspects of Dealer's Operations through such means as Distributor considers appropriate, including: (a) Periodic reviews of Dealer's compliance with this Agreement and the Operating Standards; (b) Recommendations; and (c) Schools, special training and meetings for Dealer's personnel. COMPLIANCE WITH ETHICAL STANDARDS (3) In the conduct of its business, Distributor will: (a) Safeguard and promote the reputation of Authorized Products and the Manufacturer; (b) Refrain from all conduct which might be harmful to the reputation or marketing of Authorized Products or inconsistent with the public interest; and (c) Avoid all discourteous, deceptive, misleading or unethical practices. ARTICLE 2 BASIC OBLIGATIONS OF DEALER SALES, SERVICE AND PARTS SUPPLY (1) Dealer assumes the responsibility in Dealer's Area for the promotion and sale of Authorized Products and for the supply of Genuine Parts and customer service for Authorized Products. This Agreement does not give Dealer any exclusive right to sell or service Authorized Products in any area or territory. COMPLIANCE WITH ETHICAL STANDARDS (2) In the conduct of its business, Dealer will: (a) Safeguard and promote the reputation of Authorized Products, the Manufacturer and Distributor; (b) Refrain from all conduct which might be harmful to the reputation or marketing of Authorized Products or inconsistent with the public interest; and (c) Avoid all discourteous, deceptive, misleading or unethical practices. OPERATING STANDARDS (3) The Operating Standards are part of this Agreement and are incorporated herein by this reference. DISCLAIMER OF FURTHER LIABILITY BY DISTRIBUTOR (4) Except as expressly provided in this Agreement, Distributor is not liable for any expenditure made or liability incurred by Dealer in connection with Dealer's performance of its obligations under this Agreement. ARTICLE 3 GENERAL REQUIREMENTS FOR DEALER'S FACILITIES DEALER'S PREMISES (1) Dealer's Premises will conform to the requirements of this Agreement, the Operating Standards and such other standards as Distributor may prescribe from time to time. BUSINESS HOURS (2) Unless otherwise agreed by Distributor in writing, Dealer will operate Dealer's Premises during the customary business hours of the trade in Dealer's Area. ARTICLE 4 IDENTIFICATION; ADVERTISING USE OF AUTHORIZED TRADEMARKS (1) Distributor will supply Dealer, from time to time, with trademark standards to assist Dealer in the proper usage of Authorized Trademarks. Dealer will use Authorized Trademarks only in connection with the promotion and sale of new Authorized -2- Products and customer service for Authorized Products pursuant to this Agreement, and only in the manner and for the purposes Distributor specifies. Dealer will not use any Authorized Trademark as part of its corporate or business name without the prior written consent of Distributor. Dealer also may use Authorized Trademarks in connection with the sale of used automobiles if Dealer complies fully with Distributor's requirements relating to used car sales under the Authorized Trademarks. If Dealer does not comply fully with these requirements, Dealer may not use any Authorized Trademarks in connection with its used car sales, except that Dealer may use the words "Audi" or "Volkswagen" to describe used Authorized Automobiles, if this word appears in characters and colors different from those usually employed by the Manufacturer, Distributor and authorized dealers of Distributor. SIGNS (2) Dealer will display conspicuously at Dealer's Premises such Authorized Signs at such locations as Distributor reasonably may require. Dealer will use its best efforts to obtain all governmental approvals necessary for such display. If Dealer transfers any of Dealer's Premises to another location, Dealer immediately will remove all Authorized Signs and other references to Authorized Products displayed at or around the prior location. STATIONERY (3) All stationery and business forms used in Dealer's Operations will be prepared in accordance with Recommendations. Dealer's use of Authorized Trademarks on stationery and business forms will be in accordance with trademark standards supplied by Distributor. ADVERTISING (4) Dealer will advertise Authorized Products and customer service for Authorized Products only in accordance with reasonable guidelines and policies established by Distributor. Dealer will refrain from all false, deceptive, misleading or unlawful advertising. Dealer's advertising will include, among other things, a listing in a principal local classified telephone directory in Dealer's Area. ARTICLE 5 SALES SALES PROMOTION (1) Dealer will use its best efforts to promote the sale of Authorized Automobiles in Dealer's Area, in reasonable proportion to the intensity of consumer demand, through regular contacts -3- with owners, users, and prospective owners and users of Authorized Products; through promotion, prospecting and follow-up programs; and through such means as may be indicated from time to time by Recommendations. SALES PERFORMANCE (2) Dealer will achieve the best sales performance possible in Dealer's Area for each model and type of Authorized Automobile. SALES OUTSIDE AREA (3) Subject to Dealer's performance of its obligations under Article 5(2), Distributor does not restrict Dealer's sale of Authorized Automobiles within the 50 United States. Distributor hereby informs Dealer, however, that Distributor has no authority to sell any products for distribution outside the United States, and it is Distributor's policy not to do so. Dealer acknowledges its understanding that this is intended to preserve the integrity of the orderly worldwide distribution network for the products supplied to Distributor, and to maximize customer satisfaction by ensuring that Authorized Products meet the certification and operational standards to which they were designed. Dealer therefore is authorized to sell new Authorized Products only in the 50 United States, and is not authorized to, and agrees it will not, sell any new Authorized Product for sale or use elsewhere. SALES FACILITIES (4) Dealer's sales facilities will conform to the requirements of the Operating Standards and such other reasonable standards as Distributor may prescribe, after review with Dealer. DEFECTIVE OR DAMAGED AUTHORIZED PRODUCTS (5) If any Authorized Product sold by Distributor to Dealer should become defective or damaged prior to its delivery by Dealer to a customer, Dealer agrees to repair such defect or damage so that such Authorized Product is placed in first-class salable condition prior to such delivery. Dealer immediately will notify Distributor of any substantial defects or damage and will follow such procedures for making damage claims as Distributor may establish from time to time. Distributor shall have the option to repurchase any Authorized Products with substantial defects or damage at the price at which they were originally sold by Distributor, less any prior refunds or allowances made by Distributor and less any insurance proceeds received by Dealer in respect of such defect or damage. Distributor will make an equitable adjustment with respect to damage which Dealer can demonstrate occurred prior to the time of delivery to Dealer. -4- CHANGES BY DEALER TO AUTHORIZED PRODUCTS (6) Distributor may request Dealer to make changes, or not to make changes, to Authorized Products, and Dealer agrees to comply promptly with such requests. Dealer also agrees to take such steps as Distributor may direct it to take to comply with any law or regulation pertaining to safety, emissions, noise, fuel economy or vehicle labeling. Distributor will reimburse Dealer at the then-current rate of reimbursement specified by Distributor for Dealer for Genuine Parts and for labor which may be used by Dealer in making such required changes on Authorized Products. Parts and other materials necessary to make such changes may be shipped to Dealer without Dealer's authorization and Dealer will accept them. Dealer will receive credit for parts so shipped which prove unnecessary, provided they are returned or disposed of in accordance with Distributor's instructions. If the laws of the state in which Dealer is located or a vehicle is to be registered require motor vehicles to carry equipment not installed or supplied as standard equipment by the Manufacturer or Distributor, upon Distributor's request Dealer will, prior to selling any Authorized Automobiles on which such installation is required, properly install at its own or its customers' expense equipment conforming to such laws and to Distributor's standards. Dealer agrees to indemnify the Manufacturer and Distributor and hold them harmless from any and all liabilities that may arise out of Dealer's failure or alleged failure to comply with any obligation assumed by Dealer in this paragraph. PRODUCT CHANGES BY DEALER NEITHER REQUESTED BY DISTRIBUTOR NOR REQUIRED BY LAW (7) If Dealer installs on a new Authorized Automobile any equipment, accessory or part other than a Genuine Part; sells any new Authorized Automobile which has been modified; or sells in conjunction with a new Authorized Automobile a service contract not offered or specifically endorsed in writing by Distributor, then Dealer will advise the customer of the identity of the warrantor of such modification, equipment, accessory or part, or, in the case of a service contract, of the identity of the provider of its coverage. Dealer will indemnify Distributor against claims that may be asserted against Distributor in any action by reason of such modification, equipment, accessory, part or service contract. USED CAR OPERATIONS (8) Dealer will use its best efforts to acquire, promote and sell at retail used Authorized Automobiles and other used automobiles. Dealer's used car operations will conform to the requirements of the Operating Standards and such other reasonable standards as Distributor may prescribe, after review with Dealer. -5- ARTICLE 6 PARTS PARTS PROMOTION (1) Dealer will use its best efforts to promote the sale of Genuine Parts in Dealer's Area, in reasonable proportion to the intensity of consumer demand, through regular contacts with owners, users, and prospective owners and users of Authorized Products; through promotion, prospecting and follow-up programs; and through such means as may be indicated from time to time by Recommendations. PARTS DEPARTMENT (2) Dealer's parts department will conform to the requirements of the Operating Standards and such other reasonable standards as Distributor may prescribe, after review with Dealer. SALE OF NON-GENUINE PARTS (3) Dealer will not sell any parts which are not equivalent in quality and design to Genuine Parts, if such parts are necessary to the mechanical operation of Authorized Automobiles. Dealer will not represent as new Genuine Parts any parts which are not new Genuine Parts. If Dealer sells a part or accessory which is not a Genuine Part, Dealer will advise the customer of the identify of the warrantor of such part or accessory. PARTS INVENTORY (4) Dealer will maintain an inventory of Genuine Parts which is sufficient to perform reasonably anticipated warranty service and which is in proportion to the intensity of consumer demand and wholesale trade requirements in Dealer's Area for Genuine Parts. Distributor will make Recommendations for Dealer's inventory of Genuine Parts based on particular conditions in Dealer's Area, and Dealer will give due consideration to such Recommendations. ARTICLE 7 SERVICE QUALITY AND PROMOTION OF SERVICE (1) Dealer will provide the best possible customer service for all owners of Authorized Automobiles and automobiles of the same make formerly sold by Distributor, and will use its best efforts to promote its customer service. Dealer's service facilities, equipment and personnel will conform to the -6- requirements of the Operating Standards and other such reasonable standards as Distributor may prescribe, after review with Dealer. USE OF NON-GENUINE PARTS (2) Dealer will not use in the repair or servicing of Authorized Automobiles any parts which are not equivalent in quality and design to Genuine Parts, if such parts are necessary to the mechanical operation of such Authorized Automobiles. Dealer will use only Genuine Parts in performing warranty service on Authorized Automobiles. Dealer will not represent as new Genuine Parts any parts used by it in the repair or servicing of Authorized Automobiles which are not new Genuine Parts. OWNER'S DOCUMENTS (3) Upon delivering a new Authorized Automobile to a customer, Dealer will provide the Owner's Documents supplied by Distributor for such Authorized Automobile, properly completed by Dealer. Dealer will take all steps required prior to delivery of the Authorized Automobile and, in particular, will perform properly the pre-delivery services specified by Distributor. MAINTENANCE AND OTHER SERVICES WITHOUT CUSTOMER CHARGE (4) In accordance with bulletins issued form time to time by Distributor and Distributor's Warranties, certain maintenance services and other repairs following delivery of a new Authorized Automobile may be free of charge to the customer. Upon presentation of an appropriate Owner's Document, Dealer will perform properly the services required, whether or not the Authorized Automobile to be serviced was sold by Dealer. Upon submission of appropriate claims, Distributor will reimburse Dealer for performing such services at the then-current rate of reimbursement specified by Distributor for Dealer. Distributor will establish procedures for submitting and processing such claims and transmitting reimbursements to Dealer. Dealer agrees to comply with these procedures. REPEATED REPAIRS (5) Dealer will notify Distributor of repairs to Authorized Automobiles pursuant to Distributor's Warranties under each of the following circumstances: (a) The Authorized Automobile has been brought to Dealer a specified number of times for the same complaint; or (b) The Authorized Automobile has been in Dealer's custody for all repairs pursuant to Distributor's Warranties a specified number of days. -7- Such notification shall be made at the times and by the means Distributor may have instructed in any then-current dealer warranty manual issued by Distributor. ARTICLE 8 DEALER'S PURCHASES AND INVENTORIES PURCHASE PRICES (1) Distributor will sell Authorized Products to Dealer at prices and upon terms established by Distributor from time to time. If Distributor increases its established prices, Dealer may cancel all orders for Authorized Products affected by the increase which are unfilled at the time Dealer receives notice of the increase, by giving Distributor written notice of cancellation within ten days from the time Dealer receives notice of the price increase. ORDERS AND ACCEPTANCE (2) Dealer will transmit orders for Authorized Products to Distributor electronically, at the times and for the periods, that Distributor reasonably requires. With each order, Dealer represents that it is solvent. Distributor may accept orders in whole or in part. Except as otherwise expressly provided in Article 8(1), all orders of Dealer will be binding upon it until they are rejected in writing by Distributor; however, in the event of a partial acceptance by Distributor, Dealer will not be bound by the portion of the order not accepted. INVENTORIES (3) Dealer will maintain in inventory at all times the inventories of Authorized Products required by the Operating Standards. PRODUCT ALLOCATION (4) Dealer recognizes that certain Authorized Products may not be available in sufficient supply from time to time because of factors such as product importation, consumer demand, component shortages, manufacturing constraints, governmental regulations or other causes. Distributor will endeavor to make a fair and equitable allocation and distribution of the Authorized Products available to it. TAXES (5) Dealer is responsible for any and all sales taxes, use taxes, excise taxes (including luxury taxes) and other governmental charges imposed, levied or based upon the sale of Authorized Products by Distributor to Dealer. Dealer represents -8- and warrants, as of the date of the purchase of each Authorized Product, that all Authorized Products purchased from Distributor are purchased by Dealer for resale in the ordinary course of Dealer's business and that Dealer has complied with all laws relating to the collection and payment of all sales taxes, use taxes, excise taxes (including luxury taxes) and other governmental charges applicable to the purchase of such products and will furnish evidence thereof upon request. If any Authorized Products are put to taxable use by Dealer, or are purchased by Dealer for purposes other than resale in the ordinary course of Dealer's business, Dealer will make timely return and payment to the appropriate taxing authorities of all applicable taxes and other governmental charges imposed, levied or based upon the sale of such Authorized Products by Distributor to Dealer and will hold Distributor harmless with respect thereto. PAYMENT BY DEALER (6) Dealer will pay for Authorized Products in the manner, at the time and upon the conditions specified in the terms of payment established from time to time by Distributor. Delivery of instruments of payment other than cash will not constitute payment until Distributor has collected the full amount in cash. Dealer will pay all collection charges, including reasonable attorney's fees, and costs of exchange, if any, incurred in connection with its payments. PASSING OF TITLE; SECURITY INTEREST (7) Title to Authorized Products will remain with Distributor until Distributor has collected their full purchase price in cash. Dealer will execute and deliver, and Distributor is authorized to execute and deliver on behalf of Dealer or, to the extent permitted by law, to file without the signature of Dealer, all financing statements and other instruments which Distributor may deem necessary to evidence its ownership of such Authorized Products. Dealer hereby grants Distributor a purchase money security interest in all Authorized Products for which Distributor has not collected in full, authorizes Distributor to take such steps as Distributor deems necessary to perfect such security interests, and agrees to cooperate fully with Distributor in connection therewith. Distributor may take possession at any time of Authorized Products to which it has title. PASSING OF RISKS (8) Authorized Products will be at Dealer's risk and peril from the time of their delivery to Dealer or Dealer's agent. It will be up to Dealer to insure such risks for its benefit and at its expense. -9- RESPONSIBILITY FOR DEFECTS AND DAMAGE (9) Distributor assumes responsibility for the quality and condition of Authorized Products, to the extent of (a) defects caused by its own negligence and (b) damage caused during storage by Distributor or occurring prior to delivery of the Authorized Products to Dealer or Dealer's agent. Distributor will make any required disclosure thereof to Dealer. If Distributor has insured against such defects in or damage to Authorized Products, Distributor's liability to Dealer for such damage will be limited to the amount actually paid by the insurance carrier to Distributor by reason of such defect or damage, together with any deductible amount applicable to such claim. Dealer may decline to accept any Authorized Products delivered to Dealer in damaged condition; however, should Dealer accept such Authorized Product Dealer will, subject to the provisions of Article 5(5), repair all such defects and damage fully as required by Distributor before any defective or damaged Authorized Product is delivered to a customer. Dealer will make any required disclosure to Dealer's customers of damage or repairs, and will hold Distributor harmless with respect thereto. Distributor will notify Dealer promptly of the amount paid by the insurance carrier with respect to any such defect or damage and will pay Dealer the full amount thereof, or any other amount due from Distributor pursuant to this paragraph, following Dealer's submission of such proof of repair as Distributor may require. CLAIMS FOR INCOMPLETE DELIVERY (10) Dealer will make all claims for incomplete delivery of Authorized Products (including the delivery of Authorized Products with damage) in writing not later than three business days after Dealer's receipt of shipment; PROVIDED, HOWEVER, that Dealer will make claims as to Genuine Parts within the period specified in policies established by Distributor from time to time; and PROVIDED, FURTHER, that Dealer will note claims for visible damage to Authorized Automobiles on the delivery receipt. CHANGES OF SPECIFICATIONS (11) Distributor will deliver Authorized Products to Dealer in accordance with specifications applicable at the time of their manufacture. In the event of any change or modification with respect to any Authorized Products, Dealer will not be entitled to have such change or modification made to any Authorized Products manufactured prior to the introduction of such change or modification. Distributor expressly reserves, and Dealer acknowledges, the right to make such changes and modifications, and Dealer's only right in such event shall be the cancellation of any orders for Authorized Products affected by the change or modification not yet accepted by Distributor. -10- FAILURE OF OR DELAY IN DELIVERY BY DISTRIBUTOR (12) Distributor will not be liable to Dealer for failure of or delay in delivery under orders of Dealer accepted by Distributor, other than failure or delay resulting from willful misconduct or gross negligence of Distributor. RETURN OR DIVERSION ON DEALER'S FAILURE TO ACCEPT (13) If Dealer fails or refuses for any reason to accept delivery of any Authorized Products ordered by Dealer (except as permitted under Article 8(9)), Dealer will be liable to Distributor for all expenses incurred as a result of such failure or refusal, and will store such Authorized Products at no charge to Distributor until Distributor can arrange for their removal. Dealer's liability pursuant to this paragraph will be in addition to, and not in lieu of, any other liabilities which may arise from Dealer's failure or refusal to accept delivery. ARTICLE 9 WARRANTY TO CUSTOMERS DISTRIBUTOR'S WARRANTIES (1) Distributor warrants each new Authorized Product as set forth in Distributor's Warranties. INCORPORATION OF DISTRIBUTOR'S WARRANTIES IN DEALER'S SALES (2) Dealer will make all sales of Authorized Automobiles and Genuine Parts in such a way that its customers acquire all rights in accordance with Distributor's Warranties and, to the extent permitted by law, no other express or implied warranties. Dealer will make the text of Distributor's Warranties part of its contracts for the sale of Authorized Products and will display the text of the warranties of all products it sells in customer contact areas where Authorized Products are offered. WARRANTY PROCEDURES (3) Dealer agrees to comply with the provisions of the various dealer warranty manuals which Distributor may issue from time to time, and will follow the procedures established by Distributor for processing warranty claims and returning and disposing of defective Genuine Parts. Dealer also will comply with all requests of Distributor for the performance of services pursuant to warranty claims and will maintain detailed records of time and parts consumption and any other records used as the basis for submitting warranty claims. Dealer will submit warranty claims to Distributor electronically. Upon Dealer's compliance with such requests and maintenance of such records, Distributor will reimburse Dealer within a reasonable time for -11- warranty claims at the then-current rate of reimbursement specified by Distributor for Dealer. Strict adherence to the procedures established for processing warranty claims is necessary for Distributor to process such claims fairly and expeditiously. Distributor will be under no obligation with respect to warranty claims not made strictly in accordance with such procedures. ARTICLE 10 DEALER'S RECORD KEEPING AND REPORTS; INSPECTION OF DEALER'S OPERATIONS DEALER'S FORMS, BUSINESS MACHINES, OFFICE EQUIPMENT AND BOOKKEEPING (1) Dealer's will use accounting, sales, bookkeeping and service workshop forms; business machines; data processing and transmission equipment; and other office equipment which meet specifications, and which provide information and function in the manner, prescribed by Distributor and its affiliates in the Operating Standards and by other means. Dealer will keep accurate and current records in accordance with Distributor's uniform accounting system and with accounting practices and procedures reasonably satisfactory to Distributor, in order to enable Distributor to develop comparative data and to furnish Dealer business management assistance. FINANCIAL STATEMENTS TO BE SUPPLIED BY DEALER (2) Dealer will transmit to Distributor (a) on or before the tenth day of each calendar month, in such form and by such methods as Distributor reasonably may require, a financial and operating statement reflecting the consolidated operations of Dealer for the preceding month and from the beginning of the calendar year to the end of the preceding month and (b) within three and one-half months after the close of Dealer's fiscal or calendar year, a consolidated balance sheet and profit and loss statement of Dealer, which documents shall be certified by a certified public accountant if so requested by Distributor at least 30 days prior to the close of Dealer's fiscal or calendar year. REPORTS TO BE SUPPLIED BY DEALER (3) Dealer will furnish to Distributor, on such forms as Distributor reasonably may require, accurate daily reports of Dealer's sales and transfers of new Authorized Automobiles for that day. Dealer also will furnish to Distributor, on a timely and accurate basis, such other reports and financial statements as Distributor reasonably may require. -12- INSPECTION OF DEALER'S OPERATIONS AND RECORDS (4) Until the expiration or termination of this Agreement, and thereafter until consummation of all transactions referred to in Article 14, Distributor, through its employees and other designees, at all reasonable times during regular business hours, may inspect Dealer's Operations, Dealer's Premises and the methods, records and accounts of Dealer relating to Dealer's Operations. ARTICLE 11 DEALER PERFORMANCE REVIEW EVALUATION AND ASSISTANCE (1) Each year, Distributor will prepare objectives for Dealer and will use them as a basis for evaluating Dealer's performance of its obligations in each of the areas described in this Article 11. Distributor may evaluate Dealer's performance during the year through periodic reviews. Distributor will review its evaluations with Dealer, so that Dealer may take prompt action, if necessary, to improve its performance to such levels as Distributor reasonably may require. Any written comments received from Dealer on Distributor's evaluation of Dealer will become a part of such evaluation. EVALUATION OF DEALER'S VEHICLE SALES PERFORMANCE (2) Distributor will evaluate the effectiveness of Dealer's vehicle sales performance. In evaluating such performance, the following factors will be considered: EVALUATION OF DEALER'S NEW AUTHORIZED AUTOMOBILE SALES PERFORMANCE (a) Distributor will evaluate Dealer's sales performance as a whole, and separately for each model and type of new Authorized Automobile, taking into account: (i) Fair and reasonable sales objectives which may be established from time to time by Distributor for Dealer, after review with Dealer; (ii) The ratio in Dealer's Area of sales of Authorized Automobiles to sales of other makes of automobiles, as compared to: (A) such ratio on a nationwide basis; (B) the average ratio for all dealers of the same line-make in Distributor's sales zone and district in which Dealer is located; and -13- (C) such ratios for other comparable dealers of the same line-make in Distributor's sales zone in which Dealer is located; (iii) The development of Dealer's sales performance over a reasonable period of time; (iv) Particular conditions in Dealer's Area, if any, directly affecting actual and potential sales performance; and (v) Measures of customer satisfaction. OTHER DEALERS IN DEALER'S AREA (b) If one or more other dealers of the same line-make operate within Dealer's Area, as in a metropolitan area, the combined sales performance of all such dealers in Dealer's Area will be evaluated in the manner described in Article 11(2)(a) above. Dealer's individual sales performance then will be evaluated on the basis of that proportion of the sales and potential sales of Authorized Automobiles in Dealer's Area for which Dealer fairly may be held responsible, according to such reasonable criteria as Distributor may determine, including standards for Dealer's sales participation in Dealer's Area previously determined by Distributor and reviewed with Dealer. MARKET ANALYSIS DATA (c) Distributor also may measure and evaluate Dealer's sales performance by reference to appropriate market penetration and sales statistics and forecasts published by, or developed with the usage of data from, organizations generally recognized by the automobile industry. EVALUATION OF DEALER'S USED CAR SALES PERFORMANCE (d) Distributor will evaluate Dealer's used automobile sales performance, including the extent of Dealer's overall compliance with the Operating Standards. EVALUATION OF DEALER'S SERVICE PERFORMANCE (3) Because of the importance of Dealer's service performance to the purposes and objectives of this Agreement, Distributor will evaluate Dealer's performance of its responsibilities for service, including the extent of Dealer's overall compliance with the Operating Standards. Distributor also will consider measures of customer satisfaction with the service and repair work performed by Dealer. -14- EVALUATION OF DEALER'S PARTS PERFORMANCE (4) Distributor will evaluate Dealer's performance of Dealer's responsibilities pertaining to Dealer's parts department, including Dealer's actual parts sales compared to market potential and the extent of Dealer's overall compliance with the Operating Standards. EVALUATION OF DEALER'S PREMISES (5) Distributor will evaluate Dealer's performance of its responsibilities pertaining to Dealer's Premises, analyzing both separately and collectively Dealer's sales facilities, service facilities, parts facilities, administrative offices, storage, parking and signage. In making such evaluation, Distributor will consider the factors set forth in the Operating Standards. ARTICLE 12 SUCCEEDING DEALERS PROCEDURE (1) If Dealer chooses to transfer its principal assets or change owners, Distributor has the right to approve the proposed transferees, the new owners and executives and, if different from Dealer's, their premises. Distributor will consider in good faith any such proposal Dealer may submit to it during the term of this Agreement. In determining whether the proposal is acceptable to it, Distributor will take into account factors such as the personal, business and financial qualifications of the proposed new owners and executives as well as the proposal's effect on competition. In such evaluation, Distributor may consult with the proposed new owners and executives on any aspect of the transaction or their proposed dealership operations. Notwithstanding anything set forth in this paragraph to the contrary, Distributor shall not be obligated to consider such proposal if it previously had notified Dealer in writing that it would not appoint a succeeding dealer in Dealer's Area; provided, however, that such notice shall be given only if there is good cause for discontinuing representation of Authorized Automobiles in Dealer's Area. APPROVALS (2) Distributor will notify Dealer in writing of the approval or disapproval of a proposal by Dealer for transfer of principal assets or change of owners within 45 business days, or the exercise by Distributor of its right of first refusal under Article 12(3) within 30 calendar days, after Dealer has furnished to Distributor all applications and information reasonably requested by Distributor to evaluate such proposal. If Distributor approves Dealer's proposal, Distributor shall be -15- obligated to grant the proposed transferees only a Dealer Agreement in substantially the same form as this Agreement. If Distributor had previously notified Dealer in writing that Distributor would not appoint a succeeding dealer in Dealer's Premises, then Distributor's approval of Dealer's proposal may be conditioned on the proposed transferees agreeing to provide different facilities for their dealership operations. Upon the consummation of Dealer's approved proposal, Dealer will deliver to Distributor a voluntary termination of this Agreement and a general release in favor of Distributor. RIGHT OF FIRST REFUSAL (3) Whenever Dealer proposes to transfer its principal assets or change owners of a majority interest, Distributor shall have the right to purchase such assets or ownership interest, as follows: (a) Distributor may elect to exercise its purchase right by written notice to Dealer within 30 calendar days after Dealer has furnished to Distributor all applications and information reasonably requested by Distributor to evaluate Dealer's proposal. (b) If Dealer's proposed sale or transfer was to Dealer's Nominee, to another successor approved in advance by Distributor, to any of Dealer's Owners, to Dealer's employees as a group or to Dealer's spouse, children or heirs, then Dealer may withdraw its proposal within 30 calendar days following receipt of Distributor's notice of election of its purchase right. (c) Distributor's right under this Article 12(3) shall be a right of first refusal, permitting Distributor to (i) assume the proposed transferee's rights and obligations under its agreement with Dealer and (ii) cancel this Agreement and all rights granted Dealer hereunder. Except to the extent specifically inconsistent with the terms of this Agreement, the price and all other terms of Distributor's purchase shall be as set forth in any bona fide written purchase and sale agreement between Dealer and its proposed transferee and in any related documents. (d) Dealer shall furnish to Distributor copies of all applicable liens, mortgages, encumbrances, leases, easements, licenses or other documents affecting any of the property to be transferred, and shall assign to Distributor any permits or licenses necessary for the continued conduct of Dealer's Operations. (e) Distributor may assign its right of first refusal to any party it chooses, but in that event Distributor will remain primarily liable for payment of the purchase price to Dealer. -16- (f) If Distributor exercises its purchase right, Distributor will reimburse Dealer's proposed transferee for reasonable documented actual expenses which such proposed transferee incurred through the date of such exercise which are directly and solely attributable to the transaction Dealer proposed. (g) Nothing contained in this Article 12(3) shall require Distributor to exercise its right of first refusal in any case, nor restrict any right Distributor may have to refuse to approve Dealer's proposed transfer. SUCCESSORSHIP (4) Article 13(1)(a) notwithstanding, in the event of the death of any of Dealer's Owners, Distributor will not terminate this Agreement by reason of such death before the end of 12 months after the death of such owner if: (a) His interest in Dealer passes directly to his surviving spouse and his children, or any of them, or as specified in any Successor Addendum to this Agreement; and (b) Dealer's general manager remains as stated in the Statement of Ownership and Management, or within 90 days after the death of such owner, Dealer's Nominee becomes the general manager of the Dealer or Dealer appoints another qualified individual as general manager. After the expiration of this 12-month period and Distributor's evaluation of the performance of Dealer's management during such period, Distributor will review with Dealer the changes, if any, in the management or equity interests of Dealer required by Distributor as a condition of extending this Dealer Agreement with Dealer. Any new Dealer Agreement entered into pursuant to this paragraph will be in substantially the same form as the Dealer Agreements then currently offered by Distributor to its dealers in Authorized Automobiles generally. MODIFICATION OF TERMS OF PAYMENT (5) Upon receipt of an application for a replacement dealer agreement, Distributor may modify its terms of payment with respect to Dealer to the extent Distributor deems appropriate, irrespective of Dealer's credit standing or payment history. -17- ARTICLE 13 TERMINATION IMMEDIATE TERMINATION BY DISTRIBUTOR (1) Except to the extent a greater notice period is required by anyapplicable statute, Distributor has the right to terminate this Agreement for cause, with immediate effect, by sending notice of termination to Dealer by certified mail, or by personal delivery to any of Dealer's Owners or Executives, if any of the following should occur: (a) Death of any of Dealer's Owners or any change, whether voluntary or by operation of law, in the record or beneficial ownership of Dealer without Distributor's prior written consent; any change in Dealer's Executives without prior notice to Distributor; or the failure of Dealer's Executives to continue to manage Dealer's Operations; (b) Dissolution or liquidation of Dealer, if a partnership or corporation; (c) Insolvency of Dealer or voluntary institution by Dealer of any proceeding under the Bankruptcy Act or state insolvency law; or the involuntary institution against Dealer of any proceeding under the Bankruptcy Act or state insolvency law which is not vacated within ten days from the institution thereof; or the appointment of a receiver or other officer having similar powers for Dealer or Dealer's business who is not removed within ten days of his appointment; or any levy under attachment, execution or similar process which is not within ten days vacated or removed by payment or bonding; (d) Any attempted transfer of this Agreement by Dealer, in whole or in part, without Distributor's prior written consent; (e) Any change in the location of any of Dealer's Premises or the establishment of any additional premises for Dealer's Operations without Distributor's prior written consent; (f) Failure of Dealer to continue to operate any of Dealer's Premises in the usual manner for a period of five consecutive business days, unless caused by an Act of God, war, riot, strike, lockout, fire, explosion or similar event; (g) Dealer's failure, for a period of ten consecutive business days, to have any license necessary for the conduct of Dealer's Operations; -18- (h) Conviction of Dealer or any of Dealer's Owners or Executives of a felony or any misdemeanor involving fraud, deceit or an unfair business practice, if in Distributor's opinion such conviction may adversely affect the conduct of Dealer's business, or be harmful to the good will of the Manufacturer or Distributor or to the reputation and marketing of Authorized Products; (i) Any material misrepresentation by any of Dealer's Owners or Executives as to any fact relied upon by Distributor in entering into this Agreement; (j) Submission by Dealer of a fraudulent or knowingly false report or statement or claim for reimbursement, refund or credit; or (k) Failure or refusal of Dealer or Dealer's owners, executives, agents or employees to provide Distributor, upon request, with access to and the opportunity to inspect and copy all books, papers, instruments, certificates or other documents evidencing the record or beneficial ownership of Dealer. TERMINATION BY DISTRIBUTOR ON 90 DAYS' NOTICE (2) Except to the extent a greater notice period is required by any applicable statute, Distributor has the right to terminate this Agreement upon 90 days' notice if any of the following shall occur: (a) Any disagreement or personal difficulties of Dealer's Owners or Executives which in Distributor's opinion may adversely affect the conduct of Dealer's business, or the presence in the management of Dealer of any person who in Distributor's opinion does not have appropriate qualifications for his position; (b) Impairment of the reputation or financial standing of Dealer or any of Dealer's Owners or Executives or ascertainment by Distributor of any fact existing at or prior to the time of execution of this Agreement which tends to impair such reputation or financial standing; or (c) Any breach of any obligation of Dealer pursuant to this Agreement or any other agreement between Distributor or any of its subsidiaries or affiliates and Dealer. DISCUSSIONS WITH DEALER (3) Upon learning that any event or situation which would give Distributor grounds to terminate this Agreement has occurred, Distributor will endeavor to discuss such event or situation with Dealer. Thereafter, Distributor may give Dealer written notice of termination. -19- MODIFICATION OF TERMS OF PAYMENT (4) During the period a situation specified in Article 13(1) or 13(2) continues to exist, Distributor may modify its terms of payment with respect to Dealer to such extent as Distributor may consider appropriate, irrespective of Dealer's credit standing or payment record. NO WAIVER BY FAILURE TO TERMINATE (5) Should Distributor be entitled to terminate this Agreement but fail to do so, such failure shall not be considered a waiver of Distributor's right to terminate this Agreement unless the situation entitling Distributor to terminate this Agreement has ceased to exist and (a) six months have elapsed from the time Distributor obtained knowledge of such situation or (b) Distributor has entered into a subsequent written agreement with Dealer superseding this Agreement. Nevertheless, any situation entitling Distributor to terminate this Agreement may be considered at any subsequent time together with any subsequent events in determining Distributor's right to terminate this Agreement. TERMINATION BY DEALER (6) Dealer has the right to terminate this Agreement without cause by giving 60 days' notice of such termination to Distributor by certified mail. In the event Dealer, in connection with its termination of this Agreement, also wishes to terminate any other agreement between Dealer and Distributor or any of Distributor's subsidiaries or affiliates, Dealer must do so separately and subject to the provisions of Article 13(9) below. CONTINUATION OF BUSINESS RELATIONS AFTER TERMINATION (7) Any business relations between Distributor and Dealer after the termination of this Agreement without a written extension or renewal or a new written dealer agreement will not operate as an extension or renewal of this Agreement or as a new dealer agreement. Nevertheless, all such business relations, so long as they are continued, will be governed by terms identical with the provisions of this Agreement. SUPERSEDING AGREEMENTS (8) If any superseding form of Dealer Agreement is offered by Distributor to its authorized dealers generally at any time, Distributor may, by written notice to Dealer, terminate this Agreement and replace it with a Dealer Agreement in the superseding form. -20- AGREEMENTS WITH AFFILIATES OF DISTRIBUTOR (9) The termination of this Agreement by either party does not necessarily waive or terminate any other agreement between Dealer and distributor or any of its subsidiaries or affiliates. Such other agreements may be terminated only in accordance with their terms, and the parties' respective obligations under any such other agreements will continue in accordance with their terms until terminated. ARTICLE 14 RIGHTS AND LIABILITIES UPON TERMINATION DISTRIBUTOR'S OBLIGATIONS (1) Within 90 days after the termination of this Agreement pursuant to Article 13, Distributor will purchase from Dealer and Dealer will sell to Distributor all the following: NEW AUTHORIZED AUTOMOBILE INVENTORY (a) All new, unused and undamaged current model year Authorized Automobiles (introduced in the United States no earlier than 12 months prior to the date of such expiration or termination and not superseded by a later model year) in Dealer's inventory on the date of such expiration or termination which are in first-class salable condition, provided they were sold by Distributor and purchased by Dealer from Distributor (or in the ordinary course of business from other dealers of Authorized Automobiles appointed by Distributor) and have never been sold by Dealer. The price for such Authorized Automobiles will be the price at which they were originally sold by Distributor, less all prior funds or allowances made by Distributor, if any. NEW GENUINE PARTS INVENTORY (b) All the following new, unused and undamaged articles listed in Distributor's current Genuine Parts Price List (other than articles listed as obsolete) in Dealer's inventory on the date of such expiration or termination which are in first-class salable condition and complete, provided they were purchased by Dealer from Distributor and never sold by Dealer: (i) new and factory remanufactured replacement parts supplied by Distributor for Authorized Automobiles; (ii) accessories considered by Distributor to be suitable for installation in the current model year -21- Authorized Automobiles specified in Article 14(1)(a); and (iii) other accessories, provided that Distributor has made sales of identical articles during six of the last twelve full calendar months immediately preceding such expiration or termination. The price for such articles will be the price then last established by Distributor for the sale of identical articles, less a handling charge equal to ten percent of such amount and less all prior refunds or allowances made by Distributor; TOOLS AND EQUIPMENT (c) All special tools and equipment for servicing Authorized Automobiles owned by Dealer on the date of expiration or termination which are in operating condition and complete, provided they were purchased by Dealer from Distributor or pursuant to written requests of Distributor. The price for such tools and equipment will be the fair market value thereof; and AUTHORIZED SIGNS (d) All Authorized Signs which Dealer displayed publicly or at Dealer's Premises. The price for such Authorized Signs will be the fair market value thereof. TERMS OF SALE (2) Any and all items to be sold by Dealer to Distributor pursuant to this paragraph will be delivered by Dealer to Distributor at Dealer's place of business suitably packed for transportation. For such periods of time as Distributor reasonably may determine, Distributor may enter Dealer's Premises for the purpose of taking an inventory of all or any part of Dealer's stock of Authorized Products and special tools and equipment. At the request of Distributor, Dealer will comply in all respects with the provisions of all applicable bulk sales acts or similar statutes protecting a transferee of personal property with respect to liabilities of the transferor. Promptly following performance by Dealer of all its obligations pursuant to this Article 14, the completion by Distributor of all steps required to obtain possession of such items and the delivery to Distributor of a bill of sale, documents of title and a general release of Distributor and the Manufacturer from Dealer and Dealer's Owners, all in form satisfactory to Distributor, Distributor will pay Dealer the specified prices for the said items, less all amounts owed by Dealer to Distributor, its subsidiaries or affiliates. Distributor will not be required to purchase any item from Dealer pursuant to this paragraph unless Dealer is able to convey to Distributor, within such 90-day -22- period, title to such item free and clear of all liens, claims, encumbrances and security interests. PENDING ORDERS AND DEALER'S OBLIGATIONS (3) Upon the expiration or termination of this Agreement, all pending orders of Dealer for Authorized Products previously accepted by Distributor will be canceled and Dealer immediately will: REMOVAL OF AUTHORIZED SIGNS (a) Remove at its own expense all Authorized Signs which it displayed publicly or at its premises; AUTHORIZED TRADEMARKS (b) Cease all usage of the Authorized Trademarks, cease to hold itself out as an authorized dealer in Authorized Automobiles, destroy all stationery and other printed material bearing any Authorized Trademark, and, if its corporate or business name contains any Authorized Trademark, take all steps to remove the same therefrom; ORDERS AND FILES (c) Transfer to Distributor (i) all orders for sale by Dealer of Authorized Products then pending with Dealer; (ii) all deposits made thereon, whether in cash or property; (iii) all Dealer's warranty records for Authorized Products or complete copies of all such records and files; and (iv) all Dealer's customer service files. Upon the written request of Dealer, Distributor will return such customer service files to Dealer after Distributor has made copies of such files at Distributor's expense; CUSTOMER LISTS (d) Make available to Distributor in writing the names and addresses of all its service customers and prospective customers for Authorized Products; and LITERATURE (e) Deliver to Distributor at Dealer's place of business, free of charge, all technical or service literature, advertising and other printed material relating -23- to Authorized Products, including sales instruction manuals or promotional material, then in Dealer's possession and which were acquired by Dealer from Distributor. None of the foregoing will result in any liability of Distributor to Dealer for damages, commissions, loss of profits or compensation for services, or in any other liability of Distributor to Dealer of any kind or nature whatsoever. SPECIFIC PERFORMANCE (4) Since Dealer's obligations under this Article 14 are of such a nature that it is impossible to measure in money the damages which will be suffered by Distributor if Dealer should fail to perform any of them, Dealer agrees that, in the event of any such failure of performance on its part, Distributor will be entitled to maintain an action to compel the specific performance by Dealer of these obligations and Dealer agrees not to urge in any such action the defense that Distributor has an adequate remedy at law. ARTICLE 15 DEFINITIONS Throughout this Agreement various abbreviations and abbreviated phrases have been used. Their meanings are: AUTHORIZED AUTOMOBILES (1) "Authorized Automobiles" means motor vehicles of such models and types as may be supplied by Distributor during the term of this Agreement and of the line-make designated in Paragraph 1 of the Agreement of which these Standard Provisions are a part. AUTHORIZED PRODUCTS (2) "Authorized Products" means Authorized Automobiles and Genuine Parts. AUTHORIZED SIGNS (3) "Authorized Signs" means displays of any Authorized Trademark, in such material, type, presentation and colors as Distributor may prescribe from time to time. AUTHORIZED TRADEMARKS (4) "Authorized Trademarks" means any trademark, service mark or trade name now or any other time hereafter used or claimed by the Manufacturer or Distributor. -24- DEALER'S AREA (5) "Dealer's Area" means the normal area for Dealer's Operations corresponding to the location of Dealer's Premises. DEALER'S EXECUTIVES (6) "Dealer's Executives" means all the persons named in Paragraph 5 and 6 of the Statement of Ownership and Management as officers or other executives of Dealer, as well as any other person who succeeds to any position in Dealer referred to in such paragraphs in accordance with the provisions of this Agreement. DEALER'S NOMINEE (7) "Dealer's Nominee" means an individual approved by Distributor to become the general manager of Dealer, in the event of the death or incapacity of a general manager who also is one of Dealer's Owners. DEALER'S OPERATIONS (8) "Dealers Operations" means all activities of Dealer relating to the promotion and sale of Authorized Products, the supply of Genuine Parts, customer service for Authorized Products and all other activities of Dealer pursuant to this Agreement. DEALER'S OWNERS (9) "Dealer's Owners" means all the persons named in Paragraph 4 of the Statement of Ownership and Management as beneficial or record owners of Dealer, as well as any other person who acquires or succeeds to any beneficial interest or record ownership in Dealer in accordance with the provisions of this Agreement. DEALER'S PREMISES (10) "Dealer's Premises" means all premises to in the Dealer Premises Addendum and used by Dealer for or in connection with Dealer's Operations, including sales facilities, service workshops, offices, facilities for storage of Authorized Automobiles and Genuine Parts, used car sales facilities and, parking facilities. DISTRIBUTOR (11) "Distributor" means Volkswagen of America, Inc., a New Jersey corporation, and includes, as appropriate, all divisions of that corporation. -25- DISTRIBUTOR'S WARRANTIES (12) "Distributor's Warranties" means with respect to each Authorized Product, those express written warranties provided with such product or as set forth in the Dealer Warranty Manual for Authorized Products in effect at the time such product is first sold at retail. GENUINE PARTS (13) "Genuine Parts" means new and factory rebuilt replacement parts, accessories and optional equipment for Authorized Automobiles if such parts, accessories and optional equipment are supplied by Distributor. MANUFACTURER (14) "Manufacturer" means any supplier of Authorized Products to Distributor, including as appropriate, but not limited to, Audi AG, a German corporation, and Volkswagen AG, a German corporation. NET WORKING CAPITAL, OWNER'S EQUITY AND WHOLESALE CREDIT (15) "Networking Capital," "Owner's Equity" and "Wholesale Credit" shall have the meanings set forth in the Operating Standards and in accordance with generally accepted accounting principles. OPERATING STANDARDS (16) "Operating Standards" means the Dealer Operating Standards currently issued by Distributor to its dealers of Authorized Products, as well as any amendments thereof or additions thereto by Distributor during the term of this Agreement. OWNER'S DOCUMENTS (17) "Owner's Documents" means all the documents which are supplied by Distributor in respect of each Authorized Automobile and which are intended for the customer, including, but not limited to, the Owner's Manual, Warranty Booklet and Maintenance Booklet. RECOMMENDATIONS (18) "Recommendations" means written suggestions provided by Distributor, as well as all currently applicable written suggestions previously provided by Distributor. -26- ARTICLE 16 GENERAL PROVISIONS DEALER NOT AN AGENT (1) Dealer will conduct all Dealer's Operations on its own behalf and for its own account. Dealer has no power or authority to act for the Manufacturer or Distributor. AUTHORITY TO SIGN (2) Dealer acknowledges that only the President, a Vice President or a Zone Manager of Distributor is authorized on behalf of Distributor to execute this Agreement or to agree to any variation, modification or amendment of any of its provisions or to sign any notice of termination. VARIATIONS; MODIFICATIONS; AMENDMENTS (3) This Agreement may not be varied, modified or amended except by an express instrument in writing to that effect signed on behalf of both Distributor and Dealer. ENTIRE AGREEMENT (4) This instrument contains the entire agreement between the parties. No representations or statements other than those expressly set forth or referred to herein were made or relied upon in entering into this Agreement. RELEASE OF CLAIMS UNDER PRIOR AGREEMENTS (5) This Agreement terminates and supersedes all prior agreements with respect to Authorized Products between the parties, if any. The parties hereby waive, abandon and relinquish any and all claims of any kind and nature arising out of or in connection with any such prior agreement, except for any accounts payable by one party to the other as a result of the purchase of any Authorized Products, audit adjustments or reimbursement for any services. AGREEMENT NON-TRANSFERABLE (6) No part of this Agreement nor any interest in this Agreement may be transferred by Dealer without the prior written consent of Distributor. DEFENSE AND INDEMNIFICATION (7) Distributor will, upon Dealer's written request: (a) Defend Dealer against any and all claims for breach of Distributor's Warranties, bodily injury or death, -27- or for physical damage to or destruction of property, that, during the term of this Agreement, may be asserted against Dealer in any action solely by reason of a manufacturing defect or design deficiency in (i) an Authorized Product or (ii) a product of the same line-make formerly supplied by Distributor pursuant to a former dealer agreement; and (b) Hold Dealer harmless from any and all settlements made and final judgments rendered with respect to such claims, PROVIDED Dealer promptly notifies Distributor in writing of the commencement of such action against Dealer and cooperates fully in the defense of such action in such manner and to such extent as Distributor may require. However, such defense and indemnification by Distributor will not be required if any fact indicates that any negligence, error, omission, act, failure, breach, statement or representation of Dealer may have caused or contributed to the claim asserted against Dealer or if Distributor determines that such action seeks recovery for allegations other than those described in Article 16(7)(a). NOTICES (8) Any notices under or pursuant to the provisions of this Agreement will be directed to the respective addresses of the parties stated herein, or, if either party shall have specified another address by notice in writing to the other party, to the address thus last specified. Any notice delivered personally to any of Dealer's Owners or Executives shall have the same effect as a notice to Dealer sent by certified mail. WAIVERS (9) The waiver by either party of any breach or violation of or default under any provision of this Agreement will not operate as a waiver of such provision or of any subsequent breach or violation thereof or default thereunder. The failure or refusal of Distributor to exercise any right or remedy shall not be deemed to be a waiver or abandonment of any such right or remedy. TITLES (10) The titles appearing in this Agreement have been inserted for convenient reference only and do not in any way affect the construction, interpretation or meaning of the text. -28- AUDI DEALER OPERATING STANDARDS FOREWORD - ------------------------------------------------------------------------ The Audi Dealer Agreement incorporates by reference the Dealer Operating Standards. These standards are based on sound business principles, and reflect the high standards of professionalism that the public has come to expect from Audi and its authorized dealers. As such, the Dealer Operating Standards are an integral part of the Audi Dealer Agreement. Adherence to these standards by every Audi dealer is required by the Audi Dealer Agreement and will substantially enhance Audi's public image and its dealers' customer satisfaction, and have a positive effect on Audi dealer operating results. GENERAL MANAGEMENT - ------------------------------------------------------------------------ I. PERSONNEL A. REQUIREMENTS 1. General Manager A General Manager is required whenever the owner of an Audi dealership is inactive, lacks automotive experience, or is absent from the dealership frequently or for extended periods of time. The General Manger must be authorized to make all operational decisions on behalf of the dealer principal. 2. Office Manager An Office Manager is required at all Audi dealerships. This individual is responsible for the efficient management and control of the dealership's financial resources as well as compliance with the financial reporting requirements of Audi of America, Inc. ("AoA"). In addition to the Office Manager, at least one clerical employee is required. Additional Bookkeepers, Title Clerks and other clerical employees are required as experience indicates. B. TRAINING All dealership personnel shall attend seminars and training sessions as required or recommended from time to time by AoA. Specific training requirements are outlined in periodically issued minimum training requirement directives. In-dealership training shall be scheduled and conducted as required utilizing materials recommended by AoA. Participation is a prerequisite to all AoA certification programs. II. FACILITIES A. GENERAL All dealership facilities must meet AoA's minimum space requirements as detailed in Appendix A. Facilities erected and approved before the initial application of such standards may continue to be operated, but new dealership facilities shall conform in all respects to the standards set forth herein. -2- Dealership facilities must be of a free standing nature and provide a paved vehicle access on all sides adjacent to the facility. Approved facilities may modify this requirement. All vehicle parking and storage areas must be part of the dealership property and dedicated to the exclusive use of vehicle sales, service and parts customers. Property considered to be "Commons Areas" will not be considered as part of the dealership property. Employee parking space shall be provided equal to the number of employees. B. APPEARANCE A regular cleaning and maintenance schedule shall be followed to assure overall cleanliness and appearance of the property and all facilities. Audi approved building colors shall be used. On-site parking, display and access areas must be properly graded, hard-surfaced, lined and identified. C. IDENTIFICATION/TRADEMARKS Identification signs shall be displayed as approved and required by AoA. Minimum sign requirements for Audi dealerships are as follows: - One illuminated Audi brand sign. Audi trademarks shall only be used in connection with the promotion of Audi products and shall be displayed and utilized in strict accordance with any then-current Audi Trademark Standards Guide. D. NEW VEHICLE AREA An enclosed showroom of sufficient size to display properly at least one of each Audi model line shall be provided. In addition, adequate space for Sales Representatives is required. Sufficient space shall be provided for the parking and safe unloading of automobile carriers. A storage area sufficient to inventory a 60-day supply of new Audi vehicles based on new vehicle sales objective, will be provided. -3- An office shall be provided for the New Vehicle Sales Manager. E. USED VEHICLE AREA Used vehicle display space adjacent to the dealership shall be sufficient to display a 45-day supply of used vehicles based on the dealer's used vehicle sales objective. Outside used vehicle sales areas shall be hard-surfaced and properly graded. Layout, lighting, signs and offices shall be in accordance with Audi recommendations. An office shall be provided for the Used Vehicle Sales Manager. F. SERVICE The number of workstalls shall be as required by AoA. A minimum of 80% of the workstalls shall be equipped with hoists meeting Audi standards for the proper servicing of Audi vehicles. The number of service customer parking spaces shall equal four times the number of available workstalls. The number of service reception parking spaces shall at least equal the number of workstalls and shall be convenient to the reception area. Customer Waiting Area - is to be clearly identified, clean and well kept. The Service Advisor/Customer Service Professional - Write-up area is to be clean, organized, free of clutter, and in good repair. An office shall be provided for the Service Manager. G. PARTS Parts Storage Area - The space provided for the storage of parts and accessories inventories shall be a minimum of 200 sq. ft. of storage area per workstall. Separate counters for technicians and retail/wholesale customers shall be provided. -4- A separate parts and accessories display area is required for customers. An office shall be provided for the Parts Manager. III. CAPITALIZATION Dealer Minimum Financial Requirements shall be determined by AoA on an annual basis with consideration given to operating conditions and business potential. These requirements, as enumerated in the Audi Dealer Objectives, must be met or exceeded. A. NET WORKING CAPITAL Adequate net working capital (total current assets minus total current liabilities) shall be maintained. Minimum net working capital requirements will be established annually and will be calculated as follows: 1. Current Assets shall comprise the total of: Cash and Equivalent Equal to two month's Total Operating Expenses. After one year's operating experience, one month's Total Operating Expense plus Trade Accounts Payable (Account #2201) is acceptable. Cash and Equivalent shall be calculated as follows: Cash on hand and in the bank Finance Contracts in Transit (Account #1202) Marketable Securities (Actually owned by the dealership corporation) Accounts Receivable Vehicles (Account #1302) Accounts Receivable from Dealerships (Account #1362) New Vehicle Equity - New Vehicle (including New Vehicle LIFO Reserve), Demonstrator and Rental Vehicle Inventory, less New Vehicle Notes Payable (Account #2101) Less Customer Deposits in Trust (Account #2401) -5- Accounts Receivable Established dealer requirements shall be based on current dealer experience. New dealer requirements shall be based on 75% of an average month's forecasted service, parts and accessories sales. Used Vehicle Inventory Existing Dealer - 45-days' supply based on dealer's annual used vehicle sales objective x dealer average unit retail cost of sale. New Dealer - 45-days' supply based on .5 to 1 retail used-to-new ratio x average composite retail cost of sale. Parts and Accessories Inventory 2.5 months' supply based on the dealer's average monthly cost of sales. NOTE: Existing dealer capital requirements for used vehicles, parts and accessories should be based on dealer's actual inventory or the guide requirements provided, WHICHEVER IS HIGHER. New dealer capital requirements for used vehicles, parts and accessories should be based on dealer's acquisition costs or the guide requirements provided, WHICHEVER IS HIGHER. ---------------------- Other Parts & Accessories Work in Process - actual or forecast Sublet average inventory value. Miscellaneous Inventory ---------------------- -6- Prepaid Expenses Existing Dealer - average balance of Total Prepaid Expenses. New Dealer - 20% of an average month forecasted Total Operating Expense. 2. Current Liabilities: ---------------------- the sum of Accounts Accounts Payable Payable and Accrued - Liabilities shall be Accrued Liabilities calculated at one month's average Total ---------------------- Operating Expense B. OWNERS' EQUITY Owner's Equity shall be maintained at a minimum of 50% of Total Operating Investment plus 100% of Land, Construction-in-Progress, Buildings and Improvements - Net (less Mortgage Payable) and Investments and Advances. Operating Investment shall comprise the Net total of: Net Working Capital Leasehold Improvements Machinery and Equipment Furniture and Fixtures Company Vehicles Other Depreciable Assets Total Other Assets (less Investments and Advances and Lease Vehicle Liability) C. WHOLESALE LINE OF CREDIT A separate wholesale line of credit for the sale of new Audi vehicles shall be maintained with the dealer's financial institution and in an amount determined annually by AoA. A current written letter of commitment, in a form satisfactory to AoA, will be provided to AoA by dealer's financial institution. The dealer's financial institution will accommodate the vehicle drafting procedure employed by AoA. -7- D. ACCOUNTING AND REPORTING Accounting controls and procedures shall be established and maintained in accordance with the current edition of the Audi Dealer Accounting and Management Procedures Manual. This includes the development and use of dealership objectives, a Daily Operating Control System and the timely submission of complete and accurate dealer financial and operating statements, retail delivery information, warranty claims and other reports required by AoA from time to time. THE DEALER MUST PROVIDE TO ITS AoA ZONE OFFICE, BY THE 10TH OF EACH MONTH, THE DEALER FINANCIAL STATEMENT ON THE FORM AND BY THE METHOD REQUIRED BY AoA. DEALER'S FAILURE TO PROVIDE A FINANCIAL STATEMENT TO THE AUDI ZONE OFFICE WITHIN THE TIME PERIOD SET FORTH ABOVE, MAY RESULT IN THE REVOCATION OF THE DEALER'S OPEN PARTS AND ACCESSORIES ACCOUNT. A certified financial statement may be required in certain situations. IV. ORGANIZATION AND STRUCTURE To establish and maintain an effective customer responsive dealership and to maximize its profits, the dealership organization shall be structured according to the departmental profit center and management by objective concepts. Annual objectives and a Daily Operating Control shall be established for each operating department according to AoA procedures. Regular meeting shall be held with Department Managers to review performance against these objectives. An organization chart and an Employee Policies and Procedures Manual should be developed and made available to all dealership personnel. Position descriptions should be developed and issued to all dealership personnel, to include definitions of individual functions, responsibilities, authority and reporting relationships. A. CUSTOMER RELATIONS The dealer is responsible for developing and maintaining good customer relations by offering quality repair and maintenance services and through regular contacts with all customers in his trading area. Customer satisfaction is the most important measure of a dealer's performance and is critical to the long-term success of both the dealership and AoA. The Audi Customer Satisfaction Index (C.S.I.) is assessed by the Audi Customer Satisfaction Telephone Follow-Up System which provides a measurement of each dealership's new -8- vehicle delivery and service customer satisfaction and will be used as a basis for performance evaluation. This system requires: 1. Telephone Follow-Up (warranty repairs, new vehicle in warranty) - The dealer will use its best efforts to provide valid customer telephone numbers during new car sales reporting and warranty claim submission for Customer Satisfaction Telephone follow-up. 2. Daily Customer Alerts generated from the Telephone Follow-Up System are to be followed up within 24 hours of receipt by Dealer Management. 3. Customer Complaint List/Call Report - The CSI Customer Complaint List/Call Report is to be reviewed by Dealer Management or other appointed personnel monthly to ensure that all Customer Alerts have been or are being resolved properly and expeditiously. B. ADVERTISING The Audi trademark, including the distinctive Audi logo, shall be used for identification, advertising and/or promotion of Audi products and service exclusively. This will include all: - Product Advertising (New - Used - Service - Parts) - Dealership Stationery and Forms - Billboards The use of Audi trademarks must be in accordance with the Trademark Standards Guide. They will only be used by the dealer for the purpose of dealership identification and the advertising/promotion of Audi products and services. It is the dealer's responsibility to place one Yellow Pages trademark heading and bold type lettering advertisement in his primary local telephone directory under the heading "Automobile Dealers - New Cars." Multiple-make dealers should insure that this ad is placed under "A" for Audi. Sufficient quantities of all legally required brochures, as well as all current Sales, Service and -9- Parts literature and promotional materials shall be prominently displayed and readily available. -10- SALES - ------------------------------------------------------------------------------- I. PERSONNEL A. REQUIREMENTS 1. New Vehicle Sales Manager Required. 2. Used Vehicle Sales Manager A separate Used Vehicle Sales Manager is required when the used vehicle retail sales objective is 20 or more per month, or when the new vehicle sales objective is 40 or more per month, or when Used Vehicle Operation is physically separate from the main dealership facility. A combination Sales Manager is acceptable in dealerships with sales volume lower than those outlined above. 3. Salespersons One Audi Certified Salesperson for each 100 units of new and used vehicle sales as measured by dealer's annual objective. In dealerships selling other makes, where a separate Audi sales facility is required, AoA reserves the option of requiring an exclusive Audi sales force. B. TRAINING Annual Training objectives shall be established for each Dealer, New Vehicle Sales Manager, Used Vehicle Sales Manager, and New and Used Vehicle Salespersons, and they shall participate in all sales and management training programs outlined in periodically issued minimum training requirement directives. The dealer will maintain the minimum number of Audi Certified salespersons as established by AoA, in no case less than one Audi Certified salesperson. In-dealership training shall be scheduled and conducted utilizing materials recommended by AoA. -11- II. INVENTORY A. NEW VEHICLES Subject to AoA production and distribution capabilities, the dealer's new vehicle inventory must be equal to a minimum of two months' retail sales at the established annual retail objective level. Dealer's new vehicle inventory will be representative of the full line of Audi products. B. DEMONSTRATORS A clean and properly conditioned inventory of current model year dealer demonstrators shall be maintained sufficient to represent the full Audi model line. All prospects will be offered the opportunity to test drive an Audi product. All dealers are required to maintain a minimum inventory of one of each Audi model, either in new vehicle inventory or demonstrator service, regardless of sales objective. C. FLEET AND LEASE The dealer shall be responsible for developing and maintaining adequate Audi representation in his local fleet and lease market by insuring that regular sales and service contracts are made on these accounts. D. USED VEHICLES A properly reconditioned inventory, equivalent to a forty-five days' supply based on dealer's retail sales objective, shall be maintained and displayed to meet the dealership's monthly used vehicle retail sales objective. Audi products should be adequately represented in the used vehicle inventory in order to enhance their value and promote owner loyalty. E. ADVERTISING AND MERCHANDISING The dealer shall establish and maintain advertising and sales promotion programs and should participate to the extent possible in cooperative advertising and promotional programs developed by AoA. F. SALES LITERATURE Sufficient quantities of all legally required brochures, as well as all current sales literature and promotional material shall be on display at all times. -12- III. CUSTOMER RELATIONS SALES SATISFACTION All sales personnel shall always treat customers courteously and efficiently with sound and ethical business practices to ensure customer satisfaction. All customer complaints shall be investigated promptly by Dealership Management. Justified complaints shall be resolved to the satisfaction of the customer. The Audi Customer Satisfaction Telephone Follow-Up System provides an assessment of each dealership's sales satisfaction and will be utilized as a measure of performance (see page 8). The new car delivery process is to be performed as outlined in written Audi procedures provided to dealers from time to time. To promote customer satisfaction, the dealer will operate a delivery system consisting of: - Pre-delivery certification of all new Audi vehicles by, first, the service department and, second, the delivering salesperson. - Maintain vehicles in inventory in salable condition by following established stock maintenance guidelines that are in writing and updated from time to time. - All customers, at the time they take delivery of their new cars, are to be introduced to the Service Department, specifically the Customer Service Advisor/Customer Service Professional for an introduction to the Service Department's operation, policy and procedures. -13- SERVICE - ------------------------------------------------------------------------------- I. PERSONNEL A balance must be established between the number of service department employees within your dealership and the number of customers who require service. This balance is achieved when the number of employees is sufficient to service your customers' needs. This means not having to wait in excessive lines, or to have to wait for an appointment beyond what the customer feels is reasonable. A. REQUIREMENTS 1. Service Manager Required. 2. Service Advisors/Customer Service Professionals The first Service Advisor/Customer Service Professional shall be employed when Average Daily Vehicle Attendance exceeds 10. A second Service Advisor/Customer Service Professional shall be employed when the average vehicle attendance exceeds 20. One additional Service Advisor/Customer Service Professional is required for every additional 15 daily vehicle attendance. 3. Shop Foreman The first full-time Shop Foreman shall be employed when the number of productive employees reaches 8. The second Shop Foreman shall be employed when the number of productive employees reaches 20. 4. Dispatcher One full-time Dispatcher is required when the daily vehicle attendance exceeds 60. 5. Productive Employees (Technicians, Trainees, Lubemen) One productive employee is required for each monthly vehicle attendance increment of 65 vehicles. 6. Car Washer, Porter, Etc. Required. -14- 7. Cashier/Service Clerk Adequate personnel must be provided to perform these functions. B. TRAINING It is vital to the success of your service department's profit potential and customer satisfaction activities that all service training programs be utilized freely and frequently. 1. All service personnel shall attend Audi recommended training programs. 2. The Service Department staff - is required to achieve and maintain at the very least, minimum training levels as published periodically by AoA. 3. Key Personnel product training - is to be attended by a minimum of one Service Advisor/Customer Service Professional annually. 4. All customer contact personnel are to attend the Key Personnel Training course, "Customer Service Professionals Seminar." 5. Dealer Service Training Specialist - is to be appointed to conduct training sessions within the dealership utilizing the Audi Interactive Tech Talk Program. 6. All video tapes, technical bulletins, service circulars, microfiche and all other service related material, is to be stored in an organized fashion, neatly arranged and easily accessible by all service department employees. C. PERSONNEL APPEARANCE The appearance of Service Department employees conveys a message to the service customer about the professionalism of the service department and the dealership in general. Just as the Service Manager is to dress as a professional, the Service Advisors/Customer Service Professionals are to dress in a manner that reinforces the image of Customer Service Professional. 1. Service Advisors/Customer Service Professionals - are to present themselves as professionals, clean and neat in their appearance. They should dress in a consistent manner that is conducive to good -15- business practices and can be easily identified by the customer. 2. Service Advisors/Customer Service Professionals - are to be easily identifiable as Dealership employees. Name tags and uniforms are to be consistent in their appearance. 3. The Service Manager - is to dress as a professional, in a manner that identifies him or her as a department manager, clean and neat in appearance. 4. Service Technicians - are to dress in uniforms that are consistent in appearance and that identify them as employees of the dealership. II. INVENTORY Special tools and general workshop equipment meeting Audi standards shall be available in working condition according to then-current minimum requirements, which will be updated from time to time. A secure tool and equipment storage area shall be provided with all tools and equipment properly located and identified. Complete and up-to-date Audi recommended service literature shall be available including microfiche and reader for both the customer write-up area and workshop. All In-Dealership Service Training videos and materials are to be stored, organized and available to all service department personnel. The service department is to have access to a working video cassette recorder and television within the service department at all times. A computer terminal work station is to be located within the service department for convenient access by both Service Advisors/Customer Service Professionals and technicians in order to access AoA service systems and information networks such as V.D.F., campaigns, service actions, vehicle history and the Audi Online Technical Information Systems (OTIS). III. ORGANIZATION Audi dealership must follow current service procedures as outlined in the "Service Management Guide," the "Warranty Policies and Procedures Manual" and other publications and manuals, which may be issued and revised from time to time by AoA. -16- Opening and closing - times are not to restrict the flow of business. Customers are to be able to pick up their serviced vehicles anytime the dealership is open. The service department must be accessible throughout the lunch hour. Early morning, late night and weekend vehicle drop-off arrangements are to be available for all Audi service customers. These are commonly referred to as "Early-Bird" or "Night-Owl" drop-off. IV. CUSTOMER RELATIONS NEW CAR QUALITY The Pre-Delivery inspection process is to be performed as outlined in written Audi procedures provided to Dealer from time to time. Pre-Delivery Quality - The Service Department is responsible for the check-in, inspection, storage quality and preparation for delivery of all new Audi automobiles. SERVICE SATISFACTION All service personnel shall always treat customers courteously and efficiently with sound and ethical business practices to ensure customer satisfaction. All customer complaints shall be investigated promptly by Dealership Management. Justified complaints shall be resolved to the satisfaction of the customer. The Audi Customer Satisfaction Telephone Follow-Up System provides an assessment of each dealership's service satisfaction and will be used as a measure of performance (see page 8). Telephone Follow-Up (Audi customer pay repairs, not associated with warranty repairs) - All customers who have non-warranty repairs performed are to be contacted within three days after the vehicle is picked up to ensure the highest level of satisfaction with the service experience. All vehicles are to be Quality Inspected to ensure that all repairs are performed as requested and to the customer's satisfaction. -17- PARTS - ------------------------------------------------------------------------------- I. PERSONNEL A. REQUIREMENTS 1. Parts Manager Required. 2. Parts Persons One additional Parts Employee is required when the dealership's monthly parts and accessories cost of sales reaches $22,000. An additional employee is required at each $22,000 increment thereafter. Once the dealership's monthly cost of sales reaches $70,000, the Parts Manager will not be included in the calculation and an additional employee is then required and again, thereafter, at each increment of $22,000. B. TRAINING All parts personnel shall attend AoA recommended parts training programs. The Parts Department staff is required to achieve and maintain minimum training levels as published periodically by the Parts Division. In-dealership training shall be scheduled and routinely conducted utilizing materials recommended by AoA. II. INVENTORY A. The assortment and quantity of new parts, remanufactured parts and accessories to be maintained will be determined in accordance with the demand characteristics of the individual item. B. The inventory mix of Assortment vs. Non-Assortment items should reflect the optimum guidelines as established and published periodically by AoA. C. Inventory requirements are based on the dealer's average monthly cost of sales as follows: Combined New Parts, Small Remanufactured Parts and Assemblies, and Accessories . . . . . . 2.5 months' supply -18- D. Storage and Identification - The space provided for the storage of parts and accessories shall be a minimum of 200 sq. ft. of storage area per available workstall. As the workshop expands or the market changes the relationship between the various facets of the business, the storage area shall be modified accordingly. The parts and accessories inventory shall be stored in an orderly and efficient manner. Bins shall be labeled showing the Audi part number. The inventory in the parts storage area shall be kept neat and clean. New parts and accessories, remanufactured items and used parts must each be placed in separate storage areas. E. Storage Area and Equipment - Shall be sufficient and suitable for proper storage of parts and accessories. III. ORGANIZATION The inventory control system shall be maintained in a way which enables the Parts Manager to effectively manage the flow and availability of parts and accessories. Additionally, it must provide sufficient information on which to base periodic reordering. It shall include proper use of AoA recommended forms and procedures for the recording of transactions, the maintenance of individual stock balances, as well as sales histories. A regular program shall be followed in verifying the inventory records by comparison with actual quantities on hand. As a minimum, a complete physical inventory shall be taken annually and corresponding adjustment of records must be made in accordance with the current edition of the Dealer Accounting and Management Procedures Manual. Ordering shall be scheduled to meet the stock order dates set by AoA. Current parts reference material, microfiche, parts and accessory literature shall be available to Parts Department employees and customers as appropriate. IV. SALES The dealer will promote the sale of Genuine Audi parts and accessories in volumes commensurate with market potential. The merchandising of genuine Audi parts and accessories shall be governed by the Audi principle of offering quality maintenance and parts service to the Audi owner. This principle is to be applied in serving the dealer's New and Used Vehicle Departments, own workshop and bodyshop, and the wholesale and retail customer. -19- Programs for the merchandising of genuine Audi parts and accessories as well as promotional material and literature supplied or offered by AoA shall be used. AoA approved parts and accessories displays shall be placed prominently. V. CUSTOMER RELATIONS All customers shall be attended to promptly and treated courteously. Unit down and special parts orders will be placed in an expeditious manner to facilitate prompt customer service and satisfaction. -20- APPENDIX A - ------------------------------------------------------------------------------- Adherence to Audi facility standards will improve the image of each Audi dealership and the Audi marque in an increasingly competitive retail environment. FACILITY EVALUATIONS The evaluation of dealership facilities compares the actual amount of square footage each dealership facility occupies against Audi building and land requirements at specific sales objective levels. FACILITY SPACE REQUIREMENTS Minimum facility space requirements are quantified in the accompanying Audi Facility Requirement Tables for Building and Land. The facility requirements are based on dealership new vehicle sales objectives (Audi and all other make new vehicle sales objectives, individually, then totaled). Table calculations are determined as follows: 1. TOTAL LAND. Land area is the total usable acreage occupied by the entire dealership facility including building, used car lot, storage areas, parking areas, driveways and landscaping. Vacant, undeveloped land is not included in the evaluation. 2. TOTAL BUILDING. Building area is calculated in square feet and will include only structures under a roof that are pertinent to the dealership operation. 3. SHOWROOM UNIT DISPLAY CAPACITY. A minimum of three Audi model cars are required in an enclosed showroom, with each model occupying at least 400 square feet. Outside display areas should not be included. Sufficient space to meet all showroom requirements, including other makes, is necessary. 4. SHOWROOM DISPLAY (SQUARE FEET). The square footage of the showroom is evaluated on display area only and should not include any offices - Dealer, General Manager, Sales Manager or sales personnel. Similarly, if open-partitioned sales desks are present on the showroom floor, the space occupied will be deducted from the overall square footage of the showroom. 5. NEW VEHICLE STORAGE CAPACITY. Storage area must be sufficient to hold the minimum inventory requirement of new Audi vehicles, based on annual Audi sales objective, and satisfy dealership new car sales objective requirements of reach franchise represented. Page 1 of 5 6. NEW VEHICLE STORAGE (SQUARE FEET). A minimum of 220 square feet per unit is required. 7. USED VEHICLE STORAGE CAPACITY. The used car sales lot must be capable of storing and displaying a 45 days' supply of vehicles, based on a ratio of 0.5 to 1.0 - used retail to new. 8. USED VEHICLE STORAGE (SQUARE FEET). Minimum of 220 square feet per vehicle is required for the display of used vehicles. 9. NUMBER OF PRODUCTIVE WORK STALLS. Only productive stalls will be considered - tool and equipment rooms or occasional work areas such as aisles will not be included. Work stall requirements are based on Audi vehicles in operation. A minimum of 80 percent of the total service stalls should be equipped with AoA approved hoists. 10. TOTAL WORK STALLS (SQUARE FEET). Minimum stall space is 330 square feet per stall, including the wash rack. Driveway lanes, tool and equipment room and employee facilities are not included. 11. PARTS STORAGE CAPACITY (SQUARE FEET). Space for storage of parts and accessories must be a minimum of 200 square feet for each available work stall. 12. SERVICE PARKING AND STORAGE UNIT CAPACITY. The amount of parking spaces required is equal to four (4) times the number of work stalls, including wash stalls. 13. SERVICE PARKING AND STORAGE (SQUARE FEET). Space required is equal to the number of parking spaces x 200 square feet. 14. CUSTOMER AND EMPLOYEE PARKING NUMBER OF UNITS. Based on the total number of employees plus the number of work stalls. 15. CUSTOMER AND EMPLOYEE PARKING (SQUARE FEET). Based on 200 square feet per vehicle. 16. TOOL AND EQUIPMENT STORAGE AREA. A secure tool and equipment storage area shall be provided with all tools and equipment properly located and identified. 17. ADDITIONAL SPACE REQUIREMENTS. Adequate space for a technicians' locker room, service storage room, shop access and customer lounge is required. 18. ADMINISTRATIVE OFFICES (SQUARE FEET). The business office, Dealer's and General Manager's office and Page 2 of 5 conference room constitutes this square footage requirement. 19. AUDI SIGNAGE. A minimum of one approved Audi brand sign (Logo) is required. Additional AoA approved signage may be displayed. Page 3 of 5
AUDI MINIMUM SPACE REQUIREMENTS Appendix A BUILDING SALES SERVICE AREA PARTS AREA OTHER --------------------- ----------------------------------------------- ---------------- ------- TOTAL SHOW SHOW NO. OF TOOL & SERVICE PARTS PARTS ADMIN. NEW VEH BUILDING ROOM ROOM SALES PRODUCTIVE WASH STALLS EQUIP. MGR'S STORAGE MGR'S OFFICES SLS OBJ AREA UNIT SQ.FT OFFICES WORKSTALLS STALLS SQ.FT. ROOM OFFICE SQ.FT. OFFICE SQ.FT. - ------- -------- ---- ----- ------- ---------- ------ ------ ------ ------- ------- ------ ------- 50 4800 3 1200 2 4 1 1320 1 1 800 1 500 100 5200 3 1200 2 5 1 1584 1 1 1000 1 500 150 5500 4 1600 2 5 1 1584 1 1 1000 1 600 200 6000 4 1600 2 6 1 1848 1 1 1200 1 600 250 6700 4 1600 3 7 1 2112 1 1 1400 1 700 300 7200 5 2000 3 7 1 2112 1 1 1400 1 700 350 7800 5 2000 4 8 1 2376 1 1 1600 1 800 400 9200 6 2400 4 10 1 2904 1 1 2000 1 800 450 9500 6 2400 5 10 1 2904 1 1 2000 1 1000 500 10000 6 2400 5 11 1 3168 1 1 2200 1 1000 550 10500 6 2400 6 12 1 3432 1 1 2400 1 1200 600 11000 6 2400 6 12 1 3432 1 1 2400 1 1200 650 11500 6 2400 7 13 1 3696 1 1 2600 1 1400 700 12000 6 2400 7 14 1 3960 1 1 2800 1 1400 750 12500 6 2400 8 15 1 4224 1 1 3000 1 1600 800 13500 6 2400 8 16 1 4488 1 1 3200 1 1600 850 14000 6 2400 9 17 1 4752 1 1 3400 1 1800 900 14600 7 2800 9 18 1 5016 1 1 3600 1 1800 950 15400 7 2800 10 19 1 5280 1 1 3800 1 2000 1000 16000 7 2800 10 20 1 5544 1 1 4000 1 2000 1100 17500 7 2800 12 22 1 6072 1 1 4400 1 2200 1200 18500 7 2800 12 24 1 6600 1 1 4800 1 2200 1300 20000 7 2800 13 26 1 7128 1 1 5200 1 2400 1400 21000 7 2800 14 28 1 7656 1 1 5600 1 2400 1500 22000 8 3200 15 30 1 8184 1 1 6000 1 2500
Page 4 of 5 AUDI MINIMUM SPACE REQUIREMENTS Appendix A BUILDING
- ----------------------------------------------------------------------------------------------------------- NEW VEHICLE USED VEHICLE SERVICE PARKING CUSTOMER & STORAGE & DISPLAY STORAGE & DISPLAY & STORAGE EMPLOYEE PARKING ----------------------------------------------------------------------------- TOTAL TOTAL NEW VEH LAND LAND NO. SQ. FT. NO. SQ. FT. NO. SQ. FT. NO. SQ. FT. SLS OBJ SQ. FT. ACRES - ----------------------------------------------------------------------------------------------------------- 50 43560 1.0 9 1980 5 1250 20 4000 12 2400 100 43560 1.0 17 3740 6 1500 24 4800 15 3000 150 43560 1.0 25 5500 9 2250 24 4800 19 3800 200 43560 1.0 33 7260 13 3250 28 5600 24 4800 250 43560 1.0 42 9240 16 4000 32 6400 28 5600 300 43560 1.0 50 11000 19 4750 32 6400 32 6400 350 47040 1.1 58 12760 22 5500 36 7200 36 7200 400 55510 1.3 65 14300 25 6250 44 8800 41 8200 450 59900 1.4 75 16500 28 7000 44 8800 44 8800 500 64820 1.5 83 18260 31 7750 48 9600 50 10000 550 70225 1.6 92 20240 34 8500 52 10400 53 10600 600 73610 1.7 100 22000 37 9250 52 10400 57 11400 650 78760 1.8 108 23760 41 10250 56 11200 60 12000 700 84210 1.9 117 25740 44 11000 60 12000 63 12600 750 87820 2.0 125 27500 47 11750 64 12800 66 13200 800 95270 2.2 133 29260 50 12500 68 13600 69 13800 850 100950 2.3 142 31240 53 13250 72 14400 72 14400 900 104570 2.4 150 33000 56 14000 76 15200 75 15000 950 110205 2.5 158 34760 59 14750 80 16000 78 15600 1000 115620 2.7 166 36520 62 15500 84 16800 80 16000 1100 125000 2.9 183 40260 69 17250 92 18400 87 17400 1200 135000 3.1 200 44000 75 18750 100 20000 94 18800 1300 145000 3.3 217 47740 81 20250 108 21600 99 19800 1400 155000 3.6 233 51260 87 21750 116 23200 103 20600 1500 165000 3.8 250 55000 94 23500 124 24800 105 21000 - ---------------------------------------------------------------------------------------------------------
[LOGO] Effective February 1992 Page 5 of 5 [Audi letterhead] February 22, 1995 Scottsdale Jaguar, Ltd. d/b/a/ Scottsdale Audi 6725 E. McDowell Rd. Scottsdale, AZ 85257 Attention of Mr. Steven Knappenberger, President Gentlemen: This letter will confirm the terms under which Volkswagen of America, Inc. ("VWoA") has agreed for a period of time to forbear from appointing an additional Audi dealer in metropolitan Phoenix, Arizona. This letter is written with reference to the following facts. Sun-West Audi, Inc. ("Sun-West") has informed VWoA of Sun-West's desire to terminate voluntarily its Audi Dealer Agreement, effective as soon as practicable. Scottsdale Jaguar, Ltd. d/b/a Scottsdale Audi ("Scottsdale") has represented to VWoA that Scottsdale is willing and able to serve as the only Audi dealer in metropolitan Phoenix. Scottsdale has tentatively agreed with Sun-West that Scottsdale will purchase from Sun-West certain assets which do not qualify for repurchase by VWoA upon termination under the terms of Sun-West's Audi Dealer Agreement. VWoA agrees that, upon the occurrence of the contemplated transactions, your agreement to all terms and conditions of this letter, and your continued compliance with its terms and with the terms of your Audi Dealer Agreement, VWoA will not appoint an additional dealer in the Phoenix, Arizona Standard Metropolitan Statistical Area before January 1, 1997. Throughout such period, Scottsdale will comply with all then-current requirements of VWoA, as set forth in the Audi Dealer Agreement and in the Operating Standards for Audi Dealers, for facilities, capitalization, management, personnel, and all other matters addressed therein from time to time. Scottsdale also will participate in and comply with all then-current terms of the Audi brand specialist program and all other programs offered by Audi. Further, Scottsdale must perform at least at the then-current average for all Audi dealers nationally in sales performance as a percentage of objective; penetration of the market as measured as a percentage of the European high group defined by VWoA and any other relevant competitive group defined by Audi; and customer satisfaction ratings for sales, for service, and overall. Scottsdale's sales performance and market penetration performance will be judged in view of the availability of new Audi automobiles to Scottsdale. In the event VWoA finds Scottsdale out of compliance with this paragraph at any time, VWoA will give Scottsdale written notice of the specific deficiency. Scottsdale will have one full calendar quarter thereafter to improve its performance to a level satisfactory to VWoA. VWoA agrees that, also subject to availability, Scottsdale's planning volume will be at least 150 new vehicles annually. This is subject to all terms and conditions of Scottsdale's Audi Dealer Agreement respecting vehicle supply and allocation. After December 31, 1996, VWoA will have the rights in its sole discretion to appoint an additional Audi dealer in metropolitan Phoenix, restricted only as may be provided by any specific Arizona statute in force at such time; provided, that in consideration of Audi's agreements memorialized in this letter and Audi's performance of those agreements, Scottsdale agrees it will not protest any such appointment. In the event VWoA determines to make such an appointment and Scottsdale has performed at a level satisfactory to VWoA, then VWoA will offer Scottsdale a first right of refusal to open a satellite sales and service operation in the geographic area identified by VWoA. In the event Scottsdale does not exercise such right within 30 days after the offer by VWoA, or does not submit to VWoA within 90 days after exercising such right detailed plans for establishing such an operation, including the acquisition or construction of a suitable facility, and does not in fact establish such an operation within a period of time determined by VWoA after its approval of Scottsdale's plans, then VWoA will be free to appoint any other dealer of its own choosing. Scottsdale's sales and market penetration performance under the terms of this letter, for purposes of determining whether Scottsdale will be offered the first right of refusal contemplated in this paragraph, will be measured as though Scottsdale's primary of area of influence were the area within a ten-mile radius of Scottsdale's premises. Except to the extent specifically in conflict with the terms of this letter, all terms and conditions of the Audi Dealer Agreement between VWoA and Scottsdale remain in full force and effect and control their relationship. To ensure there is no misunderstanding in this matter, please execute this letter where indicated below and return the original to me. Very truly yours, VOLKSWAGEN OF AMERICA, INC. d/b/a AUDI OF AMERICA, INC. By: /s/James R. Barton -------------------------- James R. Barton Area Executive Acknowledged, agreed and accepted: SCOTTSDALE JAGUAR, LTD. d/b/a SCOTTSDALE AUDI By: /s/Stephen Knappenberger -------------------------- Steven Knappenberger Chairman Date: 2-24-95 -------------------- EX-10.8-6-1 25 EXHIBIT 10.8.6.1 FORM OF DLR SLS AND SVC AGRMNT PARAGRAPH A This is an agreement between the Acura Division, American Honda Motor Co., Inc. (American Honda) and S.A. Automotive, Ltd. (Dealer) a(n) Arizona Corporation doing business as SCOTTSDALE ACURA. By this agreement, which is made and entered into at Torrance, California, effective the __________ day of __________, 19___. American Honda gives to Dealer the nonexclusive right to sell and service Acura Products at the Dealership Location. It is the purpose of this Agreement, including the Acura Automobile Dealer Sales and Service Agreement Standard Provisions (Standard Provisions), which are incorporated herein by reference, to set forth the rights and obligations which Dealer will have as a retail seller of Acura Products. Achievement of the purposes of this Agreement is premised upon the mutual and continuing understanding and cooperation between American Honda and Dealer and the expressed intention of each to deal fairly with the consuming public. For consistency and clarity, terms which are used frequently in this Agreement have been defined in Article 12 of the Standard Provisions. PARAGRAPH B American Honda grants to Dealer the nonexclusive right to buy Acura Products and to identify itself as an Acura dealer at the Dealership Location. Dealer assumes the obligations specified in this Agreement and agrees to sell and service effectively Acura Products within Dealer's Primary Market Area and to maintain premises satisfactory to American Honda. PARAGRAPH C Dealer covenants and agrees that this Agreement is personal to Dealer, to the Dealer Owner, and to the Dealer Manager, and American Honda has entered into this Agreement based upon their particular qualifications and attributes and their continued ownership or participation in Dealership Operations. The parties therefore recognize that the ability of Dealer to perform this Agreement satisfactorily and the Agreement itself are both conditioned upon the continued active involvement in or ownership of Dealer by either: (1) the following person(s) in the percentage(s) shown: Name Address Title Percent of Ownership - -------------------- --------------------- ---------------- -------------------- UAG West, Inc. 1209 Orange St. Holding Company 100% Wilmington, DE 19801 Carl Spielvogel 720 Park Ave. Chief Executive New York, NY 10021 Officer Steven Knappenberg 5325 N. 45th Place Chairman Phoenix, AZ 85018 George W. Brochick 6242 E. Laurel President Scottsdale, AZ 85254 (2) an individual personally owning an interest in Dealer of at least 25% and who has presented to American Honda a firm and binding contract giving to him the right and obligation of acquiring an ownership interest in Dealer in excess of 50% within five years of the commencement of Dealership Operations and being designated in that contract as Dealer operator. PARAGRAPH D Dealer represents, and American Honda enters into this Agreement in reliance upon the representations, that George W. Brochick exercises the functions of Dealer Manager and is in complete charge of Dealership Operations with authority to make all decisions on behalf of Dealer with respect to Dealership Operations. Dealer agrees that there will be no change in Dealer Manager without the prior written approval of American Honda. PARAGRAPH E American Honda has approved the following premise as the location(s) for the display of Acura Trademarks and for Dealership Operations. New Car Showroom: 6825 E. McDowell Road, Scottsdale, Arizona 85257 Used Car Display: 6825 E. McDowell Road, Scottsdale, Arizona 85257 Sales and General Offices: 6825 E. McDowell Road, Scottsdale, Arizona 85257 Parts and Service Facilities: 6825 E. McDowell Road, Scottsdale, Arizona 85257 PARAGRAPH F There shall be no voluntary change or involuntary change, direct or indirect, in the legal or beneficial ownership or executive power or responsibility of Dealer for the Dealership Ownership, specified in Paragraphs C and D hereof, without the prior written approval of American Honda. -2- PARAGRAPH G Dealer agrees to maintain, solely with respect to the Dealership Operations, minimum net working capital of $451,134, minimum owner's equity of $535,614, and a line or lines of credit in the aggregate amount of $1,132,800 with banks or financial institutions approved by American Honda for use in connection with Dealer's purchases of and carrying of inventory of Acura Products, all of which American Honda and Dealer agree are required to enable Dealer to perform its obligations pursuant to this Agreement. If Dealer also carries on another business or sells other products, Dealer's total net working capital, owner's equity and lines of credit shall be increased by an appropriate amount. PARAGRAPH H This Agreement is made for the period beginning __________________ and ending _____________________ unless sooner terminated. Continued dealings between American Honda and Dealer after the expiration of this Agreement shall not constitute a renewal of this Agreement for a term, but rather shall be on a day-to-day basis, unless a new agreement or a renewal of this Agreement is fully executed by both parties. PARAGRAPH I This Agreement may not be varied, modified or amended except by an instrument in writing, signed by duly authorized officers of the parties, referring specifically to this Agreement and the provision being modified, varied or amended. PARAGRAPH J Neither this Agreement, nor any part thereof or interest therein, may be transferred or assigned by Dealer, directly or indirectly, voluntarily or by operation of law, without the prior written consent of American Honda. S.A. Automotive, Ltd. dba SCOTTSDALE ACURA By /s/ Carl Spielvogel - ---------------------------------- ------------------------------ (Corporate or Firm Name) (Dealer) ACURA DIVISION AMERICAN HONDA MOTOR CO., INC. (Corporate Seal) By: ____________________________ -3- ACURA AUTOMOBILE DEALER SALES AND SERVICE AGREEMENT SCOTTSDALE ACURA, Dealer # 251188 Attachment to Paragraph C: Percent of Name Address Title Ownership - -------------------- --------------------- ------------------------ ------------ Jay P. Beskind 6513 E. Paradise Lane Vice President Scottsdale, AZ 85254 Tamara Knappenberger 5325 N. 45th Place Secretary Phoenix, AZ 85018 Craig C. Lindsay 6223 E. Cactus Wren Treasurer Paradise Valley, AZ 85253 Stephen A. Savage Two N. Central Ave., #2200 Assistant Secretary Phoenix, AZ 85004 -4- EX-10.8-6-2 26 EXHIBIT 10.8.6.2 ACURA STANDARD PROVISIONS ACURA Automobile Dealer Sales and Service Agreement Standard Provisions ACURA AUTOMOBILE DEALER SALES AND SERVICE AGREEMENT STANDARD PROVISIONS TABLE OF CONTENTS PAGE 1. THE OBLIGATIONS OF AMERICAN HONDA.........................................1 2. SALE OF ACURA PRODUCTS TO DEALER..........................................3 3. THE OBLIGATIONS OF DEALER.................................................5 4. WARRANTY..................................................................8 5. ADVERTISING AND PROMOTIONAL PROGRAMS......................................9 6. TRADEMARKS AND SERVICE MARKS..............................................9 7. GENERAL BUSINESS REQUIREMENTS............................................10 8. APPOINTMENT OF SUCCESSOR AND REPLACEMENT DEALERS.........................12 9. TERMINATION OF AGREEMENT.................................................13 10. RIGHTS, OBLIGATIONS AND DEALINGS UPON TERMINATION........................17 11. GENERAL PROVISIONS.......................................................21 12. DEFINITIONS..............................................................23 ACURA AUTOMOBILE DEALER SALES AND SERVICE AGREEMENT STANDARD PROVISIONS The following Standard Provisions are, by reference, incorporated in and made a part of the Acura Automobile Dealer's Sales and Service Agreement. These Standard Provisions accompany the Acura Dealer's Sales and Service Agreement which has been executed on behalf of both American Honda and Dealer. 1. THE OBLIGATIONS OF AMERICAN HONDA 1.1 It is the obligation of American Honda to supply to Dealer, and to all authorized dealers, Acura Products in a fair and reasonable manner in order that Dealer may conduct Dealership Operations in a businesslike manner. In fulfilling this obligation, Acura Products may be supplied either on the basis of dealer order or on the basis of allocation, depending on market conditions and availability. There are numerous factors which affect the availability of Acura Products. Among those factors are component availability and production capacity, consumer demand, strikes and other labor troubles, weather and transportation conditions, and government regulations. Because such factors affect individual dealer supply, American Honda necessarily reserves discretion in accepting orders and allocating and distributing Acura Products, and its judgment and decision in such matters will be final. 1.2 To assist Dealer in the fulfillment of its obligations under the Agreement, which it has as a retail seller of Acura Products, American Honda agrees to provide Dealer sales, service and parts support. 1.2.A. To assist Dealer in fulfilling its sales responsibility, American Honda agrees to offer general and specialized product information and to provide field sales personnel to advise and counsel Dealer's sales organization on sales-related subjects such as merchandising, training and sales management. 1.2.B. To assist Dealer in fulfilling its service and parts responsibilities, American Honda agrees to offer, or cause to be offered, general and specialized service and parts training courses. Based on the service training needs of Dealer's service personnel, to be determined by American Honda with the assistance of Dealer, Dealer agrees to have members of Dealer's service organization attend such courses. Further, American Honda agrees to make available to Dealer field service personnel capable of advising and counseling Dealer's service personnel on service-related subjects, including product quality, technical adjustments, repairs and replacement of product components, recall, product improvement or product update campaigns which American Honda may conduct, owner complaints, warranty administration, service and parts merchandising, and training and service management. 1.3 To assist Dealer in planning, establishing and maintaining the Dealership Premises, American Honda will, at its sole option, make available to Dealer, upon request, sample copies of building layout plans or facility planning recommendations, including sales, service and parts space and the placement, installation and maintenance of recommended signs. In addition, representatives of American Honda will be available to Dealer from time to time to counsel and advise Dealer and its personnel. 1.4 American Honda agrees to make available to Dealer, at reasonable cost, such sales, service and parts manuals, brochures, special service tools and equipment and other data for Acura Products as American Honda deems necessary for Dealership Operations. 1.5 American Honda agrees to maintain a nationwide system of authorized dealers of Acura Products. In order that those authorized dealers may be assured of the benefits of comprehensive advertising of Acura Products, American Honda agrees to establish and maintain general advertising programs in such manner and amount as it may deem appropriate and will make sales promotion and campaign materials available to Dealer. 1.6 American Honda agrees to compensate Dealer for the labor and parts used by Dealer in performing its obligations under any American Honda warranty and in connection with any recall, product improvement or product update campaign which American Honda may undertake and require Dealer to perform. Such compensation will be in such reasonable amounts, and pursuant to such requirements and instructions, as American Honda shall establish from time to time, and such compensation shall constitute full and complete payment by American Honda to Dealer for such work. -2- 1.7 American Honda agrees to assume the defense of Dealer and to indemnify Dealer against any money judgment, less any offset recovered by Dealer, in any lawsuit naming Dealer as a defendant, where such lawsuit relates to: (a) an alleged breach of any Acura warranty relating to Acura Products; (b) bodily injury or property damage claimed to have been caused by a defect in the design, manufacture or assembly of an Acura Product prior to delivery thereof to Dealer (other than a defect which could have been detected by Dealer in a reasonable inspection); or (c) a misrepresentation or misleading statement of American Honda; provided, however, that if any information discloses the possibility of Dealer error or omission in servicing or otherwise (including but not limited to Dealer not having performed all recalls of which Dealer has notice on the Acura Product involved in the lawsuit if the defect subject to the recall is alleged or contended to be a contributing cause of the breach of warranty, injury or damage which is the subject matter of the lawsuit), or should it appear that the Acura Product involved in such lawsuit had been altered by or for Dealer, or if Dealer has violated any of the provisions of this Paragraph 1.7, then Dealer will immediately obtain its own counsel and defend itself, and American Honda will not be obligated to defend or indemnify Dealer further. Dealer will promptly notify American Honda of any claim which Dealer will assert American Honda might be obligated to defend under this Paragraph 1.7. American Honda will have not less than thirty (30) days to conduct a reasonable investigation to initially determine whether or not American Honda is obligated to defend under this Paragraph 1.7. Dealer will take the steps necessary to protect its own interests involved in the lawsuit until American Honda assumes the active defense of Dealer. American Honda will, upon assuming the defense of Dealer, reimburse Dealer for all attorneys' fees or court costs incurred by Dealer from the date of the tender. American Honda, upon assuming Dealer's defense, will have the right to retain and direct counsel of its own choosing, and Dealer will cooperate in all matters during the course of defending the lawsuit. If, upon final judgment in a lawsuit, it is determined that American Honda wrongfully failed or refused to defend Dealer, American Honda will reimburse Dealer for all costs and attorneys' fees incurred by Dealer from the date of the tender of defense. 2. SALE OF ACURA PRODUCTS TO DEALER 2.1 To the extent that Acura Products are the subject of dealer order, such orders will be submitted and -3- processed in accordance with procedures established by American Honda. No order will be binding on American Honda, as evidenced by either the issuance of an invoice or shipment of the ordered Acura Products, and any such order may be accepted in whole or in part. All orders by Dealer will be deemed firm orders and binding upon the Dealer, except that at any time prior to acceptance, an order may be canceled by Dealer by giving actual notice to American Honda in writing of the desire by Dealer to cancel such order. 2.2 While it is the intent of American Honda to provide Acura Automobiles to Dealer in such quantities and types as are ordered by Dealer, American Honda and Dealer recognize that Acura Automobiles may not always be available in desired quantities. It is therefore understood and agreed that American Honda, at its sole election, will have the right to allocate Acura Automobiles among authorized dealers of Acura Products in a fair and reasonable manner. American Honda will provide to Dealer an explanation, in writing, of any allocation system it may adopt. 2.3 American Honda will have the right at any time and from time to time to establish and revise prices and other terms, including payment by Dealer, for its sales of Acura Products to Dealer. Revised prices, terms or provisions will apply to the sale of any Acura Products as of the effective date of the revised prices, terms or provisions, even though a different price or different terms may have been in effect at the time such Acura Products were allocated to or ordered by Dealer. 2.4 American Honda will have the right to select the distribution points and the mode of transportation and may pay carriers for all charges in effecting delivery of Acura Products to Dealer. Dealer agrees to pay to American Honda such charges for delivery as American Honda may assess. Subject to the terms of sale which may be established from time to time by American Honda, risk of loss to Acura Products will pass to Dealer upon tender of the Acura Products to Dealer or its authorized agent, and title will pass to Dealer upon receipt by American Honda of payment. 2.5 If Dealer should fail or refuse or for any reason be unable to accept delivery of any Acura Products ordered by Dealer, or if Dealer should request diversion of a shipment from American Honda, Dealer will be responsible for and pay to American Honda, promptly on demand, all costs and expenses incurred by American Honda in filling and shipping Dealer's order and by -4- reason of such diversion, including costs of demurrage and storage, plus restocking charges as determined by American Honda. American Honda may direct that such returned Acura Products be delivered to another destination, but the amount charged Dealer for return to such other destination will not be greater than the costs and expenses of returning such Acura Products to their original place of shipment plus any demurrage, storage and restocking charges. 2.6 As between American Honda and Dealer, American Honda assumes responsibility for damage to Acura Products caused prior to delivery to Dealer or its authorized agent. 2.7 American Honda will not be liable in any manner for delay or failure in supplying any Acura Products where such delay or failure is the result of any event beyond the control of American Honda. Such event may include, but is not limited to, any law or regulation or any acts of God, foreign or civil wars, riots, interruptions of navigation, shipwrecks, fires, strikes, lockouts, or other labor troubles, embargoes, blockades, demand for, or delay or failure of any supplier to deliver or in making delivery, of Acura Products. 2.8 American Honda reserves the right at any time to change or modify, without notice, any specification, design or model of Acura Products. In the event of any change or modification with respect to any Acura Products, Dealer will not be entitled to have such or similar change or modification made with respect to any other Acura Products, except as may be required by applicable law. American Honda may, however, in its sole discretion, make such changes or modifications to all Acura Products in its inventory or control, whether or not invoiced to Dealer. No such change will be considered a model year change unless specified by American Honda. 2.9 American Honda may at any time discontinue, without obligation to Dealer or Dealer's customers, the sale of any Acura Products, or models or lines thereof or any other items, goods or services. Further, American Honda will have no obligation, under any circumstances, to accept orders for any Acura Products which are not in current inventory. 3. THE OBLIGATIONS OF DEALER 3.1 It is the obligation of Dealer to promote and sell, at retail, Acura Products, and to promote and -5- render service, whether or not under warranty, for those products within the Dealer's Primary Market Area. 3.2 Dealer's performance of its sales obligations for Acura Products will be evaluated by American Honda on the basis of such reasonable criteria as American Honda may develop from time to time, including, but not limited to, such reasonable sales objectives as American Honda may establish and a comparison of Dealer's sales performance with other authorized dealers of Acura Products. 3.3 To enable Dealer to fulfill its obligations satisfactorily, Dealer agrees to establish and maintain an adequate and trained sales and customer relations organization. Dealer further agrees to establish and maintain a complete service and parts organization, including a qualified service manager and a qualified parts manager and a number of competent service and parts personnel adequate to care for the service obligations to be performed by Dealer under the Agreement. 3.4 Dealer agrees to acknowledge, investigate and resolve satisfactorily all complaints received from owners of Acura Products in a businesslike manner in order to secure and maintain the goodwill of the public. Any complaint received by Dealer which, in the opinion of Dealer, cannot be readily remedied, shall be promptly reported to American Honda by Dealer. 3.5 Dealer agrees that it will not make any misrepresentations or misleading statements regarding the items making up the total selling price of Acura Products or as to the prices or charges relating to such items. With the understanding that Dealer is the sole judge of the price at which it sells Acura Products, dealer recognizes that a retail customer has the right to purchase Acura Automobiles without being required to purchase any optional equipment or accessories which the purchaser does not want or order unless such equipment or accessories are required under applicable laws or regulations. 3.6 Dealer agrees to make certain that all Acura Products sold by it have received predelivery services and inspection in accordance with applicable procedures and directives issued by American Honda. Dealer further agrees that all Acura Products sold by it will be in proper operating condition prior to delivery to any customer. To enable Dealer to fulfill its obligations in this regard, Dealer agrees that an appropriate number of its service personnel will be fully qualified -6- to perform all necessary predelivery service and inspection. 3.7 Dealer agrees to comply with, and operate consistent with, all applicable provisions of the National Traffic and Motor Vehicle Safety Act of 1966 and the Federal Clean Air Act, as amended, including such applicable rules and regulations as may be issued thereunder, and all other applicable federal, state and local motor vehicle safety and emission control requirements. In the interests of motor vehicle safety and emission control, American Honda agrees to provide to Dealer, and Dealer to American Honda, 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 the rules and regulations issued thereunder, and all other applicable federal, state and local motor vehicle safety and emission control requirements. 3.8 Dealer agrees to conduct a used vehicle operation at or in connection with the Dealership Premises, to the extent reasonably required to enhance the opportunity for sales of Acura Automobiles. 3.9 American Honda and Dealer recognize that it may be necessary for American Honda to formulate new or different policies or directives to meet new or changing technology, laws or circumstances. In the operation of Dealer's business and in the sale and promotion of Acura Products, in rendering service and in all other activities of the Dealership Operations, Dealer will follow all reasonable directives, suggestions and policies of American Honda. All written directives, suggestions and policies of American Honda contained in any of its bulletins or manuals, which are in effect as of the date of the Agreement or are issued thereafter, will be deemed a part of the Agreement. 3.10 Dealer agrees that it will, at all times, maintain in effect all licenses required for Dealership Operations and for the Dealership Premises. 3.11 Dealer agrees that it will comply with all laws, rules, regulations and guides relating to the conduct of its business. 3.12 Dealer agrees that it will perform any and all warranty, recall, product improvement or product update service in compliance with instructions and directives -7- issued by American Honda, regardless of where the Acura Product involved was purchased. To protect and maintain the goodwill and reputation of Acura Products and the Acura Trademarks, Dealer agrees that it will not charge any customer for warranty service or any work done in connection with such warranty, recall, product improvement or update or any other service as to which Dealer is reimbursed by American Honda. 3.13 Dealer fully understands that the success of its Dealership Operations depends to a great extent upon the amount of net working capital, owner's equity, flooring and lines of credit which Dealer maintains. Accordingly, for the benefit of both American Honda and Dealer, Dealer agrees that it will, at all times, pay for Acura Products promptly and, to do so, maintain its minimum net working capital, owner's equity, flooring and lines of credit in the amounts specified in Paragraph G of the Agreement. American Honda will have the right, reasonably, to specify an increased amount of minimum net working capital, owner's equity, flooring, or lines of credit to be used in Dealership Operations and Dealer agrees promptly to establish and maintain the increased amount. Dealer and American Honda agree to execute such new documents as American Honda may reasonably require to evidence revised capital requirements. 3.14 Dealer agrees to assume the defense of American Honda and to indemnify American Honda against any money judgment, less any offset recovered by American Honda, in any lawsuit naming American Honda as a defendant where such lawsuit relates to: (a) an alleged failure by Dealer to comply, in whole or in part, with any obligation assumed by Dealer pursuant to the Agreement, (b) Dealer's alleged negligent or improper repairing or servicing of Acura Products, or such other motor vehicles or equipment as may be sold or serviced by Dealer, or (c) Dealer's alleged breach of any contract between Dealer and Dealer's customer, or (d) Dealer's alleged misrepresentation or misleading statement, either direct or indirect, to any customer of Dealer. American Honda may, at its sole option and at its expense, participate in defending any such lawsuit. 4. WARRANTY 4.1 Dealer understands and agrees that the only warranties that will be applicable to Acura Products will be such written warranty or warranties as may be furnished by American Honda. Except for its express liability under such written warranties, American Honda neither assumes nor authorizes any other person or party to assume for -8- it any other obligation or liability in connection with any Acura Product or component thereof. 4.2 Dealer agrees that it will expressly incorporate any warranty furnished by American Honda with an Acura Automobile as a part of each order form or other contract for the sale of such Acura Automobile by Dealer to any buyer. Dealer further agrees that it will deliver to the buyer of all Acura Products, at the time of delivery of such Acura Products, copies of such applicable warranties as may be furnished by American Honda. Dealer agrees to abide by and implement in all other respects American Honda's warranty procedures in effect at the time of Dealer's sale. 5. ADVERTISING AND PROMOTIONAL PROGRAMS 5.1 Dealer agrees to develop and actively utilize programs for the advertisement and promotion of Acura Products and its servicing of such products. Such programs will include the prominent display and use or demonstration of Acura Automobiles. Dealer further agrees to cooperate with all reasonable promotional programs developed by American Honda. 5.2 Dealer agrees that it will not advertise, promote or trade in Acura Products or the servicing thereof in such a manner as to injure or be detrimental to the goodwill and reputation of American Honda and the Acura Trademarks. Dealer further agrees that it will not publish or otherwise disseminate any advertisement or announcement or use any form or media of advertising which is objectionable to American Honda. Dealer agrees to discontinue immediately any advertisement or form of advertising deemed objectionable upon request of American Honda. 5.3 Subject to applicable federal, state or local ordinances, regulations and statutes, Dealer agrees to erect and maintain, at the Dealership Location, at Dealer's expense, authorized product and service signs of types required by American Honda, as well as such other authorized signs as are necessary to advertise the Dealership Operations effectively and as are required by American Honda. 6. TRADEMARKS AND SERVICE MARKS 6.1 Dealer agrees that American Honda has the exclusive right to use and to control the use of the Acura Trademarks and but for the right and license granted by Paragraph 6.2 hereof to use and display the Acura Trademarks, Dealer would have no right to use the same. -9- 6.2 Dealer is hereby granted the nonexclusive right and license to use and display the Acura Trademarks at the Dealership Premises. Such use or display is limited to that which is necessary in connection with the sale, offering for sale and servicing of Acura Products at retail at the Dealership Location. Dealer agrees that it will promptly discontinue the use of any of the Acura Trademarks or change the manner in which any of the Acura Trademarks is used when required to do so by American Honda. 6.3 American Honda and Dealer recognize that Dealer is free to sell Acura Products to customers wherever they may be located. However, in order that American Honda may establish and maintain an effective network of authorized dealers for the sale and service of Acura Products, Dealer specifically agrees that it will not display Acura Trademarks, or, either directly or indirectly, establish any place or places of business for the conduct of any of its Dealership Operations except at the locations and for the purpose described in Paragraph E of the Agreement without the prior written approval of American Honda. Dealer further agrees that the rights and license granted by Paragraph 6.2 hereof will be automatically canceled upon a change in the location of the Dealership Location unless such change in location was previously approved in writing by American Honda. Dealer further agrees that such right and license terminates with the termination of the Agreement. 6.4 If Dealer refuses or neglects to keep and perform its obligations assumed under this Article 6 or under Paragraph 10.3 hereof, Dealer will reimburse American Honda for all costs, attorneys' fees and other expenses incurred by American Honda in connection with any action to require Dealer to comply therewith. 7. GENERAL BUSINESS REQUIREMENTS 7.1 It is to the mutual benefit of Dealer and American Honda that uniform accounting systems and practices be maintained by authorized dealers. Accordingly, Dealer agrees to maintain such systems and practices as are required by American Honda. In the event Dealer engages in the sale of any other product, Dealer agrees to maintain and keep separate records and books relating to the sale and servicing of Acura Products. 7.2 Dealer agrees to furnish monthly to American Honda, on or before the times designated by American Honda, on forms prescribed by American Honda, a complete and -10- accurate financial and operating statement covering the preceding month and calendar-year-to-date operations and showing the true and accurate condition of Dealership Operations. Financial statements and other business information furnished to American Honda will not be submitted to any third party unless authorized by Dealer or required by law, or the information is pertinent to a proceeding in which American Honda and Dealer are parties. 7.3 Dealer agrees to keep complete and current records regarding the sale and servicing of Acura Products and to prepare for American Honda such reports, based on those records, as American Honda may reasonably request. In order that policies and procedures relating to the applications for reimbursement for warranty and other applicable work and for other credits or reimbursements may be applied uniformly to all authorized dealers, Dealer agrees to prepare, keep current and retain records in support of requests for reimbursement or credit in accordance with policies and procedures designated by American Honda. 7.4 Dealer agrees to permit, during reasonable business hours, American Honda, or its designee, to examine, audit, reproduce and take copies of all reports, accounts and records pertaining to the sale, servicing and inventorying of Acura Products, including, but not limited to, records in support of claims for reimbursement or credit from American Honda, and with the prior approval of Dealer, which approval will not be unreasonably withheld, to interview Dealer employees with respect thereto. 7.5 Dealer agrees that Dealership Operations will be conducted in the normal course of business during and for not less than the days of the week and hours of the day customary for automobile dealerships in the Primary Market Area. 7.6 Dealer agrees and understands that any retail price which may be suggested by American Honda is merely a suggested price, and Dealer has no obligation to sell any Acura Product at such price. Dealer further understands and agrees that it is the sole judge of the price at which it sells Acura Products and the price it charges others for service, subject only to applicable local, state and federal laws, rules and regulations. 7.7 Dealer understands and agrees that it will be responsible for and will pay any and all taxes, whether sales, use or excise, and all other governmental or municipal charges imposed upon the sale of Acura -11- Products by American Honda to Dealer and will maintain accurate records of the same, which records will be available to American Honda, or its designee, during regular business hours for inspection. 7.8 Dealer understands and agrees that, while it has responsibility for the promotion and retail sale and servicing of Acura Products within the Primary Market Area, it has no territorial exclusivity. Further, American Honda reserves the right, based upon reasonable criteria, to appoint other authorized dealers of Acura Products in the Primary Market Area. 8. APPOINTMENT OF SUCCESSOR AND REPLACEMENT DEALERS 8.1 The parties recognize that Acura Products are marketed through a system of authorized dealers developed by American Honda and that customers and American Honda have a vital interest in the preservation and efficient operation of the system. American Honda has the responsibility of continuing to administer the system and of selecting the most suitable dealer candidate in each circumstance. Accordingly, Dealer agrees that American Honda has the right to select each successor and replacement dealer and to approve its owners and principal management and the location of dealership facilities. Further, Dealer agrees to provide written notice to American Honda of any potential change in the involvement, ownership or management specified in Paragraphs C and D of the Agreement. No change affecting such involvement, ownership or management will be made without the prior written approval of American Honda, which approval will not be unreasonably withheld. 8.2 Upon Dealer's request, American Honda will execute with Dealer a Successor Addendum designating proposed Dealer operators or owners of a successor dealer to be established if the Agreement expires or is terminated because of death or incapacity. The request must be executed by all persons identified in Paragraph C of the Agreement and all proposed dealer operators or owners and be submitted to American Honda prior to such death or incapacity; provided that such proposed dealer operators or owners must be acceptable to American Honda. 8.3 Dealer, but not American Honda, may cancel any executed Successor Addendum. If American Honda notifies Dealer that it does not plan to permit Dealership Operations to continue at the Dealership Location, American Honda shall have no obligation to execute a new Successor Addendum. -12- 8.4 If the Agreement expires or is terminated because of death or incapacity and Dealer and American Honda have not executed a Successor Addendum, the remaining owners, successors or heirs may propose a successor dealer entity to continue Dealership Operations at the Dealership Location. Such proposal must be made within thirty days of the event causing expiration or termination by submitting a written proposal to American Honda. Such proposal will be accepted by American Honda if it does not introduce new owners or if the proposed new owners are acceptable to American Honda. 8.5 Any successor dealer entity approved by American Honda pursuant to this Article 8 must establish that it can conduct Dealership Operations in an efficient and businesslike manner. Such successor dealer entity will have one year to meet reasonable performance criteria established from time to time by American Honda. In the event such successor dealer entity fails to meet those criteria, such failure will be separate grounds for termination of the Agreement. 9. TERMINATION OF AGREEMENT 9.1 The Agreement may be terminated, at any time, by mutual agreement of American Honda and Dealer. 9.2 Dealer may terminate the Agreement, at any time, by giving American Honda notice of such termination. Such termination shall be effective upon the date specified by Dealer, or if no date is specified, then upon receipt by American Honda of such notice. 9.3 American Honda may terminate the Agreement, at any time, by serving on Dealer a written notice of such termination by certified or registered mail to Dealer at the Dealership Premises. Subject to other provisions of the Agreement, termination will be effective ninety (90) days after mailing of such notice to dealer or such longer period as American Honda may specify; provided, however, that termination will be effective ten (10) days after mailing if for an occurrence of any circumstance referred to in Paragraphs 9.4.A, 9.4.B, 9.4.J or 9.4.M hereof. 9.4 It is recognized that each of the following grounds is within control of Dealer or originates from action taken by Dealer or its employee(s) and is contrary to the spirit and objectives of the Agreement. Therefore, American Honda may terminate the Agreement upon the occurrence of any of the following: -13- 9.4.A Failure by Dealer to secure and continuously maintain any license necessary for the conduct by Dealer of its business pursuant to the Agreement or the termination or expiration without renewal, or suspension or revocation of any such license for any reason whatsoever, whether or not license is reinstated. 9.4.B Any change, transfer or attempted transfer by Dealer or any Dealer Owner, voluntarily or by operation of law, of the whole or any part of the Agreement or any interest or legal or beneficial ownership therein or any right or obligation thereunder, directly or indirectly, such as, for example only, by way of a sale of an underlying ownership interest in Dealer or the Dealership Premises or a change in the persons having control or managerial authority, without prior written consent of American Honda. Any purported change, transfer or assignment shall be null and void and not binding on American Honda. 9.4.C Any dispute, disagreement, controversy or personal difficulty between or among Dealer Owners or in the management of Dealer which, in American Honda's opinion, may adversely affect the conduct of Dealer's business, or the presence in the management of Dealer of any person who, in American Honda's opinion, does not have or no longer has requisite qualifications for his position. 9.4.D Impairment of the reputation or the financial standing of Dealer or of any Dealer Owner subsequent to the execution of the Agreement; or the ascertainment by American Honda of any facts existing at or prior to execution of the Agreement which tend to impair such reputation or financial standings; or the failure of Dealer continuously to meet American Honda's minimum requirements of net working capital, owner's equity or line(s) of credit. 9.4.E Failure by Dealer to pay, within ten (10) days after written demand from American Honda, any delinquent accounts or other monies due to American Honda from Dealer. -14- 9.4.F Submission or participation in the submission to American Honda of any false or fraudulent statement, application, report for issuance of reimbursement, compensation, refund or credit, including but not limited to any false or fraudulent claim for warranty work, labor rate, set-up reimbursement or warranty coverage. 9.4.G Use by Dealer of any deceptive or fraudulent practice, whether willful, negligent or otherwise, in the sale of any Acura Product. 9.4.H Any conviction in any court of original jurisdiction of Dealer or any Dealer Owner or any employee of the Dealership Operations for any crime or violation of any law if, in the opinion of American Honda, such conviction or violation may adversely affect the conduct of the Dealership Operations or tend to be harmful to the goodwill of American Honda or to the reputation of Acura Products or the Acura Trademarks, or the violation or refusal or neglect of Dealer to comply with the provisions of the National Traffic and Motor Vehicle Safety Act of 1966, as amended, or the Clean Air Act, or any rules, regulations or standards under either of said Acts, including but not limited to performance of any product update or recall operation as directed by American Honda. 9.4.I Dealers entering into any agreement, combination, understanding or contract, oral or written, with any other corporation, person, firm or other legal entity for the purpose of fixing prices of Acura Products or otherwise violating any law. 9.4.J Dealer's abandonment of Dealership Premises or failure to maintain Dealership Operations as a going business, open during customary business hours for the days and hours as are customary for automobile dealerships in the Primary Market Area, provided such failure is not due to causes beyond Dealer's control. Failure of the Dealership Premises to remain open for seven (7) consecutive days will constitute, without more, such abandonment. 9.4.K Death or incapacity of any Dealer Owner or Dealer Manager, subject to the provisions of Article 8. -15- 9.4.L Failure of Dealer to make improvements, alterations or modifications of its Dealership Premises which are required to meet reasonable facility requirements of American Honda or which Dealer has agreed or represented to American Honda that Dealer will make or do. 9.4.M The movement of Dealership Premises to a new location or the establishment of an additional location for the sale or service of any Acura Products without the prior written approval of American Honda. 9.4.N The failure of Dealer to provide adequate representation, promotion, sales or service, including warranty work, of any Acura Products. 9.4.O Dealer's breach of any provision of the Agreement or Dealer's failure to comply with any contained in the Agreement. 9.5 The Agreement will also be terminated upon written notice by American Honda in the event: 9.5.A Of termination of American Honda's distribution agreement as an Acura Automobile distributor. 9.5.B Of withdrawal by American Honda from the market in which Dealer is located. 9.5.C American Honda will, for any reason, discontinue the distribution of Acura Automobiles. 9.6 Upon the occurrence of any of the following facts or circumstances, the Agreement will terminate automatically, without notice or other action by American Honda or Dealer; and upon such termination, any dealings between American Honda and Dealer will be on a day-to-day basis at the sole option of American Honda and may be discontinued at any time by American Honda: 9.6.A Insolvency by any definition of Dealer; or 9.6.B The existence of facts or circumstances which would allow the voluntary commencement by Dealer, or the involuntary commencement against Dealer, of any proceedings under any -16- bankruptcy act or law or under any state insolvency law; or 9.6.C The appointment of a receiver or other officer having similar powers for Dealer or the Dealership Premises; or 9.6.D Any levy against Dealer under attachment, garnishment or execution or similar process which is not within ten (10) days vacated or removed by payment or bonding. 9.7 American Honda may select any applicable provision under which it elects to terminate the Agreement and give notice thereunder, notwithstanding the existence of any other grounds for termination or the failure to refer to such other grounds in the notice of termination. The failure by American Honda to specify additional ground(s) for cancellation in its notice will not preclude American Honda from later establishing that termination is also supported by such additional grounds(s). 9.8 The acceptance by American Honda of orders from Dealer or the continued sale of Acura Products to Dealer or any other act or course of dealing of American Honda after termination of the Agreement will not be construed as or deemed to be a renewal of the Agreement for any further term or a waiver of such termination. Any dealings after termination will be on a day-to-day basis. 9.9 In all cases, Dealer agrees to conduct itself and Dealership Operations until the effective date of termination and after termination or expiration of the Agreement, so as not to injure the reputation or goodwill of the Acura Trademarks or American Honda. 10. RIGHTS, OBLIGATIONS AND DEALINGS UPON TERMINATION 10.1 Upon the mailing of a written notice of termination or after date of the expiration of the Agreement without renewal, American Honda will have the right to cancel all pending orders of Dealer for Acura Products, special tools and equipment, whether previously accepted by American Honda or not, except as specifically otherwise provided in this Section 10. Notwithstanding the foregoing, if American Honda chooses to fill any orders, it will not be obligated to fill any other orders and will not be precluded from changing the terms of any sale. -17- 10.2 Not later than the effective date of the termination or expiration of the Agreement, Dealer will cease to hold itself out as being authorized to sell Acura Products and will discontinue selling Acura Products or performing service as an authorized dealer. 10.3 In addition to the requirements of Section 10.2, not later than the effective date of the termination or expiration of the Agreement, Dealer will, at its sole expense, discontinue any and all uses of any Acura Trademarks and any words, symbols and marks which are confusingly similar thereto; will remove all signs bearing any Acura Trademark and will destroy all stationery, repair orders, advertising and solicitation materials, and all other printed matter bearing any Acura Trademark or referring directly or indirectly to American Honda or Acura Products in any way which might make it appear to members of the public that Dealer is still an authorized dealer. The foregoing will include, but not be limited to, discontinuing the use of an Acura Trademark as part of Dealer's business and corporate name. Dealer will also deliver to American Honda, at American Honda's place of business, or to a person designated by American Honda, or will destroy the same upon request by American Honda, any and all technical or service literature, advertising and other printed material then in Dealer's possession which relates to Acura Products and which was acquired or obtained by Dealer from American Honda. Dealer will destroy any sign bearing an Acura Trademark which has not been repurchased by American Honda. 10.4 In the event the Agreement is terminated pursuant to the provisions of Paragraph 9.3 hereof, upon request of American Honda for copying Dealer's records of predelivery service, warranty service, recall or update service or other service of Acura Products, Dealer will make such records available. In the event the Agreement is terminated pursuant to the provisions of Paragraphs 9.1 or 9.2 hereof, upon the request of American Honda, Dealer will deliver to American Honda copies of such Dealer records. 10.5 Dealer may, at any time within five (5) days after the effective date of termination or expiration of the Agreement, notify American Honda in writing of Dealer's desire to have American Honda repurchase from Dealer Acura Products in Dealer's inventory which were purchased from American Honda and which, when American Honda accepts sole possession: 10.5.A In the case of Acura Automobiles, are new and of the then current model year, as designated -18- by American Honda, unused, undamaged and in first-class resalable condition, regardless of whether or not American Honda has exercised its right of inspection; and 10.5.B In the case of Acura Parts, are new, listed as current in the Parts Price Book, unused, undamaged, in their original package and in first-class resalable condition. 10.6 Upon termination or expiration without renewal, upon request of Dealer given no later than five (5) days after the effective date of termination or expiration, American Honda will repurchase all signs which use an Acura Trademark as were authorized in advance by American Honda and all service information and materials, special tools and equipment designed specifically for service of Acura Automobiles and which were purchased from American Honda and are usable on current Acura Products, provided that such signs, information, materials, tools and equipment are less than five (5) years old and are in good working order. 10.7 American Honda will repurchase from Dealer Acura Products and signs, information, materials, tools and equipment as aforesaid on the condition that Dealer furnishes an inventory to American Honda within thirty (30) days after the termination or expiration without renewal of the Agreement and complies strictly with all procedures and conditions of repurchase issued by American Honda at the time of repurchase. American Honda will have the right and option to assign to another person or entity the right to purchase such Acura Products. 10.7.A The price for Acura Products, other than tools, equipment, information, materials and signs, will be the price at which they were originally purchased by Dealer from American Honda or the price last established by American Honda for the sale of identical Acura Products, whichever may be lower, and in either case will be less all prior refunds and allowances made by American Honda with respect thereto, if any. The price for tools, equipment, information, materials and signs will be the price paid by Dealer reduced by straight-line depreciation on the basis of a useful life of five (5) years. In all cases, the price will be reduced by any applicable restocking charge which may be in effect at the time of American Honda's receipt of goods to be repurchased. -19- 10.7.B Dealer agrees to store Acura Products and other items which American Honda desires or is obligated to repurchase until receipt from American Honda of rejection of repurchase or instructions for shipping and return to American Honda. Dealer agrees to strictly follow and abide by all instructions for return as may be issued from time to time by American Honda. All Acura Products will be properly and suitably packaged and containered for safe transportation to American Honda. All damage, regardless of nature or cause, will be the responsibility of Dealer until the Acura Products are inspected and accepted by American Honda for repurchase. Storage of such Acura Products and other items will be at Dealer's expense for a period of ninety (90) days after Dealer requests repurchase and provides an inventory as provided by Paragraphs 10.6 and 10.7 hereof. Thereafter, Dealer will be entitled to charge American Honda a reasonable storage charge. 10.7.C American Honda, or its designee, at such reasonable time and for such a reasonable period of time as American Honda may determine, will have the right to enter the premises where items for repurchase are being held for the purpose of checking the inventory submitted by Dealer or examining, inspecting and inventorying any and all Acura Products. If American Honda agrees to repurchase and Dealer fails to furnish an inventory, Dealer will reimburse American Honda for all costs of American Honda taking an inventory. 10.7.D Only those Acura Products meeting the requirements of Paragraphs 10.5 and 10.6 hereof are or will be eligible for return to American Honda. American Honda will not be obligated to give Dealer credit for any Acura Products which do not meet those requirements. 10.7.E Dealer warrants and represents that all Acura Products tendered to American Honda for repurchase will be free of all liens, encumbrances, security interests or attachments at the time repurchase is requested by Dealer. Clear title will be vested in American Honda upon receipt of -20- goods. Dealer will execute and deliver any documents necessary to vest clear title in American Honda, and Dealer will be responsible for complying with all applicable procedures, including but not limited to those relating to bulk transfers. 10.7.F Dealer will pay all freight and insurance charges from Dealer to the place of delivery designated by American Honda, provided that Dealer will not be liable for any amount greater than the freight and insurance charges from Dealer to American Honda's closest automobile warehouse or parts center as American Honda may designate. Claims for damage allegedly caused by any carrier will be the sole responsibility of Dealer, and in no event will American Honda be obligated to make a claim against a carrier or be liable to Dealer for damage. 10.7.G As a condition of repurchase and notwithstanding any other agreement or offer to repurchase, payment for repurchase will first be applied against any obligations or money owed by Dealer to American Honda. All payment due from American Honda to Dealer pursuant to any provisions of the Agreement or in connection with the termination of the Agreement will be made by American Honda after receipt of the goods to be repurchased and after all debits and credits have been ascertained and applied to Dealer's accounts, and Dealer has delivered to American Honda the manufacturer's certificate of origin or other document of title for Acura Automobiles tendered to American Honda for repurchase. In the event it be found that a balance is due from Dealer to American Honda, Dealer will pay such sum to American Honda within ten (10) days of written notice of such balance. 11. GENERAL PROVISIONS 11.1 Dealer acknowledges that only the President or a designated Vice President, Secretary or Assistant Secretary of American Honda is authorized to execute the Agreement, agree to any variation, modification or amendment of any of the provisions thereof, including authorized location, or to make commitments for or on behalf of American Honda. No other employee of American Honda may make any promise or commitment on -21- behalf of American Honda or in any way bind American Honda. Dealer agrees that it will not rely on any statements or purported statements except from personnel as authorized hereinabove. 11.2 The Agreement contains the entire agreement between Dealer and American Honda. Dealer acknowledges that no representations or statements other than those expressly set forth therein were made by American Honda or any officer, employee, agent or representative thereof, or were relied upon by Dealer in entering into the Agreement. The Agreement terminates and supersedes, as of the execution thereof, all prior agreements relating to Acura Products, if any. 11.3 Dealer hereby waives, abandons and relinquishes any and all claims of any kind and nature whatsoever arising from or out of or in connection with any prior agreement entered into between Dealer and American Honda; provided, however, that nothing herein contained shall be deemed a release or waiver of any claim arising out of prior sales of Acura Products by American Honda to Dealer. 11.4 The Agreement is personal to the individuals identified as principals, owner(s), partners or shareholder(s) in Paragraph C. Neither the Agreement, nor any part hereof or any interest therein, may be transferred or assigned by Dealer, in whole or in part, directly or indirectly, voluntarily or by operation of law, without the prior written approval of American Honda. Any attempted transfer or assignment will be void and not binding upon American Honda. 11.5 All notices, notifications or requests under or pursuant to the provisions of the Agreement will be directed to the address of the principal places of business of the respective parties to the Agreement. If either party cannot effect notice at the place of business of the other because a party has abandoned its place of business or refuses to accept notice, then, and only in such case, notice may be served on American Honda through its designated agent for service of process and upon Dealer through the Department of Motor Vehicles (or its equivalent) in the state where the Dealership Location is authorized by American Honda. 11.6 The waiver by either party of any breach or violation of or default under any provision of the Agreement will not be a waiver by such party of any other provision or of any subsequent breach or violation thereof or default thereunder. The failure or delay of either party to take prompt action upon any breach or -22- violation of the Agreement will not be deemed a waiver of the right to take action for such breach, default or violation at any time in the future. 11.7 Dealer agrees to keep confidential and not disclose, directly or indirectly, any information which American Honda designates as confidential. 11.8 The Agreement is and shall be deemed to have been entered into in California and shall be governed by and construed in accordance with the laws of the State of California. 11.9 If any provision of this Agreement should be held invalid or unenforceable for any reason whatsoever or to conflict with any applicable law, the 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 altering the tenor of the Agreement, then it will be deemed deleted from the Agreement in such jurisdiction, and in either case, the remainder of the Agreement will be valid and binding. 11.10 The terms of the Agreement may not be modified except in writing signed by an authorized officer of the parties. Without limiting the generality of the foregoing, no course of dealing will serve to modify or alter the terms of the Agreement. 11.11 Dealer is an independent business. The Agreement does not constitute Dealer the agent or legal representative of American Honda for any purpose whatsoever. Dealer is not granted any expressed or implied right or authority to assume or create any obligation on behalf of or in the name of American Honda or to bind American Honda in any manner or thing whatsoever. Dealer has paid no consideration for the Agreement. Neither the Agreement nor any right granted under it is a property right. 11.12 The expiration or termination of the Agreement will not extinguish any claims American Honda may have for the collection of money or the enforcement of any obligations which may be in the nature of continuing obligations. 12. DEFINITIONS 12.1 American Honda means American Honda Motor Co., Inc., a California corporation, and the Acura Automobile Division that markets Acura Automobiles. -23- 12.2 Dealer means the person, firm, corporation, partnership or other legal entity that signs the Agreement and each of the persons identified in Paragraph C. 12.3 Dealer Manager means the principal manager of Dealer identified in Paragraph D upon whose personal service American Honda relies in entering into the Agreement. 12.4 Dealer Owner means the owner(s) of Dealer identified in Paragraph C upon whose personal service American Honda relies in entering into the Agreement. 12.5 Dealership Location means the location approved by American Honda for the purpose of conducting Dealership Operations. 12.6 Dealership Operations means all operations contemplated by the Agreement. These operations include the sale and service of Acura Products, and any other activities undertaken by Dealer related to Acura Products, including rental and leasing operations, used car sales and body shop operations, and finance and insurance operations, whether conducted directly or indirectly by Dealer. 12.7 Dealership Premises means the facilities provided by Dealer at its Dealership Location for the conduct of Dealership Operations as approved by American Honda. 12.8 Acura Automobiles means such new passenger cars as are from time to time offered for sale by American Honda to Dealer for resale as part of the Acura automobile line as defined by American Honda. 12.9 Acura Parts means parts, accessories and optional equipment marketed by American Honda for use with Acura Automobiles. 12.10 Acura Products means Acura Automobiles and Acura Parts. 12.11 Acura Trademarks means the various trademarks, service marks, names and designs which American Honda uses or is authorized to use in connection with Acura Products or services relating thereto. 12.12 Primary Market Area means the geographical area designated for Dealer by American Honda from time to time. 12.13 The Agreement means the Acura Automobile Dealer's Sales and Service Agreement and these Standard Provisions which are incorporated therein by reference. -24- Dealer agrees to maintain, solely with respect to the Dealership Operations, minimum net working capital of $218,524.00, minimum owner's equity of $272,968.00, and flooring and a line or lines of credit in the aggregate amount of $753,760.00 with banks or financial institutions approved by American Honda for use in connection with Dealer's purchases of and carrying of inventory of Honda Products, all of which American Honda and Dealer agree are required to enable Dealer to perform its obligations pursuant to this Agreement. If Dealer also carries on another business or sells other products, Dealer's total net working capital, owner's equity and lines of credit shall be increased by an appropriate amount. H This Agreement is made for the period beginning January 19, 1993 and ending January 31, 1994, unless sooner terminated. Continued dealings between American Honda and Dealer after the expiration of this Agreement shall not constitute a renewal of this Agreement for a term, but rather shall be on a day-to-day basis, unless a new agreement or a renewal of this Agreement is fully executed by both parties. I This Agreement may not be varied, modified or amended except by an instrument in writing, signed by duly authorized officers of the parties, referring specifically to this Agreement and the provision being modified, varied or amended. J Neither this Agreement, nor any part thereof or interest therein, may be transferred or assigned by Dealer, directly or indirectly, voluntarily or by operation of law, without the prior written consent of American Honda. Danbury Auto Partnership Danbury Auto Partnership t/a FAIR HONDA By___________/s/___________ - ------------------------------ (Dealer) (Corporate or Firm Name) AMERICAN HONDA MOTOR CO., INC. (Corporate Seal) HONDA AUTOMOBILE DIVISION By____________/s/_______________ Thomas G. Elliott Executive Vice President EX-10.8-8-1 27 EXHIBIT 10.8.8.1 PORSCHE SALES AND SERVICE AGREEMENT Parties and Date Effective Date of Agreement ______________________, 19___ Between SK Motors, Ltd., Inc. Doing Business as Scottsdale Porsche located at 6725 East McDowell Rd. Scottsdale, Arizona 85257 A corporation in the state of Arizona , partnership ____ or proprietorship ________________; and Porsche Cars North America, Inc., a Delaware corporation with its primary place of business at 100 West Liberty Street, Reno, Nevada 89501. THE ADDITIONAL TERMS AND CONDITIONS OF THE ADDENDUM ATTACHED HERETO AS EXHIBIT "A" HEREBY IS MADE A PART OF THIS AGREEMENT. Section I. SPECIFIC TERMS Porsche America enters into this Agreement relying on the following Dealer representations: A) The following individual(s) is the Dealer Principal: Name Home Address %Interest Title - ---- ------------ --------- ----- Steven Knappenberger 19% President ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ B) The following individual(s) has ownership in Dealer accounting for the entire remaining equity ("Owner(s)"). Name Home Address %Interest - ---- ------------ --------- United Auto Group West, Inc. 81% (United Auto Group, Inc. - 100% - 375 Park Avenue, New York, NY 10022) Refer to the addendum attached hereto for ownership restrictions C) The following person is the General Manager of the Dealer with managerial authority for Dealer operations and is responsible directly to (or is) the Dealer Principal: Name Home Address Title - ---- ------------ ----- George W. Brochick ________________________________________________________________________________ ________________________________________________________________________________ D) Dealer will conduct the sale and service of Porsche Products at the following address ("Dealership Location"): Sales 6725 East McDowell Road Scottsdale, Arizona 85257 -1- Service 6725 East McDowell Road Scottsdale, Arizona 85257 E) Porsche America grants to Dealer the non-exclusive right to purchase Porsche Products from Porsche America for resale to consumers. Dealer accepts such grant and undertakes to apply its best efforts to the development of such resale. The Dealer's Primary Area of Responsibility is: Scottsdale, Arizona F) Dealer acknowledges that Porsche America will periodically establish minimum sales and service objectives based principally on the penetration of Porsche Products in the Primary Area of Responsibility and that performance against those objectives will be a critical feature of Sales and Service Reports. G) Dealer acknowledges that Porsche America will periodically establish Dealer minimum operating standards deemed necessary to provide owners and potential owners of Porsche Products a level of total service commensurate with the reputation of Porsche Automobiles and to attain the sales and service objectives established. H) This Agreement shall expire in accordance with its terms on the close of the last business day preceding the first anniversary of the Effective Date of Agreement unless terminated prior thereto in accordance with one or more of the terms of Section II. If, however, as of the expiration date, Porsche Cars North America, Inc. has not entered into a new and superseding Sales and Sevice Agreement with Dealer and if no notice to terminate the Agreement has been given pursuant to Section II, -2- then, in that event, the Agreement will be extended one additional year so that it shall expire at the close of the last business day preceding the second anniversary of the Effective Date of Agreement unless terminated prior thereto in accordance with one or more of the terms of Section II. In witness whereof, Porsche America and Dealer have executed this Sales and Service Agreement with an effective date of Agreement as stated on the Parties and Date page of this Agreement. Porsche Cars North America, Inc. SK Motors Ltd., Inc. Name Richard S. Ford Name ___________________ Title Senior Vice President Title __________________ Signature _______________________ Signature ______________ Date ____________________________ Date____________________ EX-10.8-8-2 28 EXH 10.8.8.2 FORM OF ADDENDUM TO PORSCHE SALES 10.8.8.2 [Reserved for future use.] [This Exhibit has been reserved by the Company for future use.] EX-10.8-9-1 29 EXH 10.8.9.1 FORM OF LAND ROVER NORTH AMERICA 10.8.9.1 [Reserved for future use.] [This Exhibit has been reserved by the Company for future use.] EX-10.8-9-2 30 EXH 10.8.9.2 LAND ROVER STANDARD PROVISIONS 10.8.9.2 [Reserved for future use.] [This Exhibit has been reserved by the Company for future use.] EX-10.8-10 31 EXH 10.8.10 SUBLEASE DATED 6/7/88 NET LEASE THIS LEASE, Made this 14th day of September, 1979, by and between Max & Elizabeth Haechler 6116 E. Cactus Wren, Scottsdale, Arizona 85253 ("Lessor"), and Max of Switzerland an Arizona Corporation ("Lessee"). W I T N E S S E T H: 1. Leased Premises. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, certain premises consisting of Automobile Dealership facilities at 6903, 6905, 6907, 6913, 6925 E. McDowell Rd., Scottsdale, Arizona 85257 (see attached legal description of subject property & survey) (the "Leased Premises"), the Leased Premises being more particularly described in Exhibit A attached hereto and made a part hereof for all purposes. 2. Term. The term of this Lease shall be for Eighteen (18) years, commencing on October 1, 1979, (the "Commencement Date"), and terminating September 30, 1997 (11) years after the Commencement Date. 3. Basic Rent. Lessee shall pay to Lessor without demand, deduction, or offset as rent for the Leased Premises the total sum of TWO MILLION THREE HUNDRED SEVENTY SIX THOUSAND DOLLARS ($2,376,000.00), payable in monthly installments of ELEVEN THOUSAND DOLLARS ($11,000,00), the first installment payable in advance on the first day of the term of this lease and subsequent installments payable in advance on the first day of each month thereafter during the term of this lease. 4. Taxes. Lessee shall pay as additional rent any privilege tax, sales tax, gross proceeds tax, rent tax, or like tax (but not including income tax), now or hereafter levied, assessed or imposed by any federal, state, county, or municipal governmental authority, or any, subdivision thereof, upon any rent or other payments required to be paid under this lease. Lessee shall also pay before delinquent as additional rent all personal property taxes and assessments levied or assessed by any governmental authority against any personal property or fixtures of Lessee in, on, or about the Leased Premises. Lessee shall pay before delinquent, as additional rent, exhibiting receipts therefor to Lessor on demand, all real property taxes and assessments levied or assessed against the Leased Premises and improvements thereon, both general and special, foreseen and unforeseen, and all water charges or assessments levied in connection with any improvements or irrigation projects, or district or other taxes, assessments or governmental charges of any kind levied or assessed against, the Leased Premises. Lessee shall have the right, in good faith and at its sole and own cost and expense and in its own name or in the name of Lessor, to protest or contest or seek to have reviewed, reduced, equalized, or abated any tax or assessment by legal proceedings in such manner as it may deem advisable. No protest, contest, or other action, however, shall be maintained by Lessee after the time limited for the payment without penalty or interest of the tax or assessment unless Lessee shall have first paid the amount of such tax or assessment under protest or shall have procured a stay of proceedings to enforce the collection thereof, and shall have also provided for the payment thereof together with all penalties, interest, costs, and expenses by the deposit of a bond in form approved by Lessor if required by law to accomplish such stay. 5. Purpose. Lessee shall use and occupy the Leased Premises or cause said Leased Premises to be used only as Automobile Agency and for no other purpose without Lessor's prior written consent. Lessee shall operate its business on the Leased Premises in conformity with all applicable laws, regulations, ordinances, and licensing requirements, if any. 6. Utilities. Lessee shall pay or cause to be paid when due all charges for water, gas, electricity, telephone service, sewage services, garbage services, and other utilities used in or upon the Leased Premises during the term of this lease. 7. Maintenance. During the term of this lease, Lessee, at its own cost and expense, shall keep and maintain the Leased Premises and all buildings and improvements thereon, in good order, condition and repair, hereby waiving all rights to make repairs at the expense of Lessor, and shall not cause any nuisance or cause or permit any waste or allow any trash to accumulate on the Leased Premises. Further, Lessee agrees to make any and all necessary replacements to air-conditioning, cooling, heating, plumbing, lighting, and other equipment on the Leased Premises and to any other part of the Leased Premises in the event said replacements are necessary. Lessee shall have the right at its sole cost and expense at any time and from time to time, to make such alterations and improvements to the building on the Leased Premises which do not adversely affect the value thereof as Lessee sees fit, provided, however, that no structural alterations shall be made without first obtaining the written consent and approval of the Lessor as to the proposed plans and specifications, which consent and approval Lessor agrees will not be unreasonably withheld and further provided that any alterations or improvements shall be done expeditiously and in a good and workmanlike manner. Lessee agrees to provide Lessor with a performance bond or other security satisfactory to Lessor to insure the fact that there will be no mechanic's liens or materialmen's liens or any other liens against the premises caused by Lessee's alterations or other improvements and to indemnify and hold harmless Lessor from and against any such liens. In the event that Lessee does not make the necessary repairs, replacements, or maintenance as herein provided, Lessor, after giving Lessee thirty (30) days' written notice, shall have -2- the right to do the same and all amounts so expended by the Lessor shall be deemed additional rental, to be due and owing at the time the next rental payment is due following the date that such repairs, replacements, or maintenance have been done by the Lessor. Any and all alterations, repairs, replacements, and additions that are made by either party shall immediately become the property of the Lessor. 8. Insurance. During the term of this lease, Lessee, at Lessee's expense, shall keep all improvements on the Leased Premises insured against loss or damage by fire and the hazards covered by extended coverage insurance in an amount equal to not less than the full replacement value of such improvements without offset for depreciation. The policy or policies therefor shall name Lessor as insured and shall be payable to Lessor with a waiver of subrogation clause and a standard mortgage clause in favor of the holder of any mortgage (the "mortgagee") on the Leased Premises and shall contain a replacement cost endorsement. The policy or policies shall in all respects and amounts be acceptable to Lessor and the mortgagee, and, without limiting the foregoing general requirement, shall provide coverage for six (6) months' loss of rent and vandalism and malicious mischief. Lessee shall not commit or permit any acts in or about the Leased Premises which may in any way impair or invalidate such policy or policies of insurance for the building. The full replacement value of such improvements shall be determined from time to time (but not less often than once every three years) by Lessee and its insurer or insurers. Lessor and Lessee each hereby release the other and their respective agents, servants, and employees from any and all liability or responsibility to the other or anyone claiming through or under them by way of subrogation or otherwise for any loss or damage to property caused by fire or any of the extended coverage or supplementary contract casualties, even if such fire or other casualty shall have been caused by the fault or negligence of the other party or its agents, servants, and employees or anyone for whom such party may be responsible, provided, however, that this release shall be applicable and in force and effect only with respect to loss or damage occurring during such time as Lessor's and Lessee's insurance policies, as the case may be, shall permit that any such release shall not adversely affect or impair said policies or prejudice the right of Lessor or Lessee, as the case may be, to recover thereunder. Lessee shall be solely responsible for obtaining any fire or extended coverage insurance for personal property and improvements of Lessee and for all goods, commodities and material stored by Lessee in or about the Leased Premises. 9. Casualty. If the Leased Premises are wholly or partially destroyed by fire or other casualty, Lessee shall promptly rebuild, repair or restore the Leased Premises to their condition at the time immediately preceding the loss or damage. -3- If the damage is caused by an insured casualty, Lessee shall give immediate notice thereof in writing to Lessor, and shall fully cooperate with Lessor and the mortgagee in filing all necessary proofs of claim with insurance companies and the proceeds of such insurance applicable to the Leased Premises shall be made available to Lessee for such restoration. The complete or partial destruction of the Leased Premises shall not affect or abrogate Lessee's obligation to make rental payments pursuant to the terms of this lease. Lessee expressly waives any statutory right under the laws of the State of Arizona to cease paying rent and surrender the Leased Premises in the event of injury to or destruction of said Leased Premises. 10. Liability Insurance. During the term of this lease, Lessee, at Lessee's expense, shall maintain comprehensive general liability insurance including contractual liability against claims for injury, wrongful death, or property damage occurring upon, in, or about the Leased Premises, in companies and in form acceptable to Lessor, with minimum limits of Two Hundred Fifty Thousand Dollars ($250,000,00) on account of bodily injuries to or death of one person, Five Hundred Thousand Dollars ($500,000.00) on account of bodily injuries or death of more than one person as the result of any one accident or disaster, and property damage insurance with minimum limits of Fifty Thousand Dollars ($50,000.00). 11. Insurance Certificates. Promptly after the commencement of the term of this lease, Lessee shall deliver to Lessor certificates of its insurers evidencing all the insurance required to be maintained in Paragraphs 8 and 10 herein, and, within thirty (30) days prior to the expiration of any such insurance, other certificates evidencing the renewal of such insurance, together with receipts showing payment of the premiums therefor. Each such certificate shall contain a clause requiring twenty (20) days' notice to Lessor and the mortgagee before any such policy can be cancelled or nonrenewed. If Lessee at any time fails or refuses to maintain such insurance, Lessor may, but shall not be obligated to, obtain such insurance and Lessee shall pay Lessor on demand, as additional rent, the premiums therefor, together with interest thereon from the date of payment thereof at the rate of ten percent (10%) per annum. 12. Indemnity. Lessee shall indemnify and hold Lessor harmless from and against all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, charges, and expenses, including reasonable attorney's fees, which may be imposed upon or incurred by or asserted against Lessor arising from any use or condition of the Leased Premises by or attributable to Lessee or Lessee's employees, customers, agents, invitees, licensees, and guests. In the event that any action or proceeding shall be brought against Lessor by reason of any claim above referred to, Lessee, upon written notice from Lessor, shall -4- at Lessee's sole cost and expense defend the same. Lessor shall not be liable for any damage to or theft of any personal property, goods, commodities, or materials in or about the Leased Premises. 13. Condemnation. If the Leased Premises, or such a substantial portion thereof as shall prevent Lessee from conducting its business under this lease, shall be taken by proper authority for public use, Lessee may terminate this lease by giving Lessor written notice of such termination within thirty (30) days after such taking and the rent shall abate during the unexpired portion of this lease, effective from the date when possession of the part so taken shall be required. If a portion of the Leased Premises is taken and the part not taken shall be sufficient for the reasonable use of Lessee's business under this lease, this lease shall be reduced in proportion to which the Leased Premises so taken bears to the Leased Premises originally leased, provided, that consideration shall be given to the respective values of the space taken and the space not taken. All compensation awarded for any such taking shall belong to and be the property of the Lessor or the mortgagee (as governed by separate agreement between them); provided, however, that Lessee shall be entitled to an award only for Lessee's loss of business and the taking of or depreciation to, and the cost of removal of, Lease's stock in trade, trade fixtures, equipment, and other personal property in the Leased Premises. 14. Liens. If the Leased Premises or Lessee's leasehold interest therein, shall at any time during the term of the lease become subject to any mechanic's, laborer's or materialman's lien based upon the furnishing of material or labor to Lessee on the Leased Premises and contracted for by Lessee, Lessee shall cause the same, at Lessee's expense, to be discharged within sixty (60) days after notice thereof, unless the lien is then being litigated in good faith by the Lessee, and shall indemnify and hold harmless Lessor from and against any such lien. 15. Assignment. Lessee shall not assign this lease or sublet the Leased Premises, or any part thereof, without the prior written consent of Lessor, which consent shall not be unreasonably withheld. Any such assignment or subletting shall not release Lessee hereunder, and Lessee shall remain jointly and severally liable with any assignee or subtenant, all of whom shall be required to expressly assume Lessee's obligations hereunder. 16. Default. A. Lessee does hereby grant to Lessor a contract lien on all property of Lessee now, or hereafter, placed in or upon the Leased Premises (except such part of property or merchandise as may be exchanged, replaced or sold from time to time in the ordinary course of operations or trade), and such property is hereby subjected to a lien in favor of -5- Lessor and shall be, and remain, subject to such lien for payment of all rents and other sums agreed to be paid by Lessee, said lien to be in addition to and cumulative of the landlord's lien provided by law. B. If Lessee shall fail to pay any installment of rent or other sum when it becomes due and payable as provided herein, or shall fail in the performance of any of the covenants, agreements, terms or conditions of this lease, or if Lessee shall desert, abandon or vacate the Leased Premises, or if by reason of Lessee's occupancy of the Leased Premises, Lessor shall be unable to procure or keep insurance on the Leased Premises or the improvements thereon, then in any such event, if such default or condition shall continue after ten (10) days' notice thereof in writing to Lessee to make good such default or condition (provided, that, as to any failure to pay rent or other sum occurring after Lessor has given written notice as to any such prior failures twice in any calendar year, Lessor shall not be required to give written notice before pursuing any remedy provided herein), Lessee shall be deemed to be in default; and, without further notice of any kind, Lessor may at its option: (1) Reenter and take possession of the Leased Premises by legal proceedings or otherwise without terminating this lease, by force if necessary, and relet the Leased Premises in whole or in part for the account of Lessee at such rental and upon such covenants and conditions to such tenant or tenants as Lessor may deem proper and for a longer or shorter period than the balance of the term of this lease. Lessor shall receive all proceeds and rents accruing from such reletting and shall apply such proceeds first to the payment of all reasonable costs and expenses incurred by Lessor in obtaining possession and in reletting the Leased Premises, including without limitation reasonable attorneys' fees and collection fees, then to the reasonable cost of alterations, repairs or remodeling necessary in Lessor's opinion to enable Lessor to relet the Leased Premises, and finally to the payment of all such amounts as may be due or may become due under the provisions of this lease, and the balance remaining, if any, at the expiration of the full term of this lease or upon the sooner termination thereof shall be paid to Lessee. If the proceeds or rentals so received by Lessor under the provisions of this paragraph are insufficient to pay all such expenses and all amounts due and becoming due hereunder, Lessee shall pay to Lessor upon demand by Lessor such deficiency as may from time to time exist, and Lessor need not wait until the termination of this lease to recover such deficiency by legal or other action. -6- (2) Terminate this lease at once, including any interest of Leases hereunder, and immediately reenter and take possession of the Leased Premises by legal proceedings or otherwise and by force if necessary. (3) In the event of any reentry, Lessor may remove all persons from the Leased Premises, and Lessor may remove all property located in or about the Leased Premises. At Lessor's option, it may either place such property located in a public warehouse at the cost and risk of Lessee, or sell such property in whole or in part in the manner and after giving the notices required by the laws of the State of Arizona to the highest bidder for cash, with or without such property being present at the sale. The proceeds shall be applied first to the payment of all reasonable costs and expenses incurred by Lessor in taking and removing such property, including without limitation reasonable attorneys' fees, then to the payment of any rent or other amounts owing to Lessor and finally the balance remaining, if any, shall be paid to Lessee. (4) No reentry or reletting of the Leased Premises shall be construed as an election by Lessor to terminate this lease unless a written notice of such intention is given by Lessor to Lessee; and notwithstanding any such reletting without terminating this Lease, Lessor may at any time thereafter elect to terminate this lease in the event that Lessee remains in default hereunder. (5) Lessee waives all claims or demands for damages that may be caused by Lessor in reentering and taking possession of the Leased Premises as hereinabove provided and all claims or demands for damages resulting from the destruction of or injury to the Leased Premises and all claims or demands for damage or loss of property belonging to Lessee or any other person that may be in or about the Leased Premises at the time of such reentry. (6) In addition to all rights of Lessor specified herein, Lessor shall be entitled to all other rights provided in law or equity. The various rights, options and remedies of Lessor contained in this lease shall be cumulative, and no one of them shall be construed as exclusive of any of the others. (7) Neither the acceptance of rental hereunder nor lapse of time nor any other act or omission on the part of Lessor, its agents or employees, shall constitute a waiver of any breach by Lessee of the covenants or conditions of this lease; as long as any such breach continues, Lessor shall have the right to -7- declare the Lessee to be in default and to enforce the remedies provided herein. The waiver by Lessor, its agents or employees, of any breach in the performance by Lessee or any covenant contained herein shall not be construed to be a waiver of any preceding or subsequent breach of any other covenant contained herein. The subsequent acceptance of rent or other sums hereunder by Lessor shall not be deemed a waiver of any preceding breach other than the failure of Lessee to pay the particular rental or other sum so accepted, regardless of Lessor's knowledge of such preceding default at the time of acceptance of such rent or other sum. (8) If Lessor retains an attorney to enforce any of its rights hereunder, or becomes involved in any suit connected with this lease, Lessee shall pay Lessor's reasonable court costs and attorneys' fees. 17. Lessee's Insolvency or Bankruptcy. It is agreed by Lessee that upon the filing of any petition by or against Lessee under any chapter of the federal bankruptcy laws, or upon the adjudication of Lessee as a bankrupt or insolvent, or upon the appointment of a receiver or trustee to take possession of all or substantially all of the assets of Lessee, or upon the making of a general assignment by Lessee for the benefit of creditors, or upon the taking of any other action by Lessee under any state or federal insolvency or bankruptcy act or other similar law, and upon the continuance of any of the foregoing events for thirty (30) days, Lessor may, at its election, declare this lease in default upon the giving of written notice thereof to Lessee; and, in such an event, Lessor may exercise all rights and remedies herein provided to it upon default without necessity of further notice to Lessee. Neither this lease, or any interest herein, nor any estate created hereby, shall pass by operation of law under any state or federal insolvency or bankruptcy act or similar law to any trustee, receiver, assignee for the benefit of creditors, or any other person whatsoever without the prior written consent of Lessor. Any purported or attempted transfer in violation of the provisions of this paragraph shall constitute a default under this lease, and Lessor, at its option by written notice to Lessee, may exercise all rights and remedies herein provided for upon such a default, including the termination of this lease without the necessity of further notice. 18. Lessor May Pay Lessee's Obligations. In the event that Lessee does not pay before delinquent any taxes, assessments, or other charges to be paid hereunder by Lessee, Lessor shall have the right, without notice to Lessee to make such payment and to charge Lessee therefor, together with interest thereon from the date of such payment to the date of repayment by Lessee to Lessor at the rate of ten percent (10%) per annum. -8- 19. Subordination. This lease shall be subject to and subordinate to the lien of any mortgage or deed of trust which now or hereafter may constitute a lien on the Leased Premises, and to any agreements at any time made, modifying, supplementing, extending, or renewing any such mortgage or deed of trust; provided, however, that Lessor shall attempt to obtain from the mortgagee under any such mortgage or beneficiary under any such deed of trust an agreement that so long as Lessee shall not be in default in the terms of this lease, this lease shall not be terminated. The provisions for the subordination of the lease shall be self-operative and no further instrument shall be required to effect such subordination; provided, that the Lessee shall, upon request by any mortgagee at any time or times, execute and deliver any and all instruments that may be reasonable, necessary or proper to affect such subordination. Lessee understands that Lessor contemplates assigning its rights under this lease to the mortgagee and Lessee agrees, upon request by Lessor, to execute the mortgagee's standard acceptance of premises agreement. Lessee further agrees that, upon written notice of the mortgagee's address, Lessee shall give to the mortgagee a copy of all notices that Lessee is required to give to Lessor hereunder at the same time such notices are given to Lessor. 20. Signs. No signs, advertisements or notices shall be placed by the Lessee on the outside of the building except such as shall be first approved in writing by Lessor. If such approval by Lessor is given, such signs, advertisements or notices shall be installed and maintained at Lessee's expense and shall conform to all applicable governmental laws, rules and regulations. 21. Entry Reserved by Lessor. Lessor may, during the term of this lease, at reasonable times, enter upon the Leased Premises for the purpose of inspecting same or to do anything required or permitted by this lease, and may at any time during the last six (6) months of the term of this lease, show the Leased Premises to prospective lessees or prospective purchasers. 22. Surrender. Upon the expiration of the term of this lease, or upon an earlier termination of this lease, Lessee shall surrender up peaceable possession of the Leased Premises in the same condition as the Leased Premises are in at the commencement of this lease, reasonable wear and tear excepted. 23. Notices. Any notice required or permitted to be given or served by either party to this lease shall be deemed to have been given or served when made in writing by certified United States mail, postage prepaid, addressed as follows: Lessor: Max & Elizabeth Haechler 6116 E. Cactus Wren Scottsdale, Arizona 85253 -9- Lessee: Max of Switzerland 6925 E. McDowell Road Scottsdale, Arizona 85257 All rental payments shall be made to the Lessor at the above address. The addresses may be changed from time to time by either party by serving notice as above provided. 24. Broker's Commission. Lessor and Lessee represent to the other that there are no broker's commissions in connection with this lease. 25. Estoppel Certificates. Lessee shall, at any time, on ten (10) days' prior written notice by Lessor or the mortgagee, execute, acknowledge, and deliver to Lessor or the mortgagee a written statement certifying that this lease continues unmodified and in full force and effect (or if there have been modifications, that this lease continues in full force and effect as modified and stating the modifications), and the dates to which the minimum and the additional rent have been paid, and stating whether Lessor is in default in performing any covenants to this lease, and, should Lessor be in default, specifying each and every such default, it being intended that any such statement delivered pursuant to this paragraph may be relied on by Lessor or any prospective purchaser or mortgagee of the fee or any assignee of any mortgagee on the fee of the Leased Premises. 26. Compliance with Laws. Lessee agrees, at its sole cost and expense, to comply with all the regulations and requirements of all municipal, county, state and federal authorities now in force or which may hereafter be in force pertaining to the Leased Premises and shall faithfully observe in the use of the Leased Premises all municipal ordinances and county, state and federal statutes now in force or which may hereafter be in force. Lessee further agrees that it will pay for any alterations or changes in the Leased Premises which may be required during the term of this lease to comply with any regulations and requirements of municipal, county, state or federal authorities. Lessee shall indemnify and hold harmless the Lessor from any penalties, damages, or charges imposed or incurred for any violation of such regulations, requirements, ordinances or laws, whether or not occasioned by the negligence of the Lessee or any agent, tenant, or contractor then upon or using the Leased Premises. Lessee shall, however, have the right to contest by appropriate legal proceedings, without cost or expense to Lessor, the validity of any of the foregoing requirements, statutes and ordinances; and if by the terms of any such statutes or ordinances, compliance therewith may lawfully be postponed without subjecting Lessee or Lessor to any liability for failure to comply therewith, Lessee may postpone such compliance until the final determination of any such proceedings. -10- 27. Partial Invalidity. If any term, covenant, condition or provision of this lease is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions hereof shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby. 28. Net Lease. The Lessor and Lessee agree that this lease is an absolutely "Net Lease", which means that the Lessee pays as additional rent, without defense, offset, or deduction, all expenses connected with the Leased Premises, including but not limited to real and personal property taxes and assessments, fire and extended coverage insurance premiums, liability and damage insurance premiums, parking lot and common area maintenance expenses, and all expenses of maintenance, replacement, repair, and reconstruction on the Leased Premises. 29. Effect of Waiver. Any waiver by Lessor or Lessee of any breach of this lease, or of any right of either party, shall not constitute a waiver of any other breach or of any other right. 30. Sole Agreement. This lease contains the entire agreement between the parties hereto and no term or provision hereof may be changed, waived, discharged or terminated unless the same be in writing executed by Lessor and Lessee. 31. Law. The law of Arizona shall govern the construction, performance and enforcement of this lease. 32. Time of Essence. Time shall be of the essence in the performance of every term, covenant and condition of this lease. 33. Captions. The Article captions are inserted for convenience of reference and are in no way to be construed as a part of this lease or as a limitation on the scope of the Article to which they refer. 34. Benefit. This lease shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, legal representatives, successors, and assigns. 35. Assignment by Lessor. The term "Lessor" as used in this lease means only the owner for the time being in fee of the Leased Premises, or the owner of the leasehold estate created by an underlying lease, or the mortgagee of the fee or of such underlying lease in possession for the time being of the Leased Premises, so that in the event of any sale of the Leased Premises or of any transfer or assignment or other conveyance of such underlying lease and the leasehold estate thereby created, the seller, transferor, or assignor shall be entirely relieved of all further obligations of the Lessor herein. It shall be deemed without further agreement between the parties or their successors in interest, or between the parties and any such purchaser, -11- transferee, or assignee, that such purchaser, transferee, or assignee has agreed to carry out all obligations of the Lessor hereunder. IN WITNESS WHEREOF, the parties hereto have executed this lease as of the day and year first above written. LESSOR /s/ Max Haechler ------------------------------- Max Haechler /s/ Elizabeth Haechler ------------------------------- Elizabeth Haechler LESSEE Max of Switzerland BY: /s/ Max Haechler ------------------------------- Max Haechler, President -12- STATE OF ARIZONA ) ) ss: County of Maricopa ) On this the 17th day of September, 1979, before me, the undersigned officers, personally appeared Max Haechler and Elizabeth M. Haechler, known to me (or satisfactorily proven) to be the persons whose names are subscribed to the within instrument and acknowledged that they executed the same for the purpose therein contained. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ Diane Berger ------------------------------- Notary Public My commission expires: My Commission Expires March 8, 1982 - ----------------------------------- STATE OF ARIZONA ) ) ss: County of Maricopa ) On this the 17th day of September, 1979, before me, the undersigned officer, personally appeared Max Haechler, who acknowledged himself to be the Lessee, respectively, of MAX OF SWITZERLAND, an Arizona Corporation, and that they, as such he being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself as President. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ Diane Berger ------------------------------- Notary Public My commission expires: My Commission Expires March 8, 1982 - ----------------------------------- -13- /s/ Henry G. [Illegible] ------------------------------- Registered Land Surveyor Number: 9087 RESULT OF SURVEY DESCRIPTION OF LAND IN MARICOPA COUNTY, ARIZONA: - ------------------------------------------------ That part of FARM UNIT "B" according to the FARM UNIT Plat of Section 3, Township 1 North, Range 4 East of the Gila and Salt River Base and Meridian, Maricopa County, Arizona, described as follows: BEGINNING at the Northeast corner of said FARM UNIT "B"; thence West along the North line of said FARM UNIT a distance of 393 feet to a point; thence south and parallel to the East line of said FARM UNIT to a point on the North line of PAPAGO PARKWAY, according to Book 78 of Maps, page 12, records of Maricopa County, Arizona; thence East along the North line of said PAPAGO PARKWAY to the East line of said FARM UNIT; thence North along said East line to the point of beginning; EXCEPT any part lying within the property conveyed to the City of Scottsdale, recorded in Docket 119913, PAGE 854, and in Docket 11999, page 122, AND EXCEPT the North 65 feet of the East 180.00 feet thereof; AND EXCEPT the East 30.00 feet thereof. Exhibit A to Lease between Max & Elizabeth Haechler and Max of Switzerland dated September 9, 1977 6925 E. McDowell (Land & Bldg) SUBLEASE DATE: August 11, 1980 LESSOR: MAX OF SWITZERLAND, an Arizona corporation LESSEE: SCOTTSDALE PORSCHE+AUDI, LTD., an Arizona corporation PROPERTY: See attached Schedule "A" THIS LEASE AGREEMENT is entered into on the date set forth above, by Lessor and Lessee, with respect to the following described property, together with all buildings, improvements and leasehold improvements located thereon (the "premises" or the "leased premises"), situated in Maricopa County, Arizona; SEE ATTACHED SCHEDULE "A". The complete agreement between the parties is as follows: 1. Term. The premises are hereby leased by Lessor to Lessee for a term commencing on August 11, 1980 and extending for a period of twenty (20) years thereafter to and including August 10, 2000. 2. Rental. 2.01 Base Rental. Lessee agrees to pay to Lessor, as the rent for the premises during the term hereof, the sum of $10,000.00 per month, as adjusted as set forth in paragraph 2.02, payable on the 11th day of each month during the term hereof, commencing August 11, 1980. 2.02 Three Year Cost of Living Adjustment. The monthly rent provided for in paragraph 2.01 shall be subject to adjustment at the commencement of the fourth, seventh, tenth, thirteenth, sixteenth and nineteenth years of the term of this Lease ("the adjustment date") as set forth in this paragraph. The base for computing the adjustment is the Consumer Price Index, United States (All Items), published by the United States Department of Labor, Bureau of Labor Statistics ("Index"), which is published for the month immediately preceding the month in which the lease term commences ("Beginning Index"). If the Index published nearest the adjustment date ("Extension Index") has increased over the Beginning Index, the monthly rent for the following three years (until the next rent adjustment) shall be set by multiplying the monthly rent set forth in paragraph 2.01 by a fraction, the numerator of which is the Extension Index and denominator of which is the Beginning Index, but in no event shall said adjustment reduce the monthly rental below the monthly rent which existed immediately prior to the adjustment. The monthly rental shall not at any time be greater than that set forth on the attached Monthly Rent Payment Schedule. If the Index is changed so that the base differs from that used as of the month immediately preceding the month in which the term commences, the Index shall be converted in accordance with the conversion factor published by the United -2- States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the term, such other government index or computation with which it is replaced (or if it is not replaced, some other comparable index or computation) shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised. 3. Taxes and Impounds. 3.01 Taxes - On Rental. Lessee agrees to pay any transaction privilege or sales tax imposed on lease rentals by the State of Arizona and the City of Scottsdale concurrently with, and in addition to, each monthly rental payment. If at any time during the term hereof an additional tax or excise on rents as a form of taxation is levied upon or assessed to Lessor by any taxing authority, and not as a part of a general income tax, Lessee will pay the same at the time and in the manner herein-before provided with respect to payment of rent. 3.02 Taxes - On Property. Lessee agrees to pay all ad valorem property taxes relating to the premises during the term hereof, prorated during the period this Lease is in effect. Lessor agrees to absorb all improvement lien assessments for public improvements on or with respect to the leased premises during the term hereof. Lessor shall use his best efforts promptly to cause the leased premises to be assessed separately for property taxes from other property owned by Lessor. Until such time as the leased premises is separately assessed, ad -3- valorem property taxes will be allocated between the leased premises and any other property covered by property tax bills on the basis of the square footage of the leased premises to the square footage of the entire property covered by the tax bills. 3.03 Impounds. During the term hereof while there exists any first encumbrance against the premises in favor of an institutional lender, and which first encumbrance requires Lessor to make impound payments to the holder of the encumbrance for taxes or insurance, Lessee will pay such amounts to Lessor at the times and in the manner hereinbefore provided with respect to the payment of rent. 4. Alterations. Lessee will not, without the prior written consent of Lessor (which Lessor will not unreasonably withhold), make or allow to be made alterations, improvements or additions to the leased premises. Any alterations, improvements or additions made will become a part of the leased premises, subject to the terms hereof, and will be the property of Lessor. 5. Trade Fixtures. Lessee, at its expense and subject to other provisions set forth or incorporated herein, may install any necessary trade fixtures, equipment and furniture which will remain Lessee's property and will be removed at the end of this Lease. Lessee at its expense will repair all damage caused by such installation or removal. -4- 6. Maintenance. 6.01 Maintenance - By Lessee. Lessee at its expense will maintain in good order and repair all portions of the leased premises which are not the obligation of Lessor, including without limitation: walls (painting the same as often as necessary); partitions; floor structures; pipes and conduits; roof utility installations; air conditioning and heating equipment, after any warranties on such equipment have expired; asphalt and concrete floors; and all glass and glassing. Lessee at its expense will also make all repairs of every kind and character to the interior of the leased premises. On the last day of the term hereof, Lessee will surrender the leased premises to Lessor in a state of good repair, excepting only reasonable wear and tear, obsolescence, damage by fire, act or God or the elements and damages which Lessor is required to repair hereunder. 6.02 Maintenance - By Lessor. Lessor at its expense will cure any structural defects in the leased premises. Lessor will have no other obligation to maintain or repair any portion of the leased premises, except as expressly provided herein. Lessor will not be liable to Lessee for any damage resulting from, or caused by, Lessor's failure to make repairs unless Lessee has promptly notified Lessor in writing of the need for such repairs and Lessor has failed to make them in a diligent manner. -5- 6.03 Current Condition. Lessor warrants that at the commencement of the term of this Lease the leased premises are in good condition and repair, and that all equipment located on the leased premises, including without limitation plumbing, heating, air conditioning, mechanical, gas and electrical equipment is in good operating condition. Lessee represents and warrants that it has replaced all plate glass having bullet holes or cracks in the showroom of the premises and has replaced the references to Max of Switzerland on all doors of the premises with materials which match the doors and are of comparable quality. Lessor represents and warrants that the buildings, improvements and leasehold improvements located upon the property described in Schedule A on the date hereof are the same buildings, improvements and leasehold improvements which were located upon said property on March 21, 1980, plus any additions thereto subsequent to said date. 7. Utilities. Upon commencement of the term hereof, Lessor will provide adequate sewer, water, electric and gas lines, pipes and conduits to and for the leased premises. Less__ will pay for all water, gas, electricity and other utilities, including those required for the operation of air conditioning and heating equipment used by Lessee on the leased premises. Lessor shall use his best efforts to cause the leased premises to have utility meters separate from other property owned by Lessor, at Lessor's expense. -6- 8. Inspection by Lessor. Lessor may go upon the leased premises at all reasonable times for the purposes of inspecting the same, or for the purpose of inspecting the performance by Lessee of the terms and conditions hereof, or for the purpose of constructing, maintaining and repairing the leased premises pursuant to the terms hereof. 9. Liens. Except for such as it may be contesting in good faith, Lessee will promptly pay and discharge all claims for work or labor done, supplies furnished or services rendered at the request of Lessee and will keep the leased premises free and clear of all mechanics' liens and materialmen's liens in connection therewith. 10. Insurance Clause. Lessor and Lessee agree that no insurer of any interest of either is to have any right of subrogation against the other and that all fire and other insurance policies carried by the either on the leased premises or the fixtures and equipment therein or other contents thereof will contain a full waiver of subrogation by the insurer against the other and its assigns. 11. Damage to Lessee's fixtures. Lessee agrees that it will assume the risk of damage to any fixtures installed by or at the expense of Lessee in the leased premises, title to which is retained by Lessee hereunder, from every source other than damage (i) caused by the negligence or willful misconduct of Lessor, its agents or contractors or (ii) resulting by reason of any breach of any of Lessor's obligations under this Lease. -7- 12. Insurance. 12.01 Public Liability - Insurance. Lessee at its expense will maintain in full force during the term hereof public liability and property damage insurance covering the leased premises and Lessee's activities therein against claims for personal injury and death to limits of at least $500,000 for each person and $1,000,000 for each occurrence and against property damage claims to a limit of at least $100,000 or in such greater amount as may be required by an institutional lender who holds a first encumbrance against the premises. Lessee will furnish to Lessor a certificate evidencing the fact that such insurance has been obtained and is in full force and effect, that Lessor and any such institutional lender are additional insureds thereunder, and that such insurance cannot be cancelled without ten days' prior notice to Lessor and any such institutional lender. 12.02 Public Liability - Indemnity. Lessee will hold harmless and indemnify Lessor from and against any and all loss, cost or damage arising by reason of injury or death of persons or damage to property in or upon the leased premises or caused by activities conducted thereon; provided, however, that Lessee will not be required to indemnify Lessor against any damage or injury of any kind arising out of the negligence of Lessor, its agents or employees. -8- 12.03 Fire Insurance. Lessee at its expense will maintain in full force and effect during the term hereof fire and extended coverage insurance upon the leased premises in an amount not less than 80% of the replacement cost thereof or such greater amount as may be required by an institutional lender who holds a first encumbrance against the premises. Lessee will furnish to Lessor a certificate evidencing the fact that such insurance has been obtained and is in full force and effect, that Lessor and any such institutional lender are additional insureds thereunder, and that such insurance cannot be cancelled without ten days' prior notice to Lessor and any such institutional lead. 12.04 Insurance Adjustments. On approximately each fifth annual anniversary of the commencement date hereof, Lessor shall meet with Lessee to consider the adequacy of the required minimum limits for public liability insurance and fire and extended coverage insurance. If such limits are not adequate based upon changes which have occurred in the economy since the commencement of the term hereof, such limits shall be adjusted so that the limits are then adequate. Lessor and Lessee shall act reasonably in making such determination. -9- 13. Damage and Destruction of Premises. In the event of damage or destruction to the premises which is covered by insurance, the insurance proceeds shall be used for the repair and reconstruction of such damage and the parties shall promptly repair and/or reconstruct the premises and the interior improvements to their condition immediately prior to the damage or destruction. This Lease shall continue in full force and effect in the event of such damage and reconstruction. In the event the premises are damaged by a cause not covered by the fire and extended coverage insurance carried on the premises, Lessor shall reconstruct the premises to the extent of the construction at the commencement hereof; provided however, if such uninsured loss exceeds 33% of the then replacement cost of the building, Lessor shall have the option of terminating this Lease by written notice to Lessee, within thirty (30) days of such damage or destruction, in which event this Lease shall terminate as of the date of the damage or destruction. Should Lessor not elect to so terminate the Lease, it shall proceed with due dispatch to reconstruct the premises to the extent of the construction at the commencement hereof, in which event this Lease shall continue in full force and effect. In the event Lessor elects to terminate this Lease, all rentals and other payments shall be prorated as of the date of termination. 14. Condemnation. 14.01 Total Condemnation of Leased Premises. If the whole of the leased premises shall be acquired or condemned -10- by eminent domain for any public or quasi-public use or purpose, then the term of this Lease shall cease and terminate as of the date of title vesting in such proceeding, and all rentals shall be paid up to date and Lessee shall have no claim against Lessor or the condemning authority for the value of any unexpired term of this Lease. 14.02 Partial Condemnation. If any part of the leased premises shall be acquired or condemned as aforesaid, and in the event that such partial taking or condemnation shall render the leased premises unsuitable for business of the Lesssee, when the term of this Lease shall cease and terminate as of the date of title vesting in such proceeding. Lessee shall have no claim against lessor nor the condemning authority for the value of any unexpired term of this Lease, and rent shall be adjusted to the date of such termination. In the event of a partial taking or condemnation which is not extensive enough to render the premises unsuitable for the business of the Lessee, then Lessor shall promptly restore the leased premises to a condition comparable to its condition at the time of such condemnation, less the portion lost in the taking, and this Lease shall continue in full force and effect with an adjustment in rent based upon the square footage of the leased premises taken to the square footage of the leased premises prior to the taking. -11- 14.03 Lessor's Damages. In the event of any condemnation or taking as aforesaid, whether whole or partial, the Lessee shall not be entitled to any part of the award paid for such condemnation, and Lessor shall receive the full amount of such award, Lessee hereby expressly waiving any right to or claim to any part thereof. 14.04 Lessee's Damages. Although all damages in the event of any condemnation for diminution in value of the leasehold or to the fee of the leased premises shall belong to Lessor, Lessee shall have the right to claim and recover from the condemning authority, but not from Lessor, such compensation as may be separately awarded or recoverable by Lessee in Lessee's own right on account of any and all damage to Lessee's business by reason of the condemnation and for or on account of any cost or loss to which Lessee might be put in removing Lessee's merchandise, furniture, fixtures, leasehold improvements and equipment. 14.05 Notice and Execution. Lessor agrees, immediately upon service of process in connection with any appropriation or taking, to give to Lessee notice in writing thereof. Lessee agrees to execute and deliver to the Lessor all instruments that may be required to effectuate the provisions of this paragraph. -12- 15. Default. 15.01 Default - Grounds, The failure to pay any monetary amount due and payable hereunder upon the date when such payment is due, such failure continuing for a period of fifteen days after written notice of such default, shall constitute an event of default on the part of Lessee. The occurrence of any of the following events will constitute an event of default by either party hereunder: (i) default in the performance of any of such party's agreements or obligations hereunder, such default continuing for thirty days after written notice thereof from the non-defaulting party to the defaulting party, provided that if such default cannot reasonably cured within such thirty day period, then the defaulting party will not be in default hereunder if it, within such thirty day period, commences curing of such default and diligently and in good faith prosecutes the same; (ii) a general assignment by a party for the benefit of creditors; (iii) the filing of a voluntary petition in bankruptcy by a party or the filing of an involuntary petition by a party's creditors, such involuntary petition remaining undischarged for a period of thirty days; (iv) the appointment of a receiver to take possession of substantially all of a party's assets or of this leasehold, such receivership remaining undissolved or undischarged for a period of thirty days; or (v) attachment, execution or other judicial seizure of substantially all of a party's assets or this leasehold, such attachment, execution or other seizure remaining undismissed or undischarged for a period of thirty days after the levy thereof. -13- 15.02 Default - Remedies. Upon the happening of any such event of default on the part of Lessee, Lessor, at any time thereafter, and prior to the curing of such default, may: (i) with or without notice or demand declare the term hereof ended and re-enter the leased premises or any part thereof (with or without process of law) and expel or remove therefrom Lessee and all parties occupying the ____ ___ any of them, using such force as may be necessary to do so, and ______ repossess and enjoy the same without prejudice to any remedies that Lessor might otherwise have by reason of such default; or (ii) re-enter the leased premises at its option, without declaring the lease term ended, and relet the whole or any part thereof for the account of Lessee on such terms and conditions and at such rent as may then prevail for comparable property, collecting such rent and applying it on the amount due from Lessee hereunder and on the expense of reletting and on any other damage or expense so sustained by Lessor, or on any such item or items, recovering from Lessee the difference between the proceeds of such reletting and the amount of the rentals reserved hereunder, which said Lessee agrees to pay upon demand. Should Lessor terminate this Lease by reason of any such default by Lessee, Lessor may thereupon recover from Lessee the worth, at the time of such termination, of the excess, if any, of the amount of rent and charges equivalent to rent reserved herein for the balance of the term over the then reasonable rental value of the leased premises in the same period. Lessor will not, by any re-entry or other act, be deemed to have terminated this lease, or the liability of -14- Lessee for the total rent hereunder or any installment thereof then due or thereafter accruing or for damages, unless Lessor notifies Lessee in writing that Lessor has so elected to terminate the lease. In addition to the foregoing remedies, Lessor may rectify any defaults of Lessee and add to the rent to be paid hereunder, and to any installment or installments thereof thereafter becoming due. If any installment of rent or any other payment is not paid promptly when due it will bear interest at the highest legal rate permitted by law from the date on which it becomes due until paid, but this provision is not intended to relieve Lessee from any default in the making of any payment at the time and in the manner herein specified. The foregoing interest, expenses and damages will be recoverable from Lessee by the exercise of Lessor's remedies hereinabove set forth. The remedies of Lessor specified herein will be cumulative as to each default to the extent allowed by law. Upon the happening of any such event of default by Lessor, Lessee, at any time thereafter, and prior to the curing of such default may: (i) declare the term hereof ended; (ii) sue Lessor for damages; (iii) sue Lessor for specific performance; or (iv) exercise any of the rights or remedies as may be allowed by law or equity. The remedies of Lessee specified herein will be cumulative as to each default to the extent allowed by law. -15- 16. Holding Over. In the event of any holding over with the consent of Lessor beyond the end of the term hereof, this Lease will be deemed a monthly tenancy upon the agreements herein contained and Lessee will pay a monthly rental at the rate most recently payable by it pursuant to Section _ above, in advance at the beginning of each heldover month, plus any other charges or payments contemplated in this lease. 17. Compliance with Laws. Leassee will comply with all governmental laws, ordinances, rules and regulations at any time applicable to Lessee's use and occupancy of the leased premises. Lessee will have the right, however, to contest any such law, ordinance, rule or regulation by appropriate legal action, provided that such contest is conducted without expense or prejudice to Lessor. 18. Statement from Lessee. Lessee will at any time and from time to time within twenty days after written request by Lessor execute, acknowledge and deliver to Lessor a written statement certifying that this Lease is unmodified and in full force and effect if such is the fact (or, if there has been any modification thereof, stating the modifications) and the dates to which the rentals and other charges have been paid in advance, if any. It is understood that any such statement may be relied upon by any prospective purchaser of the estate of Lessor, or by the mortgagee or assignee of any mortgage or the trustee or beneficiary of any deed of trust constituting a lien upon the leased premises. -16- 19. Notices. All notices required to be given hereunder are to be in writing. Such notices will be personally delivered or sent by United States certified mail, postage prepaid, addressed to Lessor at 6913 East McDowell Road, Scottsdale, Arizona 85251, and to Lessee at the leased premises, or at such other place as respective addressee may have designated in a written notice to the other party. Service by delivery will be deemed to occur on delivery and service by mail will be deemed to occur on the delivery date shown on the return receipt. 20. Waiver. No waiver of any default by either party hereunder will be implied from any omission by either party to take action on account of such defaults if such default persists or is repeated, and no express waiver will affect any default other than the default specified in the waiver, and then such waiver will be operative only for the time and to the extent therein stated. A waiver by either party of any provision hereof will not be construed as a waiver of any subsequent breach of the same provision, nor will the consent or approval by either party to or of any act by the other be deemed to waive or render unnecessary its consent or approval to or of any subsequent similar acts. -17- 21. Property Near McDowell Road and Access Parcel. For purposes of this Lease, the leased premises shall be deemed to include all of the right, title and interest of Lessor in the display pads and sign located on the north end of the property near McDowell Road, in the property where said items are located and the right to use and occupy said property. During the term hereof Lessor (and Max of Switzerland) and Lessee shall have joint use of the Access Parcel solely for the purpose of passage of vehicles and persons. Lessor and Lessee shall jointly maintain the Access Parcel, and the expenses thereof shall be borne equally by Lessor and Lessee. 22. Complete Agreement. It is expressly agreed that the provisions of this Lease cannot be altered, changed, modified or added to except in writing signed by the parties hereto. 23. Time. Time is of the essence hereof. 24. Short-form Lease. Upon request of either party, Lessor or Lessee will both execute and acknowledge a short-form lease for purposes of recording, which short-form lease will describe the premises as being subject to the rights, agreement and restrictions contained herein and the term hereof. -18- 25. Assignment and Subletting. Lessee may not assign this Lease or any interest herein, or sublet the leased premises or any portion thereof, without the prior written consent of Lessor, which consent will not be unreasonably withheld. Lessor hereby consents to an assignment by Lessee to a corporate successor upon merger or consolidation of Lessee. Any assignment or subletting prohibited hereunder without the consent of Lessor will be void. The assignee under any such assignment must agree to perform all of Lessee's obligations hereunder, but no such assignment will have the effect of relieving Lessee of its primary liability for the performance of all of its said obligations. 26. Mortgage by Lessor. It is expressly understood that Lessor will have the right at any time during the term of this Lease and from time to time to mortgage its interest in the leased premises for any purpose, and that Lessee will, if requested by the lender, subordinate its interest in the leased premises to the lien of such mortgage provided the lender agrees to respect this Lease and accept the performance by Lessee of its obligations hereunder in the event such mortgage is foreclosed, and provided further that the total monthly obligations secured by all of the encumbrances upon the property do not exceed the monthly rental set forth in paragraph 2. 27. Applicable Law. This Lease shall be construed under the laws of the State of Arizona. -19- 28. Attorney's Fees. In the event of any action at law or in equity between Lessor and Lessee to enforce any of the provisions or rights hereunder, the unsuccessful party to such litigation covenants and agrees to pay the successful party all costs and expenses, including reasonable attorneys' fees incurred therein by said successful party, and if said successful party shall recover judgment in any such action or proceeding, such costs, expenses and attorneys' fees shall be included in and made a part of such judgment. Should Lessor, without fault, be made party to any litigation instituted by or against Lessee, Lessee covenants and agrees to pay Lessor all costs and expenses, including reasonable attorneys' fees incurred by Lessor in connection with such litigation. Should Lessee, without fault, be made a party to any litigation instituted by or against Lessor, Lessor covenants and agrees to pay Lessee all costs and expenses, including reasonable attorneys' fees incurred by Lessee in connection with such litigation. 29. Address, Quiet Enjoyment and Condition of Title. Lessor covenants and warrants that the leased premises has a street address of 6925 East McDowell, Scottsdale, Arizona 85251, that the leased premises constitutes the property upon which the business of Scottsdale Prosche-Audi, Inc. was conducted immediately preceding the commencement of the term hereof and that the leased premises is all of the property lying north of the south line of the leased premises and east of the center line of the wall and east of the center line of the wall as extended north to McDowell Road (the wall being that certain wall which -20- divided the businesses of Scottsdale Porsche-Audi, Inc. and Max of Switzerland on March 21, 1980). Lessor covenants and agrees that Lessee, so long as it shall not be in default hereunder, shall peacefully and quietly hold, occupy and enjoy the premises during the term of this Lease. Lessor covenants and warrants that the leased premises are free and clear of all liens, encumbrances and adverse claims, except 1980 taxes and the matters set forth on Schedule "B" attached hereto. 30. Rights of First Refusal. At any time prior to fifty-five days following the expiration of the term of this Lease, Lessor shall not sell or contract to sell less than all of the leased premises. At any time prior to fifty-five days following the expiration of the term of this Lease, Lessor shall not sell or contract to sell all of the leased premises unless the premises is first offered to Lessee for the same price, and upon the same terms and conditions as to which Lessor proposes to sell or transfer the premises to the third party. Lessor must give Lessee written notice setting forth the name and address of the proposed purchaser and the price, terms and conditions of any bona fide offer by or to Lessor under which Lessor proposes to sell or transfer the premises. Within the thirty day period following Lessee's receipt of such notice, or within sixty days following the expiration of the term of the Lease, whichever first occurs, Lessee by written notice to Lessor may elect to purchase the premises, for the same price and upon the same terms as the offer. If Lessee does not elect to purchase the premises, Lessor may then sell the premises to the third party named in -21- Lessor's notice to Lessee, for the price and upon the terms therein stated. If the escrow is not closed for the price and upon the terms and conditions contained in the notice, then Lessor may not thereafter, at any time prior to fifty-five days following the expiration of the term of this Lease, sell the premises to any party other than Lessee without first offering the premises to Lessee in the manner set forth in this paragraph. The provisions of this paragraph shall have no application to a transfer of the premises or any portion thereof, by gift or in any other manner, by Lessor to his spouse, to any of his lineal descendants or spouses of lineal descendants (through natural birth or legal adoption), to a corporation or partnership, the majority voting interest of which is owned by Lessor, or to a trust, all of the beneficial interest of which is owned by one, some or all of the foregoing permitted transferees. At any time prior to fifty-five days following the expiration of the term of this Lease, Lessor shall not lease or contract to lease all or any portion of the leased premises unless same is first offered to Lessee for the period following the expiration of the term of this Lease, upon the same lease terms and conditions as to which Lessor prepares to lease same to the third party. Lessor must give Lessee written notice setting forth the name and address of the proposed Lessee and the terms and conditions of any bona fide offer by or to Lessor under which Lessor proposes to lease the premises. Within the thirty day period following Lessee's receipt of such notice, or within sixty days following the expiration of the term of the Lease, whichever -22- first occurs, Lessee by written notice to Lessor may elect to lease the premises, upon the same terms as the offer. If Lessee does not elect to lease the premises, Lessor may then lease the premises to the third party named in Lessor's notice to Lessee, upon the terms therein stated. If the lease is not executed upon the terms and conditions contained in the notice, then Lessor may not thereafter, at any time prior to fifty-five days following the expiration of the term of this Lease, lease the premises to any party other than Lessee without first offering the premises to Lessee in the manner set forth in this paragraph. 31. Other Agreement and ? Default. Max Haechler and Lessee are simultaneously herewith executing a Consultating Agreement. An event of default by a party under said Consulting Agreement shall also constitute an event of default under this Lease in the same manner as if an event of default had occurred directly under this Lease. 32. Setoff. This Lease arose as a result of an Agreement between Max Haechler and Elizabeth M. Haechler ("Haechler") and Steven Knappenberger, or nominee, dated June 1_, 1980. Haechler has certain obligations under ______ Agreement and the documents executed and delivered pursuant thereto. Lessee may, but is not obligated to, set off against any obligations of Lessee to Lessor under this Lease any claim which Steven Knappenberger, or nominee may have against Haechler under said Agreement and the documents executed and ___________ thereto. Notwithstanding anything herein to the contrary, the -23- right of setoff shall not exist with respect to any claim unless Lessee gives notice to Lessor of such claim and Lessor fails to satisfy such claim within sixty days after such notice. 33. Possible Extension. On approximately the commencement of the 19th year of the term hereof, Lessor shall meet with Lessee to consider extending the term hereof beyond 20 years and establishing the provisions of such extended term. Nothing herein shall obligate Lessor or Lessee to agree upon extending the term or establishing the terms. 34. Benefit and Burden. The rights, duties and obligations created hereunder shall inure to the benefit of and be binding upon the parties hereto, their heirs, personal representatives, successors and assigns. IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the date indicated on the first page. LESSOR: LESSEE: MAX OF SWITZERLAND SCOTTSDALE PORSCHE+AUDI, LTD. By /s/ Max Haechler By /s/ Steven Knappenberger ----------------------------- -------------------------------- Max Haechler, President Steven Knappenberger STATE OF ARIZONA ) ) ss. County of Maricopa ) On this, the 11th day of August, 1980, before me, the undersigned officer, personally appeared MAX HAECHLER who -24- acknowledged himself to be the President of MAX OF SWITZERLAND, and that he, as such officer, being authorized so to do, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as such officer. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ Illegible --------------------------------- Notary Public My commission expires: 3/7/82 - ---------------------- -25- STATE OF ARIZONA ) ) ss. County of Maricopa ) On this, the 11th day of August, 1980, before me, the undersigned officer, personally appeared STEVEN KNAPPENBERGER who acknowledged himself to be the President of SCOTTSDALE PORSCHE+AUDI, LTD., and that he, as such officer, being authorized so to do, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as such officer. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ Illegible --------------------------------- Notary Public My commission expires: 3/7/82 - ---------------------- GUARANTY The undersigned, jointly and severally, personally guarantee all of the obligations of Lessee set forth on the above Sublease. DATED this 11th day of August, 1990 /s/ Steven Knappenberger ------------------------------------- STEVEN KNAPPENBERGER /s/ Tamara F. Knappenberger ------------------------------------- TAMARA F. KNAPPENBERGER -26- MAIN PARCEL A portion of FARM UNIT "B", FARM UNIT Plat, of Lot 2, Section 3, TIN, R4E, G&SRB&M, Maricopa County, Arizona, more particularly described as follows: Beginning at the Northeast corner of said FARM UNIT "B"; thence Westerly along the North line of said FARM UNIT "B", S 89(Degree)02'50" W, a distance of 265.81 feet; thence S 00(Degree)52'45" E, a distance of 374.66 feet to the North line of PAPAGO PARKWAY Subdivision as recorded in Book 78 Page 12 of Maricopa County Records; thence Easterly along the North line of said PAPAGO PARKWAY Subdivision N 89(Degree)01'50" E, a distance of 252.50 feet to the East line of said FARM UNIT "B"; thence along said East line N 01(Degree)09'20" E, a distance of 374.85 feet to the Point of Beginning, EXCEPT for previously dedicated public Right-of-Way. ACCESS PARCEL A portion of FARM UNIT "B", FARM UNIT Plat of Lot 2, Section 3, TIN, R4E, G&SRB&M, Maricopa County, Arizona, more particularly described as follows: Beginning at the Northeast corner of said FARM UNIT "B"; thence Westerly along the North line of said FARM UNIT "B", S 89(Degree)02'50" W, a distance of 265.81 feet; thence S 00(Degree)52'45" E, a distance of 65.00 feet to the True Point of Beginning; thence N 89(Degree)02'50" E, a distance of 18.50 feet; thence S 00(Degree)32'45" E, a distance of 53 feet; thence S 89(Degree)02'50" W, a distance of 32.00 feet; thence N 00(Degree)32'45" W a distance of 53.00 feet; thence N 89(Degree)02'50" E, a distance of 13.50 feet to the True Point of Beginning. LEASEHOLD IMPROVEMENTS 1 1,000 gallon motor oil tank (underground) 1 500 gallon waste oil tank (underground) 2 Stationary engine work stands (mounted in tool room) All light fixtures (outdoor display, showroom, office, Parts Dept.) Peg board for P+A tools 45 8 foot lights & bulbs (Shop) 2 Globe Twin Side by side post lifts drive over 2 Globe Twin side by side post lifts, drive thru 4 Globe single post lifts 1 Rotary Twin post drive on lift 1 Globe Side by Side post lift for Hunter Alignment Machine 2 Yale 2-Ton chain hoists 2 1 Beam rails for chain hoists 2 Champion upright air compressors, model W184T170BA, 5 HP 1 Exhaust scavanger system, model CP 1436, 3 HP 1 Refrigerator "Subzero", Owner's Office Sofa (built-in) & 4 pillows (Owner's Office) Mini blinds (8 sets, Office Bldg.) All similar items located upon the Main Parcel on June 17, 1980. SCHEDULE "A" (Continued) SCHEDULE "B" (All recording data refer to records in the office of the County Recorder of the County in which the land is situated.) A. The liabilities, obligations and burdens imposed upon said land by reason of inclusion within the Salt River Project Agricultural Improvement and Power District and Agricultural Improvement Districts. B. TAXES AND ASSESSMENTS collectible by the County Treasurer, not yet due and payable for the following year; Year 1980. EASEMENT and rights incident thereto, as set forth in instrument; Recorded in Docket 2790 Page 560 Purpose Electric transmission lines Affects The centerline to extend from the North to the South boundaries of the South 180 feet of the North 375 feet of FARM UNIT "B" along, parallel to and 180 feet West of the East line thereof. EASEMENT and rights incident thereto, as set forth in instrument; Recorded in Docket 2949 Page 226 Purpose Electric transmission lines Affects The centerline to extend from the East to the West boundaries of the West 356 feet of the East 386 feet of the North 375 feet of FARM UNIT "B" along, parallel to and 158.5 feet North of the South line thereof. ANY ACTION that may be taken by the Department of Transportation to acquire right of way for State Highway, as disclosed by Resolution of Intent; Recorded in Docket 4515 Page 203. continued SCHEDULE B CONTINUED FINANCING STATEMENT between; Debtor Max Haechler and Elizabeth M. Haechler Secured Party The Arizona Bank Recorded November 8, 1976 Docket 11935 Page 703. (Covers more) EASEMENT and rights incident thereto, as set forth in instrument; Recorded in Docket 11999 Page 122 Purpose Highway and utility purposes Affects The South 20 feet. FACILITIES LEASE under the terms and conditions contained herein made by; Lessor Chevron U.S.A. Inc. Lessee Max of Switzerland Dated February 23, 1977 Term 5 years Recorded April 11, 1977 Docket 12163 Page 508; (Affects personal property attached to the within property) LESSORS INTEREST was collaterally assigned; To Southland Life Insurance Company, a Texas corporation By Assignment dated November 7, 1979 Recorded November 8, 1979 Docket 14019 Page 122 As additional security for indebtedness secured by Deed of Trust; Recorded in Docket 14019 Page 108; THEREAFTER AN ATTORNMENT AGREEMENT modifying said lease was executed by the parties named below; Lessee Max of Switzerland, an Arizona corporation Lender Southland Life Insurance Company Dated November 7, 1979 Recorded November 8, 1979 Docket 14019 Page 133; SAID ATTORNMENT AGREEMENT among other things subordinated the continued Lessees interest to the lien of the instrument referred to below; Instrument Deed of Trust Recorded in Docket 14019 Page 108; THEREAFTER THE LESSOR'S INTEREST was subordinated to the lien of the instrument; Recorded in Docket 14019 Page 108 by Subordination Agreement; Recorded in Docket 14019 Page 141. (Covers more) FINANCING STATEMENT between; Debtor Max Switzerland Secured Party The Arizona Bank Recorded October 4, 1977 Docket 12467 Page 1487; THEREAFTER SUBORDINATED to the lien of the instrument; Recorded in Docket 14019 Page 108; By Subordination Agreement; Recorded in Docket 14019 Page 148. (Covers more) SECURITY AGREEMENT between; Debtor Max of Switzerland Secured Party The Arizona Bank Recorded October 4, 1977 Docket 12467 Page 1490; THEREAFTER SUBORDINATED to the lien of the instrument; Recorded in Docket 14019 Page 108; By Subordination Agreement; Recorded in Docket 14019 Page 152. (Covers more) EASEMENT and rights incident thereto, as set forth in instrument; Recorded in Docket 13497 Page 306 Purpose Alley Affects The South 10 feet. continued SCHEDULE B CONTINUED DEED OF TRUST AND ASSIGNMENT OF RENTS given to secure the original amount shown below and any other amount payable under the terms thereof; Original amount $175,000.00 Dated April 19, 1979 Recorded May 1, 1979 Docket 13603 Page 237 Trustor Max Haechler and Elizabeth M. Haechler, his wife Trustee The Arizona Bank Beneficiary The Arizona Bank; 10. continued SAID DEED OF TRUST WAS SUBORDINATED to the lien of instrument; Recorded November 8, 1979 Docket 14019 Page 108 By Subordination Agreement; Recorded November 8, 1979 Docket 14019 Page 144. (Covers more) DEED OF TRUST AND SECURITY AGREEMENT given to secure the original amount shown below and any other amount payable under the terms thereof; Original amount $757,516.13 Dated November 7, 1979 Recorded November 8, 1979 Docket 14019 Page 108 Trustor Max Haechler, an individual and Elizabeth M. Haechler, an individual Trustee Title Insurance Company of Minnesota, a Minnesota corporation Beneficiary Southland Life Insurance Company, a Texas corporation (Covers more) FINANCING STATEMENT between; Debtor Max Haechler and Elizabeth M. Haechler Secured Party Southland Life Insurance Company Recorded November 8, 1979 Docket 14019 Page 138. (Covers more) Deed of Trust and Assignment of Rents to The Arizona Bank in the original principal sum of $200,000.00, recorded in Docket 14465, page continued SCHEDULE B CONTINUED 145. continued MONTHLY RENT PAYMENT SCHEDULE (MAXIMUM MONTHLY RENT) Year Monthly Rent Maximum ---- -------------------- 1 $10,000.00 2 $10,000.00 3 $10,000.00 4 $12,000.00 5 $12,000.00 6 $12,000.00 7 $14,400.00 8 $14,400.00 9 $14,400.00 10 $17,280.00 11 $17,280.00 12 $17,280.00 13 $20,390.00 14 $20,390.00 15 $20,390.00 16 $24,060.00 17 $24,060.00 18 $24,060.00 19 $28,391.00 20 $28,391.00 continued 6/6/85 EXHIBIT A SUBLEASE DATE: June 7, 1985 LESSOR: MAX OF SWITZERLAND, an Arizona corporation LESSEE: SCOTTSDALE PORSCHE+AUDI, LTD., an Arizona corporation PROPERTY: See attached Schedule "A" THIS LEASE AGREEMENT is entered into on the date set forth above, by Lessor and Lessee, with respect to the following described property, together with all buildings, improvements and leasehold improvements located thereon (the "premises" or the "leased premises"), situated in Maricopa County, Arizona; See attached Schedule "A". The complete agreement between the parties is as follows: 1. Term. The premises are hereby leased by Lessor to Lessee for a term commencing on January 1, 1986 and extending thereafter to and including December 31, 2005, provided that if Lessee becomes a franchisee of Jaguar Cars, Inc. for the sale of Jaguar motor vehicles at 6913 East McDowell Road, Scottsdale, Arizona prior to January 1, 1986, the term shall commence on the next business day following such becoming a franchisee. The date on which the term commences is herein called "Commencement Date". 2. Rental. 2.01 Base Rental. Lessee agrees to pay to Lessor, as the rent for the premises during the term hereof, the sum of $8,000.00 per month, as adjusted as set forth in paragraph 2.02, payable on the lst day of each month during the term hereof, commencing on the Commencement Date, without the need for demand except as otherwise set forth herein. Rent for the first month and the last month of the term hereof shall equal what would otherwise be the base rental for such month multiplied by a fraction, the numerator of which is the number of days of the term of this Lease during such month and the denominator of which is the number of days in such month. 2.02 Two Year Cost of Living Adjustment. The monthly rent provided for in paragraph 2.01 shall be subject to adjustment at the commencement of each even numbered calendar year of the term of this Lease commencing 1988 ("the adjustment date"), as set forth in this paragraph. -2- The base for computing the adjustment is the Consumer Price Index, United States (All Items), published by the United States Department of Labor, Bureau of Labor Statistics ("Index"), which is published for the month immediately preceding the month in which the lease term commences ("Beginning Index"). If the Index published nearest the adjustment date ("Extension Index") has increased over the Beginning Index, the monthly rent for the following two years (until the next rent adjustment) shall be set by multiplying the monthly rent set forth in paragraph 2.01 by a fraction, the numerator of which is the Extension Index and denominator of which is the Beginning Index, but in no event shall said adjustment reduce the monthly rental below the monthly rent which existed immediately prior to the adjustment. The monthly rental shall not at any time be greater than that set forth on the attached Monthly Rent Payment Schedule. If the Index is changed so that the base differs from that used as of the month immediately preceding the month in which the term commences, the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the term, such other government index or computation with which it is replaced (or if it is not replaced, some other comparable index or computation) shall be used in order to obtain substantially the same result -3- as would be obtained if the Index had not been discontinued or revised. 3. Taxes and Impounds. 3.01 Taxes - On Rental. Lessee agrees to pay any transaction privilege or sales tax imposed on lease rentals by the State of Arizona and the City of Scottsdale concurrently with, and in addition to, each monthly rental payment. If at any time during the term hereof an additional tax or excise on rents as a form of taxation is levied upon or assessed to Lessor by any taxing authority, and not as a part of a general income tax, Lessee will pay the same at the times and in the manner hereinbefore provided with respect to payment of rent. 3.02 Taxes - On Property. Lessee agrees timely to pay all ad valorem property taxes relating to the premises during the term hereof, prorated during the period this Lease is in effect and timely to provide Lessor with proof of payment thereof. Lessee agrees to absorb all improvement lien assessments for public improvements on or with respect to the leased premises during the term hereof. Lessor shall use his best efforts promptly to cause the leased premises to be assessed separately for property taxes from other property owned by Lessor. Until such time as the leased premises is separately assessed, ad valorem property taxes will be allocated between the leased premises and any other property covered by property tax bills on the basis of the square footage of the leased premises -4- to the square footage of the entire property covered by the tax bills. 3.03 Impounds. During the term hereof while there exists any encumbrance against the premises in favor of an institutional lender, and which encumbrance requires Lessor to make impound payments to the holder of the encumbrance for taxes or insurance, Lessee will pay such amounts to Lessor at the times and in the manner hereinbefore provided with respect to the payment of rent. 4. Alterations. Lessee will not, without the prior written consent of the holder of any encumbrance upon the leased premises from whom consent is required, make or allow to be made alterations, improvements or additions to the leased premises or raze any improvements on the leased premises, provided such improvements are made in accordance with the requirements of all applicable governing bodies. Lessor will use its best efforts to assist in obtaining such approvals. Any such alterations, improvements or additions made will become a part of the leased premises, subject to the terms hereof, and will be the property of Lessor. 5. Trade Fixtures. Lessee, at its expense and subject to other provisions set forth or incorporated herein, may install any necessary trade fixtures, equipment and furniture which will remain Lessee's property and will be removed at the -5- end of this Lease. Lessee at its expense will repair all damage caused by such installation or removal. 6. Maintenance. 6.01 Maintenance - By Lessee. Lessee at its expense will maintain in good order and repair all portions of the leased premises which are not the obligation of Lessor, including without limitation: walls (painting the same as often as necessary); partitions; floor structures; pipes and conduits; roof; utility installations; air conditioning and heating equipment, after any warranties on such equipment have expired; asphalt and concrete floors; and all glass and glasing. Lessee at its expense will also make all repairs of every kind and character to the interior of the leased premises. On the last day of the term hereof, Lessee will surrender the leased premises to Lessor in a state of good repair, excepting only reasonable wear and tear, obsolescence, damage by fire, act of God or the elements and damages which Lessor is required to repair hereunder. 6.02 Maintenance By Lessor. Lessor will have no obligation to maintain or repair any portion of the leased premises. 6.03 Current Condition. Lessor makes no warranties with respect to the condition, repair or operating condition of any portions of the leased premises, and Lessee accepts the leased premises "AS IS" with respect to their -6- quality. Lessor represents and warrants that the buildings, improvements and leasehold improvements which will be located upon the property described in Schedule "A" on the commencement of the term hereof are the same buildings, improvements and leasehold improvements which are located upon said property on the date hereof, plus any additions thereto subsequent to the date hereof. 7. Utilities. Lessee will pay for all water, gas, electricity and other utilities, including those required for the operation of air conditioning and heating equipment used by Lessee on the leased premises. 8. Inspection by Lessor. Lessor may go upon the leased premises at all reasonable times for the purposes of inspecting the same, or for the purpose of inspecting the performance by Lessee of the terms and conditions hereof, or for the purpose of constructing, maintaining and repairing the leased premises pursuant to the terms hereof. 9. Liens. Except for such as it may be contesting in good faith, Lessee will promptly pay and discharge all claims for work or labor done, supplies furnished or services rendered at the request of Lessee and will keep the leased premises free and clear of all mechanics' liens and materialmen's liens in connection therewith. 10. Insurance Clause. Lessor and Lessee agree that no insurer of any interest of either is to have any right of -7- subrogation against the other and that all fire and other insurance policies carried by the other on the leased premises or the fixtures and equipment therein or other contents thereof will contain a full waiver of subrogation by the insurer against the other and its assigns. 11. Damage to Lessee's Fixtures. Lessee agrees that it will assume the risk of damage to any fixtures installed by or at the expense of Lessee in the leased premises, title to which is retained by Lessee hereunder, from every source other than damage (i) caused by the negligence or willful misconduct of Lessor, its agents or contractors, or (ii) resulting by reason of any breach of any of Lessor's obligations under this Lease. 12. Insurance. 12.01 Public Liability - Insurance. Lessee at its expense will maintain in full force during the term hereof public liability and property damage insurance covering the leased premises and Lessee's activities' therein against claims for personal injury and death to limits of at least $500,000 for each person and $1,000,000 for each occurrence and against property damage claims to a limit of at least $100,000 or in such greater amounts as may be required by an institutional lender who holds a first encumbrance against the premises. Lessee will furnish to Lessor a certificate evidencing the fact that such insurance has been obtained and is in full force and effect, that Lessor and any such institutional lender are additional insureds -8- thereunder, and that such insurance cannot be cancelled without ten days' prior notice to Lessor and any such institutional lender. 12.02 Public Liability - Indemnity. Lessee will hold harmless and indemnify Lessor from and against any and all loss, cost or damage arising by reason of injury or death of persons or damage to property in or upon the leased premises or caused by activities conducted thereon; provided, however, that Lessee will not be required to indemnify Lessor against any damage or injury of any kind arising out of the negligence of Lessor, its agents or employees. 12.03 Fire Insurance. Lessee at its expense will maintain in full force and effect during the term hereof fire and extended coverage insurance upon the leased premises in an amount not less than the replacement cost thereof or such greater amount as may be required by an institutional lender who holds an encumbrance against the premises. Lessee will furnish to Lessor a certificate evidencing the fact that such insurance has been obtained and is in full force and effect, that Lessor and any such institutional lender are additional insureds thereunder, and that such insurance cannot be cancelled without ten days' prior notice to Lessor and any such institutional lender. 12.04 Insurance Adjustments. On approximately each fifth annual anniversary of the commencement date hereof, -9- Lessor shall meet with Lessee to consider the adequacy of the required minimum limits for public liability insurance and fire and extended coverage insurance. If such limits are not adequate based upon changes which have occurred in the economy since the commencement of the term hereof, such limits shall be adjusted so that the limits are then adequate. Lessor and Lessee shall act reasonably in making such determination. 13. Damage and Destruction of Premises. In the event of damage or destruction to the premises which is covered by insurance, unless required otherwise by an institutional lender who holds an encumbrance against the premises, the insurance proceeds shall be used for the repair and reconstruction of such damage and the parties shall promptly repair and/or reconstruct the premises and the interior improvements to their condition immediately prior to the damage or destruction. This Lease shall continue in full force and effect in the event of such damage and reconstruction. In the event the premises are damaged by a cause not covered by the fire and extended coverage insurance carried on the premises, Lessor shall reconstruct the premises to the extent of the construction at the commencement hereof; provided however, if such uninsured loss exceeds 33% of the then replacement cost of the building, Lessor shall have the option of terminating this Lease by written notice to Lessee, within thirty (30) days of such damage or destruction, in which event this Lease shall terminate as of the date of the damage or destruction. Should Lessor not elect to so terminate the Lease, -10- it shall proceed with due dispatch to reconstruct the premises to the extent of the construction at the commencement hereof, in which event this Lease shall continue in full force and effect. In the event Lessor elects to terminate this Lease, all rentals and other payments shall be prorated as of the date of termination. If Lessor and Lessee are not able to agree if the uninsured loss exceeds 33% of the then replacement cost of the building, the question shall be resolved by the procedure set forth in paragraph 14.06. 14. Condemnation. 14.01 Total Condemnation of Leased Premises. If the whole of the leased premises shall be acquired or condemned by eminent domain for any public or quasi-public use or purpose, then the term of this Lease shall cease and terminate as of the date of title vesting in such proceeding, and all rentals shall be paid up to date and Lessee shall have no claim against Lessor or the condemning authority for the value of any unexpired term of this Lease. 14.02 Partial Condemnation. If any part of the leased premises shall be acquired or condemned as aforesaid, and in the event that such partial taking or condemnation shall render the leased premises unsuitable for business of the Lessee, then the term of this Lease shall cease and terminate as of the date of title vesting in such proceeding. Lessee shall have no claim against Lessor nor the condemning authority for the value -11- of any unexpired term of this Lease, and rent shall be adjusted to the date of such termination. In the event of a partial taking or condemnation which is not extensive enough to render the premises unsuitable for the business of the Lessee, then Lessor shall promptly restore the leased premises to a condition comparable to its condition at the time of such condemnation, less the portion lost in the taking, and this Lease shall continue in full force and effect with an adjustment in rent based upon the square footage of the leased premises taken to the square footage of the leased premises prior to the taking. If Lessor and Lessee are not able to agree whether the partial taking or condemnation has rendered the leased premises unsuitable for the business of Lessee, the question shall be resolved by the procedure set forth in paragraph 14.06. 14.03 Lessor's Damages. In the event of any condemnation or taking as aforesaid, whether whole or partial, the Lessee shall not be entitled to any part of the award paid for such condemnation, and Lessor shall receive the full amount of such award, Lessee hereby expressly waiving any right to or claim to any part thereof. 14.04 Lessee's Damages. Although all damages in the event of any condemnation for diminution in value of the leasehold or to the fee of the leased premises shall belong to Lessor, Lessee shall have the right to claim and recover from the condemning authority, but not from Lessor, such compensation as may be separately awarded or recoverable by Lessee in Lessee's -12- own right on account of any and all damage to Lessee's business by reason of the condemnation and for or on account of any cost or loss to which Lessee might be put in removing Lessee's merchandise, furniture, fixtures, leasehold improvements and equipment. 14.05 Notice and Execution. Lessor agrees, immediately upon service of process in connection with any appropriation or taking, to give to Lessee notice in writing thereof. Lessee agrees to execute and deliver to the Lessor all instruments that may be required to effectuate the provisions of this paragraph. 14.06 Resolution of Certain Disputes. In the event Lessor and Lessee are unable to agree upon certain matters set forth in paragraphs 13, 14.02 or 34, Lessor and Lessee shall jointly appoint an arbitrator to decide the question, or if Lessor and Lessee are unable to jointly agree upon an arbitrator, Lessor or Lessee at any time by written notice to the other may appoint an arbitrator, and the other party within five (5) days thereafter by written notice to the first party may appoint an arbitrator. The arbitrator or arbitrators so selected shall decide the question and give notice to Lessor and Lessee thereof within five (5) business days after appointment. If there are two arbitrators who are unable to agree, either arbitrator may request the presiding judge of the Maricopa County Superior Court to appoint a third arbitrator and the decision of a majority of the arbitrators, which shall be made and given to Lessor and -13- Lessee within five (5) business days after appointment of the third arbitrator, shall be binding upon Lessor and Lessee. If Lessor or Lessee fails to timely designate an arbitrator, the decision shall be made by the arbitrator appointed by the other party. The decision as determined by arbitration shall be binding upon the parties. The costs of arbitration shall be borne equally by Lessor and Lessee. 15. Default. 15.01 Default - Grounds. The failure to pay any monetary amount due and payable hereunder upon the date when such payment is due, such failure continuing for a period of fifteen days after written notice of such default, shall constitute an event of default on the part of Lessee. The occurrence of any of the following events will constitute an event of default by either party hereunder: (i) default in the performance of any of such party's agreements or obligations hereunder, such default continuing for thirty days after written notice thereof from the non-defaulting party to the defaulting party, provided that if such default cannot reasonably be cured within such thirty day period, then the defaulting party will not be in default hereunder if it, within such thirty day period, commences curing of such default and diligently and in good faith prosecutes the same; (ii) a general assignment by a party for the benefit of creditors; (iii) the filing of a voluntary petition in bankruptcy by a party or the filing of an involuntary petition by a party's creditors, such involuntary petition remaining undischarged for a -14- period of thirty days; (iv) the appointment of a receiver to take possession of substantially all of a party's assets or of this leasehold, such receivership remaining undissolved for a period of thirty days; or (v) attachment, execution or other judicial seizure of substantially all of a party's assets or this leasehold, such attachment, execution or other seizure remaining undismissed or undischarged for a period of thirty days after the levy thereof. 15.02 Default - Remedies. Upon the happening of any such event of default on the part of Lessee, Lessor, at any time thereafter, and prior to the curing of such default, may: (i) with or without notice or demand declare the term hereof ended and re-enter the leased premises or any part thereof (with or without process of law) and expel or remove therefrom Lessee and all parties occupying the same or any of them, using such force as may be necessary to do so, and again repossess and enjoy the same without prejudice to any remedies that Lessor might otherwise have by reason of such default; or (ii) re-enter the leased premises at its option, without declaring the lease term ended, and relet the whole or any part thereof for the account of Lessee on such terms and conditions and at such rent as may then prevail for comparable property, collecting such rent and applying it on the amount due from Lessee hereunder and on the expense of reletting and on any other damage or expense so sustained by Lessor, or on any such item or items, recovering from Lessee the difference between the proceeds of such reletting -15- and the amount of the rentals reserved hereunder, which sum Lessee agrees to pay upon demand. Should Lessor terminate this lease by reason of any such default by Lessee, Lessor may thereupon recover from Lessee the worth, at the time of such termination, of the excess, if any, of the amount of rent and charges equivalent to rent reserved herein for the balance of the term over the then reasonable rental value of the leased premises for the same period. Lessor will not, by any re-entry or other act, be deemed to have terminated this lease, or the liability of Lessee for the total rent hereunder or any installment thereof then due or thereafter accruing or for damages, unless Lessor notifies Lessee in writing that Lessor has so elected to terminate the lease. In addition to the foregoing remedies, Lessor may rectify any defaults of Lessee and add to the rent to be paid hereunder, and to any installment or installments thereof thereafter becoming due. If any installment of rent or any other payment is not paid promptly when due it will bear interest at 18% per annum from the date on which it becomes due until paid, but this provision is not intended to relieve Lessee from any default in the making of any payment at the time and in the manner herein specified. The foregoing interest, expenses and damages will be recoverable from Lessee by the exercise of Lessor's remedies hereinabove set forth. The remedies of Lessor specified herein will be cumulative as to each default to the extent allowed by law. -16- Upon the happening of any such event of default by Lessor, Lessee, at any time thereafter, and prior to the curing of such default, may: (i) declare the term hereof ended; (ii) sue Lessor for damages; (iii) sue Lessor for specific performance; or (iv) exercise any of the rights or remedies as may be allowed by law or equity. The remedies of Lessee specified herein will be cumulative as to each default to the extent allowed by law. 16. Holding Over. In the event of any holding over with the consent of Lessor beyond the end of the term hereof, this Lease will be deemed a monthly tenancy upon the agreements herein contained and Lessee will pay a monthly rental at the rate most recently payable by it pursuant to Section 2 above, in advance at the beginning of each heldover month, plus any other charges or payments contemplated in this lease. 17. Compliance with Laws. Lessee will comply with all governmental laws, ordinances, rules and regulations at any time applicable to Lessee's use and occupancy of the leased premises. Lessee will have the right, however, to contest any such law, ordinance, rule or regulation by appropriate legal action, provided that such contest is conducted without expense or prejudice to Lessor. 18. Statement from Lessee. Lessee will at any time and from time to time within twenty days after written request by Lessor execute, acknowledge and deliver to Lessor a written statement certifying that this Lease is unmodified and in full -17- force and effect if such is the fact (or, if there has been any modification thereof, stating the modifications) and the dates to which the rentals and other charges have been paid in advance, if any. It is understood that any such statement may be relied upon by any prospective purchaser of the estate of Lessor, or by the mortgage or assignee of any mortgage or the trustee or beneficiary of any deed of trust constituting a lien upon the leased premises. 19. Notices. All notices required to be given hereunder are to be in writing. Such notices will be personally delivered or sent by United States certified mail, postage prepaid, addressed to Lessor at 6913 East McDowell Road, Scottsdale, Arizona 85257, and to Lessee at 6925 East McDowell Road, Scottsdale, Arizona 85257, or at such other place as respective addressee may have designated in a written notice to the other party. Service by delivery will be deemed to occur on delivery and service by mail will be deemed to occur on the delivery date shown on the return receipt. 20. Waiver. No waiver of any default by either party hereunder will be implied from any omission by either party to take action on account of such default if such default persists or is repeated, and no express waiver will affect any default other than the default specified in the waiver, and then such waiver will be operative only for the time and to the extent therein stated. A waiver by either party of any provision hereof will not be construed as a waiver of any subsequent breach of the -18- same provision, nor will the consent or approval by either party to or of any act by the other be deemed to waive or render unnecessary its consent or approval to or of any subsequent similar acts. 21. Access Parcel. During the term hereof Lessee shall have use of the Access Parcel for the purpose of passage of vehicles and persons, and for such other purposes as may be acceptable to the party then entitled to possession of the property immediately east of the leased premises. During the term hereof Lessor shall have no right to the use of the Access Parcel. 22. Complete Agreement. It is expressly agreed that the provisions of this Lease cannot be altered, changed, modified or added to except in writing signed by the parties hereto. 23. Time. Time is of the essence hereof. 24. Short-form Lease. Upon request of either party, Lessor or Lessee will both execute and acknowledge a short-form lease for purposes of recording, which short-form lease will describe the premises as being subject to the rights, agreements and restrictions contained herein and the term hereof. 25. Assignment and Subletting. Lessee may not assign this Lease or any interest herein, or sublet the leased premises or any portion thereof, without the prior written consent of Lessor, which consent will not be unreasonably withheld. Lessor -19- hereby consents to an assignment by Lessee to an affiliate of or related party to Lessee or a stockholder thereof or a spouse or lineal descendent thereof or a trust, estate, partnership, corporation or entity with respect to which the principal beneficiaries or beneficial owners are such stockholders, spouses or lineal descendents, or their parents, brothers, sisters, uncles, aunts or cousins. Any assignment or subletting prohibited hereunder without the consent of Lessor will be void. The assignee under any such assignment must agree to perform all of Lessee's obligations hereunder, but no such assignment will have the effect of relieving Lessee of its primary liability for the performance of all of its said obligations. 26. There is none. 27. Applicable Law. This Lease shall be construed under the laws of the State of Arizona. 28. Attorney's Fees. In the event of any action at law or in equity between Lessor and Lessee to enforce any of the provisions or rights hereunder, the unsuccessful party to such litigation covenants and agrees to pay the successful party all costs and expenses, including reasonable attorneys' fees incurred therein by said successful party, and if said successful party shall recover judgment in any such action or proceeding, such costs, expenses and attorneys' fees shall be included in and made a part of such judgment. Should Lessor, without fault, be made a party to any litigation instituted by or against Lessee, Lessee -20- covenants and agrees to pay Lessor all costs and expenses, including reasonable attorneys' fees incurred by Lessor in connection with such litigation. Should Lessee, without fault, be made a party to any litigation instituted by or against Lessor, Lessor covenants and agrees to pay Lessee all costs and expenses, including reasonable attorneys' fees incurred by Lessee in connection with such litigation. 29. Address, Quiet Enjoyment and Condition of Title. Lessor covenants and warrants that the leased premises has a street address of 6913 East McDowell, Scottsdale, Arizona 85257, that the leased premises constitutes the property upon which the business of Max of Switzerland is being conducted on the date hereof and that the leased premises is all of the property lying north of the south line of the leased premises and west of the center line of the wall and west of the center line of the wall as extended north to McDowell Road (the wall being that certain wall which divides the businesses of Scottsdale Porsche+Audi, Ltd. and Max of Switzerland on the date hereof). Lessor covenants and agrees that Lessee, so long as it shall not be in default hereunder, shall peacefully and quietly hold, occupy and enjoy the premises during the term of this Lease. Lessor covenants and warrants that the leased premises are free and clear of all liens, encumbrances and adverse claims except, second half 1984 taxes, 1985 taxes and liens, encumbrances and adverse claims in favor of Southland Life Insurance Company and The Arizona Bank. -21- 30. Rights of First Refusal. At any time prior to fifty-five days following the expiration of the term of this Lease, Lessor shall not sell or contract to sell less than all of the leased premises. At any time prior to fifty-five days following the expiration of the term of this Lease, Lessor shall not sell or contract to sell all of the leased premises unless the premises is first offered to Lessee for the same price, and upon the same terms and conditions as to which Lessor proposes to sell or transfer the premises to the third party. Lessor must give Lessee written notice setting forth the name and address of the proposed purchaser and the price, terms and conditions of any bona fide offer by or to Lessor under which Lessor proposes to sell or transfer the premises. Within the thirty day period following Lessee's receipt of such notice, or within sixty days following the expiration of the term of the Lease, whichever first occurs, Lessee by written notice to Lessor may elect to purchase the premises, for the same price and upon the same terms as the offer. It Lessee does not elect to purchase the premises, Lessor may then sell the premises to the third party named in Lessor's notice to Lessee, for the price and upon the terms therein stated. If the escrow is not closed for the price and upon the terms and conditions contained in the notice, then Lessor may not thereafter, at any time prior to fifty-five days following the expiration of the term of this Lease, sell the premises to any party other than Lessee without first offering the premises to Lessee in the manner set forth in this paragraph. The provisions of this paragraph shall have no application to a -22- transfer of the premises or any portion thereof, by gift or in any other manner, by Lessor to his spouse, to any of his lineal descendants or spouses of lineal descendants (through natural birth or legal adoption), to a corporation or partnership, the majority voting interest of which is owned by Lessor, or to a trust, all of the beneficial interest of which is owned by one, some or all of the foregoing permitted transferees. At any time prior to fifty-five days following the expiration of the term of this Lease, Lessor shall not lease or contract to lease all or any portion of the leased premises unless same is first offered to Lessee for the period following the expiration of the term of this Lease, upon the same lease terms and conditions as to which Lessor proposes to lease same to the third party. Lessor must give Lessee written notice setting forth the name and address of the proposed lessee and the terms and conditions of any bona fide offer by or to Lessor under which Lessor proposes to lease the premises. Within the thirty day period following Lessee's receipt of such notice, or within sixty days following the expiration of the term of the Lease, whichever first occurs, Lessee by written notice to Lessor may elect to lease the premises, upon the same terms as the offer. If Lessee does not elect to lease the premises, Lessor may then lease the premises to the third party named in Lessor's notice to Lessee, upon the terms therein stated. If the lease is not executed upon the terms and conditions contained in the notice, then Lessor may not thereafter, at any time prior to fifty-five days following the expiration of the term of this Lease, lease the premises to -23- any party other than Lessee without first offering the premises to Lessee in the manner set forth in this paragraph. The name of the proposed purchaser or lessee shall be kept confidential by Lessee, and Lessee shall not take any action which would jeopardize the proposed sale or lease, other than to exercise Lessee's right to purchase or lease pursuant to this paragraph 30. 31. Other Agreement and Cross Default. Max Haechler and Lessee are simultaneously herewith executing a Consulting and Non-Compete Agreement. An event of default by a party under said Consulting and Non-Compete Agreement shall also constitute an event of default under this Lease in the same manner as if an event of default had occurred directly under this Lease. 32. There is none. 33. Option to Extend. By written notice to Lessor given not later than December 31, 2004, and provided Lessee is not then in default hereunder, Lessee shall have the right to extend the term hereof for an additional period of five (5) years commencing January 1, 2006. All of the terms and provisions hereof shall be applicable during the renewal term, except that a cost of living adjustment shall be made in accordance with paragraph 2.02 hereof at the commencement of the two year period beginning January 1, 2006, at the commencement of the two year period beginning January 1, 2008, and at the commencement of the one year period beginning January 1, 2010, and provided that the -24- monthly rental shall not at any time be greater than that set forth on the attached Monthly Rent Payment Schedule. 34. Option to Purchase. If the original term or renewal term of this Lease is then in effect and Lessee is not then in default hereunder, Lessee shall have the right to purchase the premises, exercisable by giving written notice to Lessor at least one (1) year prior to the end of the original term of this Lease or at any time during the renewal term of this Lease for a purchase price equal to 100 times the last monthly base rental in effect prior to the close of the escrow hereinafter described, which purchase price shall be paid in full in cash at the close of escrow. Notwithstanding the foregoing, if the written notice is given during the original term, the amount which the monthly base rental would have been during January, 2006 had there been a cost of living adjustment as of January 1, 2006 shall be calculated (with the January, 2006 figure not being greater than 233.33% of the base rental in years 1 and 2), and the purchase price shall equal 100 times such amount. Within fifteen (15) days after the date of such notice, an escrow shall be opened with the title insurance company ("Escrow Agent") designated by Lessee in such notice. Such escrow shall close not later than sixty (60) days after the opening of same; provided, however, if Lessee exercises such option during the original term hereof, the close of escrow shall occur on January 31, 2006, and if Lessee exercises such option -25- during the renewal term hereof, the close of escrow shall occur not earlier than thirty (30) days after the date of such notice. Lessee is not then in default, Lessee shall be entitled to copy the leased premises pursuant to the terms hereof at the rental then in effect until the close of escrow. Escrow Agent, within ten (10) days after the opening of escrow, shall deliver to Max Haechler and Elizabeth M. Haechler (the "Haechlers") and to Lessee a preliminary title report or commitment for a standard owner's title insurance policy (herein "Preliminary Report") to insure fee simple title in Lessee as to the premises, under which the insured is Lessee and in the amount of the purchase price. In addition to the Preliminary Report, Escrow Agent shall simultaneously deliver to Lessee copies of all documents identified in Part 2 of Schedule B of the Preliminary Report and in the Requirements Section of the Preliminary Report. At any time prior to the scheduled close of escrow, Lessee shall have the right to notify Escrow Agent and the Haechlers in writing of any defect in the title of the premises and if the Haechlers do not cause such defect to be eliminated or agreed to be insured over within ten (10) days of receipt of notice of such defect, Lessee, at its option, shall be entitled to cancel the escrow, or accept title in its then condition in which event the expense of eliminating such defects and the amount of any such defects which are not eliminated shall be treated as credits to Lessee and applied against the purchase price. A defect in title -26- for purposes hereof shall be any condition then customarily deemed in Maricopa County, Arizona to render the premises unmarketable. If Lessor and Lessee are not able to agree as to whether an item constitutes a defect in title, the question shall be resolved by the procedure set forth in paragraph 14.06. At close of escrow, the Haechlers shall provide to Lessee a standard coverage owner's title insurance policy which shall show as exceptions no items other than those permitted by Lessee according to the terms hereof, and shall be in the form of the standard coverage owner's title insurance policy usually then issued by the title insurer for Escrow Agent. At close of escrow, the Haechlers shall execute a Warranty Deed to be recorded at close of escrow which shall warrant title subject only to those exceptions permitted by Lessee pursuant to the terms hereof. 35. Prime Lease. Max Haechler and Elizabeth M. Haechler will timely pay and perform all obligations of the lessor under that certain Net Lease, dated September 14, 1979, between Max Haechler and Elizabeth M. Haechler as lessor and Lessor as lessee ("Prime Lease"), and Lessor will timely pay and perform all obligations of the lessee under the Prime Lease. Lessor will not declare a breach or forfeiture by the lessor under the Prime Lease, will not advise the lessor under the Prime Lease of any default by the lessor thereunder and will not perform any act which would give Southland Life Insurance Company the right to declare a default under any documents relating to -27- the property which is the subject of the Sublease. The Prime Lease may not be amended without the prior written consent of Lessee. 36. Subordination. Lessee shall have the right during the original term and renewal term of this Lease to obtain construction loans, the proceeds of which shall be used only for alterations, improvements and additions to be built upon the premises. For this purpose, Lessee may subject the premises to a lien and Lessor and Max Haechler and Elizabeth M. Haechler covenant and agree to join with Lessee in the execution and delivery of such instruments as may be reasonably required to evidence the subordination of the premises to such lien. Such mortgage, deed of trust or other security instrument shall constitute a lien on the premises as well as the buildings and improvements erected thereon by Lessee, which shall be senior and superior to the interests of Lessor and Max Haechler and Elizabeth M. Haechler therein. 37. Benefit and Burden. The rights, duties and obligations created hereunder shall inure to the benefit of and be binding upon the parties hereto, their heirs, personal representatives, successors and assigns. IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the date indicated on the first page. LESSOR: LESSEE: -28- MAX OF SWITZERLAND SCOTTSDALE PORSCHE+AUDI, LTD. By /s/ Max Haechler By /s/ Knappenberger ---------------------------- -------------------------------- Max Haechler, President Steven Knappenberger, Chairman -29- STATE OF ARIZONA ) : SS. County of Maricopa ) On this, the 7 day of June, 1985, before me, the undersigned officer, personally appeared MAX HAECHLER who acknowledged himself to be the President of MAX OF SWITZERLAND, and that he, as such officer, being authorized so to do, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as such officer. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ (Illegible) ---------------------------------- NOTARY PUBLIC My Commission Expires: My Commission Expires Mar. 25, 1989 - ----------------------------------- STATE OF ARIZONA ) : SS. County of Maricopa ) On this, the 7 day of June, 1985, before me, the undersigned officer, personally appeared STEVEN KNAPPENBERGER who acknowledged himself to be the Chairman of SCOTTSDALE PORSCHE+AUDI, LTD., and that he, as such officer, being authorized so to do, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as such officer. continued IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ (Illegible) ---------------------------------- NOTARY PUBLIC My Commission Expires: My Commission Expires Mar. 25, 1989 - ----------------------------------- -2- MONTHLY RENT PAYMENT SCHEDULE (Maximum Monthly Rent) Monthly Rent Maximum (the following percentage of the base rental in Calendar Years years 1 and 2) - -------------- -------------- 3-4 113.33% 5-6 126.67% 7-8 140.00% 9-10 153.33% 11-12 166.67% 13-14 180.00% 15-16 193.33% 17-18 206.67% 19-20 220.00% Option years 1-2 233.33% Option years 3-4 246.67% -3- Option year 5 260.00% -4- 6/6/85 AMENDMENT TO SUBLEASE DATE: June 7, 1985 LESSOR: MAX OF SWITZERLAND, an Arizona corporation LESSEE: SCOTTSDALE PORSCHE+AUDI, LTD., an Arizona corporation RECITALS: Lessor and Lessee entered into a certain Sublease and various letter amendments thereto, all dated August 11, 1980 (collectively "Sublease") and are desirous of amending the Sublease on the terms hereinafter set forth. The parties hereto agree as follows: I Paragraph 30 of the Sublease is amended by adding at the end thereof the following: "Notwithstanding anything in this paragraph 30 to the contrary, the rights of first refusal set forth in this paragraph 30 shall terminate on August 12, 1998 if prior to that date Lessee has not given written notice to Lessor that Lessee elects to extend the term hereof pursuant to paragraph 33 hereof." II Paragraph 33 of the Sublease is amended in its entirety to read as follows: "33. Option to Extend. By written notice to Lessor given not later than August 11, 1998, and provided Lessee is not then in default hereunder, Lessee shall have the right to extend the term hereof for an additional period of five (5) years commencing August 11, 2000. All of the terms and provisions hereof shall be applicable during the renewal term, except that a cost of living adjustment shall be made in accordance with paragraph 2.02 hereof (except at two year intervals) at the commencement of the renewal term for the first two years of the renewal term, at the commencement of the third year of the renewal term for years 3-4 of the renewal term and at the commencement of the fifth year of the renewal term for year 5 of the renewal term, and provided that the monthly rental shall not at any time be greater than that set forth on the attached Extension Term Monthly Rent Payment Schedule." III The Sublease is amended by adding thereto the following paragraph 35: "35. Subordination. With the prior written consent of Lessor (which Lessor will not unreasonably withhold), Lessee shall have the right during the original term and renewal term of this Lease to obtain construction loans, the proceeds of which shall be used only for alterations, improvements and additions to be built upon the premises. For this purpose, Lessee may subject the 2 premises to a lien and Lessor and Max Haechler and Elizabeth M. Haechler covenant and agree to join with Lessee in the execution and delivery of such instruments as may be reasonably required to evidence the subordination of the premises to such lien. Such mortgage, deed of trust or other security instrument shall constitute a lien on the premises as well as the buildings and improvements erected thereon by Lessee, which shall be senior and superior to the interests of Lessor and Max Haechler and Elizabeth M. Haechler therein." IV The Sublease shall remain in full force and effect, as amended hereby. V The rights, duties and obligations created hereunder shall inure to the benefit of and be binding upon the parties hereto, their heirs, personal representatives, successors and assigns. 3 IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Sublease as of the date indicated on the first page. LESSOR: LESSEE: MAX OF SWITZERLAND SCOTTSDALE PORSCHE+AUDI, LTD. By /s/ Max Haechler By /s/ Stseven Knappenberger ---------------------------- --------------------------------- Max Haechler, President Steven Knappenberger, Chairman STATE OF ARIZONA ) : ss. County of Maricopa ) On this, the 7 day of June, 1985, before me, the undersigned officer, personally appeared MAX HAECHLER who acknowledged himself to be the President of MAX OF SWITZERLAND, and that he, as such officer, being authorized so to do, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as such officer. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ Linda Colquette ------------------------------------ NOTARY PUBLIC My Commission Expires: My Commission Expires Mar. 25, 1989 - ----------------------------------- 4 STATE OF ARIZONA ) : ss. County of Maricopa ) On this, the 7 day of June, 1985, before me, the undersigned officer, personally appeared STEVEN KNAPPENBERGER who acknowledged himself to be the Chairman of SCOTTSDALE PORSCHE+AUDI, LTD., and that he, as such officer, being authorized so to do, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as such officer. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ Linda Colquette ------------------------------------ NOTARY PUBLIC My Commission Expires: My Commission Expires Mar. 25, 1989 - ----------------------------------- CONSENT The undersigned guarantors hereby consent to the foregoing Amendment to Sublease. DATED this 7 day of June, 1985 /s/ Steven Knappenberger ------------------------------------ Steven Knappenberger /s/ Tamara F. Knappenberger ------------------------------------ Tamara F. Knappenberger 5 /s/ Max Haechler ------------------------------------ Max Haechler /s/ Elizabeth M. Haechler ------------------------------------ Elizabeth M. Haechler 6 EXTENSION TERM MONTHLY RENT PAYMENT SCHEDULE (Maximum Monthly Rent) Monthly Rent Maximum (the following percentage of the base rental in year 1 of the Option Years base term) ------------ ----------------------- 1-2 297.24% 3-4 310.58% 5 323.91% NON-DISTURBANCE AGREEMENT THIS AGREEMENT entered into this 7 day of June, 1985, between MAX HAECHLER and ELIZABETH M. HAECHLER ("Lessor") and SCOTTSDALE PORSCHE+AUDI, LTD., an Arizona corporation ('Sublessee"), W I T N E S S E T H: WHEREAS, Lessor is the owner of certain property described on Exhibit A attached hereto, WHEREAS, Lessor and MAX OF SWITZERLAND, an Arizona corporation ("Sublessor") entered into a certain Lease of the property described in Exhibit A, dated September 14, 1979 ("Prime Lease") in which Lessor is lessor and Sublessor is lessee, and WHEREAS, Sublessor and Sublessee have entered into a certain Sublease with respect to a portion of the property described on Exhibit A, dated June 7, 1985, NOW, THEREFORE, it is mutually agreed as follows: I As an inducement to Sublessee to execute said Sublease, Lessor agrees that Lessor, its successors and assigns, will not disturb the possession of Sublessee under said Sublease as a result of any default by Sublessor under the Prime Lease and that Lessor will hold Sublessee in quiet enjoyment of the premises described in the Sublease under the terms of the Sublease so long as Sublessee shall not be in default under the terms of the Sublease. II Lessor consents to the Sublease between Sublessor and Sublessee. III The rights, duties and obligations created hereunder shall inure to the benefit of and be binding upon the parties hereto, their heirs, personal representatives, successors and assigns. IN WITNESS WHEREOF, the parties hereto have executed this Non-Disturbance Agreement the day and year first above written. LESSOR: /s/ Max Haechler --------------------------------- Max Haechler -2- /s/ Elizabeth M. Haechler --------------------------------- Elizabeth M. Haechler SUBLESSEE: SCOTTSDALE PORSCHE+AUDI, LTD. By /s/ Steven Knappenberger ------------------------------ Steven Knappenberger, Chairman -3- STATE OF ARIZONA ) : ss. County of Maricopa ) On this, the 7 day of June, 1985, before me, the undersigned officer, personally appeared MAX HAECHLER and ELIZABETH M. HAECHLER, known to me to be the persons whose names are subscribed to the within instrument and acknowledged that they executed the same for the purposes therein contained. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ Linda Colquette -------------------------------- NOTARY PUBLIC My Commission Expires: My Commission Expires Mar. 25, 1989 - ----------------------------------- STATE OF ARIZONA ) : ss. County of Maricopa ) -4- On this, the 7 day of June, 1985, before me, the undersigned officer, personally appeared STEVEN KNAPPENBERGER who acknowledged himself to be the Chairman of SCOTTSDALE PORSCHE+AUDI, LTD., and that he, as such officer, being authorized so to do, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as such officer. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ Linda Colquette -------------------------------- NOTARY PUBLIC My Commission Expires: My Commission Expires Mar. 25, 1989 - ----------------------------------- -5- AGREEMENT THIS AGREEMENT ("Agreement") is made by and among MAX HAECHLER and ELIZABETH M. HAECHLER, husband and wife ("Haechler"), MAX OF SWITZERLAND, an Arizona corporation ("Max") and SCOTTSDALE PORSCHE + AUDI, LTD., an Arizona corporation ("SPA"). R E C I T A L S: A. Some or all of the parties hereto executed the following documents, each dated June 7, 1985: Escrow Instructions, Sublease, Memorandum of Sublease, Nondisturbance Agreement, Amendment to Sublease, Consulting and Non-compete Agreement and Agreement (all collectively called "Instruments"). B. The parties now desire to modify the Instruments. FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Subordination and Amendment of Sublease. Max, as sublessor under a sublease agreement with SPA, as sublessee, dated August 11, 1980, ("Sublease") as amended by the Amendment to Sublease dated June 7, 1985, agreed to subordinate its interest in the leased premises to allow SPA to obtain certain financing. The parties now agree that this subordination provision shall be deleted from the Sublease, and that Max or Haechler shall have no obligation whatsoever to subordinate the property commonly known as the Scottsdale Porsche + Audi dealership property for any reason. The parties agree that this Agreement shall act as a second Amendment to the Sublease. Max and/or Haechler agree to subordinate only the property commonly known as the Max of Switzerland Jaguar dealership property which is the subject of the Sublease Agreement between Max and SPA dated June 7, 1985. 2. Lot Split. Max and/or Haechler own and/or lease various property which is the subject of leases with SPA and adjacent property. The parties agree that it is necessary to split out these properties for tax reasons and lien reasons, among others, and the parties agree to take whatever steps are necessary to implement this lot split. 3. Reaffirmation. In all other respects, the Instruments are hereby reaffirmed. IN WITNESS WHEREOF, the parties have executed this Agreement this 15th day of July, 1985. /s/ -------------------------------- MAX HAECHLER /s/ -------------------------------- ELIZABETH M. HAECHLER By: Max Haechler - power of attorney MAX OF SWITZERLAND, an Arizona corporation By: /s/ ---------------------------- Its: President SCOTTSDALE PORSCHE + AUDI, LTD., an Arizona corporation By: /s/ -------------------------------- STEVEN KNAPPENBERGER Its: Chairman /s/ -------------------------------- STEVEN KNAPPENBERGER /s/ -------------------------------- TAMARA F. KNAPPENBERGER [6.3-2] -2- [Letterhead of Schweizerisches Konsulat] Scottsdale, 16 April 1985 Power of Attorney The undersigned, Elizabeth M. Haechler herewith assigns full power of attorney to her husband Max Haechler for any and all transactions related to whatever matter relative to the Max of Switzerland corporation or any other personal matters concerning joint real estate holdings. /s/ -------------------------------- ELIZABETH M. HAECHLER April 16, 1985 [Notarial Seal] State of Arizona County of Maricopa /s/ - -------------------------------- My Commission Expires Nov. 24, 1987 -3- AMENDMENT TO SUBLEASE DATE: November 11, 1985 LESSOR: MAX OF SWITZERLAND, An Arizona corporation LESSEE: SPA AUTOMOTIVE, LTD., an Arizona corporation (whose former name was Scottsdale Porsche+Aud, Ltd.) RECITALS: A. Lessor and Lessee entered into a certain Sublease, dated June 7, 1985 ("Sublease"). B. Lessor and Lessee are desirous of amending the Sublease to reflect a different description of the leased premises. AGREEMENTS: IT IS MUTUALLY AGREED AS FOLLOWS: 1. Schedule "A" attached hereto is substituted for the Schedule "A" attached to the Sublease, and the "premises" or "leased premises" as described in the Sublease shall be the property described on Schedule "A" attached hereto. 2. The Sublease shall remain in full force and effect, as amended hereby. 3. The rights, duties and obligations created hereunder shall inure to the benefit of and be binding upon the parties hereto, their heirs, personal representatives, successors and assigns. IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Sublease as of the date indicated on the first page. LESSOR: LESSEE: MAX OF SWITZERLAND SPA AUTOMOTIVE, LTD. By /s/ Max Haechler By /s/ Steven Knappenberger - ------------------------------- --------------------------------- Max Haechler, President Steven Knappenberger, Chairman The undersigned hereby approve all of the terms and provisions of the foregoing Amendment to Sublease. /s/ Steven Knappenberger /s/ Tamara F. Knappenberger - ------------------------------- --------------------------------- Steven Knappenberger Tamara F. Knappenberger -2- /s/ Max Haechler /s/ Elizabeth M. Haechler - ------------------------------- --------------------------------- Max Haechler Elizabeth M. Haechler -3- SCHEDULE "A" Main Parcel A portion of FARM UNIT "B", FARM UNIT Plat of Lot 2, Section 3, TIN R4E, G&SRB&M, Maricopa County, Arizona, more particularly described as follows: Beginning at the Northeast corner of said FARM UNIT "B"; thence Westerly along the North line of said FARM UNIT "B", S 89(degree)02'50" W, a distance of 265.81 feet to the True Point of Beginning; thence S 00(degree)52'45" E, a distance of 374.66 feet to the North line of PAPAGO PARKWAY Subdivision as recorded in Book 78, Page 12 of Maricopa County Records; thence Westerly along the North line of said PAPAGO PARKWAY Subdivision S 89(0)01'50" W, a distance of 140.52 feet; thence N 01(0)09'20" E, a distance of 374.95 feet to the North line of said FARM UNIT "B"; thence S 89(degree)02'50" E, a distance of 127.21 feet to the True Point of Beginning. ACCESS PARCEL A portion of FARM UNIT "B", FARM UNIT Plat of Lot 2, Section 3, T1N, R4E, L&SRB&M, Maricopa County, Arizona, more particularly described as follows: Beginning at the Northeast corner of said FARM UNIT "B"; thence Westerly along the North line of said FARM UNIT "B", S89(degree)02'50" W, a distance of 265.81 feet; thence S 00(degree)52'45" E, a distance of 65.00 feet to the True Point of Beginning; thence N 89(degree)02'50" E, a distance of 18.50 feet; thence S 00(degree)32'45" E, a distance of 53.00 feet; thence S 89(degree)02'50" W, a distance of 32.00 feet; thence N 00(degree)32'45" W a distance of 53.00 feet; thence N 89(degree)02'50" E, a distance of 13.50 feet to the True Point of Beginning. -4- TOGETHER with all leasehold improvements and fixtures located upon the Main Parcel on the date hereof, including without limitation all hoists, compressors and coolers, but excluding one wheel adjustment rack head and all personal property. -5- 8/7/86 SECOND AMENDMENT TO SUBLEASE DATE: July 30, 1986 LESSOR: MAX OF SWITZERLAND, an Arizona corporation LESSEE: SPA AUTOMOTIVE, LTD., an Arizona corporation RECITALS: A. Lessor and Lessee entered into a certain Sublease, dated June 7, 1985, as amended by Amendment to Sublease, dated November 11, 1985 ("Sublease"). B. Lessor and Lessee are desirous of amending the Sublease on the terms set forth herein. AGREEMENTS: IT IS MUTUALLY AGREED AS FOLLOWS: 1. Paragraph 36 of the Sublease is amended to read: "36. Subordination. Lessee shall have the right to borrow from The Arizona Bank the principal sum of $2,250,000.00 in accordance with a Note to The Arizona Bank dated July 30, 1986 and a Deed of Trust and Assignment of Rents securing payment of the Note likewise dated July 30, 1986. Thereafter, so long as Lessee is not in default, Lessee shall have the right during the original term and the renewal terms of this Lease from time to time to refinance said loan (as said loan may from time to time be refinanced), provided that the principal amount of any such loan shall not exceed the sum of $2,250,000.00, and that the loans shall be on such terms and conditions as are then available in the market place for loans of like nature. For this purpose, Lessee may subject the premises to liens to secure such loans and Lessor and Max Haechler and Elizabeth M. Haechler (jointly "Haechlers") covenant and agree to join with Lessee in the execution and delivery of such instruments as may be reasonably required to evidence the subordination of the premises to such items, provided that Lessor and Haechlers are given notice and an opportunity to cure and a secured indemnity on substantially similar terms as those contained in that certain Indemnification Agreement of even date herewith by and between Marion K. Bolin, as Trustee of the H. M. Knappenberger Trusts No. 1, No. 2 and No. 3, Steven Knappenberger and Tamara F. Knappenberger, and each of them, Max Haechler, Elizabeth M. Haechler and Max of Switzerland, an Arizona corporation. Such mortgage, deed of trust or other security with respect to each loan shall constitute a lien on the premises as well as the buildings and improvements erected thereon by Lessee, which shall be senior and superior to the interests of Lessor and Haechlers therein. Lessee shall cause the lien of any such mortgage, deed of trust or other security to which Lessor or Haechlers have subordinated their interest in the premises to be released from the premises on or before the expiration of the -2- base term (or the renewal term if the renewal option is exercised) hereof unless Lessee shall have acquired the interest of Lessor and Haechlers in the premises." 2. Should a default occur in any payment and/or performance required under the terms of any loans or any documents evidencing the loan to which Lessor and Haechlers have subordinated,* and/or should a default occur in any performance required under the Indemnification Agreement given in connection with such subordination, such default shall also constitute a default under this Sublease. 3. The Sublease shall remain in full force and effect, as amended hereby. *and/or should any of the terms of the loan or any document evidencing the loan to which Lessor and Haechlers have subordinated be altered or changed in any material way, without the prior written consent of Lessor and Haechlers, which will not be unreasonably withheld, 4. The rights, duties and obligations created hereunder shall inure to the benefit of and be binding upon the parties hereto, their heirs, personal representatives, successors and assigns. IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment to Sublease as of the date indicated on the first page. -3- LESSOR: LESSEE: MAX OF SWITZERLAND SPA AUTOMOTIVE, LTD. By /s/ By /s/ ----------------------------- ----------------------------------- Max Haechler, President Steven Knappenberger, Chairman -4- The undersigned hereby approve all of the terms and provisions of the foregoing Second Amendment to Sublease, and the undersigned Max Haechler and Elizabeth M. Haechler further agree to timely perform those obligations imposed upon them under the Sublease and the foregoing Amendment to Sublease. /s/ By Steven Knappenberger, /s/ attorney-in-fact - ------------------------------- --------------------------------- Steven Knappenberger Tamara F. Knappenberger /s/ by Max Haechler, /s/ attorney-in-fact - ------------------------------- --------------------------------- Max Haechler Elizabeth M. Haechler -5- ASSIGNMENT AND ASSUMPTION OF SUBLEASE DATE: June 7, 1989 ASSIGNOR: SPA AUTOMOTIVE LTD., an Arizona corporation formerly known as Scottsdale Porsche+Audi, Ltd. ASSIGNEE: SL AUTOMOTIVE, LTD., an Arizona corporation RECITALS: A. Max of Switzerland, an Arizona corporation, as "Lessor," and Assignor, as "Lessee," entered into a certain Sublease dated June 7, 1985, which Sublease was amended by a certain Amendment to Sublease dated November 11, 1985 and a certain Second Amendment to Sublease dated July 30, 1986 (collectively, the "Sublease"). B. Assignor desires to assign to Assignee, and Assignee desires to assume, the rights and obligations of Assignor under the Sublease. AGREEMENTS: In consideration of the mutual covenants contained herein and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Assignor assigns to Assignee all of Assignor's right, title and interest in, to and under the Sublease and the leasehold estate created thereby, such assignment to be effective on the earlier of August 1, 1989 and the date upon which Assignee opens for business to the public a motor vehicle dealership at the leased premises as defined in the Sublease (the "Effective Date"). 2. Assignor represents and warrants to Assignee that: (a) Assignor is the sole owner and holder of the title to the entire leasehold estate created by the Sublease. (b) To the best of Assignor's knowledge, there are no claims pending against Assignor with respect to the Sublease or which would affect Assignee in any way as a result of this Assignment. Assignor is not in default under the Sublease, and no conditions exist which with notice or lapse of time, or both, would constitute a default or event of default by Assignor under the Sublease. (c) This Assignment does not constitute a breach of or a default under the Sublease. 3. Assignee agrees to perform and assumes all obligations of Assignor under the Sublease accruing from and after the Effective Date. Assignee shall indemnify Assignor against and hold Assignor harmless from any and all losses, damages, debts, expenses, liabilities or claims of any kind, including, but not limited to, reasonable attorneys' fees, resulting from or incident to the Sublease and the leasehold estate, provided the same arise out of acts or omissions to act from and after the Effective Date. 4. Assignor shall indemnify Assignee against and hold Assignee harmless from any and all losses, damages, debts, expenses, liabilities or claims of any kind, including but not limited to, reasonable attorneys' fees, resulting from or incident to the Sublease and the leasehold estate, provided the same arise out of acts or omissions to act prior to the Effective Date. 5. Assignor covenants that it shall forever defend Assignee's title to the leasehold estate created by the Sublease -2- against all persons whomsoever. 6. Assignor acknowledges that nothing herein shall relieve Assignor of its liability to Max of Switzerland for the performance of the obligations of the Lessee under the Sublease. 7. The rights, duties and obligations created hereunder shall inure to the benefit of and be binding upon the parties hereto, their heirs, personal representatives, successors and assigns. IN WITNESS WHEREOF, the parties have executed this Assignment as of the date first above written. ASSIGNOR: SPA AUTOMOTIVE, LTD., an Arizona corporation By: /s/ Steven Knappenberger -------------------------------- Its: Chairman ASSIGNEE: SPA AUTOMOTIVE, LTD., an Arizona corporation -3- By: /s/ Steven Knappenberger -------------------------------- Its: Chairman STATE OF ARIZONA ) ) ss. County of Maricopa ) The foregoing instrument was acknowledged before me this 8th day of June, 1989, by Steven Knappenberger, the Chairman of SPA Automotive, Ltd., an Arizona corporation, on behalf of the corporation. /s/ Helen M. Dowell ---------------------------------- Notary Public My Commission Expires: My Commission Expires March 31, 1990 - ------------------------------------ STATE OF ARIZONA ) ) ss. County of Maricopa ) The foregoing instrument was acknowledged before me this 8th day of June, 1989, by Steven Knappenberger, the Chairman of SL -4- Automotive, Ltd., an Arizona corporation, on behalf of the corporation. /s/ Helen M. Dowell ---------------------------------- Notary Public My Commission Expires: My Commission Expires March 31, 1990 - ------------------------------------ The undersigned hereby approve the foregoing Assignment and Assumption of Lease. /s/ Steven Knappenberger ---------------------------------- Steven Knappenberger /s/ Tamara F. Knappenberger ---------------------------------- Tamara F. Knappenberger THIRD AMENDMENT TO SUBLEASE DATE: November 30, 1992 -5- LESSOR: MAX OF SWITZERLAND, an Arizona corporation LESSEE: SPA AUTOMOTIVE, LTD., an Arizona corporation, formerly known as Scottsdale Porsche+Audi, Ltd. RECITALS: A. Lessor and Lessee entered into a certain Sublease and various letter amendments thereto, all dated August 11, 1980, which Sublease was amended by a certain Amendment to Sublease dated June 7, 1985, and subsequently further amended by a certain Agreement dated July 15, 1985 (collectively referred to as the "Sublease"). B. The lessee's interest under the Sublease was previously assigned to another party and then was reassigned to Lessee, and Lessee is the holder of the lessee's interest under the Sublease. C. Lessor and Lessee are desirous of amending the Sublease on the terms hereinafter set forth. WHEREFORE, the parties hereto agree as follows: I. Paragraph 1 of the Sublease is amended by inserting at the very beginning thereof the following: "Except as may be otherwise provided for herein," II. Paragraph 33 of the Sublease is amended in its entirety -2- to read as follows: "33. Options to Extend. 33.01 By written notice to Lessor given not later than August 11, 1998, and provided Lessee is not then in default hereunder, Lessee shall have the right to extend the term hereof for an additional period of five (5) years commencing August 11, 2000. All of the terms and provisions hereof shall be applicable during the renewal term, except that a cost of living adjustment shall be made in accordance with paragraph 2.02 hereof (except at two year intervals) at the commencement of the renewal term for the first two years of the renewal term, at the commencement of the third year of the renewal term for years 3-4 of the renewal term and at the commencement of the fifth year of the renewal term for year 5 of the renewal term, and provided that the monthly rental shall not at any time be greater than that set forth on the attached Extension Term Monthly Rent Payment Schedule. 33.02 In addition to the renewal term set forth in subparagraph 33.01 hereof, by notice to Lessor given not later than one year prior to the first day of each subsequent renewal term, and provided Lessee is not then in default hereunder and Lessee has exercised all prior rights under this paragraph to extend the term -3- hereof, Lessee shall have the right to extend the term hereof for three (3) additional periods of five (5) years each, with such subsequent renewal terms commencing August 11, 2005, August 11, 2010, and August 11, 2015 (the "subsequent renewal terms"). All of the terms and provisions hereof shall be applicable during each subsequent renewal term, except that during the subsequent renewal terms a cost of living adjustment shall be made in accordance with subparagraph 33.03 hereof at the commencement of the following dates: August 11, 2007 August 11, 2009 August 11, 2011 August 11, 2013 August 11, 2015 August 11, 2017 August 11, 2019 Notwithstanding the provisions of this paragraph or any other provision of this Sublease, the monthly rental for the first two years of the renewal term commencing August 11, 2005, shall be the Capitalization Rate (as hereinafter defined) multiplied by the Appraised Amount (as hereinafter defined), as such Capitalization Rate and such Appraised Amount are established by the first Appraisal (as hereinafter defined) to be made -4- hereunder, with such amount being divided by 12 (hereinafter referred to as the "Adjusted Base Rental"). 33.03 Commencing with rent due on August 11, 2007, and on August llth of each two (2) years thereafter for the remaining term of this Lease (including any extensions provided for herein), the Adjusted Base Rental shall be adjusted in accordance with the change in the Consumer Price Index (the "Index"), plus any applicable taxes (the "adjustment"). The Index shall mean the average shown on the "U.S. City Average for Urban Wage Earners and Clerical Workers -- All Items", as promulgated by the Bureau of Labor Statistics of the U.S. Department of Labor. No such adjustment shall reduce the annual rental below the monthly rental as adjusted for the preceding twelve (12) months. The adjustment shall be increased in the same ratio as the increase in the Index for the month of July of the year the adjustment is being made as compared with the Index for the month of July, 2005; provided, however, that the adjustment shall not exceed the following percentages: August 11, 2007 adjustment shall not exceed the Adjusted Base Rental by more than 10%; August 11, 2009 adjustment shall not exceed -5- the Adjusted Base Rental by more than 20%; August 11, 2011 adjustment shall not exceed the Adjusted Base Rental by more than 30%; August 11, 2013 adjustment shall not exceed the Adjusted Base Rental by more than 40%; August 11, 2015 adjustment shall not exceed the Adjusted Base Rental by more than 50%; August 11, 2017 adjustment shall not exceed the Adjusted Base Rental by more than 60%; and August 11, 2019 adjustment shall not exceed the Adjusted Base Rental by more than 70%. Said adjustment shall be effective from the llth day of August of each year in which the adjustment is to be made and shall govern the rental to be paid during the next succeeding twenty-four (24) month period until the next adjustment is to be made as set forth herein." III. The Sublease is amended by adding thereto the following paragraph 36: "36. Appraisal and Option to Purchase. On or before April 1, 2005, Lessee shall submit to Lessor an appraisal of the premises setting forth the then fair -6- market value of the premises as determined by an independent M.A.I. appraiser experienced in the appraisal of like properties in Maricopa County, Arizona and designated by Lessee, which fair market value shall be based on the then current use of the premises and which appraisal shall set forth the appraiser's opinion of the then current capitalization rate for comparable properties. If Lessor is dissatisfied with such appraisal, on or before ninety (90) days after submittal of Lessee's appraisal, Lessor shall submit to Lessee an appraisal of the premises setting forth the then fair market value of the premises as determined by an independent M.A.I. appraiser experienced in the appraisal of like properties in Maricopa County, Arizona and designated by Lessor, which fair market value shall be based on the then current use of the premises and which appraisal shall set forth the appraiser's opinion of the then current capitalization rate for comparable properties. "Appraisal" for purposes hereof shall be the appraisal submitted by Lessee if Lessor does not timely submit an appraisal, or the average (with regard to both the fair market value and the capitalization rate) of the appraisals submitted by Lessee and Lessor if Lessor timely submits an appraisal. "Appraised Amount" means the fair market value determined by the Appraisal, and "Capitalization Rate" means the -7- capitalization rate determined by the Appraisal. As of any time on or after August 11, 2005, if any renewal term is then in effect and Lessee is not then in default hereunder, Lessee shall have the right to purchase the premises, exercisable by giving written notice ("Election Notice") to Lessor at least ninety (90) days prior thereto, for a purchase price equal to the Appraised Amount, which purchase price shall be paid in full in cash at the close of escrow. If the Election Notice is not given within six (6) months after April 1, 2005, then Lessee shall proceed with obtaining a more current Appraisal under the procedure set forth hereinabove. The parties hereto agree that the Appraised Amount set forth in any Election Notice shall be established by an Appraisal(s) performed within six (6) months immediately preceding the date of the Election Notice. Within fifteen (15) days after the Election Notice, an escrow shall be opened with the title insurance company ("Escrow Agent") designated by Lessee in the Election Notice. Such escrow shall close not later than one hundred eighty (180) days after the Election Notice. If Lessee is not then in default, Lessee shall be entitled to occupy the premises pursuant to the terms hereof at the rental then in -8- effect until the close of escrow. Escrow Agent, within ten (10) days after the opening of escrow, shall deliver to Max Haechler and Elizabeth M. Haechler (the "Haechlers") and to Lessee a preliminary title report or commitment for a standard owner's title insurance policy (herein "Preliminary Report") to insure fee simple title in Lessee as to the premises, under which the insured is Lessee and in the amount of the purchase price. In addition to the Preliminary Report, Escrow Agent shall simultaneously deliver to Lessee copies of all documents identified in Schedule B of the Preliminary Report and in the Requirements Section of the Preliminary Report. At any time prior to the scheduled close of escrow, Lessee shall have the right to notify Escrow Agent and the Haechlers in writing of any defect in the title of the premises and if the Haechlers do not cause such defect to be eliminated or agreed to be insured over within twenty (20) days of receipt of notice of such defect, Lessee, at its option, shall be entitled to cancel the escrow, or accept title in its then condition in which event the expense of eliminating such defects and the amount of any such defects which are not eliminated shall be treated as credits to Lessee and applied against the purchase price. A defect in title for purposes hereof shall be any condition then customarily -9- deemed in Maricopa County, Arizona to render the premises unmarketable. At close of escrow, the Haechlers shall provide to Lessee a standard coverage owner's title insurance policy which shall show as exceptions no items other than those permitted by Lessee according to the terms hereof, and shall be in the form of the standard coverage owner's title insurance policy usually then issued by the title insurer for Escrow Agent. At close of escrow, the Haechlers shall execute a Warranty Deed to Lessee to be recorded at close of escrow which shall warrant title subject only to those exceptions permitted by Lessee pursuant to the terms hereof. At close of escrow, Lessor shall execute a Quit Claim Deed to Lessee to be recorded at close of escrow, the purpose of which shall be to terminate the master lease on the premises between Haechlers and Lessor and to otherwise transfer to Lessee any other interest Lessor may have in the premises. Escrow charges, closing costs and prorations shall be borne by the parties in accordance with the practice then prevailing in Maricopa County, Arizona. If Haechlers desire to effect a tax free exchange of the premises pursuant to ss.1031 of the Internal Revenue Code or any similar section then in effect, Lessee shall reasonably and promptly cooperate with Haechlers, including Lessee entering into a contract for the -10- acquisition of real property which shall be acceptable to Haechlers which shall subsequently be assigned and/or transferred to Haechlers, provided however, that Lessee shall not be required to hold legal title to any other property and Lessee shall not be required to undertake or assume any liabilities or to incur any costs or expenses in connection therewith." IV. The Sublease is further amended by adding thereto the following new paragraphs 37 and 38: "37. Refinancing by Lessor. Lessor and Lessee acknowledge that at any time during the term of this Sublease and any extensions thereof, Lessor has the right to refinance the premises. Lessee hereby consents to Lessor refinancing the premises, agrees to fully and promptly cooperate with Lessor in Lessor seeking to perform the subject refinancing, and agrees to provide and/or execute such documents as may be reasonably requested by Lessor in connection therewith; provided however, that any such refinancing documents shall contain a prepayment provision and a provision incorporating by reference this Sublease and that any refinancing shall be subject to Lessee's interest under this Sublease. -11- 38. Hazardous Material Indemnification. Subject to the limitations and other provisions contained in this Sublease, Lessee shall, and it hereby does, indemnify and agree to pay, defend and hold harmless Lessor and Haechlers from any and all losses, liabilities, damages, injuries, obligations, actions, suits, administrative claims, remedial actions, judgments, awards, fines, claims, demands or expenses (including attorneys' fees) of any and every kind whatsoever, incurred or suffered by, or asserted against, Lessor for, with respect to, or as a direct or indirect result of, the presence on or under the premises of any Hazardous Material, or the escape, seepage, leakage, spillage, discharge, emission, or release from the premises into or upon any land, the atmosphere, or any watercourse, body of water, or wetland of any Hazardous Material, which presence, escape, seepage, leakage, spillage, discharge, emission, or release first occurred during the period commencing August 11, 1980 and terminating upon the termination of this Sublease, as may be extended from time to time (the "Period"), including without limitation, any losses, liabilities, damages, injuries, costs, expenses, or claims asserted or arising under the Comprehensive Environmental Response, Compensation and Liability Act, any so-called "Superfund" or "Superlien" law, or any other federal, state, or local -12- statute, law, ordinance, code, rule, regulation, order, or decree regulating, relating to, or imposing liability or standards of conduct concerning any Hazardous Material or any underground storage tanks. For purposes of this Sublease, "Hazardous Material" means and includes any petroleum product and any hazardous substance or any pollutant or contaminant defined as such in (or for purposes of) the Comprehensive Environmental Response, Compensation, and Liability Act; any so-called "Superfund" or "Superlien" law; the Toxic Substances Control Act; or any other federal, state, or local statute, law, ordinance, code, rule, regulation, order, or decree regulating, relating to, or imposing liability or standards of conduct concerning any hazardous, toxic, or dangerous waste, substance, or material, as now or at any time hereafter in effect; and asbestos or any substance or compound containing asbestos, PCB's, or any other hazardous, toxic, or dangerous waste, substance, or material. Notwithstanding anything in this paragraph to the contrary, if Lessee purchases the premises pursuant to paragraph 36 hereof, then the Period shall include the time of Lessee's ownership of the premises." V. Lessor and Lessee acknowledge that Lessee anticipates making alterations, improvements and additions to the premises to -13- satisfy the requirements of current and future distributors of new vehicles to be sold from the premises. Lessor hereby consents to Lessee making such alterations, improvements and additions to the premises as may be approved or required by such distributors and as may be approved or required by applicable governmental authorities. Lessor further agrees to cooperate promptly with Lessee in Lessee's seeking the approval of governmental authorities for such alterations, improvements and additions and to execute promptly such documents as may be reasonably requested by Lessee in connection therewith, including filings with and submissions to the City of Scottsdale. VI. The Sublease shall remain in full force and effect, as amended hereby. -14- VII. The rights, duties and obligations created hereunder shall inure to the benefit of and be binding upon the parties hereto, their heirs, personal representatives, successors and assigns. IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment to Sublease as of the date indicated on the first page. LESSOR: LESSEE: MAX OF SWITZERLAND, SPA AUTOMOTIVE, LTD., an Arizona corporation an Arizona corporation By /s/ By /s/ Max Haechler Steven Knappenberger, ---------------------------- ---------------------------------- President Chairman -15- CONSENT The undersigned guarantors hereby consent to the foregoing Third Amendment to Sublease. The undersigned Max Haechler and Elizabeth M. Haechler further agree to perform the obligations of Haechler under paragraph 36 of the Sublease. DATED this 30 day of November, 1992. /s/ ------------------------------------- Steven Knappenberger "Guarantor" /s/ ------------------------------------- Tamara F. Knappenberger "Guarantor" /s/ ------------------------------------- Max Haechler /s/ ------------------------------------- Elizabeth M. Haechler STATE OF ARIZONA ) ) ss. County of Maricopa ) On this, the 30 day of November, 1992, before me, the undersigned officer, personally appeared Max Haechler who acknowledged himself to be the President of Max of Switzerland, and that he, as such officer, being authorized so to do, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as such officer. /s/ ------------------------------------- Notary Public My Commission Expires: 06/30/93 - ---------------------- -16- STATE OF ARIZONA ) ) ss. County of Maricopa ) On this, the 30 day of November, 1992, before me, the undersigned officer, personally appeared Steven Knappenberger who acknowledged himself to be the Chairman of SPA Automotive, Ltd., and that he, as such officer, being authorized so to do, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as such officer. /s/ ------------------------------------- Notary Public My Commission Expires: - ---------------------- [Notarial Seal] STATE OF ARIZONA ) ) ss. County of Maricopa ) On this 30 day of November, 1992, before me, a Notary Public, personally appeared Steven Knappenberger and Tamara F. Knappenberger, who acknowledged that they executed the within instrument for the purposes therein stated. /s/ ------------------------------------- Notary Public My Commission Expires: - ---------------------- [Notarial Seal] STATE OF ARIZONA ) ) ss. County of Maricopa ) On this ____ day of November, 1992, before me, a Notary Public, personally appeared Max Haechler and Elizabeth M. Haechler, who acknowledged that they executed the within instrument for the purposes therein stated. /s/ ------------------------------------- Notary Public My Commission Expires: 06/30/96 - ---------------------- -17- EXTENSION TERM MONTHLY RENT PAYMENT SCHEDULE (Maximum Monthly Rent) Monthly Rent Maximum (the following percentage of the base rental in year Option Years 1 of the base term) ------------ -------------------------- 1-2 297.24% 3-4 310.58% 5 323.91% EX-10.8-11 32 EXH 10.8.11 LEASE DATED 10/90 10/23/90 Exhibit A LEASE DATE: The date of this Lease is October __, 1990. 1. Parties. This Lease, is entered into by and between Lisa B. Zelinsky and R. J. Morgan Corporation of America, a Connecticut corporation (herein called "Lessor") and Scottsdale Hyundai, Ltd., an Arizona corporation (herein called "Lessee"). 2. Premises and Equipment. Lessor hereby leases to Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the conditions set forth herein, that certain real property and improvements (the "Premises") situated in Maricopa County, Arizona, 1111 North Miller Road, Tempe, Arizona 85251 and more particularly described on Exhibit A attached hereto and made a part hereof and that certain equipment (the "Equipment") described on Exhibit B attached hereto and made a part hereof (the Premises and the Equipment are sometimes collectively called the "Leased Property"). 3. Term. The original term of this Lease shall commence on the date hereof and end thirty-eight (38) months after the date hereof, unless sooner terminated pursuant to any provision hereof. 4. Rent. Lessee shall pay to Lessor as rent without setoff for the Leased Property monthly payments of $6,800.00, in advance, with the first payment of $6,800.00 due as set forth in the immediately following sentence for the thirty (30) day period beginning sixty (60) days from the date hereof (the "Rent Commencement Date"), the second payment due on the first day of the second complete calendar month after the Rent Commencement Date and being for the remainder of the first complete calendar month after the Rent Commencement Date and for the second complete calendar month after the Rent Commencement Date, and subsequent payments of $6,800.00, due on the first day of each month of the term thereafter. Lessee shall pay Lessor at the Non-disturbance Delivery Time as defined in Paragraph 16 S6,800.00 as rent for first month beginning with the Rent Commencement Date and $6,800.00 as rent for last month of the term hereof. Said $6,800.00 paid as rent for the last month of the term hereof, together with interest thereon from the date paid by Lessee to Lessor at the rate of six percent (6%) per annum, shall be automatically applied to rent for the last month of the term hereof, and any amount not so applied shall be repaid by Lessor to Lessee within thirty (30) days after the termination or expiration of the term hereof. Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the monthly installment. For example, if the date hereof is October 30, 1990, and if the Non-disturbance Delivery Time is November Exhibit A 5, 1990, $6,800.00 as rent for the first month and $6,800.00 as rent for the last month shall be payable on November 5, 1990, $7,458.06 ($6,800.00 plus $6,800.00 x 3/31 ) shall be payable on February 1, 1991 and $6,800.00 shall be payable on the first day of each month thereafter, until the last month for which the rent shall be a prorata portion of the monthly installment. Rent shall be payable in lawful money of the United States to Kennelly Mortgage & Investment, Inc., 4841 North Scottsdale Road, Suite 203, Scottsdale, Arizona 85251, or to such other persons or at such other places as Lessor may designate in writing. No rent shall be payable for the period prior to the Rent Commencement Date. Lessor shall timely pay any sales tax, transaction privilege tax, education excise tax or other form of tax levied by any state, county or municipal authority on the rent payable hereunder, and Lessee shall have no responsibility to pay or reimburse Lessor for any such tax. ` 5. Security Deposit. Lessee shall deposit with Lessor at the Non-disturbance Delivery Time $6,800.00 as security for Lessee's faithful performance of Lessee's obligations hereunder. If Lessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease, while such default continues and after the expiration of any applicable cure period, Lessor may use, apply or retain all or any portion of said deposit for the payment of such rent or other charge which is the subject of such default. If Lessor so uses or applies all or any portion of said deposit, Lessee shall within ten (10) days after written demand therefor deposit cash with Lessor in an amount sufficient to restore said deposit to the full amount hereinabove stated and Lessee's failure to do so shall be a material breach of this Lease. Said deposit, together with interest thereon at the rate of six percent (6%) per annum from the date deposited by Lessee with Lessor, or so much thereof as has not theretofore been applied by Lessor, shall be returned, with the payment of said interest for its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest hereunder) within thirty (30) days after the termination or expiration of the term hereof. No trust relationship is created herein between Lessor and Lessee with respect to said security deposit. 6. Use. 6.1. Use. The Premises shall be used and occupied for a motor vehicle paint and body shop and any other use which is permitted at the Premises by applicable law. 6.2. Compliance with Law. (a) Lessor warrants to Lessee that the Premises, in its state existing on the date hereof and for use as a motor -2- vehicle paint and body shop, does not violate any applicable statutes, ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements in effect on such Lease term commencement date. In the event it is determined that this warranty has been violated, then it shall be the obligation of Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such violation. (b) Except as provided in Paragraph 6.2(a), Lessee shall, at Lessee's expense, comply promptly with all applicable statutes, ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements in effect during the term hereof, regulating the use by Lessee of the Premises. Lessee shall not use or permit the use of the Premises in any manner that will tend to create waste or a nuisance. 6.3. Condition of Premises. (a) Lessor shall deliver the Leased Property to Lessee clean and free of debris on the Lease term commencement date and Lessor warrants to Lessee that the plumbing, lighting, air conditioning, heating and other improvements in the Premises and the Equipment shall be in good operating condition on the Lease term commencement date. In the event that it is determined that this warranty has been violated, then it shall be the obligation of Lessor, after receipt of written notice from Lessee setting forth the nature of the violation, to promptly, at Lessor's sole cost and expense, rectify such violation. (b) Except as otherwise provided in this Lease, Lessee hereby accepts the Leased Property in their condition existing as of the Lease term commencement date, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and any covenants or restrictions of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. 7. Maintenance, Repairs and Alterations. 7.1. Lessor 's Obligations. (a) Subject to the provisions of Paragraphs 6, 7.2 and 9, and except for damage caused by any negligent or intentional act or omission of Lessee, Lessee's agents, employees or invitees in which event Lessee shall repair the damage, Lessor, at Lessor's expense, shall keep in good order, condition and repair the structure, foundations, exterior walls and exterior roof (provided with respect to -3- the exterior roof, Lessee cleans all roof drains) of the Premises. (b) If Lessor fails to perform Lessor's obligations under this Paragraph 7.1 or any other paragraph of this Lease, Lessee while such default continues and after the expiration of any applicable cure period may at Lessee's option after 10 days' prior written notice to Lessor (except in the case of emergency, in which case no notice shall be required), perform such obligations on Lessor's behalf and put the Premises in good order, condition and repair, and the reasonable cost thereof together with interest thereon at the rate of eighteen percent (18%) per annum from the date thirty (30) days after the date advanced until paid shall be due and payable upon written demand by Lessee to Lessor. 7.2. Lessee's Obligations. (a) Subject to the provisions of Paragraphs 6, 7.1 and 9, Lessee, at Lessee's expense, shall clean all roof drains and shall keep in good order, condition and repair the Leased Property and every part thereof. (b) If Lessee fails to perform Lessee's obligations under this Paragraph 7.2 or any other paragraph of this Lease, Lessor while such default continues and after the expiration of any applicable cure period may at Lessor's option enter upon the Premises after 10 days' prior written notice to Lessee (except in the case of emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf and put the Leased Property in good order, condition and repair, and the reasonable cost thereof together with interest thereon at the rate of eighteen percent (18%) per annum from the date thirty (30) days after the date advanced until paid shall be due and payable upon written demand by Lessor to Lessee. (c) On the last day of the term hereof, or on any sooner termination, Lessee shall surrender the Leased Property to Lessor in the same condition as received, ordinary wear and tear and acts of God excepted, clean and free of debris. Lessee shall repair any damage to the Premises occasioned by the installation or removal of its trade fixtures, furnishings and equipment. 7.3. Alterations and Additions. (a) Lessee shall not, without Lessor's prior written consent, which shall not be unreasonably withheld or delayed, make any alterations, improvements and additions, in, on or about the Premises, except for alterations, improvements and additions where the cost thereof is less than $50,000, in which event Lessor's consent is not -4- required. Should Lessee make any alterations, improvements and additions for which Lessor's consent is required but without the prior consent of Lessor, Lessor may require that Lessee remove any or all of the same. (b) Any alterations, improvements and additions in or about the Premises that Lessee shall desire to make and which require the consent of Lessor shall be presented to Lessor in written form, with proposed detailed plans. If Lessor shall give its consent, the consent shall be deemed conditioned upon Lessee acquiring a permit to do so from appropriate governmental agencies (if such a permit is required), the furnishing of a copy thereof to Lessor prior to the commencement of the work and the compliance by Lessee which all conditions of said permit in a prompt and expeditious manner. (c) Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use in the Premises, which claims are or may be secured by any mechanics' or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any such work in the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense, defend itself and Lessor against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against Lessor or the Premises. (d) Until Lessor requires their removal, as set forth in Paragraph 7.3(a), all alterations, improvements and additions which may be made on the Premises shall become the property of Lessor and remain upon and be surrendered with the Premises at the expiration of the term. Notwithstanding the provisions of this Paragraph 7.3(d), Lessee's machinery and equipment, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises, shall remain the property of Lessee and may be removed by Lessee subject to the provisions of Paragraph 7.2(c). 8. Insurance; Indemnity. 8.1. Liability Insurance-Lessee. Lessee shall, at Lessee's expense, obtain and keep in force during the term of this Lease a policy of combined single limit bodily injury and property damage insurance insuring Lessee and Lessor against any liability arising out of the use, occupancy or maintenance of the Premises. Such insurance shall be in an amount not less then $1,000,000 per occurrence. -5- 8.2. Liability Insurance-Lessor. Lessor may obtain and keep in force during the term of this Lease a policy of combined single limit bodily injury and property damage insurance, insuring Lessor against any liability arising out of the use, occupancy or maintenance of the Premises. 8.3. Property Insurance. Lessor shall, at Lessor's expense, obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Premises, and Lessee shall, at Lessee's expense, obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Equipment, each in an amount equal to the full replacement value thereof, as the same may exist from time to time, providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, flood (in the event same is required by a lender having a lien on the Premises) and special extended perils ("all risk", as such term is used in the insurance industry). Such insurance shall provide for payment of loss thereunder to Lessor and the holder of a first mortgage or deed of trust on the Premises as their interests may appear. The policy insuring the Premises shall have a deductible not greater than $1,000, and the policy insuring the Equipment shall have a deductible not greater than $500. 8.4. Insurance Policies. Insurance required hereunder shall be in companies holding a "General Policyholders Rating" of at least B plus, or such other rating as may be required by a lender having a lien on the Premises, as set forth in the most current issue of "Best's Insurance Guide". Each party shall deliver to the other copies of policies of liability and property insurance required to be provided by the delivering party under Paragraphs 8.1 and 8.3 or certificates evidencing the existence and amounts of such insurance. No such policy shall be cancellable or subject to reduction of coverage or other modification except after thirty (30) days prior written notice to the other party. The party providing the policies shall, at least thirty (30) days prior to the expiration of such policies, furnish the other with renewals or "binders" thereof, or the other party may order such insurance and charge the cost thereof to the party obligated to provide same, which amount shall be payable by that party upon demand. 8.5. Waiver of Subrogation. Lessee and Lessor each hereby release and relieve the other, and waive their entire right of recovery against the other, for loss or damage arising out of or incident to the perils insured against under Paragraphs 8.1 and 8.3, which perils occur in, on or about the Premises, whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees. Lessee and Lessor shall, upon obtaining the policies of insurance required hereunder, give notice to the -6- insurance carrier or carriers that the foregoing mutual release is contained in this Lease. 8.6. Indemnity. Except as otherwise set forth herein, Lessee shall indemnify and hold harmless Lessor from and against any and all claims arising from Lessee's use of the Premises, or from the conduct of Lessee's business or from any activity, work or things done, permitted or suffered by Lessee in or about the Premises or elsewhere and shall further indemnify and hold harmless Lessor from and against any and all claims arising from any breach or default in the performance of any obligation on Lessee's part to be performed under the terms of this Lease, or arising from any negligence of the Lessee, or any of Lessee's agents, contractors or employees and from and against all costs, attorney's fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon, and in case any action or proceeding be brought against Lessor by reason of any such claim, Lessee upon notice from Lessor shall defend the same at Lessee's expense. 8.7. Exemption of Lessor from Certain Liability. Except as otherwise set forth herein, Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Lessee, Lessee's employees, invitees, customers or any other person in or about the Premises, nor shall Lessor be liable for injury to the person of Lessee, Lessee's employees, agents or contractors, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from another cause, whether the said damage or injury results from conditions arising upon the Premises or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Lessee. 9. Damage or Destruction. 9.1. Definitions. (a) "Premises Partial Damage" shall herein mean damage or destruction to the Premises to the extent that the cost of repair is less than 50% of the fair market value of the Premises immediately prior to such damage or destruction. (b) "Premises Total Destruction" shall herein mean damage or destruction to the Premises to the extent that the cost of repair is 50% or more of the fair market value of the Premises immediately prior to such damage or destruction. -7- (c) "Insured Loss" shall herein mean damage or destruction which was caused by an event required to be covered by the insurance described in Paragraph 8. 9.2. Partial Damage-Insured Loss. Subject to the provisions of Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage which is an Insured Loss and which falls into the classification of Premises Partial Damage, then Lessor shall repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. 9.3. Partial Damage-Uninsured Loss. Subject to the provisions of Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage which is not an Insured Loss and which falls within the classification of Premises Partial Damage, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may at Lessor's option either (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within fifteen (15) days after the date of the occurrence of such damage of Lessor's intention to cancel and terminate this Lease as of the date of the occurrence of such damage. In the event Lessor elects to give such notice of Lessor's intention to cancel and terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's intention to repair such damage at Lessee's expense, without reimbursement from Lessor, in which event this Lease shall continue in full force and effect, and Lessee shall proceed to make such repairs as soon as reasonably possible. If Lessee does not give such notice within such 10-day period, this Lease shall be cancelled and terminated as of the date of the occurrence of such damage. 9.4. Total Destruction. If at any time during the term of this Lease there is damage, whether or not an Insured Loss (including destruction required by any authorized public authority), which falls into the classification of Premises Total Destruction, this Lease shall automatically terminate as of the date of such total destruction. 9.5. Damage Near End of Term. (a) If at any time during the last six months of the term of this Lease there is damage, whether or not an Insured Loss, which falls within the classification of Premises Partial Damage, Lessor may at Lessor's option cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to Lessee of -8- Lessor's election to do so within 30 days after the date of occurrence of such damage. (b) Notwithstanding Paragraph 9.5(a), in the event that Lessee has an option to extend or renew this Lease and the time within which said option may be exercised has not yet expired, Lessee shall exercise such option, if it is to be exercised at all, no later than 20 days after the occurrence of an Insured Loss falling within the classification of Premises Partial Damage during the last six months of the term of this Lease. If Lessee duly exercises such option during said 20 day period, Lessor shall, at Lessor's expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option during said 20-day period, then Lessor may at Lessor's option terminate and cancel this Lease as of the expiration of said 20-day period by giving written notice to Lessee of Lessor's election to do so within 10 days after the expiration of said 20-day period. 9.6. Abatement of Rent; Lessee's Remedies. (a) In the event of damage described in Paragraphs 9.2 or 9.3, and Lessor or Lessee repairs or restores the Premises pursuant to the provisions of this Paragraph 9, the rent payable hereunder for the period during which such damage, repair or restoration continues shall be abated in proportion to the degree to which Lessee's use of the Leased Property is impaired. (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not commence such repair or restoration within 30 days after such obligations shall accrue, in addition to any other remedies available, Lessee may at Lessee's option cancel and terminate this Lease by giving Lessor written notice of Lessee's election to do so at any time prior to the commencement of such repair or restoration. 9.7. Termination-Advance Payments. Upon termination of this Lease pursuant to this Paragraph 9, an equitable adjustment shall be made concerning advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's security deposit as has not theretofore been applied by Lessor. 9.8. Waiver. Lessor and Lessee waive the provisions of any statutes which relate to termination of leases when leased property is destroyed and agree that such event shall be governed by the terms of this Lease. -9- 10. Property Taxes. 10.1. Payment of Property Taxes. Lessor shall pay all property taxes levied against the Leased Property during the term of this Lease. All such payments shall be made at least twenty (20) days prior to the delinquency date of such payment. Lessor shall promptly furnish Lessee with satisfactory evidence that such taxes have been paid. if Lessor fails 'to pay any such taxes, Lessee shall have the right but not the obligation to pay same, in which case Lessor shall repay such amount to Lessee with interest at the rate of eighteen percent (18%) per annum. 10.2. Definition of "Property Tax". As used herein, the term "property tax" shall include any form of real property or personal property tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed on the Leased Property by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, as against any legal or equitable interest of Lessor in the Leased Property, as against Lessor's right to rent or other income therefrom, and as against Lessor's business of leasing the Leased Property. 10.3. Personal Property Taxes. Lessee shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property and personal property of Lessor. 11. Utilities. Lessee shall pay for all water, gas, heat, light, power, telephone and other utilities and services supplied to the Premises, together with any taxes thereon. 12. Assignment and Subletting. 12.1. Assignment and Subletting Permitted. Lessee may voluntarily or by operation of law assign, transfer, mortgage, sublet or otherwise transfer or encumber all or any part of Lessee's interest in this Lease or in the Premises or in the Equipment, with Lessor's consent, which will not be unreasonably withheld or delayed. 12.2. No Release of Lessee. No subletting or assignment shall release Lessee of Lessee's obligation or alter the primary liability of Lessee to pay the rent and to perform all other obligations to be performed by Lessee hereunder. -10- 13. Defaults; Remedies. 13.1. Default by Lessee. The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Lessee: (a) The failure by Lessee to take any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of ten (10) days after written notice thereof from Lessor to Lessee. (b) The failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than described in Paragraph (a) above, where such failure shall continue for a period of thirty (30) days after written notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's default is such that more than thirty (30) days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commences such cure within said 30-day period and thereafter diligently prosecutes such cure to completion. (c) (i) The making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11 U.S.C. ss. 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within 30 days. In the event of any such material default or breach by Lessee, notwithstanding anything herein to the contrary, Lessor may at any time thereafter and prior to the curing of such default or breach, with or without further notice or demand, as its sole remedy, terminate Lessee's right to possession of the Leased Property by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession of the Leased Property to Lessor. 13.2. Default by Lessor. The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Lessor: (a) The failure by Lessor to observe or perform any of the covenants, conditions or provisions of this Lease to be -11- observed or performed by Lessor, where such failure shall continue for a period of thirty (30) days after written notice thereof from Lessee to Lessor; provided, however, that if the nature of Lessor's default is such that more than thirty (30) days are reasonably required for its cure, then Lessor shall not be deemed to be in default if Lessor commences such cure within said thirty-day period and thereafter diligently prosecutes such cure to completion. (b) The breach or inaccuracy of any representation or warranty of Lessor contained herein. In the event of any such material default or breach by Lessor, Lessee may at any time thereafter and prior to the curing of such default or breach, with or without further notice or demand, pursue any remedy now or hereafter available to Lessee under applicable law. 14. Condemnation. (a) Taking. If the Premises or any portion thereof are taken under the power or eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "taking"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If all or a substantial portion of the Premises shall be taken, Lessor or Lessee may terminate this Lease, at its option, by giving the other written notice of such termination within thirty (30) days of such taking. If neither party terminates this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Leased Property remaining, except that the rent for the Premises shall be reduced in the proportion that the area of the Premises taken bears to the total area of the Premises. Any award for the taking of all or any part of the Premises or any payment made under the threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any award for loss of or damage to Lessee's trade fixtures and removable personal property. In the event that this Lease is not terminated by reason of such taking, Lessor shall, to the extent of severance damages received by Lessor in connection with such taking, repair any damage to the Premises caused by such taking except to the extent that Lessee has been reimbursed therefor by the condemning authority. (b) Temporary Taking. In the event of a temporary taking of the Premises, this Lease shall remain in effect and Lessor shall receive any award made for such taking. If a temporary taking remains in effect at the expiration or -12- earlier termination of this Lease, Lessee shall pay Lessor the reasonable costs of performing any obligations required of Lessee by this Lease with respect to the surrender of the Premises and upon such payment Lessee shall be excused from such obligations. If a temporary taking is for a period which extends beyond the term of the Lease, this Lease shall terminate with respect to the Property taken as of the date of occupancy by the condemning authority. Lessor shall be entitled to the entire award paid for such taking, except Lessee shall have the right to recover from the condemning authority, but not from Lessor, such compensation as may be separately awarded to Lessee in connection with costs in removing Lessee's merchandise, furniture, fixtures, leasehold improvements and equipment to a new location; and subject to the foregoing, Lessee waives any claim to any part of the award from Lessor or the condemning authority. Upon any such temporary taking, rent shall be adjusted to the date of such occupancy. 15. Estoppel Certificate. (a) Lessee shall at any time upon not less than thirty (30) days' prior written notice from Lessor execute, acknowledge and deliver to Lessor a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Lessee's knowledge, any uncured defaults on the part of Lessor hereunder, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. (b) At Lessor's option, Lessee's failure to deliver such statement within such time shall be a material breach of this Lease or shall be conclusive upon Lessee (i) that this Lease is in full force and effect, without modification except as may be represented by Lessor, (ii) that there are no uncured defaults in Lessor's performance, and (iii) that not more than one month's rent has been paid in advance. 16. Agreement with Lender. The Leased Property is currently subject to encumbrances in favor of The Midland Mutual Life Insurance Company ("Midland"). Within fifteen (15) days after the date of this Lease, Lessor shall deliver to Lessee a recordable Subordination, Attornment and Non-Disturbance Agreement executed by Midland in the form of Exhibit D attached hereto and made a part hereof. The time when Lessor delivers such instrument to Lessee is called the "Non-disturbance Delivery Time". Lessor represents and warrants that it will timely comply with all obligations -13- owing by Lessor or with respect to the Leased Property to Midland. 17. Quiet Possession. Upon Lessee paying the rent for the Leased Property and observing and performing all of the covenants, conditions and provisions on Lessee's part to be observed and performed hereunder, Lessee may peaceably hold and enjoy the Leased Property during the entire term hereof without any interruptions by Lessor or any person claiming by, through or under Lessor and Lessor shall not disturb Lessee's quiet possession of the Leased Property for the entire term hereof, all subject to all of the provisions of this Lease. The individuals executing this Lease on behalf of Lessor represent and warrant to Lessee that they are fully authorized and legally capable of executing this Lease on behalf of Lessor and that such execution is binding upon all parties holding an ownership interest in the Leased Property. 18. Options to Renew. Lessee shall have the option of extending the term of this Lease for four (4) additional consecutive periods of five years each, which options may be exercised only by written notice given by Lessee to Lessor at least ninety (90) days before the expiration of the then current term of this Lease. All of the terms and conditions of this Lease shall be applicable during the renewal terms except that the rent shall be adjusted as of the first day of each renewal term (the "Adjustment Date") by a percentage equal to the percentage change in the United States Department of Labor, Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers, United States Average for Subgroup "All Items" (1967 = 100) (the "Index"), or if the Index should be discontinued or modified, such substitute index as Lessor and Lessee promptly in good faith shall select as comparable to the Index. The Index for the calendar month in which the Rent Commencement Date occurs shall be the "Base Index". The Index for the calendar month ending three months prior to the applicable Adjustment Date shall be the "Comparison Index". The adjusted monthly rent shall be determined by multiplying the rent payable during the term of this Lease set forth in Paragraph 4 times a fraction, the numerator of which is the Comparison Index and the denominator of which is the Base Index. Notwithstanding the foregoing, the rent payable during the first renewal period shall not increase by an amount greater than fifteen percent (15%) of the rent payable during the original lease term, the rent payable during each subsequent renewal period shall not increase by an amount greater than twenty-five percent (25%) of the rent payable during the immediately preceding period, and the rent payable during any renewal period shall not be less than $6,800.00 per month. 19. Option to Purchase. Lessor hereby grants to Lessee the option to purchase the Leased Property by written notice -14- (the "Option Notice") to Lessor at any time during the last six (6) months of the initial term of this Lease. The purchase price shall be the greater of (a) $675,000.00 or (b) the then fair market value of the Leased Property as determined by the appraisal procedure hereinafter set forth. At the time of the Option Notice, Lessee shall select and give notice to Lessor of the name of a local appraiser, and within ten (10) days after the Option Notice Lessor shall select and give notice to Lessee of the name of a local appraiser. The two appraisers so selected shall within twenty (20) days after the Option Notice select and give notice to Lessor and Lessee of the name of a third local appraiser. In the event either party fails to timely select an appraiser, the appraisal hereinafter described shall be conducted by the appraiser selected by the other party. In the event Lessor and Lessee each timely select an appraiser but the two appraisers selected are unable to timely select a third appraiser, the third appraiser shall be selected by the Presiding Judge of the Superior Court of the State of Arizona in and for the County of Maricopa. Each appraiser shall be an independent M.A.I. appraiser with experience appraising industrial properties in Maricopa County, Arizona similar to the Premises. The appraiser or appraisers selected shall determine the then fair market value of the Premises and the Equipment and shall give notice thereof to Lessor and Lessee within thirty (30) days after the notice is given of the selection of the last appraiser. The appraiser or appraisers may seek the assistance of a knowledgable entity or individual in connection with the appraisal of the Equipment. If the appraisers are unable to agree as to the then fair market value of the Premises or the Equipment, each appraiser shall make an appraisal of the then fair market value of the Premises and the Equipment, and the appraised value of the Premises or the Equipment, as the case may be, shall be the average of the three appraisals for the item in question, provided, however, if any appraisal deviates by more than 10% from the average of the other two appraisals, the appraised value shall be the average of the other two appraisals. The appraisers shall give written notice to Lessor and Lessee of the then fair market value of the Premises and of the Equipment (the "Appraisal Notice Date"). Within fifteen (15) days after the Appraisal Notice Date Lessee shall give written notice to Lessor as to whether the Lessee elects to purchase the Leased Property. If Lessee fails to timely give such notice, Lessee shall be deemed to have elected to purchase the Leased Property. If Lessee timely elects to purchase the Leased Property, the fee and expenses of the appraiser selected by Lessee shall be borne by Lessee, the fee and expenses of the appraiser selected by Lessor shall be borne by Lessor and the fee and expenses of the third appraiser shall be borne fifty percent (50%) by Lessee and fifty percent (50%) by Lessor. If Lessee does -15- not timely elect to purchase the Leased Property, the fees and expenses of the three appraisers shall be borne by Lessee. Lessee shall have no obligation to purchase the Leased Property as a result of having given the Option Notice. Within fifteen days (15) days after Lessee elects to purchase the Leased Property, an escrow shall be opened with an office of First American Title Insurance Company of Arizona (the "Escrow Agent"). Escrow Agent within ten (10) days after the opening of escrow shall deliver to Lessor and Lessee a preliminary title report or commitment for an extended coverage owner's title insurance policy (the "Preliminary Report") to insure fee simple title in Lessee or any nominee designated by Lessee (the "Buyer") as to the Premises, under which the insured is the Buyer and in the amount of the purchase price for the Premises. In addition to the Preliminary Report, the Escrow Agent shall simultaneously deliver to Lessee copies of all recorded documents identified in any portion of the Preliminary Report. Lessor represents and warrants that on the date hereof it is the owner of the Premises and title to the Premises is free and clear of liens, encumbrances, adverse claims and all other matters except the matters set forth on Exhibit C attached hereto and made a part hereof. Lessor represents and warrants that at the time of closing of the escrow relating to the option to purchase, there will be no matters affecting title to the Premises other than then current real property taxes, a lien not yet due and payable, and items 1 through 8 inclusive, set forth on Exhibit C, and Lessor at its expense at the close of escrow shall cause to be satisfied, if not previously satisfied, the matters set forth in items 9, 10, 11 and 13 set forth on Exhibit C. Lessor represents and warrants that on the date hereof and at the closing of the option to purchase it is the owner of the Equipment and title thereto is free and clear of any liens, encumbrances, adverse claims and all other matters except the matters set forth on Exhibit C, and Lessor at its expense at the close of escrow shall cause to be satisfied, if not previously satisfied, the matters set forth in items 9, 10, 11 and 13 set forth on Exhibit C. The Escrow Instructions shall be in the standard form then used by Escrow Agent and shall include the applicable provisions of this paragraph. Escrow shall close within 120 days after the Appraisal Notice Date. The purchase price shall be payable in cash at the close of escrow. Lessor shall be charged the premium for a standard coverage owner's policy and Lessee shall be charged the additional premium for the issuance of an extended coverage owner's policy. Escrow fees shall be borne fifty percent (50%) by Lessor and fifty percent (50%) by Lessee, and all other costs, expenses and prorations shall be charged and made in accordance with the custom then prevailing in Maricopa County, Arizona. At -16- close of Escrow, Lessor shall execute and deliver for the benefit of the Buyer a warranty deed with respect to the Premise which shall warrant title subject only to those matters permitted pursuant to this paragraph and a bill of sale with respect to the Equipment which shall warrant title without exceptions as set forth in this paragraph. 20. Rights of First Refusal. At any time prior to the expiration of the term of this Lease, including renewal terms, Lessor shall not sell or contract to sell all or any portion of the Leased Property unless the Leased Property is first offered to Lessee for the same price, and upon the same terms and conditions as to which Lessor proposes to sell or transfer the Leased Property to a bona fide third party. Lessor must give Lessee written notice setting forth the name and address of the proposed purchaser and the price, terms and conditions of any bona fide offer by or to Lessor under which Lessor proposes to sell or transfer the Leased Property. Within the thirty day period following Lessee's receipt of such notice, Lessee by written notice to Lessor may elect to purchase the Leased Property, for the same price and upon the same terms as the offer. If Lessee does not elect to purchase the Leased Property, Lessor may then sell the Leased Property to the third party named in Lessor's notice to Lessee, for the price and upon the terms therein stated. The sale shall be subject to all of the terms and provisions of this Lease. If the escrow is not closed for the price and upon the terms and conditions contained in the notice, then Lessor may not thereafter, at any time prior to the expiration of the term of this Lease, including renewal terms, sell the Leased Property to any party other than Lessee without first offering the Leased Property to Lessee in the manner set forth in this paragraph. The name of the proposed purchaser shall be kept confidential by Lessee, and Lessee shall not take any action which would jeopardize the proposed sale, other than to exercise Lessee's right to purchase pursuant to this paragraph. 21. Signs. Lessee may place any signs upon the Premises without Lessor's consent, provided such signs comply with applicable laws. 22. Lessor's Access. Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times during Lessee's business hours for the purpose of inspecting the same, showing the same to prospective purchasers, lenders or lessees, and making such alterations, repairs, improvements or additions to the Premises as required by this Lease. Lessor may at any time place on or about the Premises any ordinary "For Sale" signs and Lessor may at any time during the last 120 days of the term hereof place on or about the -17- Premises any ordinary "For Lease" signs, all without rebate of rent or liability to Lessee. 23. Interest on Past-due Obligations. Except as expressly herein provided, any amount due to either party not paid when due shall bear interest from the date due at the rate of eighteen percent (18%) per annum. Payment of such interest shall not excuse or cure any default under this Lease. 24. Notices. Any notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery, by certified mail, by overnight delivery courier or by telecopier, and if so given shall be deemed sufficiently given if addressed to Lessee or to Lessor at the address noted below and shall be effective upon delivery in the case of delivery, one business day after deposit in the mails or with an overnight delivery courier in the case of mailing or overnight delivery courier, or upon receipt in the case of telecopy. Either party may by notice to the other specify a different address for notice purposes. A copy of all notices required or permitted to be given to either party hereunder shall be concurrently transmitted to such persons at such addresses as that party may from time to time hereafter designate by written notice to the other party. Lessor: Attn: Ronald J. Morgan 2556 East Denton Lane Phoenix, Arizona 85016 with copy to: Streich, Lang Attn: Thomas R. Canham 100 W. Washington Suite 2100 Phoenix, Arizona 85003 and Lisa B. Zelinsky 88 Field Point Road Greenwich, Connecticut 06830 Lessee: Attn: George W. Brochick 6825 E. McDowell Scottsdale, Arizona 85257 with copy to: Steven Knappenberger 6725 E. McDowell Scottsdale, Arizona 85257 and -18- Fennemore Craig Attn: William T. Boutell, Jr. Two North Central Suite 2200 Phoenix, Arizona 85004 25. Recording. Either Lessor or Lessee shall, within ten (10) days after written request of the other, execute, acknowledge and deliver to the other a "short form" memorandum of this Lease for recording purposes. 26. Holding Over. If Lessee, with Lessor's consent, remains in possession of the Leased Property or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Lessee, but all options granted under the terms of this Lease shall be deemed terminated and be of no further effect during said month to month tenancy. 27. Time of Essence. Time is of the essence. 28. Consents. Wherever in this Lease the consent of one party is required to an act of the other party, such consent shall not be unreasonably withheld. 29. Merger. The voluntary or other surrender of the Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies. 30. Cumulative Remedies. Except as set forth herein with respect to Lessor's remedies, which are limited only to terminating Lessee's right to possession of the Leased Property, no remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 31. Attorney's Fees. If either party brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to its reasonable attorney's fees to be paid by the losing party as fixed by the court. 32. Choice of Law. This Lease shall be governed by and construed under the laws of the State of Arizona. 33. Waivers. No waiver by either party of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by the other party of the same or any other provision. A party's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining -19- of such party's consent to or approval of any subsequent act by the other party. The acceptance of rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent. 34. Incorporation of Prior Agreements; Amendments. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. 35. Severability. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction shall in no way affect the validity of any other provision hereof. 36. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions and handwritten provisions shall control over typewritten provisions. 37. Authority. The individual executing this Lease on behalf of Lessee represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said entity. 38. Parties Constituting Lessor. Wherever reference is made to "Lessor" herein, it shall be deemed to include both Lisa B. Zelinsky ("Zelinsky") and R. J. Morgan Corporation of America ("Morgan"). The rights and obligations of Lessor shall inure to the benefit of and be binding upon both Zelinsky and Morgan, and this Lease shall be so construed. For example, wherever consent is required of Lessor, it shall be required of both Zelinsky and Morgan; if Lessor is to be insured, both Zelinsky and Morgan shall be insured; and whenever payments are to be made to Lessor, they shall be made jointly to Zelinsky and Morgan. 39. Benefit and Burden. This Lease shall inure to the benefit of and bind the parties, their personal representatives, successors and assigns. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. -20- The parties hereto have executed this Lease as of the date specified above. _____________________________________ Lisa B. Zelinsky R.J. Morgan Corporation of America By___________________________________ Its______________________________ LESSOR Scottsdale Hyundai, Ltd. By___________________________________ Steven Knappenberger, Chairman LESSEE 10/23/90 PARCEL NO. 1: That part of the Northwest quarter of the Southeast quarter of Section 11, Township 1 North, Range 4 East of the Gila and Salt River Base and Meridian, Maricopa County, Arizona, described as follows: Beginning at the Southwest corner of the Northwest quarter of the Southeast quarter; thence North 0 degrees 0 minutes 1 second, East 205 feet; thence North 89 degrees 44 minutes 33 seconds, East 33 feet to the True Point of Beginning; thence North 89 degrees 44 minutes 33 seconds, East 50 feet; thence South 0 degrees 0 minutes 8 seconds, South West 15 feet; thence North 89 degrees 44 minutes 33 seconds, East 77.27 feet; thence North 0 degrees 4 minutes 10 seconds, East 60 feet; thence South 89 degrees 44 minutes 30 seconds, West 127.342 feet to the True Point of Beginning. PARCEL No. 2: That part of the Northwest quarter of the Southeast quarter of Section 11, Township 1 North, Range 4 East of the Gila and Salt River Base and Meridian, Maricopa County, Arizona, described as follows: Beginning at the Southwest corner of the Northwest quarter of the Southeast quarter; thence North 0 degrees 0 minutes 1 second, East 250 feet; thence North 89 degrees 44 minutes 33 seconds, East 33 feet to the True Point of Beginning; thence North 89 degrees 44 minutes 30 seconds, East 127.342 feet; thence North 0 degrees 4 minutes 10 seconds, East 300 feet; thence South 89 degrees 44 minutes 33 seconds, West 127.705 feet; thence South 0 degrees 0 minutes 1 second, West 300 feet to the True Point of Beginning. Exhibit A FRONT OFFICE BATHROOM 2 PICTURES FIVE FOOT CORNER SHELF COPY ROOM 1 SHARP COPY MACHINE 1 VACUUM CLEANER 1 7'2 DOOR CABINET OFFICE 1 OCTAGON TABLE W/4 CHAIRS 1 COFFEE POT W/TABLE 1 WALL CLOCK 1 ROUND PLANTER POT 1 9 DRAWER DRESSER 1 LAMP 1 5 DRAWER FILING CABINET 1 SMALL TABLE 1 L SHAPED WOOD DESK W/ORTHOPEDIC ROLLING CHAIR 1 ROYAL 248 PD ADDING MACHINE 1 IBM SELECTRIC TYPEWRITER 1 PANASONIC AUTOLOGIC TELEPHONE ANSWERING MACHINE 1 DESK CALENDAR 1 SCOTCH TAPE DISPENSER 1 STAPLER 1 MESSAGE HOLDER CENTER OFFICE 1 ARROWHEAD HOT/COLD WATER DISPENSER 2 4 DRAWER FILE CABINETS 3 METAL OFFICE DESKS 3 ROLLING OFFICE CHAIRS 2 ROYAL 248 PD ADDING MACHINES 7 WALL MOUNT ORDER HOLDERS 5 WASTE CANS 1 ROLODEX 1 DESK CALENDAR 1 WALL CLOCK 2 PICTURES CLOSET 1 CHAIR 1 ROYAL 248 PD ADDING MACHINE 1 CASH REGISTER 2 LAMPS BACK OFFICE 1 ROUND BRASS PLANTER 2 CHAIRS BRASS/ CANE 1 LARGE OAK DESK 1 BRASS COAT RACK 1 PICTURE 1 DESK CALENDAR 1 DESK PAD Exhibit B MECHANICAL SHOP 1 5-HP POWER MAX AIR COMPRESSOR, VERTICAL ASME TANK 2 HAND PUMP GEAR LUBE MACHINES 1 OIL DRAINER, ROLLING BEE-LINE 2 WALL MOUNT CABINETS 3 2 DOOR 6' STORAGE CABINETS 1 6" VICE 1 STEEL BENCH 1 SET HEADLIGHT AIMERS 1 SNAP-ON BATTERY CHARGER 1 ASSOCIATED BATTERY CHARGER 2 KWIK START BOOSTERS 1 BLUE POINT AUTO AIR SERVICE CENTER 1 BENCH GRINDER W/STAND MECHANICAL SHOP 2 SETS OF OXYGEN AND ACETYLENE W/CUTTING TORCHES AND STANDS 1 CART W/ACETYLENE TORCH 2 METAL SHELVING UNITS 1 3 DOOR REFRIGERATOR 1 LITTON MICROWAVE 1 8 DOOR LOCKER 2 ROLLING MOP BUCKETS W/MOPS 1 TIME CLOCK 1 TRANSMISSION JACK 1 OTC HYDRAULIC LIFT 1 2 TON FLOOR JACK 11 JACK STANDS 1 AIR BUMPER JACK 2 TROUBLE LIGHTS W/RECOIL 1 10 TON PRESS 1 TRI-LIFT TAPE MACHINE 1 10 HP CHAMPION AIR COMPRESSOR 40 TDY TIE DOWNS 1 F.M.C. TIRE CHANGER 4 R.O. RACKS 1 SNAP ON WHEEL BALANCER 1 SEARS AUTO-WASHER 1 SEARS DRYER ELECTRIC 1 FICHA READER 1 UPHOLSTERY SHOP-INCLUDES SEWING & LAYOUT PLATFORM 1 ROTARY TWIN POST AUTO AND LIGHT TRUCK LIFT, 230 VOLT, SINGLE PHASE BODY SHOP 1 ELECTRIC WATER COOLER/DRINKING FOUNTAIN 1 RAG SAFETY CAN 1 ROLLING MOP BUCKET W/MOP 1 KANSAS JACK LASER ALIGNMENT SYSTEM 1 KANSAS JACK MAGNA RACK W/8 ROLLER PLATES & 1 SET OF FRAME GAUGES 3 SNAP BLOCKS 3 BOTTLE JACKS 1 COME ALONG 1 10 TON PORTA POWER W/PIPES 1 ELECTRIC WINCH 1 OTC (FRONT) PUMP MISCELLANEOUS HOLDING CLAMPS 4 8' CHAINS 2 KANSAS JACK POWER POST & ATTACHMENT KIT PK 100 W/PUMP 1 STEEL STEP 2 ROLLAWAY CARTS 4 50'AIRHOSES 1 8" VICE 1 10' BENCH 2 ARC WELDING HELMETS 1 BENCH GRINDER W/STAND 1 5 HP COMPRESSOR BODY SHOP 2 5 TON FLOOR JACKS 1 2 TON FLOOR JACK 1 STRUT COMPRESSOR 1 2 DOOR 6' STORAGE CABINETS 1 BEE LINE ALIGNMENT STE 1 2982 CHEVROLET LUV TRUCK 3 GAS HANGING 175,000 BTU HEATERS 92 2 TUB FLORESCENT LIGHT FIXTURES 3 PUSH BROOMS 48" 2 WALL BUMPER RACKS PAINT SHOP 1 2 DOOR 6' STORAGE CABINET 1 WALL CABINET 1 36" WALL MOUNTED MASKING MACHINE 2 20' AIR HOSES IN PAINT BOOTH 1 7.5 HP AIR COMPRESSOR 2 AIR STORAGE TANKS 1 WALL CLOCK 2 GAS HANGING HEATERS 175,000 BTU'S 2 INFRARED HEAT LAMPS 1 CAR COVER STAND 1 15 GALLON DRUM PUMP 1 3M CABINET 1 6' SHELVING UNIT 2 RUBBER TRASH CANS 1 PORTABLE CUT-IN BENCH PAINT MIX ROOM 1 2 DOOR 6' STORAGE CABINET 1 7' SHELVING UNIT 2 MIXING TABLES 1 CLOCK 1 WALL MOUNT AIR/WATER EXTRACTOR 1 5' SHELVING UNIT 1 RAG SAFETY CAN 1 50' AIR HOSE 2 3M MULTI MOBILE MASKERS 1 48" PUSH BROOM 1 CREEPER 1 WET VACUUM 2 50' WATER HOSES 1 30' AIR HOSE 1 DRILL PRESS 6 FIRE EXTINGUISHERS A. 1990 taxes, a lien not yet payable. 1. The rights or claims or title, if any, by the State of Arizona to any portion of the property being located in the bed of any river or dry wash. 2. Reservation by ROBERT JAMES HIGHT AND HOLLIE HIGHT of an undivided one-half interest in and to all oil, gas and mineral rights in and to this property in Book of Agreements 95, Page 397. 3. An easement for electric transmission line and rights incident thereto as granted in instrument recorded August 18, 1939 in Book 58 of Miscellaneous, Page 331. 4. The effect of inclusion within the boundaries of the Lower Indian Bend Wash as disclosed by instruments recorded August 21, 1974 in Docket 10794, Page 885; recorded March 6, 1975 in Docket 11060, Page 819; and recorded December 31, 1975 in Docket 11480, Page 780. 5. An easement for lateral support and rights incident thereto as set forth in instrument recorded November 1, 1977 in Docket 12519, Page 966. 6. An easemnet for drainage and rights incident thereto as set forth in instrument recorded November 1,1977 in Docket 12519, Page 966. 7. Resolution adopting State Route Plan for the East Papago Extension Freeway by the Arizona Department of Transportation, recorded May 9, 1985 in 85-212892, Official Records. 8. Any rights, interest or claims which may exist or arise by reason of the following facts shown on a survey plat entitled MILLER & CURRY/KENNELLY MORTGAGE, Job No. 891113, dated December 6, 1989, prepared by RANDY DELBRIDGE: a. Encroachment of block wall onto adjoining property as more particularly set forth on said Survey as Special Notes Nos. 1, 2, 3 and 5. 9. A Deed of Trust given to secure an indebtedness in the original principal amount of $675,000.00, together with any and all other obligations secured thereby, dated January 3, 1990, recorded January 16, 1990, in 90-021755, Official Records. TRUSTOR : R. J. MORGAN CORPORATION OF AMERICA, a Connecticut corporation and LISA B. ZELINSKY, a single woman Exhibit C TRUSTEE : FIRST AMERICAN TITLE INSURANCE COMPANY OF ARIZONA, an Arizona corporation BENEFICIARY: THE MIDLAND MUTUAL LIFE INSURANCE COMPANY, an Ohio corporation 10. Security Agreement executed by R. J. MORGAN CORPORATION OF AMERICA, a Connecticut corporation and LISA B. ZELINSKY, a single woman, Debtor, to THE MIDLAND MUTUAL LIFE INSURANCE COMPANY, an Ohio corporation, Secured Party, dated January 3, 1990, recorded January 16, 1990 in 90-021756, Official Records. 11. Assignment of Leases and Rents executed by R. J. MORGAN CORPORATION OF AMERICA, a Connecticut corporation and LISA B. ZELINSKY, a single woman, Assignor, to THE MIDLAND MUTUAL LIFE INSURANCE COMPANY, an Ohio corporation, Assignee, dated January 3, 1990, recorded January 16, 1990 in 90-021757, Official Records. 13. Arizona Uniform Commercial Code Financing Statement Form UCC-1 executed by R. J. MORGAN CORPORATION OF AMERICA, a Connecticut corporation and LISA B. ZELINKSY, a single woman, Debtor, to THE MIDLAND MUTUAL LIFE INSURANCE COMPANY, an Ohio corporation, Secured Party, recorded January 16, 1990, in 90-021759, Office Records. WHEN RECORDED HOLD FOR: Fennemore Craig Suite 2200 Two North Central Avenue Phoenix, AZ 85004 MEMORANDUM OF LEASE ATTN: William T. Boutell, Jr. KNOW ALL MEN BY THESE PRESENTS: Lisa B. Zelinsky and R. J. Morgan Corporation of America, A Connecticut corporation (collectively "Lessor"), and Scottsdale Hyundai, Ltd., an Arizona corporation("Lessee"), have entered into a Lease, dated October 15, 1990, pursuant to which Lessor has leased to Lessee that certain real property and improvements having a street address of 1111 North Miller Road, Tempe, Arizona, and more particularly described on Exhibit A attached hereto and made a part hereof ("Premises") and certain personal property. The original term of the Lease expires on December 15, 1993, and Lessee is granted the option to renew the term of the Lease for four additional periods of five years each. During the original term of the Lease and all of the renewal terms of the Lease, Lessee has a right of first refusal to purchase the Premises and the personal property in the event of a proposed sale by Lessor to a bona fide third party, and during the last six months of the original term of the Lease Lessee has the option to purchase the Premises and the personal property, all in accordance with and as more particularly set forth in the Lease. The Lease is available for inspection and copying at the offices of Fennemore Craig, Suite 2200, Two North Central Avenue, Phoenix, Arizona 85004-2390. Dated this 15th day of October, 1990. /s/ Lisa B. Zelinsky ------------------------------------------------ Lisa B. Zelinsky R. J. Morgan Corporation of America By /s/ --------------------------------------------- Its__________________________________________ LESSOR Scottsdale Hyundai, Ltd. By /s/ Steven Knappenberger --------------------------------------------- Steven Knappenberger, Chairman LESSEE STATE OF CONNECTICUT ) ) ss. COUNTY OF FAIRFIELD ) The foregoing instrument was acknowledged before me this 15th day of October, 1990 by Lisa B. Zelinksy. /s/ ------------------------------------ Notary Public My Commission Expires: 3/31/93 - ---------------------- STATE OF ARIZONA ) ) ss. COUNTY OF MARICOPA ) The foregoing instrument was acknowledged before me this 15th day of October, 1990 by Ronald Morgan or R. J. Morgan Corporation of America, a Connecticut corporation, on behalf of the corporation. /s/ Helen M. Dowell ------------------------------------ Notary Public My Commission Expires: March 31, 1994 - ---------------------- [Notarial Seal] STATE OF ARIZONA ) ) ss. COUNTY OF MARICOPA ) The foregoing instrument was acknowledged before me this 15th day of October, 1990 by Steven Knappenberger, Chairman of Scottsdale Hyundai, Ltd., an Arizona corporation, on behalf of the corporation. /s/ Helen M. Dowell ------------------------------------ Notary Public My Commission Expires: March 31, 1994 - ---------------------- [Notarial Seal] PARCEL NO. 1: That part of the Northwest quarter of the Southeast quarter of Section 11, Township 1 North, Range 4 East of the Gila and Salt River Base and Meridian, Maricopa County, Arizona, described as follows: Beginning at the Southwest corner of the Northwest quarter of the Southeast quarter; thence North 0 degrees 0 minutes 1 second, East 205 feet; thence North 89 degrees 44 minutes 33 seconds, East 33 feet to the True Point of Beginning; thence North 89 degrees 44 minutes 33 seconds, East 50 feet; thence South 0 degrees 0 minutes 8 seconds, South West 15 feet; thence North 89 degrees 44 minutes 33 seconds, East 77.27 feet; thence North 0 degrees 4 minutes 10 seconds, East 60 feet; thence South 89 degrees 44 minutes 30 seconds, West 127.342 feet to the True Point of Beginning. PARCEL No. 2: That part of the Northwest quarter of the Southeast quarter of Section 11, Township 1 North, Range 4 East of the Gila and Salt River Base and Meridian, Maricopa County, Arizona, described as follows: Beginning at the Southwest corner of the Northwest quarter of the Southeast quarter; thence North 0 degrees 0 minutes 1 second, East 250 feet; thence North 89 degrees 44 minutes 33 seconds, East 33 feet to the True Point of Beginning; thence North 89 degrees 44 minutes 30 seconds, East 127.342 feet; thence North 0 degrees 4 minutes 10 seconds, East 300 feet; thence South 89 degrees 44 minutes 33 seconds, West 300 feet to the True Point of Beginning. Exhibit A EX-10.8-12 33 EXH 10.8.12 SUBLEASE DATED 7/1/95 CONSENT AND COVENANT OF MASTER LESSOR TO: LAUREL LEASING, INC., a Texas corporation ("Laurel"); CAMELBACK AUTOMOTIVE, INC., an Arizona corporation ("Camelback Automotive"); and LRP, LTD., an Arizona corporation dba "Land Rover Phoenix" ("LRP") DATED: August 18, 1995 The undersigned ("Master Lessor"), as the owner of the real property located at 1127 East Camelback Road, Phoenix, Arizona (the "Premises"), and as the lessor under that certain "Lease" of the Premises to Laurel dated August 11, 1989 (the "Master Lease"), hereby consents, acknowledges, covenants and agrees with Laurel, Camelback and LRP as follows: (A) The Master Lease has been amended so as to extend the term thereof through August 31, 2005, with an option to further extend the term thereof for a period of five (5) additional years (B) Master Lessor has previously consented to the sublease of the Premises by Laurel to Camelback Automotive; (C) Master Lessor hereby consents to and approves of the sublease of the Premises by Camelback Automotive to LRP on the terms of that certain "Sublease Agreement" to be entered into by and between Camelback Automotive and LRP (the "Sublease"), an unsigned copy of which is attached hereto as Exhibit "A"; (D) Master Lessor agrees that it will give LRP prompt written notice of any breach of the Master Lease and further agrees that it will accept any cure, in payment of money or otherwise, offered or performed by LRP as if such cure were offered or performed by Laurel or Camelback Automotive; (E) Provided that LRP is not in beach of the terms and conditions of the Sublease, Master Lessor shall not directly or indirectly interfere with LRP's quiet enjoyment of the Premises, regardless of whether Laurel is in default under the Master Lease and regardless of whether the Master Lease continues or is terminated, and, if the Master Lease is terminated, Master Lessor will abide by the terms of the Sublease; and (F) Master Lessor acknowledges that Laurel, Camelback Automotive and LRP are entering into the Sublease in reliance upon the consents, covenants and agreements given and made herein by Master Lessor and Master Lessor agrees that Laurel, Camelback Automotive and LRP, and each entity's respective successors and assigns, may, in fact, so rely on such consents, covenants and agreements. MARYLAND INVESTMENTS, INC., an Arizona corporation By /s/ Illegible -------------------------- Its President -------------------------- -2- EXHIBIT "A" SUBLEASE AGREEMENT THIS SUBLEASE AGREEMENT is made effective as of the 1st day of July, 1995, by and between CAMELBACK AUTOMOTIVE, INC., an Arizona corporation ("Sublessor"), whose address is 14032 North Canterbury Drive, Phoenix, Arizona 85023, and LRP, LTD., an Arizona corporation dba "Land Rover Phoenix" ("Sublessee"), whose address is 1127 East Camelback Road, Phoenix, Arizona 85014, with reference to the following facts: RECITALS: A. Sublessor is currently subleasing the real property located at 1127 East Camelback Road, Phoenix, Arizona, more particularly described on Exhibit "A" attached hereto and incorporated herein by this reference (the "Premises) from LAUREL LEASING, INC., a Texas corporation ("Laurel"), subject to, and pursuant to the terms and conditions of, that certain Lease (the "Master Lease) dated August 11, 1989. by and between Laurel and MARYLAND INVESTMENTS, INC., an Arizona corporation ("Master Lessor"). A copy of the Master Lease is attached hereto as Exhibit "B" and by this reference incorporated herein. B. Sublessee desires to sublease the Premises from Sublessor, and Sublessor desires to sublease the Premises to Sublessee, on the terms and conditions hereinafter set forth. NOW, THEREFORE, for and in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby covenant and agree as follows: AGREEMENTS: 1. SUBLEASE. Subject to all the terms and conditions of this Sublease Agreement, Sublessor hereby subleases the Premises to Sublessee and Sublessee hereby subleases the Premises from Sublessor. As hereinafter used in this Sublease Agreement, the term "Sublease" shall mean the tenancy of Sublessee under this Sublease Agreement. 2. MASTER LEASE; RIGHTS AND OBLIGATIONS OF PARTIES. The Sublease shall be subordinate and subject to all of the terms, conditions and covenants of the Master Lease and Sublessor and Sublessee hereby incorporate and adopt such terms, conditions and covenants as the governing terms, conditions and covenants of this Sublease Agreement. The Master Lease shall not be amended hereafter so as to adversely affect or limit any rights or benefits of Sublessee hereunder without the prior written consent of Sublessee. Except as provided to the contrary herein, Sublessor shall have the same rights and obligations as the "Landlord" under the Master Lease and Sublessee shall have the same rights and obligations as the "Tenant" under the Master Lease. Upon demand of Sublessee, Sublessor shall take whatever reasonable actions are necessary under the Master Lease with respect to the Master Lessor in order to aid Sublessee in exercising such rights. In addition to those limitations of Sublessee's rights and obligations stated elsewhere in this Sublease Agreement, the parties expressly agree that, notwithstanding anything to the contrary contained herein, (i) this Sublease Agreement does not obligate Sublessee to pay the monthly rental due to the Master Lessor under the Master Lease, (ii) this Sublease Agreement does not entitle Sublessee to exercise any of the rights of Sublessor as the "Tenant" under Section 3 of the Master Lease, (iii) the Sublease Agreement does not entitle Sublessee to receive the benefits of the application by Master Lessor of the deposit described in Section 5 of the Master Lease, and (iv) Sublessee shall not be responsible or obligated in any way for any breach of the Master Lease prior to the date hereof or for any event or condition with respect to the Premises which has occurred or exists on the date hereof. With respect to Section 3 of the Master Lease, Sublessor agrees to pass on to Sublessee any information made known to Sublessor regarding the availability of the "Parcels" (as defined in the Master Lease) and shall otherwise reasonably cooperate with Sublessee in the event that Sublessee desires to lease one or more of the Parcels directly from Master Lessor, but Sublessor shall have no obligation to lease any Parcel for the purpose of subleasing it to Sublessee. 3. TERM; EXTENSION; EARLY TERMINATION. (A) The Sublease shall commence on the date set forth above (the "Sublease Commencement Date") and shall continue for a period of ten (10) years (the "Initial Term"), unless extended or earlier terminated as herein provided. Provided Sublessee is not in default under the terms of this Sublease Agreement, Sublessee may extend the term of this Sublease for one (1) period of five (5) years (the "Extension Term") by giving written notice to that effect to Sublessor not later than one hundred eighty (180) days prior to the expiration of the Initial Term. As hereinafter used in this Sublease Agreement, the term "Sublease Term" shall include both the Initial Term and the Extension Term. (B) Notwithstanding the foregoing, Sublessee may give written notice to Sublessor of an intent to terminate the Sublease prior to the expiration of the Sublease Term, whereupon the Sublease shall terminate on the date which is one hundred and eighty (180) days after Sublessor's receipt of said notice or on such later date, if any, specified in said notice. -2- (C) In addition to the early termination rights set forth in Paragraphs 3(B) and 3(D) hereof, Sublessee may terminate the Sublease if, after diligent efforts, Sublessee fails to obtain the necessary approvals for the location of Sublessee's dealership at the Premises from both Land Rover North America, Inc., and the Arizona State Department of Motor Vehicles. Such termination shall be accomplished by Sublessee giving written notice to Sublessor on or before October 1, 1995. If Sublessee terminates the Sublease after September 1,1995, Sublessee shall not be entitled to a refund of any part of its September rent payment and to the extent such rent payment has not yet been made by Sublessee at the time of such termination Sublessee shall immediately make the same. (D) In addition to early termination rights set forth in Paragraphs 3(B), 3(C) and 3(D) hereof, Sublessee may terminate the Sublease if the Master Lessor does not give its written consent to the alterations and additions to the Premises desired by Sublessee and approved by Land Rover North America, Inc. within fifteen (15) days after such consent is requested in writing by Sublessee. (E) Upon early termination of the Sublease pursuant to either Paragraph 3(B) or 3(C) hereof, this Sublease Agreement shall be of no further force or effect (other than those indemnification obligations set forth in Paragraphs 11 and 15 hereof) and all leasehold improvements to the Premises made by Sublessee shall remain as part of the Premises. Sublessee shall remove all personal property and trade fixtures of Sublessee from the Premises upon or prior to the date of early termination. 4. USE. Sublessee may use the Premises for the operation of an automobile dealership pursuant to which Sublessee may (i) conduct new and used vehicle sales and leasing, (ii) perform vehicle maintenance and repairs, and (iii) conduct and/or perform any other activities ancillary thereto and customarily associated therewith. Sublessee at no time shall violate any use provision of the Master Lease or any requirement or demand of any governmental agency or official with respect to the condition, use and occupancy of the Premises, except that Sublessee shall not be responsible for any conditions or violations in existence prior to the date hereof. 5. MONTHLY RENTAL; LATE FEE; CPI ADJUSTMENT PERCENTAGE. (A) On or before the first (1st) day of each and every month of the Sublease Term, Sublessee shall pay to Sublessor the sums set forth in this Paragraph 5(A) as monthly rental for the Premises. Sublessee shall make such payments without deduction or offset and, except as specifically hereinafter set forth, without the requirement of demand or notice by Sublessor. Sublessee shall mail or hand deliver such payments to Sublessor at the address set forth on page 1 of this Sublease Agreement, or -3- at such other address designated in writing by Sublessor. The monthly rental amounts are as follows: (i) Months one (1) and two (2) of the Initial Term - $0.00; (ii) Month three (3) of the Initial Term - $6,000.00; (iii) Month four (4) of the Initial Term - $8,000.00; (iv) Months five (5) through sixty (60) of the Initial Term - $12,000.00; (v) Months sixty-one (61) through eighty-four (84) of the Initial Term - $12,000.00 multiplied by the CPI Adjustment Percentage (as defined in Paragraph 5(B) hereof) for the period commencing with the Sublease Commencement Date and ending with the end of the sixtieth (60th) month of the Initial Term, with a maximum CPI Adjustment Percentage of one hundred twelve percent (112%); (vi) Months eighty-five (85) through one hundred eight (108) of the Initial Term - the monthly rent payable during months sixty-one (61) through eighty-four (84) of the Initial Term multiplied by the CPI Adjustment Percentage for the period commencing with the end of the sixtieth (60th) month of the Initial Term and ending with the end if the eighty-fourth (84) month of the Initial Term, with a maximum CPI Adjustment Percentage of one hundred five percent (105%); (vii) Months one hundred nine (109) through one hundred twenty (120) of the Initial Term - the monthly rent payable during months eighty-five (85) through one hundred eight (108) of the Initial Term multiplied by the CPI Adjustment Percentage for the period commencing with the end of the eighty-fourth (84th) month of the Initial Term and ending with the end of the one hundred eighth (108th) month of the Initial Term, with a maximum CPI Adjustment Percentage of one hundred two and one-half percent (102.5%); (viii) Months one (1) through twelve (12) of the Extension Term - the monthly rent payable during months one hundred eight (108) through one hundred twenty (120) of the Initial Term; (ix) Months thirteen (13) through thirty-six (36) of the Extension Term - the monthly rent payable during months one (1) through twelve (12) of the Extension Term multiplied by the CPI Adjustment Percentage for the period commencing with the end of the one hundred eighth (108th) month of the Initial Term and ending with the end of the twelfth (12th) month of the Extension Term, with a maximum CPI Adjustment Percentage of one hundred seven and one-half percent (107.5%); and (x) Months thirty-seven (37) through sixty (60) of the Extension Term - the monthly rent payable during months thirteen (13) through thirty-six (36) of the -4- Extension Term multiplied by the CPI Adjustment Percentage for the period commencing with the end of the twelfth (12th) month of the Extension Term and ending with the end of the thirty-sixth (36th) month of the Extension Term, with a maximum CPI Adjustment Percentage of one hundred five percent (105%). During any period in which the monthly rental payment is affected by the CPI Adjustment Percentage, Sublessee shall continue making monthly rental payments in the previous amount until Sublessor gives written notice to Sublessee of the pertinent CPI Adjustment Percentage and the corresponding new monthly rental. Upon receipt of said notice from Sublessor, Sublessee shall immediately pay any increase in monthly rental due but not paid during the months prior to receiving said notice and shall thereafter commence paying the adjusted monthly rental in accordance with the terms hereof. Any payment of monthly rental which is not received by Sublessor within ten (10) days of its due date shall be subject to a five percent (5%) late fee payable upon demand by Sublessor. (B) The term "CPI Adjustment Percentage" shall mean the CPI-U (as defined below) at any given point in time stated as a percentage of the CPI-U at any previous point in time and shall be a means of measuring the increase, if any, of the CPI-U over a specified period of time. By way of example, the CPI Adjustment Percentage for the period commencing with the Sublease Commencement Date and ending with the end of the sixtieth (60th) month of the Sublease Term shall be determined as follows: CPI Adjustment % = (CPI-U @ June 1, 2000 / CPI-U @ June 1, 1995) x 100% The term "CPI-U" shall mean the "Consumer Price Index - Seasonally Adjusted U.S. City Average for All Items for All Urban Consumers (1982-84=100)," published monthly in the Monthly Labor Review of the Bureau of Labor Statistics of the United States Department of Labor. ("CPI-U") for the first calendar month of the Extension Term, and the denominator of which is the CPI-U for the first calendar month of the Initial Term. If the CPI-U is discontinued, the "Consumer Price Index - Seasonally Adjusted U.S. City Average for All Items for Urban Wage Earners and Clerical Workers (1982-84=100)" ("CPI-W"), published monthly in the Monthly Labor Review by the Bureau of Labor Statistics of the United States Department of Labor shall be substituted therefor. If the CPI-W is discontinued, comparable statistics on the purchasing power of the consumer dollar published by the Bureau of Labor Statistics of the United States Department of Labor shall be used for making such computation. If the Bureau of Labor Statistics shall no longer maintain statistics on the purchasing power of the consumer dollar, comparable statistics published by a responsible financial periodical or recognized authority selected by Sublessor shall be used for making such computation. If the base year ("1982-84=100") or other base year -5- used in computing the CPI-U is changed, the figures used in making the adjustment in this paragraph shall be changed accordingly so that all increases in the CPI-U are taken into account notwithstanding any such change in the base year. Notwithstanding any provision in this Sublease Agreement to the contrary, in no event shall the monthly rental due for any period during the Sublease Term be less than the monthly rental for any prior period. 6. PAYMENT OF MASTER LEASE RENTAL. Provided Sublessee pays the monthly rental and other sums due under this Sublease Agreement in a timely fashion, Sublessor shall pay the rent and other sums due under the Master Lease in accordance with the terms thereof. 7. TAXES; UTILITIES. In addition to the monthly rental payments due under this Sublease Agreement, during the Sublease Term Sublessee shall pay to Sublessor, or directly to such other person or entity, as appropriate, the following: (i) All sales, transaction privilege or other excise taxes levied or imposed upon or measured by any amount payable to Sublessor under this Sublease Agreement simultaneously with the payment to which the tax relates; (ii) All real estate taxes and assessments payable by Sublessor as "Tenant" under the terms of the Master Lease, prorated if the taxes or assessments relate to periods during and before or after the Sublease Term, provided that Sublessee shall not be obligated to pay in full any assessments which may be paid in installments, except to the extent the installments relate to the Sublease Term; (iii) All personal property taxes payable by Sublessor as "Tenant" under the terms of the Master Lease, prorated if the taxes relate to periods during and before or after the Sublease Term; and (iv) All charges for utilities provided to the Premises and otherwise payable by Sublessor as "Tenant" under the terms of the Master Lease. Notwithstanding the foregoing, Sublessee shall have the right to protest real estate taxes as provided in Paragraph 8 of the Master Lease. 8. INSURANCE. Sublessee shall, at its own expense, obtain and maintain throughout the Sublease Term those policies of property damage and public liability insurance covering the Premises required by Sections 19 and 20 of the Master Lease and shall further comply with each of the other requirements set forth in the Master Lease having to do with such policies. All such policies shall name Sublessor and Master Lessor as additional insureds. -6- 9. LEASEHOLD IMPROVEMENTS. During the Sublease Term, Sublessee hereby covenants, at its sole cost and expense, to significantly remodel and upgrade the existing facility constituting part of the Premises. In furtherance thereof, Sublessee may make such alterations and additions to the Premises as Sublessee desires, provided that: (i) Such alterations and additions comply with all applicable building codes and ordinances and the necessary permits therefor are obtained in advance of any actual construction; (ii) Sublessee procures and maintains adequate insurance coverage against such risks, in such amounts and with such companies as Sublessor may reasonably require in connection therewith; (iii) The prior written consent to each alteration or addition is obtained from Master Lessor by Sublessor; and (iv) Sublessee takes any and all actions, including those specified in the Master Lease, necessary to prevent the filing of any liens against the Premises by contractors and material suppliers involved in the construction of any such alterations and additions. 10. REPRESENTATIONS AND WARRANTIES OF SUBLESSOR. Except as specifically set forth herein, Sublessor makes no representations or warranties with respect to the Premises, and Sublessee acknowledges that the Premises are being subleased "As Is". Sublessee further acknowledges that Sublessee has had a full and complete opportunity to examine the condition, maintenance and operation of the Premises. In accordance with the foregoing, Sublessor represents and warrants as follows: (i) The copy of the Master Lease attached hereto as Exhibit "B" is a true and complete copy of the Master Lease (except for the economic terms thereof which have been blacked out), including any and all amendments thereto, and the same is currently in full force and effect with neither party thereto being in breach thereof; (ii) There are no underground storage tanks on the Premises; (iii) As of the Sublease Commencement Date, the roof and windows are free of defects and the heating, ventilation and air conditioning systems are in good operating condition; and (iv) To the best of Sublessor's knowledge, the Premises are in compliance with the current standards of environmental quality imposed by the Arizona Department of Environmental Quality. -7- 11. INDEMNIFICATION. (A) Sublessee covenants that it will defend and will indemnify Sublessor and save it harmless for, from and against any and all claims, actions, liabilities and expenses in connection with any default under the terms and conditions of the Master Lease caused by Sublessee and in connection with the loss of life, personal injury, or damage to property or business arising from, related to, or in connection with the occupancy or use by Sublessee of the Premises or occasioned totally or in part by any act or omission of Sublessee, its contractors, subcontractors, subtenants, licensees, or its or their respective agents, servants or employees subject to Paragraph 11(B) hereof. (B) Sublessor covenants that it will defend and will indemnify Sublessee and save it harmless for, from and against any and all claims, actions, liabilities and expenses arising out of or in any way related to the presence of petroleum based, toxic or hazardous substances in, on, under or originating from the Premises to the extent such condition was caused or allowed to occur by Sublessor. (C) The indemnification obligations contained in this Paragraph 11 shall survive any termination or cancellation of this Sublease. 12. ROOF AND STRUCTURAL REPAIRS. Notwithstanding anything contained herein to the contrary, Sublessor, at its expense, shall be responsible for all structural and roof repairs and replacements reasonably required during the Sublease Term to those improvements now existing on the Premises to the extent such repairs or replacements are not covered by the insurance that Sublessee is required to obtain and maintain pursuant to Paragraph 8 hereof. Sublessor shall have no responsibility to repair or replace any roofs or structural portions of any improvements to the extent the same have been modified or replaced by Sublessee or if originally constructed by Sublessee. 13. NOTICES. All notices, demands or other writings required or allowed under this Sublease Agreement shall be deemed to have been fully given when hand delivered or two (2) days after being deposited in the United States mail, certified or registered, postage prepaid, and addressed as set forth on page 1 of this Sublease Agreement. Either party may change its address for the receipt of notice by giving written notice of such change to the other party in the manner provided herein. A copy of any notice given to Sublessee shall be simultaneously given to Sublessee's attorney, Stephen M. Savage, Fennemore Craig, 2 North Central Avenue, Suite 2200, Phoenix, Arizona 85004, in the same manner as required for notice to Sublessee. 14. SUBLEASE DEFAULT; REMEDIES. A "Sublease Default" shall occur under this Sublease Agreement immediately upon the happening of any of the following events: -8- (i) the occurrence of an "Event of Default" (as that term is defined in the Master Lease) resulting from the breach of an obligation of the "Tenant" under the Master Lease which has been assumed by Sublessee under this Sublease Agreement; provided, however, that any grace and/or cure period available to the "Tenant" under the Master Lease shall be shortened by five (5) days for purposes of determining whether a Sublease Default has occurred under this Sublease Agreement; (ii) Sublessee's failure to pay the Sublease Rent within five (5) business days after receipt of a written demand therefor; and (iii) Sublessee's breach of any of the other terms and conditions of this Sublease, which breach is not cured within fifteen (15) days after written notice of such breach is received by Sublessee; provided, however, that Sublessee shall be entitled to such longer period of time as is reasonably necessary to cure any breach not capable of cure within such fifteen (15) day period if Sublessee commences to cure such breach within said period and diligently prosecutes the cure to completion. Upon the occurrence of a Sublease Default, Sublessor may avail itself of any rights and remedies provided by law in addition to those rights and remedies available to the "Landlord" under the terms of the master Lease. Should Sublessor cure a breach by Sublessee under this Sublease Agreement so that an Event of Default does not occur under the Master Lease, Sublessee shall reimburse Sublessor for its reasonable costs in curing such breach within ten (10) days after Sublessor delivers a demand for such reimbursement and Sublessee's failure to so reimburse shall be a Sublease Default as described in subparagraph (iii), above. 15. ASSIGNMENT AND SUBLETTING. Sublessee shall have the right to assign or further sublet the Premises provided that (i) any such assignment or sublease is expressly subject to this Sublease and the Master Lease, (ii) Sublessor is provided with a copy of the proposed assignment or sub-sublease agreement at least fifteen (15) days prior to the effective date thereof, and (iii) Sublessor is able to obtain any necessary consents and approvals of Master Lessor under the terms of the Master Lease. 16. BROKERAGE. Sublessor and Sublessee each warrants and represents to the other than no real estate sales or brokerage commissions or like commissions are or will be due from the other party in connection with this transaction. Further, each party agrees to indemnify and hold harmless the other party from and against any liability, loss, cost, damage or expense, including but not limited to, court costs and reasonable attorney's fees, resulting from any assertion of a right to a brokerage commission due to any act of the indemnifying party. -9- 17. SUCCESSORS AND ASSIGNS. This Sublease Agreement shall be binding on and inure to the benefit of all parties who lawfully succeed to the rights or interests of either Sublessee or Sublessor, including, but not limited to assigns, heirs or other legal representatives such as any executor or administrator. 18. ATTORNEYS' FEES. In the event legal action is required in connection with the enforcement or construction of this Sublease Agreement or any provision hereof, the prevailing party in such action shall be entitled to payment of its court costs and reasonable attorneys' fees. 19. ENTIRE AGREEMENT. This Sublease Agreement constitutes the entire agreement between Sublessor and Sublessee relative to the Premises and can be changed or modified only by written agreement signed by the parties hereto. 20. GOVERNING LAW. This Sublease Agreement shall be governed by and construed in accordance with the laws of the State of Arizona. 21. COUNTERPARTS. If each of the parties signs a counterpart original of this Sublease Agreement, those counterparts shall constitute a valid and complete execution hereof and the counterparts so executed shall be deemed for all purposes to be a single instrument. 22. RECORDING OF MEMORANDUM. The parties agree to execute a mutually acceptable "Memorandum of Sublease" disclosing the existence of the Sublease, along with any other matters reasonably requested by either party, and further agree that either party may record the same in the real property records of Maricopa County, Arizona. -10- IN WITNESS WHEREOF, Sublessor and Sublessee have executed this Sublease for the purposes herein contained as of the date first hereinabove written. SUBLESSOR: SUBLESSEE: CAMELBACK AUTOMOTIVE, INC., LRP, LTD., an Arizona corporation an Arizona corporation dba "Land Rover Phoenix" By_____________________________ By_______________________________ Its____________________________ Its______________________________ -11- EXHIBIT "B" LEASE THIS LEASE, made and entered into on the day hereinafter subscribed by and between MARYLAND INVESTMENTS, INC., an Arizona corporation ("Landlord") and LAUREL LEASING, INC., a Texas corporation ("Tenant"). W I T N E S S E T H: 1. USE. The Landlord hereby leases to Tenant and Tenant hereby hires from Landlord, for the purpose of conducting thereon, a commercial usage consistent with the legal use of the premises, those certain premises with appurtenances, described herein. 2. PREMISES. The premises leased to Tenant, together with appurtenances, are hereinafter referred to as the "Demised Premises" and are situated in the State of Arizona, and are more fully described on the attached Exhibit "A". 3. OPTION TO EXPAND DEMISED PREMISES. The Landlord owns property adjacent to the Demised Premises as described on the attached Exhibit "B", (hereinafter Parcel "A" and Parcel "B", respectively and "Parcels" collectively). The Parcels are subject to leases to lessees which extend beyond the beginning of the term of the Lease. The Landlord intends to allow the Tenant, from time to time, the right to extend the Lease to include a portion or all of the Parcels. Landlord shall inform Tenant from time to time and Tenant may request from Landlord, from time to time, information concerning the status of the leases on the Parcels, their respective termination dates and negotiations concerning new leases of portions of the Parcels. If Tenant shall determine that it wishes to expand this Lease to include all or a portion of the Parcels, Tenant shall give Landlord written notice thereof (hereinafter the "Option Notice") specifying the Parcels or portions thereof desired by Tenant (which portions may not materially and adversely affect Landlord's ability to lease the balance of the Parcels and which portions are hereinafter referred to as the "Option Parcel"). Until receipt of the Option Notice, Landlord shall only be obligated to reasonably inform Tenant as to the availability of the Parcels for lease and related information. However, from and after deliver of the Option Notice to Landlord, Landlord shall be obligated, in good faith, subject to its lease obligations at the time of receipt of the Option Notice, to attempt to obtain possession of the Option Parcel. Upon obtaining possession of the Option Parcel, Landlord shall deliver possession of the Option Parcel to Tenant by written notice to Tenant. Upon delivery of possession of the Option Parcel to Tenant, the rent herein shall be increased by an amount equal to the fair market value of the rent for the Option Parcel, (the "Option Parcel Rent"). The Option Parcel Rent shall be established and paid by the following procedure: (1) Tenant shall include in its Option Notice its proposed amount of Option Parcel Rent as of the date of delivery of possession; (2) the Tenant's proposed Option Parcel Rent shall be paid by Tenant and become rental due and owing each month under this Lease at and simultaneously with delivery of possession of the Option Parcel by Landlord to the Tenant; (3) real property taxes for the Option Parcel shall be prorated between Landlord and Tenant as of the date of delivery of possession of the Option Parcel by the Landlord; (4) Tenant shall be obligated to pay all additional expenses with respect to the Option Parcel as of the date possession is delivered to it by the Landlord including, utilities, maintenance repair and the like; (5) for all other purposes, the Option Parcel shall be considered a part of the Demised Premises as of the date of delivery of possession; (6) if Landlord determines that the proposed Option Parcel Rent by Tenant is less than the fair market value of the rent for the Option Parcel, Landlord shall, within thirty (30) days of delivery of possession of the Option Parcel give written notice of its proposed Option Parcel Rent for the Option Parcel and, the name of an arbitrator it proposes to settle the matter in the event Tenant is unwilling to accept Landlord's proposed Option Parcel Rent; (7) Tenant shall within thirty (30) days of receipt of Landlord's written notice of Option Parcel Rent, respond in one of the following three manners: (a) not respond, in which event, Landlord's proposed Option Parcel Rent shall be the additional rent for the Option Parcel; (b) issue its written notice of rejection of Landlord's proposed Option Parcel Rent, but acceptance of Landlord's proposed arbitrator, in which event, the arbitrator shall determine the Option Parcel Rent, (half of the cost of the arbitrator shall be allocated to each party hereunder); or (c) Tenant shall timely reject Landlord's proposed Option Parcel Rent, timely reject Landlord's proposed arbitrator and, shall name its own arbitrator, in which event, Landlord's arbitrator and tenant's arbitrator shall meet and agree on a third arbitrator and the three arbitrators shall set the Option Parcel Rent; (8) during the period when rent is not established hereunder, Tenant shall pay the amount set forth in Tenant's notice as to the Option Parcel Rent, and upon final determination pursuant to the procedures outlined herein of the rent due, Tenant shall pay the shortgage, if any, together with interest at the rate of the Valley National Bank prime, plus two percent (2%) from the respective dates that the Option Parcel Rent was due, until paid; and (9) the Option Parcel Rent shall increase in proportion to the rental increase for the balance of the Demised Premises at and simultaneously with the increase in rent under Paragraph 6 herein. In the event Tenant gives an Option Notice, Landlord shall be obligated to use its best efforts to deliver possession of the Option Parcel to Tenant and complete the termination of the applicable lease(s); provided, however, that if the Lessee(s) of the applicable Option Parcel refuses to deliver possession to Landlord, Landlord's obligation hereunder shall be to diligently -2- pursue such possession and Landlord shall not be liable hereunder for any other liability or damages with respect to the same. This procedure may be invoked from time to time by Tenant with respect to portions of the Parcels. The Option Notice may include time requirements for satisfying the same provided that any such time requirements must be reasonable and must be issued in good faith or the Option Notice shall not be effective. 4. TERM. The term of this lease shall be for eleven (11) years. It shall commence and Tenant's obligation to pay rent, shall commence on the 1st day of September, 1989 and shall end on the 31st day of August, 2000. Tenant shall be given possession of the Demised Premises on the 15th day of August, 1989 for the purpose of demolition, construction, renovation and other work to improve the Demised Premises for Tenant's use, (subject to the provisions of Paragraph 9 hereof). 5. DEPOSIT. Upon the execution of this lease the Tenant shall deposit with Landlord the sum of Twenty-One Thousand Dollars ($21,000), (plus applicable rental tax for the first and second month's rent) being the rent for the first, second and the balance after reduction for applicable rental tax, part payment of the rent for the last month of the lease term; provided however, that the deposit of part payment of the rent for the last month of this lease may be applied, in the sole and exclusive discretion of the Landlord to any other obligation of the Tenant hereunder. Tenant shall have no right to require the Landlord to apply such sum to any purpose other than the payment of the last month rent hereunder. If and to the extent that Landlord shall apply such last month rent to any purpose other than the last month rent, the Tenant shall be obligated upon demand by Landlord to fully restore such sum by additional deposit with Landlord. 6. RENTAL. Tenant shall pay to Landlord during the term of this lease as monthly rental for the Demised Premises, the sums set forth on the following schedule: Month Monthly Rental Total ----- -------------- ----- 1 - 12 inclusive $7,000 $84,000 13 - 36 inclusive 8,000 192,000 37 - 60 inclusive 10,000 240,000 61 - 108 inclusive 12,000 576,000 108 - 132 inclusive 15,000 360,000 ---------------------- Total Rental to be paid 1,452,000 ====================== The foregoing amounts shall be in addition to any rent due for one or more of the Option Parcels, if and to the extent that one or more options are exercised under Paragraph 3 above. -3- The monthly rental shall be paid in advance on the first day of each calendar month. All rental to be paid by Tenant to Landlord shall be in lawful money of the United States of America and shall be paid without deduction or offset, prior to notice or demand at the address as hereinafter subscribed. Any rent payment not paid within ten (10) days of its due date shall be subject to a five percent (5%) late charge. 7. RENTAL TAX. Tenant shall pay to Landlord any and all excise, privilege and other taxes, other than net income and estate taxes levied or assessed by any federal, state or local authority upon the rent received by the Landlord hereunder, and Tenant shall bear any business tax imposed upon Landlord by any governmental authority which is based or measured in whole or in part by amounts or benefits, charged or received by Landlord from Tenant under this lease, provided that Tenant shall pay only the amount of such business tax that would be payable by Landlord if the Demised Premises were the only property of the Landlord. 8. REAL ESTATE TAXES. Tenant shall pay the annual real estate taxes and assessments levied upon the Demised Premises, and all improvements thereto to the Landlord. During the initial year of the lease and the year of termination, the real estate taxes shall be prorated, based upon the term of the lease. In the event that Tenant wishes to protest the valuation of the real property or any other matter involving the amount of the real estate taxes, the Landlord shall cooperate with Tenant, provided however, that such action shall be at the sole cost and expense of the Tenant. 9. PERSONAL PROPERTY TAXES. During the term hereof, Tenant shall pay, prior to delinquency, all taxes assessed against and levied upon the automobiles, fixtures, furnishings, equipment and all other personal property of Tenant contained in the demised premises. 10. USES PROHIBITED. Tenant shall not use, or permit the Demised Premises, or any part thereof, to be used for any purpose or purposes other than the purpose or purposes for which the Demised Premises are hereby leased; and no use shall be made or permitted to be made on the Demised Premises, nor acts done, which may cause a cancellation of any insurance policy covering any buildings on the Demised Premises or any part thereof, nor shall Tenant sell or permit to be kept, used or sold in or about the Demised Premises, any article which may be prohibited by standard form of fire insurance policies. Tenant shall, at his sole cost, comply with any and all requirements, pertaining to the use of the Demised Premises, of any insurance organization or company necessary for the maintenance of reasonable fire and public liability insurance, covering said building and appurtenances. 11. UTILITIES. Tenant shall pay before delinquency, all utility charges, including but not limited to, telephone, -4- water, gas, heat, electricity and all other services of utilities used in, upon, or about the Demised Premises by Tenant or any of its subtenants, licensees, or concessionaires during the term of this lease. 12. LEASEHOLD IMPROVEMENTS. Tenant hereby agrees to demolish certain improvements and to construct other improvements to the Demised Premises at the cost and expense of Tenant but only in accordance with conceptual plans which have been submitted to and approved by Landlord. The work shall be performed only after such contractors, subcontractors and other persons engaged by or on behalf of Tenant to construct such improvements, perform such demolition or otherwise work on the Demised Premises shall procure and maintain adequate insurance coverage against such risks, in such amounts and with such companies as Landlord may require in connection with the installation of such improvements. Upon: (i) completion of such improvements; (ii) the issuance by the City of Phoenix of a Certificate of Occupancy and/or Certificate of Compliance with all relevant building code requirements; (iii) delivery of lien waivers and/or certificate of payment in full from all contractors, subcontractors, materialmen and suppliers (involving amounts in excess of $1,000); and (iv) delivery to Landlord of a copy of the detailed plans and specifications for the improvements to the Demised Premises on an "as built basis", Landlord shall pay to Tenant, its portion of the cost of such improvements, being the sum of Twenty Thousand Dollars ($20,000.00). Landlord has made no representations as to the conditions of the Demised Premises or the cost to demolish, construct, remodel, maintain, repair or renovate, except as expressly set forth herein. 13. MECHANIC'S LIENS. Tenant will not permit any mechanic's or materialman's lien or liens to be placed upon the Demised Premises or improvements thereon during the Lease Term caused by or resulting from any work performed, materials furnished or obligation incurred by or at the request of Tenant, and in the case of the filing of any such lien, Tenant, within twenty (20) days of the filing of same (herein the "20 Day Period"), shall pay or remove any such lien or liens by placing with Landlord a cash deposit in an amount adequate to cover the lien(s) and all costs and interest which may accrue with respect to such lien(s), or at Tenant's option, Tenant may, within said 20 Day Period, or if Tenant fails promptly and within said 20 Day Period to do so, Landlord may, but is not obligated to, bond over, at Tenant's cost, any and all such lien(s) under an applicable statutory or other bonding procedure which causes the full release and discharge of such lien or claim from the Demised Premises, and the improvements thereto, including, without limitation, the right, at Tenant's cost, to bond over pursuant to Arizona Revised Statutes, Section 33-1004, or any related, amended or superseding statute or law pertaining to such or a similar bonding procedure. If default in payment thereof, or in removal or bonding over of such lien(s) as required or permitted -5- above, shall continue for twenty (20) days after written notice thereof from Landlord to Tenant, Landlord shall have the right and privilege at Landlord's option of paying the same or any portion thereof without inquiry as to the validity thereof, and any amounts so paid, including reasonable expenses and interest thereon at the rate of fifteen percent (15%) per annum from the date of payment by Landlord, shall be additional indebtedness and rent hereunder due from Tenant to Landlord and shall be repaid to Landlord immediately on rendition by Landlord to Tenant of a bill therefor. 14. TENANT'S REPAIRS AND ALTERATIONS. Except for demolition and modifications set forth on the plans described in 12 above, Tenant will not in any manner deface or injure the Demised Premises, and will pay the cost of repairing any damage or injury done to the Demised Premises or any part thereof by Tenant or Tenant's agents, employees or invitees. Tenant shall throughout the Lease Term take good care of the Demised Premises and keep them free from waste and nuisance of any kind. Tenant agrees to keep the Demised Premises, including all improvements and property installed or kept on the premises by Tenant, other than fixtures (hereinafter "Tenant Property") in good condition and repair and make all necessary repairs and replacements thereto, subject to reasonable depreciation and wear from ordinary uses and passage of time, it being understood and agreed under the terms of this Lease that such improvements and Tenant Property and any insurance coverage therefor are solely the responsibility of Tenant hereunder. If Tenant fails to perform maintenance, repairs or replacements, Landlord may give Tenant written notice thereof. If Tenant thereafter fails to cure such default within thirty (30) days after written notice by Landlord to Tenant to perform such maintenance, repairs or replacement, Landlord may at its option perform or cause to be performed such maintenance, repair or replacement, and Tenant shall, upon demand therefor, pay and reimburse Landlord for the reasonable cost thereof. Tenant will not make or allow to be made any alterations or physical additions in or to the Demised Premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld. All alterations, additions or improvements (whether temporary or permanent in character) made in or upon the Demised Premises, by Tenant, shall be Landlord's property on expiration or termination of this Lease and shall remain on the Demised Premises without compensation to Tenant. At the expiration or any other termination of this Lease, Tenant shall deliver up the Demised Premises with all improvements located thereon (except as otherwise herein provided) in good repair and condition, reasonable wear and tear only excepted, and fire and casualty damage or loss excepted as to improvements to the extent such loss or damage is covered by fire and casualty insurance provided by Tenant which is recoverable and all proceeds of such insurance are paid to Landlord to cover such loss or damage. In any event, all proceeds of any insurance coverage for loss or damage to the Demised Premises, exclusive of Tenant Property but inclusive of -6- any improvements, are hereby assigned and shall be payable directly by the insurer to Landlord. At such expiration or any other termination, Tenant shall deliver to Landlord all keys to the Demised Premises. All Tenant Property may be removed by Tenant at the termination of this Lease if Tenant so elects, and shall be so removed if required by Landlord upon sixty (60) days written notice; if not so removed, all such items shall, at the option of Landlord, become the property of Landlord. Any such items and all such other improvements or property left in the Demised Premises by Tenant upon abandonment by Tenant of the Demised Premises, or upon any expiration or termination of this Lease, shall, at Landlord's election, be deemed the property of Landlord free of any claim of Tenant or anyone claiming by or through Tenant. All installations, removals and restoration by or at the instance of Tenant shall be accomplished in a good workmanlike manner so as not to damage the Demised Premises. 15. REGULATED SUBSTANCES. Tenant warrants that no petroleum-based, radioactive, hazardous or toxic substances (hereinafter referred to as Regulated Substances) which are subject to federal, state or local laws, rules, regulations and ordinances will be used on the Demised Premises, except for those set forth in Exhibit "C". Tenant shall not have on the Demised Premises any Regulated Substances other than those set forth on Exhibit "C" hereto, and the quantities on the Demised Premises at any time shall not exceed the quantities on Exhibit "C". Regulated Substances include, but are not limited to, any and all substances, materials or wastes regulated under the Resource Conservation and Recovery Act, 42 U.S.C. Section 8901, et seq., the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601, et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601, et seq., the Arizona Hazardous Waste Management Act, A.R.S. Sub-section 49-921, et seq., the Arizona Underground Storage Tank Regulation Act, A.R.S. Sub-section 49-1001, et seq., and the Arizona Environmental Quality Act, A.R.S. Sub-section 49-201, et seq., and the rules or regulations adopted and guidelines promulgated pursuant to these laws. Tenant has obtained or will obtain, in a timely fashion, all permits, licenses and other authorizations which are required under federal, state and local laws and regulations relating to pollution or potection of the environment or public health (hereafter referred to as the Applicable Laws), relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or industrial, hazardous or toxic substances, materials or wastes into the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, or Regulated Substances. -7- Tenant shall be, during the term of the lease, in compliance in all material respects with all terms and conditions of the required permits, licenses and authorizations, and also is and will be in compliance in all material respects with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in the Applicable Laws or contained in any regulations, code, plan, order, decree, judgment or notice issued, entered, promulgated or approved thereunder and applicable to the Tenant's operations, activities or business. Tenant shall immediately notify Landlord of any events, conditions, circumstances, activities, practices, incidents, actions or plans known to the Tenant which may interfere with or prevent continued compliance, or which may give rise to any common law or legal liability, or otherwise form the basis of any claim, action, suit, proceeding, hearing or investigation, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling, or the emission, discharge, release or threatened release into the environment, of any pollutant, contaminant or Regulated Substance. To the fullest extent permitted by law, Tenant agrees to indemnify, defend and hold harmless Landlord from any and all claims, demands, actions, suits, proceedings, hearings, investigations, responsibility, liability, orders, injunctions, judgments, fines, damages and losses of any nature whatsoever arising out of or relating in any way to Tenant's present or future use of, or activities or operations on or at, the Demised Premises, or arising from or relating to any breach of the preceding five paragraphs. Tenant also agrees to indemnify and hold harmless Landlord for any and all costs and expenses incurred in connection therewith, including without limitation, any and all attorneys' and expert witness fees, investigative, removal, remedial, corrective, or mitigating action costs, fines and penalties. These indemnities shall survive the termination of this Lease. Tenant shall furnish to Landlord, from time to time, copies of all permits and information concerning compliance with these provisions, as shall be reasonably requested by Landlord. Nothing included in this section shall be deemed to create or establish any responsibility or liability on the part of the Tenant for any Regulated Substances which are or were on the Demised Premises prior to August 15, 1989; provided, however, that Tenant shall allow Landlord and its agents reasonable access to the Demised Premises to cure any problem created thereby or to remove any such Regulated Substance. If, and to the extent that such entry by Landlord interferes with or diminishes Tenant's use of the Demised Premises, there shall be a proportionate abatement in rent hereunder as the sole remedy of Tenant for such interference or diminishment. -8- 16. COMPLIANCE WITH LAWS. Tenant shall, at his sole cost and expense, comply with all of the other requirements of all municipal, state and federal authorities now in force or which may hereafter be in force pertaining to the use of the Demised Premises, and shall faithfully observe in said use, all county ordinances and state and federal statutes now in force or which shall hereinafter be in force. The judgment of any court of competent jurisdiction or the admission of Tenant in any action or proceeding against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any such order or statute in said use, shall be conclusive of that fact as between the Landlord and Tenant. Tenant shall not commit, or suffer to be committed, any waste upon the Demised Premises. 17. ENTRY AND INSPECTION. Tenant shall permit Landlord and its agents to enter into and upon the Demised Premises at all reasonable times for the purpose of inspecting the same concerning Tenant's duties hereunder, including but not limited to, maintenance and repair. 18. DAMAGE AND DESTRUCTION OF PREMISES. Tenant is leasing the Demised Premises in a significantly unimproved condition. Therefore, the damage or destruction to the improvements is a risk of the Tenant and there shall be no diminution in or termination of rent in the event of damage or destruction to the improvements on the Demised Premises. 19. INDEMNIFICATION OF LANDLORD - LIABILITY INSURANCE BY TENANT. Tenant, as a material part of the consideration to be rendered to Landlord under this lease, hereby waives all claims against Landlord for damage to its property in, upon or about the Demised Premises and for injuries to persons in or about the Demised Premises, from any cause arising at any time; and Tenant will hold Landlord exempt and harmless from any damage or injury to any person, or property of any person, arising from the use of the Demised Premises by Tenant, or from the failure of Tenant to keep the premises in good condition and repair, as herein provided. During the entire term of this lease, the Tenant shall, at the Tenant's sole cost and expense, but for the mutual benefit of Landlord and Tenant, maintain general public liability insurance against claims for personal injury, death or property damage occurring in, upon or about the Demised Premises. The limitation of liability of such insurance shall not be less than One Million Dollars ($1,000,000.00) in respect to injury or death of one person and to the limit of not less than One Million Dollars ($1,000,000.00) in respect to any one accident and to the limit of not less than One Hundred Thousand Dollars ($100,000.00) in respect to property damage. All such policies of insurance shall be issued in the name of Tenant and Landlord and for the mutual and joint benefit and protection of the parties, and such -9- policies of insurance or copies thereof shall be delivered to the Landlord. 20. FIRE INSURANCE. Tenant shall maintain and pay for fire and extended coverage insurance throughout the term of this lease in an amount equal to at least eighty percent (80%) of the replacement value of the improvements which are or become part of the Demised Premises. Tenant hereby waives any right of recovery from Landlord, its officers and employees, and Landlord hereby waives any right of recovery from Tenant, its officers or employees, for any loss or damage (including consequential loss) resulting from any of the perils insured against the standard form fire insurance policy with extended coverage endorsement. Landlord and Tenant agree to obtain waiver provisions in policies obtained from insurance companies, if available. 21. CONSENT OF LANDLORD. Wherever in this lease the consent of the Landlord must be obtained in order to do or perform a function or perform an act, the Landlord may request reasonable information concerning such consent, but may not thereafter unreasonably withhold consent, and if Landlord elects not to consent to such request, Landlord must specify the reasons therefor. 22. EVENTS OF DEFAULT. The following events or any other act or failure to act by Tenant specified elsewhere in this Lease to be a default or an Event of Default shall be deemed to be events of default ("Events of Default") by Tenant under this Lease: (a) Tenant shall fail to pay when due any rental or other sums payable by Tenant under this Lease (or under any other lease now or hereafter executed by Tenant in connection with space in the Building) and such failure continues for ten (10) days after written notice of nonpayment or demand for payment from Landlord to Tenant. (b) Tenant shall fail to comply with or observe any provision of this Lease and fails to cure such failure within thirty (30) days, and Tenant fails to promptly commence within ten (10) business days, after written notice of such failure given by Landlord to Tenant, or if diligent and timely curing of any such failure on the part of Tenant requires a period longer than thirty (30) days, and Tenant fails to promptly commence within three (3) business days after the giving by Landlord to Tenant of written notice of such failure, or Tenant fails within a reasonable time but not longer than sixty (60) days after such notice to diligently and promptly complete, the curing of such failure to comply with or observe such provision. -10- (c) Tenant shall make an assignment for the benefit of creditors. (d) The filing of any petition by or against Tenant under any section or chapter of the Federal Bankruptcy Act, as amended, or under any similar law or statute of the United States or any state thereof, and which, if involuntary, is not dismissed within sixty (60) days of the date of filing thereof; or Tenant shall be adjudged bankrupt or insolvent in any proceedings filed under or pursuant to said laws. (e) A receiver or trustee shall be appointed for all or substantially all of the assets of Tenant. (f) Tenant shall abandon, desert or vacate the Demised Premises and defaults with respect to payment of the Rent, or any other sums due under this Lease for Tenant's use and occupancy of the Demised Premises under this Lease. 23. REMEDIES. Upon the occurrence of any Event of Default by Tenant specified in this Lease, Landlord, upon the giving of written notice of its intention so to do, shall have the option to pursue any one or more of the following rights and remedies without any further notice or demand whatsoever: (a) Terminate this Lease, in which event Tenant shall immediately surrender the Demised Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearage in rent, enter upon and take possession and expel or remove Tenant and any other person who may be occupying said Demised Premises or any part thereof, by force if necessary, without being liable for prosecution or any claim for damages therefor; and Tenant hereby indemnifies Landlord against and agrees to pay to Landlord on demand the amount of all loss and damage which Landlord may suffer by reason of such termination, whether through efforts to obtain surrender or possession of the Demised Premises, inability to relet the Demised Premises on terms satisfactory to Landlord in its reasonable discretion or otherwise, and including without limitation the loss of rental for the remainder of the Lease Term as provided for below. (b) Without terminating this Lease or any obligations of Tenant hereunder, enter upon and take possession of the Demised Premises and expel or remove Tenant and any other person who may be occupying the Demised Premises or any part thereof, by force if necessary, remove all property therefrom, including without limitation any property of Tenant or any other person whose property -11- is located therein at the instance, permission or by reason of Tenant's lease, use and occupancy of the Demised Premises, such property as may be removed shall be stored in a public warehouse or public storage facility, or, at Landlord's election, at the Demised Premises for a rental not greater than that customarily charged by a public warehouse or public storage facility, all of same to be at the cost of, and for the account of, Tenant, all without notice or legal process and without being deemed guilty of trespass and without being liable for prosecution or any claim for loss or damages therefor, including without limitation any loss or damage therefor sustained by reason of such storage in a public warehouse or storage facility due to nonpayment of storage or other costs thereof. If Tenant shall, after an Event of Default, voluntarily give up possession of the Demised Premises to Landlord, deliver to Landlord the keys to the Demised Premises, or both, such action shall be deemed to be in compliance with Landlord's rights and the acceptance thereof by Landlord shall not be deemed to constitute a surrender of the Demised Premises. Should Landlord elect to re-enter, as herein provided, or should Landlord take possession pursuant to legal proceedings or pursuant to any notice provided for and required by law, Landlord may either terminate this Lease or it may from time to time without terminating this Lease make such alterations and repairs as may be necessary in order to relet the Demised Premises, and Landlord may relet said Demised Premises or any part thereof for such term or terms (which may be for a term extending beyond the term of this Lease) and at such rental or rentals and upon such other terms and conditions satisfactory to Landlord in its reasonable discretion; upon each such reletting, all rentals received by the Landlord from such reletting shall be applied, first to the payment of any indebtedness other than rent due hereunder from Tenant to Landlord, second, to the payment of any reasonable costs and expenses of such reletting, including brokerage fees and attorneys' fees and costs of such necessary alterations and repairs and/or recovery of possession, third, to the payment of rent due and unpaid from Tenant to Landlord under this Lease and the residue, if any, shall be held by Landlord and applied in payment of future rent or damage as the same may become due and payable hereunder. If such rentals received from such reletting during any month be less than that to be paid during that month by the Tenant hereunder, Tenant shall pay any such deficiency to Landlord, the same to be calculated and paid monthly on demand of Landlord. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate the Lease for such previous or any subsequent breach -12- or Event of Default. In any event, under the foregoing circumstances, Tenant agrees to indemnify and pay promptly upon demand any and all deficiency that may occur or arise by reason of such reletting for the remainder of the Lease Term. Should Landlord at any time terminate this Lease for any breach or Event of Default, in addition to any other rights and remedies it may have, Landlord may recover from Tenant all damages it may incur by reason of such breach or Event of Default, including without limitation the loss of rental for the remainder of the Lease Term according to the terms set forth below, the cost of recovering the Demised Premises and reasonable attorneys' fees, all of which amounts shall be immediately due and payable from Tenant to Landlord. (c) Enter upon the Demised Premises by force if necessary, without being liable for prosecution or any claim for damages therefor, and do whatever Tenant is obligated to do under the terms of this Lease; and Tenant agrees to reimburse Landlord on demand for any reasonable expenses which Landlord may reasonably incur in thus effecting compliance with Tenant's obligations under this Lease, and Tenant further agrees that Landlord shall not be liable for any damages resulting to the Tenant from such action. (d) Should Landlord at any time terminate this Lease for any default, in addition to any other remedy Landlord may have, Landlord may recover from Tenant all damages Landlord may incur by reason of such default, including the cost of recovering the Demised Premises, reasonable attorneys' fees and costs, and the loss of rental for the remainder of the Lease Term. (e) Should Landlord elect in connection with any of its rights or remedies herein to proceed with re-letting of the Demised Premises on behalf of Tenant in mitigation of the sums accruing and becoming due and payable from Tenant under this Lease, Landlord agrees to use its best efforts to mitigate any damages due to Tenant's default and to use reasonable efforts to relet the Demised Premises. In the event Landlord exercises its option or right to terminate the Lease prior to expiration of the Lease Term as permitted in this Paragraph No. 23, the damages for loss of rental for the remainder of the term after such termination shall include the worth at the time of such termination of the excess, if any, of the amount of rent and charges equivalent to rent reserved in this Lease for the remainder of the stated term, which sum shall be discounted by the discount rate of the Federal Reserve Bank located closest to the Demised Premises plus two percent (2%), and all such damage amounts upon a termination -13- shall be immediately due and payable from Tenant to Landlord on demand of Landlord made after such termination. Notwithstanding anything to the contrary appearing in this Lease, the foregoing determination in this paragraph of the loss of rental after a termination of the Lease shall be applicable only upon exercise by Landlord of its right to terminate as provided for in this Paragraph No. 23, and Landlord, at its election, without terminating the Lease, may pursue and enforce any other rights and/or remedies Landlord may have at law or in equity or otherwise under this Lease. No re-entry or taking possession of the Demised Premises by Landlord shall be construed as an election on its part to terminate this Lease, unless a written notice of such intention be given to Tenant. Notwithstanding any such reletting or re-entry or taking possession, Landlord may at any time thereafter elect to terminate this Lease for a previous Event of Default. Pursuit of any of the foregoing rights or remedies shall not preclude pursuit of any of the other rights or remedies herein provided or any other rights or remedies provided by law, nor shall pursuit of any right or remedy herein provided constitute a forfeiture or waiver of any rent due to Landlord hereunder or of any damages accruing to Landlord by reason of the violation of any of the terms, provisions and covenants herein contained. Landlord's acceptance of rent or payments following an Event of Default hereunder shall not be construed as Landlord's waiver of such Event of Default. No waiver by either party hereto of any violation or breach of any of the terms, provisions, and covenants herein contained shall be deemed or construed to constitute a waiver of any other violation or default. The loss or damage that Landlord may suffer by reason of termination of this Lease or the deficiency from any reletting as provided for above shall include but not be limited to the reasonable expense of repossession and any reasonable repairs or necessary remodeling undertaken by Landlord following possession. 24. INSOLVENCY OF TENANT. Tenant agrees that in the event all or substantially all of its assets be placed in the hands of a receiver or trustee, and in the event such receivership or trusteeship continues for a period of ten (10) days, or should Tenant make an assignment for the benefit of creditors, or be adjudicated a bankrupt, or should Tenant institute any proceedings under any state or federal bankruptcy act wherein Tenant seeks to be adjudicated a bankrupt, or seeks to be discharged of its debts, or should any voluntary proceeding be filed against such Tenant under such bankruptcy laws and Tenant consents thereto or acquiesces therein by pleading or default, then this lease or any interest in and to the Demised Premises shall not become an asset in any of such proceedings and, in any of such events and in addition to any and all rights or remedies of Landlord hereunder or as provided by law, it shall be lawful for Landlord at his option to declare the term hereof ended and to re-enter the Demised Premises and take possession -14- thereof and remove all persons therefrom and Tenant shall have no further claim therein or hereunder. 25. SURRENDER OF LEASE. The voluntary or other surrender of this lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Landlord, terminate all or any existing subleases or subtenancies, or may, at the option of Landlord, terminate all or any existing subleases or subtenancies, or may, at the option of Landlord, operate as an assignment to him of any or all of such subleases or subtenancies. 26. ABANDONMENT. Tenant shall not abandon the Demised Premises at any time during the term of this lease; and if Tenant shall abandon or surrender the Demised Premises or be dispossessed by process of law, or otherwise, any personal property belonging to Tenant and left on the Demised Premises shall be deemed to be abandoned, at the option of Landlord, except such property as may be mortgaged to Landlord. 27. SALE OF PREMISES BY LANDLORD. In the event of any sale of the Demised Premises by Landlord, Landlord shall be and is hereby entirely freed and relieved of all liability under any and all of its covenants and obligations contained in or derived from this lease arising out of any act, occurrence or omission occurring after the consummation of such sale; and the purchaser, at such sale or any subsequent sale of the Demised Premises shall be deemed, without any further agreement between the parties or their successors in interest or between the parties and any such purchaser, to have assumed and agreed to carry out any and all of the covenants and obligations of the Landlord under this lease. 28. SUBORDINATION, ATTORNMENT. This lease, at Landlord's option shall be subordinate to the lien of any first deed of trust or first mortgage subsequently placed upon the real property of which the Demised Premises are a part, and to any and all advances made on the security thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof; provided, however, that as to the lien of any such deed of trust or mortgage, Tenant's right to quiet possession of the Demised Premises shall not be disturbed if Tenant is not in default and so long as Tenant shall pay the rent and observe and perform all of the provisions of this lease, unless this lease is otherwise terminated pursuant to its terms. Landlord shall obtain from any such Lender written confirmation of this nondisturbance clause for the benefit of Tenant. If any mortgagee, trustee or ground lessor shall elect to have this lease prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Tenant, this lease shall be deemed prior to such mortgage, deed of trust, or ground lease, whether this lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. -15- In the event any proceedings are brought for foreclosure, or in the event of the exercise of the power of sale under any mortgage or deed of trust made by the Landlord covering the demised premises, the Tenant shall attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as the Landlord under this lease. 29. ESTOPPEL CERTIFICATES. Tenant agrees to furnish from time to time when requested by Landlord, the holder of any deed of trust or mortgage or the lessor under any ground lease covering all or any part of the Building or the improvements therein or the Demised Premises or any interest of Landlord therein, hereinafter the "Requesting Party", a certificate signed by Tenant confirming and containing such factual certifications and representations deemed appropriate by Landlord, and/or the Requesting Party, and Tenant shall, within fifteen (15) business days following receipt of said proposed certificate from such Requesting Party, return a fully executed copy of said certificate to Landlord and the Requesting Party. In the event Tenant shall fail to return a fully executed copy of such certificate to Landlord and the Requesting Party within the foregoing fifteen (15) business day period, then Tenant shall be deemed to have unconditionally approved and confirmed all of the terms, certifications and representations contained in such certificate. Landlord agrees to furnish from time to time when requested in writing by Tenant, a certificate approved and signed by Landlord confirming and containing such true factual certifications and representations deemed appropriate by Tenant regarding this Lease, the status of performance thereunder and the Building and affecting Tenant's rights, performance and interest under this Lease within fifteen (15) business days following the giving of such proposed certificate by Tenant to Landlord. In the event Landlord shall fail to return a fully executed copy of such certificate to Tenant within the foregoing fifteen (15) business day period, Landlord shall be deemed to have unconditionally approved and confirmed all of the terms, certifications and representations contained in such certificate. 30. CONDEMNATION. If in the event of a condemnation or a transfer in lieu thereof, fifty percent (50%) or more of the Demised Premises is taken, Landlord or Tenant may, upon written notice given thirty (30) days after such taking or transfer in lieu thereof, terminate this lease. Tenant shall not be entitled to share in any portion of the award. Tenant shall, however, have the right to claim and recover from the condemning authority any amounts necessary to reimburse Tenant for the unamortized value of its leasehold improvements. 31. ASSIGNMENT AND SUBLETTING. Tenant shall not assign this lease, or any interest therein, and shall not sublet the Demised Premises or any part thereof, or any right or privilege appurtenant thereto, or permit any other person (the -16- agents and servants of Tenant excepted) to occupy or use the Demised Premises, or any portion thereof, without first obtaining the written consent of Landlord. Consent by Landlord to one assignment, subletting, occupation or use by another person shall not be deemed to be a consent to any subsequent assignment, subletting, occupation or use by another person. Consent to an assignment shall not release the original named Tenant from liability for the continued performance of the terms and provisions on the part of Tenant to be kept and performed, unless Landlord specifically releases the original named Tenant from said liability. Any assignment or subletting without the prior written consent of Landlord shall be void, and shall, at the option of Landlord terminate this lease. Neither this lease nor any interest therein shall be assignable, as to the interest of Tenant, by operation of law, without the prior written consent of Landlord. Landlord shall not unreasonably withhold consent of any assignment or subletting. Landlord hereby agrees that in the absence of an unusual circumstance affecting its security herein (such as the lack of economic substance of the prospective assignee) it will consent to transfers to relatives of the present stockholders of Tenant, corporations controlled by the present stockholders of Tenant and/or assignees of the dealership. 32. ATTORNEYS' FEES. In the event of any action or arbitration regarding this lease, or the enforcement hereof, the losing party shall pay to the prevailing party reasonable attorneys' fees. 33. HOLDING OVER. Any holding over after the expiration of the term of this lease, with the consent of Landlord, shall be construed to be a tenancy from month to month, cancellable upon thirty (30) days' written notice, and at a rental and upon terms and conditions as existed during the last year of the term hereof. 34. NOTICES. Wherever in this lease it shall be required or permitted that notice and demand be given or served by either party to this lease to or on the other, such notice or demand shall be given or served and shall not be deemed to have been duly given or served unless in writing and delivered personally or forwarded by certified mail, addressed as hereinafter subscribed. Either party may change such address by written notice by certified mail to the other. Notice is completed upon delivery or mailing. 35. SUCCESSORS IN INTEREST. The covenants herein contained shall, subject to the provisions as to assignment, apply to and bind the heirs, successors, executors, administrators, and assigns of all the parties hereto; and all of the parties hereto shall be jointly and severally liable hereunder. -17- 36. FORCE MAJEURE. If either party hereto shall be delayed or prevented from the performance of any act required hereunder by reason of Acts of God, strikes, lockouts, labor troubles, inability to procure materials, restrictive governmental laws or regulations or other cause without fault and beyond the control of the party obligated (financial inability excepted), performance of such act shall be excused for the period of the delay and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay; provided, however, nothing in this Article 36 contained shall excuse Tenant from the prompt payment of any rental or other charge required of Tenant hereunder except as may be expressly provided elsewhere in this lease. 37. PARTIAL INVALIDITY. If any term, covenant or condition or provision of this lease is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions hereof shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereof. 38. MARGINAL CAPTIONS. The various headings and numbers herein and the grouping of the provisions of this lease into separate articles and paragraphs are for the purpose of convenience only and shall not be considered a part hereof. 39. TIME. Time is of the essence of this lease. IN WITNESS WHEREOF, the parties have duly executed this lease together with the herein referred to exhibits which are attached hereto, the 11th day of August, 1989. LANDLORD: MARYLAND INVESTMENTS, INC., an Arizona corporation, BY: /s/ Patricia Plecas ----------------------------- Its: Managing Director ----------------------------- TENANT: LAUREL LEASING, INC., a Texas corporation, BY: /s/ Karen M. Donaldson ----------------------------- Its: Secretary ----------------------------- -18- STATE OF ARIZONA ) ) ss. County of Maricopa ) The foregoing instrument was acknowledged before me this 11th day of August, 1989, by Patricia Plecas as Managing Director of MARYLAND INVESTMENTS, INC., an Arizona corporation, for and on behalf of the corporation. /s/ Laurie Kivelch ----------------------------- Notary Public My Commission Expires February 18, 1992 - ---------------------- STATE OF ARIZONA ) ) ss. County of Maricopa ) The foregoing instrument was acknowledged before me this 11th day of August, 1989, by Karen M. Donaldson, as Secretary of LAUREL LEASING, INC., a Texas corporation, for and on behalf of the corporation. /s/ Laurie Kivelch ----------------------------- Notary Public My Commission Expires February 18, 1992 - ---------------------- -19- EXHIBIT "A" ----------- PROPERTY DESCRIPTION Assessor Parcel Nos. 155-11-030 155-11-029 155-11-031 155-011-034 EXHIBIT "B" OPTION PARCEL DESCRIPTION Assessor Parcel No. 155-11-038-8: Office Building Multiple Tenants Assessor Parcel No. 155-11-024F-9: Hideaway and Covey -2- EXHIBIT "C" HAZARDOUS SUBSTANCE DESCRIPTION EXHIBIT "C" CONDITIONALLY EXEMPT SEE ATTACHED - ARIZONA DEPARTMENT OF ENVIRONMENTAL QUALITY GENERATOR ANNUAL HAZARDOUS WASTE REPORT FOR 1987 -3- AMENDED EXHIBIT "C" (Regulated Substances) THIS AMENDED EXHIBIT "C" SHALL AMEND THAT CERTAIN EXHIBIT "C" ATTACHED TO THAT CERTAIN LEASE AGREEMENT DATED AUGUST 11, 1989, BY AND BETWEEN MARYLAND INVESTMENTS, INC. AND LAUREL LEASING, INC., FOR THE PREMISES LOCATED AT 1127 EAST CAMELBACK ROAD, PHOENIX, ARIZONA, AND UPON EXECUTION HEREOF BY SAID PARTIES HEREINBELOW SHALL BE AND BECOME PART OF SAID LEASE. The Tenant may use and store those "Regulated Substances" which are customarily used and stored by automobile dealerships engaging in the sale, lease, service and repair of new and used automobiles, provided that Tenant uses and stores only normal and customary quantities of such "Regulated Substances" and at all times uses and stores such "Regulated Substances" in compliance with any and all applicable federal, state and local laws, ordinances and regulations. DATED this 18th day of August, 1995. MARYLAND INVESTMENTS, INC., LAUREL LEASING, INC., an Arizona corporation a Texas corporation By /s/ illegible By /s/ Karen Donaldson -------------------- ----------------------- Its President Its Secretary -------------------- ----------------------- CONSENT AND COVENANT OF LAUREL LEASING, INC. TO: CAMELBACK AUTOMOTIVE, INC., an Arizona corporation ("Camelback Automotive"); and LRP, LTD., an Arizona corporation dba "Land Rover Phoenix" ("LRP"). DATED: August 18, 1995 The undersigned Laurel Leasing, Inc., a Texas corporation ("Sublessor"), as the lessee of the real property located at 1127 East Camelback Road, Phoenix, Arizona (the "Premises") under that certain "Lease" dated August 11, 1989 (the "Master Lease") by and between Sublessor and Maryland Investments, Inc., an Arizona corporation (the "Master Lessor"), and as the sublessor of the Premises to Camelback (the "Camelback Sublease"), hereby consents, acknowledges, covenants and agrees with Camelback and LRP as follows: (A) The Master Lease and the Camelback Sublease have each been amended so as to extend their respective terms through August 31, 2005, with an option to further extend the terms thereof for a period of five (5) additional years; (B) Master Lessor has previously consented to the Camelback Sublease; (C) Sublessor hereby consents to and approves of the sublease of the Premises by Camelback Automotive to LRP on the terms of that certain "Sublease Agreement" to be entered into by and between Camelback Automotive and LRP (the "LRP Sublease"), an unsigned copy of which is attached hereto as Exhibit "A"; (D) Sublessor agrees that it will give LRP prompt written notice of any breach of the Master Lease and/or the Camelback Sublease and further agrees that it will accept any cure, in payment of money or otherwise, offered or performed by LRP as if such cure were offered or performed by Camelback Automotive; (E) Provided that LRP is not in breach of the terms and conditions of the LRP Sublease, Sublessor shall not directly or indirectly interfere with LRP's quiet enjoyment of the Premises, regardless of whether Camelback Automotive is in default under the Camelback Sublease and regardless of whether the Camelback Sublease continues or is terminated, and, if the Camelback Sublease is terminated, Sublessor will abide by the terms of the LRP Sublease; and (F) Sublessor acknowledges that Camelback Automotive and LRP are entering into the LRP Sublease in reliance upon the consents, covenants and agreements given and made herein by Sublessor and Sublessor agrees that Camelback Automotive and LRP, and each entity's respective successors and assigns, may, in fact, so rely on such consents, covenants and agreements. LAUREL LEASING, INC., a Texas corporation By:/s/ Karen Donaldson ------------------- Its:Secretary --------- -2- CAMELBACK BMW SUB-LEASE AGREEMENT PROPERTY LOCATED AT 1127 E. Camelback Road Phoenix, Arizona, 85014 The purpose of this document is to sub-lease certain properties, currently leased from the Maryland Investments, Inc. by Laurel Leasing, Inc. to the Camelback Automotive Corporation. A copy of the aforementioned lease, dated August 11, 1989, accompanies this document. Laurel Leasing, Inc. does hereby lease this property to Camelback Automotive Corporation on all the same terms and conditions as apply, including all exhibits and any addendums. Camelback Automotive Corporation agrees to accept all of the aforementioned terms and conditions and will sub-lease this property. Maryland Investments, Inc. acknowledges this agreement between Laurel Leasing, Inc. and Camelback Automotive Corporation, and does hereby approve the sub-lease. LANDLORD: MARYLAND INVESTMENTS, INC. An Arizona Corporation, BY: /s/ Patricia Plecas ------------------------ IT'S Managing Director ------------------------ TENANT: LAUREL LEASING, INC., A Texas Corporation BY: /s/ Karen M. Donaldson ------------------------ IT'S Secretary ------------------------ SUB-TENANT: CAMELBACK AUTOMOTIVE CORPORATION, An Arizona Corporation BY: /s/ James B. Donaldson ------------------------ IT'S Vice President ------------------------ STATE OF ARIZONA ) ) SS: County of Maricopa ) The foregoing instrument was acknowledged before me this 22nd day of August 1989, by Patricia Plecas as Managing Director of Maryland Investments, Inc., an Arizona Corporation, for an on behalf of the corporation. /s/ Laurie K. Weld ------------------------ Notary Public 1144 East Camelback Road P.O. Box 16540 Phoenix, Arizona 85011 (602) 248-0058 CAMELBACK BMW Page 2 PROPERTY LOCATED AT SUB-LEASE AGREEMENT 1127 E. Camelback Road Phoenix, Arizona 85014 My Commission Expires February 18, 1992 STATE OF ARIZONA ) ) SS: County of Maricopa) The foregoing instrument was acknowledged before me this 22nd day of August, 1989, by Karen M. Donaldson as Secretary of LAUREL LEASING, INC., an Texas Corporation, for an on behalf of Corporation. /s/ Laurie K. Weld ------------------------ Notary Public My Commission Expires February 18, 1992 STATE OF ARIZONA ) ) SS: County of Maricopa) The foregoing instrument was acknowledged before me this 22nd day of August, 1989, by James B. Donaldson as Vice President of CAMELBACK AUTOMOTIVE CORPORATION, an Arizona Corporation, for an on behalf of the corporation. /s/ Laurie K. Weld ------------------------ Notary Public My Commission Expires February 18, 1992 1144 East Camelback Road P.O. Box 16540 Phoenix, Arizona 85011 (602) 248-0058 -2- When recorded, please return to: Stephen M. Savage, Esq. Fennemore Craig OFFICIAL RECORDS OF Suite 2200 MARICOPA COUNTY RECORDER Two North Central Avenue HELEN PURCELL Phoenix, AZ 85004-2390 95-0505603 08/23/95 12:31 MEMORANDUM OF SUBLEASE Camelback Automotive, Inc., an Arizona corporation ("Sublessor"), whose address is 14032 North Canterbury Drive, Phoenix, Arizona 85023, and LRP, Ltd., an Arizona corporation ("Sublessee"), whose address is 1127 East Camelback Road, Phoenix, Arizona 85014, hereby certify and agree as follows: 1. Sublessor and Sublessee have entered into a Sublease, dated as of July 1, 1995 (the "Sublease"), covering premises located at 1127 East Cambelback Road, Phoenix, Arizona, more particularly described on Exhibit A, attached hereto and by this reference incorporated herein (the "Premises"). 2. Sublessor subleases the Premises from Laurel Leasing, Inc., a Texas corporation, subject to and pursuant to the terms and conditions of that certain Lease, dated August 11, 1989, by and between Laurel Leasing, Inc. and Maryland Investments, Inc., an Arizona corporation. 3. The initial term of the Sublease commences on July 1, 1995 and expires on June 30, 2005. Sublessee has an option to extend the term of the Sublease for one (1) additional term of five (5) years. 4. The Sublease is filed at the offices of Sublessor and Sublessee. 5. The Sublease shall control and prevail over this Memorandum of Sublease for all purposes. Nothing herein is intended to modify or supplement the Sublease. IN WITNESS WHEREOF, the undersigned have executed this Memorandum of Sublease as of July 1, 1995. SUBLESSOR: CAMELBACK AUTOMOTIVE, INC. By: Brad Donaldson --------------------------- Its: President -------------------------- SUBLESSEE: LRP, LTD. By: Jay Beskind --------------------------- Its: President -------------------------- STATE OF ARIZONA ) ) ss. County of Maricopa ) The foregoing instrument was acknowledged before me this 18th day of August, 1995, by Brad Donaldson, the President of Camelback Automotive, Inc., an Arizona corporation, on behalf of the corporation. Linda Greenberg -------------------------- Notary Public My Commission Expires 10/25/95 - ----------------------- STATE OF ARIZONA ) ) ss. County of Maricopa ) The foregoing instrument was acknowledged before me this 18th day of August, 1995, by Jay Beskind, the President of LRP, Ltd., an Arizona corporation, on behalf of the corporation. Linda Greenberg -------------------------- Notary Public My Commission Expires 10/24/95 - ----------------------- -2- LEGAL DESCRIPTION (1127 E. Camelback) Parcel No. 1 The North 150 feet of the West 150 feet of the East 400 feet of Lot 5, Lincoln Place, according to Book 3 of Maps, Page 65, Records of Maricopa County, Arizona: EXCEPT the North 7 feet thereof, (aka Maricopa County Assessor's Parcel No. 155-11-029). Parcel No. 2 The South 150 feet of the North 183 feet of Lot 5, Lincoln Place, according to Book 3 of Maps, Page 65, Records of Maricopa County, Arizona: EXCEPT the West 180 feet and EXCEPT the East 430 feet and EXCEPT the South 7 feet of the North 40 feet thereof for a road, (aka Maricopa County Assessor's Parcel No. 155-11-030) Parcel No. 3 The North 150 feet of the West 50 feet of the East 250 feet of Lot 5, Lincoln Place, according to Book 3 of Maps, Page 65, Records of Maricopa County, Arizona: EXCEPT the North 7 feet thereof, (aka Maricopa County Assessor's Parcel No. 155-11-031). Parcel No. 4 That portion of Lot 5, Lincoln Place, according to Book 3 of Maps, Page 65, Records of Maricopa County, Arizona, described as follows: Beginning 150 feet South of the Northeast Corner; thence West 636.5 feet; thence South 20 feet; thence East 636.5 feet; thence North 20 feet to the point of beginning; EXCEPT the West 30 feet (aka Maricopa County Assessor's Parcel No. 155-11-034) EX-10.8-13 34 EXH 10.8.13 LEASE DATED 2/27/95 LEASE DATE: February 27, 1995 PARTIES: Lee S. Maas, a married man dealing with his sole and separate property ("Lessor") Sun BMW, Ltd., an Arizona corporation ("Lessee") RECITALS: A. Lessor owns the real property described on Exhibit A, attached hereto and by this reference incorporated herein, and the improvements thereon, located at 1144 East Camelback Road, Phoenix, Arizona (the "Premises"). B. Lessor and Lessee have executed that certain Real Estate Option Agreement, dated December 1, 1994 (the "Option Agreement"), whereby Lessor has granted Lessee an option (the "Option) to purchase the Premises after the date hereof. C. Lessor desires to lease the Premises to Lessee, and Lessee desires to lease the Premises from Lessor, subject to the Option Agreement. AGREEMENT: In consideration of the mutual covenants and promises herein contained, the parties agree as follows: 1. Term. The term of this Lease shall commence on the date hereof and shall expire ten (10) years after the date hereof, unless the Option is exercised, in which case the term hereof shall expire on the date of close of escrow under the Option Agreement. 2. Rent. Lessee shall pay to Lessor as rent for the Premises the sum of Fifteen Thousand Dollars ($15,000) per month, subject to adjustment as set forth in Paragraph 3 hereof, payable on or before the first day of each month of this Lease. Should the term of this Lease commence on any day other than the first day of a calendar month, the rent for that calendar month shall be prorated on the assumption of a thirty (30) day month; should the term of this Lease terminate on any day other than the last day of a calendar month, the rent for that month shall likewise be prorated on the assumption of a thirty (30) day month. In addition, at the time rent is payable hereunder, Lessee shall pay any sales tax, transaction privilege tax, education excise tax or other form of tax (other than income tax) levied by any state, county or municipal authority on the Lease income. Rent hereunder shall be payable to Lessor at 300 North Central Expressway, Richardson, Texas 75080, or at such other address as Lessor may designate in writing from time to time. 3. Rent Adjustment. Effective as of the first day of the sixth (6th) year of the term hereof, the rent shall be adjusted as follows: 3.1. Lessor and Lessee shall ascertain the Consumer Price Index (1982-84=100) published by the Bureau of Labor Statistics of the U.S. Department of Labor, entitled Consumer Price Index for All Urban Consumers, U.S. Cities Average, for the first month of the term of this Lease (the "Base CPI") and for the fifty-ninth (59th) month of the term of this Lease (the "Current CPI"). 3.2. The adjusted rental ("AR") shall be determined by multiplying the minimum rent of $15,000.00 per month by a fraction, the numerator of which is the Current CPI and the denominator of which is the Base CPI, except that, under no circumstances shall the amount of the rent be adjusted to an amount greater than 110% of the rent set forth in Paragraph 2 hereof or to an amount less than $15,000.00 per month: AR = $15,000 x Current CPI ----------- Base CPI 3.3. If publication of the Consumer Price Index for All Urban Consumers, U.S. Cities Average, shall be discontinued, the parties shall thereafter accept comparable statistics on the cost of living for U.S. Cities as they shall be computed and published by an agency or department of the United States or by a responsible financial periodical of recognized authority then to be selected by Lessor and Lessee, or, if Lessor and Lessee are unable to agree upon a selection, then by arbitration in accordance with the commercial arbitration rules then obtaining of the American Arbitration Association. In the even of use of comparable statistics in lieu of the Consumer Price Index for All Urban Consumers or nonpublication of the Index number for U.S. Cities, there shall be made in the method of computation herein provided such revisions as the circumstances may require to carry out the intent of this Paragraph and any dispute between Lessor and Lessee as to the making of such adjustment shall be determined by arbitration. 4. Use, Possession and Enjoyment. Lessor agrees that Lessee, while paying the rent and performing the other terms and conditions of this Lease, may peaceably hold and enjoy the Premises during the Lease term, without any interruption by Lessor or any person lawfully claiming by, through or under Lessor. Lessee may use the Premises only for the conduct of a motor vehicle dealership or in a manner related to the automobile business. -2- 5. Public Liability Insurance. Lessee, at its expense will maintain in full force during the term hereof public liability and property damage insurance covering the Premises and Lessee's activities therein against claims for personal injury and death to limits of at least $500,000 for each person and $1,000,000 for each occurrence and against property damage claims to a limit of at least $100,000 or in such greater amounts as may be required by an institutional lender who holds a first encumbrance against the Premises. Lessee will furnish to Lessor a certificate evidencing the fact that such insurance has been obtained and is in full force and effect, that Lessor and any such institutional lender are additional insureds thereunder, and that such insurance cannot be cancelled without ten (10) days' prior notice to Lessor and any such institutional lender. 6. Indemnity. Lessee will hold harmless and indemnify Lessor from and against any and all loss, cost or damage arising by reason of injury or death of persons or damage to property in or upon the Premises or caused by activities conducted thereon; provided, however, that Lessee will not be required to indemnify Lessor against any damage or injury of any kind arising out of the negligence of Lessor, its agents or employees. 7. Fire Insurance. Lessee, at its expense, will maintain in full force and effect during the term hereof fire and extended coverage insurance upon the Premises in an amount not less than the replacement cost thereof or such greater amount as may be required by an institutional lender who holds a first encumbrance against the Premises. Lessee will furnish to Lessor a certificate evidencing the fact that such insurance has been obtained and is in full force and effect, that Lessor and any such institutional lender are additional insureds thereunder, and that such insurance cannot be cancelled without ten (10) days' prior notice to Lessor and any such institutional Lender. Lessor and Lessee agree that no insurer of any interest of either is to have any right of subrogation against the other and that all fire and other insurance policies carried by either on the Premises or the fixtures and equipment therein or other contents thereof will contain a full waiver of subrogation by the insurer. 8. Utilities. Lessee shall promptly pay when due all water, gas, electricity, telephone, garbage and other utility or service charges which may be incurred in connection with Lessee's use of the Premises or furnished to or used in or about the Premises during the term of this Lease, including any and all connection and disconnection charges. 9. Taxes. During the term hereof, Lessee shall pay before delinquent all license fees, rental taxes, sales taxes and ad valorem property taxes and assessments levied and assessed against personal property of Lessee placed upon the Premises, except to the extent that Lessee shall in good faith be -3- contesting any such tax by appropriate proceedings. During the term hereof, Lessee shall pay before delinquent all ad valorem and other property taxes and assessments levied and assessed against the real property and the improvements thereon. All such taxes for the years during which the term of this Lease shall begin and end shall be prorated to the date of commencement and the date of termination, as applicable. 10. Repairs and Maintenance; Alterations. Lessee shall, at its sole cost and expense, keep and maintain any and all improvements now or hereafter located upon the Premises, including, but not limited to, fencing, trees, shrubs, landscaping wiring, heating, air conditioning, plumbing, roof, exterior and interior walls, glass, appliances, fixtures and other installations, in the same or better condition as when received, ordinary wear and tear excepted, and shall not cause or permit any unusual objectionable noises or odors to emanate from the Premises. It is expressly understood and agreed by Lessee that Lessor shall have no obligation to maintain, repair or improve the Premises during the term of this Lease. Lessee may alter and improve the Premises without Lessor's consent. Upon the expiration or termination of the Lease term, Lessor shall retain as Lessor's property any leasehold improvements made by Lessee to the Premises or any leasehold improvements to the Premises purchased by Lessee from Sun-West Imports, Inc. 11. Signs. Lessee, at Lessee's sole cost and expense, may erect, maintain and repair upon the Premises a sign or signs pertaining to the Lessee's use of the Premises. All signs erected upon the Premises shall in all respects conform with all state, county and municipal laws, ordinances and regulations or validly issued variances therefrom. 12. Damage by Fire or Elements. In case of damage by fire or other action of the elements to the Premises or any improvements thereon, Lessee shall repair the Premises and any improvements thereon with reasonable dispatch to their condition immediately prior to said damage. 13. Condemnation. If all or substantially all of the Premises shall be taken or damaged under any right of eminent domain or any transfer in lieu thereof (a "Taking"), then, and in that event, the term of the Lease shall cease and terminate from the date of such Taking if and only if Lessee terminates the Option Agreement or the Escrow Instructions and Addendum referred to therein, as the case may be, as a result of the Taking pursuant to the terms thereof. In the event of a Taking not covered by the first sentence of this paragraph, this Lease shall terminate as to any part of the Premises taken as of the date the condemning authority takes title or possession, whichever occurs first, and the rent payable hereunder shall be reduced in the proportion that the square footage taken bears to the total square footage of the Premises. All condemnation proceeds relating to the real property shall be paid to Lessor or its -4- incumbrancer, except as may otherwise be provided in the Real Estate Agreement. 14. Default. The occurrence of any of the following events will constitute an event of default hereunder on the part of Lessee: (i) failure to pay any installment of rent or any part thereof which is then due and payable within ten (10) days after written notice thereof from Lessor to Lessee; or (ii) default in the performance of any of Lessee's agreements or obligations hereunder, such default (except default in the payment of any installment of rent) continuing for thirty (30) days after written notice thereof from Lessor to Lessee, provided that if such default is other than the payment of money and cannot reasonably be cured within such thirty day period, then Lessee will not be in default hereunder if Lessee, within such thirty (30) day period, commences curing of such default and diligently and in good faith prosecutes the same. Upon the Occurrence of any such event of default and during the continuance thereof, Lessor shall be entitled to exercise all rights and remedies allowed by law. 15. Holding Over. Any holding over by Lessee after the expiration of the term of this Lease shall, with the consent of Lessor, be construed to be a tenancy from month-to-month for the monthly rent herein provided plus ten percent (10%) and upon the same terms and conditions as otherwise herein set forth. 16. Attorney's Fees. In the event of litigation arising in connection with this Lease, the unsuccessful party shall pay to the prevailing party all costs of suit, including reasonable attorneys' fees. 17. Notices. In the event that any party hereto desires to serve a written notice upon any other party, such notice shall be delivered or sent by United States mail, certified or registered, return receipt requested, addressed to the party to receive such notice. Such notice shall be sent to the addresses set forth below: To the Lessor: Mr. Lee S. Maas 300 North Central Expressway Richardson, Texas 75080 With copy to: Jennings & Haug Attn: John King, Esq. 2800 North Central, Suite 1800 Phoenix, AZ 85004-1049 To the Lessee: Sun BMW, Ltd. Attn: Mr. Steven Knappenberger 6725 East McDowell Scottsdale, AZ 85257 -5- With copy to: Fennemore Craig Attn: Stephen M. Savage, Esq. Two North Central, Suite 2200 Phoenix, AZ 85004-2390 or to such other addresses as may be designated from time to time and shall be deemed to be effective when delivered or five (5) days after deposit in the United States mail. 18. Law Governing. This Lease shall be governed by and construed in conformity with the laws of the State of Arizona. 19. Exclusive Agreement. This Lease constitutes the exclusive agreement between the parties hereto relating to the lease of the Premises and supersedes any prior agreement between the parties hereto relating to the lease of the Premises. Nothing contained herein shall be deemed to limit, modify or cancel any representations, warranties or covenants of Lessor in the Option Agreement. 20. Paragraph Captions. The paragraph captions as to the contents of particular paragraphs herein are inserted only for convenience, and are in no way to be construed as a part of this Lease or as a limitation on the scope of the paragraphs to which they refer. 21. Benefit and Burden. The rights, duties and liabilities created hereunder shall inure to the benefit of and be binding upon the parties hereto, their heirs, personal representatives, successors and assigns. -6- IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and year first above written. LESSOR: /s/ Lee S. Maas -------------------------------- Lee S. Maas LESSEE: SUN BMW, LTD. By /s/ Illegible ----------------------------- Its Chairman STATE OF ARIZONA ) )ss. County of MARICOPA ) The foregoing instrument was acknowledged before me this 27th day of February, 1995, by Lee S. Maas. /s/ Marie M. Morrell -------------------------------- Notary Public My Commission Expires: My Commission Expires January 9, 1996 - ------------------------------------- -7- STATE OF ARIZONA ) )ss. County of MARICOPA ) The foregoing instrument was acknowledged before me this 27th day of February, 1995, by Steven Knappenberger, Chairman of Sun BMW, Ltd., an Arizona corporation, for and on behalf thereof. /s/ Marie M. Morrell -------------------------------- Notary Public My Commission Expires: My Commission Expires January 9, 1996 - ------------------------------------- -8- EXHIBIT A TO LEASE That part of the Southeast quarter of the Southeast quarter of the Southwest quarter of Section 16, Township 2 North, Range 3 East of the Gila and Salt River Base and Meridian, Maricopa County, Arizona; described as follows: The South 250.00 feet of the following described parcel: BEGINNING at a point on the South line of said Section 16 which bears South 89 degrees 58 minutes 4 seconds West, 322.00 feet from the Southeast corner of the Southeast quarter of the Southeast quarter of the Southwest quarter of said Section 16; thence North 660.20 feet, more or less, parallel to and 322.00 feet West of the East line of the Southwest quarter of said Section 16; thence South 89 degrees 57 minutes 00 seconds West, 344.50 feet along the North line of said Southeast quarter of the Southeast quarter of the Southwest quarter of said Section 16, to the Northwest corner of the Southeast quarter of the Southeast quarter of the Southwest quarter of said Section 16; thence South 0 degrees 00 minutes 26 seconds East, 660.10 feet, more or less, to a point on the South line of said Section 16; thence East 344.41 feet, more or less, along the South line of said Section 16, to the Point of Beginning; EXCEPT the South 40 feet thereof; and EXCEPT from said South 250 feet, the North 0.05 feet thereof lying Northerly of the Southerly face of the existing wall, as said wall existed August 2, 1976. -9- WHEN RECORDED RETURN TO: Stephen M. Savage, Esq. Fennemore Craig Suite 2200 Two North Central Avenue Phoenix, AZ 85004-2390 MEMORANDUM OF LEASE This Memorandum of Lease is made and entered into as of the 27th day of February, 1995, by and between Lee S. Maas, a married man dealing with his sole and separate property ("Lessor"), and Sun BMW, Ltd., an Arizona corporation ("Lessee"). Lessor and Lessee have entered into a Lease of even date herewith (the "Lease"), whereby Lessor leases to Lessee and Lessee leases from Lessor property located at 1144 East Camelback Road, Phoenix, Arizona, more particularly described on Exhibit A, attached hereto and by this reference incorporated herein (the "Property"). The initial term of the Lease expires ten (10) years after the date hereof or on such earlier date as set forth in the Lease. Lessor and Lessee desire to give actual and constructive notice of the Lease to all persons dealing with the Property. Nothing in this Memorandum shall be deemed to modify, amend or supplement the terms and conditions set forth in the Lease. IN WITNESS WHEREOF, the parties have executed this Memorandum of Lease as of the date first set forth above. LESSOR: /s/Lee S. Maas ------------------------------- Lee S. Maas -2- LESSEE: SUN BMW, LTD. By/s/ Steven Krappenberger ----------------------------- Its Chairman STATE OF ARIZONA ) ) ss. County of Maricopa The foregoing instrument was acknowledged before me this 27th day of February, 1995, by Lee S. Maas. /s/ Marie M. Morrell ----------------------------- Notary Public My Commission Expires: My Commission Expires Jan 9, 1996 - ---------------------------------- -3- STATE OF ARIZONA ) ) ss. County of Maricopa ) The foregoing instrument was acknowledged before me this 27th day of February, 1995, by Steven Krappenberger, Chairman of Sun BMW, Ltd., an Arizona corporation, for and on behalf thereof. /s/ Marie M. Morrell -------------------------------- Notary Public My Commission Expires: My Commission Expires Jan 9, 1996 - --------------------------------- -4- EXHIBIT A TO MEMORANDUM OF LEASE That part of the Southeast quarter of the Southeast quarter of the Southwest quarter of Section 16, Township 2 North, Range 3 East of the Gila and Salt River Base and Meridian, Maricopa County, Arizona; described as follows: The South 250.00 feet of the following described parcel: BEGINNING at a point on the South line of said Section 16 which bears South 89 degrees 58 minutes 4 seconds West, 322.00 feet from the Southeast corner of the Southeast quarter of the Southeast quarter of the Southwest quarter of said Section 16; thence North 660.20 feet, more or less, parallel to and 322.00 feet West of the East line of the Southwest quarter of said Section 16; thence South 89 degrees 57 minutes 00 seconds West, 344.50 feet along the North line of said Southeast quarter of the Southeast quarter of the Southwest quarter of said Section 16, to the Northwest corner of the Southeast quarter of the Southeast quarter of the Southwest quarter of said Section 16; thence South 0 degrees 00 minutes 26 seconds East, 660.10 feet, more or less, to a point on the South line of said Section 16; thence East 344.41 feet, more or less, along the South line of said Section 16, to the Point of Beginning; EXCEPT the South 40 feet thereof; and EXCEPT from said South 250 feet, the North 0.05 feet thereof lying Northerly of the Southerly face of the existing wall, as said wall existed August 2, 1976. -5- EX-10.8-14 35 EXH 10.8.14 SHAREHOLDERS AGREEMENT SHAREHOLDERS' AGREEMENT This Shareholders' Agreement, dated as of October ___, 1996, is by and among UAG West, Inc., a Delaware corporation ("UAG West"), SK Motors, Ltd., an Arizona corporation, d/b/a Scottsdale Porsche (the "Company"), and the Knappenberger Revocable Trust Dated April 15, 1983, as Amended ("Knappenberger Trust"). UAG West and Knappenberger Trust and each other person or entity that may become a party hereto as contemplated hereby, are hereinafter individually referred to as a "Shareholder" and collectively referred to as the "Shareholders". W I T N E S S E T H : WHEREAS, the parties hereto have entered into that certain Stock Purchase Agreement dated as of June 6, 1996, as amended (the "Stock Purchase Agreement"); WHEREAS, immediately prior to the Closing of the Stock Purchase Agreement, Scottsdale Jaguar, Ltd., an Arizona corporation ("Scottsdale Jaguar") shall own 100 shares (the "Shares") of no par value common stock of the Company ("Common Stock"), representing all of the issued and outstanding shares of Common Stock; WHEREAS, pursuant to the Stock Purchase Agreement, at the Closing, Scottsdale Jaguar shall sell, assign, transfer and deliver the Shares to UAG West; WHEREAS, pursuant to the Stock Purchase Agreement, at the Closing, UAG West shall sell, assign, transfer and deliver 19 shares of the Common Stock, representing nineteen (19%) percent of the issued and outstanding shares of Common Stock of the Company to Knappenberger Trust (the "Knappenberger Shares"); and WHEREAS, the Company, UAG West, United Auto Group, Inc. and Porsche Cars North America, Inc. ("Porsche") have entered into a Sales and Service Agreement and an addendum thereto (the "Sales and Service Agreement"); WHEREAS, UAG West, the Company and Knappenberger Trust 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 TRANSFER OF SECURITIES SECTION 1.1. CONSENT OF UAG WEST. (a) Subject to the rights of Knappenberger Trust contained in Article 3 hereof and except as otherwise provided herein and for as long as UAG West (or an affiliate thereof) shall own at least 20% of the issued and outstanding shares of Common Stock, no Shareholder other than UAG West 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 West and Porsche Cars of North America, Inc. ("Porsche"). Any Transfer effected, or purported or attempted to be effected, not in accordance with the terms and conditions of this Section 1.1, 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. SECTION 1.2. GENERAL RESTRICTIONS. No Shareholder (including UAG West and any other Shareholder permitted to Transfer shares of capital stock of the Company or any interest therein in accordance with Section 1.1 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 and the Sales and Service Agreement; and (ii) the transferee (if other than another Shareholder) agrees to be bound by this Agreement and the Sales and Service 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 reasonably 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. 2 SECTION 1.3. LEGENDS ON STOCK CERTIFICATES. For so long as shares of capital stock of the Company held by a Shareholder are subject to this Agreement, all certificates representing such shares shall bear the following legend: The securities represented by this certificate are subject to restrictions on transfer and certain other provisions of the Shareholders' Agreement, dated as of October ___, 1996, as the same may be amended from time to time, by and among UAG West, Inc., ("UAG West"), SK Motors, Inc. (the "Company"), Steven Knappenberger, Knappenberger Revocable Trust Dated April 15, 1983 as Amended and certain other shareholders of the Company who may from time to time become parties to such Shareholders' Agreement and to the provisions of the Sales and Service Agreement between the Company, UAG West, United Auto Group, Inc. and Porsche Cars North America, copies of which may be obtained at the offices of the Company. SECTION 1.4. IMPROPER TRANSFERS INEFFECTIVE. Any purported transfer of Common Stock by a Shareholder which is not permitted by the foregoing provisions of this Article 1, or which is in violation of such provisions, shall be void and of no force and effect whatsoever. ARTICLE 2 PURCHASE AND SALE OF SHARES Upon the occurrence of a Dealer Termination Event (as defined in the Sales and Service Agreement) as to Knappenberger and subject to the consent and approval of Porsche, UAG West shall have the right (the "Call") to acquire the Knappenberger Shares for the Share Value (as defined below) for the purpose of transferring, selling or assigning the Knappenberger Shares to a Dealer Principal (as defined in the Sales and Service Agreement). UAG West may exercise the Call by notifying Knappenberger Trust in writing of such exercise. Within five (5) days of receipt of such notice or such later date as is set forth in the notice, Knappenberger Trust shall sell, assign, transfer and deliver to UAG West the Knappenberger Shares and the certificates representing such shares accompanied by stock powers duly executed in blank. For purposes of this Agreement, the Share Value shall be an amount equal to the Subsequent Value (as defined in the Dealer Agreement) minus the sum of the Initial Value (as defined in the Dealer Agreement) plus an amount equal to 15% of the Initial Value per annum from the date hereof through the date the Knappenberger Shares are transferred. 3 If, at any time, the Company ceases to operate a Porsche dealership, Knappenberger Trust shall transfer, assign and deliver the Knappenberger Shares to UAG West. As to any successor Dealer Principal consented to and approved by Porsche, upon a Dealer Termination Event as to any such successor, such Dealer Principal shall be required to sell and UAG West shall be required to purchase the Company shares then held by such Dealer Principal on the terms and subject to the conditions set forth in the Sales and Service Agreement. ARTICLE 3 MISCELLANEOUS SECTION 3.1. TERM. All provisions of this Agreement shall terminate upon, in respect of any Shareholder, when such Shareholder no longer owns any capital stock of the Company. SECTION 3.2. AMENDMENT; WAIVER. This Agreement may be altered or amended only with the written consent of all of the parties hereto and Porsche. 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 3.3. 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 3.4. 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 and the Sales and Service Agreement; PROVIDED, HOWEVER, that the rights of Knappenberger Trust contained in Article 3 hereof cannot be assigned or otherwise transferred in connection with any 4 Transfer of shares of Common Stock by Knappenberger Trust without the prior written consent of UAG. No assignment of this Agreement shall relieve the assignor from any liability hereunder. SECTION 3.5. 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 and the Sales and Service Agreement. SECTION 3.6. 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 Knappenberger Trust: Mr. Steven Knappenberger 6725 E. McDowell Road Scottsdale, Arizona 85257 If to UAG West or the Company: United Auto Group, Inc. 375 Park Avenue New York, New York 10152 Facsimile No.: (212) 223-5148 Attn: George G. Lowrance, Esq., Executive Vice President 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 5 three (3) days after the date so mailed; PROVIDED, HOWEVER, that any notice or communication changing any of the addresses set forth above shall be effective and deemed given only upon its receipt. SECTION 3.7. 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 3.8. 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 3.9. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Arizona, without giving effect to the choice-of-law provisions thereof. SECTION 3.10. SALES AND SERVICE AGREEMENT. This Agreement has been entered into pursuant to the terms of the Sales and Service Agreement and should be construed in a manner that is consistent with said agreement and to give reasonable effect to the provisions thereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. UAG WEST, INC. By: ---------------------------------------- Name: Title: SK MOTORS, LTD. By: ---------------------------------------- Name: Title: STEVEN KNAPPENBERGER REVOCABLE TRUST DATED APRIL 15, 1983, AS AMENDED ------------------------------------------- STEVEN KNAPPENBERGER, TRUSTEE 125107.10 7 EX-10.8-15 36 EXH 10.8.15 MANAGEMENT AGREEMENT MANAGEMENT AGREEMENT THIS AGREEMENT is made and entered into as of the ____ day of October, 1996, by and between UNITED AUTO GROUP, INC., a Delaware corporation ("UAG"), UAG WEST, INC., a Delaware corporation ("Company"), and SCOTTSDALE JAGUAR, LTD., an Arizona corporation ("Dealership"). W I T N E S S E T H: WHEREAS, Dealership operates a Jaguar automobile dealership, to service and sell new and used Jaguar automobiles; WHEREAS, Steven Knappenberger ("Knappenberger") is the Dealer Principal of the Dealership; WHEREAS, George W. Brochick ("Brochick") is the General Manager of the Dealership and is responsible for day-to-day operating control of the Dealership; WHEREAS, Knappenberger has entered into a long-term employment agreement with the Company pursuant to which Knappenberger is employed as President and Chief Operating Officer of the Company (the "Knappenberger Employment Agreement"); WHEREAS, Brochick has entered into a long-term employment agreement with the Company pursuant to which Brochick is employed as Executive Vice-President of the Company (the "Brochick Employment Agreement"); WHEREAS, Dealership and Company desire to enter into this Agreement pursuant to which Dealership will presently maintain its current management team; NOW, THEREFORE, in consideration for the premises and of the promises and agreements hereinafter set forth and for other good and valuable consideration, the adequacy and sufficiency of which is hereby acknowledged, Dealership and Company mutually agree as follows: ARTICLE 1 MANAGEMENT AND OPERATION OF THE DEALERSHIP 1.1 Company shall employ Knappenberger as President and Chief Operating Officer of the Company pursuant to the terms of the Knappenberger Employment Agreement. 1.2 Company shall employ Brochick as Executive Vice-President of the Company pursuant to the terms of the Brochick Employment Agreement. 1.3 Knappenberger shall continue to operate as Dealer Principal of the Dealership. Brochick shall continue to operate as President and General Manager of the Dealership and will be responsible for day-to-day operating control of the Dealership and will continue to be the Dealer Operator. Any changes in the Dealer Operator or Dealer Principal will be made in compliance with the terms of the Dealer Agreement between Jaguar Cars and the Dealership (the "Dealership Agreement"). 1.4 The Dealership will continue to be operated in accordance with the terms of the Dealership Agreement. 1.5 During the term of this Agreement, the Company shall provide or arrange for financing necessary to operate the Dealership and to maintain working capital levels as the Dealership and the Company determine are reasonably necessary and to satisfy its liability under that certain Indemnification Agreement of even date herewith by and between Dealership and its stockholders. UAG and the Company shall guarantee any such indebtedness, as may be reasonably necessary. Dealership agrees to pay the Company or UAG a commercially reasonable fee for arranging or guaranteeing any third party financing. ARTICLE 2 MANAGEMENT FEE 2.1 As compensation for the services to be rendered hereunder by the Company through its employees, Dealership shall pay to Company an annual fee of Five Hundred Thousand Dollars ($500,000), payable monthly, which fee shall be increased on January 1, 1998 and annually thereafter to an amount equal to the then current annual fee plus a percentage of the then current annual fee equal to the percentage increase in the Consumer Price Index published from time to time by the United States Department of Labor for the preceding twelve month period. The management fee for each monthly period shall be paid no later than fifteen (15) days after the end of such monthly period, except that Dealership may defer payment of the management fee for any monthly period to the extent that the management fee during such period exceeds the Dealership's net income after tax (calculated before taking into account the management fee) for such period, and after establishment of any reserves for working capital as the Dealership and the Company determines are reasonably necessary or for other taxes due or to become due or indemnities in respect thereof. If the Dealership defers payment of any management fees and has net income after tax in any subsequent period, Dealership shall pay such deferred management fees as promptly as reasonably possible. 2 2.2 Dealership shall be solely liable for the costs and expenses of maintaining and operating the Dealership and shall pay all costs and expenses of maintaining, operating, and supervising the operation of the Dealership, including without limitation, the salaries, bonuses, and fringe benefits of all personnel employed by or for operations at the Dealership (other than the salaries and bonuses of Knappenberger and Brochick). The termination of Knappenberger's or Brochick's employment with the Company shall not terminate this Agreement and shall have no effect on the Dealership's obligations hereunder. ARTICLE 3 TERM The term of this agreement shall commence as of the date first written above and shall continue until the earlier of (i) the thirtieth (30th) anniversary of the date of this Agreement or (ii) the loss by Dealership of its Jaguar franchise. ARTICLE 4 MISCELLANEOUS 4.1 INDEMNIFICATION. Dealership agrees to indemnify, fully defend, save and hold harmless Company and any of its respective officers, directors, employees, stockholders, advisers, representatives, agents and affiliates (each an "Indemnified Party"), if an Indemnified Party shall at any time or from time to time suffer any Costs (as defined below) arising, directly or indirectly, out of or resulting from, or shall pay or become obligated to pay any sum on account of, this Agreement or UAG West's obligations hereunder other than Costs arising out of UAG West's breach of this Agreement, gross negligence or wilful misconduct, as to which UAG West shall indemnify Dealership for all Costs arising therefrom, and provided, further, that nothing herein shall be deemed to modify or limit any other obligation of the parties to one another. For purposes of this Agreement, Costs shall mean all liabilities, losses, costs, damages, expenses, claims, attorneys' fees, experts' fees, consultants' fees and disbursements of any kind or of any nature whatsoever. 4.2 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. 4.3 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: 3 If to the Company: Steven 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 UAG West: United Auto Group, Inc. 375 Park Avenue New York, New York 10022 Attn: George G. Lowrance, Esq., Executive Vice President 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. 4.4 WAIVER AND AMENDMENTS. Any failure of a party to comply with any obligation, covenant, agreement or condition herein may be expressly waived in writing by the other party, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. This Agreement may be amended, modified or supplemented only by a written instrument executed by the parties hereto. 4 4.5 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. 4.6 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. 4.7 TIME IS OF THE ESSENCE. Time is of the essence for purposes of this Agreement. 4.8 GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Arizona, without giving effect to the choice-of-law provisions thereof. 4.9 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. 4.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of and be enforceable against the parties hereto and their respective heirs, legal representatives, successors and permitted assigns. 5 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered, as of the date and year first above written. UNITED AUTO GROUP, INC. By:______________________________ Its:___________________________ UAG WEST, INC. By:______________________________ Its:___________________________ SCOTTSDALE JAGUAR, LTD. By:______________________________ Its:___________________________ 6 EX-10.8-16 37 EXH 10.8.16 FORM OF AGREE (6725 AGENT & SCOTTDALE LEASE AGREEMENT THIS LEASE AGREEMENT ("Lease") made this ____ day of October, 1996, by and between 6725 AGENT, an Arizona general partnership ("Landlord"), and SCOTTSDALE JAGUAR, LTD., an Arizona corporation ("Tenant"). W I T N E S S E T H: FOR AND IN CONSIDERATION of the sum of $10.00 Dollars in hand paid and of the mutual covenants and conditions contained herein, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. PREMISES. Landlord leases to Tenant and Tenant leases from Landlord the real property located at 6725 East McDowell Road, Scottsdale, Arizona, being more particularly described on the attached EXHIBIT "A" incorporated herein by reference, together with all improvements thereon and all rights, privileges, easements and appurtenances pertaining thereto (collectively, the "Premises") upon the terms contained herein. Tenant's right to use the Premises is non-exclusive and shall be held in common with Scottsdale Audi, Ltd., an Arizona corporation, its successors and assigns ("Audi") and SK Motors, Ltd., an Arizona corporation, d/b/a Scottsdale Porsche, its successors and assigns ("Porsche"). 2. TERM. The term hereof shall begin on the date hereof and shall end at -1- midnight December 31, 2016 ("Term"); provided however, Landlord, at Landlord's sole option, has the right to terminate this Lease at any time until April 30, 1998, upon not less than thirty (30) days written notice to Tenant ("Landlord's Termination Right"). Tenant shall have thirty (30) days to vacate the Premises after Landlord's written notice. 3. RENT. (a) From the commencement date through December 31, 1997, Tenant agrees to pay Landlord, as rent for the Premises ("Rent") the sum of Seven Hundred Fifty Thousand and no/100 ($750,000) Dollars per year, payable in advance in monthly installments of Sixty-Two Thousand Five Hundred and No/100 Dollars ($62,500.00) on the first day of each month. (b) On January 1, 1998, and on the first day of each year thereafter during the Lease Term, the Rent shall be increased by an amount equal to four percent (4%) of the Rent payable the prior year (the "Escalator"); provided, however, Landlord may, at its sole option, choose not to adjust the Rent in any particular year by the full amount of the Escalator in which event Landlord shall have the right in the following years to adjust the Rent by the Escalator plus any amount the Rent could have been so adjusted in prior years (the "Cumulative Adjustment"). For example, Rent for calendar year 1999 would be $811,200 but if Landlord were to increase the Rent to only $800,000, Rent for calendar year 2000 would be $843,648 unless Landlord chooses to adjust the Rent to a lower amount. 1. UTILITIES. Tenant shall pay Tenant's Pro Rata Share (as defined herein) of all utility bills, including, but not limited to water, sewer, gas, electricity, fuel, -2- light, and heat bills, for the Premises, and all garbage collection services or other sanitary services rendered to the Premises or used in connection therewith ("Utility Services"). Tenant's Pro Rata Share shall be equal to a fraction, the numerator of which shall be Tenant's gross revenues and the denominator of which shall be the total gross revenues of all occupants of the Premises, including Porsche, Audi, Tenant and any other party to whom use rights in the Premises are granted. Tenant shall pay as additional rent, one third of the estimated cost (the "Percentage Estimated Cost") of the annual Utility Services. The Percentage Estimated Cost shall be paid by Tenant in monthly installments as additional rent on or before March 1st of each year. Provided Landlord has received Tenant's financial statement showing gross revenues as provided herein, Landlord shall compute Tenant's Pro Rata Share of the actual annual cost for Utility Services and compare it to the collected Percentage Estimated Cost for the year, whereupon Tenant shall either receive a credit towards the next month's installment of Percentage Estimated Cost or a written statement from Landlord for any additional amount owed by Tenant as Tenant's Pro Rata Share, in which case Tenant shall pay such amount as additional rent the first day of the following month. 2. USE OF THE PREMISES; ENVIRONMENTAL INDEMNITY. The Premises shall be used for the operation of a new and used automobile dealership, service facility and uses incidental thereto, and for any other purposes which may be agreed to by the parties. Tenant shall not violate any federal or state environmental law, and Tenant agrees to indemnify and hold Landlord harmless from any and all damages, costs, fines and expenses that might arise as a result of any such violation and from its placement -3- upon the Premises of hazardous wastes and toxic substances that are placed on the Premises. 3. REPAIRS BY LANDLORD. Landlord shall be obligated to repair and maintain the roof, foundation and all structural portions of the Premises, provided Tenant shall pay Tenant's Pro Rata Share of the cost for such repair and maintenance within twenty (20) days after Landlord requests payment of Tenant's Pro Rata Share. Landlord shall maintain the Premises in good order and repair. Tenant shall, throughout the Term, pay Landlord Tenant's Pro Rata Share of the cost for maintaining the Premises in good order and repair, including but not limited to, repair and maintenance of the electrical, heating, ventilation and air conditioning and plumbing systems, and for the cost to care for all landscaping on the Premises, including the mowing of grass, paving, policing, care of shrubs and general landscaping within twenty (20) days after Landlord requests payment of Tenant's Pro Rata Share thereof. 4. REPAIRS BY TENANT. Tenant accepts the condition of the Premises as of the date hereof and agrees that the Premises are suited for the uses specified herein. All repairs, replacement and maintenance required by Tenant or necessitated by Tenant's actions, shall be Tenant's sole responsibility; provided, however, if such repairs, replacement or maintenance are necessitated as a result of Tenant's actions and Tenant fails to perform such repair, replacement or maintenance, Landlord may upon two (2) days notice to Tenant make such repair, replacement or maintenance and bill Tenant for the cost, which cost shall be deemed and collectable as additional rent. Tenant agrees to return the Premises to Landlord in as good condition and repair as -4- when first received by Tenant, natural wear and tear, damage by storm, fire, lightening, earthquake or other casualties and condemnation excepted. 5. TAX AND INSURANCE. Tenant shall pay Tenant's Pro Rata Share of all charges for taxes (including, but not limited to, ad valorem taxes, special assessments and any other governmental charges) on the Premises. Tenant shall also pay Tenant's Pro Rata Share of the cost for insurance premiums for fire and extended insurance coverage on the Premises in amounts equal to the full replacement value of the Premises. Such insurance shall be obtained by Landlord, or Landlord's agent, on policies issued by underwriters acceptable to Landlord. All policies shall insure Landlord and Tenant as their respective interests shall appear. Landlord, or Landlord's agent, shall also obtain general liability insurance covering the Premises naming Tenant as an additional insured. Tenant shall be responsible for Tenant's Pro Rata Share of the cost for such insurance, which shall be paid monthly by Tenant as additional rent. The dollar amount of such insurance coverage shall be reviewed annually, and adjusted if necessary, in order to provide for adequate protection to Landlord, Tenant, Porsche, Audi and any other party to whom use rights in the Premises have been granted. Tenant shall promptly pay as additional rent during the Term, the Percentage -5- Estimated Cost for such taxes and insurance. Provided Landlord has received Tenant's financial statement showing gross revenues as provided herein, Landlord shall compute Tenant's Pro Rata Share of the actual annual cost for such taxes and insurance and compare it to the collected Percentage Estimated Cost for the year, whereupon Tenant shall either receive a credit towards the next month's installment of Percentage Estimated Cost or a written statement from Landlord for any additional amount owed by Tenant as Tenant's Pro Rata Share, in which case Tenant shall pay such amount as additional rent the first day of the following month. 6. DESTRUCTION OF OR DAMAGE TO THE PREMISES. If the Premises should be damaged or destroyed by any insured peril whatsoever, all insurance proceeds shall be used by Landlord to rebuild and repair the Premises to such condition as Landlord in its sole discretion shall determine is appropriate. 7. TENANT'S GROSS REVENUES. Tenant shall deliver to Landlord within thirty (30) days after Tenant's fiscal year end, Tenant's financial statement for such fiscal year which shall include Tenant's gross revenues for such year. 8. INDEMNITY; WAIVER OF SUBROGATION. Subject to Landlord's obligations in this Lease, Tenant agrees to indemnify and hold Landlord harmless against all claims and expenses resulting therefrom, including actual attorneys' fees reasonably incurred and court costs, for damage to persons or property by reason of the use or occupancy of the Premises by Tenant. Landlord and Tenant each hereby release and waive any right of recovery against the other for any loss, claim, liability, or damage occurring on or to the Premises, whether wholly or contributorily caused by the negligence of the other party, to the extent that the same is compensated by actual receipt of proceeds from insurance policies covering such loss, claim, liability, or damage. 9. ALTERATIONS. Tenant shall make no structural alterations, additions or improvements to the Premises without the express prior written consent of Landlord which consent shall not be unreasonably withheld or delayed. Tenant may make non- -6- structural changes and modifications to the Premises without Landlord's approval provided Tenant has obtained Porsche and Audi's approval for such changes and modifications. Tenant agrees to save Landlord harmless on account of any claim or lien of mechanics, materialmen or other party, in connection with any alterations, additions or improvements of or to the Premises performed by Tenant. Tenant shall furnish such waivers of liens and appropriate affidavits from the general contractor or subcontractors as Landlord may reasonably request. Notwithstanding the foregoing, Tenant shall also be entitled to make the following changes without necessity of Landlord's consent, but subject to obtaining Porsche and Audi's consent: (i) any alterations required to be made by it pursuant to governmental orders, rules, laws, regulations, ordinances or requirements, (ii) any changes in its signage, and (iii) those changes recommended or required by the automobile manufacturer whose automobiles are sold on the Premises. 10. GOVERNMENTAL ORDERS. Tenant agrees, at its own expense, to promptly comply with all requirements of any public authority made necessary by reason of Tenant's occupancy of the Premises or which may be necessary for Tenant's occupancy to continue. 11. CONDEMNATION. If all or a substantial part of the Premises is condemned for any public use or purpose, then the Term shall cease from the date when possession thereof is taken, and rent shall be prorated as of that date; provided, however, that Tenant may elect to continue this Lease as to the remaining portion of the Premises in full force and effect notwithstanding any such taking; provided Porsche, -7- Audi and any other party to whom use rights in the Premises have been granted agree the Premises are sufficient to sustain all such parties' use. Any termination shall be without prejudice to the rights of either Landlord or Tenant to recover compensation and damage caused by such condemnation from the condemnor. Except as provided herein, neither Tenant nor Landlord shall have any rights in any award made solely to the other by any condemnation authority notwithstanding the termination of the Lease as herein provided. If the Lease is not terminated as provided above, then (i) this Lease shall continue in effect with respect to the remaining portion of the Premises, in which event the rent payable hereunder during the unexpired portion of the Term of this Lease shall be adjusted proportional to the ratio of the value of the remaining portion of the Premises to the total value of the Premises prior to the taking, and (ii) all condemnation awards shall be paid to Landlord to hold for payment of repair and restoration to the Premises. The phrase "substantial part," for purposes of this section shall mean so much of the Premises, the improvements located thereon, access to the Premises, or any combination of the foregoing, such that the taking thereof would prevent or substantially impair, in Landlord's reasonable judgment, the ability of Tenant, Porsche, Audi or any other party to whom use rights in the Premises have been granted, to operate such business in a manner consistent with the operation of such businesses prior to such taking. 12. ASSIGNMENT AND SUBLETTING. Tenant shall not, without the prior written consent of Landlord, assign this Lease or any interest hereunder, or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than -8- Tenant. All requests for assignment or subletting shall be made in writing and delivered to Landlord. Consent to any assignment or sublease shall not invalidate this provision, and all later assignments or subleases shall be made only on the prior written consent of Landlord as aforesaid. Any assignee of Tenant, at the option of Landlord, shall become directly liable to Landlord for all obligations of Tenant hereunder, but no sublease or assignment by Tenant shall relieve Tenant of any liability hereunder. 13. REMOVAL OF FIXTURES. Tenant may (so long as no Event of Default has occurred and is continuing hereunder), prior to the end of the Term, remove all trade fixtures and equipment which Tenant owns or has purchased as leasehold improvements and placed on the Premises subsequent to the date hereof, provided that Tenant repairs all damage to the Premises caused by the removal. However, any buildings, fixtures, or other attached property installed by Tenant as replacements of existing items, or anything that cannot be removed without substantially changing the character of the Premises, shall become the property of Landlord. 14. CANCELLATION OF LEASE BY LANDLORD. It shall be an "Event of Default" hereunder if, (a) Tenant fails to pay rent, including but not limited to Rent and additional rent herein reserved, when due, and fails to cure the failure to pay within five (5) days after receipt of written notice thereof from Landlord; provided Landlord shall not be obligated to give such written notice and Tenant shall not receive any cure period more than twice in any calendar year. -9- (b) Tenant fails to perform any of the terms or provisions of this Lease other than the provision requiring the payment of rent, and fails to cure the default within twenty (20) days after the date of receipt of written notice of default from Landlord; (c) Tenant is adjudicated bankrupt; (d) a permanent receiver is appointed for Tenant's property and the receiver is not removed within sixty (60) days after written notice from Landlord to Tenant to obtain the removal; (e) Tenant files a petition seeking an order for relief under Title 11 of the United States Code, as amended, or under any similar law or statute of the United States or any state thereof, or a petition seeking an order for relief under Title 11 of the United States Code, or any similar law or statute of the United States or any state thereof, is filed against Tenant and such petition is not dismissed with prejudice within sixty (60) days from the date of filing; (f) If Tenant makes a general assignment for the benefit of creditors, or provides for an arrangement, composition, extension or adjustment with its creditors; (g) Tenant's effects should be levied upon or attached under process against Tenant and not satisfied or dissolved within thirty (30) days after written notice from Landlord to Tenant to obtain satisfaction thereof. (h) If Tenant abandons or vacates the Premises; or -10- (i) If Tenant fails to pay any Rent or any other charges required to be paid by Tenant under this Lease and such failure continues for five (5) days after such payment is due and payable; or (j) If in any proceeding or action in which Tenant is a party, a trustee, receiver, agent or custodian is appointed to take charge of the Premises or Tenant's Property (or has the authority to do so) for the purpose of enforcing a lien against the Premises or Tenant's Property; or (k) If Tenant is a partnership or consists of more than one (1) person or entity, if any partner of the partnership or other person or entity is involved in any of the acts or events described in subparagraphs iv through vii above. Upon the occurrence of an Event of Default, Landlord may pursue any right or remedy against Tenant available at law or in equity. Any notice provided in this section may be given by Landlord, or its attorney, or agent herein named. Then in addition to any other rights or remedies Landlord may have under any law, Landlord shall have the right, at Landlord's option, without further notice or demand of any kind, to do the following: i. Terminate this Lease and Tenant's right to possession of the Premises and reenter the Premises and take possession thereof, and Tenant shall have no further claim to the Premises or under this Lease; or ii. Continue this Lease in effect, reenter and occupy the Premises for the account of Tenant, and collect any unpaid Rent or other charges which have or thereafter become due and payable; or -11- iii. Reenter the Premises under the provisions of subparagraph ii, and thereafter elect to terminate this Lease and Tenant's right to possession of the Premises. If Landlord reenters the Premises under the provisions of subparagraphs ii or iii above, Landlord shall not be deemed to have terminated this Lease or the obligation of Tenant to pay any Rent, additional rent or other charges thereafter accruing, unless Landlord notifies Tenant in writing of Landlord's election to terminate this Lease. In the event of any reentry or retaking of possession by Landlord, Landlord shall have the right, but not the obligation, to remove all or any part of Tenant's property from the Premises and to place such property in storage at a public warehouse at the expense and risk of Tenant. If Landlord elects to relet the Premises for the account of Tenant, the rent received by Landlord from such reletting shall be applied as follows: first, to the payment of any indebtedness other than Rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such reletting; third, to the payment of the cost of any alterations or repairs to the Premises; fourth to the payment of Rent due and unpaid hereunder; and the balance, if any, shall be held by Landlord and applied in payment of future Rent as it becomes due. If that portion of rent received from the reletting which is applied against the Rent due hereunder is less than the amount of the Rent due, Tenant shall pay the deficiency to Landlord promptly upon demand by Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as determined, any costs and expenses incurred by Landlord in connection with such reletting or in making alterations and repairs to the Premises, which are not -12- covered by the rent received from the reletting. Should Landlord elect to terminate this Lease under the provisions of subparagraph i or iii above, Landlord may recover as damages from Tenant the following: 1. PAST RENT. The worth at the time of the award of any unpaid Rent which had been earned at the time of termination; plus 2. RENT PRIOR TO AWARD. The worth at the time of the award of the amount by which the unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus 3. RENT AFTER AWARD. The worth at the time of the award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of the rental loss that Tenant proves could be reasonably avoided; plus 4. PROXIMATELY CAUSED DAMAGES. Any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including, but not limited to, any costs or expenses (including attorneys' fees), incurred by Landlord in (a) retaking possession of the Premises, (b) maintaining the Premises after Tenant's default, (c) -13- preparing the Premises for reletting to a new tenant, including any repairs or alterations, and (d) reletting the Premises, including broker's commissions. "The worth at the time of the award" as used in subparagraphs 1 and 2 above, is to be computed by allowing interest at the rate of ten percent (10%) per annum. "The worth at the time of the award" as used in subparagraph 3 above, is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank situated nearest to the Premises at the time of the award plus one percent (1%). The waiver by Landlord of any breach of any term, covenant or condition of this Lease shall not be deemed a waiver of such term, covenant or condition or of any subsequent breach of the same or any other term, covenant or condition. Acceptance of Rent by Landlord subsequent to any breach hereof shall not be deemed a waiver of any preceding breach other than the failure to pay the particular Rent so accepted, regardless of Landlord's knowledge of any breach at the time of such acceptance of Rent. Landlord shall not be deemed to have waived any term, covenant or condition unless Landlord gives Tenant written notice of such waiver. 1. RELETTING BY LANDLORD. If, after an Event of Default, Landlord has not elected to terminate this Lease, Landlord, at Landlord's sole option, may as Tenant's agent, without terminating this Lease, enter upon and rent the Premises for any term Landlord deems proper. Tenant shall be liable to Landlord for the present value of any deficiency between rent due hereunder and the rent received by Landlord upon reletting. For purposes of computing the "present value of any deficiency" in -14- accordance with the provisions of this paragraph, the parties agree to utilize a discount rate equal to the then prevailing prime rate of interest charged by leading money center banks as published in "THE WALL STREET JOURNAL". 2. WARRANTIES OF TITLE AND QUIET POSSESSION. Landlord warrants and represents that it has good and marketable title to the Premises and has full right to make this Lease and that Tenant shall have non-exclusive, quiet and peaceable possession of the Premises subject to the use rights of Porsche, Audi and any other occupant of the Premises to whom use rights have been or are granted, during the Term so long as no Event of Default is in existence and continuing hereunder. 3. SUBORDINATION AND ATTORNMENT. This Lease is subject and subordinate to any deed of trust, mortgage, or other security instrument, which presently or may in the future cover the Premises, and to any increases, renewals, modifications, consolidations, replacements, and extensions of any of such deed of trust, mortgage, or security instrument. Notwithstanding the generality of the foregoing, any mortgagee shall have the right at any time to subordinate any deed of trust, mortgage, or other security instrument to this Lease. 4. ATTORNEY'S FEES AND HOMESTEAD. In the event either party should seek to enforce its rights under this Lease through judicial process, the prevailing party in any such action shall be entitled to collect from the other party, in addition to all other sums owing hereunder, its reasonable attorney's fees. Tenant waives all homestead rights and exemptions which it may have under any law as against any obligation owing under this Lease. -15- 5. RIGHTS CUMULATIVE. All rights hereunder shall be cumulative but not restrictive to those given by law. 6. SERVICE OF NOTICE. Any notice required or permitted to be delivered hereunder may be delivered in person or by United States certified mail, postage prepaid, return receipt requested, or by recognized overnight courier (e.g. Federal Express or DHL), next business day delivery, charges prepaid, addressed to the parties at Landlord: 6725 Agent Attn: Steven Knappenberger 6725 E. McDowell Road Scottsdale, AZ with a George G. Lowrance, Esq. copy to: c/o United Auto Group 375 Park Avenue Suite 2201 New York, New York 10152 with a copy to: Stephen R. Leeds, Esq. Rogers & Hardin 2700 International Tower 229 Peachtree Street, N.E. Atlanta, Georgia 30303 Tenant: Scottsdale Jaguar, Ltd. _________________________________ _________________________________ _________________________________ with a copy to: _________________________________ _________________________________ _________________________________ -16- or at such other addresses as may be specified by written notice delivered in accordance herewith. Such notices shall be deemed effective three (3) business days after deposited in the U.S. mail, or on the next business day if delivered by overnight courier, or immediately upon delivery in person. 1. WAIVER OF RIGHTS. Neither party's failure to exercise any power given to them hereunder, or to insist upon strict compliance by the other party with its obligations hereunder, nor any custom or practice of the parties at variance with the terms hereof, shall constitute a waiver of such party's right to demand exact compliance with the terms hereof. 2. TIME OF ESSENCE. Time is of the essence under this Lease. 3. SUCCESSORS AND ASSIGNS. This Lease shall apply to, inure to the benefit of, and be binding upon the parties hereof and their respective successors, permitted assigns, and legal representatives except as otherwise expressly provided herein. 4. ENTIRE AGREEMENT; CONFLICT. This Lease, including any attachments made a part hereof, contains the entire agreement between the parties with respect to the lease of the Premises and no representations, inducements, promises or agreements, oral or otherwise, between the parties, not embodied herein shall be of any force or effect. The parties agree to execute and record a memorandum of this Lease in the real property records of Maricopa County. 5. SEVERABILITY. If any term, provision or clause of this Lease, or if the -17- application thereof to any person or circumstances, shall to any extent be invalid or unenforceable, then the remainder of this Lease or the application of such term, provision or clause to persons or circumstances other than those to which it is invalid or unenforceable shall not be affected thereby, and each and every remaining term, provision, clause and application of this Lease shall be valid and enforceable to the fullest extent permitted by law. 6. EXECUTION IN COUNTERPARTS. This Lease may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 7. AMENDMENT. This Lease may not be altered, waived, amended or extended except by an instrument in writing signed by Landlord and Tenant. 8. HEADINGS. The headings used in this Lease are for the purposes of convenience only. They shall not be construed to limit or to extend the meaning of any part of this Lease. 9. GOVERNING LAW. This Lease shall be construed in accordance with the laws of the State of Arizona, and all obligations of the parties created hereunder are performable in Maricopa County, Arizona. 10. FORCE MAJEURE. Except with respect to the payment of Rent and additional rent hereunder, wherever a period of time is herein prescribed for action to be taken by either Landlord or Tenant, such party shall not be liable or responsible for, and there shall be excluded from the computation of any such period of time, any delays due to strikes, riots, acts of God, shortages of labor or materials, wars, -18- governmental laws, regulations or restrictions or other causes which are beyond the control of Landlord or Tenant, as the case may be. IN WITNESS WHEREOF, the parties herein have hereunto caused their duly authorized representatives to set their hands and seals the day and year first above written. LANDLORD: 6725 AGENT, an Arizona general partnership By: SCOTTSDALE AUDI, LTD., an Arizona By: ---------------------------------- Print Name: --------------------------- As: ---------------------------------- By: SK MOTORS, LTD., an Arizona By: ---------------------------------- Print Name: --------------------------- As: ---------------------------------- TENANT: SCOTTSDALE JAGUAR, LTD., an Arizona corporation By: ---------------------------------- Print Name: --------------------------- As: ---------------------------------- [Corporate Seal] -19- thereof together with interest on said amount from the date of payment by Landlord at a rate equal to ten percent (10%) or the then prevailing prime rate of interest charged by leading money center banks as published in "THE WALL STREET JOURNAL", if such rate is higher than ten percent (10%) (the "Interest Rate"). -20- EX-10.8-17 38 EXH 10.8.17 FORM OF INDEMINFICATION LEASE GUARANTY The undersigned, in order to induce Charles F. Evans, an individual resident of the state of Georgia ("Landlord") to enter into that certain Lease Agreement (herein so called) dated as of October ___, 1996, between Landlord and Charles Evans BMW, Inc., a Georgia corporation (the "Company") and a subsidiary of UAG Atlanta IV, Inc., Inc., a Delaware corporation that is wholly owned by the undersigned, hereby irrevocably guarantees the collection of all rent and other obligations of the Company now or hereafter existing under the terms of the Lease Agreement. The undersigned hereby waives presentment, protest, notice of dishonor, extension of time of payment and notice of acceptance of this Guaranty and hereby consents to any and all forbearances and extensions of time of payment of the obligations guaranteed hereby and to any and all of the changes in the terms, covenants and conditions thereof hereafter made or guaranteed. No delay or omission by Landlord in exercising any of its rights, remedies, powers and privileges hereunder and no course of dealing between Landlord, on the one hand, and the Company, the undersigned or any other person, on the other hand, shall be deemed a waiver by Landlord of any of its rights, remedies, powers and privileges, even if such delay or omission is continuous and repeated; nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise thereof by Landlord or the exercise of any other right, remedy, power or privilege by Landlord. No notice or demand on the Company, the undersigned or any other person in any instance shall entitle the Company, the undersigned or any other person to any other or further notice or demand in similar or other circumstances or constitute a waiver of Landlord's right to any other or further action in any circumstances without notice or demand. This Guaranty shall remain in full force and effect, and the undersigned shall continue to be liable for the payment of the obligations under the Lease Agreement in accordance with the terms of the Lease Agreement and this Guaranty, notwithstanding the commencement of any bankruptcy, reorganization or other debtor relief proceedings by or against the Company, and notwithstanding any modification, discharge or extension of the obligations under the Lease Agreement, any modification or amendment of the Lease Agreement, or any stay of the exercise by Landlord of any of its rights and remedies against the Company with respect to any of the obligations under the Lease Agreement. Whenever possible, each provision of the Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of the Guaranty shall be prohibited by or be invalid under such law, such provisions shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. This Guaranty shall inure to the benefit of Landlord 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. This instrument shall be governed by the laws of the State of Georgia. WITNESS the undersigned's signature as of the _____ day of October, 1996. UNITED AUTO GROUP, INC. a Delaware Corporation By: /S/ Charles F. Evans ----------------------------------------- Its: CEO ----------------------------------------- EX-10.8-18 39 EXH 10.8-18 REAL ESTATE LOAN & SEC AGREE. REAL ESTATE LOAN AND SECURITY AGREEMENT Mortgaged Property: 6825 E. McDowell Road, Scottsdale, Arizona [Acura Facilities] THIS SECURITY AGREEMENT AND REAL ESTATE LOAN AGREEMENT (hereinafter called the "Agreement") dated this ____ day of ___________, 1996 is made by SA AUTOMOTIVE, Ltd., an Arizona corporation, whose address is 6725 E. McDowell, Scottsdale, Arizona (hereinafter called "Borrower"), for the benefit of CHRYSLER FINANCIAL CORPORATION, a Michigan corporation, having offices located at 27777 Franklin Road, Southfield, Michigan 48034 (hereinafter called "Lender"). WHEREAS, Borrower is engaged in the development of automobile dealership properties and in connection therewith owns a piece of real property (which business hereinafter shall be called "Borrower's Business") and desires to borrow funds in the amount of $2,417,000 (hereinafter called the "Loan") from Lender in order to provide permanent financing for certain real estate known as 6825 E. McDowell Road, Scottsdale, Arizona [Acura facilities] and as more particularly described in Exhibit A attached to the Deed of Trust given to Lender on even date herewith and incorporated herein by reference (hereinafter the "Mortgaged Premises"); and WHEREAS, Lender is willing to lend to Borrower said capital funds on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration mutually exchanged by Borrower and Lender, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, Borrower hereby agrees as follows: SECTION 1. DEFINITIONS. When used in this Agreement, the following terms shall have the following meanings and shall be limited to only that Collateral as defined below which is owned or leased by Borrower and located on or used in connection with the Mortgaged Premises: 1.1. "Affiliate" with respect to Borrower shall mean any person, entity or business organization which, directly or indirectly, controls, is controlled by or is under common control with the Borrower; 1.2. "Books" shall mean all books, records and correspondence relating to the Collateral, including, but not limited to, all ledgers, computer and automatic machinery software and programs, printouts and computer runs and other computer prepared information; 1.3. "Collateral" shall mean all property and interests in property or rights in which a security interest is granted by Borrower to Lender in this Agreement pursuant to Section 3 hereof; 1.4. "Commitment Letter" shall mean that certain letter, if any, between Borrower and Lender, setting forth certain terms and conditions of the Loan; 1.5. "Event of Default" shall mean the occurrence of the event as contained in Section 8 of this Agreement; 1.6. "Fixtures" shall mean all personal property which has become permanently attached to the Mortgaged Premises; 1.7. "Obligations" shall mean any and all liability, obligation, or indebtedness owed pursuant to the terms and conditions of this Agreement and any and all other agreements, promissory notes, guaranties and contractual arrangements of every kind and nature between Borrower and Lender with respect to the Loan, whether now or hereafter in existence; and 1.8. "Proceeds" shall mean whatever is received upon the sale, exchange, collection or other disposition of the Collateral or proceeds, whether cash proceeds or non-cash proceeds. SECTION 2. THE LOAN. 2.1. Lender hereby agrees to loan to Borrower, and Borrower hereby agrees to borrow from Lender, an amount which shall be evidenced by a promissory note (the "Note") to be executed by Borrower concurrently herewith, which Note shall be in substance and form satisfactory to Lender. The amount borrowed may be increased from time to time upon written request of Borrower approved by Lender. The initial loan and any new advances evidencing increases to the initial loan (hereinafter in the aggregate referred to as the "Loan") shall be subject to the terms and conditions of this Agreement. The Loan may be prepaid at any time in whole or in part without premium or penalty. 2.2. The Note shall evidence the terms of repayment of the Loan. The Loan shall bear interest upon the unpaid balance thereof at that rate of interest stated in the Note. Principal and interest shall be due and payable on the date(s) and in the amounts as specified in the Note. 2.3. Borrower and Lender agree that it is their respective intentions, and they do specifically agree: (a) that this Agreement, the Note issued hereunder, and any subsequent promissory notes issued hereunder evidencing new advances, and any subsequent agreements between the parties, provide for cross rights to declare a default; (b) upon the occurrence of an Event of Default, all Obligations shall be matured, immediately due and -2- payable, notwithstanding any maturity date thereof, or agreements thereto, to the contrary; and (c) that the agreements contained in this Section 2.3 shall be, and are hereby, made a part of all agreements between Borrower and Lender, whether now or hereafter in existence. SECTION 3. SECURITY. 3.1. As security for the prompt and complete payment and performance when due of all Obligations due Lender, Borrower hereby grants to Lender a continuing security interest in all of Borrower's right, title and interest in, to and under the following Collateral located on or used in connection with the Mortgaged Premises, whether now owned or hereafter acquired: (a) all of Borrower's Fixtures; (b) all Proceeds and products of any of the foregoing. 3.2. As further and additional security, Borrower has given Lender a Deed of Trust dated on even date herewith, which covers the Mortgage Premises (hereinafter called "Deed of Trust"). SECTION 4. BORROWER'S WARRANTIES. To induce Lender to enter into this Agreement to make the loan contemplated hereby, Borrower represents and warrants as follows: 4.1. Borrower operates Borrower's Business in the form of business organization, if any, and from the principal place of business or address as set forth in the introductory paragraph of this Agreement, and Borrower is in good standing, duly authorized, licensed and franchised to operate Borrower's Business; 4.2. All balance sheets, statements of profit and loss and other financial data which have been furnished by Borrower to Lender fairly present the financial condition of Borrower's Business as of the dates stated therein, and the results of its operations for the periods for which the same are furnished; all other information, reports, papers and data furnished to Lender are accurate and correct in all material respects and complete insofar as completeness may be necessary to give Lender a true and accurate knowledge of the subject matter; and there has been no change in the business, earnings, prospects, assets, liabilities or condition (financial or otherwise) of Borrower's Business from that set forth in the most recent financial statements furnished by Borrower to Lender other than changes in the ordinary course of Borrower's Business, none of which changes have been materially adverse; 4.3. None of the Collateral is, as of the date hereof, subject to any mortgage, pledge, lien or encumbrance in favor of anyone other than Lender except liens of the kind permitted by -3- Section 6.1 hereof, unless otherwise agreed to by Lender in writing; 4.4. There is not now pending against Borrower, or to the officers, managers or principals of Borrower's Business, if any, any litigation or legal, administrative or tax proceedings, investigations or other action or matter, the outcome of which in the opinion of Borrower or such officers, managers or principals could materially adversely affect the continued operation or condition (financial or otherwise) of Borrower's Business; 4.5. Borrower warrants that there exists on the date of this Agreement no Event of Default and no event which with the lapse of time would become an Event of Default; and 4.6. Borrower warrants that it is and shall remain the lawful owner of the Collateral, free of all liens and claims whatsoever, other than the security interest created hereby or pursuant hereto, or specifically allowed by this Agreement, and has the authority and right to subject the Collateral to the security interest granted to Lender by this Agreement. SECTION 5. BORROWER'S AFFIRMATIVE COVENANTS. Borrower hereby covenants and agrees that, for so long as there shall remain any indebtedness hereunder; 5.1. Borrower will maintain the existence in good standing of Borrower's Business to the extent necessary under applicable law, and will continue to keep in full force and effect any and all licenses, franchises and other authorizations necessary to conduct Borrower's Business, if any; 5.2. Borrower will (i) keep proper Books of the operations of Borrower's Business if Borrower is a corporation or partnership or (ii) will keep proper personal financial statements if Borrower is an individual, all such Books and statements to be in forms satisfactory to Lender. Borrower will furnish to Lender balance sheets and statements of profit and loss for each year with respect to Borrower's Business (and, upon written request of Lender, Affiliates of Borrower), within one hundred twenty (120) days after the close of each Borrower's fiscal years hereafter, for so long as this Agreement shall remain in effect, and will furnish to Lender at such time a completed, executed copy of a report of an examination of the financial affairs of Borrower's Business (and, upon written request of Lender, Affiliates of Borrower) made by Borrower or by independent certified public accountants selected by Borrower and acceptable to Lender, such report of Borrower's Business and Affiliates, where applicable, to be in such detail and with such certification as Lender reasonably may require from time to time; and Borrower will furnish such other financial statements as Lender reasonably may require from time to time. Borrower will permit Lender to inspect and make copies of the Books of Borrower's Business, if any, (and, upon written request of -4- Lender, Affiliates of Borrower) at all reasonable times and from time to time. All such balance sheets, statements of profit and loss and other financial statements as Borrower may furnish hereunder will fairly present the financial condition of Borrower's Business and Affiliates, where applicable, as of the dates and for the periods for which the same are furnished and shall be certified as true and correct be an appropriate officer of Borrower or Affiliate, as applicable; 5.3. At the time any asset of Borrower's Business is assigned, mortgaged, pledged or otherwise hypothecated to Lender as security for any Obligation, Borrower will be the lawful owner thereof; the same being free from all encumbrances except as specifically stated in the instrument by which the same shall be so assigned, mortgaged, pledged or otherwise hypothecated; and the Borrower will warrant and defend the same against all claims and demands of any kind or nature; 5.4. Borrower promptly will pay when due all contractual obligations calling for the payment of money, taxes, assessments and charges imposed upon Borrower and upon Borrower's Business and Borrower's properties, assets, operations, products, income or securities and also promptly will pay all claims which constitute, or, if unpaid, may become a lien, charge or encumbrance upon Borrower's business or any of Borrower's properties, assets, operations, products income or securities; 5.5. Borrower shall be responsible for all loss and damage to Borrower's Business and agrees to keep Borrower's Business insured against loss or damage by fire, theft, collision and vandalism and against such other losses as Lender may require from time to time. Insurance policies for the said insurance shall be with such companies and in such amounts and in such form as shall be satisfactory to Lender. All such policies of insurance shall contain an endorsement in form and substance satisfactory to Lender, showing loss payable to Lender as its interest may appear, and a certificate of insurance evidencing such coverage will be provided to Lender; 5.6. Borrower will, upon request of Lender, execute such financing statements and other documents (and pay the cost of filing or recording the same in all public offices deemed necessary by Lender) and do all such other acts and things as Lender may from time to time request, to establish and maintain a valid first perfected security interest in the Collateral (free of all other liens and claims whatsoever except as otherwise expressly provided herein) to secure the payment of the Obligations; 5.7. Borrower will keep, at the address designated above, all Books, if any, concerning the Collateral, which Books will be of such character as will enable Lender or its designees to determine at any time the status of the Collateral; -5- 5.8. Borrower will, upon request of Lender, stamp on its Books concerning the Collateral, a notation or other notice(s), in form satisfactory to Lender, or take such other action to place third parties on notice of the security interest of Lender in the Collateral; 5.9. Borrower will not sell, assign, create or permit to exist any lien on or security interest in any Collateral in favor of anyone other than Lender; 5.10. Borrower will, at Borrower's sole cost and expense, keep the Collateral in as good and substantial repair and condition as the same is now or at the time the lien and security interest granted by this Agreement shall attach thereto, reasonable wear and tear excepted, making repairs and replacements when and where necessary. Borrower will further take all action necessary to insure that the real estate upon which the Borrower's Business is located shall be free of hazardous conditions, substances and pollutants of any kind; and 5.11. Borrower shall apply the proceeds of the Loan for the purposes set forth in this Agreement and shall furnish such evidence thereof as Lender may request. SECTION 6. BORROWER'S NEGATIVE COVENANTS. Borrower hereby covenants and agrees that, for so long as there shall remain any Obligation owing to Lender, it will not, without the prior written consent of Lender: 6.1. Create, permit or suffer to exist any mortgage, lien or other encumbrance to be levied upon or become a charge against the Collateral located on or used in connection with Mortgaged Premises other than mortgages, liens or other encumbrances in favor of Lender, those liens identified as Permitted Encumbrances in the Deed of Trust, and liens resulting from deposits or pledges to secure payments of worker's compensation, unemployment insurance, old age pensions or social security; 6.2. Endorse, guarantee or become surety for the payment of any debt or liability, of any individual, partnership or corporation, directly or contingently which would create a lien on the Collateral located on or used in connection with Mortgaged Premises unless such lien is in favor of Lender; and 6.3. Sell, exchange, transfer or otherwise dispose of any of its properties, assets, operations or products except in the normal course of Borrower's Business; consolidate Borrower's Business with or merge Borrower's Business into any other business concern or permit any other business concern to consolidate with or merge into Borrower's Business; or sell, exchange, transfer, lease or otherwise dispose of all or any substantial part of its capital assets, or make or have outstanding any loan or advance to any individual, partnership or -6- corporation, purchase any security of any corporation or invest in the obligations of any individual, partnership or corporation. SECTION 7. OWNERSHIP AND MANAGEMENT OF BORROWER'S BUSINESS. 7.1. Lender has elected to enter into this Agreement and to make the Loan contemplated hereby with reliance and confidence in the integrity and ability of the Borrower, and if Borrower is a corporation or partnership, the persons presently having an ownership interest in or being in the active management and operation of Borrower's Business as disclosed to Lender concurrently herewith, and in reliance that said persons are and shall continue to have the same ownership interest in or be in the active management and operation of Borrower's Business or both, as the case may be, and that such ownership and management shall not change without Lender's prior consent so long as this Agreement remains effective and the Obligations remain outstanding. SECTION 8. EVENT OF DEFAULT AND REMEDIES. 8.1. The following shall constitute an Event of Default hereunder: (a) the occurrence of any event of default under the Deed of Trust given by Borrower to Lender on even date herewith; or (b) if there is now or hereafter be any change in the ownership interest in or active management of the operation of the Borrower's Business. 8.2. Upon the existence of an Event of Default, all outstanding Obligations of Borrower to Lender will (notwithstanding any provisions to the contrary) after expiration of any applicable notice and cure period, thereupon immediately become due and payable, and Lender may, provided Borrower is also given notice, notify any parties obligated to Borrower on any of the Collateral to make payment to Lender of any amounts due or to become due thereunder and enforce collection of any of the Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise, extend or renew for any period (whether or not longer than the original period) any indebtedness thereunder or evidenced thereby. Upon request of Lender, Borrower will, at its own expense, notify any parties obligated to Borrower on any of the Collateral to make payment to Lender of any amounts due or to become due thereunder. In addition, Lender may take possession of the Collateral and any Books concerning same wherever they may be found, with or without process of law, and may dispose of the Collateral or any portion thereof in any manner permitted by law. Unless otherwise agreed to by the parties in writing, any notification of intended disposition of any of the Collateral required by law shall be -7- deemed reasonably and properly made if given at least seven (7) days before such disposition. SECTION 9. APPOINTMENT OF LENDER AS ATTORNEY. 9.1. When an Event of Default shall occur and be continuing, Borrower hereby irrevocably appoints Lender as attorney-in-fact with power of substitution to act for Borrower in Borrower's name or in the name of Lender, or otherwise, for the use and benefit of Lender hereunder, at the expense of Borrower; provided that in no event shall this appointment impose any duty on Lender to act initially or thereafter, as this appointment is made solely to allow Lender to protect its interests in the Collateral from time to time at its option. This special power of attorney shall include, but not be limited to, the hereinafter enumerated acts: (a) Upon reasonable notice to Borrower, to execute and deliver, or otherwise take any action deemed appropriate by Lender regarding any deed, lease, assignment, security agreement, certificate of title, chattel mortgage, vehicle registration, bill of sale, release and such other instruments as may be necessary to sell, assign, transfer, pledge or otherwise deal with the property of Borrower which is or shall hereafter become Collateral of Lender under this Agreement and any amendments thereto; (b) Upon reasonable notice to Borrower, to demand, collect, receive payment on, release and otherwise take any action deemed appropriate by Lender regarding all claims or money due or to become due to the Borrower in connection with the purchase, sale, damage or destruction of any of the Collateral, to settle and compromise any such claim, to receive and open any mail addressed to Borrower, and to endorse checks for collection, deposit or payment, and execute and deliver waivers, releases, covenants not to sue, or other legal instruments deemed necessary to effect such collection, settlement or compromise; and (c) Upon reasonable notice to Borrower, to prosecute or otherwise take any action deemed appropriate by Lender in the name of Lender or in the name of Borrower, or otherwise, any action or proceeding to collect any such claim or to enforce the right of Borrower for the benefit of Lender. -8- SECTION 10. GENERAL. Borrower and Lender further agree that: 10.1. Lender shall, at all times, have the right to setoff and apply any and all credits, monies or properties of Borrower in Lender's possession or control against any Obligations of Borrower to Lender. All payments by Borrower or other funds of borrower held or received by Lender, other than regular monthly installments of principal and interest due on the Note, shall be applied to the first maturing installments under said Note in order of maturity. 10.2. The acceptance by Lender of any installment or payment after it becomes due or the waiver by Lender of any other Event of Default shall not be deemed to alter or affect Borrower's Obligations and/or Lender's rights with respect to any subsequent payment or Event of Default. 10.3. All of the agreements, representations and warranties contained in this agreement or in any other instrument or document delivered pursuant thereto shall survive the delivery of the Note and any extensions, renewals or substitutions thereof and shall continue in full force and effect as long as there shall remain Obligations owing to Lender from Borrower. 10.4. All negotiations, correspondence and memoranda passed between the parties hereto with regard to the transactions contemplated by this Agreement (other than the Commitment Letter, if any), are merged hereby and this Agreement cancels and supersedes all prior agreements between the parties with regard thereto. This Agreement may be assigned, altered, modified or abridged only by a written instrument duly executed by the authorized representatives of Lender and Borrower. 10.5. It is intended that this Agreement shall not be in violation of any valid law applicable hereto now or hereafter from time to time in effect in any jurisdiction and in the event any provision hereof in any way contravenes any of said laws, this Agreement shall be considered valid except as to such provisions. This Agreement is executed in the State of Arizona and shall be subject to and construed under the laws of the State of Arizona. 10.6. Any notice given hereunder shall be in writing and given by personal delivery or shall be sent by U.S. registered or certified mail, postage prepaid, addressed to the party to be charged with such notice, at the respective address as set forth above, or such other address as may be provided in writing. 10.7. This Agreement shall be binding upon and shall inure to the benefit of the executors, administrators, legal representatives, successors and assigns of the parties. -9- 10.8. This Agreement shall be binding upon and shall inure to the benefit of the executors, administrators, legal representatives, successors and assigns of the parties. SECTION 11. AUTHORITY. Borrower shall furnish to Lender upon execution of this Agreement such proof of its authority to enter into this Agreement, to make the Note and to deposit the said security with Lender as Lender from time to time reasonably may request, including, without limiting the generality of the foregoing, an opinion of Borrower's counsel and, if Borrower is a corporation, certified copies of resolutions of Borrower's stockholders, board of directors, or other managers. SECTION 12. WAIVER OF JURY TRIAL. LENDER AND BORROWER ACKNOWLEDGE AND AGREE THAT THERE MAY BE A CONSTITUTIONAL RIGHT OT A JURY TRIAL IN CONNECTION WITH ANY CLAIM, DISPUTE OR LAWSUIT ARISING BETWEEN THEM, BUT THAT SUCH RIGHT MAY BE WAIVED. ACCORDINGLY, THE PARTIES AGREE; (A) NOTWITHSTANDING SUCH CONSTITUTIONAL RIGHT, IN THIS COMMERCIAL MATTER THE PARTIES BELIEVE AND AGREE THAT IT SHALL BE IN THEIR BEST INTEREST TO WAIVE SUCH RIGHT AND, ACCORDINGLY, HEREBY WAIVE SUCH RIGHT TO A JURY TRIAL AND FURTHER AGREE THAT THE BEST FORUM FOR HEARING ANY CLAIM, DISPUTE OR LAWSUIT, IF ANY, ARISING IN CONNECTION WITH THIS AGREEMENT OR RELATIONSHIP BETWEEN LENDER AND BORROWER, INCLUDING, BUT NOT LIMITED TO, IN CONNECTION WITH THE COLLECTION OF THE LOAN OR OTHER OBLIGATIONS, SHALL BE A COURT OF COMPETENT JURISDICTION SITTING WITHOUT A JURY; (B) THIS WAIVER OF JURY TRIAL IS FREELY, KNOWINGLY AND VOLUNTARILY GIVEN BY EACH PARTY, WITHOUT ANY DURESS OR COERCION, AFTER EACH PARTY HAS CONSULTED WITH ITS COUNSEL AND HAS CAREFULLY AND COMPLETELY READ ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT, SPECIFICALLY INCLUDING THIS WAIVER OF JURY TRIAL PROVISION; AND (C) NEITHER LENDER NOR BORROWER SHALL BE DEEMED TO HAVE RELINQUISHED THIS PROVISION WAIVING JURY TRIAL EXCEPT BY A WRITING SIGNED BY AN OFFICER OF LENDER AND BORROWER RELINQUISHING THIS WAIVER OF JURY TRIAL PROVISION. -10- IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement on the date first above written. WITNESSES: BORROWER: SA AUTOMOTIVE, Ltd., an Arizona corporation By: - ------------------------- --------------------------- Its: President - ------------------------- -11- EX-10.9-5 40 EXH 10.9-5 LEASE AGRMNT DATED 10/96 EXHIBIT 10.9.5 CHARLES EVANS BMW PROPERTY LEASE AGREEMENT THIS LEASE AGREEMENT ("Lease") made this ____ day of October 1996, by and between CHARLES F. EVANS, an individual resident of Georgia ("Landlord"), and CHARLES EVANS BMW, INC., a Georgia corporation ("Tenant"). W I T N E S S E T H: FOR AND IN CONSIDERATION of the sum of $10.00 Dollars in hand paid and of the mutual covenants and conditions contained herein, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. PREMISES. Landlord leases to Tenant and Tenant leases from Landlord the following property: All that tract or parcel of land containing approximately 3.948 acres, lying and being in Land Lot 206 of the 6th District of Gwinnett County, Georgia, being more particularly described on EXHIBIT A, attached hereto and incorporated by reference herein, together with all improvements thereon and all rights, privileges, easements and appurtenances pertaining thereto (collectively, the "Premises") upon the terms contained herein. 2. TERM. Landlord and UNITED AUTO GROUP, INC., a Georgia corporation have entered into a Purchase and Sale Agreement Charles Evans BMW Property for the Premises dated of even date herewith (the "Agreement"). The term hereof shall begin on the date hereof and shall end upon the Closing as described in the Agreement ("Term"). 3. RENT. (a) The rent for the first full six months of the Term shall be FORTY- FIVE THOUSAND AND NO/100 DOLLARS ($45,000.00) per month with the first month rent due and payable upon the date of this Lease. All other rent payments shall be paid in advance on the _____________ (___) day of the month. After six full months, subject to Section (b) below, the rent shall increase to FIFTY-FIVE THOUSAND AND NO/100 DOLLARS ($55,000.00) per month. (b) NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, if Tenant was ready, willing and able to close the purchase and sale of the Premises under the Agreement on or before six (6) months after the date hereof, but such closing is not consummated when Tenant is ready to close thereunder and such failure to close is not the result of Tenant's default, then so long as this Lease is in effect, the rent for the Premises shall be Forty-Five Thousand and No/100 Dollars ($45,000.00) per month. 4. UTILITIES. Tenant shall have all utilities listed in its name and shall pay all utility bills, including, but not limited to water, sewer, gas, electricity, fuel, light, and heat bills, for the Premises, and Tenant shall pay all charges for garbage collection services or other sanitary services rendered to the Premises or used by Tenant in connection therewith. If Tenant fails to pay for such services, Landlord may, at its option and after providing Tenant with at least thirty (30) days prior written notice, pay the same, and the amount of the payment shall be payable to Landlord as additional rent. 5. USE OF THE PREMISES; ENVIRONMENTAL INDEMNITY. The Premises shall be used for the operation of a new and used automobile dealership, service facility, paint and body shop facility, and uses incidental thereto, and for any other purposes which may be agreed to by the parties. The use of the Premises by Tenant shall be in compliance with federal, state and local laws and any applicable restrictive covenants. Furthermore, Tenant shall not violate any federal or state environmental law, and Tenant agrees to indemnify and hold harmless Landlord from any and all damages, costs, fines and expenses that might arise as a result of any such violation and from its placement upon the Premises of hazardous wastes and toxic substances that are placed on the Premises after the date hereof. Notwithstanding anything to the contrary contained in this Paragraph 5, there shall not be deemed to be a nuisance or trespass and Tenant's obligation to indemnify and hold Landlord harmless shall not extend to any damages, claims, or liabilities arising as a result of contaminants existing on the Premises on the date hereof or migrating onto or beneath the Premises -2- after the date hereof, where such contamination is not caused by or attributable to Tenant, all of which shall be Landlord's responsibility. 6. REPRESENTATION. All representations and warranties contained in Sections 2.10, 2.11 and 3.3 of that certain Stock Purchase Agreement (the "BMW SPA") dated August 5, 1996 by and among United Auto Group, Inc., a Delaware corporation, UAG Atlanta IV, Inc., a Delaware corporation, Charles Evans BMW, Inc., a Georgia corporation, and Charles F. Evans are hereby incorporated by reference to the same effect as if fully set forth herein. Nothing contained in this Lease shall in any way affect or diminish the rights of the parties under the BMW SPA for the breach of any representation or warranty contained in the BMW SPA. 7. REPAIRS BY LANDLORD. All repairs, replacements, and maintenance of any kind to the Premises shall be the sole responsibility of Tenant except to the extent the necessity therefor would constitute a breach of Landlord's representations or warranties under the BMW SPA or the Agreement. 8. REPAIRS BY TENANT. Subject to Landlord's representations and warranties in the BMW SPA and the Agreement, Tenant accepts the condition of the Premises as of the date hereof and agrees that the Premises are suited for the uses specified herein. Tenant shall, throughout the Term, at its expense, maintain the Premises in good order and repair, including but not limited to repair and maintenance of the electrical, heating, ventilation and air conditioning and plumbing systems. Tenant further agrees to care for all landscaping on the Premises, including the mowing of grass, paving, policing, care of shrubs and general landscaping. If Tenant fails to properly maintain and repair any portion of the Premises, Landlord may, following at least thirty (30) days prior written notice to Tenant, maintain the same and Tenant shall pay to Landlord within thirty (30) days after demand the commercially reasonable costs thereof together with interest on said amount from the date of payment by Landlord at a rate equal to the interest rate provided in the BMW SPA for non- payment of obligations ("Interest Rate"). Subject to Tenant's repair obligations hereunder, -3- Tenant agrees to return the Premises to Landlord in as good condition and repair as when first received by Tenant, natural wear and tear and condemnation excepted. 9. TAX AND INSURANCE. Tenant shall promptly and on a timely basis pay as additional rent during the Term all charges for taxes (including, but not limited to, ad valorem taxes, special assessments and any other governmental charges) on the Premises, which amounts shall be prorated between Tenant and Landlord for all periods partially but not entirely within the Term. Tenant shall also maintain, at all times during the Term of this Lease, fire and extended insurance coverage on the Premises in amounts equal to the full replacement value of the Premises, and written on policies issued by underwriters reasonably acceptable to Landlord. Landlord agrees that such coverages may be provided by blanket policies of insurance covering other locations in addition to the Premises. All policies shall insure Landlord and Tenant as their respective interests shall appear and shall contain a replacement cost endorsement. Should Tenant fail to pay such tax expenses or fail to provide certificates evidencing the required insurance coverage, Landlord may, following at least thirty (30) days prior written notice to Tenant, pay any such charges or secure such coverage, and Tenant shall pay to Landlord within thirty (30) days after demand as additional rent all amounts so expended by Landlord together with interest on said amount from the date of payment by Landlord at a rate equal to the Interest Rate. 10. DESTRUCTION OF OR DAMAGE TO THE PREMISES. If the Premises should be damaged or destroyed by any insured peril whatsoever during the Term, all insurance proceeds shall be delivered to Tenant and Tenant shall proceed with reasonable diligence to rebuild and repair the Premises to substantially the condition in which it existed prior to such damage or destruction. 11. INDEMNITY; WAIVER OF SUBROGATION. Subject to Landlord's obligations in this Lease and the Agreement Tenant agrees to indemnify and hold harmless Landlord against all claims and expenses resulting therefrom, including actual attorneys' fees reasonably incurred and court costs, for damage to persons or property by reason of the use or occupancy of the Premises by Tenant. -4- Tenant shall periodically provide Landlord with certificates of general liability insurance naming Landlord as an additional insured, in an amount of not less than $3,000,000 and with an insurance carrier reasonably satisfactory to Landlord. The dollar amount of such insurance coverage shall be reviewed annually during the Term, and adjusted if necessary, in order to provide for adequate protection to both Landlord and Tenant; provided, however, in no event shall any aggregate percentage increases in Tenant's liability coverage obligations hereunder ever exceed the cumulative percentage increases in the Consumer Price Index for all wage earners for Atlanta, Georgia occurring during the corresponding portion of the Term of this Lease. Landlord and Tenant each hereby release and waive any right of recovery against the other for any loss, claim, liability, or damage occurring on or to the Premises, whether wholly or contributorily caused by the negligence of the other party, to the extent that the same is compensated by actual receipt of proceeds from insurance policies covering such loss, claim, liability, or damage. 12. ALTERATIONS. Tenant shall make no structural alterations, additions or improvements to the Premises without the express prior written consent of Landlord which consent shall not be unreasonably withheld or delayed, except that Tenant may alter any wall that is not of a load-bearing nature without the consent of Landlord. Tenant may make non-structural changes and modifications to the Premises without Landlord's approval. In the event Landlord has not responded to Tenant's written request for alterations within fifteen (15) days of when received, such alteration shall be deemed to have been approved by Landlord. Tenant agrees to save Landlord harmless on account of any claim or lien of mechanics, materialmen or other party, in connection with any alterations, additions or improvements of or to the Premises performed by Tenant. Tenant shall furnish such waivers of liens and appropriate affidavits from the general contractor or subcontractors as Landlord may reasonably request. Notwithstanding the foregoing, Tenant shall also be entitled to make the following changes without necessity of Landlord's consent: (i) any alterations required to be made by it pursuant to governmental orders, rules, laws, regulations, ordinances or -5- requirements, and (ii) any changes in its signage (provided such are in compliance with local ordinances and any restrictive covenants affecting the Premises) or those recommended or required by the automobile manufacturer whose automobiles are sold on the Premises. Tenant shall have the right to finance any alterations or improvements permitted hereunder and may pledge its interest in this Lease as security therefor; provided, however, that any liens granted in connection with such financings shall be subordinate to the rights of Landlord under this Lease. 13. GOVERNMENTAL ORDERS. Subject to Tenant's right to terminate this Lease hereunder, Tenant agrees, at its own expense, to promptly comply with all requirements of any public authority made necessary by reason of Tenant's occupancy of the Premises from and after the date hereof or which may be necessary for Tenant's occupancy to continue if the requirement to comply arises after the date of this Lease. Landlord shall have no obligation of any kind for such compliance except to the extent it arose prior to the date of this Lease. 14. CONDEMNATION. If all or a substantial part of the Premises is condemned for any public use or purpose, then the Term shall not cease from the date when possession thereof is taken, and rent shall not be prorated as of that date; and this Lease shall continue as to the remaining portion of the Premises in full force and effect notwithstanding any such taking. All compensation and damage caused by such condemnation shall be recovered from the condemnor and paid to the Tenant. 15. ASSIGNMENT AND SUBLETTING. Tenant shall, without the prior written consent of Landlord, have the right to assign this Lease or any interest hereunder, or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant. Any assignee of Tenant, at the option of Landlord, shall become directly liable to Landlord for all obligations of Tenant hereunder, but no sublease or assignment by Tenant shall relieve Tenant of any liability hereunder. Without in any way limiting the foregoing, Tenant shall specifically be entitled to freely assign or sublet its interest in this Lease to any parent, subsidiary or other entity under common -6- control with Tenant or Tenant's parent, without the prior written consent of Landlord. Moreover, the sale or transfer of all or any part of the capital stock of Tenant shall not be deemed to be an assignment hereunder. 16. REMOVAL OF FIXTURES. Tenant may (so long as no Event of Default has occurred and is continuing hereunder), prior to the end of the Term, remove all trade fixtures and equipment which Tenant has purchased as leasehold improvements or placed in the Premises subsequent to the date hereof, provided that Tenant repairs all damage to the Premises caused by the removal. However, any buildings, fixtures, or other attached property installed by Tenant as replacements of existing items, or anything that cannot be removed without substantially changing the character of the Premises, shall become the property of Landlord. 17. CANCELLATION OF LEASE BY LANDLORD. It shall be an "Event of Default" hereunder if, (a) Tenant fails to pay rent, including additional rent herein reserved, when due, and fails to cure the failure to pay within ten (10) days after receipt of written notice thereof from Landlord; (b) Tenant fails to perform any of the terms or provisions of this Lease other than the provision requiring the payment of rent, and fails to cure the default within thirty (30) days after the date of receipt of written notice of default from Landlord; provided, however, that if the nature of the default is such that the same cannot reasonably be cured within said thirty (30) day period, Tenant shall not be deemed to be in default if Tenant shall, within such period, commence such cure and thereafter diligently prosecute the same to completion; (c) Tenant is adjudicated bankrupt; (d) a permanent receiver is appointed for Tenant's property and the receiver is not removed within sixty (60) days after written notice from Landlord to Tenant to obtain the removal; -7- (e) Tenant files a petition seeking an order for relief under Title 11 of the United States Code, as amended, or under any similar law or statute of the United States or any state thereof, or a petition seeking an order for relief under Title 11 of the United States Code, or any similar law or statute of the United States or any state thereof, is filed against Tenant and such petition is not dismissed with prejudice within sixty (60) days from the date of filing; (f) Tenant makes an assignment for the benefit of creditors; or (g) Tenant's effects should be levied upon or attached under process against Tenant and not satisfied or dissolved within thirty (30) days after written notice from Landlord to Tenant to obtain satisfaction thereof. Upon the occurrence of an Event of Default, Landlord may pursue any right or remedy against Tenant available at law or in equity. Without limitation to the foregoing, Landlord, at its option, may at once or within six (6) months thereafter (so long as such Event of Default is continuing), elect to terminate this Lease by written notice to Tenant; whereupon this Lease shall terminate. Any notice provided in this section may be given by Landlord, or its attorney, or agent herein named. Upon termination of the Lease by Landlord, Tenant shall at once surrender possession of the Premises to Landlord and remove all of Tenant's effects therefrom, or Landlord shall be entitled to remove all persons and effects therefrom, using such force as may be necessary without being guilty of trespass, forcible entry or detainer or other tort. NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, if there is an Event of Default, Landlord must give notice to Tenant and United Auto Group, Inc. ("UAG") of its intent to exercise any remedy therefor and UAG (or its successors or assigns) shall have thirty (30) days thereafter in which to purchase the Premises pursuant to the terms of the Agreement before Landlord may pursue any right or remedy against Tenant under this Lease; provided, however, that such thirty (30) day purchase period shall be extended one (1) day for each day of delay in closing under the Agreement occasioned by the act or omission of Landlord -8- in performing its obligations under the Agreement or for any other reason the Closing thereunder does not occur except for Tenant's default under this Agreement ("Notice and Cure Requirement"). 18. RELETTING BY LANDLORD. If, after an Event of Default, Landlord has the right to but has not elected to terminate this Lease, Landlord may, subject to the Notice and Cure Requirement, as Tenant's agent, without terminating this Lease, enter upon and exercise good faith efforts to rent the Premises at the best price obtainable by reasonable effort, for the remainder of the term hereof. Tenant shall be liable to Landlord for the present value of any deficiency between rent due hereunder and the rent received by Landlord upon reletting. For purposes of computing the "present value of any deficiency" in accordance with the provisions of this paragraph, the parties agree to utilize a discount rate equal to the then prevailing prime rate of interest charged by leading money center banks as published in "THE WALL STREET JOURNAL". 19. WARRANTIES OF TITLE AND QUIET POSSESSION. Landlord warrants and represents that it has good and marketable title to the Premises and has full right to make this Lease and that Tenant shall have quiet and peaceable possession of the Premises during the Term so long as no Event of Default is in existence and continuing hereunder. 20. ESTATE CREATED; FUTURE GRANTS. Landlord and Tenant intend for and agree that this Lease shall create a leasehold estate in the Premises for the Term. Landlord agrees that, during the Term of this Lease, it will not execute or join in any conveyances of easements or restrictive covenants or other agreements restricting or affecting the Premises or Tenant's use thereof without the prior written consent of Tenant, which may be withheld in Tenant's sole discretion. 21. SUBORDINATION ATTORNMENT. Landlord represents that there is only one Deed to Secure Debt with respect to the Premises currently in force in favor of NationsBank dated November 16, 1984, recorded in Deed Book 2920, Page 104, Gwinnett County, Georgia records, as modified by Modification Agreement date August 13, 1985, recorded in Deed Book 3124, Page 509, aforesaid records. Should Landlord ever give a Deed to Secure Debt with respect to the Premises, Landlord -9- shall provide Tenant a Subordination, Non-Disturbance and Attornment Agreement from such lender in the form attached hereto and incorporated herein by reference as EXHIBIT "B" ("SNDA"). This Lease is subject and subordinate to any deed of trust, mortgage, or other security instrument, which presently or may in the future cover the Premises, and to any increases, renewals, modifications, consolidations, replacements, and extensions of any of such deed of trust, mortgage, or security instrument; provided, however, that Tenant's subordination to any encumbrance arising after the date of this Lease shall be conditioned upon Landlord's delivery to Tenant of a non-disturbance agreement in form reasonably satisfactory to Tenant containing the substantive provisions of the SNDA. Notwithstanding the generality of the foregoing, any mortgagee shall have the right at any time to subordinate any deed of trust, mortgage, or other security instrument to this Lease. 22. ATTORNEY'S FEES. In the event either party should seek to enforce its rights under this Lease through judicial process, the prevailing party in any such action shall be entitled to collect from the other party, in addition to all other sums owing hereunder, its reasonable attorney's fees. 23. RIGHTS CUMULATIVE. All rights hereunder shall be cumulative but not restrictive to those given by law. 24. SERVICE OF NOTICE. Any notice required or permitted to be delivered hereunder may be delivered in person or by United States certified mail, postage prepaid, return receipt requested, or by recognized overnight courier (e.g. Federal Express or DHL), next business day delivery, charges prepaid, addressed to the parties at Landlord: Charles F. Evans 3180 Zingara Road Route 1 Conyers, Georgia 30207 with a copy to: Forrest Jack Lance, Esq. Lance & Associates, P.C. 884 Green Street Conyers, Georgia 30207 -10- Tenant and UAG: Charles Evans BMW, Inc. c/o United Auto Group, Inc. 375 Park Avenue New York, New York 10152 Attn: George G. Lowrance, Esq. with a copy to: Stephen R. Leeds, Esq. Rogers & Hardin 2700 International Tower 229 Peachtree Street, N.E. Atlanta, Georgia 30303 or at such other addresses as may be specified by written notice delivered in accordance herewith. Such notices shall be deemed effective three (3) business days after deposited in the U.S. mail, or on the next business day if delivered by overnight courier, or immediately upon delivery in person. 25. WAIVER OF RIGHTS. Neither party's failure to exercise any power given to them hereunder, or to insist upon strict compliance by the other party with its obligations hereunder, nor any custom or practice of the parties at variance with the terms hereof, shall constitute a waiver of such party's right to demand exact compliance with the terms hereof. 26. TIME OF ESSENCE. Time is of the essence under this Lease. 27. SUCCESSORS AND ASSIGNS. This Lease shall apply to, inure to the benefit of, and be binding upon the parties hereof and their respective successors, assigns, and legal representatives except as otherwise expressly provided herein. 28. ENTIRE AGREEMENT; CONFLICT. This Lease, including any attachments made a part hereof or thereof, the BMW SPA and the Agreement, contain the entire agreement between the parties with respect to the lease of the Premises and no representations, inducements, promises or agreements, oral or otherwise, between the parties, not embodied herein shall be of any force or effect. The parties agree to execute and record a memorandum of this Lease in the real property records of Gwinnett County in the form specified by the Title Insurance Company. -11- 29. SEVERABILITY. If any term, provision or clause of this Lease, or if the application thereof to any person or circumstances, shall to any extent be invalid or unenforceable, then the remainder of this Lease or the application of such term, provision or clause to persons or circumstances other than those to which it is invalid or unenforceable shall not be affected thereby, and each and every remaining term, provision, clause and application of this Lease shall be valid and enforceable to the fullest extent permitted by law. 30. EXECUTION IN COUNTERPARTS. This Lease may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 31. AMENDMENT. This Lease may not be altered, waived, amended or extended except by an instrument in writing signed by Landlord and Tenant. 32. HEADINGS. The headings used in this Lease are for the purposes of convenience only. They shall not be construed to limit or to extend the meaning of any part of this Lease. 33. GOVERNING LAW. This Lease shall be construed in accordance with the laws of the State of Georgia, and all obligations of the parties created hereunder are performable in Gwinnett County, Georgia. 34. FORCE MAJEURE. Wherever a period of time is herein prescribed for action to be taken by either Landlord or Tenant, such party shall not be liable or responsible for, and there shall be excluded from the computation of any such period of time, any delays due to strikes, riots, acts of God, shortages of labor or materials, wars, governmental laws, regulations or restrictions or other causes which are beyond the control of Landlord or Tenant, as the case may be. IN WITNESS WHEREOF, the parties herein have hereunto caused their duly authorized representatives to set their hands and seals the day and year first above written. [SIGNATURES ON FOLLOWING PAGE] -12- LANDLORD: Signed Sealed and Delivered /s/ Charles F. Evans (SEAL) ----------------------- in the presence of: CHARLES F. EVANS - ---------------------------- Unofficial Witness - ---------------------------- Notary Public [Notarial Seal] My Commission Expires: - ---------------------------- TENANT: Signed Sealed and Delivered CHARLES EVANS BMW, INC. in the presence of: a Georgia Corporation - ---------------------------- Unofficial Witness By: /s/ Charles F. Evans -------------------------- Name: CHARLES F. EVANS -------------------------- Title: CEO -------------------------- - ---------------------------- Notary Public Attest: [Notarial Seal] By: /s/ Sarah Pilgrim -------------------------- Name: SARAH PILGRIM -------------------------- My Commission Expires: Title: TREASURER -------------------------- - ---------------------------- [Corporate Seal] -13- EX-10.9-6 41 EXH 10.9-6 LEASE GUARANTY DATED 10/96 LEASE GUARANTY The undersigned, in order to induce Charles F. Evans, an individual resident of the state of Georgia ("Landlord") to enter into that certain Lease Agreement (herein so called) dated as of October ___, 1996, between Landlord and Charles Evans BMW, Inc., a Georgia corporation (the "Company") and a subsidiary of UAG Atlanta IV, Inc., Inc., a Delaware corporation that is wholly owned by the undersigned, hereby irrevocably guarantees the collection of all rent and other obligations of the Company now or hereafter existing under the terms of the Lease Agreement. The undersigned hereby waives presentment, protest, notice of dishonor, extension of time of payment and notice of acceptance of this Guaranty and hereby consents to any and all forbearances and extensions of time of payment of the obligations guaranteed hereby and to any and all of the changes in the terms, covenants and conditions thereof hereafter made or guaranteed. No delay or omission by Landlord in exercising any of its rights, remedies, powers and privileges hereunder and no course of dealing between Landlord, on the one hand, and the Company, the undersigned or any other person, on the other hand, shall be deemed a waiver by Landlord of any of its rights, remedies, powers and privileges, even if such delay or omission is continuous and repeated; nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise thereof by Landlord or the exercise of any other right, remedy, power or privilege by Landlord. No notice or demand on the Company, the undersigned or any other person in any instance shall entitle the Company, the undersigned or any other person to any other or further notice or demand in similar or other circumstances or constitute a waiver of Landlord's right to any other or further action in any circumstances without notice or demand. This Guaranty shall remain in full force and effect, and the undersigned shall continue to be liable for the payment of the obligations under the Lease Agreement in accordance with the terms of the Lease Agreement and this Guaranty, notwithstanding the commencement of any bankruptcy, reorganization or other debtor relief proceedings by or against the Company, and notwithstanding any modification, discharge or extension of the obligations under the Lease Agreement, any modification or amendment of the Lease Agreement, or any stay of the exercise by Landlord of any of its rights and remedies against the Company with respect to any of the obligations under the Lease Agreement. Whenever possible, each provision of the Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of the Guaranty shall be prohibited by or be invalid under such law, such provisions shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. This Guaranty shall inure to the benefit of Landlord 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. This instrument shall be governed by the laws of the State of Georgia. WITNESS the undersigned's signature as of the _____ day of October, 1996. UNITED AUTO GROUP, INC. a Delaware Corporation By: /S/ Charles F. Evans ----------------------------------------- Its: CEO ----------------------------------------- EX-10.9-7 42 EXH 10.9.7 LEASE AGREEMENT DATED 10/96 CHARLES EVANS NISSAN PROPERTY LEASE AGREEMENT THIS LEASE AGREEMENT ("Lease") made this ____ day of October 1996, by and between CHARLES F. EVANS, an individual resident of Georgia ("Landlord"), and CHARLES EVANS NISSAN, INC., a Georgia corporation ("Tenant"). W I T N E S S E T H: FOR AND IN CONSIDERATION of the sum of $10.00 Dollars in hand paid and of the mutual covenants and conditions contained herein, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. PREMISES. Landlord leases to Tenant and Tenant leases from Landlord the following property: All that tract or parcel of land containing approximately 4.55 acres, lying and being in Land Lot 267 of the 16th District of Rockdale County, Georgia, being more particularly described on EXHIBIT A, attached hereto and incorporated by reference herein, together with all improvements thereon and all rights, privileges, easements and appurtenances pertaining thereto (collectively, the "Premises") upon the terms contained herein. 2. TERM. Landlord and UNITED AUTO GROUP, INC., a Georgia corporation have entered into a Purchase and Sale Agreement Charles Evans Nissan Property for the Premises dated of even date herewith (the "Agreement"). The term hereof shall begin on the date hereof and shall end upon the Closing as described in the Agreement ("Term"). 3. RENT. (a) The rent for the first full six months of the Term shall be TWENTY THOUSAND AND NO/100 DOLLARS ($20,000.00) per month with the first month rent due and payable upon the date of this Lease. All other rent payments shall be paid in advance on the _____________ (___) day of the month. After twelve full months, subject to Section (b) below, the rent shall increase by an amount equal to the percentage increase in the Consumer Price Index from October, 1996 to October, 1997. Consumer Price Index for purposes hereof shall mean the Consumer Price Index for all wage earners for Atlanta, Georgia. (b) NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, if Tenant was ready, willing and able to close the purchase and sale of the Premises under the Agreement on or before twelve (12) months after the date hereof, but such closing is not consummated when Tenant is ready to close thereunder and such failure to close is not the result of Tenant's default, then so long as this Lease is in effect, the rent for the Premises shall be Twenty Thousand and No/100 Dollars ($20,000.00) per month. 4. UTILITIES. Tenant shall have all utilities listed in its name and shall pay all utility bills, including, but not limited to water, sewer, gas, electricity, fuel, light, and heat bills, for the Premises, and Tenant shall pay all charges for garbage collection services or other sanitary services rendered to the Premises or used by Tenant in connection therewith. If Tenant fails to pay for such services, Landlord may, at its option and after providing Tenant with at least thirty (30) days prior written notice, pay the same, and the amount of the payment shall be payable to Landlord as additional rent. 5. USE OF THE PREMISES; ENVIRONMENTAL INDEMNITY. The Premises shall be used for the operation of a new and used automobile dealership, service facility and uses incidental thereto, and for any other purposes which may be agreed to by the parties. The use of the Premises by Tenant shall be in compliance with federal, state and local laws and any applicable restrictive covenants. Furthermore, Tenant shall not violate any federal or state environmental law, and Tenant agrees to indemnify and hold harmless Landlord from any and all damages, costs, fines and expenses that might arise as a result of any such violation and from its placement upon the Premises of hazardous wastes and toxic substances that are placed on the Premises after the date hereof. Notwithstanding anything to the contrary contained in this Paragraph 5, there shall not be deemed to be a nuisance or trespass and Tenant's obligation to indemnify and hold Landlord harmless shall -2- not extend to any damages, claims, or liabilities arising as a result of contaminants existing on the Premises on the date hereof or migrating onto or beneath the Premises after the date hereof, where such contamination is not caused by or attributable to Tenant, all of which shall be Landlord's responsibility. 6. REPRESENTATION. All representations and warranties contained in Sections 2.10, 2.11 and 3.3 of that certain Stock Purchase Agreement (the "Nissan SPA") dated August 5, 1996 by and among United Auto Group, Inc., a Delaware corporation, UAG Atlanta IV, Inc., a Delaware corporation, Charles Evans Nissan, Inc., a Georgia corporation, and Charles F. Evans are hereby incorporated by reference to the same effect as if fully set forth herein. Nothing contained in this Lease shall in any way affect or diminish the rights of the parties under the Nissan SPA for the breach of any representation or warranty contained in the Nissan SPA. 7. REPAIRS BY LANDLORD. All repairs, replacements, and maintenance of any kind to the Premises shall be the sole responsibility of Tenant except to the extent the necessity therefor would constitute a breach of Landlord's representations or warranties under the Nissan SPA or the Agreement. 8. REPAIRS BY TENANT. Subject to Landlord's representations and warranties in the Nissan SPA and the Agreement, Tenant accepts the condition of the Premises as of the date hereof and agrees that the Premises are suited for the uses specified herein. Tenant shall, throughout the Term, at its expense, maintain the Premises in good order and repair, including but not limited to repair and maintenance of the electrical, heating, ventilation and air conditioning and plumbing systems. Tenant further agrees to care for all landscaping on the Premises, including the mowing of grass, paving, policing, care of shrubs and general landscaping. If Tenant fails to properly maintain and repair any portion of the Premises, Landlord may, following at least thirty (30) days prior written notice to Tenant, maintain the same and Tenant shall pay to Landlord within thirty (30) days after demand the commercially reasonable costs thereof together with interest on said amount -3- from the date of payment by Landlord at a rate equal to the interest rate provided in the Nissan SPA for non-payment of obligations ("Interest Rate"). Subject to Tenant's repair obligations hereunder, Tenant agrees to return the Premises to Landlord in as good condition and repair as when first received by Tenant, natural wear and tear and condemnation excepted. 9. TAX AND INSURANCE. Tenant shall promptly and on a timely basis pay as additional rent during the Term all charges for taxes (including, but not limited to, ad valorem taxes, special assessments and any other governmental charges) on the Premises, which amounts shall be prorated between Tenant and Landlord for all periods partially but not entirely within the Term. Tenant shall also maintain, at all times during the Term of this Lease, fire and extended insurance coverage on the Premises in amounts equal to the full replacement value of the Premises, and written on policies issued by underwriters reasonably acceptable to Landlord. Landlord agrees that such coverages may be provided by blanket policies of insurance covering other locations in addition to the Premises. All policies shall insure Landlord and Tenant as their respective interests shall appear and shall contain a replacement cost endorsement. Should Tenant fail to pay such tax expenses or fail to provide certificates evidencing the required insurance coverage, Landlord may, following at least thirty (30) days prior written notice to Tenant, pay any such charges or secure such coverage, and Tenant shall pay to Landlord within thirty (30) days after demand as additional rent all amounts so expended by Landlord together with interest on said amount from the date of payment by Landlord at a rate equal to the Interest Rate. 10. DESTRUCTION OF OR DAMAGE TO THE PREMISES. If the Premises should be damaged or destroyed by any insured peril whatsoever during the Term, all insurance proceeds shall be delivered to Tenant and Tenant shall proceed with reasonable diligence to rebuild and repair the Premises to substantially the condition in which it existed prior to such damage or destruction. 11. INDEMNITY; WAIVER OF SUBROGATION. Subject to Landlord's obligations in this Lease and the Agreement Tenant agrees to indemnify and hold harmless Landlord against all claims and -4- expenses resulting therefrom, including actual attorneys' fees reasonably incurred and court costs, for damage to persons or property by reason of the use or occupancy of the Premises by Tenant. Tenant shall periodically provide Landlord with certificates of general liability insurance naming Landlord as an additional insured, in an amount of not less than $3,000,000 and with an insurance carrier reasonably satisfactory to Landlord. The dollar amount of such insurance coverage shall be reviewed annually during the Term, and adjusted if necessary, in order to provide for adequate protection to both Landlord and Tenant; provided, however, in no event shall any aggregate percentage increases in Tenant's liability coverage obligations hereunder ever exceed the cumulative percentage increases in the Consumer Price Index for all wage earners for Atlanta, Georgia occurring during the corresponding portion of the Term of this Lease. Landlord and Tenant each hereby release and waive any right of recovery against the other for any loss, claim, liability, or damage occurring on or to the Premises, whether wholly or contributorily caused by the negligence of the other party, to the extent that the same is compensated by actual receipt of proceeds from insurance policies covering such loss, claim, liability, or damage. 12. ALTERATIONS. Tenant shall make no structural alterations, additions or improvements to the Premises without the express prior written consent of Landlord which consent shall not be unreasonably withheld or delayed, except that Tenant may alter any wall that is not of a load-bearing nature without the consent of Landlord. Tenant may make non-structural changes and modifications to the Premises without Landlord's approval. In the event Landlord has not responded to Tenant's written request for alterations within fifteen (15) days of when received, such alteration shall be deemed to have been approved by Landlord. Tenant agrees to save Landlord harmless on account of any claim or lien of mechanics, materialmen or other party, in connection with any alterations, additions or improvements of or to the Premises performed by Tenant. Tenant shall furnish such waivers of liens and appropriate affidavits from the general contractor or subcontractors as Landlord may reasonably request. Notwithstanding the foregoing, Tenant shall also be entitled -5- to make the following changes without necessity of Landlord's consent: (i) any alterations required to be made by it pursuant to governmental orders, rules, laws, regulations, ordinances or requirements, and (ii) any changes in its signage (provided such are in compliance with local ordinances and any restrictive covenants affecting the Premises) or those recommended or required by the automobile manufacturer whose automobiles are sold on the Premises. Tenant shall have the right to finance any alterations or improvements permitted hereunder and may pledge its interest in this Lease as security therefor; provided, however, that any liens granted in connection with such financings shall be subordinate to the rights of Landlord under this Lease. 13. GOVERNMENTAL ORDERS. Subject to Tenant's right to terminate this Lease hereunder, Tenant agrees, at its own expense, to promptly comply with all requirements of any public authority made necessary by reason of Tenant's occupancy of the Premises from and after the date hereof or which may be necessary for Tenant's occupancy to continue if the requirement to comply arises after the date of this Lease. Landlord shall have no obligation of any kind for such compliance except to the extent it arose prior to the date of this Lease. 14. CONDEMNATION. If all or a substantial part of the Premises is condemned for any public use or purpose, then the Term shall not cease from the date when possession thereof is taken, and rent shall not be prorated as of that date; and this Lease shall continue as to the remaining portion of the Premises in full force and effect notwithstanding any such taking. All compensation and damage caused by such condemnation shall be recovered from the condemnor and paid to the Tenant. 15. ASSIGNMENT AND SUBLETTING. Tenant shall, without the prior written consent of Landlord, have the right to assign this Lease or any interest hereunder, or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant. Any assignee of Tenant, at the option of Landlord, shall become directly liable to Landlord for all obligations of Tenant hereunder, but no sublease or assignment by Tenant shall relieve Tenant of any liability -6- hereunder. Without in any way limiting the foregoing, Tenant shall specifically be entitled to freely assign or sublet its interest in this Lease to any parent, subsidiary or other entity under common control with Tenant or Tenant's parent, without the prior written consent of Landlord. Moreover, the sale or transfer of all or any part of the capital stock of Tenant shall not be deemed to be an assignment hereunder. 16. REMOVAL OF FIXTURES. Tenant may (so long as no Event of Default has occurred and is continuing hereunder), prior to the end of the Term, remove all trade fixtures and equipment which Tenant has purchased as leasehold improvements or placed in the Premises subsequent to the date hereof, provided that Tenant repairs all damage to the Premises caused by the removal. However, any buildings, fixtures, or other attached property installed by Tenant as replacements of existing items, or anything that cannot be removed without substantially changing the character of the Premises, shall become the property of Landlord. 17. CANCELLATION OF LEASE BY LANDLORD. It shall be an "Event of Default" hereunder if, (a) Tenant fails to pay rent, including additional rent herein reserved, when due, and fails to cure the failure to pay within ten (10) days after receipt of written notice thereof from Landlord; (b) Tenant fails to perform any of the terms or provisions of this Lease other than the provision requiring the payment of rent, and fails to cure the default within thirty (30) days after the date of receipt of written notice of default from Landlord; provided, however, that if the nature of the default is such that the same cannot reasonably be cured within said thirty (30) day period, Tenant shall not be deemed to be in default if Tenant shall, within such period, commence such cure and thereafter diligently prosecute the same to completion; (c) Tenant is adjudicated bankrupt; -7- (d) a permanent receiver is appointed for Tenant's property and the receiver is not removed within sixty (60) days after written notice from Landlord to Tenant to obtain the removal; (e) Tenant files a petition seeking an order for relief under Title 11 of the United States Code, as amended, or under any similar law or statute of the United States or any state thereof, or a petition seeking an order for relief under Title 11 of the United States Code, or any similar law or statute of the United States or any state thereof, is filed against Tenant and such petition is not dismissed with prejudice within sixty (60) days from the date of filing; (f) Tenant makes an assignment for the benefit of creditors; or (g) Tenant's effects should be levied upon or attached under process against Tenant and not satisfied or dissolved within thirty (30) days after written notice from Landlord to Tenant to obtain satisfaction thereof. Upon the occurrence of an Event of Default, Landlord may pursue any right or remedy against Tenant available at law or in equity. Without limitation to the foregoing, Landlord, at its option, may at once or within six (6) months thereafter (so long as such Event of Default is continuing), elect to terminate this Lease by written notice to Tenant; whereupon this Lease shall terminate. Any notice provided in this section may be given by Landlord, or its attorney, or agent herein named. Upon termination of the Lease by Landlord, Tenant shall at once surrender possession of the Premises to Landlord and remove all of Tenant's effects therefrom, or Landlord shall be entitled to remove all persons and effects therefrom, using such force as may be necessary without being guilty of trespass, forcible entry or detainer or other tort. NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, if there is an Event of Default, Landlord must give notice to Tenant and United Auto Group, Inc. ("UAG") of its intent to exercise any remedy therefor and UAG (or its successors or assigns) shall have thirty (30) days thereafter in which to purchase the Premises pursuant to the -8- terms of the Agreement before Landlord may pursue any right or remedy against Tenant under this Lease; provided, however, that such thirty (30) day purchase period shall be extended one (1) day for each day of delay in closing under the Agreement occasioned by the act or omission of Landlord in performing its obligations under the Agreement or for any other reason the Closing thereunder does not occur except for Tenant's default under this Agreement ("Notice and Cure Requirement"). 18. RELETTING BY LANDLORD. If, after an Event of Default, Landlord has the right to but has not elected to terminate this Lease, Landlord may, subject to the Notice and Cure Requirement, as Tenant's agent, without terminating this Lease, enter upon and exercise good faith efforts to rent the Premises at the best price obtainable by reasonable effort, for the remainder of the term hereof. Tenant shall be liable to Landlord for the present value of any deficiency between rent due hereunder and the rent received by Landlord upon reletting. For purposes of computing the "present value of any deficiency" in accordance with the provisions of this paragraph, the parties agree to utilize a discount rate equal to the then prevailing prime rate of interest charged by leading money center banks as published in "THE WALL STREET JOURNAL". 19. WARRANTIES OF TITLE AND QUIET POSSESSION. Landlord warrants and represents that it has good and marketable title to the Premises and has full right to make this Lease and that Tenant shall have quiet and peaceable possession of the Premises during the Term so long as no Event of Default is in existence and continuing hereunder. 20. ESTATE CREATED; FUTURE GRANTS. Landlord and Tenant intend for and agree that this Lease shall create a leasehold estate in the Premises for the Term. Landlord agrees that, during the Term of this Lease, it will not execute or join in any conveyances of easements or restrictive covenants or other agreements restricting or affecting the Premises or Tenant's use thereof without the prior written consent of Tenant, which may be withheld in Tenant's sole discretion. 21. SUBORDINATION ATTORNMENT. Landlord represents that there are no Deeds to Secure Debt with respect to the Premises currently in force. Should Landlord ever give a Deed to Secure -9- Debt with respect to the Premises, Landlord shall provide Tenant a Subordination, Non-Disturbance and Attornment Agreement from such lender in the form attached hereto and incorporated herein by reference as EXHIBIT "B" ("SNDA"). This Lease is subject and subordinate to any deed of trust, mortgage, or other security instrument, which presently or may in the future cover the Premises, and to any increases, renewals, modifications, consolidations, replacements, and extensions of any of such deed of trust, mortgage, or security instrument; provided, however, that Tenant's subordination to any encumbrance arising after the date of this Lease shall be conditioned upon Landlord's delivery to Tenant of a non-disturbance agreement in form reasonably satisfactory to Tenant containing the substantive provisions of the SNDA. Notwithstanding the generality of the foregoing, any mortgagee shall have the right at any time to subordinate any deed of trust, mortgage, or other security instrument to this Lease. 22. ATTORNEY'S FEES. In the event either party should seek to enforce its rights under this Lease through judicial process, the prevailing party in any such action shall be entitled to collect from the other party, in addition to all other sums owing hereunder, its reasonable attorney's fees. 23. RIGHTS CUMULATIVE. All rights hereunder shall be cumulative but not restrictive to those given by law. 24. SERVICE OF NOTICE. Any notice required or permitted to be delivered hereunder may be delivered in person or by United States certified mail, postage prepaid, return receipt requested, or by recognized overnight courier (e.g. Federal Express or DHL), next business day delivery, charges prepaid, addressed to the parties at -10- Landlord: Charles F. Evans 3180 Zingara Road Route 1 Conyers, Georgia 30207 with a copy to: Forrest Jack Lance, Esq. Lance & Associates, P.C. 884 Green Street Conyers, Georgia 30207 Tenant and UAG: Charles Evans Nissan, Inc. c/o United Auto Group, Inc. 375 Park Avenue New York, New York 10152 Attn: George G. Lowrance, Esq. with a copy to: Stephen R. Leeds, Esq. Rogers & Hardin 2700 International Tower 229 Peachtree Street, N.E. Atlanta, Georgia 30303 or at such other addresses as may be specified by written notice delivered in accordance herewith. Such notices shall be deemed effective three (3) business days after deposited in the U.S. mail, or on the next business day if delivered by overnight courier, or immediately upon delivery in person. 25. WAIVER OF RIGHTS. Neither party's failure to exercise any power given to them hereunder, or to insist upon strict compliance by the other party with its obligations hereunder, nor any custom or practice of the parties at variance with the terms hereof, shall constitute a waiver of such party's right to demand exact compliance with the terms hereof. 26. TIME OF ESSENCE. Time is of the essence under this Lease. 27. SUCCESSORS AND ASSIGNS. This Lease shall apply to, inure to the benefit of, and be binding upon the parties hereof and their respective successors, assigns, and legal representatives except as otherwise expressly provided herein. 28. ENTIRE AGREEMENT; CONFLICT. This Lease, including any attachments made a part hereof or thereof, the Nissan SPA and the Agreement, contain the entire agreement between the -11- parties with respect to the lease of the Premises and no representations, inducements, promises or agreements, oral or otherwise, between the parties, not embodied herein shall be of any force or effect. The parties agree to execute and record a memorandum of this Lease in the real property records of Rockdale County in the form specified by the Title Insurance Company. 29. SEVERABILITY. If any term, provision or clause of this Lease, or if the application thereof to any person or circumstances, shall to any extent be invalid or unenforceable, then the remainder of this Lease or the application of such term, provision or clause to persons or circumstances other than those to which it is invalid or unenforceable shall not be affected thereby, and each and every remaining term, provision, clause and application of this Lease shall be valid and enforceable to the fullest extent permitted by law. 30. EXECUTION IN COUNTERPARTS. This Lease may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 31. AMENDMENT. This Lease may not be altered, waived, amended or extended except by an instrument in writing signed by Landlord and Tenant. 32. HEADINGS. The headings used in this Lease are for the purposes of convenience only. They shall not be construed to limit or to extend the meaning of any part of this Lease. 33. GOVERNING LAW. This Lease shall be construed in accordance with the laws of the State of Georgia, and all obligations of the parties created hereunder are performable in Rockdale County, Georgia. 34. FORCE MAJEURE. Wherever a period of time is herein prescribed for action to be taken by either Landlord or Tenant, such party shall not be liable or responsible for, and there shall be excluded from the computation of any such period of time, any delays due to strikes, riots, acts of God, shortages of labor or materials, wars, governmental laws, regulations or restrictions or other causes which are beyond the control of Landlord or Tenant, as the case may be. -12- IN WITNESS WHEREOF, the parties herein have hereunto caused their duly authorized representatives to set their hands and seals the day and year first above written. [SIGNATURES ON FOLLOWING PAGE] -13- LANDLORD: Signed Sealed and Delivered /S/ Charles F. Evans (SEAL) in the presence of: ----------------------- CHARLES F. EVANS _________________________ Unofficial Witness _________________________ Notary Public [Notarial Seal] My Commission Expires: ________________________ TENANT: Signed Sealed and Delivered CHARLES EVANS NISSAN, INC. in the presence of: a Georgia Corporation _________________________ Unofficial Witness By: /S/ Charles F. Evans ------------------------- Name: CHARLES F. EVANS --------------------------- _________________________ Title: CEO Notary Public ---------------------- Attest: [Notarial Seal] By: /S/ Sarah Pilgrim --------------------------- Name: TREASURER ----------------------------- My Commission Expires: Title: ------------------------ _________________________ [Corporate Seal] -14- EX-10.9-8 43 EXH 10.9.8 LEASE GUARANTY DATED 10/96 LEASE GUARANTY The undersigned, in order to induce Charles F. Evans, an individual resident of the state of Georgia ("Landlord") to enter into that certain Lease Agreement (herein so called) dated as of October ___, 1996, between Landlord and Charles Evans Nissan, Inc., a Georgia corporation (the "Company") and a subsidiary of UAG Atlanta V, Inc., Inc., a Delaware corporation that is wholly owned by the undersigned, hereby irrevocably guarantees the collection of all rent and other obligations of the Company now or hereafter existing under the terms of the Lease Agreement. The undersigned hereby waives presentment, protest, notice of dishonor, extension of time of payment and notice of acceptance of this Guaranty and hereby consents to any and all forbearances and extensions of time of payment of the obligations guaranteed hereby and to any and all of the changes in the terms, covenants and conditions thereof hereafter made or guaranteed. No delay or omission by Landlord in exercising any of its rights, remedies, powers and privileges hereunder and no course of dealing between Landlord, on the one hand, and the Company, the undersigned or any other person, on the other hand, shall be deemed a waiver by Landlord of any of its rights, remedies, powers and privileges, even if such delay or omission is continuous and repeated; nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise thereof by Landlord or the exercise of any other right, remedy, power or privilege by Landlord. No notice or demand on the Company, the undersigned or any other person in any instance shall entitle the Company, the undersigned or any other person to any other or further notice or demand in similar or other circumstances or constitute a waiver of Landlord's right to any other or further action in any circumstances without notice or demand. This Guaranty shall remain in full force and effect, and the undersigned shall continue to be liable for the payment of the obligations under the Lease Agreement in accordance with the terms of the Lease Agreement and this Guaranty, notwithstanding the commencement of any bankruptcy, reorganization or other debtor relief proceedings by or against the Company, and notwithstanding any modification, discharge or extension of the obligations under the Lease Agreement, any modification or amendment of the Lease Agreement, or any stay of the exercise by Landlord of any of its rights and remedies against the Company with respect to any of the obligations under the Lease Agreement. Whenever possible, each provision of the Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of the Guaranty shall be prohibited by or be invalid under such law, such provisions shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. This Guaranty shall inure to the benefit of Landlord 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. This instrument shall be governed by the laws of the State of Georgia. WITNESS the undersigned's signature as of the _____ day of October, 1996. UNITED AUTO GROUP, INC. a Delaware Corporation By: /S/ Charles F. Evans ----------------------------------- Its: CEO ----------------------------------- EX-10.9-9 44 EXH 10.9.9 PURCHASE AND SALE AGRMNT DATED 10/96 PURCHASE AND SALE AGREEMENT CHARLES EVANS BMW PROPERTY THIS PURCHASE AND SALE AGREEMENT (hereinafter called the "Agreement"), made and entered into this ___ day of October 1996, by and between CHARLES F. EVANS, an individual resident of Georgia ("Seller") and UNITED AUTO GROUP, 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 on or before the Closing Date, as hereinafter defined, all that tract or parcel of land lying and being in Gwinnett County, Georgia and being more particularly described on EXHIBIT "A" attached hereto and by this reference made a part hereof (the "Land"), together with those certain buildings (the "Buildings"), all other improvements, fixtures, equipment, 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. Upon full execution of this Agreement, Purchaser shall deliver to Chicago 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 SEVEN HUNDRED THOUSAND AND NO/100 DOLLARS ($700,000.00) (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 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: (i) if the Closing hereunder occurs on or before six months after the date of this Agreement, the Purchase Price shall be SIX MILLION AND NO/100 DOLLARS ($6,000,000.00); (ii) if the Closing hereunder occurs later than six months but on or before one (1) year after the date of this Agreement, the Purchase Price shall be SIX MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($6,500,000.00); and (iii) if the Closing hereunder occurs later than one year after the date of this Agreement, until eighteen (18) months after the date of this Agreement, the Purchase Price shall be SEVEN MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($7,500,000.00). NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, if Purchaser is ready to close the purchase hereunder and the Closing hereunder is delayed for a reason other than Purchaser's default, (such as, but not limited to, the result of force majeure or the failure of Seller to close the sale contemplated herein, whether by act or omission of Seller; without limiting the foregoing and by way of example only, if Seller is required to obtain a document to clear a title objection and fails to do so, or fails to execute any document required by the Title Company (as hereinafter defined)) the Purchase Price shall be the Purchase Price that was to be paid 2 at the time that Purchaser was originally ready to close the purchase contemplated hereunder. 4. GENERAL CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS REGARDING THE CLOSING. 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 Earnest Money, together with interest thereon, shall be refunded by Escrow Agent to Purchaser: (a) Seller has complied with and otherwise performed each of the covenants and obligations set forth in this Agreement; (b) All representations and warranties of Seller as set forth in this Agreement shall be in all respects true and correct as of the date of Closing; and (c) Chicago Title Insurance Company ("Title Company") 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. Purchaser may waive any of the foregoing conditions in Purchaser's sole discretion on or prior to Closing. 5. TITLE REPORT; SURVEY. (a) Attached hereto and incorporated herein by reference as Exhibit "B" is a list of permitted title exceptions to the Property ("Permitted Exceptions"). Attached hereto and incorporated herein by reference as Exhibit "C" is a list of title insurance exceptions which are unacceptable to Purchaser ("Exceptions"). Seller agrees to remove the Exceptions at or prior to Closing. Seller also agrees to comply, at or prior to Closing, with all requirements shown on the title insurance commitment on the Property which will be issued prior to the Closing ("Requirements"). The removal of 3 such Exceptions and compliance with such Requirements shall be subject to the reasonable satisfaction of the Title Company. (b) Also attached hereto and incorporated herein by reference as Exhibit "D" is an ALTA survey of the Property (the "Survey"). Seller is not obligated to remove any matters of Survey prior to Closing. (c) Notwithstanding anything herein contained to the contrary, it is understood and agreed that title to the Property shall be delivered to Purchaser at the Closing free and clear of all (i) monetary liens and encumbrances and that such monetary liens and encumbrances shall be released from the Property by Seller at Seller's sole expense on or before the Closing or Purchaser, at its option, may cause their release and the cost thereof, together with Purchaser's reasonable expenses to accomplish same, shall be credited against the Purchase Price; and (ii) matters first arising after August 16, 1996, (which is the effective date of the title report upon which the Permitted Exceptions were determined) which arise other than by the action or inaction of Purchaser and that such matters shall be released from the Property by Seller at Seller's sole expense on or before the Closing, or Purchaser may, at its option, 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, or Purchaser chooses not to, Purchaser may pursue its remedies against Seller for default). Seller represents and warrants that it currently owns good and marketable fee simple title to the Property subject only to the Permitted Exceptions and the Exceptions. Title to the Property shall be conveyed from Seller to Purchaser at the Closing by General Warranty Deed subject only to the Permitted Exceptions. 6. TITLE POLICY. At the Closing, Purchaser shall obtain an ALTA "extended coverage" owner's policy of title insurance ("Title Insurance Policy") issued by the Title Company in the full amount of the Purchase Price effective as of the Closing insuring Purchaser that good and marketable fee simple title to the Property is vested in Purchaser, subject only to the Permitted Exceptions, 4 and containing any endorsements requested by Purchaser. Seller shall execute an owner's affidavit in form reasonably requested by the Title Company so that, together with the Survey, the Title Policy will be issued without standard exceptions. Attached hereto and incorporated herein by reference as Exhibit "E" is an example of a form currently utilized by the Title Company for such purposes. 7. 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. (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. 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. 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. There are no pending or, to the best knowledge of Seller, threatened 5 proceedings that could have the effect of impairing or restricting access between the Property and adjacent public roads. (e) NO ASSESSMENTS. No assessments other than 1996 ad valorem taxes 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 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 or prior to the Closing. (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 C-3 classification under the applicable zoning ordinances and a new and used car dealership, paint and body shop, and uses incidental thereto, are 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. 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. (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. 6 (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 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 BANKRUPTCY. Seller is solvent and has not 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 Seller's properties (including the Property) been appointed or a petition filed by or against Seller 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 Seller. (l) 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. (m) TAX RETURNS. Other than the payment of 1996 ad valorem taxes, 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 which have not previously been filed. (n) 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, or the applicable Georgia statute. (o) WARRANTIES CORRECT. All representations and warranties of Seller contained in this Agreement are true and correct as of the date hereof. (p) HAZARDOUS SUBSTANCES. The representations and warranties set forth in Section 2.11 of that certain Stock Purchase Agreement between Seller, Purchaser and others dated 7 August 5, 1996 ("SPA") are incorporated herein by referenced and constitute a representation and warranty by Landlord hereunder; provided, however, that any claim for a breach thereof must be asserted, if at all, on or before five (5) years after the date of this Agreement. (q) KNOWLEDGE. As used herein, knowledge shall mean that Seller knows or, in the exercise of reasonable diligence 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. 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; subject to the five (5) year limitation for asserting a claim with respect thereto provided above. 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, with interest earned thereon, 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 8 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 Purchaser may pursue its rights against Seller as provided in Paragraph 13 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, with interest earned thereon, to Purchaser and no party shall have liability to the other hereunder except for those expressly stated herein to survive termination of this Agreement. 8. 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. 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. 9. 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 the parties may waive expressly and in writing, at or prior to Closing, any conditions benefitting the waiving party 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 date which Purchaser gives ten (10) 9 days notice to Seller, or if no notice is given, then the Closing shall be April ____, 1998. 10. 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 General Warranty Deed conveying the Property to Purchaser in the form required by the Title Company to issue the Title Insurance Policy; (b) 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; (c) AFFIDAVITS AND OTHER DOCUMENTATION. Affidavits from Seller and other documentation and agreements reasonably required by the Title Company to enable it to issue the Title Insurance Policy; (d) FIRPTA CERTIFICATE. A customary FIRPTA Certificate from Seller; (e) GEORGIA AFFIDAVIT. Customary affidavits executed by Seller to evidence Seller is a resident of Georgia such that withholding of a portion of the Purchase Price is not required at Closing for tax purposes; (f) 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; (g) LEASE TERMINATION. If requested by Purchaser, a termination agreement relating to the Lease and, in any event, 10 a written acknowledgement by Seller that there are no defaults under the Lease of the Property; and (h) 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 including but not limited to a real estate broker's lien waiver and documentation required under Paragraph 5 hereof. 11. CLOSING COSTS. (a) Upon the Closing, Seller agrees to pay one-half of the escrow charges (but not to exceed $ 250.00) of the Escrow Agent, the attorneys' fees of Seller, the Georgia real estate transfer tax with respect to the Property, the cost of the documentation required under Paragraph 5 hereof and all other costs and expenses incurred by Seller in connection with this transaction. (b) Upon the Closing, Purchaser agrees to pay the remainder of the escrow charges, the cost of the owner's policy of title insurance including the cost of any endorsements requested by Purchaser, the attorneys' fees of Purchaser, and all other costs and expenses incurred by Purchaser in connection with this transaction. 12. PURCHASER'S DEFAULT. In the event of default by Purchaser under the terms of this Agreement, Seller shall give Purchaser written notice of each claimed default and if not cured by Purchaser within fifteen (15) days of receipt of such notice, the Earnest Money, together with interest thereon, shall be paid to Seller and Seller shall be entitled to pursue against Purchaser any remedy granted to Seller at law or in equity, including, without limitation, an action for specific performance or damages against Purchaser and if Seller recovers a judgment against Purchaser, the Earnest Money shall be utilized by Seller to the extent of such judgment with the remainder, if any, returned to Purchaser. 13. SELLER'S DEFAULT. In the event of default by Seller under the terms of this Agreement, Purchaser shall give Seller 11 written notice of each claimed default and if not cured by Seller within fifteen (15) days of receipt of such notice, at Purchaser's option: (i) Purchaser may terminate this Agreement by written notice to Seller, whereupon the Earnest Money, together with interest thereon, 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. During any cure period the Lease between Seller and Charles Evans BMW, Inc. shall remain in full force and effect. 14. 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. 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, 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. 15. DAMAGE OR DESTRUCTION. If at any time prior to Closing all or any part of the Improvements be damaged or destroyed, from 12 any cause whatsoever, then Purchaser shall 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. 16. 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. 17. NO BROKER. Purchaser and Seller hereby represent 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 17 shall survive the Closing or any termination of this Agreement. 18. 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, charges prepaid, by overnight courier (such as Airborne or Federal Express) for next 13 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: Charles F. Evans 3180 Zingara Road Route 1 Conyers, Georgia 30207 with a copy to: Forrest Jack Lance, Esq. Lance & Associates 884 Green Street Conyers, Georgia 30207 TITLE COMPANY: Chicago Title Insurance Company 5775-C Peachtree Dunwoody Road, N.E. Suite 200 Atlanta, Georgia 30342 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. 19. POSSESSION. Full and exclusive possession of the Property shall be delivered by Seller to Purchaser on the date of Closing. 14 20. 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. 21. 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. 22. 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. 23. 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 with respect to Purchaser's purchase of the Property, and no representations, inducements, promises, or agreements, oral or otherwise, between the parties not embodied herein shall be of any force or effect. Nothing, however, in this Agreement shall affect the rights of the parties to the SPA to assert any claim that may exist thereunder. 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 shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, 15 legal representatives, successors, and assigns. Time is of the essence of 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 Georgia. 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. 16 24. 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. 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: /S/ Charles F. Evans (Seal) ---------------------------- CHARLES F. EVANS Witness: ____________________ Date: ____________________ PURCHASER: UNITED AUTO GROUP, INC., a Delaware corporation By: /S/ George G. Lowrance --------------------------- Its: Vice President -------------------------- Attest:______________________ Date:___________________ 17 EXHIBIT "A" DESCRIPTION OF PROPERTY 1 EXHIBIT "B" PERMITTED EXCEPTIONS 2 EXHIBIT "C" EXCEPTIONS TO BE REMOVED BY SELLER 3 EXHIBIT "D" SURVEY 4 EXHIBIT "E" CURRENT FORM OF OWNER'S AFFIDAVIT 5 EXHIBIT "F" SURVEY EXCEPTIONS TO BE REMOVED BY LANDLORD 6 [BLANK PAGE] EX-10.9-10 45 EXH 10.9.10 PURCHASE AND SALE AGRMNT DATED 10/96 PURCHASE AND SALE AGREEMENT CHARLES EVANS NISSAN PROPERTY THIS PURCHASE AND SALE AGREEMENT (hereinafter called the "Agreement"), made and entered into this ___ day of October 1996, by and between CHARLES F. EVANS, an individual resident of Georgia ("Seller") and UNITED AUTO GROUP, 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 on or before the Closing Date, as hereinafter defined, all that tract or parcel of land lying and being in Rockdale County, Georgia and being more particularly described on EXHIBIT "A" attached hereto and by this reference made a part hereof (the "Land"), together with those certain buildings (the "Buildings"), all other improvements, fixtures, equipment, 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. Upon full execution of this Agreement, Purchaser shall deliver to Chicago 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 ONE DOLLAR ($1.00) (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 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 TWO MILLION NINE HUNDRED FORTY FIVE THOUSAND AND NO/100 DOLLARS ($2,945,000.00). 4. GENERAL CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS REGARDING THE CLOSING. 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 Earnest Money, together with interest thereon, shall be refunded by Escrow Agent to Purchaser: (a) Seller has complied with and otherwise performed each of the covenants and obligations set forth in this Agreement; (b) All representations and warranties of Seller as set forth in this Agreement shall be in all respects true and correct as of the date of Closing; and (c) Chicago Title Insurance Company ("Title Company") 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. Purchaser may waive any of the foregoing conditions in Purchaser's sole discretion on or prior to Closing. 2 5. TITLE REPORT; SURVEY. (a) Attached hereto and incorporated herein by reference as Exhibit "B" is a list of permitted title exceptions to the Property ("Permitted Exceptions"). Attached hereto and incorporated herein by reference as Exhibit "C" is a list of title insurance exceptions which are unacceptable to Purchaser ("Exceptions"). Seller agrees to remove the Exceptions at or prior to Closing. Seller also agrees to comply, at or prior to Closing, with all requirements shown on the title insurance commitment on the Property which will be issued prior to the Closing ("Requirements"). The removal of such Exceptions and compliance with such Requirements shall be subject to the reasonable satisfaction of the Title Company. (b) Also attached hereto and incorporated herein by reference as Exhibit "D" is an ALTA survey of the Property (the "Survey"). Seller is not obligated to remove any matters of Survey prior to Closing. (c) Notwithstanding anything herein contained to the contrary, it is understood and agreed that title to the Property shall be delivered to Purchaser at the Closing free and clear of all (i) monetary liens and encumbrances and that such monetary liens and encumbrances shall be released from the Property by Seller at Seller's sole expense on or before the Closing or Purchaser, at its option, may cause their release and the cost thereof, together with Purchaser's reasonable expenses to accomplish same, shall be credited against the Purchase Price; and (ii) matters first arising after September 4, 1996, (which is the effective date of the title report upon which the Permitted Exceptions were determined) which arise other than by the action or inaction of Purchaser and that such matters shall be released from the Property by Seller at Seller's sole expense on or before the Closing, or Purchaser may, at its option, 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, or Purchaser chooses not to, Purchaser may pursue its remedies against Seller for default). 3 Seller represents and warrants that it currently owns good and marketable fee simple title to the Property subject only to the Permitted Exceptions and the Exceptions. Title to the Property shall be conveyed from Seller to Purchaser at the Closing by General Warranty Deed subject only to the Permitted Exceptions. 6. TITLE POLICY. At the Closing, Purchaser shall obtain an ALTA "extended coverage" owner's policy of title insurance ("Title Insurance Policy") issued by the Title Company in the full amount of the Purchase Price effective as of the Closing insuring Purchaser that good and marketable fee simple title to the Property is vested in Purchaser, subject only to the Permitted Exceptions, and containing any endorsements requested by Purchaser. Seller shall execute an owner's affidavit in form reasonably requested by the Title Company so that, together with the Survey, the Title Policy will be issued without standard exceptions. Attached hereto and incorporated herein by reference as Exhibit "E" is an example of a form currently utilized by the Title Company for such purposes. 7. 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. (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. Seller also has no knowledge of any pending or threatened application for changes 4 in the zoning applicable to the Property or any portion thereof. (c) NO CONDEMNATION. 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. 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 other than 1996 ad valorem taxes 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 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 or prior to the Closing. (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 BG classification under the applicable zoning ordinances and a new and used car dealership, paint and body shop, and uses incidental thereto, are 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. 5 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. (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 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 BANKRUPTCY. Seller is solvent and has not 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 Seller's properties (including the Property) been appointed or a petition filed by or against Seller 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 Seller. (l) 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. (m) TAX RETURNS. Other than the payment of 1996 ad valorem taxes, 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 which have not previously been filed. (n) SELLER NOT A FOREIGN PERSON. Seller is not a "foreign person" which would subject Purchaser to the with- 6 holding tax provisions of Section 1445 of the Internal Revenue Code of 1986, as amended, or the applicable Georgia statute. (o) WARRANTIES CORRECT. All representations and warranties of Seller contained in this Agreement are true and correct as of the date hereof. (p) HAZARDOUS SUBSTANCES. The representations and warranties set forth in Section 2.11 of that certain Stock Purchase Agreement between Seller, Purchaser and others dated August 5, 1996 ("SPA") are incorporated herein by referenced and constitute a representation and warranty by Landlord hereunder; provided, however, that any claim for a breach thereof must be asserted, if at all, on or before five (5) years after the date of this Agreement. (q) KNOWLEDGE. As used herein, knowledge shall mean that Seller knows or, in the exercise of reasonable diligence 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. 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; subject to the five (5) year limitation for asserting a claim with respect thereto provided above. 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 7 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, with interest earned thereon, 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 Purchaser may pursue its rights against Seller as provided in Paragraph 13 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, with interest earned thereon, to Purchaser and no party shall have liability to the other hereunder except for those expressly stated herein to survive termination of this Agreement. 8. 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. Seller covenants that, from the date of this Agreement up to and including the date of Closing, Seller 8 shall not negotiate with any third party respecting the sale of the Property or any interest therein. 9. 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 the parties may waive expressly and in writing, at or prior to Closing, any conditions benefitting the waiving party 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 date which Purchaser gives ten (10) days notice to Seller, or if no notice is given, then the Closing shall be April ____, 1998. 10. 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 General Warranty Deed conveying the Property to Purchaser in the form required by the Title Company to issue the Title Insurance Policy; (b) 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; (c) AFFIDAVITS AND OTHER DOCUMENTATION. Affidavits from Seller and other documentation and agreements reasonably required by the Title Company to enable it to issue the Title Insurance Policy; (d) FIRPTA CERTIFICATE. A customary FIRPTA Certificate from Seller; (e) GEORGIA AFFIDAVIT. Customary affidavits executed by Seller to evidence Seller is a resident of Georgia such that 9 withholding of a portion of the Purchase Price is not required at Closing for tax purposes; (f) 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; (g) LEASE TERMINATION. If requested by Purchaser, a termination agreement relating to the Lease and, in any event, a written acknowledgement by Seller that there are no defaults under the Lease of the Property; and (h) 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 including but not limited to a real estate broker's lien waiver and documentation required under Paragraph 5 hereof. 11. CLOSING COSTS. (a) Upon the Closing, Seller agrees to pay one-half of the escrow charges (but not to exceed $ 250.00) of the Escrow Agent, the attorneys' fees of Seller, the Georgia real estate transfer tax with respect to the Property, the cost of the documentation required under Paragraph 5 hereof and all other costs and expenses incurred by Seller in connection with this transaction. (b) Upon the Closing, Purchaser agrees to pay the remainder of the escrow charges, the cost of the owner's policy of title insurance including the cost of any endorsements requested by Purchaser, the attorneys' fees of Purchaser, and all other costs and expenses incurred by Purchaser in connection with this transaction. 12. PURCHASER'S DEFAULT. In the event of default by Purchaser under the terms of this Agreement, Seller shall give Purchaser written notice of each claimed default and if not cured by Purchaser within fifteen (15) days of receipt of such notice, 10 the Earnest Money, together with interest thereon, shall be paid to Seller and Seller shall be entitled to pursue against Purchaser any remedy granted to Seller at law or in equity, including, without limitation, an action for specific performance or damages against Purchaser and if Seller recovers a judgment against Purchaser, the Earnest Money shall be utilized by Seller to the extent of such judgment with the remainder, if any, returned to Purchaser. 13. SELLER'S DEFAULT. In the event of default by Seller under the terms of this Agreement, Purchaser shall give Seller written notice of each claimed default and if not cured by Seller within fifteen (15) days of receipt of such notice, at Purchaser's option: (i) Purchaser may terminate this Agreement by written notice to Seller, whereupon the Earnest Money, together with interest thereon, 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. During any cure period the Lease between Seller and Charles Evans Nissan, Inc. shall remain in full force and effect. 14. 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. 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 11 for such taking. At such time as all or a part of the Property is subjected to a bona fide threat of condemnation, 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. 15. 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 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. 16. 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. 17. NO BROKER. Purchaser and Seller hereby represent 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 12 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 17 shall survive the Closing or any termination of this Agreement. 18. 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, charges prepaid, 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: Charles F. Evans 3180 Zingara Road Route 1 Conyers, Georgia 30207 with a copy to: Forrest Jack Lance, Esq. Lance & Associates 884 Green Street Conyers, Georgia 30207 TITLE COMPANY: Chicago Title Insurance Company 5775-C Peachtree Dunwoody Road, N.E. Suite 200 Atlanta, Georgia 30342 13 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. 19. POSSESSION. Full and exclusive possession of the Property shall be delivered by Seller to Purchaser on the date of Closing. 20. 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. 21. 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. 22. 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. 23. 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 14 terms hereof. This Agreement contains the entire agreement of the parties hereto with respect to Purchaser's purchase of the Property, and no representations, inducements, promises, or agreements, oral or otherwise, between the parties not embodied herein shall be of any force or effect. Nothing, however, in this Agreement shall affect the rights of the parties to the SPA to assert any claim that may exist thereunder. 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 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 of 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 Georgia. 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. 24. 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. 15 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: /S/ Charles F. Evans (Seal) --------------------------- CHARLES F. EVANS Witness: ____________________ Date: ____________________ PURCHASER: UNITED AUTO GROUP, INC., a Delaware corporation By: /S/ George G. Lowrance ---------------------------- Its: Vice President -------------------------- Attest:______________________ Date:___________________ 16 EXHIBIT "A" DESCRIPTION OF PROPERTY 1 EXHIBIT "B" PERMITTED EXCEPTIONS 2 EXHIBIT "C" EXCEPTIONS TO BE REMOVED BY SELLER 3 EXHIBIT "D" SURVEY 4 EXHIBIT "E" CURRENT FORM OF OWNER'S AFFIDAVIT 5 [BLANK PAGE] EX-10.9-11 46 EXH 10.9-11 FORM OF INV. FIN & SEC AGREE BMW FINANCIAL SERVICES Inventory Financing and Security Agreement - -------------------------------------------------------------------------------- This Agreement is entered into between BMW Financial Services NA, Inc. ("Lender") and the undersigned borrower ("Borrower") and dated as of the date listed above the signature provision. ("Agreement Date") A. WHEREAS, Borrower wishes to purchase motor vehicles ("Vehicle(s)") from BMW of North America, Inc. ("BMW NA") and other manufacturers, distributors or motor vehicle dealers from time to time; and B. WHEREAS, Borrower requests and Lender agrees to finance the acquisition of such Vehicles for Borrower pursuant to the terms set forth in this Agreement, and the Lender's Inventory Finance Program. ("Program") NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, the parties agree as follows: 1. Definitions. When used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "ADVANCE" shall mean any amount actually disbursed by Lender by cash, check, draft, electronic funds transfer or otherwise. "AVERAGE DAILY BALANCE" shall mean the total of the outstanding balances of the Advances with respect to a Loan for all days in the applicable billing period divided by the number of days in the billing period. "BMW" shall mean Bayerische Motoren Werke, AG. "BUSINESS DAY" shall mean a day other than Saturdays, Sundays, holidays or other days on which the principal office of Lender is not open for business. "DEALER TRADE VEHICLE" shall mean any New Motor Vehicle which Borrower has acquired through a like-kind exchange with or purchased from another franchised dealer. "DEMONSTRATOR" shall mean any New Motor Vehicle owned by Borrower which has been designated in writing by Borrower as a Demonstrator. "GUARANTORS" shall mean those parties who have executed and delivered Guaranties. "INDEX RATE" shall mean the base rate on corporate loans posted by at least seventy-five percent (75%) of the nation's thirty (30) largest banks on the last Business Day of each calendar month, which is quoted as the "Prime Rate" in the column entitled "Money Rates" published in THE WALL STREET JOURNAL (in the event no such rate is published in THE WALL STREET JOURNAL on such date, the Index Rate shall be the "Prime Rate" shown in such column for the most recent Business Day preceding the last Business Day of such month on which such rate was published) or, in the event THE WALL STREET JOURNAL does not quote a "Prime Rate," the rate quoted as the "Prime Rate" in a publication as Lender may, from time to time, hereafter designate in writing. "INTEREST RATE" shall mean the Index Rate plus an applicable percentage. "KELLEY BLUE BOOK VALUE" shall mean the average loan value of a Used Motor Vehicle, excluding any equipment additions, as shown in the appropriate regional edition of the KELLEY BLUE BOOK. "LOANER VEHICLE" shall mean a New Motor Vehicle owned by Borrower which has been designated by Borrower in the Borrower's loaner program. "N.A.D.A VALUE" shall mean the average loan value of a Used Motor Vehicle, excluding any equipment additions, as shown in the appropriate regional edition of the N.A.D.A. OFFICIAL USED CAR GUIDE. "NEW MOTOR VEHICLE" shall mean (a) any previously unowned, unused and untitled motor vehicle manufactured by BMW or any other manufacturer purchased by Borrower, (b) any previously unowned, unused and untitled motor vehicle purchased by Borrower, or (c) any Dealer Trade Vehicle or any Loaner Vehicle. "USED MOTOR VEHICLE" shall mean that portion of the Borrower's inventory which consists of a previously owned and titled motor vehicle which has a N.A.D.A. Value (Kelley Blue Book Value) of at least $5,000.00 and which has been in Borrower's inventory for less than sixty (60) days. All other terms contained in this Agreement shall, when the context so indicates, have the meanings provided for by the Uniform Commercial Code. 2. Loan Terms. Lender agrees to make the New Motor Vehicle Loan and Used Motor Vehicle Loan as defined below (collectively referred to as 2 "Loans") to Borrower in the total principal aggregate amount set forth in the New Motor Vehicle Note and Used Motor Note respectively, as defined below for all such Loans. Borrower promises to repay such Loans on the following terms and conditions: (a) NEW MOTOR VEHICLE LOAN. (1) An Advance, from time to time as necessary on or after the Agreement Date, for the purchase of a New Motor Vehicle (the "New Motor Vehicle Loan") in the aggregate principal amount of one hundred percent (100%) of the manufacturer or distributor invoice price for such New Motor Vehicle as evidenced by the master promissory note substantially in the form of EXHIBIT A (the "New Motor Vehicle Note"). (2) Each Advance for a New Motor Vehicle Loan shall be payable in full on the earliest of: (i) forty-eight (48) hours from the time of sale or within twenty-four (24) hours from the time Borrower receives payment by or on behalf of the purchaser of such new Motor Vehicle; or (ii) one hundred eighty (180) days from the date of the new model year introduction for any such New Motor Vehicle; or (iii) the pay-off date as Lender may specify from time to time under the terms of the Program; or (iv) the termination of this Agreement. (3) With respect to any Loaner Vehicle or Demonstrator, Borrower shall pay Lender, at Lender's election, either; (i) monthly installments of one percent (1%) of the original amount of the Advance with respect to such Vehicle beginning thirty (30) days from the date of the Advance for such Vehicle until payment in full is due thereon; or (ii) an amount equal to the total aggregate amounts received from any manufacturer or distributor including holdback reserves, manufacturer rebates or incentive payments within thirty (30) days from the date of the Advance for such Vehicle until payment in full is due thereon. 3 (b) USED MOTOR VEHICLE LOAN. (1) An advance, from time to time as necessary on or after the Agreement Date, to finance a Used Motor Vehicle which is manufactured by BMW in the maximum principal amount of the lesser of: (2) An Advance, from time to time as necessary on or after the Agreement Date, to finance a Used Motor Vehicle which is not manufactured by BMW in the maximum principal amount of the lesser of: (i) eighty percent (80%) of the N.A.D.A. Value of the Used Motor Vehicle or eighty percent (80%) of the Kelley Blue Book Value of the Used Motor Vehicle; or (ii) the Borrower's cost for the Used Motor Vehicle; or (iii) the maximum principal amount as set forth in the program. (3) The Advances described in the foregoing SECTIONS 2(b)(1) AND 2(b)(2) are referred to collectively in this Agreement as the "Used Motor Vehicle Loan" and each such Advance shall be evidenced by the master promissory note in substantially the form of EXHIBIT A-2 hereto (the "Used Motor Vehicle Note). (4) Each Advance for a Used Motor Vehicle Loan shall be payable in full upon the earliest of: (i) forty-eight (48) hours from the time of sale or within twenty-four (24) hours from the time Borrower receives payment by or on behalf of the purchaser of such Used Motor Vehicle; or (ii) one hundred eighty (180) days from the date of the Advance for any Used Motor Vehicle which is manufactured by BMW; or (iii) one hundred twenty (120) days from the date of the Advance for any Used Motor Vehicle which is not manufactured by BMW, or (iv) the pay-off date as Lender may specify from time to time under the terms of the Program; or (v) the termination of this Agreement. 4 (c) PAYMENTS RECEIVED FROM MANUFACTURERS OR DISTRIBUTORS. At the request of the Lender, in the event that Borrower receives any payments from holdback reserves, manufacturer rebates, incentive payments or any other form of payment from a manufacturer or a distributor, such payments shall be immediately forwarded to Lender and Lender shall apply such sums to the outstanding principal balance with respect to the applicable Loans. (d) TIME OF PAYMENTS. Payments on the Loans received by Lender no later than 1:00 p.m. in the time zone where Lender is located, shall be credited to the Average Daily Balance on the date of Lender's receipt of such payments or the date the Lender's bank records a wire transfer of such payment. 3. Interest. (a) RATES OF INTEREST. (1) NEW MOTOR VEHICLE LOAN. The Average Daily Balance of the New Motor Vehicle Loan shall bear interest at a per annum rate equal to the Index Rate plus one half of one percent (.5%) until paid in full. (2) USED MOTOR VEHICLE LOAN. The Average Daily Balance of the Used Motor Vehicle Loan shall bear interest at a per annum rate equal to: (i) the Index Rate plus one half of one percent (.5%) until paid in full for any Used Motor Vehicle manufactured by BMW. (ii) the Index Rate plus one and one half of one percent (1.5%) until paid in full for any Used Motor Vehicle which is not manufactured by BMW: (b) INTEREST RATE. The Interest Rate shall initially be determined by Lender as of the Business Day preceding the Agreement Date, and shall remain in effect for the remainder of such calendar month in which the Agreement Date occurs; thereafter, the Index Rate shall be determined by Lender on the last Business Day of each month and the Interest Rate on said date shall be based on the Index Rate used in calculating the rates which are payable for the following month or as announced by Lender from time to time pursuant to the Program. Interest shall be calculated on the basis of a 360-day year for actual days elapsed and shall be payable on the fifteenth (15th) day of each month for the preceding month. 5 (c) INTEREST ACCRUAL ON ADVANCES. Interest on each Advance made under the New Motor Vehicle Loan and the Used Motor Vehicle Loan shall begin to accrue on the date of Lender's Advance for such Vehicle. (d) CASH MANAGEMENT ACCOUNT. Lender will establish a non-interest bearing cash management account ("Management Account") allowing the Borrower to wire excess Borrower funds. The average daily balance in the Management Account will offset the Average Daily Balance of the New Motor Vehicle Loan computed monthly for billing purposes with respect to Advances, provided that the average daily balance during any one month of the Management Account shall not exceed fifty percent (50%) of the gross Average Daily Balance. 4. Term. The term of this Agreement shall commence on the Agreement Date and shall continue for three (3) years thereafter. After the initial term of three (3) years, this Agreement shall be automatically renewed for one (1) year and from year-to-year thereafter unless terminated by either party notifying the other in writing no later than ninety (90) days prior to any anniversary of this Agreement. This Agreement may be terminated at any time by Lender upon ninety (90) days' prior written notice from Lender to Borrower; however if Borrower is in default, the rights and remedies of Lender shall be governed by SECTION 16. If Borrower is not in default, this Agreement may be terminated by Borrower upon ninety (90) days' prior written notice from Borrower to Lender. 5. Collateral. For the purpose of securing any indebtedness under this Agreement and any other indebtedness of Borrower to Lender. Borrower hereby grants Lender a security interest in the following property (herein after referred to as the "Collateral"): all Vehicle inventory, parts and accessories inventory, equipment, fixtures, accounts, holdback reserves, manufacturer rebates and incentive payments, general intangibles of the Borrower now owned and hereafter acquired, wherever located; all accessions to, substitutions for and all replacements of any of the foregoing; all chattel paper, documents, instruments, monies, residues and property of any kind related to any of the foregoing; all books and records of Borrower related to any of the foregoing, including without limitation, computer programs, print-outs, and other computer hardware and software materials and records pertaining to any of the foregoing; together with all proceeds and products of the foregoing, including, without limitation, proceeds of insurance policies insuring any of the foregoing. The security interest granted in this Agreement is in addition to and not in substitution of any right of set-off or 6 netting which Lender may have against Borrower pursuant to any contract or under applicable law. Borrower agrees to execute such supplemental documents or financing statements as Lender may require to evidence or perfect the security interest granted in this Agreement. Lender may obtain and retain the certificate of title in its possession until any Vehicle is sold by Borrower and Borrower's obligation is paid in full. Lender shall have the right to inspect the Vehicle and other Collateral and Borrower's books and records at any time and without advance notice. Borrower agrees to retain and preserve its books and records at its principal place of business for a period of three (3) years from the date of final billing under this Agreement. 6. Use and Protection of Collateral. (a) Borrower may exhibit and sell Vehicles and may use and sell other collateral in the ordinary course of business; (b) Borrower shall protect and secure such Vehicles and other Collateral; (c) Borrower shall maintain and preserve the Vehicles and other physical assets in good order and condition and shall not impair the value of such Vehicles or physical assets; (d) Borrower will keep the Vehicles and other Collateral free of taxes, liens or encumbrances and any sums which may be paid by Lender in its discretion, in release or discharge thereof shall be paid by Borrower to Lender upon demand; and (e) Vehicles and other Collateral shall not be used illegally, improperly or for hire. 7. Insurance. Borrower is responsible for insurance covering the Vehicles and other Collateral against all risks, including without limitation, business interruption insurance of such types and in such amounts as lender may reasonably require and will provide to the Lender copies of insurance policies and certificates properly endorsed to show Lender's interest as loss payee and additional insured. Such endorsement shall provide that the insurance companies will give Lender at least thirty (30) days prior written notice before any such policy or policies of insurance shall be altered or canceled and that no act or default of Borrower or any other party shall affect the right of Lender to recover under such policy or policies of insurance in case of loss or damage. Borrower hereby directs all insurers under such policies of insurance to pay all proceeds payable thereunder directly to Lender. Proceeds payable to Lender under any such policies shall be applied to the indebtedness due Lender under this Agreement on such basis as Lender shall determine. In the event Borrower, at any time or times hereafter, shall fail to obtain or maintain any of the policies of insurance required in this Agreement or to pay any premium in whole or in part relating thereto, then Lender, without waiving or releasing any obligation or default by Borrower under this Agreement, may (but shall be under no obligation to do so) at any time or times 7 thereafter obtain and maintain such policies of insurance and pay such premium and take any other action with respect thereto which Lender deems advisable. All sums so disbursed by Lender, including, without limitation, attorneys' and paralegals' fees, court costs, expenses and other charges relating thereto, shall be payable, on demand, by Borrower to Lender and shall be additional indebtedness due Lender under this Agreement and be secured by the Collateral. 8. Borrower's Financial Condition. Borrower represents that it now has and covenants that it will have at the time of any Advance through the date of repayment of the applicable Loan (a) reasonably adequate cash and equity capital to conduct its business and pay its debts as they mature, (b) capital and other financial resources reasonably adequate to engage in the business in which it is engaged or in any business or transaction in which it is about to engage and (c) the ability to pay its debts and all debts it intends to incur as they mature. 9. Borrower's Financial Statements. (a) At Lender's request, but not later than three (3) months after the close of each fiscal year of Borrower, Borrower agrees to provide Lender with the audited financial statements of Borrower as certified by the Borrower's independent certified public accountant; (b) as soon as possible, but not later than fifteen (15) days after the end of each month hereafter, Borrower's unaudited interim financial statements, including balance sheets and statements of income and expense as at the month-end and for the portion of Borrower's fiscal year then elapsed, as prepared in accordance with generally accepted accounting principles and fairly presenting the financial position at such date and results of operations of Borrower for such period; and (c) Borrower certifies that each monthly financial statement and each audited annual financial statement shall be complete, accurate and current in all respects. 10. Other Agreements of Borrower. Without Lender's prior written consent, which Lender may or may not, in its sole discretion, give concurrently herewith or hereafter, Borrower agrees that it shall not make: (a) any distributions of its property or assets, except distributions of earnings or payments of principal and interest to service indebtedness in the ordinary course including shareholders loans, or sell, issue, or redeem, retire, purchase or otherwise acquire, directly or indirectly any of its stock; (b) any material change in its capital structure, or make any material change in any of its business objectives, purposes and operations; nor (c) any loans or other advances of money or any loans or advances of inventory or other property, to any party, 8 including, without limitation, any officer, director, stockholder, employee, or affiliate of Borrower, other than (1) advances against commissions, and other similar advances to employees in the ordinary course of business, and (2) loans not exceeding an aggregate of ten percent (10%) of the outstanding balance of the Loan at any time. 11. Environmental Matters. (a) Borrower represents that it is currently in compliance, and covenants and agrees that it shall continue to manage and operate its business in compliance, with all federal, state and local laws, regulations, codes, plans, orders, decrees, judgments, injunctions, notices or demand letters issue, entered, or promulgated, approved or otherwise relating to pollution or protection of the environment ("Environmental Law"). (b) Borrower shall send to Lender within five (5) days of receipt, any citation, notice of violation or other notice of potential liability from any governmental or quasi-governmental authority empowered to regulate or oversee any of the foregoing activities. (c) At Lender's request, Borrower, on or before each anniversary date of this Agreement, shall provide Lender, at Borrower's sole cost, with written certification by a licensed environmental engineer, acceptable to Lender, that it is in compliance with all Environmental Laws or shall otherwise specify the extent of Borrower's noncompliance, including Borrower's intended course of action and time frame for effecting compliance. Borrower shall additionally provide Lender with a duplicate copy of any emergency preparedness and response plans which it has prepared or had prepared. Lender assumes no responsibility for implementation of the plan by virtue of possession of said duplicate copy. (d) Borrower agrees to indemnify, defend with counsel reasonably acceptable to Lender, at Borrower's sole cost, and hold Lender harmless against any claim, response or other costs, damages, liability or demand (including, without limitation, attorneys' fees and costs incurred by Lender) arising out of any claimed violation of Borrower or Borrower's agents of any of the foregoing laws, regulations or ordinances or breach of any of the foregoing covenants or agreements. The foregoing indemnity shall survive repayment of all indebtedness due Lender under this Agreement. 12. Conditions Precedent Lender shall have no obligation to make the Loans on the Agreement Date unless and until the following conditions have been satisfied, all in form and substance satisfactory to Lender and its counsel: (a) NO PROCEEDINGS. No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain, or prohibit, or to obtain substantial damages in respect of, or which is related to or arises out of 9 this Agreement, or the consummation of the transactions contemplated hereby or thereby, or which, in Lender's sole discretion, would make it inadvisable to consummate the transactions contemplated by this Agreement. (b) NO MATERIAL ADVERSE CHANGE. There shall not have occurred any material adverse change in the financial condition, results of operations, businesses or prospects of the Borrower, or any event, condition or state of facts which could materially adversely affect the financial condition, results of operations, businesses or prospects of the Borrower, as determined by Lender in its sole discretion; and (c) LOAN DOCUMENTATION. Lender shall have received, on or prior to the Agreement Date, the following documents, each duly executed and delivered to Lender, and each to be in form and substance satisfactory to Lender and its counsel; (1) copies of all filing receipts or acknowledgments issued by any governmental authority to evidence any filing or recordation necessary to perfect the security interests of Lender in the Collateral and evidence in a form acceptable to Lender that such security interests constitute valid and perfected first priority interests in the Collateral; (2) certified copies of Borrower's casualty and liability insurance policies, together with loss payable and additional insured endorsements to the casualty insurance policies, as required under SECTION 7; (3) the New Motor Vehicle Note and the Used Motor Vehicle Note duly executed and delivered to Lender; (4) Articles of Incorporation and Bylaws from the Borrower; (5) Certified resolutions from Borrower's Board of Directors authorizing execution of this Agreement, the New Motor Vehicle Note, Used Motor Vehicle Note, and related documents; (6) an opinion from Borrower's counsel in form and substance satisfactory to Lender which opines on the Borrower's ability to execute the Loan Documents and perform its obligations thereunder; (7) an incumbency certificate from the Borrower's Secretary in form and substance satisfactory to the Lender; (8) good standing certificates from each state where the Borrower is incorporated; 10 (9) written instructions from Borrower to Lender as to the disbursement to any Person of the proceeds of the Loan; (10) environmental compliance certificate; (11) payment authorization between Lender and Borrower; and (12) such other documents, instruments and agreements as Lender shall reasonably request, including without limitation, any guaranty from a Guarantor. 13. Termination or Suspension of Financing. Lender may terminate or suspend financing under this Agreement as follows: (a) Upon the occurrence of an Event of Default as defined in SECTION 14 of this Agreement or in any other Agreement with Lender, or (b) if Lender, in its sole discretion, elects to terminate the Program provided, however, that Lender shall give Borrower ninety (90) days' prior written notice of such termination; or (c) if Lender in its judgment believes that future financing of Vehicles for Borrower is not justified due to changes in Borrower's financial condition or any other material change in the Borrower's business. All debts, obligations and remedies existent at the time of any suspension or termination shall continue in effect until the indebtedness of Borrower under this Agreement is paid in full. 14. Event of Default. An "Event of Default" shall include the following: (a) a default by Borrower in the payment or performance of any obligation under this Agreement or any other agreement with Lender; (b) the institution of a proceeding in bankruptcy receivership or insolvency by or against Borrower or its property or by or against any Guarantor; (c) an assignment by Borrower or any Guarantor for the benefit of creditors; (d) a default by any Guarantor in the payment or performance of any obligation under a guaranty; (e) the death or incompetence of any Guarantor; or (f) if Lender shall deem itself insecure. 15. Setoff. As additional security for payment and performance of all indebtedness due Lender under this Agreement and any other agreement with Lender, Borrower hereby gives Lender a lien on and Lender shall also have right of setoff against all of Borrower's deposits, credits and any other property now or hereafter in the possession or control of Lender or in transit to Lender. Lender may at any time apply any or all of the property (or the proceeds thereof) to any amounts due under said indebtedness. 11 16. Rights and Remedies. Upon the occurrence of an Event of Default as set forth in SECTION 14 or if Vehicles and other Collateral are in danger of misuse, loss, seizure or confiscation, Lender may, in its discretion, accelerate the entire outstanding amount due from Borrower under this Agreement, terminate this Agreement and may take immediate possession of Vehicles and other Collateral without demand or further notice and without legal process. In furtherance thereof, Borrower shall, if Lender so requests, assemble Vehicles and other Collateral and make them available to Lender at a reasonable place designated by Lender. Lender shall have the right, and Borrower hereby authorizes and empowers Lender to enter upon the premises wherever Vehicles and other Collateral may be and remove same. Borrower shall pay all expenses and reimburse Lender for any expenditures, including reasonable attorneys' fees and legal expenses, in connection with Lender's exercise of any of its rights and remedies under this Agreement. In the event of such repossession by Lender, in addition to the rights specified in this Agreement, all the rights and remedies afforded by applicable law shall apply. 17. Indemnity. Borrower agrees to indemnify Lender from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including, without limitation, attorneys' fees and court costs incurred by Lender) which may be imposed on, incurred by, or asserted against Lender in any litigation, proceeding or investigation instituted or conducted by any governmental agency or instrumentality or any other Person with respect to any aspect of, or any transaction contemplated by, or referred to in, or any matter related to, this Agreement, whether or not Lender is a party thereto, except to the extent that any of the foregoing arises out of the negligence or willful misconduct of Lender. 18. Pricing Provisions. Pricing provisions regarding the program related to insurance protection, flat charges and the applicable percentage over the Index Rate ("Pricing Provisions") will be distributed by the Lender from time to time. The Program may be modified from time to time, upon thirty (30) days prior notice to Borrower, by Lender by means of Lender's bulletins, rate notices and other supplemental materials. The provisions of the Program are incorporated in this Agreement by reference. If Borrower does not agree to the change in Pricing Provisions as announced by Lender, Borrower may elect to terminate this Agreement and all debts, obligations and remedies existent at the time of any suspension or termination shall continue in effect until the indebtedness of Borrower under this Agreement is paid in full. In the event of conflict between the provisions of this Agreement 12 and the provisions of the Program, the Pricing Provisions shall be controlled by the Program and all other provisions shall be controlled by this Agreement. 19. Power of Attorney. (a) Upon the occurrence of an Event of Default, Borrower irrevocably appoints Lender as Borrower's lawful attorney and Lender may, without notice to Borrower, in Borrower's or Lender's name(s); (1) endorse the name of Borrower upon any items of payment or proceeds of Collateral and deposit the same to the account of Lender on account of the indebtedness due under this Agreement; (2) endorse the name of Borrower upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to the Collateral; and (3) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to the Collateral to which Borrower has access. (b) At all times this Agreement, with or without the occurrence of an Event of Default, Borrower irrevocably appoints Lender as Borrower's lawful attorney and Lender may without notice to Borrower, in Borrower's name or Lender's name, (1) execute such agreements and related documentation as may be necessary for Borrower to acquire Vehicles from BMW NA and other manufacturers or distributors; and (2) make, settle and adjust claims under policies of insurance, as are required under SECTION 7, and to endorse any check, draft, instrument or other item of payment for the proceeds of such policies of insurance and for making all determinations and decisions with respect to such policies of insurance. 20. General. This Agreement shall be binding upon the parties, successors and assigns, provided, however, that Borrower shall have no right of assignment, without the prior written consent of Lender. Any provision in this Agreement prohibited by law shall be ineffective to the extent of such prohibitions without invalidating the remaining provisions in this Agreement. This Agreement shall be governed by the internal laws of the State where the Borrower is located. Any amendment or modification to this Agreement must be made in writing and must be executed by 13 the Borrower and Lender, provided; however, that this SECTION 20 may not be amended in any circumstance. Executed this ___________ day of October, 1996. BORROWER: LENDER: Borrower Name: United Auto Group BMW Financial Services NA, Inc. Atlanta IV Motors, Inc. By: By: ------------------------------ ------------------------------ Title: Title: --------------------------- --------------------------- Address: 3264 Commerce Avenue Duluth, Georgia 30156 14 NEW MOTOR VEHICLE NOTE $7,000,000.00 Duluth, Georgia October _____, 1996 FOR VALUE RECEIVED, the undersigned, United Auto Group Atlanta IV Motors, Inc., dba United BMW, a Georgia corporation ("Borrower"), promises to pay to BMW Financial Services NA, Inc., a Delaware corporation ("Lender"), or order, at its place of business at 300 Chestnut Ridge Road, Woodcliff Lake, New Jersey 07675, Attention, Robert E. Devine, or at such other place as may be designated in writing by the holder of this New Motor Vehicle Note ("Note"), so much of the principal sum of Seven Million and no/Dollars ($7,000,000.00), which has been advanced by Lender and remains outstanding pursuant to the terms of an Inventory Financing and Security Agreement dated as of October, 1996 between Borrower and Lender (the "Inventory Finance Agreement"), together with interest on the unpaid principal balance advanced hereunder from the date of the Advance until paid, at a fluctuating interest rate per annum equal to the Index Rate (as hereinafter defined) plus an applicable percentage as set forth below and provided, however, that amounts outstanding with respect to the following types of Advances cannot exceed the limits listed below: Applicable Percentage Rate Types of Advances Amount Over Index Rate - ----------------- ------ --------------- Advances for BMW New Motor Vehicles $7,000,000.00 0.50% The initial Advance, all subsequent Advances and all payments made on account of principal shall be reflected on monthly statements provided by Lender to Borrower. From time to time, an Advance requested by the Borrower may cause an outstanding principal balance ("Over Line Balance") in excess of the maximum principal amount permitted under this Note; provided, however, Lender shall notify Borrower pursuant to Lender's most recent monthly statement to Borrower of the existence of any Over Line Balance and Borrower shall have the right to instruct Lender in writing within ten (10) days of the date of such statement to refuse to honor any future drafts from BMW or from any other manufacturer or distributor of motor vehicles. Lender reserves the right to demand, and Borrower agrees to execute and deliver upon such demand, a replacement note in a principal amount, determined solely by Lender, sufficient to cover the then outstanding principal balance. The aggregate unpaid principal amount shown on any monthly statement, including any Over Line Balance, shall be rebuttable presumptive evidence of the principal amount owing and unpaid on this Note. The failure to record the date and amount of any Advance on such monthly statement shall not, however, limit or otherwise affect the obligations of the Borrower under the Inventory Finance Agreement or under this Note to repay the principal amount of the Advances together with all interest accruing thereon. "Index Rate" shall mean the base rate on corporate loans posted by at least 75% of the nation's thirty (30) largest banks on the last business day of each calendar month, which is quoted as the "Prime Rate" in the column entitled "Money Rates" published in THE WALL STREET JOURNAL (in the event no such rate is published in THE WALL STREET JOURNAL on such date, the Index Rate shall be the "Prime Rate" shown in such column for the most recent business day preceding the last business day of such month on which such rate was published) or, in the event THE WALL STREET JOURNAL does not quote a "Prime Rate", the rate quoted as the "Prime Rate" in a publication as Lender may, from time to time, hereafter designate in writing. The Index Rate shall initially be determined by Lender as of the Business Day preceding the date of the Loan Agreement and shall remain in effect for the remainder of such calendar month in which such date occurs; thereafter, the Index Rate shall be determined by Lender on the last Business Day of each month and the Interest Rate based on such Index Rate shall be in effect for the following month. Interest shall be calculated on the basis of a 360-day year for actual days elapsed. Principal and interest hereunder shall be due and payable by Borrower on the dates and in the manner as follows: (a) Subject to any payment changes resulting from changes in the Index Rate, Borrower will pay regular monthly installments of interest only, due as of each payment date, commencing on the fifteenth (15th) day of November, 1996, with all subsequent payments to be due on the fifteenth (15th) day of each month thereafter; and (b) Any Advance for a New Motor Vehicle Loan shall be payable on the earliest of: (i) forty-eight (48) hours from the time of sale or within twenty- four (24) hours from the time Borrower receives payment by or on behalf of the purchaser of such New Motor Vehicle; or (ii) one hundred eighty (180) days from the date of the new model year introduction for any such New Motor Vehicle; and (c) With respect to any Loaner Vehicle or Demonstrator, Borrower shall pay Lender, at Lender's election, either: (i) monthly installments of one percent (1%) of the original amount of the Advance with respect to 2 such Vehicle beginning thirty (30) days from the date of the Advance for such Vehicle until payment in full is due thereon; or (ii) Monthly payments in an amount equal to the total aggregate monthly amounts received from any manufacturer or distributor including holdback reserves, manufacturer rebates or incentive payments beginning thirty (30) days from the date of the Advance for such Vehicle until payment in full is due thereon; and (d) Notwithstanding the principal and interest payment provisions set forth in Sections (a), (b) and (c) above, the unpaid principal balance plus any unpaid accrued interest thereon, shall be payable in one lump sum on the earliest of: (i) October 15, 1999 (or such other due date of the indebtedness as extended pursuant to Section 4 of the Inventory Finance Agreement); or (ii) the termination of the Inventory Finance Agreement; or (iii) the pay-off date as Lender may specify from time to time under the terms of the Program. Borrower may prepay at any time all or part of the principal balance under this Note without penalty. All principal and interest, costs and expenses due hereunder are payable in lawful money of the United States of America. This Note has been executed and delivered pursuant to the Inventory Finance Agreement. Terms defined in the Inventory Finance Agreement and not otherwise defined herein are used herein with the meanings defined for those terms in the Inventory Finance Agreement. Upon the occurrence of an Event of Default, the entire principal balance outstanding hereunder plus accrued interest shall, at the option of Lender, mature and be immediately due and payable. The obligations under this Note are secured by the Collateral pledged by the Borrower to the Lender pursuant to the Inventory Finance Agreement. Borrower and all others who may become liable for all or any part of this obligation, hereby waive and renounce presentment, protest, demand and notice of dishonor and any and all lack of diligence or delays in collection or endorsement hereof, and expressly consent to any extension of time, release of any party liable for this obligation or any guaranty of this 3 obligation, release of any security which may have been or which may hereafter be granted in connection herewith or any guaranty of this obligation, or any other indulgence or forbearance which may be made without notice to said party and without in any way affecting the liability of such party. Nothing contained herein nor in any transaction related hereto shall be construed or shall so operate either presently or prospectively (a) to require the payment of interest at a rate greater than is now lawful in such case to contract for, but shall require payment of interest only to the extent of such lawful rate or (b) to require the payment or the doing of any act contrary to law; but if any clause or provision herein contained shall otherwise so operate to invalidate this Note and/or the transaction related hereto, in whole or in part, then such clause(s) and provision(s) only shall be held for naught as though not contained herein and the remainder of this Note shall remain operative and in full force and effect. If for any reason interest in excess of the amount as limited in the foregoing paragraph shall have been paid hereunder, whether by reason of acceleration or otherwise, then in that event any such excess interest shall constitute and be treated as a payment of principal hereunder and shall operate to reduce such principal by the amount of such excess, or if in excess of the then principal indebtedness, such excess shall be refunded. The rights and remedies of Lender as provided in this Note or any document securing this Note shall be cumulative and concurrent, and may be pursued singly, successively or together against Borrower, any guarantor of these obligations or any security for the debt evidenced by this Note, at the discretion of Lender. The Borrower agrees that if, and as often as, this Note is placed in the hands of an attorney for collection, to defend or enforce any of the Lender's rights hereunder or under any document securing this Note, whether or not litigation is commenced, Borrower shall pay to Lender its reasonable attorneys' fees, together with all court costs and other expenses which may be incurred or paid by Lender in connection therewith. Failure to exercise any right or option herein given to Lender shall not constitute a waiver of the right to exercise the same at a later time or upon the occurrence of any subsequent event permitting such exercise. This Note and all transactions hereunder and/or evidenced hereby shall be governed by, construed under and enforced in accordance with the laws of the State of Georgia. This Note may not be changed, modified, amended or terminated orally, but may only be changed, modified, amended or 4 terminated by an agreement in writing signed by both Borrower and Lender, except that this paragraph may not be changed, modified, amended or terminated under any circumstance. IN WITNESS WHEREOF, Borrower has caused this Note to be executed by its duly authorized officer as of the date first above written. United Auto Group Atlanta IV Motors, Inc. dba United BMW a Georgia corporation By:________________________________ Name:______________________________ Title:_____________________________ Acknowledged by: United Auto Group, Inc. By:_____________________________ Its:____________________________ and as Guarantor of this New Motor Vehicle Note. 5 USED MOTOR VEHICLE NOTE $1,250,000.00 Duluth, Georgia October _____, 1996 FOR VALUE RECEIVED, the undersigned, United Auto Group Atlanta IV Motors, Inc., dba United BMW, a Georgia corporation ("Borrower"), promises to pay to BMW Financial Services NA, Inc., a Delaware corporation ("Lender"), or order, at its place of business at 300 Chestnut Ridge Road, Woodcliff Lake, New Jersey 07675, Attention: Robert E. Devine, or at such other place as may be designated in writing by the holder of this Used Motor Vehicle Note ("Note"), so much of the principal sum of One Million Two Hundred Fifty Thousand and no/Dollars ($1,250,000.00), which has been advanced by Lender and remains outstanding pursuant to the terms of an Inventory Financing and Security Agreement dated as of October __, 1996 between Borrower and Lender (the "Inventory Finance Agreement"), together with interest on the unpaid principal balance advanced hereunder from the date of the Advance until paid, at a fluctuating interest rate per annum, equal to the Index Rate (as hereinafter defined), plus an applicable percentage as set forth below and provided, however, that amounts outstanding with respect to the following types of Advances cannot exceed the limits listed below: Applicable Percentage Rate Types of Advances Amount Over Index Rate - ----------------- ------ --------------- Advances for BMW Used Motor Vehicles $1,000,000.00 0.5% Advances for non-BMW Used Motor Vehicles $250,000.00 0.75% The initial Advance, all subsequent Advances and all payments made on account of principal shall be reflected on monthly statements provided by Lender to Borrower. From time to time, an Advance requested by the Borrower may cause an outstanding principal balance ("Over Line Balance") in excess of the maximum principal amount permitted under this Note; provided, however, Lender shall notify Borrower pursuant to Lender's most recent monthly statement to Borrower of the existence of any Over Line Balance and Borrower shall have the right to instruct Lender in writing within ten (10) days of the date of such statement to refuse to honor any future drafts from BMW or from any other manufacturer or distributor of motor vehicles. Lender reserves the right to demand, and Borrower agrees to execute and deliver upon such demand, a replacement note in a principal amount, determined solely by Lender, sufficient to cover the then outstanding principal balance. The aggregate unpaid principal amount shown on any monthly statement, including any Over Line Balance, shall be rebuttable presumptive evidence of the principal amount owing and unpaid on this Note. The failure to record the date and amount of any Advance on such monthly statement shall not, however, limit or otherwise affect the 6 obligations of the Borrower under the Inventory Finance Agreement or under this Note to repay the principal amount of the Advances together with all interest accruing thereon. "Index Rate" shall mean the base rate on corporate loans posted by at least 75% of the nation's thirty (30) largest banks on the last business day of each calendar month, which is quoted as the "Prime Rate" in the column entitled "Money Rates" published in THE WALL STREET JOURNAL (in the event no such rate is published in THE WALL STREET JOURNAL on such date, the Index Rate shall be the "Prime Rate" shown in such column for the most recent business day preceding the last business day of such month on which such rate was published) or, in the event THE WALL STREET JOURNAL does not quote a "Prime Rate", the rate quoted as the "Prime Rate" in a publication as Lender may, from time to time, hereafter designate in writing. The Index Rate shall initially be determined by Lender as of the Business Day preceding the date of the Loan Agreement and shall remain in effect for the remainder of such calendar month in which such date occurs; thereafter, the Index Rate shall be determined by Lender on the last Business Day of each month and the Interest Rate based on such Index Rate shall be in effect for the following month. Interest shall be calculated on the basis of a 360-day year for actual days elapsed. Principal and interest hereunder shall be due and payable by Borrower on the dates and in the manner as follows: (a) Subject to any payment changes resulting from changes in the Index Rate, Borrower will pay regular monthly installments of interest only, due as of each payment date, commencing on the fifteenth (15th) day of November, 1996, with all subsequent payments to be due on the fifteenth (15th) day of each month thereafter, and (b) Any Advance for a Used Motor Vehicle shall be payable on the earliest of: (i) forty-eight (48) hours from the time of sale or within twenty four (24) hours from the time Borrower receives payment by or on behalf of the purchaser of such Used Motor Vehicle; or (ii) one hundred eighty (180) days subsequent to the date of an Advance for a Used Motor Vehicle which is manufactured by BMW; or (iii) one hundred twenty (120) days subsequent to the date of an Advance for a Used Motor Vehicle which is not manufactured by BMW; and 7 (c) Unpaid principal balance plus any unpaid accrued interest thereon, shall be payable in one lump sum on the earliest of: (i) October 15, 1999 (or such other due date of the indebtedness as extended pursuant to Section 4 of the Inventory Finance Agreement); or (ii) the payoff date as Lender may specify from time to time under the terms of the Program; or (iii) the termination of the Inventory Finance Agreement. Borrower may prepay at any time all or part of the principal balance under this Note without penalty. All principal and interest, costs and expenses due hereunder are payable in lawful money of the United States of America. This Note has been executed and delivered pursuant to the Inventory Finance Agreement. Terms defined in the Inventory Finance Agreement and not otherwise defined herein are used herein with the meanings defined for those terms in the Inventory Finance Agreement. Upon the occurrence of an Event of Default, the entire principal balance outstanding hereunder plus accrued interest shall at the option of Lender, mature and be immediately due and payable. The obligations under this Note are secured by the Collateral pledged by the Borrower to the Lender pursuant to the Inventory Finance Agreement. Borrower and all others who may become liable for all or any part of this obligation, hereby agree to be jointly and severally bound, and jointly and severally waive and renounce presentment, protest, demand and notice of dishonor and any and all lack of diligence or delays in collection or endorsement hereof, and expressly consent to any extension of time, release of any party liable for this obligation or any guaranty of this obligation, release of any security which may have been or which may hereafter be granted in connection herewith or any guaranty of this obligation, or any other indulgence or forbearance which may be made without notice to said party and without in any way affecting the liability of such party. Nothing contained herein nor in any transaction related hereto shall be construed or shall so operate either presently or prospectively (a) to require the payment of interest at a rate greater than is now lawful in such case to contract for, but shall require payment of interest only to the extent of such lawful rate or (b) to require the payment or the doing of any act contrary to law; but if any clause or provision herein contained 8 shall otherwise so operate to invalidate this Note and/or the transaction related hereto, in whole or in part, then such clause(s) and provision(s) only shall be held for naught as though not contained herein and the remainder of this Note shall remain operative and in full force and effect. If for any reason interest in excess of the amount as limited in the foregoing paragraph shall have been paid hereunder, whether by reason of acceleration or otherwise, then in that event any such excess interest shall constitute and be treated as a payment of principal hereunder and shall operate to reduce such principal by the amount of such excess, or if in excess of the then principal indebtedness, such excess shall be refunded. The rights and remedies of Lender as provided in this Note or any document securing this Note shall be cumulative and concurrent, and may be pursued singly, successively or together against Borrower, any guarantor of these obligations or any security for the debt evidenced by this Note, at the discretion of Lender. The Borrower agrees that if, and as often as, this Note is placed in the hands of an attorney for collection to defend or enforce any of the Lender's rights hereunder or under any document securing this Note, whether or not litigation is commenced, Borrower shall pay to Lender its reasonable attorneys' fees, together with all court costs and other expenses which may be incurred or paid by Lender in connection therewith. Failure to exercise any right or option herein given to Lender shall not constitute a waiver of the right to exercise the same at a later time or upon the occurrence of any subsequent event permitting such exercise. This Note and all transactions hereunder and/or evidenced hereby shall be governed by, construed under and enforced in accordance with the laws of the State of Georgia. This Note may not be changed, modified, amended or terminated orally, but may only be changed, modified, amended or terminated by an agreement in writing signed by both Borrower and Lender, except that this paragraph may not be changed, modified, amended or terminated under any circumstance. 9 IN WITNESS WHEREOF, Borrower has caused this Note to be executed by its duly authorized officer as of the date first above written. United Auto Group Atlanta IV Motors, Inc., dba United BMW a Georgia corporation By:________________________________ Name:______________________________ Title:_____________________________ Acknowledged by: United Auto Group, Inc. By:_____________________________ Its:____________________________ and as Guarantor of this Used Motor Vehicle Note. 10 EX-10.9-12 47 EXH 10.9-12 FORM OF GUARANTY OF THE COMPANY GUARANTY This GUARANTY is made and entered as of October __, 1996 (the "Effective Date") from United Auto Group, Inc., a New York corporation, (the "Guarantor") to BMW FINANCIAL SERVICES NA, INC. (together with such party's successors and assigns, referred to as "Secured Party"). WITNESSETH: In consideration of any loan or other financial accommodation heretofore or hereafter at any time made or granted to any Dealer (as defined below), the Guarantor agrees as follows: 1. DEFINITIONS a. "DEALER" shall mean any one of the following entities listed below, including any subsidiaries or affiliates of such entities, whether now in existence or hereinafter established or acquired: United Auto Group Atlanta IV Motors, Inc., a Georgia corporation b. "INDEBTEDNESS" shall mean any obligation or indebtedness of any kind of any Dealer to Secured Party, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, renewed or extended, or now or hereafter existing or due to become due. 2. GUARANTY a. GUARANTY OBLIGATIONS. The Guarantor hereby unconditionally and absolutely guarantees (i) the full and prompt payment when due, whether by acceleration or otherwise, and at all times hereafter, of all Indebtedness and (ii) the full and prompt performance of all the terms, covenants, conditions and agreements related to the Indebtedness. The Guarantor further agrees to pay all expenses, including without limitation, attorneys' fees and court costs, paid or incurred by Secured Party in endeavoring to collect the Indebtedness, or any part thereof, and in enforcing the Guaranty, plus interest on such amounts at the lesser of 12% per annum or the maximum rate permitted by law. Interest on such amounts paid or incurred by Secured Party shall be computed from the date of payment made by Secured Party and shall be payable on demand. b. ABSOLUTE AND UNCONDITIONAL NATURE OF THE GUARANTY. The Guarantor acknowledges that this Guaranty is a guaranty of payment and not of collection, and that its obligations hereunder shall be absolute, unconditional and unaffected by: (i) the waiver of the performance or observance by any Dealer of any agreement, covenant, term or condition to be performed or observed by such Dealer; (ii) the extension of time for the payment of any sums owing or payable with respect to the Indebtedness or the time for performance of any other obligation arising out of the Indebtedness; (iii) the modification, alteration or amendment of any obligation arising out of the Indebtedness; (iv) the failure, delay or omission by Secured Party to enforce, assert or exercise any right, power or remedy in connection with the Indebtedness; (v) the genuineness, validity, or enforceability of the Indebtedness or any document related thereto; (vi) the existence, value or condition of, or failure of Secured Party to perfect its lien against, any security pledged in connection with the Indebtedness; (vii) the release of any security pledged in connection with the Indebtedness or the release, modification, waiver or failure to enforce any other guaranty, pledge or security agreement; (viii) the voluntary or involuntary liquidation, dissolution, sale of all or substantially all of the property, marshaling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment or other similar application or proceeding affecting any Dealer or any assets of any Dealer; or (ix) the release or discharge of any Dealer from the performance or observance of any agreements, covenants, terms or conditions in connection with the Indebtedness by operation of law or otherwise. c. CONTINUING AND UNLIMITED NATURE OF THE GUARANTY. The obligations of the Guarantor under this Guaranty shall be continuing and shall cover all Indebtedness existing as of the Effective Date of this Guaranty and Indebtedness existing at the time of termination of this Guaranty. This Guaranty shall be unlimited in amount and shall continue in effect until the Guaranty is terminated pursuant to SECTION 3 hereof. d. WAIVERS BY GUARANTOR. The Guarantor hereby expressly waives: (i) notice of the acceptance by Secured Party of this Guaranty; (ii) notice of the existence or creation or non-payment of all or any of the Indebtedness; (iii) presentment, demand, notice of dishonor, protest, and all other notices whatsoever, -2- and (iv) diligence in collection or protection of or realization upon the Indebtedness, or any part thereof, any obligation under this Guaranty or any security for or guaranty of any of the foregoing. e. AUTHORIZATION. If the Guarantor is a corporation, this Guaranty has been expressly authorized by Guarantor's Board of Directors pursuant to a Board of Director's resolution in form and substance satisfactory to Secured Party. f. ENFORCEMENT. In no event shall Secured Party have any obligation to proceed against any Dealer, any other entity or any security pledged in connection with the Indebtedness before seeking satisfaction from the Guarantor. Secured Party may, at its option, proceed, prior or subsequent to, or simultaneously with, the enforcement of its rights hereunder, to exercise any right or remedy it may have against any Dealer, any other entity or any security pledged in connection with the Indebtedness. g. REINSTATEMENT. The Guarantor agrees that if at any time all or any part of any payment theretofore applied by Secured Party to any of the Indebtedness is or must be rescinded or returned by Secured Party for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of any Dealer), such Indebtedness shall, for purposes of this Guaranty, to the extent that such payment is or must be rescinded or returned, be deemed to have continued in existence, notwithstanding such application by Secured Party, and this Guaranty shall continue to be effective or reinstated, as applicable, as to such Indebtedness, all as though such application by Secured Party had not been made. 3. TERMINATION a. PAYMENT OF INDEBTEDNESS. This Guaranty shall be terminated upon: (i) the payment by Dealer or the Guarantor, either jointly or severally, of the aggregate amount of Indebtedness outstanding, and (ii) the payment of all obligations by the Guarantor which may be due to Secured Party under this Guaranty. b. REVOCATION. This Guaranty may be revoked by the Guarantor upon ninety (90) days' written notice to Secured Party, by certified mail, to the address set forth below in SECTION 5(c), or at such other address as Secured Party may from time to time specify. Such revocation shall in no way terminate or otherwise affect: (i) any obligations of the Guarantor existing on or prior to the effective date of such revocation or (ii) any obligations of the Guarantor arising after the effective date of such revocation with respect to any Indebtedness incurred by any Dealer to Secured Party on or before the effective date of such revocation. -3- 4. EVENTS OF DEFAULT Any one or more of the following events shall constitute an Event of Default hereunder: a. If Guarantor fails to make any payment hereunder and such failure shall continue for five (5) days after written notice from Secured Party; b. If Guarantor fails to perform or observe any agreement, covenant, term or condition contained in this Guaranty (other than the monetary obligations described in SECTION 4(a) above) and such failure shall continue for thirty (30) days after written notice from Secured Party; c. If Guarantor makes an assignment for the benefit of creditors or fails to pay its debts as the same become due and payable; d. If Guarantor petitions or applies to any tribunal for the appointment of a trustee or receiver of the business, estate or assets or of any substantial portion of the business, estate or assets of Guarantor, or commences any proceedings relating to Guarantor under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect; e. If any such petition or application is filed or any such proceedings are commenced against Guarantor and Guarantor by any act indicates its approval thereof, consent thereto or acquiescence therein, or any order is entered appointing any such trustee or receiver, or declaring Guarantor bankrupt or insolvent, or approving the petition in any such proceedings; or f. Any suit or proceeding shall be filed against any Dealer or Guarantor, which, if adversely determined could, substantially impair the ability of the Guarantor or such Dealer to perform any of their obligations with respect to this Guaranty or the Indebtedness, as determined by Secured Party in its sole and absolute discretion. If an Event of Default under this Guaranty shall have occurred, in addition to pursuing any remedies which may be available to Secured Party with respect to the Indebtedness, Secured Party, at its option, may take whatever action at law or in equity Secured Party may deem necessary, regardless of whether Secured Party shall have exercised any of its rights or remedies with respect to any of the Indebtedness, and Secured Party may demand, at its option, that the Guarantor pay forthwith the full amount which would be due and payable hereunder as if all Indebtedness were then due and payable. -4- 5. GENERAL a. ENTIRE AGREEMENT. This Guaranty contains the entire and only agreement between the Guarantor and Secured Party with respect to the guaranty of Indebtedness and any representation, promise, condition or understanding in connection therewith which is not expressed in this Guaranty shall not be binding upon the Guarantor or Secured Party. All prior understandings and agreements related to the guaranty of the Indebtedness shall be superseded by this Guaranty as of the Effective Date. b. APPLICATION OF PAYMENTS; SUBROGATION. Any amounts received by Secured Party from any source on account of the Indebtedness may be applied by it toward the payment of such of the Indebtedness, and in such order of application, as Secured Party may from time to time elect. Notwithstanding any payments made by or for the account of the Guarantor, the Guarantor shall not be subrogated to any rights of Secured Party until such time as this Guaranty has been terminated in accordance with SECTION 3(a) above. c. NOTICES. All notices to the Guarantor shall be forwarded by express mail for overnight delivery to the address set forth below the Guarantor's signature, or such other address as the Guarantor may from time to time specify in writing to Secured Party. All notices to Secured Party shall be forwarded by express mail for overnight delivery (except for the notice given pursuant to SECTION 3(b))to the following address: BMW Financial Services NA, Inc., 300 Chestnut Ridge Road, Woodcliff Lake, New Jersey 07675, Attention: Robert E. Devine, or such other address as Secured Party may specify to the Guarantor in writing. d. GOVERNING LAW; SEVERABILITY. This Guaranty shall be governed by the laws of the State of Georgia. Wherever possible, each provision of this Guaranty shall be interpreted in such manner to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, the remaining provisions of this Guaranty shall remain in full force and effect. e. SUCCESSORS AND ASSIGNS. All guaranties and agreements contained in this Guaranty shall bind the legal representatives, heirs, successors and assigns of the Guarantor. f. REFERENCES TO GUARANTOR. Each reference to Guarantor herein shall be deemed to include the legal representatives, heirs, officers, employees and agents of the Guarantor and their respective successors and assigns. g. RIGHTS AND REMEDIES OF SECURED PARTY. No delays on the part of Secured Party in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any power or right hereunder or the failure -5- to exercise same in any instance preclude other or further exercise of any other power or right, nor shall Secured Party be liable for exercising or failing to exercise any such power or right. The rights and remedies hereunder are cumulative and not exclusive of any rights or remedies which Secured Party may or will otherwise have. h. FINANCIAL STATEMENTS. Upon Lender's request, Guarantor will provide Lender with Guarantor's audited financial statements as certified by Guarantor's independent certified public accountant or such other financial statements and information as Lender may request from time to time. i. AMENDMENTS. This Guaranty may not be modified or amended except by a writing duly executed by the Guarantor. Any such modification or amendment must be expressly consented to in writing by Secured Party. WHEREAS, this Guaranty has been executed and delivered by the Guarantor to Secured Party as of the Effective Date. GUARANTOR: ------------------------- a corporation --------------------- By: -------------------------------- Address: --------------------------- --------------------------- ATTEST: - -------------------- Secretary State of Georgia ) ) SS. County of ) On the __ day of October, in the year 1996, before me personally came _______ personally known to me to be the President and ____________ personally known to me to be the Secretary of United Auto Group, Inc., a Georgia corporation; that such persons are the same persons described in and who executed the above Guaranty; that such persons acknowledged that as such __________President and _______________Secretary, they signed, sealed and delivered the above Guaranty pursuant to authority given by the Board of Directors of said Corporation and as their free and voluntary act and as the free and voluntary act of said Corporation, for the uses and purposes therein set forth. ------------------------------ Notary Public -6- EX-10.10-2 48 EXH 10.10.2 FORM OF NISSAN DLR TERM SLS/SVC AGRMT 10.10.2 [Reserved for future use.] [This Exhibit has been reserved by the Company for future use.] EX-10.10-3 49 EXH 10.10.3 LEASE AGREEMENT DATED 10/96 Exhibit 10.10.3 LEASE AGREEMENT THIS LEASE AGREEMENT ("Lease") made this ____ day of October, 1996, by and between STANDEFER INVESTMENT COMPANY, a Tennessee limited partnership ("Landlord"), and STANDEFER MOTOR SALES, INC., a Tennessee corporation ("Tenant"). W I T N E S S E T H: FOR AND IN CONSIDERATION of the sum of $10.00 Dollars in hand paid and of the mutual covenants and conditions contained herein, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. PREMISES. Landlord leases to Tenant and Tenant leases from Landlord the following property: All that tract or parcel of land containing approximately 7.52 acres, lying and being in Hamilton County, City of Chattanooga, Tennessee and being more particularly described on EXHIBIT A, attached hereto and incorporated by reference herein, and being known as 2121 Chapman Road, Chattanooga, Tennessee 37421, together with all improvements, fixtures and equipment thereon and all rights, privileges, easements and appurtenances pertaining thereto (collectively, the "Premises") upon the terms contained herein. 2. TERM. The term hereof shall begin on the date hereof and shall end on midnight October 31, 2016 ("Term"). 3. RENT. (a) From the commencement date through October 31, 2001, Tenant agrees to pay Landlord, as rent for the Premises ("Rent") the sum of Twenty Seven Thousand Five Hundred and no/100 ($27,500) Dollars per month. (b) On November 1, 2001, the monthly Rent shall be adjusted to an amount equal to nine-tenths of one percent (0.9%) of the then Appraised Value (as hereinafter defined and determined) -1- and such adjusted Rent shall be payable monthly through October 31, 2006. (c) On November 1, 2006, the monthly Rent shall be adjusted to an amount equal to one percent (1%) of the then Appraised Value and such adjusted Rent shall be payable monthly through October 31, 2011. (d) On November 1, 2011, the monthly Rent shall be adjusted to an amount equal to one percent (1%) of the then Appraised Value and such adjusted Rent shall be payable monthly through October 31, 2016. (e)(i) For purposes of this Lease, the Appraised Value shall be the fair market value, in fee simple, unencumbered by this Lease, of the Premises assuming, however, that the Premises is used and will be used as a car dealership (and not necessarily for the highest and best use of the Premises) and if any income analysis is utilized in determining such fair market value, the fact that Landlord will not be obligated to pay taxes, insurance or operating expenses of such car dealership shall be taken into account. (ii) In determining the Appraised Value, no later than six (6) months prior to each adjustment date provided above, Landlord shall give notice to Tenant of five independent MAI appraisers from either Chattanooga, Tennessee or Atlanta, Georgia certifying in such submittal to Tenant that Landlord has not discussed the appraisal called for hereunder with any such appraisers and that such appraisers are independent of Landlord. Within thirty (30) days after receipt of such submittal from Landlord, Tenant shall either chose one (1) appraiser that is acceptable to Tenant or reject them all and, if Tenant rejects all such proposed appraisers, Tenant shall submit the names of five (5) appraisers to Landlord having the same qualifications and with Tenant's certification as provided above and Landlord shall pick one (1) such appraiser to conduct the appraisal called for hereunder. (iii) The appraiser so chosen shall conduct its appraisal and issue its written report to -2- Landlord and Tenant within thirty (30) days after being so chosen. (iv) If Landlord fails to timely provide its list of appraisers to Tenant, Tenant shall have the right to provide its list to Landlord within thirty (30) days after Landlord was to have submitted its list to Tenant and Landlord shall then have the right to chose one (1) appraiser within thirty (30) days after Tenant's list is submitted to Landlord. (v) Any dispute concerning the qualifications of the appraisers or whether the appraiser utilized the proper standard for appraisal as provided above, shall be resolved by the American Arbitration Association utilizing its commercial arbitration rules as soon as possible ("Arbitration") and, until any such dispute is resolved, the Tenant shall continue paying Rent at the previous amount. After the resolution of such dispute, if any additional amounts of Rent are due in excess of the amounts previously paid by Tenant, Tenant shall pay such excess within thirty (30) days after the Arbitration decision. The cost of the Arbitration shall be paid by the non-prevailing party in the Arbitration and the arbitrators shall decide which is the prevailing party. (vi) Notwithstanding the foregoing, at any Rent adjustment, Rent shall not be reduced below the adjusted Rent for the immediately preceding period. (vii) The cost of the appraisal shall be borne equally by Landlord and Tenant. 4. UTILITIES. Tenant shall have all utilities listed in its name and shall pay all utility bills, including, but not limited to water, sewer, gas, electricity, fuel, light, and heat bills, for the Premises, and Tenant shall pay all charges for garbage collection services or other sanitary services rendered to the Premises or used by Tenant in connection therewith. If Tenant fails to pay for such services, Landlord may, at its option and after providing Tenant with at least thirty (30) days prior written notice, pay the same, and the amount of the payment shall be payable to Landlord as additional rent. 5. USE OF THE PREMISES; ENVIRONMENTAL INDEMNITY. The Premises shall be used for the -3- operation of a new and used automobile dealership, service facility, paint and body shop facility, and uses incidental thereto, and for any other purposes which may be agreed to by the parties. Furthermore, Tenant shall not violate any federal or state environmental law, and Tenant agrees to indemnify and hold harmless Landlord from any and all damages, costs, fines and expenses that might arise as a result of any such violation and from its placement upon the Premises of hazardous wastes and toxic substances that are placed on the Premises after the date hereof. Notwithstanding anything to the contrary contained in this Paragraph 5, there shall not be deemed to be a nuisance or trespass and Tenant's obligation to indemnify and hold Landlord harmless shall not extend to any damages, claims, or liabilities arising as a result of contaminants existing on the Premises on the date hereof or migrating onto or beneath the Premises after the date hereof, where such contamination is not caused by or attributable to Tenant. By its execution hereof, Tenant does not waive whatever rights it may have in law or equity against any person or entity in the event such existing contaminants or such future contamination affects the Premises. 6. REPRESENTATION. Landlord hereby represents and warrants that: (1) The Premises are adequate for the conduct of the respective businesses of the Tenant as presently conducted; (2) To the knowledge of the Landlord, the Premises conform in all material respects with all applicable laws, ordinances, rules and regulations and other Legal Requirements (as hereinafter defined) and no improvements thereon encroach in any respect on property of others. For purposes hereof, Legal Requirements shall mean all laws, ordinances, codes, rules, regulations, standards, judgments and other requirements of all governmental, administrative or judicial entities; (3) To the knowledge of the Landlord, there are no latent defects with respect to the Premises; (4) The Premises is currently zoned to permit the conduct of the respective businesses of the -4- Tenant as presently conducted; (5) To the knowledge of the Landlord, no Certificate of Occupancy is required with respect to the Premises; (6) To the knowledge of the Landlord, all utilities servicing the Premises are provided by publicly-dedicated utility lines and are located within public rights-of-way and do not cross or encumber any private land; (7) 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 Landlord with respect to the Premises; (8) (i) Except as set forth in Schedule 2.11(a) of that certain Stock Purchase Agreement (the "SPA") dated September 5, 1996 by and among United Auto Group, Inc., Charles A. Standefer, Tenant and others, the Premises and any property formerly owned, occupied or leased by the Landlord are in compliance with all Environmental Laws (as defined below), (ii) the Landlord has obtained all Environmental Permits (as defined below), (iii) such Environmental Permits are in full force and effect, and (iv) the Landlord 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) -5- 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 Landlord's business or the Premises including, but not limited to, underground storage tanks. As used herein, "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. -6- (9) To the knowledge of the Landlord, the Landlord has not violated, done or suffered any act which could give rise to liability under, and neither it nor the Premises are otherwise exposed to liability under, any Environmental Law. To the knowledge of the Landlord, no event has occurred with respect to the Premises or any property formerly owned, occupied or leased by the Landlord, 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 Landlord, the Landlord has no contingent liability under any Environmental Law. There are no liens under any Environmental Law on the Premises; (10) (i) Except as set forth on Schedule 2.11(c) of the SPA, neither the Landlord, the Premises or any portion thereof, or any property formerly owned, occupied or leased by the Landlord, nor, to the knowledge of the Landlord, any property adjacent to the Premises 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 Premises and no Hazardous Material is present on or under the Premises (provided, however, that certain petroleum products are stored and handled on the Premises in the ordinary course of the Tenant's business but such are 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 Landlord, none of the Premises or portion thereof or any property formerly owned, occupied or leased by the Landlord 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 Landlord, none of the Premises or any property formerly owned, occupied or leased by the Landlord or any site or location -7- where the Landlord 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. (11) Except as set forth on Schedule 2.11(d) of the SPA, to the knowledge of the Landlord, 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 Premises, nor have any liens been placed upon any portion of the Premises or any property formerly owned, occupied or leased by the Landlord in connection with any actual or alleged liability under any Environmental Law. (12) Except as set forth on Schedule 2.11(e) of the SPA, (i) there is no pending or, to the knowledge of Landlord, threatened claim, litigation, or administrative proceeding or known prior claim, litigation or administrative proceeding arising under any Environmental Law involving the Premises, any property formerly owned, leased or occupied by Tenant or Landlord, any offsite contamination affecting the Premises or any operations conducted thereat, (ii) there are no ongoing negotiations with or agreements with any governmental authority relating to any Remedial Action or other -8- environmentally related claim, (iii) Landlord has not submitted a 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) Landlord 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 Landlord's knowledge, has any other entity whose liability therefore, in whole or in part, may be attributed to Landlord, received such notice, claim, demand, suit or request for information. (13) Landlord owns the Premises in fee simple, free and clear of all Liens (as hereinafter defined) claims and encumbrances, except those disclosed in Exhibit "B" attached hereto and incorporated herein by reference, none of which currently or, to Landlord's knowledge, in the future will affect the use of the Premises for the conduct of the respective businesses of the Tenant as presently conducted. For purposes hereof, 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. 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 Premises. No one has been granted any right to purchase or lease the Premises. (14) Landlord is a Tennessee limited partnership in good standing and the only general partners thereof are Charles A. Standefer and Charles B. Standefer. Landlord shall indemnify and agrees to fully defend, save and hold harmless on an after-tax basis Tenant and any of its officers, directors, employees, stockholders, advisors, representatives, agents and Affiliates (as defined in the SPA)(each a "UAG Indemnified Party"), if a UAG Indemnified Party shall at any time or from time to time suffer any Costs (as hereinafter defined) arising, directly or indirectly, -9- out of or resulting from, or shall pay or become obligated to pay any sum on account of any untruth or inaccuracy in any representation or warranty of Landlord provided herein and upon notice from a UAG Indemnified Party, Landlord agrees to defend, contest or otherwise protect such UAG Indemnified Party against third party claims at its sole cost and expense and otherwise pay all Costs. Each UAG Indemnified Party shall have the right, but not the obligation, to participate at its own expense in the defense thereof by counsel of its choice. If Landlord fails timely to defend, contest or otherwise protect against any third party claim, the UAG Indemnified Party shall have the right to do so including, without limitation, the right to make any compromise or settlement thereof and each UAG Indemnified Party shall be entitled to recover the entire Costs thereof from Landlord including, without limitation, attorney's fees, disbursements and amounts paid (or of which the UAG Indemnified Party has become obligated to pay) as the result of any third party claim. Failure by Landlord to notify the UAG Indemnified Party of its election to defend any third party claim within fifteen (15) days after notice thereof shall have been given to Landlord, shall be deemed a waiver by Landlord of its right to defend the third party claim. If Landlord assumes the defense of the particular third party claim, Landlord shall not consent to entry of any judgment or enter into any settlement, except with the written consent of the affected UAG Indemnified Party. In addition, Landlord shall not enter into any settlement of any third party claim which does not include as an unconditional term thereof the giving by the claimant to the UAG Indemnified Party a full release from all liability in respect of such third party claim. Notwithstanding the foregoing, Landlord shall not be entitled to control, and the UAG 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 UAG Indemnified Party which, if successful, could materially interfere with the business, operations, assets, condition (financial or otherwise) or prospects of the UAG Indemnified Party. In -10- addition to and not in limitation of all rights of offset that a UAG Indemnified Party may have under applicable law, Landlord and Tenant agree that, at Tenant's option, any or all amounts owing to Tenant as a result of Landlord's indemnification and hold harmless hereunder, may be recovered by Tenant as an offset against any or all amounts due to Landlord. The rights of a UAG Indemnified Party hereunder are in addition to such other rights and remedies which such UAG Indemnified Party may have under this Lease, applicable law or otherwise. Landlord and Tenant agree that notwithstanding anything herein to the contrary, no UAG Indemnified Party shall be entitled to indemnification for any Costs hereunder unless the aggregate amount of Costs incurred by all UAG Indemnified Parties under the SPA and hereunder exceeds $200,000, in which event each UAG Indemnified Party shall be entitled to indemnification for all Costs thereafter. For purposes hereof, "Costs" shall mean all liabilities, losses, costs and actual damages (not including consequential damages) and reasonable expenses, reasonable attorney's fees, reasonable experts fees, reasonable consultant's fees and reasonable disbursements of any kind or of any nature whatsoever. The amount of any Costs arising from the breach of any representation, warranty, covenant or agreement shall be the entire amount of any Costs suffered, paid or required to be paid by the respective UAG Indemnified Party as a result of such breach. Costs arising or resulting hereunder 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 be reasonably be expected to be realized in future years) by the UAG Indemnified Party. 7. REPAIRS BY LANDLORD. Landlord shall be obligated to repair and maintain the roof, foundation and all structural portions of the Premises. All other repairs, replacements, and maintenance of any kind shall be the sole responsibility of Tenant except to the extent the necessity therefor arose as a result of a breach of the representations or warranties contained in Section 6 above. 8. REPAIRS BY TENANT. Subject to the representations and warranties of Landlord provided in -11- Section 6 above, Tenant accepts the condition of the Premises as of the date hereof and agrees that the Premises are suited for the uses specified herein and Tenant shall, throughout the Term, at its expense, maintain the Premises in good order and repair, including but not limited to repair and maintenance of the electrical, heating, ventilation and air conditioning and plumbing systems. Tenant further agrees to care for all landscaping on the Premises, including the mowing of grass, paving, policing, care of shrubs and general landscaping. If Tenant fails to properly maintain and repair any portion of the Premises, Landlord may, following at least thirty (30) days prior written notice to Tenant, maintain the same and Tenant shall pay to Landlord within thirty (30) days after demand the commercially reasonable costs thereof together with interest on said amount from the date of payment by Landlord at a rate equal to ten percent (10%) per annum ("Interest Rate"). Subject to Landlord's repair obligations hereunder, Tenant agrees to return the Premises to Landlord in as good condition and repair as when first received by Tenant, natural wear and tear, damage by storm, fire, lightening, earthquake or other casualties and condemnation excepted. 9. TAX AND INSURANCE. Tenant shall promptly and on a timely basis pay as additional rent during the Term all charges for taxes (including, but not limited to, ad valorem taxes, special assessments and any other governmental charges) on the Premises, which amounts shall be prorated between Tenant and Landlord for all periods partially but not entirely within the Term. Tenant shall also maintain, at all times during the Term of this Lease, fire and extended insurance coverage on the Premises in amounts equal to the full replacement value of the Premises, and written on policies issued by underwriters reasonably acceptable to Landlord. Landlord agrees that such coverages may be provided by blanket policies of insurance covering other locations in addition to the Premises. All policies shall insure Landlord and Tenant as their respective interests shall appear and shall contain a replacement cost endorsement. Should Tenant fail to pay such tax expenses or fail to provide -12- certificates evidencing the required insurance coverage, Landlord may, following at least twenty (20) days prior written notice to Tenant, pay any such charges or secure such coverage, and Tenant shall pay to Landlord within thirty (30) days after demand as additional rent all amounts so expended by Landlord together with interest on said amount from the date of payment by Landlord at a rate equal to the Interest Rate. 10. DESTRUCTION OF OR DAMAGE TO THE PREMISES. If the Premises should be damaged or destroyed by any insured peril whatsoever, all insurance proceeds shall be delivered to Tenant and Tenant shall proceed with reasonable diligence to rebuild and repair the Premises to substantially the condition in which it existed prior to such damage or destruction. If, however, the damage or destruction (a) shall be to greater than seventy-five percent (75%) of the value of the improvements upon the Premises; or (b) shall occur within the last two (2) years of the Term, then Tenant may terminate this Lease as of the date that such damage or destruction occurs by giving written notice to Landlord of such election to terminate within ninety (90) days after the date of such damage or destruction. If this Lease is terminated by Tenant, insurance proceeds with respect to the building, structure and fixtures shall be paid to Landlord. The rent payable under this Lease shall be abated beginning on the date of damage or destruction within the scope of this Paragraph 10 and shall resume upon recompletion to substantially the condition in which the Premises existed prior to such damage or destruction; provided, however, that the rental abatement shall be proportional to the extent to which the Premises are not useable (with greater weight given to Tenant's inability to use the improved portions of the Premises and its impact on revenues to Tenant) by Tenant and if the parties are unable to agree upon the appropriate rental abatement either party may demand Arbitration and Tenant shall pay Rent on the basis of the average of its estimate of the abated Rent and Landlord's estimate of the abated Rent, with any additional amount due to be paid within thirty (30) days after the arbitrator's -13- determination and any excess to be either, at Tenant's option, credited against the next due installment(s) of Rent or paid by Landlord to Tenant within thirty (30) days of the arbitrator's decision. 11. INDEMNITY; WAIVER OF SUBROGATION. Subject to Landlord's obligations, representations and warranties in this Lease, Tenant agrees to indemnify and hold harmless Landlord against all claims and expenses, including actual attorneys' fees reasonably incurred and court costs, for damage to persons or property by reason of the use or occupancy of the Premises by Tenant. Tenant shall periodically provide Landlord with certificates of general liability insurance naming Landlord as an additional insured, in an amount of not less than $5,000,000 and with an insurance carrier reasonably satisfactory to Landlord. The dollar amount of such insurance coverage shall be reviewed annually, and adjusted if necessary, in order to provide for adequate protection to both Landlord and Tenant; provided, however, in no event shall any aggregate percentage increases in Tenant's liability coverage obligations hereunder ever exceed the cumulative percentage increases in the Consumer Price Index for all wage earners for Chattanooga, Tennessee occurring during the corresponding portion of the Term of this Lease. Landlord and Tenant each hereby release and waive any right of recovery against the other for any loss, claim, liability, or damage occurring on or to the Premises, whether wholly or contributorily caused by the negligence of the other party, to the extent that the same is compensated by actual receipt of proceeds from insurance policies covering such loss, claim, liability, or damage. 12. ALTERATIONS. Tenant shall make no structural alterations, additions or improvements to the Premises without the express prior written consent of Landlord which consent shall not be unreasonably withheld or delayed, except that Tenant may alter any wall that is not of a load-bearing nature without the consent of Landlord so long as Tenant gives notice to Landlord of its intent to do so no less than twenty (20) days prior to such alteration. Alterations, additions and improvements shall be Tenant's property during the Term of this Lease. Tenant may make non-structural changes and -14- modifications to the Premises without Landlord's approval. In the event Landlord has not responded to Tenant's written request for alterations within twenty (20) days of when received, such alteration shall be deemed to have been approved by Landlord. Tenant agrees to save Landlord harmless on account of any claim or lien of mechanics, materialmen or other party, in connection with any alterations, additions or improvements of or to the Premises performed by Tenant. Tenant shall furnish such waivers of liens and appropriate affidavits from the general contractor or subcontractors as Landlord may reasonably request. Notwithstanding the foregoing, Tenant shall also be entitled to make the following changes without necessity of Landlord's consent: (i) any alterations required to be made by it pursuant to governmental orders, rules, laws, regulations, ordinances or requirements, and (ii) any changes in its signage; or, (iii) those changes recommended or required by the automobile manufacturer whose automobiles are sold on the Premises. Tenant shall have the right to finance any alterations or improvements permitted hereunder and may pledge its interest in this Lease as security therefor; provided, however, that any liens granted in connection with such financings shall be subordinate to the rights of Landlord under this Lease. In the event Tenant grants a Deed of Trust or other security interest with respect to its leasehold estate hereunder, Landlord agrees to give the holder of such interest notice of any default by Tenant and allow such holder thirty (30) days to cure such default or exercise rights to acquire Tenant's interest in this Lease or cause another to acquire Tenant's interest in this Lease before Landlord exercises its rights upon default of Tenant under Sections 17 or 18 hereof and Landlord will not treat the transfer of Tenant's rights hereunder as a result of such action as a transfer or assignment requiring Landlord's consent under Section 15 of the Lease. 13. GOVERNMENTAL ORDERS. Tenant agrees, at its own expense, to promptly comply with all requirements of any public authority made necessary by reason of Tenant's occupancy of the Premises from and after the date hereof or which may be necessary for Tenant's occupancy to continue if the -15- requirement to comply arises after the date of this Lease. Landlord shall have no obligation of any kind for such compliance except to the extent it arose prior to the date of this Lease. 14. CONDEMNATION. If all or a substantial part of the Premises is condemned for any public use or purpose, then the Term shall cease from the date when possession thereof is taken, and Rent shall be prorated as of that date; provided, however, that Tenant may elect to continue this Lease as to the remaining portion of the Premises in full force and effect notwithstanding any such taking. Any termination shall be without prejudice to the rights of either Landlord or Tenant to recover compensation and damage caused by such condemnation from the condemnor. Except as provided herein, neither Tenant nor Landlord shall have any rights in any award made solely to the other by any condemnation authority notwithstanding the termination of the Lease as herein provided. If the Lease is not terminated as provided above, then (i) this Lease shall continue in effect with respect to the remaining portion of the Premises, in which event the Rent payable hereunder during the unexpired portion of the Term of this Lease shall be adjusted proportional to the ratio of the value of the remaining portion of the Premises to the total value of the Premises prior to the taking, (ii) all condemnation awards shall be paid to Tenant to hold for payment of repair and restoration to the Premises, and (iii) Tenant shall proceed with reasonable diligence to rebuild and repair the untaken portions of the Premises to as nearly as reasonably possible their value, condition, and character as such existed immediately prior to such taking. Any sums remaining after payment for such reconstruction shall be paid by Tenant to Landlord to the extent they represent payment for a taking of Landlord's fee interest. The phrase "substantial part," for purposes of this section shall mean so much of the Premises, the improvements located thereon, access to the Premises, or any combination of the foregoing, such that the taking thereof would prevent or substantially impair, in Tenant's reasonable judgment, the ability of Tenant to operate its business in a manner consistent with the operation of its -16- business prior to such taking. 15. ASSIGNMENT AND SUBLETTING. Tenant shall not, without the prior written consent of Landlord (which consent shall not be unreasonably withheld or delayed), assign this Lease or any interest hereunder, or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant. All requests for assignment or subletting shall be made in writing and delivered to Landlord. Failure by Landlord to disapprove of any proposed assignment or subletting within twenty (20) days after receipt of Tenant's written request with specific reasons therefor shall result in such request being deemed approved. Consent to any assignment or sublease shall not invalidate this provision, and all later assignments or subleases shall be made only on the prior written consent of Landlord as aforesaid. Any assignee of Tenant, at the option of Landlord, shall become directly liable to Landlord for all obligations of Tenant hereunder, but no sublease or assignment by Tenant shall relieve Tenant of any liability hereunder. Notwithstanding the foregoing, Tenant shall be entitled to freely assign or sublet its interest in this Lease to any parent, subsidiary or other entity under common control with Tenant or Tenant's parent, without the prior written consent of Landlord. Moreover, the sale or transfer of all or any part of the capital stock of Tenant shall not be deemed to be an assignment hereunder. 16. REMOVAL OF FIXTURES. Tenant may (so long as no Event of Default has occurred and is continuing hereunder), prior to the end of the Term, remove all trade fixtures and equipment which Tenant has purchased as leasehold improvements or placed in the Premises subsequent to the date hereof, provided that Tenant repairs all damage to the Premises caused by the removal. However, any buildings, fixtures, or other attached property installed by Tenant as replacements of existing items, or anything that cannot be removed without substantially changing the character of the Premises, shall become the property of Landlord at the end of the Term of this Lease. -17- 17. CANCELLATION OF LEASE BY LANDLORD. It shall be an "Event of Default" hereunder if, (a) Tenant fails to pay Rent, including additional rent herein reserved, when due, and fails to cure the failure to pay within ten (10) days after receipt of written notice thereof from Landlord; (b) Tenant fails to perform any of the terms or provisions of this Lease other than the provision requiring the payment of Rent, and fails to cure the default within thirty (30) days after the date of receipt of written notice of default from Landlord; provided, however, that if the nature of the default is such that the same cannot reasonably be cured within said thirty (30) day period, Tenant shall not be deemed to be in default if Tenant shall, within such period, commence such cure and thereafter diligently prosecute the same to completion; (c) Tenant is adjudicated bankrupt; (d) a permanent receiver is appointed for Tenant's property and the receiver is not removed within sixty (60) days after written notice from Landlord to Tenant to obtain the removal; (e) Tenant files a petition seeking an order for relief under Title 11 of the United States Code, as amended, or under any similar law or statute of the United States or any state thereof, or a petition seeking an order for relief under Title 11 of the United States Code, or any similar law or statute of the United States or any state thereof, is filed against Tenant and such petition is not dismissed with prejudice within sixty (60) days from the date of filing; (f) Tenant makes an assignment for the benefit of creditors; or (g) Tenant's effects should be levied upon or attached under process against Tenant and not satisfied or dissolved within thirty (30) days after written notice from Landlord to Tenant to obtain satisfaction thereof. Upon the occurrence of an Event of Default, Landlord may pursue any right or remedy against Tenant available at law or in equity. Without limitation to the foregoing, Landlord, at its option, may -18- at once or within six (6) months thereafter (so long as such Event of Default is continuing), elect to terminate this Lease by written notice to Tenant; whereupon this Lease shall terminate. Any notice provided in this section may be given by Landlord, or its attorney, or agent herein named. Upon termination of the Lease by Landlord, Tenant shall at once surrender possession of the Premises to Landlord and remove all of Tenant's effects therefrom, or Landlord shall be entitled to remove all persons and effects therefrom, using such force as may be necessary without being guilty of trespass, forcible entry or detainer or other tort. 18. RELETTING BY LANDLORD. If, after an Event of Default, Landlord has not elected to terminate this Lease, Landlord shall, as Tenant's agent, without terminating this Lease, enter upon and exercise good faith efforts to rent the Premises at the best price obtainable by reasonable effort, for any term Landlord deems proper. Tenant shall be liable to Landlord for the present value of any deficiency between rent due hereunder and the Rent received by Landlord upon reletting. For purposes of computing the "present value of any deficiency" in accordance with the provisions of this paragraph, the parties agree to utilize a discount rate equal to the then prevailing prime rate of interest charged by leading money center banks as published in "THE WALL STREET JOURNAL". 19. WARRANTIES OF TITLE AND QUIET POSSESSION. Landlord warrants and represents that it has good and marketable title to the Premises and has full right to make this Lease and that Tenant shall have quiet and peaceable possession of the Premises during the Term so long as no Event of Default is in existence and continuing hereunder. 20. ESTATE CREATED; FUTURE GRANTS. Landlord and Tenant intend for and agree that this Lease shall create a leasehold estate in the Premises for the Term. Landlord agrees that, during the Term of this Lease, it will not execute or join in any conveyances of easements or restrictive covenants or other agreements restricting or affecting the Premises or Tenant's use thereof without the prior written -19- consent of Tenant, which may be withheld in Tenant's sole discretion. 21. SUBORDINATION ATTORNMENT. Landlord represents that there is no Deed of Trust or Mortgage with respect to the Premises currently in force. Should Landlord ever give a Deed of Trust or Mortgage with respect to the Premises, Landlord shall provide Tenant a Subordination, Non-Disturbance and Attornment Agreement from such lender in the form attached hereto and incorporated herein by reference as EXHIBIT "C" ("SNDA"). This Lease is subject and subordinate to any deed of trust, mortgage, or other security instrument, which may in the future cover the Premises, and to any increases, renewals, modifications, consolidations, replacements, and extensions of any of such deed of trust, mortgage, or security instrument; provided, however, that Tenant's subordination to any encumbrance arising after the date of this Lease shall be conditioned upon Landlord's delivery to Tenant of a non-disturbance agreement in form reasonably satisfactory to Tenant containing the substantive provisions of the SNDA. Notwithstanding the generality of the foregoing, any mortgagee shall have the right at any time to subordinate any deed of trust, mortgage, or other security instrument to this Lease. 22. ATTORNEY'S FEES AND HOMESTEAD. In the event either party should seek to enforce its rights under this Lease through judicial process, the prevailing party in any such action shall be entitled to collect from the other party, in addition to all other sums owing hereunder, its reasonable attorney's fees. Tenant waives all homestead rights and exemptions which it may have under any law as against any obligation owing under this Lease. 23. RIGHTS CUMULATIVE. All rights hereunder shall be cumulative but not restrictive to those given by law. 24. SERVICE OF NOTICE. Any notice required or permitted to be delivered hereunder may be delivered in person or by United States certified mail, postage prepaid, return receipt requested, or by -20- recognized overnight courier (e.g. Federal Express or DHL), next business day delivery, charges prepaid, addressed to the parties at Landlord: Standefer Investment Company 3175 Kings Road Chattanooga, Tennessee 37416 with a Ralph E. Tallant, Jr., Esq. copy to: Gearhiser, Peters, Lockaby & Tallant 320 McCallie Avenue Chattanooga, TN 37402 Tenant: Standefer Motor Sales, Inc. c/o United Auto Group, Inc. 375 Park Avenue Suite 2201 New York, New York 10152 Attn: George G. Lowrance, Esq. with a copy to: Stephen R. Leeds, Esq. Rogers & Hardin 2700 International Tower 229 Peachtree Street, N.E. Atlanta, Georgia 30303 or at such other addresses as may be specified by written notice delivered in accordance herewith. Such notices shall be deemed effective three (3) business days after deposit in the U.S. mail, or on the next business day if delivered by overnight courier, or immediately upon delivery in person. 25. WAIVER OF RIGHTS. Neither party's failure to exercise any power given to them hereunder, or to insist upon strict compliance by the other party with its obligations hereunder, nor any custom or practice of the parties at variance with the terms hereof, shall constitute a waiver of such party's right to demand exact compliance with the terms hereof. 26. TIME OF ESSENCE. Time is of the essence under this Lease. 27. SUCCESSORS AND ASSIGNS. This Lease shall apply to, inure to the benefit of, and be binding -21- upon the parties hereof and their respective successors, permitted assigns, and legal representatives except as otherwise expressly provided herein. 28. ENTIRE AGREEMENT; CONFLICT. This Lease, including any attachments made a part hereof or thereof, contains the entire agreement between the parties with respect to the lease of the Premises and no representations, inducements, promises or agreements, oral or otherwise, between the parties, not embodied herein shall be of any force or effect. The parties agree to execute and record a memorandum of this Lease in the real property records of Hamilton County, Tennessee. Notwithstanding the foregoing, however, nothing in this Lease shall affect any rights of United Auto Group, Inc. or UAG Tennessee, Inc. under the SPA. 29. SEVERABILITY. If any term, provision or clause of this Lease, or if the application thereof to any person or circumstances, shall to any extent be invalid or unenforceable, then the remainder of this Lease or the application of such term, provision or clause to persons or circumstances other than those to which it is invalid or unenforceable shall not be affected thereby, and each and every remaining term, provision, clause and application of this Lease shall be valid and enforceable to the fullest extent permitted by law. 30. EXECUTION IN COUNTERPARTS. This Lease may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 31. AMENDMENT. This Lease may not be altered, waived, amended or extended except by an instrument in writing signed by Landlord and Tenant. 32. HEADINGS. The headings used in this Lease are for the purposes of convenience only. They shall not be construed to limit or to extend the meaning of any part of this Lease. 33. GOVERNING LAW. This Lease shall be construed in accordance with the laws of the State -22- of Tennessee, and all obligations of the parties created hereunder are performable in Hamilton County, Tennessee. 34. FORCE MAJEURE. Wherever a period of time is herein prescribed for action to be taken by either Landlord or Tenant, such party shall not be liable or responsible for, and there shall be excluded from the computation of any such period of time, any delays due to strikes, riots, acts of God, shortages of labor or materials, wars, governmental laws, regulations or restrictions or other causes which are beyond the control of Landlord or Tenant, as the case may be. 35. EXTENSION OPTIONS. (a) Tenant shall have the option to extend the term of this Lease for an additional five (5) years commencing on November 1, 2016 and ending at midnight October 31, 2021. To exercise such option, Tenant shall give Landlord notice of its exercise of such option on or before April 30, 2016. If Tenant exercises such option the monthly Rent shall be adjusted to one and five one-hundredths (1.05%) percent of the then Appraised Value during such extended term as determined in accordance with the provisions of Section 3(e) above; provided however, Landlord shall provide the list of five (5) appraisers within thirty (30) days after Tenant's notice of its exercise of the option provided herein. (b) Tenant shall also have the option to extend the term of this Lease for an additional five (5) years commencing on November 1, 2021 and ending at midnight October 31, 2026. To exercise such option Tenant shall give Landlord notice of its exercise of such option on or before April 30, 2021. If Tenant exercises such option the monthly Rent shall be adjusted to one and five one- hundredths (1.05%) percent of the then Appraised Value during such extended term as determined in accordance with the provisions of Section 3(e) above; provided however, Landlord shall provide the list of five (5) appraisers within thirty (30) days after Tenant's notice of its exercise of the option provided herein. IN WITNESS WHEREOF, the parties herein have hereunto caused their duly authorized -23- representatives to set their hands and seals the day and year first above written. LANDLORD: STANDEFER INVESTMENT COMPANY, a Tennessee limited partnership By: /S/ Charles A. Standefer --------------------------- Name: Charles A. Standefer Title: General Partner By: /S/ Charles B. Standefer --------------------------- Name: Charles B. Standefer Title: General Partner TENANT: STANDEFER MOTOR SALES, INC. a Tennessee Corporation By: /S/ --------------------------- Name: ------------------------ Title: ------------------------ [Corporate Seal] -24- STATE OF _________________) COUNTY OF ________________) Personally appeared before me, ___________________, Notary Public, _______________________________, with whom I am personally acquainted, and who acknowledged that he/she executed the within instrument for the purposes therein contained, and who further acknowledged that he/she is the _______________________ of Standefer Motor Sales, Inc. and is authorized by Standefer Motor Sales, Inc. to execute this instrument on behalf of Standefer Motor Sales, Inc. WITNESS my hand, at office, this _____ day of October, 1996. _________________________________ Notary Public My Commission Expires: -25- STATE OF _________________) COUNTY OF ________________) Personally appeared before me, ___________________, Notary Public, _______________________________, with whom I am personally acquainted, and who acknowledged that he executed the within instrument for the purposes therein contained, and who further acknowledged that he is one of the General Partners of Standefer Investment Company and is authorized by Standefer Investment Company to execute this instrument on behalf of Standefer Investment Company. WITNESS my hand, at office, this _____ day of _______________, 1996. _________________________________ Notary Public My Commission Expires: -26- STATE OF _________________) COUNTY OF ________________) Personally appeared before me, ___________________, Notary Public, _______________________________, with whom I am personally acquainted, and who acknowledged that he executed the within instrument for the purposes therein contained, and who further acknowledged that he is one of the General Partners of Standefer Investment Company and is authorized by Standefer Investment Company to execute this instrument on behalf of Standefer Investment Company. WITNESS my hand, at office, this _____ day of _______________, 1996. _________________________________ Notary Public My Commission Expires: -27- EX-10.10-4 50 EXH 10.10.4 LEASE GUARANTY DATED 10/96 LEASE GUARANTY The undersigned, in order to induce Standefer Investment Company, a Tennessee Limited Partnership ("SIC") to enter into that certain Lease Agreement (herein so called) dated as of October ___, 1996, between SIC and Standefer Motor Sales, Inc., a Tennessee corporation d/b/a Standefer Nissan (the "Company"), a Tennessee corporation and a subsidiary of UAG Tennessee, Inc., a Delaware corporation that is wholly owned by the undersigned, hereby unconditionally and irrevocably guarantees the payment of any amounts required to be paid by the Company and the performance of all other obligations of the Company under the Lease Agreement. The undersigned hereby waives presentment, protest, notice of dishonor, extension of time of payment and notice of acceptance of this Guaranty and hereby consents to any and all forbearances and extensions of time of payment of the obligations guaranteed hereby and to any and all of the changes in the terms, covenants and conditions thereof hereafter made or guaranteed. No delay or omission by SIC in exercising any of its rights, remedies, powers and privileges hereunder and no course of dealing between SIC, on the one hand, and the Company, the undersigned or any other person, on the other hand, shall be deemed a waiver by SIC of any of its rights, remedies, powers and privileges, even if such delay or omission is continuous and repeated; nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise thereof by SIC or the exercise of any other right, remedy, power or privilege by SIC. No notice or demand on the Company, the undersigned or any other person in any instance shall entitle the Company, the undersigned or any other person to any other or further notice or demand in similar or other circumstances or constitute a waiver of SIC's right to any other or further action in any circumstances without notice or demand. This Guaranty shall remain in full force and effect, and the undersigned shall continue to be liable for the payment of the obligations under the Lease Agreement in accordance with the terms of the Lease Agreement and this Guaranty, notwithstanding the commencement of any bankruptcy, reorganization or other debtor relief proceedings by or against the Company, and notwithstanding any modification, discharge or extension of the obligations under the Lease Agreement, any modification or amendment of the Lease Agreement, or any stay of the exercise by SIC of any of its rights and remedies against the Company with respect to any of the obligations under the Lease Agreement. Whenever possible, each provision of the Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of the Guaranty shall be prohibited by or be invalid under such law, such provisions shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. This Guaranty shall inure to the benefit of SIC and its 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. This instrument shall be governed by the laws of the State of Tennessee. WITNESS the undersigned's signature as of the _____ day of October, 1996. UNITED AUTO GROUP, INC. a Delaware Corporation By:/S/ George G. Lowrance ------------------------------------- Its: Vice President ------------------------------------- 2 EX-11.1 51 EXH 11.1 STATEMENT RE COMPUTATION 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........... 577,000 577,000 577,000 577,000 577,000 ----------- ------------ ------------ ------------ ----------- Shares used in computing net income (loss) per common share.......................... 1,894,000 3,873,000 5,482,000 4,682,000 8,500,000 ----------- ------------ ------------ ------------ ----------- Net income (loss) per common share......... $0.05 ($0.44) ($0.63) ($1.05) $0.46 ----------- ------------ ------------ ------------ ----------- ----------- ------------ ------------ ------------ -----------
EX-21.1 52 EXH 21.1 SUBSIDIARIES United Auto Group, Inc. (formerly named EMCO Motor Holdings, Inc.) List of Subsidiaries State of Incorporation DiFeo Group 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 UAG Northeast (NY), Inc. New York 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.) Auto Finance - ------------ 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 53 EXH 23.1.1 CONSENT 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 21, 1996 EX-23.1-2 54 EXH 23.1.2 CONSENT 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 21, 1996 EX-23.1-3 55 EXH 23.1.3 CONSENT 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 21, 1996 EX-23.1-4 56 EXH 23.1.4 CONSENT 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 21, 1996 EX-23.1-5 57 EXH 23.1.5 CONSENT 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 21, 1996 EX-23.1-6 58 EXH 23.1.6 CONSENT 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 21, 1996 EX-23.1-7 59 EXH 23.1.7 CONSENT 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 21, 1996 EX-23.1-8 60 EXH 23.1.8 CONSENT 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 21, 1996 -----END PRIVACY-ENHANCED MESSAGE-----